Tax System of One Country Research Paper

Pages: 15 (4394 words)  ·  Style: Harvard  ·  Bibliography Sources: 5  ·  File: .docx  ·  Level: Master's  ·  Topic: Economics

SAMPLE EXCERPT:

[. . .] Specialists in the field and other categories of individuals consider that products like tobacco, alcohol, fast foods should be applied higher taxes in order to reduce their consumption. In addition to this, they consider that the money collected from these taxes should go to the health care system, because these products affect people's health and the health care system in numerous countries requires increased levels of resources.

There is also another purpose of taxation that is representation. This refers to the state establishing taxes on the population, and the population having the right of demanding accountability from the state

. In other words, the government must report its activities connected with tax collection and its expenditures. The citizens that pay these taxes have the right of requesting such information from the state. It has been observed that direct taxes determine the highest level of accountability. This is mostly the case of income taxes. This leads to improved public management. The influence that indirect taxes have on improving public management is not as significant as that determined by direct taxes.

Another objective of taxation is represented by control. By developing a system intended to identify the different categories of taxpayers, the assets that can be taxed, and monitoring the tax collection process, the state is able to control he economic activity. This also allows the government to control production.

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Research Paper on Tax System of One Country Assignment

Countries have different issues to consider when developing their tax systems. However, the design of these taxation systems must rely on certain principles to be applied during the development and implementation of the system. The common issue regarding the design of these systems refers to anticipating the behavioral responses of taxpayers to these systems. There are several models used in order to determine these behavioral responses. Specialists in economics use a series of computing and assumptions on the elasticity of supply and demand curves. Based on their findings, regulators determine what type of taxes and at what level can be applied in the case of each taxpayer category.

Specialists in other fields prefer to anticipate behavioral response by taking into consideration the direct motivations of taxpayers. In other words, they are trying to determine what taxpayers want and need from the taxation system and how it can be designed in order to satisfy both the interests of the state and of taxpayers. Their efforts are intended to identify these needs in order to be able to structure a taxation system that help reduce avoidance behaviors from taxpayers, which causes economic distortion and reduced incomes of the state

. Therefore, these specialists have identified the following principles for designing efficient taxation systems:

a) Principle of relative indifference

b) Principle of taxing the maximand

c) Principle of taxing the reported maximand

d) Principle of classification by maximand

Factors of Influence on Tax Structure

Countries' tax structure depends on s series of factors. The most important factors that influence the design of the tax structure and development and implementation of the tax policy are represented by: the economic situation of the country, the financial needs of the state, the political environment, the culture of the country, the demographic environment, the technology level within the country, and others. These factors are at different levels in each country, which makes it difficult to develop a converged taxation system.

The table bellow reveals the evolution of the tax structure in the OECD area:

Tax Structure in the OECD Area

1965

1975

1985

1995

2005

2009

Personal income tax

26

30

30

26

24

25

Corporate income tax

9

8

8

8

10

8

Social security contributions 2

18

22

22

25

25

27

(employee)

( 6)

( 7)

( 7)

( 9)

( 9)

( 9)

(employer)

( 10)

( 14)

( 13)

( 14)

( 14)

( 15)

Payroll taxes

1

1

1

1

1

1

Property taxes

8

6

5

5

6

5

General consumption taxes

12

13

16

19

20

20

Specific consumption taxes

24

18

16

13

11

11

Other taxes 3

2

2

2

3

3

3

Total

1. Percentage share of major tax categories in total tax revenue.

2. Including social security contributions paid by the self-employed and benefit recipients (heading 2300) that are not shown in the breakdown over employees and employers.

3. Including certain taxes on goods and services (heading 5200) and stamp taxes.

Source: www. oecd.com

Cultural Factors and the Tax Structure

The cultural factor s one of the most important issues that affect the design of different countries' taxation system. This is also one f the most important reasons that prevent countries from converging to a common tax policy. The difference between countries on taxation level can be observed by analyzing the different cultures of Asian and Western countries. In Asian civilizations, like China or Japan, the fiscal strategy is of social orientation. In other words, these states orient towards social protection rather than economic development. This is also the case of countries with excessive bureaucracy and with an increased number of state institutions. In such countries with increased state control on the economy, the taxation structure tends to be oriented towards collecting money that is mostly used for social security aspects.

The situation is quite different in Western countries. Germany, France, and the U.S. And other Western civilizations focus on economic development through the support provided to private companies. In these cases, these countries tend to favor small and medium enterprises by reducing the tax burden associated with their activity and income. Therefore, in order for the state to properly function, these governments must collect their money from taxes applied mostly to large multinationals. This is an important trend in international fiscal policies.

Countries in the same region can be characterized by different taxation systems. If certain countries are neighbors, this does not mean that they have similar views on taxation. This is the case of the Czech Republic, Slovakia, Estonia, and Latvia.

Czech Republic taxation system

Direct taxes:

Income taxes on individuals

Income taxes on legal entities

Capital levies - property tax like land and buildings

Capital levies -- road tax

Other taxes:

Legacy duty

Gift tax

Estate tax

Indirect taxes:

Consumer taxes on petroleum, alcohol, tobacco, duty

Other taxes are represented by:

Municipal taxes

Social insurance

In the case of the Czech Republic the Value Added Tax was harmonized to the requirements of the E.U. directives.

Therefore, the VAT in the Czech Republic reaches 20% basic rate, and 10% reduced rate.

Slovakia taxation system

The tax structure in Slovakia includes the following types of taxes:

Personal income tax

Corporate income tax

Value added tax

Excise tax

Property tax

Vehicles tax

Local taxes

Administrative fees

The VAT is of the same value of that in the Czech Republic.

Estonia taxation system

State taxes are represented by:

income tax social tax land tax gambling tax value added tax customs duty excise duties on petroleum, alcohol, tobacco heavy goods vehicle tax social security contributions

Local taxes are represented by:

sales tax boat tax advertisement tax animal tax entertainment tax parking charges

As it can be observed, these countries have certain similarities in their views on taxation, but their culture and conditions within the country determine them to differently approach the situation. These differences mostly refer to the local and state taxes. However, there are also certain similarities between their taxation systems. The similarities are represented by their approach on the value added tax.

Indian taxation system

India has a very complex taxation system that has been continuously modified during a period of 15 years in order to improve compliance, enforcement, and to facilitate the payment of taxes. The tax system in this country is based on taxes established and collected by the central government, by state governments, and by different local institutions. The central government establishes taxes like banking cash transaction, capital gains tax, corporate income, fringe benefit, personal income, securities transactions, customs duty, excise duty, and service tax. The taxes established by state governments are represented by dividend, endowment, estate, gift, flat rate, fuel, transfer, payroll, poll, social security, value added tax, and others. However, there are also certain tax incentives, like allowance for accelerated depreciation, corporate profit, and certain expense deductions.

Chinese taxation system

The Chinese government admits that taxes play an important role in the country's macro economic regulation and that they significantly influence the economic and social development of the country. In order to improve the impact of taxation, the Chinese government has developed a tax reform process intended to design a tax system oriented towards the socialist market economy. This system is based on the following categories of taxes: turnover taxes (VAT, excise, business tax, and customs duty), income taxes (enterprise income tax, individual income tax), resource taxes (urban and township land use tax), property taxes (house property, urban real estate tax), taxes for special purposes (city maintenance and construction, fixed assets investment orientation tax), behavioral taxes, and agricultural… [END OF PREVIEW] . . . READ MORE

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