TAX

Tax

Tax

Introduction

The general definition of tax is a financial charge or levy imposed by the government of a state to the taxpayers of the state. Almost everything changes over time, but the system of collecting tax has been unchanged for hundreds of years. From the tax history of England in medieval times, the peasants had to pay tax which was 10% of the value of what they had farmed. This indicates that this concept of tax is historical and the collectors of tax have been using this system to control the economy of citizens as well as the country they ruled.

Arguments on Tax

In more recent time, the government impose tax to those citizens only who are required to pay tax by law. Unlike past times when tax was charged on the goods that the peasants used to cultivate, now it is only charged financially and direct taxes are charged to only those people who have certain limits of income. For this reason some people find tax to be fair and others object it as unfair.

Taxes can be categorised as, direct and indirect; direct taxes are the taxes levied directly off of an organization or an individual, an example of direct tax could be the income tax. Indirect taxes are the taxes which are not directly taken out from an individual or an organization. Indirect taxes are collected by intermediaries from taxpayers, these intermediaries later files tax return to the government, so the government is collecting tax with the help of these intermediaries and not directly and therefore calling it an indirect tax. Example of indirect tax is VAT (Value added Tax) or GST (Goods and Services Tax) on goods and services. The government uses both direct and indirect taxes as a tool for stabilizing and controlling the country's economy.

In UK every single individual pays tax either directly or indirectly. If someone thinks that s/he is escaping from the net of tax then the person is wrong as the individual must have been paying indirect tax in the form of VAT while buying clothes or having a meal at restaurants. All citizens are paying tax every day and so the transaction of tax is occurring very frequently, for this reason it is quite impossible to identify the limit of equity of taxation. In general, tax seems to be fair when individuals or companies with similar income or similar ability pay tax at similar amount or rate, which is also known as horizontal equity.

UK income tax considers the form of progressive tax in order to be equitable. Progressive form of tax is the tax at which the tax rate increases with the increase of taxable amount which is also a form of vertical equity. "The Chancellor, who has been reluctant to speak publicly about redistributing money from rich to poor, will outline plans for what he call a new progressive universalism" - Andrew Grice (2000). This article mentions that currently UK is following a progressive tax system where richer people pays more tax ...