Unit 6. Taxation a. Text what are taxes?

Taxes are a compulsory financial contribution by a person or body of persons towards the expenditure of a public authority. In modern economies taxes are the most important source of government revenues. Taxes on income (i.e. on wages, salaries, profits, dividends, rent and interest) and on capital are known as "direct" taxes. Taxes on commodities or services are known as "indirect" taxes.

Taxes are considered to have three functions:

(a) fiscal or budgetary, to cover government expenditure, to provide the public authorities with the revenue required for meeting the cost of defence, social services, interest payments on the national debt, municipal services, etc.;

(b) economic, to give effect to economic policy, to promote stable economic growth, to influence the rate of economic growth of the nation;

(c) social, to increase the economic welfare of the community, to lessen inequalities in the distribution of income and wealth.

Businesses and individuals are subject to many forms of taxes. The various forms of business organization are not taxed equally. The tax situation is simplest for proprietorships and most partnerships; corporations or companies are treated differently.

In the United States of America nearly all of the federal government's revenues come from taxes. By far the most important source of tax revenue is the personal income tax. Gross receipts from corporate income taxes yield a far smaller percentage of total federal receipts. Individual states levy their own taxes. As a result, for example, the profits of a corporation are liable to federal and sometimes state corporate income taxes. This often imposes a double tax burden. When the after-tax income is paid out to stock-holders as dividends, it is then taxed again as personal income.

In the United Kingdom there is no single code of tax law, the body of tax legislation being increased by each year's Finance Act.¹

The United Kingdom operates a "schedular" system,² whereby taxable income from different sources is calculated and taxed under the rules of a particular "schedule".

Tax assessments are normally based on returns issued by the Board of Inland Revenue (referred to simply as "Inland Revenue") for completion by the, taxpayer. While companies may receive tax returns, they normally submit instead a copy of their annual accounts together with a computation of taxable profits.

The United Kingdom does not yet operate a system of self-assessment for tax on income and capital gains, but it is being introduced at the moment.

Under Russian law, all Russian legal entities, whether they have foreign investment or not, are subject to the profit tax law. Foreign entities that have a taxable permanent establishment in Russia are also taxed under this law.

Russian taxes provide revenue for three tiers of the budget: federal, regional and local. The major taxes paid to the budget are: Profit tax; Value-added tax (VAT); Securities tax; Withholding tax.

The Russian government tries to create a climate in which business can thrive, to keep the tax burden as low as possible. It also attempts to eliminate tax allowances, which deprive the budget of tax revenues, and to improve tax collection.

Tax returns for Russian legal entities are audited by the tax authorities at the time they are submitted.

If the company or a person assessed believes the assessment is incorrect in any way, an appeal may be lodged against it. The appropriate financial organ is required by law to reply to such an appeal within five days.

When a company resident in one country receives income or gains from a source in another, or when shareholders and company are domiciled in different countries it is possible that incomes arising will be taxable in each country, i.e. taxed twice. Many countries seek to mitigate the potentially harmful effects of double taxation by entering with other countries into double tax treaties, or arrangements preventing the same income being taxed twice.

A number of countries have problems because of significant taxpayer non-compliance.

Along with cases of illegal evasion of tax obligations there are entirely legal ways of avoidance by which a person may so arrange his affairs as to minimize, or even eliminate, tax liability on his property and income.