Taxation Concepts

Basic Principles of International Taxation

Rapid economic development happens to be one of the primary objectives of all developing economies and India is not an exception. This is possible mainly through the accumulation and proper use of capital. The developing economies lack adequate basic infrastructural facilities. In order to develop these, the government takes upon itself the responsibility for building up capital formation, through sound taxation policies.

There are two basic principles followed by different countries in International taxation

1)  Residence Based Taxation

The principle of residence-based taxation asserts that natural persons or individuals are taxable in the country or tax jurisdiction in which they establish their residence or domicile, regardless of the source of income.… Read the rest

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Features of Goods and Services Tax (GST)

Goods and Services Tax (GST) is consumption tax that charged the buyers to pay for a wide range of domestic & international products, goods and services. In some countries it is also called Value Added Tax. It is a multi-stage tax on domestic consumption levied on taxable supplies of goods and services. GST imposed on every level of a product from raw materials all the way to finished goods. 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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Concept of Double Taxation

Double taxation is a situation that affects mainly multinational corporations when business profits are taxed at both the corporate and personal levels. The corporation has to pay income tax at the corporate rate before any profits are to be paid to shareholders. Profits are distributed to shareholders through dividends are subject to income tax again at the individual rate according to tax regime of the country. This way corporate profit are counted as twice income taxes. The outcome of double taxation does not affect smaller corporations, which can distribute the earnings straight to shareholders without the intermediate step of paying dividends.… Read the rest

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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).

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.… Read the rest

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Modern Principles of Taxation

The analysis of classical theories allows the formulation of principles that represent the qualities and tendencies of the modern taxation system.

The modern principles of taxation are:

  1. The rational combination of direct and indirect taxes, which implies the utilization of various types of taxes, taking into consideration both the wealth and the income of the taxpayer. In periods of economic crisis it is better to have many sources of budget revenue with a relatively low rate and a large taxation basis then to have 1-2 types of income with high deduction rates.
  2. The universalization of taxation which implies equivalent efficiency requirements to all payers and an equivalent approach to the deduction of the tax amount irrespective of the income source, type of activity, or economic sector.
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Classical Principles of Taxation

A number of principles that characterize taxation in general and the taxation system more specifically were set forth by Adam Smith. These are:

  1. The principle of justice, which promotes the universality of taxation and the evenness of tax distribution among citizens in correspondence with their revenues (“the subjects of the state must participate in the maintenance of the government in correspondence with the income that they make use of under the protection and with the help of the state”). This principle means that taxes must be deducted in conformity with the capacity of the payer, who is obligated to take part in financing a corresponding share of the state’s expenditures.
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