Taxation and tax system

VI. Read and translate the text.

V. Look through the table presenting adjective suffixes. Do the exercise in the third column putting the suitable suffix to the words, translate them.

Taxation is the process by which people pay expenses of the government. Taxation is as old as government. Even the earliest and simplest societies needed some method of maintaining order and providing justice. These services could not be provided without costs.

Many kinds of taxes have been used and are being used in the world. The main taxes can be divided into direct and indirect taxes. Direct taxes are paid on income and capital. Indirect taxes are paid when money is spent. Income tax is used to redistribute wealth from the rich toward the poor (through social programs). It is a quite simple tax to collect, because many employers pay the tax directly for the employees, deducting it from the salary before it is paid. In general, income tax is a progressive tax: more is paid as income rises. This may become a drawback if there is no incentive to work harder because people may feel that they earn relatively less and pay more tax. If the rates of a tax are lower than applied to a larger sum, the tax would be called regressive.

The tax is called proportional if the rate of taxation remains the same (constant flat rate), whether it is applied to a small sum or a very large one. The tax on houses and farms is an example of the proportional tax because the rate is the same whether the house or farm is large or small.

Indirect taxes are paid on goods and services. The taxes are paid by the shops or manufactures, but then passed on to the consumers in the form of higher prices. In the United Kingdom, for example, the value added tax or VAT is the most important indirect tax. The advantage of this tax is that it is directly in line with inflation. If the prices rise, so does the tax. However, the burden of this tax hits more heavily the pockets of the less well off.

Taxes also may be identified according to the base on which they are applied. For example, the property tax is levied on both land and buildings (real estate), and private property. The inheritance tax is placed on the value of the property a person inherits. The estate tax is placed on an estate before it is divided among the heirs. Sales tax is levied on sales: it may be applied either to all kinds of sales or only to certain kinds. If sales taxes are placed on luxury goods, they are called luxury taxes and generally represent a high rate of taxation.

Excise taxes are those placed on a specific commodity, or thing, by the government. Tobacco and liquor taxes are excise taxes. Custom duties or tariffs are taxes placed on the importation of goods from outside the country. A license tax is one placed on the right to do something, as for example, to sell liquor and tobacco, to get married, to own a dog, to go hunting or fishing.

Countries vary in the balance of their taxation: some rely more on income taxes, while others gain a larger proportion from indirect taxation. However, a balance is generally a very important factor in taxation. There are some other principles for taxation. It is clear that the tax system should be simple. Both those who pay the taxes and those who collect them should be able to understand the tax laws. The system should be stable so that the taxpayer knew in advance that he must pay the tax to be able to save money for it. And it should be possible to expand the tax system to collect more money in periods of emergency, when the government must spend more money and to reduce the amount of taxes in normal times, when government expenditures are at minimum. This is called the principle of elasticity.

The government of a country needs to collect taxes in order to provide goods and services that will be shared by consumers. Military defense spending is one of the main items in this category. Governments maintain armed forces and spend money on such costly items as aircraft carriers and tanks. Law enforcement is another priority for the government. Besides, other services such as health care and education would only be affordable to rich people if government did not provide them. Taxes are used to build schools, roads, and bridges and maintain services such as police and firefighting.

Another part of governmental expenses is allocated to caring for those who do not have an income at all. The very poor, the unemployed, and the dependent children are provided for out of taxation.

The countries with the lowest tax in the world are Bahrain, Brunei, Kuwait, and Qatar (where there is no tax at all). The highest taxation rate is in Norway. Some people pay more than 100% of their taxable income.

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