Tax: Mastering Taxation, Navigating the Financial World with Confidence

By Fouad Sabry

What is Tax

In order to collectively support government spending, public expenditures, or as a tool to control and decrease negative externalities, a tax is a mandatory financial charge or some other sort of levy that is imposed on a taxpayer by a government entity. Furthermore, a tax may also be applied in order to mitigate negative externalities. Tax compliance is a term that encompasses both the measures taken by policymakers and the actions taken by individuals with the intention of ensuring that taxpayers are paying the appropriate amount of tax at the appropriate time and obtaining the appropriate tax allowances and tax relief. The first known instance of taxes occurred in Ancient Egypt between the years 3000 and 2800 B.C. There are two types of taxes: direct and indirect taxes. Taxes can be paid in monetary form or in the form of their labor equivalent.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Tax

Chapter 2: Income tax

Chapter 3: Land value tax

Chapter 4: Public finance

Chapter 5: Regressive tax

Chapter 6: Ad valorem tax

Chapter 7: Direct tax

Chapter 8: Indirect tax

Chapter 9: Consumption tax

Chapter 10: Taxation in France

Chapter 11: Taxation in Australia

Chapter 12: Taxation in India

Chapter 13: Optimal tax

Chapter 14: Excise

Chapter 15: Taxation in Argentina

Chapter 16: Taxation in Denmark

Chapter 17: Terms of trade

Chapter 18: Taxation in Norway

Chapter 19: Value-added tax

Chapter 20: Taxation in Ukraine

Chapter 21: Taxation in Turkey

(II) Answering the public top questions about tax.

(III) Real world examples for the usage of tax in many fields.

Who this book is for

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of tax.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Jan 18, 2024

Book preview

Chapter 1: Tax

A tax is a mandatory financial charge or other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization to collectively fund government spending, public expenditures, or as a means to regulate and reduce negative externalities (which occur due to market failures). Taxes are either direct or indirect and can be paid in cash or in labor equivalents.

All nations have a tax system in place to fund public, common societal, or agreed-upon national needs and government operations. Some countries impose a flat rate of taxation on personal annual income, but the majority of scale taxes are progressive based on income brackets. The majority of nations impose a tax on both individual and corporate income. Frequently, nations or subdivisions impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, use taxes, payroll taxes, duties, and/or tariffs.

Taxation transfers wealth from households or businesses to the government from an economic perspective (circular flow of income). This has effects on economic growth and economic well-being that can increase (known as fiscal multiplier) or decrease (known as fiscal multiplier) (known as excess burden of taxation). As a result, taxation is a highly debated topic, as taxation is deemed necessary by general consensus in order for society to function and grow in an orderly and equitable manner through the government's provision of public goods and public services, whereas others, such as libertarians and anarcho-capitalists, are anti-taxation and denounce taxation broadly or in its entirety, classifying it as theft or extortion through coercion and the use of force. Within market economies, taxation is viewed as the most viable option to operate the government (as opposed to widespread state ownership of the means of production), as it allows the government to generate revenue without heavily interfering with the market and private businesses; taxation preserves the efficiency and productivity of the private sector by allowing individuals and businesses to make their own economic decisions, engage in flexible production, and compete in the market.

A few countries that function as tax havens impose minimal to no effective taxes on individual or corporate income; these tax havens attract capital from abroad while causing a loss of tax revenues in other countries that do not function as tax havens (through base erosion and profit shifting).

Due to differences between the legal and economic definitions of taxes, economists do not consider many government transfers to be taxes. For instance, some public sector transfers are comparable to prices. Examples include tuition at public universities and fees for local government-provided utilities. Governments also obtain resources by creating money and coins (e.g., by printing bills and minting coins), by accepting voluntary donations (e.g., contributions to public universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating criminal proceeds. Economists view a tax as a non-punitive, yet obligatory transfer of resources from the private to the public sector, based on predetermined criteria and without regard to specific benefits received.

In contemporary tax systems, Governments impose monetary taxes; but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents.

In politics and economics, the method of taxation and the government's use of tax revenues are frequently hotly contested topics.

In the United States, government agencies such as the Internal Revenue Service (IRS) are responsible for tax collection, HMRC stands for His Majesty's Revenue and Customs in the United Kingdom, Revenue Canada or the Australian Taxation Office.

When taxes are not paid in full, The state may impose civil penalties (such as fines or forfeiture) or criminal penalties (such as imprisonment) on the non-paying entity or person.

Taxation aims to generate revenue to fund government, alter prices to influence demand, or regulate some form of cost or benefit. Throughout history, states and their functional equivalents have utilized tax revenue to carry out a variety of functions. Among these are expenditures on economic infrastructure (roads, public transportation, sanitation, legal systems, public security, public education, and public health systems), the military, scientific research & development, culture & the arts, public works, distribution, data collection & dissemination, public insurance, and government operations. The capacity of a government to raise taxes is known as its fiscal capacity.

When a government's expenditures exceed its tax revenue, it accumulates debt. A portion of tax revenue may be used to pay off old debts. In addition, governments use taxes to fund welfare and public services. These services may include education systems, elderly pensions, unemployment benefits, transfer payments, subsidies, and public transportation. Common public utilities include energy, water, and waste management systems.

According to proponents of the chartalist theory of money creation, taxes are unnecessary for government revenue so long as the government can issue fiat currency. This view holds that the purpose of taxation is to maintain the stability of the currency, to express public policy regarding the distribution of wealth, to subsidize certain industries or population groups, or to isolate the costs of certain benefits, such as highways or social security.

There are two fundamental categories of tax consequences:

Taxes have an effect on income because they reduce taxpayers' purchasing power.

Taxes produce a substitution effect when taxation induces a switch between taxed and untaxed products.

If we contemplate, for instance, two typical items, Both x and y, whose prices are respectively px and py and an individual budget constraint given by the equation xpx + ypy = Y, where Y represents income, the budget constraint's slope, in a graph with good x and good y on the vertical and horizontal axes, respectively, is equal to -py/px .

Initial equilibrium is located at point (C), Budget constraint and indifference curve intersect at a tangent, introducing an ad valorem tax on the y good (budget constraint: pxx + py(1 + τ)y = Y), the budget constraint's slope becomes equal to -py(1 + τ)/px.

The new equilibrium is at the tangent point (A) with a lower indifferent curve at present.

As can be seen, the introduction of tax has two consequences:

It affects consumers' actual income (less purchasing power)

It increases the relative cost of y product.

The income effect illustrates the change in y good quantity caused by the variation in real income. The substitution effect illustrates the variation of y good as determined by the variation of relative prices. This type of taxation (which induces the substitution effect) can be viewed as distorting.

Another example can be the introduction of an income lump-sum tax (xpx + ypy = Y - T), with a concurrent reduction in the budget constraint, compared to the property tax case, a greater amount of revenue can be produced with the same amount of utility loss for consumers, from an alternative viewpoint, The same amount of revenue can be generated with less utility