LESSON 3. TAXATION AND TAX EVASION
Discussion
1. Discuss the following questions with a partner:
1) What kinds of taxes do you know?
2) Do you pay a lot of taxes?
3) Do you think people in this country should pay more or less tax?
2. Match a line in A with a line in B.
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| 1. A tax is a financial charge imposed on 2. Governments use different kinds of taxes 3. The complicated tax codes of developed economies 4. Taxes are used to fund public services 5. Personal income tax is often collected 6. Governments vary the tax rates 7. A very detailed tax policy leads to 8. Simple and transparent tax structures | a) offer perverse economic incentives. b) such as health care or unemployment benefits. c) on a pay-as-you-earn basis. d) legal tax avoidance and illegal tax evasion. e) and vary the tax rates. f) avoid providing loopholes. g) an individual or a legal entity by a state. h) to redistribute resources in the population. |
3. Read the text below and check your answers to the previous exercise.
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A tax is a financial charge or other levy imposed on an individual or a legal entity by a state. A tax may be defined as a "pecuniary burden laid upon individuals or property to support the government a payment exacted by legislative authority." A tax is not a voluntary payment or donation, but an enforced contribution and is any contribution imposed by government.
Tax collection is performed by a government agency such as the Internal Revenue Service (IRS) in the United States, or Her Majesty's Revenue and Customs (HMRC) in the UK. When taxes are not fully paid, civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) may be imposed on the non-paying entity or individual.
Purposes and effects
Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure, public works, social engineering, and the operation of government itself. Most modern governments also use taxes to fund welfare and public services. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also welfare.
Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign and military aid, to influence the macroeconomic performance of the economy, or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive.
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Transparency and simplicity
Another concern is that the complicated tax codes of developed economies offer perverse economic incentives. The more details of tax policy there are, the more opportunities for legal tax avoidance and illegal tax evasion, which result in lost revenue. Perverse incentives also occur because of non-taxable 'hidden' transactions; for instance, a sale from one company to another might be liable for sales tax, but if the same goods were shipped from one branch of a corporation to another, no tax would be payable.
To address these issues, economists often suggest simple and transparent tax structures which avoid providing loopholes. Sales tax, for instance, can be replaced with a value added tax which disregards intermediate transactions.
Kinds of taxes
Income tax – it is a tax levied on the financial income of persons, corporations, or other legal entities. Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income.
Property tax is a tax imposed on property by reason of its ownership. A property tax is usually levied on the value of property owned.
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Property taxes may be charged on a recurrent basis (e.g., yearly). A common type of property tax is an annual charge on the ownership of real estate, where the tax base is the estimated value of the property.
Tariffs.An import or export tariff (also called customs duty) is a charge for the movement of goods through a political border. Tariffs discourage trade, and they may be used by governments to protect domestic industries. The classic ways of cheating a tariff are smuggling or declaring a false value of goods. Tax, tariff and trade rules in modern times are usually set together because of their common impact on industrial policy, investment policy, and agricultural policy.
Value Added Tax / Goods and Services Tax.A value added tax (VAT) applies the equivalent of a sales tax to every operation that creates value. To give an example, sheet steel is imported by a machine manufacturer. That manufacturer will pay the VAT on the purchase price, sending that amount to the government. The manufacturer will then transform the steel into a machine, selling the machine for a higher price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but will send to the government only the excess related to the "value added" (the price over the cost of the sheet steel). The wholesale distributor will then continue the process, charging the retail distributor the VAT on the entire price to the retailer, but sending only the amount related to the distribution mark-up to the government. The last VAT amount is paid by the eventual retail customer who cannot recover any of the previously paid VAT.
Economic theorists have argued that the collection process of VAT minimizes the market distortion resulting from the tax, compared to a sales tax. However, VAT is held by some to discourage production.
4. Pick out all the word combinations with TAX from the text above and give their definitions. Can you add to this list? Use a dictionary and make as many additions as you can.
5. Answer the questions.
1. What is taxation?
2. Who is tax collection performed by?
3. Where does the tax money go?
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4. Why do governments vary tax rates?
5. Why is it undesirable for governments to have complicated tax codes?
6. What kinds of taxes are mentioned in the article? Can you add to the list?
6. Translate into English.
1) Под налогом понимается принудительное изымание государственными налоговыми структурами с физических и юридических лиц, необходимое для осуществления государством своих функций. 2) В ответ на увеличение правительством налогов предприниматели приняли решение поднять цены на потребительские товары. Подобное налогообложение явно не способствует развитию торговли. 3) Государство облагает налогами своих граждан, тем самым перераспределяя часть доходов с помощью переводных (трансфертных) платежей. 4) Переводные платежи, к которым относятся социальное обеспечение, выплата пенсий за выслугу лет, пособия по безработице и т.д., непосредственно влияют на налоговую политику правительства. 5) В России налог на добавленную стоимость был введен в январе 1992 года. 6) В некоторых странах акцизный сбор с продажи алкогольных напитков является очень доходной статьей. 7) Правительственные расходы в основном финансируются за счет налогообложения, поэтому, чем больше сумма расходов, тем больше налоговых поступлений необходимо государству. 8) К началу 2012 года налогоплательщики, физические лица, смогут оплачивать налоги, государственные пошлины и другие госуслуги в электронном виде, через Интернет или банкоматы. 9) В ряде стран подоходным налогом называют только налог на доходы физических лиц, а для юридических применяют термины налог на прибыль корпораций или налог на прибыль. 9) В России подоходный налог официально называется Налог на доходы физических лиц (НДФЛ). Основная налоговая ставка — 13 %.
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7. Express your opinion on the following statements.
1) “Nothing is certain but death and taxes.” Benjamin Franklin
2) “Tax loopholes are like parking spaces – they all seem to disappear by the time you get there.” Anonymous
3) “The Eiffel Tower is the Empire State Building after taxes.” Anonymous
4) “Anyone should pay income tax with a smile. I tried it, but they wanted cash.” Anonymous
5) “When a congressman says he’s for a tax cut – it simply means he wants his cut of your taxes.” Anonymous
Rendering
Render the following text in English and comment on it.
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