A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or national), and taxes compliance refers to policy actions and individual behavior aimed at ensuring that taxpayers are paying the right amount of taxes at the right time and securing the correct taxes allowances and taxes reliefs.
The essence of taxes in the modern state
The development and change in the forms of government have always been accompanied by the transformation of the tax system. In modern society, taxes are the main form of government revenue. In addition to this purely financial function, the tax mechanism is used for the economic impact of the state on social production, its dynamics, and its structure.
Taxes arose along with commodity production, and the division of society into classes, which required funds for the maintenance of the army, courts, officials, etc. Since the existence of the state is economically embodied in tax relations. Withdrawal by the state in favor of a society in the form of a mandatory contribution is the essence of the tax.
From an economic point of view, taxes are instruments of fiscal policy and, at the same time, a method of indirect regulation of economic processes at the macro level. From a legal point of view, tax relations are a system of specific obligations, in which one party is the state, and the other, the subject of taxation, which is entrusted with the obligation to pay taxes to the budget in accordance with tax legislation.
There are two areas that regulate the profitability of the state in the field of taxation:
- the first one is the accumulation of tax payments and the formation of the tax part of the budget.
- the second is to stimulate certain types of economic activity or sectors of the economy through leverage. This shows its regulatory function.
Contributions are made by the main groups of the population, such as:
- Workers create tangible and intangible benefits with their labor and receive a certain income.
- Economic entities, owners of capital operating in the field of entrepreneurship. Since the tax system is represented by a set of taxes, fees, duties, and other obligatory payments levied in the prescribed manner from taxpayers of legal entities and individuals.
Tax functions
1. Fiscal function.
Ensures the formation of the financial resources of the state necessary for the implementation of budgetary, social, and other programs, as well as for the existence of state institutions.
2. Economic function.
Designed for a socially fair redistribution of income, depending on the socioeconomic priorities or the importance of business entities, i.e. it is an instrument of indirect regulation of the economy.
3. Regulatory function.
It manifests itself in the fact that taxes are a tool for influencing reproduction by stimulating or slowing down its pace, effective demand, capital accumulation, scientific and technological progress, etc.
4. Control function.
It consists of the fact that with the help of taxes, the state exercises control over the income and expenses of taxpayers.
Taxes and Taxation
Taxation is a relationship between the establishment, introduction, and collection of taxes, fees, and contributions, as well as relations arising in the process of tax control. This is the process of establishing tax collection in the country, determining the types, objects, tax rates, tax carriers, their payment procedure, which are taxpayers in accordance with the developed tax policy and the principles of taxation.
The taxpayer is always the subject of tax, that is, an individual or legal entity for which the law is entrusted with the obligation to introduce a tax to the budget. A tax carrier is a person paying a salary of tax to the subject of tax, and not to the state. A classic example of tax shifting is indirect taxes. The tax object is property, income, subject, value-added, and certain types of activities that serve as the basis for taxing tax. A source of tax is the income of a subject or tax carrier from which a salary of tax is introduced to the budget. A unit of tax (scale) is a unit of measurement of the tax object adopted as a basis for calculating the salary of tax. The tax rate is the amount of tax established per unit tax.
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FAQ
Taxes are necessary to fund public goods and services, such as infrastructure, education, and defense, that are essential for a functioning society. Without taxes, the government would not have the resources to provide these services.
There are several types of taxes, including income taxes, sales taxes, property taxes, and excise taxes. Each type of tax is assessed on different types of income or transactions, and they can be levied at different levels of government (federal, state, and local).
A progressive tax system is one in which the tax rate increases as the taxable amount increases. This means that those who earn more pay a higher percentage of their income in taxes than those who earn less. The goal of a progressive tax system is to reduce income inequality by redistributing wealth from high-income earners to lower-income earners.
A regressive tax system is one in which the tax rate decreases as the taxable amount increases. This means that those who earn less pay a higher percentage of their income in taxes than those who earn more. Regressive tax systems can be seen as unfair, as they may disproportionately impact lower-income earners.
Individuals and businesses can reduce their tax burden by taking advantage of tax deductions, credits, and exemptions. They can also engage in tax planning to minimize their taxable income or to take advantage of tax-friendly investments. However, it is important to note that tax evasion or fraud is illegal and can result in severe penalties.
