Taxation system in the World

Tax:
A fee charged ("levied") by a government on a product, income, or activity. If tax is
levied directly on personal or corporate income, then it is a direct tax. If tax is levied on
the price of a good or service, then it is called an indirect tax. The purpose of taxation is
to finance government expenditure. One of the most important uses of taxes is to
finance public goods and services, such as street lighting and street cleaning. Since public
goods and services do not allow a non-payer to be excluded, or allow exclusion by
a consumer, there cannot be a market in the good or service, and so they need to be
provided by the government or a quasi-government agency, which tend to finance
themselves largely through tax.

Objectives Of Tax
Tax is permanent instrument for collecting revenues. It is a major source of revenue in
the developed world and has been appearing as an important source of revenue in the
developing world as well. It has been an instrument of social and economic policy for the
government. The main objectives of tax are as follows:
1. Raise More Revenue
The fundamental objective of taxation is to finance government expenditure. The
government requires carrying out various development and welfare activities in the
country. For this, it needs a huge amount of funds. The government collects funds by
imposing taxes. So, raising more and more revenues has been an important objective of
tax.
2. Prevent Concentration of Wealth in A Few Hands
Tax is imposed on persons according to their income level. High earners are imposed on
high tax through progressive tax system. This prevents wealth being concentrated in a
few hands of the rich. So, narrowing the gap between rich and poor is another objective
of tax.
3. Redistribute Wealth for Common Good
Tax collected by the government is expended for carrying out various welfare activities.
In this way, the wealth of the rich is redistributed to the whole community.
4. Boost up The Economy

Tax serves as an instrument for promoting economic growth, stability and efficiency.
The government controls or expands the economic activities of the country by providing
various concessions, rebates and other facilities. The effective tax system can boost up
the economy. Similarly, taxes can correct for externalities and other forms of market
failure (such as monopoly). Import taxes may control imports and therefore help the
country's international balance of payments and protect industries from overseas
competition.
5. Reduce Unemployment
The government can reduce the unemployment problem in the country by promoting
various employment generating activities. Industries established in remote parts or
industries providing more employment are given more facilities. As a result, the
unemployment problem can be reduced to a great extent through liberal tax policy.
6. Remove Regional Disparities
Regional disparity has been a chronic problem to the developing countries. Tax is one of
the ways through which regional disparities can be minimized. The government
provides tax exemptions or concessions for industries established or activities carried
out in backward areas. This will help increase economic activities in those areas and
ultimately regional disparity reduces to minimum.

History:

Egyptian peasants seized for non-payment of taxes. (Pyramid Age).The first known
system of taxation was in Ancient Egypt around 30002800 BC in the first dynasty
of the Old Kingdom. The earliest and most widespread form of taxation was
the corve and tithe. The corve was forced labor provided to the state by peasants
too poor to pay other forms of taxation (labor in ancient Egyptian is a synonym for
taxes). Records from the time document that the Pharaoh would conduct a biennial
tour of the kingdom, collecting tithes from the people. Other records are granary
receipts on limestone flakes and papyrus. Early taxation is also described in
the Bible. In Genesis (chapter 47, verse 24 the New International Version), it states
"But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you
may keep as seed for the fields and as food for yourselves and your households and
your children". Joseph was telling the people of Egypt how to divide their crop,
providing a portion to the Pharaoh. A share (20%) of the crop was the tax (in this
case, a special rather than an ordinary tax, as it was gathered against an expected
famine).
In the Persian Empire, a regulated and sustainable tax system was introduced
by Darius I the Great in 500 BC the Persian system of taxation was tailored to

each Satrapy(the area ruled by a Satrap or provincial governor). At differing times,

there were between 20 and 30 Satrapies in the Empire and each was assessed
according to its supposed productivity. It was the responsibility of the Satrap to
collect the due amount and to send it to the treasury, after deducting his expenses
(the expenses and the power of deciding precisely how and from whom to raise the
money in the province, offer maximum opportunity for rich pickings). The quantities
demanded from the various provinces gave a vivid picture of their economic
potential. For instance, Babylon was assessed for the highest amount and for a
startling mixture of commodities; 1,000 silver talents and four month supply of food
for the army. India, a province fabled for its gold, was to supply gold dust equal in
value to the very large amount of 4,680 silver talents. Egypt was known for the
wealth of its crops; it was to be the granary of the Persian Empire (and, later, of
the Roman Empire) and was required to provide 120,000 measures of grain in
addition to 700 talents of silver. This tax was exclusively levied on Satrapies based on
their lands, productive capacity and tribute levels.
The Rosetta stone, a tax concession issued by Ptolemy V in 196 BC and written in
three languages "led to the most famous decipherment in historythe cracking of
hieroglyphics".
In India, Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th
century.

Taxation trends:
Numerous records of government tax collection in Europe since at least the 17th century
are still available today. But taxation levels are hard to compare to the size and flow of
the economy since production numbers are not as readily available.
o Government expenditures and revenue in France during the 17th century went
from about 24.30 million livresin 160010 to about 126.86 million livres in
165059 to about 117.99 million livres in 170010 when government debt had
reached 1.6 billion livres. In 178089, it reached 421.50 million livres. Taxation
as a percentage of production of final goods may have reached 15%20% during
the 17th century in places such as France, the Netherlands, and Scandinavia.
o During the war-filled years of the eighteenth and early nineteenth century, tax
rates in Europe increased dramatically as war became more expensive and
governments became more centralized and adept at gathering taxes. This
increase was greatest in England, Peter Mathias and Patrick O'Brien found that
the tax burden increased by 85% over this period. Another study confirmed this
number, finding that per capita tax revenues had grown almost six fold over the
eighteenth century, but that steady economic growth had made the real burden
on each individual only double over this period before the industrial
revolution. Effective tax rates were higher in Britain than France the years before
the French Revolution, twice in per capita income comparison, but they were

mostly placed on international trade. In France, taxes were lower but the burden
was mainly on landowners, individuals, and internal trade and thus created far
more resentment.
o Taxation as a percentage of GDP in 2003 was 56.1% in Denmark, 54.5% in
France, 49.0% in the Euro area, 42.6% in the United Kingdom, 35.7% in
the United States, 35.2% inIreland, and among all OECD members an average of
40.7%.[36][37]

History of taxation:

Administration of taxation
Although views on what is appropriate in tax policy influence the choice and structure of
tax codes, patterns of taxation throughout history can be explained largely by
administrative considerations. For example, because imported products are easier to tax
than domestic output, import duties were among the earliest taxes. Similarly, the simple
turnover tax (levied on gross sales) long held sway before the invention of the
economically superior but administratively more demanding VAT (which allows credit
for tax paid on purchases). It is easier to identify, and thus tax, real property than other
assets; and a head (poll) tax is even easier to implement. It is not surprising, therefore,
that the first direct levies were head and land taxes.
Although taxation has a long history, it played a relatively minor role in the ancient
world. Taxes on consumption were levied in Greece and Rome. Tariffstaxes on
imported goodswere often of considerably more importance than internal excises so
far as the production of revenue went. As a means of raising additional funds in time of
war, taxes on property would be temporarily imposed. For a long time these taxes were
confined to real property, but later they were extended to other assets. Real estate
transactions also were taxed. In Greece free citizens had different tax obligations from
slaves, and the tax laws of the Roman Empire distinguished between nationals and
residents of conquered territories.
Early Roman forms of taxation included consumption taxes, customs duties, and certain
direct taxes. The principal of these was the tributum, paid by citizens and usually
levied as a head tax; later, when additional revenue was required, the base of this tax
was extended to real estate holdings. In the time of Julius Caesar, a 1 percent general

sales tax was introduced (centesima rerum venalium). The provinces relied for their
revenues on head taxes and land taxes; the latter consisted initially of fixed liabilities
regardless of the return from the land, as in Persia and Egypt, but later the land tax was
modified to achieve a certain correspondence with the fertility of the land, or,
alternatively, a 10th of the produce was collected as a tax in kind (the tithe). It is
noteworthy that at a relatively early time Rome had an inheritance tax of 5 percent, later
10 percent; however, close relatives of the deceased were exempted. For a long time tax
collection was left to middlemen, or tax farmers, who contracted to collect the taxes
for a share of the proceeds; under Caesar collection was delegated to civil servants.

In the Middle Ages many of these ancient taxes, especially the direct levies, gave way to
a variety of obligatory services and a system of aids (most of which amounted to gifts).
The main indirect taxes were transit duties (a charge on goods that pass through a
particular country) and market fees. In the cities the concept developed of a tax
obligation encompassing all residents: the burden of taxes on certain foods and
beverages was intended to be borne partly by consumers and partly by producers and
tradesmen.
During the later Middle Ages some German and Italian cities introduced several direct
taxes:
head taxes for the poor and net-worth taxes or, occasionally, crude income taxes for the
rich. (The income tax was administered through self-assessment and an oath taken
before a civic commission.) Taxes on land and on houses gradually increased.

Taxes have been a major subject of political controversy throughout history, even before
they constituted a sizable share of the national income. A famous instance is the
rebellion of the American colonies against Great Britain, when the colonists refused to
pay taxes imposed by a Parliament in which they had no voicehence the slogan, No
taxation without representation. Another instance is the French Revolution of 1789, in
which the inequitable distribution of the tax burden was a major factor.
Wars have influenced taxes much more than taxes have influenced revolutions. Many
taxes, notably the income tax (first introduced in Great Britain in 1799) and the turnover
or purchase tax (Germany, 1918; Great Britain, 1940), began as temporary war
measures. Similarly, the withholding method of income tax collection began as a

wartime innovation in France, the United States, and Britain. World War II converted
the income taxes of many countries from upper-class taxes to mass taxes.
It is hardly necessary to mention the role that tax policies play in peacetime politics,
where the influence of powerful, well-organized pressure groups is great. Arguments for
tax reform, particularly in the area of income taxes, are perennially at issue in the
domestic politics of many countries.
Modern trends
The development of taxation in recent times can be summarized by the following
general statements, although allowance must be made for considerable national
differences: The authority of the sovereign to levy taxes in a more or less arbitrary
fashion has been lost, and the power to tax now generally resides in parliamentary
bodies. The level of most taxes has risen substantially and so has the ratio of tax
revenues to the national income. Taxes today are collected in money, not in goods. Tax
farmingthe collection of taxes by outside contractorshas been abolished, and taxes
are instead assessed and collected by civil servants. (On the other hand, as a means of
overcoming the inefficiencies of government agencies, tax collection has recently been
contracted to banks in many less-developed countries. In addition, some countries
are outsourcing the administration of customs duties.)
There has also been a reduction in reliance on customs duties and excises. Many
countries increasingly rely on sales taxes and other general consumption taxes. An
important late 20th-century development was the replacement of turnover taxes with
value-added taxes. Taxes on the privilege of doing business and on real property lost
ground, although they have persisted as important revenue sources for local
communities. The absolute and relative weight of direct personal taxation has been
growing in most of the developed countries, and increasing attention has been focused
on VAT and payroll taxes. At the end of the 20th century the expansion of ecommerce created serious challenges for the administration of VAT, income taxes, and
sales taxes. The problems of tax administration were compounded by the anonymity of
buyers and sellers, the possibility of conducting business from offshore tax havens, the

fact that tax authorities cannot monitor the flow of digitized products or intellectual
property, and the spate of untraceable money flows.
Income taxation (of individuals and of corporations), payroll taxes, general sales taxes,
and (in some countries) property taxes bring in the greatest amounts of revenue in
modern tax systems. The income tax has ceased to be a rich mans tax; it is now paid
by the general populace, and in several countries it is joined by a tax on net worth. The
emphasis on the ability-to-pay principle and on the redistribution of wealthwhich led
to graduated rates and high top marginal income tax ratesappears to have peaked,
having been replaced by greater concern for the economic distortions and disincentives
caused by high tax rates. A good deal of fiscal centralization occurred through much of
the 20th century, as reflected in the kinds of taxes levied by central governments. They
now control the most important taxes (from a revenue-producing point of view): income
and corporation taxes, payroll taxes, and value-added taxes. Yet, in the last decade of the
20th century, many countries experienced a greater decentralization of government and
a consequent devolution of taxing powers to subnational governments. Proponents of
decentralization argue that it can contribute to greater fiscal autonomy and
responsibility, because it involves states and municipalities in the broader processes of
tax policy; merely allowing lower-level governments to share in the tax revenues of
central governments does not foster such autonomy.
Although it is difficult to make general distinctions between developed and lessdeveloped countries, it is possible to detect some patterns in their relative reliance on
various types of taxes. For example, developed countries usually rely more on individual
income taxes and less on corporate income taxes than less-developed countries do. In
developing countries, reliance on income taxes, especially on corporate income taxes,
generally increases as the level of income rises. In addition, a relatively high percentage
of the total tax revenue of industrialized countries comes from domestic consumption
taxes, especially the value-added tax (rather than the simpler turnover tax). Social
security taxescommonly collected as payroll taxesare much more important in
developed countries and the more-affluent developing countries than in the poorest
countries, reflecting the near lack of social security systems in the latter. Indeed, in

many developed countries, payroll taxes rival or surpass the individual income tax as a
source of revenue. Demographic trends and their consequences (in particular, the aging
of the worlds working population and the need to finance public pensions) threaten to
raise payroll taxes to increasingly steep levels. Some countries have responded by
privatizing the provision of pensionse.g., by substituting mandatory contributions to
individual accounts for payroll taxes.
Taxes in general represent a much higher percentage of national output in developed
countries than in developing countries. Similarly, more national output is channeled to
governmental use through taxation in developing countries with the highest levels of
income than in those with lesser incomes. Indeed, in many respects the tax systems of
the developing countries with the highest levels of income have more in common with
those of developed countries than they have with the tax systems of the poorest
developing countries.

Total tax revenue in Pakistan w.r.t GDP

REFERENCES:

http://www.britannica.com/topic/taxation
https://en.wikipedia.org/wiki/Tax
http://www.investorwords.com/4879/tax.html
http://accountlearning.blogspot.com/2012/01/objectives-of-tax.html