Basic Characteristics of Tax System - Article Example

Basic Characteristics of Tax System of the Student: Name of the Professor: Date of Submission: Tax on income, and wealth and earning are part of a country’s constitution, as the tax helps in determining the economic status of a country. In fact tax policies have been applied in many countries as a principle instrument to set right the economic imbalances, argues [Ahmed and Stern , 1991]. Tax system focuses on the revenues, which a country holds and receives. It was till 1980 the tax system in many major countries witnessed certain risks in areas such as deciding the inflation rates, exchange rates, shares etc. The tax system consists of the following features such as different types of taxes, collection of revenues in terms of variation in percentage of money etc. Any country for instance consists of a personal tax, corporate tax, tax on business income; tax on property etc. However, the nature of any tax system could be identified as good or better in terms of the profit shared by the individual and the profit exploited by the Government as tax. A tax is imposed on an individual or an industrial organisation based on the limitation of values crossing more than the exemption rate decided by the system. The tax system differs from place to place, but the common thing in all the tax systems is that the month of March has been officially considered as the time permitted to pay all the taxes of the previous year. In Netherlands, a Progressive income tax system in followed, which shows increase in amount of tax, rates according to increase in profit amount. A flat rate of 25% has been considered for business profits in almost all the countries. Where as in United States taxes are imposed on “capital gains, dividends, interest and rents” [Wikiepedia-2007] . Unlike other countries, United States allows the State Government to collect additional income tax from individual cities. The UK Government imposes corporate tax on profits and gains of companies unlike other countries that imposes corporate taxes charged on business and corporation as well. The main inclination in the tax system took place between the mid-1980s. There were nearly ten countries accepted to compel a reduce in tax rates and increased the scope of individual as well as corporate taxes. It was after the US Tax Reform Act of 1986 that several changes were witnessed in the tax system observes Messere, [1999]. France proved to have remained an exception from this reform, which then depended only on the rules, imposed by the French Parliament. In Japan, the rate of tax was comparatively low for corporate and individual income tax. Italy and Spain did not encourage any reductions to corporate tax rates. There are some countries, which did not encourage personal income tax. Some of them are Bahrain, Kuwait, Oman, Saudi Arabia etc. With the advent of the VAT system or Value Added Tax system, this system has been identified as a recent improved trend of the 1990s. The tax policies of 1990 are different from that of 1980s. Reforms in tax system had been made in this time and a major shift in the administrative matters for most governments had been there. “Recent tax systems in major counties like US, concentrate on reducing administrative and compliance costs and improving the quality of the tax administration as well as relationships between the tax authorities and tax payers” observes Messere, [1999].. Apart from the general tax features some of the counties varies in alternative taxes such as the minimum tax introduced by Canada, additional tax imposed on coarse income in Denmark and Norway etc. The total tax receipts personal income tax, corporate income tax, social security contribution , VAT and sales tax, Excise and other specific taxes on goods and services and property and capital taxes . In general, a tax system should encourage a free economic activity and help in witnessing a complete economic growth. “An appropriate tax system must be fair and neutral in economic activities and support the freedom of individuals and corporations as well” observes Mof. go [2007]. . The Double taxation relief system that includes many countries has extended the tax exemption limit for credit limits in other foreign countries such as U.S.A., U.K., Japan, France etc. . Messere, Ken. “The Tax System In Industrial Countries”. 1999. Oxford University Press. Tax 1 http://www.mof.go.jp/english/tax/e020614b.htm Tax 2 http://www.ucop.edu/cprc/auerbach.html A systematic approach to tax system was implemented in India with the additional report from the Taxation Enquiry Commission [India , 1953]. Indian Tax System charges taxes authoritatively divided between the Union Government and the State Governments in harmony with the Indian Constitution. As far as the Union Government is concerned it tariffs taxes such as personal income tax and corporate tax, apart from that the Union Government has the authority to rate circumlocutory taxes on custom duties, excise duties and central sales tax. Where as the State Government has the power to levy tax on the State sales and other local taxes like entry tax etc. This system in India is otherwise called as direct taxation system, by which India stands quiet differently from other countries. Given below is the nature of Tax and the respective authorities who hold it as direct and indirect taxes. Nature of tax Government Act Authority Income tax Income Tax Act, 1961 Central Board of Direct Tax Wealth tax Wealth TAx Act, 1957 Central Board of Direct Tax Gift tax Gift Tax Act, 1958 Central Board of Direct Tax Indirect tax Central excise Central Excise & Salt Central Board of Excise and Act, 1944 Customs (CBEC) Customs Customs Act, 1962 CBEC Central Sales Tax Central Sales Tax Act, Union Government 1956 State Sale Tax Respective State Sales Tax Acts Respective State Governments [indolink.com 1995] The Tax considerations include Residents and their worldwide income, if a person is a non-residential Indian his taxes would be calculated based on his income received in India only. Corporate or commercial taxes are considered both at the business level and share holder’s dividends. The taxes accounts are supposed to be completed before 31st of March. A double taxation relief is offered to residents through tax treatises. Some of the changes observed by the Siadipp.nic.in [2006] are “Reduction in customs and excise duties, lowering corporate tax, widening of the tax base an toning up the tax administration”. The Federation of Indian Chambers of Commerce and Industry [FICCI] has given a study over the tax system followed in India along with a comparative outlook given to that of tax system sof other countries. Corporate Taxes covers 40% of directly from the companies where as the percentage varies between 17.5% to 28% [ ficci.com 2007 . As far as the individual income tax consideration is concerned Indian tax system levies to those whose income crosses Rs. 2.5 lakh, this aspect seems to be a burdensome one as in other countries like China “30% tax rate applies only to income above Rs.40 lakhs”. [ficci.com 2007]. Biswas, Sowtik [2004] in his report to BBC said that “The majority of India’s income tax payers are salaried employees working for the government or private firms, …they feel they are overrated and underserved by the state, and they want the government to crack down on the shadow economy –or what Indians call “black money”. He also quotes Mr.Purkayastha’s [General Manager, In India’s leading credit rating company The Investment Information and Credit Rating Agency [Icra] ], comments on the tax administration In India who says “ The biggest problem is that the country’s tax base remains very low because of bad tax administration” [news.bbc.co.uk. 2004]. The talk over the VAT system of Tax has been in commencement for the past tow to three years in India; however, it has not been completely accepted or implemented. In an article on the Taxation System in India The Indian Embassy has given its observation that “Since April 01, 2005, most of the State Government in India have replaced sales tax with VAT”. [Indian Embassy.com 2006]. The tax system also differs according to gender. For example, the income limit for male is Rs. 10, 00, 00, lakh, where as for Woman it is Rs. 1, 35, 000. “From 100,001 to 150,000: 10% of amount greater than Rs. 100,000 (Lower limit Rs. 135,001 for women and n/a to senior citizens)” [Wikiepedia.org. 2007]. The Indian Tax System works according to the Income –tax Act of 1961, however reforms and revisions are made now and then. What could be criticized on the Indian tax system is that the taxes imposed on salaried persons or employees are found to be adding credit to the Country’s economy, but many individual people who are not part of Government services earn more than the decided income. The pity is that the Government seems to lack rapidity in constructing a tax system worth mentioning, because the working class is found to be exploited in terms of tax they pay from their income, which is comparatively less than that other country people is. In the sense, the tax exemption limit is considered from a comparatively small amount. Even incentives are provided in the form of tax, where as in many countries liberal incentives are provided for specific activities. While on the other side, India has signed several treaties in order to consider tax exemption for credits in foreign countries. The Double taxation relief system that includes many countries has extended the tax exemption limit for credit limits in other foreign countries such as U.S.A., U.K., Japan, France etc. Taxes for overseas Indians or Indians residing overseas. References: Ahmad, Ehtisham and Nicholas Stern [1991], Theory and Practice of Tax Reform in Developing Countries, Cambridge: Cambridge University Press. Biswas, Soutik. Reforming India’s madding tax system BBC News Online Correspondent In Delhi.Updated 5th July 2004. U.K. online available from http://news.bbc.co.uk/2/hi/south_asia/3868073.stm Government of India [1953], Report of the Taxation Enquiry Commission, Ministry of Finance, Government of India, New Delhi, India. Income Tax in India , Tax Rates .online available from http://en.wikipedia.org/wiki/Income_tax_in_India Indian Embassy. Org “Taxation in India”. Online available from http://www.indianembassy.org/newsite//Doing_business_In_India/Fiscal_Taxation_system_in_India.asp Messere, Ken. “The Tax System In Industrial Countries”. 1999. Oxford University Press Ministry of Fianace. Tax Reforms Committee, Interim Report. Ministry of Finance, Government of India. New Delhi, India Taxation in India online available from http://siadipp.nic.in/publicat/invpub/taxation.htm The Indian Tax System online available from http://www.indolink.com/Consulate/iebo/tax.htm Income Tax in the United States. Online available from http://en.wikipedia.org/wiki/Income_tax_in_the_United_States Messere, Ken. “The Tax System In Industrial Countries”. 1999. Oxford University Press. Tax 1 http://www.mof.go.jp/english/tax/e020614b.htm Tax 2 http://www.ucop.edu/cprc/auerbach.html Read More