Tax

A tax is a financial duty of an individual or a legal entity ordered by a state or its functional equivalent. A tax can be imposed by a sub-national entity as well. To explain the notion properly we must differ between a direct and an indirect tax. A compliance cost is the difference between the amount of money paid by the tax payers and the actual sum of money available by the government. The difference is caused by the expenses such as the labour cost, or acts connected with complying with the tax laws and rules.
A tax can be paid in two ways either in money or as a corvée labour. The most conventional way of levying is the former one which is commonly used by the capitalist taxation system. The latter way was not an exception in the pre-capitalist states.
The government office responsible for tax collecting is called the Internal Revenue Service in the United States, HM Revenue and Customs (HMRC) in the United Kingdom. Its Canadian counterpart is Revenue Canada.
In case that the non-paying entity appears the government has a right to charge the one either with fines or forfeiture is carried out against this entity. The most industrialised countries apply a strict law against the individual who is not able to pay the government the taxes. If the financial duty is not fulfilled it can result to the loss of money or even imprisonment.
The phenomenon of taxation has been used by the governments and states throughout the history. The purpose of taxation is to secure these crucial functions within the state:
" Economic infrastructure (legal tender, enforcement of contracts etc.)
" Enforcement of law and public order
" Protection of property
" Public works
" Social engineering
" The support of government itself
This state income is usually used to fund welfare and public services as follows:
" Education system
" Energy, water and waste management system
" Health care system
" Public transportation
" Unemployment benefits
The government of a certain state has its own taxation policy; as a result, it may slightly differ. From the historical point of view the taxes were the source of the nobility` s power. The more the poor paid, the more the nobility flourished. The main purpose of the modern society` s taxation is to support the poor, the disabled, or the retired by distributing the tax burden among the working individuals.
The tax burden is distributed among the entities involved in taxable activities, for example in business. Taxation is a tool of redistribution of resources among individuals or classes of the people. It serves to fund foreign and military aid. A tax influences the macroeconomic performance of the economy and patterns of consumption or employment within an economy by making a certain transaction more or less interesting.
Hypothecation is a notion that denotes the collection of taxes in order to be spent on a specified purpose. Many governments practice this kind of economic model what is criticised by some economic theorists. It means that a tax on alcohol is directly provided for, and spent by an alcoholism rehabilitation centre. This approach is considered unacceptable by many finance ministers as their freedom of action is restricted. It is quite usual that a tax levied to fund a concrete government program is finally diverted to the government general fund so it can result in inefficient use of resources. Taxation policy is believed to cause market distortion and economic inefficiency. This opinion is declared especially by neo-classical economists. In the countries where the common law is practiced the governments often have to face commercial disputes. A sales tax and a value added tax is attacked as well. The libertarians criticise a tax and demand that any form of taxation should be abolished. The most radical solution is provided by anarcho-capitalism which insists on a tax as a matter of voluntary private contracts.
Nowadays, there are the attempts to search for a compromising tax system that would evade this distortion. It is a generally known fact that a neutral tax is a tax on land. Unlike a tax on personal income, or retail sales, a tax on a land do not reduce the amount of it. One of the government` s essential commission is to administer the possession and the use of land, so it is economically efficient for government to recover for public purposes the additional value it creates by offering this complete service.