Governments also use taxes to fund welfare and public services. A portion of taxes may be used to service past debts. When expenditures exceed tax revenue, a government accumulates government debt. A government's ability to raise taxes is called its fiscal capacity. Some of these include expenditures on economic infrastructure ( roads, public transportation, sanitation, legal systems, public security, public education, public health systems), military, scientific research & development, culture and the arts, public works, distribution, data collection and dissemination, public insurance, and the operation of government itself. States and their functional equivalents throughout history have used the money provided by taxation to carry out many functions. The levying of taxes aims to raise revenue to fund governing or to alter prices in order to affect demand. When taxes are not fully paid, the state may impose civil penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) on the non-paying entity or individual. Tax collection is performed by a government agency such as the Internal Revenue Service (IRS) in the United States, Her Majesty's Revenue and Customs (HMRC) in the United Kingdom, the Canada Revenue Agency or the Australian Taxation Office. The method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. In modern taxation systems, governments levy taxes in money but in-kind and corvée taxation are characteristic of traditional or pre- capitalist states and their functional equivalents. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector, levied on a basis of predetermined criteria and without reference to specific benefits received. Governments also obtain resources by "creating" money and coins (for example, by printing bills and by minting coins), through voluntary gifts (for example, contributions to public universities and museums), by imposing penalties (such as traffic fines), by borrowing and confiscating criminal proceeds. Examples include tuition at public universities and fees for utilities provided by local governments. For example, some transfers to the public sector are comparable to prices. The legal definition and the economic definition of taxes differ in some ways such that economists do not regard many transfers to governments as taxes. Pieter Brueghel the Younger, The tax collector's office, 1640 3.9.4 Proportional, progressive, regressive, and lump-sum.Consequently, taxation is a highly debated topic. This has effects that can both increase and reduce economic growth and economic welfare. In economic terms, taxation transfers wealth from households or businesses to the government. Countries or subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, use taxes, payroll taxes, duties and/or tariffs. Most countries charge a tax on an individual's income as well as on corporate income. Some levy a flat percentage rate of taxation on personal annual income, but most scale taxes are progressive based on brackets of annual income amounts. Most countries have a tax system in place, in order to pay for public, common, or agreed national needs and for the functions of government. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.Ī failure to pay in a timely manner ( non-compliance), along with evasion of or resistance to taxation, is punishable by law. Total revenue from direct and indirect taxes given as share of GDP in 2017 Ī tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal entity) by a governmental organization in order to fund government spending and various public expenditures (regional, local, or national), and tax compliance refers to policy actions and individual behaviour aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax reliefs.
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