Taxes and taxation

It has been argued that taxes are what we pay for a civilized society. They are the subscription we pay for a stable, supported social environment. Tax is a social contract between individuals who tacitly agree to pay for particular social benefits.

There are many different types of tax: both direct on income and indirect on specific goods or sales.

Income tax is usually paid through the pay-as-you-earn (PAYE) scheme. It is a tax on the income of individuals which is taken from wages, rents, dividends, and interest. In the UK individuals earning up to ₤24000 pay 25 per cent tax.

Corporation tax is paid by firms on the profit they earn. It makes up 33 per cent but, if a firm is small and profit doesn’t exceed ₤250000, the tax is 25 per cent.

Capital gain tax is paid by individuals who profit by selling a capital asset at a higher price than they originally paid, e.g. the sales of shares.

Inheritance tax was formerly called death duties. It is paid to the government when assets are transferred from deceased to inheritor.

National insurance contributions (NICs). These bare payments made by individuals and their employers to the Department of Social Security. They are used to finance pensions and social security.

Local taxes may be used by communities for their needs.

Indirect taxation is taxes levied on expenditure on goods and services. The seller of the good or service collects the tax on behalf of the government, by adding the tax to the price of goods and services sold.

Value added tax (VAT) is charged on most goods and services in the UK. It makes up 17.5 per cent of a good or service retail price, and it is added to that price to form the final price.

Excise duties are taxes on particular goods or services, such as petrol, diesel, alcoholic drinks, tobacco products and gambling. They are levied on a manufacturer.

Customs duties are tariffs on goods imported from outside the country or EU.

Taxes have always been and continue to be unpopular. Hence “sin” taxes on tobacco, alcohol and gambling can be reasonably popular and even good for the health of the nation.

Painless, widely accepted, trouble free and easy-to-collect taxes do not exist. That is why people try to avoid taxes. Tax avoidance is legal. Tax evasion is illegal.

COMPREHENSION CHECK

Exercise 1. Answer the following questions.

1. What is tax?

2. Why do people pay tax?

3. What is income tax?

4. What income tax do people pay in our country?

5. Who pays corporation tax and what for?

6. What is capital gain tax?

7. Why was inheritance tax formerly called death duties? Who earns on it? Do you consider that to be fair?

8. What is the most justified tax? Why?

9. Why should we pay VAT? Do you agree with that?

10. What is better for entrepreneur in our country tax avoidance or tax evasion? Why?

11. What is excise duty on gambling in Ukraine? In Russia? In Great Britain? In the USA?

Exercise 2. Correct false sentences.

1. From time to time people refuse to pay taxes tacitly and organize strikes.

2. The pay-as-you-earn scheme of income tax is one of the most backward and unfair.

3. People working in corporation pay the corporation tax for their being employed.

4. People pay inheritance tax to their relatives who were deprived inheritance.

5. People don’t pay anything to the Department of Social Security and get pensions and social benefits free.

6. In the U.K. VAT makes up 20% of a good or service and in Ukraine – almost the same.

7. For the sake of community health government should not levy excise duties.

8. Tobacco, alcohol and gambling promote mental health of nations.

9. Many people, so called nouveau riche always pay all taxes and are very proud of their honesty.

Your opinion.

What are merits and demerits of taxation?

Is it possible to invent the fairest tax system?

Your pro and cons.

Do you know any rich person in your country who doesn’t evade taxes and publish true accounts about his profits?

What is more profitable in the U.K. to be honest with low or not? What is more profitable in our country? Why does it happen with us?