Taxation and Its Merits - Essay Example

? Taxation and its merits Taxation and its merits Taxes are the main source of federal and local government revenues used to pay expenses in vital sectors such as public education, exploration, science, infrastructure and salaries for government employees (James, 2009 p.743). The government gets a larger amount of tax revenues from levies on citizen’s income; investments incomes included. “The federal income tax system is prepared in a way that it automatically taxes different levels of income at specific rates, which is usually at a gradual increasing scale” (Mumford, 2010 p. 28). Therefore, from this claim the people who own many assets or earn some good salaries pay more to the government trough taxation. Taxation is, therefore, necessary in order to meet the cost of expenses and in the running of day-to-day government affairs. “It is the sole responsibility of the government to collect taxes and ensure that it is carefully spent for the benefit of the citizens” (Mirrlees & Adam, 2011 p. 39). Taxation is the main means through which governments raise the required money to pay for commodities and services that they provide for the people. In fact, most governments depend on taxes to pay for the major portion of their spending since it is their major source of revenue. “It is important to note that, governments are always under pressure from citizens demanding quality education, health care, security and infrastructure” (Lymer & Hasseldine, 2002 p. 17). Taxes at the local level are necessary for construction of classrooms, public libraries, security service stations, sport facilities, as well as for the payment of municipal employees and county directors government revenues (obtained from taxes) are essential. The government to run the budget without borrowing grants from other countries uses taxes (Ahmad, 1999 p. 82). However, taxation is not the only way governments use to collect money for their spending. “Government’s cannas well levy a variety of users to pay for bridges, parks, and sports stadiums among other services to get revenue from users rather than the taxpayers” (Barro & Boskin, 1978 p. 125). “In addition, Governments also borrow funds to support their tax revenues whenever they run short of target in budget” (Claus, 2010). The standard of living of the modern society demands taxation by all means, this is because the government must collect taxes in order to meet the needs, wants and demands of its citizenry. No government can exist without taxation, though taxation can never exist without the government, as well. “One could, therefore, argue that taxation is a necessity for the governments to run all the activities aimed at improving the living standards of the citizens all over the world” (Keen & Smith, 2000 p 40). “The value added tax is a form of consumption tax. This is the tax imposed on to the buyer when purchasing goods from any dealer whereas on the prospect of the seller, it is the tax imposed on the product, service or the material from an accounting point of view from the producer” (James, 2009 p 13). The final consumer is taxed in this way and; hence, the total tax levied at each stage is what makes continuous chain of supply; thus, collection of VAT is borne by the business but not the state. Tax merits The collection of VAT in the UK has a number of merits for instance; it enables the government to create a stronger incentive to collect revenues even through the sales tax are low. This is because the final consumer of the product cannot easily evade payment unlike trough the previous method and does not give the seller the legality to collect it. “The UK government has been able to balance the amount of taxes collected per year through VAT since the seller is the motivator of the buyer but has no direct economic incentive to collect it” (Bird, 1999 p 25). It has also been able to balance the application of equal taxes to each member of the production chain without much care on the position in it and that of the customers. Inheritance tax is a type of tax paid on an estate when an individual dies. The beneficiary can receive up to ?650,000 as from the year 2012. “The personal representatives of the deceased must transfer the unused inheritance tax threshold to the partner when they die” (Claus, 2010, p. 128). The UK government has been able to collect this tax, which is typically from the executer that uses funds from the deceased estate. The trustees pay inheritance tax on assets that were in or even transferred into a trust. The UK government is keen on the amount to payable by the responsible estate and they usually do this by valuing the estate. “An estate includes the deceased share of the jointly owned assets, as well as the value of any assets held in trust” (Benjamin, 2007, p. 34). However, the UK government can sometimes exempt an individual from paying inheritance tax. These include the spouse exemption that occurs when an estate does owe inheritance tax on anything left to a spouse who has a permanent home in UK. “There are also charity exemptions, annual exemption, small exemptions and even business reliefs” (Bird, 1998, p. 17). This has made the UK government appear fair to its citizens by taxing them equally. The time limit allowed for paying inheritance tax is six months failure to which results into interest in the outstanding amount (Ahmad, 1999, p. 227). Capital gain tax, on the other hand, is the tax imposed on capital gains. The most common capital gains in UK are from the sale of bonds, stocks, property and the precious metals. Different countries have different rates of imposing this tax. “In the UK, the residents and the trustees of various trusts are subject to an 18% capital gains tax” (Lymer & Hasseldine, 2002, p. 44). In June 2010, the UK government increased taax to 28% for those who earn more than basic rate of income. The principal private residences are paying this tax, for example, holdings such as ISAs or gilts. When such holdings re-invest, other gains are allowed to be rolled in. the government also exempt the new investors from paying this tax. For this reason, the new entrepreneurs get motivation from the government to venture into new businesses. They further access more share holdings and pay lower rate of capital gain tax by 10%. “All the citizens are also given an annual capital gain tax allowance. This is to allow the government set the capital losses against capital gains in other holdings before taxation” (Mumford, 2010, p. 748). Tax income in UK is determined by applying a tax rate, which usually increases as the income increases. Through this method, direct taxation on individuals and corporations by the government appear to be effective. On the other hand, taxation on Estates via this method appears successful. It is worth noting that partnerships in the UK enjoy exemption from paying this tax. However, taxing partners in business depends on their shares of partnership income. Residents are taxed on worldwide income rate stated by the law, while the nonresidents are taxed on the rates stated by jurisdiction. The government also exempts some subjects from paying the income tax. The UK government has some merits in this type of tax payment in that they can give some estates or even individuals an opportunity to choose their tax year. Every taxpayer gets an opportunity to choose the calendar year; this minimizes pressure; thus, meeting the principles of taxation. Taxation system in UK is good unlike in some other countries where the principles of taxation appear mishandled. “There is no such thing as a good tax” – Winston Churchill. Often, just enough there are individuals who observe tax per se, as a wrong thing. For instance, one understands that taxation settles for entirely everything of social gain that a mature community provides (education, health, care for the old, policing) and because of that is an “essential evil.” Churchill illustrated this that we challenge that for a country to attempt taxing itself into wealth may be compared to a man standing inside a bucket and attempting to push himself up by use of his hands. On the other hand, as Colbert stated, “The art of taxation consists in so plucking the goose as to obtain the largest amount of feathers with the least possible amount of hissing.” From this Colbert implies that taxation is like a person plucking a goose to get several feathers. We know that a goose has fewer feathers that it uses to protect itself or even maintain its body structure. If we pluck those feathers, the goose loses shape and lacks its protection mechanisms. When we tax individuals, we incapacitate them and render them useless in their lives. Thus, for Colbert, it is better to exclude people from taxation in order to assist them through other means. References Ahmad, E., & Stern, N. (1999). The theory and practice of tax reform in developing countries. Cambridge, Cambridge University Press. Barro, R. J., & Boskin, M. J. (1978). Federal tax reform: myths and realities. San Francisco, Institute for Contemporary Studies. Benjamin, M. (2007). The comparison of taxation in USA, Germany, and UK. Cambridge: Cambridge university press. Bird, R. M. (1999). Rethinking subnational taxes a new look at tax assignment. [Washington, D.C.], International Monetary Fund, Foreign Affairs Dept. http://catalog.hathitrust.org/api/volumes/oclc/43208223.html. Claus, I. (2010). Tax reform in open economies: international and country perspectives. Cheltenham, Elgar. James, M. (2009). The UK tax system: an introduction. London, Spiramus. Keen, M., & Smith, S. (2000). “Viva VIVAT!” International Tax and Public Finance, 7, pp. 741–51. Lymer, A., & Hasseldine, J. (2002). The international taxation system. Boston, Mass.: Kluwer Academic Publishers. Mirrless, J. A., & Adam, S. (2011). Tax by design: the Mirrlees’ review. Oxford: Oxford University Press. Mumford, A. (2010). Tax policy, women and the law: UK and comparative perspectives. Cambridge: Cambridge Univ. Press. Palan, R., Chavagneux, C., & Murphy, R. (2010). Tax havens: how globalization really works. Ithaca: Cornell University Press. Read More