Tax Collection Methods

There are three important types of tax collection methods: cadastral, at the source (before the receipt of the income) and through self-assessment (at the declaration of the income).

Tax Collection Methods

The cadastre method implies the use of the cadastre. The cadastre is a register of all the typical objects (land, real estate) classified according to physical features and where the average profitability of the object is determined. Physical features include: for the land tax—the size of the land area, the distance from transportation ways and markets; for the house tax—the number of windows, pipes, doors, the type of the building; for industry tax—the number of employees and machines. The average profitability of the object, which is based on physical features, may differ significantly from actual profitability; this constitutes the main disadvantage of this method.

Taxation at the source is calculated and deducted at the accounting unit of the company, which pays the income of the taxation subject. In this way is deducted the tax from wages and salaries. The tax is subtracted by an intermediary—the collector (tax agent) before the receipt of the tax by the subject, which excludes the possibility of tax evasion. Collection at the source is done for taxing income of employed personnel and for other relatively fixed incomes. The same method is used in other countries for the income of joint ventures. Tax collection at the source implies collection before the receipt of the income by its owner.

Tax collection upon self-assessment represents the deduction of a part of the income after its receipt and implies that the taxpayer submits to the taxation authorities a self-assessment, i.e. an official statement about the income received. Taxation authorities, taking into consideration the size of the taxation object and the taxation rates, verify the accuracy of tax calculations. This method is usually applied for the taxation of non-fixed revenues and for the cases when the taxpayer has multiple income sources. Self-assessment collection is convenient for the taxpayers because it creates conditions for tax evasion due to the weakness of the taxation apparatus and due to commercial confidentiality.

This method entails a number of variations: 1) in advance payments during the taxation period, when the state receives an approximate amount estimated on the basis of the income earned during the previous period or on basis of the tax paid; 2) payment by the taxpayer at the due date on basis of self-assessment at the time or after the presentation of the income self-assessment: the tax payer independently subtracts the tax amount and transfers it to the state; 3) additional payments determined by the tax authority required after the examination or verification of the submitted self-assessment.