Taxation & Tax Legislation

AlMoatassem Mostafa

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Dos

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Essay One Background on

Taxation

1. Definition of Taxation

2. History of Taxation

3. Classifications of Taxation

4. Importance of Taxation

Lecture Outline

• Definition of Taxation– Characteristics of taxation– Distinction between taxes and other concepts

• History of Taxation– Taxation in the ancient civilizations– Taxation in the middle ages

Learning Outcomes

At the end of the lecture, you will be able to understand:- The meaning of taxation and its main

characteristics- The difference between taxes, fees, and duties.- The origins of taxes from ancient civilizations to

middle ages, including pre-colonialism and colonialism era.

Introduction• Taxation is regarded as a major source of a country’s revenues. • Countries use revenues from taxes to secure funds for their growing

expenditures.• Tax revenues could, for instance, be used to finance infrastructure

projects, healthcare systems, education systems, and social security systems.

• Governments could utilize taxes in order to encourage or discourage the production or consumption of certain goods and services.

• Taxes could be used as an incentive for investment, especially foreign direct investment, since tax exemptions and/or reductions in a certain sector could encourage foreign investors to invest in this sector.

1. Definition of Taxation

• Taxation is a compulsory levy imposed by the government according to the law on either receiving income, using income, or on capital assets.

• Taxes are imposed in return for nothing in specific; they are used to secure funds for a variety of public purposes, including, for instance, the provision of public goods.

Characteristics of Taxation

• Taxes are involuntary payments. • A levying authority, usually the government,

imposes taxes. • Taxes are imposed by the law.• Taxes are paid in cash.• Taxes are imposed on income, transactions, or

property.• Taxes are paid in return for nothing in specific.• Taxes are imposed based on the ability to pay.

Distinction between taxation and other concepts

• Taxes and Fees: – Taxes are generally imposed on the receipt of income, using

this income, or on capital assets. In contrast, fees are payments imposed by the government on the individuals in return for a specific service provided by the government.

– the first major difference between a tax and a fee is the return for payment; taxes are paid in return for nothing in specific, while fees are paid in return for a service.

– Another distinction is that taxes are paid by all the taxpayers who are subject to these taxes. Fees, in contrast, are paid only by the individuals who enjoy such service.

– Taxes are generally calculated as a percentage of the income or of the amount of money involved in a transaction. Fees, in contrast, are calculated based on the service provided; they are proportional with the benefit obtained from this service.

– A final distinction is the legal instrument through which the payment is imposed. Taxes are imposed only by the law, while fees are imposed by the law, regulations, or administrative decisions issued by the government agency in charge of this service.

• Taxes and Duties: – A duty is a type of tax that is paid to the government

and enforceable by the law on commodities and financial transactions.

– There are two main types of duties, excise duty and customs duty. Excise duty is imposed on the production of goods in the country. Customs duty, in contrast, is imposed on the imports or exports of goods.

– A duty is a type of indirect tax that is imposed on production and the import or export of commodities.

– A tax is imposed on individuals, wealth, transactions, and services.

2. History of Taxation

• Taxation is a product of human history. It has been subject to continuous evolution throughout history.

• The current tax systems have resulted from changes in economic, political, social circumstances.

• Taxation is regarded as merely a reflection of the change in both society and economy.

Taxation in ancient civilizations

• Taxation emerged in the ancient civilizations, including Egyptians, Mesopotamia, Romans, and Greeks.

• Taxes were imposed in ancient times in order to secure funds for military expenditures, public services, food stocks, and gold.

• The first known taxation system dates back to the Mesopotamia civilization in the year 6000 B.C. according to tax records in the form of clay tablets.

• These tax records revealed that taxation system relied on property tax. The scope of application of this tax was somehow limited, except during times of wars or crises.

• The ancient Egyptian civilization also adopted taxation systems.

• Tax revenues were used to secure funds for the central government.

• One example of taxes that were imposed in ancient Egypt is an indirect tax on the consumption of cooking oil.

• The Greek Empire adopted poll taxes in addition to taxes on goods and property.

• During stable times, a monthly poll tax was imposed on foreigners with no Athenian decedents.

• Tax rate of the Athenian poll tax was one drachma (Athenian currency) for men and half drachma for women.

• During periods of wars and conflicts, a tax was imposed on everyone in order to finance military expenditures.

• In the Roman Empire, the scope of application of taxes was somehow wide as compared to the Greeks and the Egyptians

• The excessive reliance on taxation during the 4th and 5th centuries is thought to be the major cause of the Roman Empire’s economic collapse.

• During the reign of Caesar Augustus, an inheritance tax was found to finance military pensions.

• The rate of inheritance tax was 5% on all inheritances excluding gifts to children and spouses.

• In addition to the inheritance tax, a sales tax was adopted with 4% rate on slaves and 1% on everything else.

• Although taxes were collected by the central government, cities also acted on behalf of the central government in collecting these taxes.

• The rate of sales tax during the reign of Julius Caesar was, in contrast, 1%.

• Ancient Chinese enforced a property of tax during the year 600 B.C.

• The tax rate was 10% of the cultivated land owned by an individual. The production of this 10% of cultivated land would then collected by the central government.

Taxation in Middle Ages

• Several tax systems were introduced in Europe during mediaeval times.

• An income tax was implemented in most European states on the income of craftsmen and tradesmen based on their ability to pay.

• In addition, some states imposed taxes on salaries, professional gains, and rents of land.

• These types of income taxes were imposed beside property taxes in most European states.

• Muslims also applied some kind of a poll tax in many parts of Northern Africa and the Mediterranean Region during the 14th and 15th centuries.

• This poll tax was applied on non-Muslims, including Jews and Christians. This means that citizens of the societies that did not convert to Islam had to pay a tax.

• In addition, nomads were taxed for waiting in specific locations and for utilizing resources in these locations, such as water supplies.

• In the pre-colonialism era, most African kings imposed taxes in the form of a portion of harvest and/or livestock.

• These taxes were seen as a contribution of the citizens towards their kingdoms.

• The main objectives of such taxes were to finance military expenditures and the expansion of these kingdoms and empires.

• In the colonialism era, one of the early comprehensive income tax systems was introduced by Britain’s Prime Minister William Pitt in 1799 during the Napoleonic wars.

• The British income tax was collected annually with a 10% on annual incomes exceeding £ 200 and between 1–10% on annual incomes ranging between £ 60–200.

• In colonial America, an excise tax was applicable on imports of sugar, wine, and other commodities in 1764 under the Sugar Act.

• A new Stamp Act was introduced in 1765 due to the insufficiency of revenues from the Sugar Act.

• Under the Stamp Act, a direct tax was imposed on newspapers, commercial, and legal documents that were being printed in the colonies.

• The first income tax that was proposed in the United States was during the war of 1812 between the United States and the United Kingdom to secure military funds.

• It enforced progressive rates in which a 0.08% rate was applicable on incomes above £ 60 and a 10% rate on incomes above £ 200

• Such income tax was not implemented due to the Treaty of Ghent in 1815 that ended the conflict, and therefore the need for such tax.

• The beginning of the Civil War in 1861 called for the implementation of an income tax to finance war expenditures.

• In Africa, a number of tax laws were introduced to secure funds to administer the British colonies.

• For instance, a hut tax was introduced by the British colonialists between 1900 and 1904.

• This tax was calculated per hut or on household basis. Taxpayers could pay this tax in the form of money, labour, grains, or in any other type of commodity.

• This tax helped the British colonialists in raising revenues for both administration and development purposes.

Practice Questions

1. Define the following terms: Taxation, Fee, Duty.

2. Define Taxation and explain its main characteristics.

3. What is the difference between a tax and a fee (or a duty)?

4. Explain the history taxation in ancient civilizations (or in middle ages)

Contact Details

E-mail: al_moatassem@mans.edu.eg