Non-payment of tax

Indirect taxes

Direct taxes

Governments finance most of their expenditure by taxation. If they spend more than they levy or charge in taxes, they have to borrow money.

Direct taxes are collected by the government from the income of individuals and businesses.

· Individuals pay income tax on their wages or salaries, and most other money they receive.

· Most countries have a capital gains tax on profits made from the sale of assets such as stocks and shares. This is usually imposed or levied at a much lower rate than income tax.

· A capital transfer tax (commonly called death duty in Britain) is usually imposed on inherited money or property. Other names for this tax are inheritance tax or estate tax.

· Companies pay corporation tax on their profits. Business profits are generally taxed twice, because after the company pays tax on its profits, the shareholders pay income tax on any dividends received from these profits.

· Companies and their employees also have to pay taxes (called national insurance in Britain) which the government uses to finance social security spending – unemployment pay, sick pay, etc.

Indirect taxes are levied on the production or sale of goods and services. They are included in the price paid by the final purchaser.

· In most European countries, companies pay VAT or value-added tax, which is levied at each stage of production, based on the value added to the product at that stage. The whole amount is added to the final price paid by the consumer. In Canada, Australia, New Zealand and Singapore, this tax is called goods and services tax or GST.

· In the USA, there are sales taxes, collected by retailers, levied on the retail price of goods.

· Governments also levy excise taxes or excise duties – additional sales taxes on commodities like tobacco products, alcoholic drinks and petrol.

· Special taxes, called tariffs, are often charged on goods imported from abroad.

Income tax for individuals is usually progressive: people with higher incomes pay a higher rate of tax (and therefore a higher percentage of their income) than people with lower incomes. Indirect taxes such as sales tax and VAT are called proportional taxes, imposed at a fixed rate. But indirect taxes are actually regressive: people with a low income pay a proportially greater part of their income than people with a high income.

To reduce the amount of income that employees have pay, some employers give their staff advantages instead of taxable money, called perks, such as company cars and free health insurance.

Multinational companies often register their head offices in tax havens – small countries where income taxes for foreign companies are low, such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas.

Using legal methods to minimize your tax burden – the amount of tax you have to pay – is called tax avoidance. This often involves using loopholes – ways of getting around the law, because of an error or a technicality in the law itself. Using illegal methods – such as not declaring your income, or reporting it inaccurately – is called tax evasion, and can lead to big penalties.

Exercise 2.3 Match the words with their meanings:

1. Social security	a) an adjective describing taxes on revenue or income unemployed people
2. Progressive tax	b) a tax that has one rate that is the same for everybody
3. Proportional tax	c) money paid by the government to sick and
4. Indirect	d) a tax that has a higher rate for taxpayers with a higher income
5. Direct	e) an adjective describing taxes on consumption or spending.

Дата добавления: 2015-01-03