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1/6/2016 7:58 PM 1
CANNON of TAXATION by Adam SmithAdam Smith 1723 – 1790, „Avuţia Naţiunilor”, Editura Academiei R.P.R., 1962-1965; citatele următoare: pag. 242 – 243
1.The correctness of taxation: taxation must be fair to en- sure justice in
taxation. This is what in time will establish as a fundamental principle:
„The subjects of every state ought to contribute toward the support of
government, as nearly as possible, in proportion to their respective abilities;
that is, in proportion to the revenue which they respectively enjoy under the
protection of the state.”
„Impozitul pe care fiecare persoană este obligat să-l plătească trebuie să fie bine
precizat şi nu arbitrar. Epoca de plată modalitatea de plată suma de plată,
acestea trebuie să fie clare şi evidente, atât pentru contribuabil cât şi pentru
orice altă persoană”.
THE PRINCIPLES OF TAXATION
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2. Certainty of taxation: the amount of tax must be certain and not
fixed arbitrarily, to avoid abuses of tax, i.e. taxation must be
correct;
„The tax which each individual is bound to pay ought to be certain, and
not arbitrary. The time of payment, the manner of payment, the
quantity to be paid, ought all to be clear and plain to the
contributor, and to every other person, so that the taxpayer is not
put in the power of the tax gatherer.”
„Impozitul pe care fiecare persoană este obligat să-l plătească trebuie să
fie bine precizat şi nu arbitrar. Epoca de plată modalitatea de plată
suma de plată, acestea trebuie să fie clare şi evidente, atât pentru
contribuabil cât şi pentru orice altă persoană”.
The Principles of Taxation
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3. Convenience of taxation: mode the settlement and colection to be
made so that they are convenient for the taxpayer – for example to
link tax payment terms with the realization of income; “Any tax
must be charged at the time and how which appears to be the most
convenient for the taxpayer to pay it”;
„Orice impozit trebuie să fie perceput la timpul şi în modul care
reiese a fi cel mai convenabil pentru contribuabil ca sa-l
plătească”;
4. Tax should be as cheap as possible, to have high tax efficiency –
in a modern sense this involves performing the most convenient
ratio between tax revenues and collection costs: “Any tax should
be designed so as to remove and dispose of pockets population as
little as possible, over as far as it brings in the state public
treasury“.
„Orice impozit trebuie să fie astfel conceput încât să scoată şi să
înstrăineze din buzunarele populaţiei cât mai puţin posibil, peste
atât cât poate aduce în tezaurul public al statului”.
The Principles of Taxation
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The principles of taxation are a disputed and controversial topic
because of one period to another, from one economic school to another,
from one author to another, key terms and objectives are interpreted
differently. “The principles may be interpreted in various ways...
depending on how it is treated and understood the contradiction between
equity and efficiency”.
Thus, taxation is also an aspect of nature as economic policy, one technical
and regarding methods and techniques used to determine the taxable object
size and the amount of tax.
In terms of economic policy, currently, the tax is intending that each new
tax introduced, or existing tax practice, to meet the requirements several
principles:
• principles of equity;
• principles of financial policy;
• principles of economic policy;
• social and political principles.
The Principles of Taxation
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The idea of justice in taxation has always been accepted. In
time, the concept has received different interpretations (even
divergent), and virtually however fiscal policy was
improved, taxes have failed to be absolutely fair.
“Mathematical equality . . . cannot be reached in any system
of taxation, and it is useless and idle to attempt it.” - Rufus
W. Peckham (1838-1909)
Echitatea matematică (perfectă) … nu poate fi atinsă în nici
un sistem fiscal şi nu are nici un rost sau motivaţie de-a
încerca să o obţii.
Fiscal Equity
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Theoretically, tax equity was depicted differently by various
supporters of finance’s school. In the Middle Ages, there is
considered fair tax privileges for nobility, church and clergy. In
France, circulating even ther aphorism “nobles serve the king with
sword, clergy with prayers and com- mons with money”.
Throughout history, the notion of fairness, which gives substance to
the notion of social justice in taxation, has been interpreted
differently. Time led to the abolition of tax privileges, being
understood their unfairness.
• In the matter of taxation, every privilege is an injustice. - Voltaire
(1694 – 1778) În materie de impozite orice privilegiu este o
injusteţe;
• Tax exemption is a privilege derived from legislative grace, not a
constitutional right. - Lapsley W. Hamblen Jr. (1926 -) Scutirile
fiscale sunt privilegii din voia legislativului, nu un drept
constituţional;
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• Considering that taxation must be universal, all tax- payers
must pay taxes and all are tax treated equally – so they
claimed a so-called equity before taxes.
Equity before taxes is based on the earlier idea that public service is
a benefit to all and that the payment should be equal for all citizens.
In time, this principle has been violated, becoming arguably
incompatible with the evolution and development of life and
economic thought. Thus, in some countries, certain revenues, such
as those made from investments in bonds of state loans, are not
subject to taxation. Also, a violation of the principle of equity is the
practice of exempting from tax the income of capital for financing
of capital investment.
What seemed questionable or unacceptable in a certain way of
interpretation of tax equity appears, however, in a different light if
we have in order the objective necessity that tax must become and
fiscal lever too.
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• Thus, the equity before taxes was replaced by equity through
taxes. The latter requires different tax treatment depending on
the size of income and wealth, their origin, in relation to social
status, with the personal situation of each payer.
• Tax equity is portrayed us as apparent fairness (or the
mathematics) or actual (or real).
For example, apparently is fair that two employees for their work
receive the same salary to pay the same payroll tax. The two
taxpayers would be equal to such tax. In reality, if they have a
different number of dependents – if they have a different social
situation – their capacity in contribution is different and therefore
real equity is other than appearance. They are equal in terms of
employment equity, but in terms of tax fairness they should be
treated differently.
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Alternative solutions, to achieve a real (and full) tax equity, in the case
stated above would be:
•differentiation of the tax burden, to same taxable terms, depending on
social situation;
•maintaining equity of the tax burden, but differentiation various social
assistance, depending on the social situation.
It is considered by most experts that the last solution is the most
convenient, even if social equity is no longer done through taxes but it is
“pushed” to the welfare.
The Treasury is constantly presented with proposals to accomplish all
sorts of desirable social objectives through the tax system. In general,
these objectives can be accomplished more effectively and economically
by other means. - Stanley S. Surrey
Trezoreria(SUA) prezintă constant propuneri pentru îndeplinirea a tot
felul de obiective sociale prin intermediul sistemului fiscal. În general,
aceste obiective pot fi îndeplinite mai economic şi mai complet prin alte
mijloace;
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10
• Tax equity is portrayed us as horizontal equity and vertical equity.
• Horizontal equity requires comparison of two tax burden for
taxpayers who perform the same amount of income, but from
different sources.
Starting from this, interpretations are different, however. Thus, in a version
is considered fair tax burden to be different, while the other variant is
considered fair to establish an equal tax burden. Each alternative has
advantages and disadvantages, supporters and opponents.
It is difficult to decide which option would be the most equitable, especially
since a compromise seems impossible to find. We considered that a certain
differentiation of the tax burden according to the sources and material
conditions as it is done in taxable matter is often justified. For example, it
would seem as justified, at least at first sight, some differentiation of the tax
burden when it comes to income from employment or bank deposits or the
other similar situations.
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• Unlike the previous version, vertical equity requires comparison of
taxes due from two persons whit incomes of different size, but the same
source. It is considered fair in this case, that those who produce higher
income pay higher tax (percentage). It is one of the most controversial
issues :
That which angers men most is to be taxed above their neighbors. - Sir
William Petty (1623-1687) Lucrul cei enervează cel mai tare pe cei mai
mulţi oameni este de-a fi impozitaţi mai aspru decât vecinii lor.
Although debatable, such a requirement appears to be fully justified :
When people ask, "Why should the rich pay a larger percent of their income
than middle-income people?" - my answer is not an answer most people
get: It's because their power developed from laws that enriched them. -
Ralph Nader (1934-) Atunci când oamenii întreabă, “ De ce bogaţii
plătesc un procent mai mare din venitul lor decât oamenii din clasa
medie?” – răspunsul meu este diferit de cel obişnuit: Se întâmplă asta
pentru ca ei (cei bogaţi) îşi trag puterea din legile care i-au îmbogăţit;
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In order to be respected the equity in the field of taxes are required to be
satisfied several conditions:
• equity implies a non-taxable minimum, i.e. enacting a minimum
income tax exemption to allow strictly neces- sary living needs. This
minimum must be justified in economic terms – for example, the profit
tax or value added tax would require tax-free minimum to assure
entrepreneur’s “survival”. Taxable minimum is met only if direct taxes
(especially income taxes) have no applica- tion in indirect taxes, which
proves the lack of equity of these taxes;
• the imposition must be universal, general, that all individuals or legal
entities that own taxable matters: income from some source, a certain
kind of property or make certain spending – must pay taxes. This
condition implies the absence of possibilities to steal part of taxable
matter from taxation, in other words, imposing should be established
and conducted in order to avoid tax evasion;
• tax burden – absolute and relative – of each taxpayer in part, should be
established based on the contributory power which it has: the amount
of income or wealth and social tasks;
• the comparability of the tax burden should be vertical and horizontal.
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Compliance or failure of equity resulting ultimately in the types of tax rates
used.
• Tax equity regarding the imposing in fixed amounts is characterized
by the fact that fiscal authorities set a tax in fixed amount charged to
everyone. This kind of taxation is not fair, because the tax is not
intended to consider either the income or capital size or personal, social
situation of the taxpayer.
• Tax equity regarding the imposition in proportionate shares is a
direct manifestation of the principle of equity before taxes, principle
proclaimed with the transition to the capitalist mode of production. In
the case of proportional taxation, because the tax rate remains
unchanged, shall be kept permanently the same proportion between the
tax and income (wealth). Although the introduction of tax in
proportionate shares take a step forward in ensuring equity against the
imposition of a fixed amount, but even in this case does not respect the
principles of tax equity. The imposition in proportionate share does not
mind that the power contribution of different taxpayers vary by the
sheer size of income and property value that each of these are
performed, respectively owned.
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• Tax equity regarding the imposition in simple progressive
rates. As this is a progressive tax means that tax rate will be
greater, within progressivity set by law, that the income or wealth
will be higher. Imposition in simple progressive rates, although
leading to an important approach which means respect for
fairness in taxes, still has some shortcomings. Thus, this method
of tax disadvantages the taxpayers whose income level is at the
next higher limit until acting a certain share.
• Tax equity regarding the imposition in composed progressive
rates. It eliminates the shortcomings mentioned in imposition in
simple progressive rates. Such taxation is mainly used for
imposing the incomes of individuals.
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Tax equity regarding the imposition in regressive shares. This
kind of taxation favors the taxpayers who have high income or
large fortunes important and leads them to increase taxable gross
matter.
In conclusion, the fairest taxation system seems to be the one
that relies on composed progressive rates (per portions). But it
would be unrealistic to say that using a certain progression in
taxation, even if it is high, resolves the problem of equity in this
area.
Thus, the tax law provides quite elastic or “legal loopholes of tax
evasion” or is to offer a whole range of facilities or tax privileges. Tax
equity impose requirements for granted, but it’s only one of the
principles of taxation.
The notion of fairness, strictly interpreted, can seriously damage other
principles, such as social principles.
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The principles of financial policy seek that the tax system be
characterized by: a high tax efficiency, stability and elasticity,
type and number of taxes.
The tax efficiency, like any efficiency imply the reference of the
results to the effort (or vice versa) in our case the reporting of the
amounts raised by a tax at the costs incurred. To achieve a higher
tax efficiency should be find the optimum ratio between earnings
made through a tax and collection costs. For large revenue must
be respected the same way as equity: universal taxation, no tax
evasion and tax unit should not be expensive.
Thus, in order for a tax to have a high efficiency, several
conditions have to be fulfilled:
The Principle of Financial Policy
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• Taxes must have a universal character, i.e. to be paid by all
persons (natural or legal) that obtain incomes from the same
source or have the same kind of wealth. Universality tax also
involve ton impose the whole object of taxation which the
taxpayer poses.
• to eliminate tax evasion, there should not be opportunities to
evade taxation (by legal means or fraud) part of the taxable
matter.
• the amount of expenditures related to the establishment and
collection of taxes to be reduced to the minimum necessary in a strict interpretation, this condition may lead to absurd conclusions: the
fiscal apparatus (its costs) should be as reduced as possible, but then the taxes
will also (probably) be low as tax evasion will be high.
These demands are indisputably rational, but are practically difficult to
implement.
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• A tax may be appreciated as stable, if it is not influenced one
way or another, by short term mutations of the economy – not to
increase in periods of prosperity, i.e. does not decrease into
recession.
This means that a tax yield considered stable should not increase in
same time with production and incomes growth during periods of
economic prosperity or decrease in economic bad times of the
economic cycle. Noted, however, that virtually, stability tax is difficult
given the current economic conditions.
• Regarding the tax elasticity, this means that tax can be
continuously adjusted to income needs of the state budget.
A tax is elastic if it can be increased or decreased depending on the
evolution of government spending, in other words, if there is an
increase in spending is necessary that taxes can be increased
accordingly and vice versa.
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19
• About the type and number of taxes, we can say that,
theoretically, you could use one or more taxes.
Idea about the use of a single tax, met both during pre-monopolistic
capitalism (e.g. phisiocrates pleaded for introduction of a single
financial tax, and later with the development of heavy industry views
have emerged on the establishment of a single tax on the raw
materials) and in the conditions of contemporary capitalism.
To note that in practice, the idea of a single tax has not been translated
into life. Use of a single tax is considered by most specialists in
contemporary capitalist countries as unattainable and ineffective. In
this regard, it is considered that a single tax based on the contributory
power of payers would lead to many complaints, to accentuate evasion
trends and to repercussion of burden in the expense of others.
However as mentioned, is considered by most experts that the plurality
tax is currently the most appropriate solution, especially since the tax
is used as fiscal lever and each taxable object should be treated in a
specific way.
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• In conclusion, we can say that a tax system can be
appreciated only in light of all its consequences on the socio-
economic plan and not only depending on the type and number of
taxes.
Opinions regarding the consequences and the socio-economic
implications of a tax system can be made following issues such
as: what is the object of the imposition; income (wealth),
expenses or both; what tax rate are used: fixed, proportional,
progressive or regressive; whose classes belong the incomes
(wealth); from the consumption of whose classes are goods or
services subject to taxation; to what extent can occur or not, in
some cases, double taxation, and in others an evasion from the
taxation of income or wealth, etc.
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• There are some taxes that are good for our economy, because
they discourage harmful activities. - David M. Roodman / Sunt
câteva impozite care sunt “bune” pentru economie, pentru că
descurajează activităţile “rele”;
• All taxes discourage something. Why not discourage bad things
like pollution rather than good things like working or
investment? - Lawrence Summers (1954-) / Toate impozitele
descurajează ceva. De ce să nu descurajăm fenomenele negative,
cum ar fi poluarea, în locul celor bune cum ar fi munca şi
investiţiile.
The Principle of Economic Policy
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• For a long time, the tax has become a real economic lever and
therefore by introducing a new tax, the state often aimed not only
to purchase the necessary revenues to cover the public expenses,
but also to exercise a certain influence in boosting the economic
development of branches and sub-branches, stimulate or reduce
production or consumption of goods, extend or, on the contrary,
restricting commercial relations with foreign countries.
• Encouraging or discouraging the development of an economic
branch or sub-branches can be performed by the state by
overcharging or reduction of taxes in several variants such as:
establishment of high duties at imported goods of the same kind
from other countries; reduction or exemption of indirect taxes for
local goods; reduction of direct taxes set to producers and local
traders; accelerated amortization of fixed capital facility, which
leads to which results in reduction of the taxable profits of capital
companies in that industry and its rapid replacement possibility.
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• Also in this regard acts subsidies from the state budget for
companies that operates in a particular industry or economic sub-
branch.
If you want more of something, subsidize it; if you want less, tax it. -
Old Economic Adage / Dacă vrei, din ceva mai mult,
subvenţionează-l; dacă vrei mai puţin, impozitează-l – veche
pildă economică.
• Certainly, granting subsidies solution is not very simple, because
usually it has as source taxes collected by the State. In other
words, encourage on the one hand, discourage on other.
All taxes are a drag on economic growth. It's only a question of
degree. - Alan Greenspan (1926-) - Toate impozitele sunt o frână
în calea creşterii economice. Este numai o chestiune de (cât este)
nivel.
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• In general, the art of government consists of taking as much
money as possible from one class of citizens to give to the other. -
Voltaire (1694 – 1778) / În general, arta guvernării constă în
strângerea a cât mai mulţi bani, de la o clasă socială şi de a “da”
alteia;
Tax policy promoted by the State aims, frequently, the development of
socio-political objectives. These principles require that in
taxation to take account of individual and social position of the
payer. It is known, for example, the practice of granting tax relief
to low income persons and those who maintain a number of
children and elders.
Taxes are also used, to limit consumption some products that have
harmful effects on health (tobacco, alcohol). There are countries
in which, to influence the increase of rate birth is practicing a
special tax on the bachelors and married persons without
children.
Socio-political Principle
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It should be here noted that tax policy is sometimes marked also by
purely political interests: during elections, those in power try to
mitigate taxation (or promise to reduce them) or to grant privileges and
tax incentives to certain categories of taxpayers. After the elections, it
is found that economic and fiscal situation is actually known also
during the period of election and they must reconsider their position,
forgetting electoral promises and raising taxes again.
•A government that robs Peter to pay Paul can always depend upon
the support of Paul. - George Bernard Shaw. / Un guvern care fură de
la Peter pentru a-l plăti pe Paul, poate întotdeauna să se bazeze pe
sprijinul lui Paul.
•The promises of yesterday are the taxes of today. - William L.
Mackenzie King (attributed). / Promisiunile de ieri sunt impozitele de
astăzi.