Non compliance of tax laws can be said to be a failure, intentional or unintentional, of taxpayers to meet their tax obligations. This lack of compliance can be as a result of different factors as indicated below: A Rising or High Tax Burden: Individuals and organizations will tend to be non compliant to tax laws when the taxes are deemed to be high as compared with the cost of living. In such a case taxpayers will tend to avoid payment of taxes so as to have a sizeable amount of money to be used in the purchase of different commodities. Lack of Knowledge on Tax Laws: This point focuses on the unintentional failure of a taxpayer to comply to tax laws. An example would be a small or medium enterprise that does not know that it is required by law for their businesses to be registered and as such pay Continue reading
Taxation Concepts
Flat Tax System
An alternative to the global tax system or comprehensive taxation system is the so called flat tax system. Herewith a flat proportional taxation for all net income types, capital, labor and other income is installed. This taxation system does not consider the taxpayers ability to pay taxes but sets a flat level for all income types. Some east European countries (Russia and Slovakia) have installed this taxation system. Russia replaced its progressive taxation system with a single flat tax rate of 13%. Under a pure flat tax without deductions, companies could simply, every period, make a single payment to the government covering the flat tax liabilities of their employees and the taxes owed on their business income. For example, suppose that in a given year, XYZ Company earns a profit of 3 million, pays 2 million in salaries, and spends an added 1 million on other expenses the IRS deems Continue reading
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. Governments utilize taxes for the funding of welfare and public services. These services include education systems, pensions for the elderly, health care systems, unemployment rehabilitation and benefits, and public transportation. Energy, water and waste management Continue reading
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. Goods And Services Tax will be borne by the end-user or consumer and is not intended to add burden to businesses. Benefits of Goods and Services Tax (GST) Following are are the benefits of Goods and Services Tax. 1. Revenue Source GST system is a comprehensive Continue reading
Adam Smith’s Canons of Taxation
Canons of taxation are sets of criteria by which to judge taxes. These canons are still widely accepted as providing a good basis by which to judge taxes. Adam Smith laid down four canons of taxation. They are: Canon of Ability: According to this principle of taxation, the people in a country should contribute towards the government expenditure. Their contribution should be according to the ability to pay of each individual. A rich man should contribute more and the poor either should contribute less or can be exempted. This principle of taxation will ensure that the cost of public expenditure is shared by the people in accordance with their individual ability. Canon of Certainty: Adam Smith insisted that the government should know in advance the amount of revenue that it could raise and the time when it could mobilize the revenue. On the part of individual tax payers, they must Continue reading
Comprehensive Income Taxation
The comprehensive income tax system also known by other synonyms as global income tax, unitary income tax or synthetic income tax is the most used taxation system in western European countries. It has got its name due to the fact that all income types are seen as a one and therefore are added together and taxed as one whole income. It was seen as the ideal tax system in Europe because in its original form it could align fully with the “ability to pay principle” and to both tasks of simplicity and fairness. This method is composed as a system which adds together all the taxpayer’s income (from labor, capital, rent and business) in a single measure and taxes it with a single progressive tax. Labor income is usually defined as income earned from activities as an employed individual. Capital income can take a variety of forms such as dividends, Continue reading