TAXES

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TAXES
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The principles of taxation

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How to tax fairly

• Ability to pay principle reflected by the
  progressive taxes.
• Benefits principle people getting most benefit
  from public spending should pay most for it (e.g.
  Car users taxed to finance public roads).
• This two may be in conflict! (than ability to pay
  should prevail)

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The progressive tax and benefit structure because
of

• Transfer payments give money to the poor
  (pensions for old ones, unemployment
  benefits,supplementary benefits for poor).
• Public goods provided by a state (can by consumed
  by the poor even if they have not paid any taxes
  to finance these goods)

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Regressive elements of tax, transfer and spending
system

• E.g. Taxes on beer and tobacco (poor spend a much
  higher proportion of their income on these goods
  than the rich)
• Regressive taxes show redistribution from the
  poor to the rich.

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• Tax incidence is the final tax burden once we
  allow for all induced effects of a tax.

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• Tax wedge is a gap between the price paid by the
  buyer and the price received by the seller.
• The more inelastic the supply curve and the more
  elastic the demand curve, the more the final tax
  incidence will fall on the seller rather than the
  purchaser.

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• Extreme casesupply (SS) completely inelastic
• With no tax E-equilibrium,W-wage
• New equilibrium A and new wage W
• Only if the gross wage is unchanged firms will
  demand quantity L that is supplied, so the wage
  obtained by employee is lowered to W- entire
  incidence of the tax falls on the workers.

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• DD-demand curve,
• SS-supply (without tax)
• E-equilibrium without income tax,
• After imposing income tax
• DD- unchanged,
• SS-supply of labour in terms of gross or
  tax-inclusive wage (workers preferences are
  unchanged but they are interested in net-of-tax
  wage),
• E-new equilibrium, W-gross wage,L-workers
  (net-of-tax wage at which workers supply L)
• The wage paid by employer raised(from W to W)
  but the wage obtained by the worker lowered (from
  W to W)

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Taxation, efficiency and waste
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Taxation, efficiency and waste
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Must taxes distort?
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Must taxes distort?

• When either the demand or supply curve is very
  inelastic, a tax leads to small change in
  equilibrium

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Cigarettes in UK
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• Consumers act as they were taking into account
  the externality

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Taxation and supply-side economics
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• Supply-side economics analyses how taxes and
  other incentives affect national output when the
  economy is at full capacity.

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• The Laffer curve shows how much tax revenue is
  raised at each possible tax rate.

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• Laffer Curve

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Purposes and effects of taxation
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Funds provided by taxation are used to carry out
the functions such as

• military defense,
• enforcement of law and public order,
• protection of property,
• redistribution of wealth,
• economic infrastructure roads, legal tender,
  enforcement of contracts, etc.,
• public works,
• the operation of government itself.

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Most governments also use taxes to fund welfare
and public services, such as

• education systems,
• healthcare systems,
• pensions for the elderly,
• unemployment benefits,
• energy, water and waste management systems,
• public transportation.

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• Each tax has
• subject,
• object,
• base,
• rate,
• date,
• method of payment.

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Main taxes in Poland

• Corporate Income Tax (CIT)
• VAT (Tax on Goods and Services)
• Excise Duty
• Tax on Dividends
• Personal Income Tax (PIT)
• Inheritance and Gifts Tax
• Tax on civil and legal proceedings
• Stamp duty
• Local Taxes

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PIT
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Aims

• Diminish the disproportion progressive tax rate
• Supporting important social aims (building family
  homes, education, culture, charity, economical
  enterprises, creating working places)
• Profamiliar policy
• Savings protection are tax-free

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• Legal base for collection of personal income tax
  is the statue from 26 July 1991

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What is subjected to taxation?

• Salaries
• Pensions, disability payments
• Rewards
• Subsidies for unemployed
• Others
• Earnings in the country as well as abroad !

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Determining the tax rates

• 19
• 30
• 40

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Tax rates (2005)
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Who pays?

• Everyone ho has some income. Exceptions concern
  very low one (the cost of collecting the tax
  would be improportionally high to the amount of
  tax itself)

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Tax base

• Sum of taxable incomes from all the sources
• Where taxable income is positive difference
  between all the money gained and the expenses for
  gaining them

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Not taxable incomes

• National awards
• Disability payments for soldiers disabled during
  the war
• Compensations from personal insurance
• Interests on savings
• Allowances from social-care, for rehabilitation

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Two ways of diminishing the tax

• Find the expenses that can be subtracted from tax
  base?
• ( Ex. Medicines, guides, usage of the car for
  disabled person
• Donations for charity organisations)
• We cant subtract from the income the sum
  which was already taken into account for
  diminishing the tax base!

• Which expenses can be subtracted from the tax?
• (E.g. Renovation of installations
• Expenses for social organisations.)

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Basic features of PIT

• Direct
• Ordinary
• Obligatory
• Calculated by taxpayers
• National (increases the budged of the country)

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Corporate Income Tax

• CIT

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Content

• CIT- what is it?
• How much?, sanctions...
• CIT forms

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What is it?

• Tax payable by
• legal entities, including limited liability
  companies and joint stock companies, and tax
  capital groups.

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• In 2002, the overall number of payers of
  corporate income tax amounted to 220,356.
• The main legal act regulating CIT is the Act on
  Corporate Income Tax that has been in force since
  1 January 1992.

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When and possible sanctions?

• taxpayer counts, declares and delivers the tax to
  be paid on his own
• Not delivered - punishment
• Mistake correction form

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Where is the taxpayer registered?

• Taxpayers with their registered office or
  management board located - subjected to the
  taxation of all revenue, regardless of their
  origin.
• Taxpayers who do not have a registered office or
  the management board located - liable for payment
  of taxes only on the revenue obtained in Poland.

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How much???

• Tax rates
• 1997 r. 38 1998 r. 36
• 1999 r. 34 2000 r. 30
• 2001 r. 28 2002 r. 28
• 2003 r. 27 2004 r. 19
• 2005 r. 19

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• European Union
• The countries which entered European
• Union in 2004 21
• The rest 31

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USA

• Small business lt-gt big business
• CAT
• Minimum, maximum tax

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Canada (Province of British Columbia)

• General Rate   
• July 1, 2005 to present 12.0   
• January 1, 2002 to June 30, 2005 13.5  
• July 1, 1993 to December 31, 2001 16.5  
• Small Business Rate   
• Applicable for Canadian controlled private
  corporations with active business income.   
• January 1, 2001 to present 4.5  
• July 1, 2000 to December 31, 2000 4.75  
• July 1, 1999 to June 30, 2000 5.5  
• January 1, 1999 to June 30, 1999 8.5

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Losses
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Losses

• Losses can be carried forward for up to five
  years, though no more than 50 of the loss can be
  written off in any year. In this way the
  government is helping new enterprises, which
  might suffer early losses.

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Poland

• In 2002, the revenue raised from CIT amounted to
  15,008.4 million PLN and exceeded the estimated
• revenue by 8.5.

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Budget 2006
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Budget 2006
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CIT forms
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CIT forms

• CIT-S the income established by the company in
  the special economical zone
• CIT-D information about donations
• CIT-9 income from exporting goods abroad
• CIT-8 income established by the taxpayer
• CIT-8_O information about the relieves in paying
  taxes and about the income free of being taxed
• CIT-8_A,B declaration about the income made by
  the tax capital group

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CIT forms

• CIT-7 information about the income from profits
  from dividends
• CIT-6,6 A declaration about the tax taken from
  shared profits with legal persons
• CIT-5 the declaration about the allocation of
  profits from dividends
• CIT-2 declaration about the losses
• CIT-2_O information about relieves
• CIT-2_A,B declaration about the amount of money
  losen by the capital group

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CIT forms

• CIT-11 declaration about the income from
  dividends
• CIT-10 declaration about the income obtained by
  legal persons who havent registered in Poland
• IFT-2,IFT-2_R information about the income made
  abroad

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VAT (Value Added Tax)

• Tax on Goods and Services
• Indirect tax
• basic rate 22 (standard rate),
• preferential rate 7 (e.g vegetables, meat,
  fish, bread, books)

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Excise duty

• For luxury products,
• rate depends on the kind of goods, as well as on
  the origin of the good

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Inheritance and Gifts Tax

• progressive rate and its level depends on the
  character of relation between donor and recipient
• base of taxation the market value of goods and
  property rights acquired through inheritance,
  donation and prescription

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Tax on civil and legal proceedings

• E.g
• 1. Sales contract
• a) connected with real estate 2
• b) other rights 1
• 2. exchange contract, donation,etc.
• a) connected with real estate 2
• b) other rights 1
• 3. contract of lease 2

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Local Taxes

• Local taxes and fees include real estate tax,
  vehicle tax, dog tax, and market tax.