The process of double taxation of income and gains are termed as double tax treaty in which UK serves as one among the largest network of treaties across the globe. There are many factors that affect the taxation system and policy of the country. Various financial acts, restructuring of the tax court, rapid changes in the economy and the rewriting of the tax law are some of the factors that affect the taxation policy in UK. The payment of tax is common to all the people in UK whether he is a resident or not.
Tax System Introduced by the UK Government
Taxation is the process by which taxes are levied on the percentage of income and gain that is earned by an individual member or by an enterprise. The tax year in UK is on April 6th one year till the next April 5. The tax year is also referred as fiscal year in UK. It includes both income taxes and other personal taxes also. The financial year is April 1st to March 31. In each and every budget, government imposes new taxation policies by which the tax will be paid by all the people in the country. The tax system in UK is composed of income tax, national insurance contributions and value added taxes. Income tax is forecast to raise 156.7 billion in 200809, but not all income is subject to tax. (Adam Browne 2009, p.5).
The various forms of income taxes are income generated through self employment, allowance of job seekers, retirement pensions, and income from the properties such as banks, buildings and dividends from share. Some contributions (21 of the total in 2008095) are allocated to the National Health Service the remainder are paid into the National Insurance (NI) Fund and used to finance contributory benefits. (Adam Browne 2009, p.11).
In the financial year 2008-2009, the amount forecasted was raised to 97.7 billion. The other tax system in UK is VAT. It is the proportion of the taxes which is paid on each sale. The revenues from the business the before passing it to the HM Revenue and Customs (HMRC), a particular percentage will be deducted from what they have paid to produce the product. The standard rate of VAT is 17.5, but this has been reduced to 15 from 1 December 2008 until 31 December 2009 as part of an economic stimulus package. (Adam Browne 2009, p.14).
There are many other taxes such as excise duty, Vehicle excise duty, Insurance premium tax, Air passenger duty, Landfill tax, Climate change levy and aggregate levy.
The capital taxes are the other form of taxation in UK. They are also referred as corporation taxes. About 4.9 billion is estimated to be the capital gain in the year 2008-09. It represents only a small proportion of total government receipts, capital gains tax is potentially important as an anti-avoidance measure, as it discourages wealthier individuals from converting a large part of their income into capital gains in order to reduce their tax liability. (Adam Browne 2009, p.21).
Tax Progressivity Theory in UK
It seems to be readily conceded by everyone that all taxation must be an attack on property, in the sense that the government (if democratic) is entitled to take without giving anything in return. (Some modern principles of taxation Adam smith revisited, 1992). The middling and superior ranks of people, if they understood their own interest, ought always to oppose all taxes upon the necessaries of life, as well as all direct taxes upon the wages of labor. (Adam Smith and the search for an Ideal Tax System, n.d, p.27).
In the tax progressivity theory of Adam Smith are four canons and they are as follows
a) Equity
It is one among the most important principle in taxation. Taxation should be equal to all the public in a country. The concept of equality should be the central of the taxation policy. It indicates that whatever taxes may be imposed on the public, no persons should gain any advantage or should not put any disadvantage on them. For example if a man wants to build a house and he hade made the land to be a desirable place. But, instead of taxing improvements, to tax these land values is to leave the natural inducement to further improvement in full force, and at the same time to keep down an obstacle to further improvement, which, under the present system, improvement itself tends to raise. (Enquiry in taxation, n.d.).
b) Certainty
This principle indicates that value of the tax cannot be misstated. Certain aspects such as tyranny, corruption, fraud, favoritism, and evasions that are so common in connection with the taxation of imports, manufactures, incomes, personal property, and buildings the values of which, even when the object itself cannot be hidden (Tax certainty, n.d.) and these are recognized by the experts in the process of the evaluation. It should clearly specify the amount to be paid as tax and must also specify the time and how it must be paid.
c) Convenience
A tax should be due at a time or in a manner that is most likely to be convenient for the taxpayer. (Tax policy concept statement Guiding principles of good tax policy A framework for evaluating tax proposals, 2001, p.10). It must be a favorable time for the payers to pay the taxes. For example a tax on goods must be analyzed at the time of its purchase. At that particular time the purchaser can decide whether to buy or not or to go for other option. Convenience in the payment of the taxes will be helpful the people to ensure compliance with the existing taxation system.
d) Efficiency
The tax system should not impede or reduce the productive capacity of the economy. (Tax policy concept statement Guiding principles of good tax policy A framework for evaluating tax proposals, 2001, p.10). The existing tax system should not obstruct the goals of the nation. The objective of the economic growth is achieved by the efficiency in the tax maintained by the government of the respective country. By implementing these principles in the taxation system it enables to carry out a perfect taxation system that facilitates in accurate payment and well established growth of the economy.
Impact of the four canons
Adam Smiths four canons or norms have been rendered obsolete or rather outdated when it is to be set against the modern day tax regime. This is because the economic scenario and conditions since then have undergone sea changes in the administration and distribution of the burden of taxation. (Man, economy and state, n.d.).
Not only have the quantum of tax in volume terms increased over time, but also the very rationale and justification of the present tax regime has been different from that of previous regimes in its enforcement and deployment. Adam Smiths canons have sought to strike a just and equitable measure between benefits that are being received from the State by such tax payer and the need for them to pay fair amounts for gaining such benefits in a free state. The axiom of Adam Smith that there needs to be a just and equitable distribution of the burden of taxation between tax payers needs to be examined in the light of the fact that in todays world the distinction between tax planning and tax evasion is fairly blurred. Through tax planning it is possible for individuals to take legal advantage of taxation loopholes and deficiencies in order to lower his tax burden, or even turn liabilities into assets with the aid of expert taxation advices. This is permissible and within the ambit of law, provided the relevant tax authorities are confirmed and convinced that the taxpayer has used legal means to lower his tax liability and has not resorted to taxation frauds, misrepresentations and duplicity. However, the fact that the correct amount of tax which is due to the Exchequer has not been paid, is itself concomitant to tax evasion, since a lower tax has been resorted to, though apparent use of loopholes and mismatches in the present tax system. Were the assessee not aware of these facts, perhaps she would have has to pay a higher rate of tax, and could not, in effect, claim any kind of relief or recompense. Thus the distribution of an equitable tax regime and burden among assesses is seen as a paper tiger, which ceases to hold any material or realistic significance. Empirically, it is seen that each assessee wishes to reduce total tax liability as could be possibly done, and therefore, perhaps the dimwitted persons and assessee having lowered wisdom about individual tax laws and its implications would be at the receiving end of heavier dozes of taxes, albeit they could reduce it through strategic tax decisions and even by using illegitimate means to arrive at a legitimate solutions by offering bribes and inducements to tax administrative officials and servants.
Coming to the next aspect, which are taxes need to be levied, so that payment could be made convenient. In other words, during that time, it was quite possible that the convenience and the tax paying ability, to a very large extent, impacted upon their liability for tax. What Smith was driving at, was the fact that earning and disbursing ability, to a very large extent, determined the tax liability of individuals. However, in the present situation it is seen that such theories would not hold water, since it is real income generation, and not any other determinants that control the tax liability. Higher tax liabilities would arise should the assessee be in a position to earn more revenues and thus be subject to higher dozes of taxes. Tax laws follows its own standardized laws and all assesses would be bound by it, which is governed by laws that spell out the uniformity of treatment, which shall be the next aspect to be considered in this work. Uniformity of treatment actually means that no one is above the tax laws and has to be subjected to the same kind of tax treatment that is being enforced to the other assesses. However, there are instances, when individual assesses could use their tax acumen and wisdom to seek legal redress of wrongs committed by the Tax departments and also use legitimate ways of reducing ones tax burden without misbalancing, or overstretching the present individual tax structure. As long as his actions are within legal tax restraints, there are no questions asked
Coming to the next aspect, it is seen that taxes need to be certain, and not arbitrary, or capricious. The fact that certainty is a sine-qua-non does not however make it advantageous for the assessee. It is certain that he needs to be bracketed among high tax assesses if need be. Fundamentally, it is the application of the rules or principles of taxation in individual context that makes it either liable to lower or higher tax demands. The various principles of taxation laws with regard to incomes from various sources like capital gains taxes, profits earned through selling of assets, incomes from professional sources, incomes from other sources, including gambling gains, dividends and interests receipts, each of these are taxed under separate rules under laws. By applying distinct principles, the tax demands are made, which, after rebates and deductions as applicable under each case, help in deriving the total tax liabilities of individuals. It was seen as imperative that taxpayers expenditure and administrative load were kept to the least, in as much as the operations of the HM Revenue and Customs are concerned. It could be seen in terms of the fact that the HMRC needs to be seen as a responsible and non corrupt agency whose main functions shall be to monitor fiscal discipline in the collection of taxes and safeguarding the rights and privileges of the individual assesses. It is often possible that due to highhandedness, even corrupt attitudes of HMRC officials, it is possible that assesses may be subject to humiliation and harassments of different sorts at the hands of diverse power-wielding officials, but this is not what is intended by the laws, who wish that the relations between the tax payers and the various concerned authorities are sustainable, continuous and long standing. There are different kinds of government machinery and forums in which individual tax harassment could be taken up, at different levels of the administrative set up. Besides there are also prescribed authorities within the government who could attend individual grievances and seek justice to the aggrieved. All these aspects have to be kept in mind, including the fact that arbitrary enforcement of laws could do more harm than good, not only to individual tax payers but also to the system itself.
Conclusions
By and large it is believed that the UK individual tax laws have evolved over time and it would be also necessary for it to subject itself to more dramatic changes in the future, not only to adapt itself to the current scenario but also in order to render better service to the community in future years. While tax is a formidable tool in the hands of the government, it needs to be put into constructive use and not to seek punitive and retributive justice.
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