Taxation Concepts

Role of Taxes in a Modern Economy

A tax is a financial charge or levy imposed by a state or its functional equivalent upon a taxpayer and the failure to pay such a levy is punishable by law Taxes are imposed by a number of administrative divisions. Taxes are direct or indirect in nature and are required to be reimbursed in money or its labor equivalent.

Finances obtained through the imposition of taxation have been used by countries and their functional equivalents conventionally to carry out a number of functions. Some of these include protection of property, expenditures on war, economic infrastructure, the enforcement of law and public order, public works, subsidies, social engineering, and the very operation of the government itself.… Read the rest

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Benefits of Goods and Services Tax (GST)

GST (Goods and Services Tax) is consumption tax that charged the buyers to pay for a wide range of domestic and international products as well as goods and services. GST is a multi-stage tax on domestic consumption levied on taxable supplies of goods and services. GST is imposed on every level of a product from raw materials all the way to finished goods. However, consumers still need to pay income tax as GST and income tax is totally different. It is a consumption tax charged on imports items and also value added to goods and services provided by a business to the end user.… Read the rest

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Objectives of International Taxation

The main objectives of International Taxation are the Neutrality and Equity.

Tax Neutrality

A neutral tax is one that would not influence any aspect of the investment decision  such as the location of the investment or the nationality or the investor. The basis justification  for tax neutrality is economy efficiency. World welfare will be increase if capital is free to  move from countries were the rate of return is low to those where it is high. Therefore, if the  tax system distorts the after-tax profitability between two investments or between two investor  leading to a different set of investments being undertaken, then gross world product will be  reduced.… Read the rest

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Double Taxation Relief

One of the major risk in the International Business is the payment of taxes in both the  countries i.e. the country in which the business is actually effected and in the  country where the MNC is having its head office. This type of double taxation  will definitely impede the growth and development of the MNCs in multiple  ways. So the provisions are made to avoid the double taxation (Double Taxation Relief) between the two  countries through two types of relief namely Bilateral Relief and Unilateral  Relief.

Bilateral Relief

Under this scheme, relief against the burden of double taxation is worked out on  the basis of mutual agreement between two countries.… Read the rest

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Direct and Indirect Taxes

Taxes are classified as direct tax and indirect tax. But the meaning of these two types of taxes is not clear. For a long time economists interpreted these two types in different ways. For instance, one group of economists considered taxes on production as direct taxes and those on consumption as indirect taxes.  J.S. Mill distinguished these two types of taxes in terms of the ability to shift the tax. Any person on whom the tax is imposed, if he himself pays the tax, it is called direct tax and if he is able to shift the tax to somebody who ultimately pays it then it is called indirect tax.… Read the rest

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Principles of a Sound Tax System

According to Mrs. Hicks, a sound tax system should have the following characteristics:

  1. It should facilitate financing of public services.
  2. Tax, should be levied according to the ability of the people, the index of ability being income and family circumstances and
  3. Similarly placed persons should pay similar taxes to avoid any discrimination.

From the discussion above, we may lay down the following four broad characteristics as the principles of a sound tax system.

  1. Equality in Tax Burdens:  This principle suggests that when the taxes are levied they ensure equality in tax burdens. In other words, through taxes the government can ensure that the tax burden is spread in such a way that persons who are placed in similar positions are made to bear the same burden of taxes.
… Read the rest
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