25. Taxation

Lead-in:

1. to raise revenue – підвищувати дохід, прибуток

2. excise duties – акцизний збір

3. tax on profit – податок на прибуток

4. income tax – прибутковий податок

5. to levy taxes – стягувати податки

6. the Board of Inland Revenue – Податкова Управа (Англія)

7. PAYE – Pay Аs You Earn – виплачування податків відрахуванням з заробітної плати

8. income tax liability – загальна сума податку, що підлягає виплаті

9. health insurance – страхування здоров’я

10. tax haven – фіскальний оазис, “податкове сховище”

11. money laundering – відмивання грошей

The primary function of taxation is to raise revenue to finance government expenditures, but taxes can have other purposes. Indirect excise duties, for example, can be designed to dissuade people from smoking and drinking.

Governments can also permit various measures reducing companies’ tax bills.

There is always a lot of debate as to the fairness of tax systems. Business profits, for example, are generally taxed twice: companies pay tax on their profit (corporation tax in Britain, income tax in the USA), and shareholders pay income tax on dividends. The most important taxes are personal and corporate income tax. Income tax in most countries is progressive; it is one of the ways by which governments can redistribute wealth. For tax purposes, corporate income is defined as revenue minus expenses. UK personal taxation is both simple and relatively low. There are two rates: 25 per cent on taxable income up to £ 23.700, and 40 per cent on income above this figure.

How is personal tax levied? In Great Britain the Board of Inland Revenue obliges employers to operate a PAYE (Pay As You Earn) scheme, which means the tax is deductible at source, from empoloyees’ wages or salaries; in other words, by the employers before making out the monthly salary cheque or bank transfer to the employee. The tax is then collected directly from the employer.

At the same time we should mention that the employer is obliged to deduct National Insurance from the employee’s salary – the employee’s contribution being roughly 9 per cent of income, the employee’s ranging from 5 to 10 per cent. The higher the tax rates, the more people are tempted to cheat. Lots of people have undeclared, part-time evening jobs with small and medium-sized family firms, on which no one pays any tax or national insurance.

To reduce income tax liability, some employers give highly-paid employers lots of “perks” instead of taxable money, such as company cars, free health insurance. Life insurance policies, pension plans by which individuals can postpone the payment of tax, are known as tax shelters. Donations to charities that can be subtracted from the income on which tax is calculated are described as tax deductible.

Companies have a variety of ways of avoiding tax on profits. They can make a tax loss, multinational companies often set up their head offices in such countries as Monaco, the Bahamas, where taxes are low; such countries are known as tax havens.

Criminal organizations practise “money laundering” – they pass money through a series of companies in order to disguise its origin from tax inspectors.

Different tax systems in different countries create problems, so the question of the tax harmonisation within the European Community is being discussed. Changes in tax-planning techniques will create a number of tax opportunities: companies in low-tax countries will have a competitive advantage over those in high-tax ones.

 Questions for comprehension check-up and discussion:

1. What is the main function of taxation?

2. Why do you think there is a lot of debate about the fairness of tax systems?

3. What are the most important taxes?

4. What do some employers do to reduce income tax liability?

5. How do companies avoid tax on profits?

6. What is money ‘laundering’?

7. Do you think the question of tax harmonisation is likely to be solved?