Day: November 1, 2022

  • The Principles Of A Good Tax System

    The Principles Of A Good Tax System

    The primary objective of the tax system was to generate TAX revenue.

    Tax revenue is vital for a developing country to meet its needs and provide essential public services.

    Therefore, how a country’s tax system is to be set up should first and foremost take into account its own needs, both in terms of helping the economy grow and helping the people of the country, but also in terms of being able to respond to what is happening in the world.

    When evaluating the effectiveness of a tax system, it is necessary to look at the system as a whole.

    The government needs to attract more tax revenue while at the same time satisfying its resident taxpayers.

    As a result, it is important to know that a good tax system does not have to be a perfect tax system that collects taxes according to the rules of the tax system, brings in enough money, and does not hurt taxpayers in any way.

    税收制度的主要目的是创造税收。

    对于一个发展中国家来说，为了满足其需求和提供基本公共服务，获得税款使至关重要的。

    因此，一个国家的税收制度要如何建立，首先应该考虑其自身的需求，既能帮助经济增长，帮助国家的人民，同时也能够对世界范围内发生的事情做出反应。

    在评估一个税收制度的有效性时，有必要将该制度作为一个整体来看待。政府需要吸引更多的税款，同时满足其居民纳税人的要求。

    因此，重要的是要明白，一个好的税收制度并不意味着它一定就是一个按照税收规则征税，产生足够的收入，并对纳税人没有造成伤害的完美无缺的税收制度。

    A good tax system is one that, on average, collects fair taxes and adheres to most tax rules. The following are some qualities that should be included in an effective tax system:

    1. fiscal adequacy;
    2. equity or fairness;
    3. efficiency/neutrality;
    4. simplicity;
    5. certainty;
    6. flexibility;
    7. Diversity; and
    8. suitability for achieving macro-level objectives.

    一个好的税收制度是指，平均而言，征收公平的税收，并遵守大多数的税收准则。以下是一个有效的税收制度应该包括的一些特征:

    • 财政的充足性；
    • 公平或公正；
    • 效率/中立性；
    • 简洁性；
    • 确定性；
    • 灵活性；
    • 多样性；以及
    • 适合于实现宏观层面的目标。

    Fiscal Adequacy

    One of the most fundamental elements of a good tax system for a developing country is that it should provide the government with sufficient money to carry out its expanding welfare and development operations.

    Suppose the current method of collecting taxes cannot provide an adequate amount of money. In that case, the government will be obliged to rely on deficit financing.

    Effects of deficit financing:

    1. It causes a decrease in the purchasing power of people;
    2. It causes inflation:
    3. It causes the depreciation of the currency.

    财政的充足性

    对于一个发展中国家来说，一个好的税收制度的最基本要素之一是，它应该为政府提供足够的资金来进行其不断扩大的福利和发展业务。

    假设目前的征税方法不能提供足够的资金。

    在这种情况下，政府将不得不依靠通过赤字融资。

    赤字融资的影响:

    • 它导致人们的购买力下降;
    • 它导致通货膨胀;
    • 它导致货币贬值。

    Equity or Fairness

    According to Adam Smith, fairness, or equality, is one of the qualities that make for an effective tax system.

    It indicates that everyone should pay their proportionately fair part of the taxes.

    Equity and Fairness are synonymous with this concept.

    For a tax system to be considered good, it needs to include most of the taxes that help bring in money and wealth for the country and ensure everyone gets the same treatment.

    公平或公正

    根据亚当-斯密的说法，公平，或平等，是构成有效税收制度的品质之一。

    它表明，每个人都应该按比例支付其公平的税收部分。

    公平和公正是这个概念的同义词。

    一个税收制度要被认为是好的，它需要包括大部分有助于为国家带来金钱和财富的税收，并确保每个人都得到同样的待遇。

    Efficiency/Neutrality

    One of the most significant aspects of efficiency is the minimisation of administrative and compliance expenses.

    Therefore, collecting taxes should not be designed so that the cost of collecting taxes constitutes a relatively significant fraction of the total taxes collected.

    The collection process needs to be as cost-effective as is practicable.

    In addition, the expenditures the taxpayer is responsible for to satisfy his obligation should be kept to a minimum.

    效率/中立性

    效率的一个最重要的元素是行政效率，它指的是最大限度地减少行政和合规费用的过程。

    因此，征税机制的设计不应该使征税成本在征收的税款总额中，占比较大的比例。

    征收过程需要在实际可行的情况下，尽可能地具有成本效益。

    此外，纳税人为履行其义务而承担的支出应保持在最低水平。

    Simplicity

    Adam Smith identifies simplicity of administration as one of the essential qualities of an effective tax system.

    If the process is made easier, taxpayers won’t have to deal with a mess of rules, forms, and fees.

    Taxpayers will better grasp the system, which will, in turn, minimise the costs of compliance with the system.

    The costs of compliance for a taxpayer might be monetary (such as fees paid to professional advisers for advice or help), time costs (incurred when keeping records or filing returns), or psychological (incurred when dealing with the stress of having to comply) (e.g. anxiety caused by the inability to understand complex laws).

    简洁性

    亚当-斯密认为，简洁是有效税收制度的基本素质之一。

    如果流程更简单，纳税人就不必处理混乱的规则、表格和费用。

    纳税人将更好地掌握这个系统，这反过来将使遵守这个系统的成本降到最低。

    纳税人的合规成本可能是：

    • 金钱上的（如支付给专业顾问的费用）；
    • 时间成本（在保持记录或提交报表时所产生的）；或
    • 心理上的（在遵循压力，例如，由于无法理解复杂的法律而造成的焦虑）。

    Certainty

    This certainty principle says that the taxpayer should know the following:

    • How much tax he has to pay;
    • When it has to be paid, and
    • How it should be paid.

    They should be easy for taxpayers to understand.

    The tax laws should make this information clear and make sure it is correct.

    So, tax officials shouldn’t be able to decide on their own how much to charge and when to charge it.

    确定性

    这个确定性原则说的是，纳税人应该需要清楚知道:-

    • 他需要缴纳多少税款；
    • 何时缴纳，以及
    • 应该如何支付。

    这些信息应该让纳税人容易理解。

    税法应该使这些信息明确，并确保其正确性。

    因此，究竟需要收取多少的税务和何时收取，并不是税务官员说了算的。

    Flexibility

    Another feature of a good tax system that developing countries should be flexibility.

    Under taxation flexibility, the government revenues from taxes should also increase with increased national revenues due to economic expansion.

    The tax system becomes more flexible when higher indirect taxes are levied on luxury goods with increased demand.

    As a result, excise duty, customs duties, and sales and service tax tend to be flexible forms of taxation.

    This is because changes in the rates can be readily made, and these changes then have a relatively immediate impact on the behaviour of taxpayers (for example, an increase in customs duty rates typically leads to price increases almost immediately).

    灵活性

    发展中国家好的税收制度的另一个特点应该是灵活性。

    根据税收弹性的概念，政府的税收收入也应该随着经济扩张带来的国家收入的增加而增加。

    当对具有高需求的奢侈品征收较高的间接税时，税收制度会变得更有弹性。

    因此，消费税、关税以及销售和服务税往往是灵活的税收形式。

    这是因为税率的变化可以随时进行，然后这些变化对纳税人的行为产生相对快速的影响（例如，海关税率的增加通常几乎立即导致价格上涨）。

    Suitability for achieving Macro-Level Objectives

    Taxation should be a tool for economic growth in a developing economy like ours.

    The primary purpose of economic growth is the pace of capital formation.

    If the public sector is given a prominent place in the development plan, capital formation must take place at a somewhat higher rate in the public sector.

    Hence, the structure of taxes should make it easier to use fiscal policy to meet the macro-level economic management goals that a government might want to achieve.

    These goals might include the maximisation of economic stability and growth, the redistribution of income or wealth, the raising of employment levels, and the reduction of inflation.

    The tax structure should also make it easier to raise employment levels.

    适合于实现宏观层面的目标

    在我们这样的发展中经济体，税收应该是经济增长的工具。

    经济增长的主要目的是资本形成的速度。

    如果公共部门在发展计划中占有重要地位，公共部门的资本形成速度必须相当高。

    因此，税收结构应该使财政政策更容易被用来实现政府可能想要实现的宏观经济管理目标。

    这些目标可能包括经济稳定和增长的最大化，收入或财富的再分配，提高就业水平，以及减少通货膨胀。

    税收结构也应该使提高就业水平更加容易。

    Diversity

    This suggests that the government should not rely on a single tax or a small number of levies to bring in a considerable amount of tax revenue.

    If a government wants to generate significant income from a single tax or a few taxes, the tax rates on those taxes will need to be excessively high.

    This will harm the incentives for jobs, savings, and investments and encourage tax fraud.

    Consequently, the tax system needs to be a multi-tax system that includes a wide variety of taxes, and it ought to mandate that everyone in a position to contribute to the public coffers do so.

    Because of this, it will be necessary to impose both direct and indirect taxes.

    Also, because of the variety of tax structures, fiscal sufficiency and equality ideals will be more satisfactory.

    多样性

    这表明，政府不应该依靠单一税种或少数几个税种来获取大量的税收。

    如果政府想从单一税种或少数税种中获得大量收入，这些税种的税率就需要过高。

    这不仅会损害对就业、储蓄和投资的激励，而且还会鼓励税务欺诈。

    因此，税收制度需要是一个多税制系统，包括广泛的各种税种，它应该规定每个有能力为国库做贡献的人都要这样做。

    正因为如此，有必要同时征收直接税和间接税。由于税收结构的多样性，财政充足和平等的理想也将更加令人满意。

    Conclusion

    According to the findings of the above study, we can conclude that many socioeconomic goals in modern society are being pursued with the assistance of taxes.

    Not only may money be raised for the restricted tasks of the government through this method, but it also serves other purposes.

    The neutrality concept of taxation, sometimes known as the “leave things as they are” approach, is no longer widely supported by contemporary economists.

    In practice, neutrality is difficult to achieve because governments frequently believe it is acceptable to purposefully interfere in the transactions of free markets through the imposition of taxes to either encourage the production or consumption of certain goods or services that they want to see more of or discourage the production or consumption of products that they consider to be undesirable.

    In addition, applying higher tax rates to income would result in a disincentive effect under a progressive tax rate structure.

    This would mean that taxpayers could conclude that it is simply not worth working as hard as they are and could opt to spend their time relaxing instead.

    Therefore, the current method of levying taxes needs to fulfil a more practical function. Its aims include creating rapid economic growth, eliminating income disparity, fostering stability, attaining other socio-economic goals, and several other objectives.

    总结

    根据上述研究结果，我们可以得出结论，当今社会的许多社会经济目标都是在税收的帮助下实现的。

    通过这种方法，不仅可以为政府的任务筹集资金，而且还可以达到其他目的。

    税收的中立性概念，有时被称为 “保持现状 “的方法，已不再得到当代经济学家的广泛支持。

    在实践中，中立性是很难实现的，因为政府经常认为通过征税来有目的地干预自由市场的交易是可以接受的，比如：以鼓励生产或消费他们希望看到更多的某些商品或服务，或阻止生产或消费他们认为不受欢迎的产品。

    此外，在累进税率结构下，对收入适用较高的税率会产生抑制作用。这意味着纳税人可能会得出这样的结论：根本不值得像他们那样努力工作，而是选择把时间花在休闲上。

    因此，目前的征税方法需要实现一个更有用的功能。其目的包括创造快速的经济增长，消除收入差距，促进稳定，实现其他社会经济目标，以及其他一些目标。

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  • Is Income Received as Compensation Subject to Taxation?

    Is Income Received as Compensation Subject to Taxation?

    Income Connotes a Periodical Monetary Return “coming in” with some sort of Regularity.

    Bombay High Court

    The Commissioner Of Income Tax vs Shaw, Wallace And Co.

    on 14 March 1932

    Equivalent citations: (1932) 34 BOMLR 1033

    Author: G Lowndes

    Bench: Blanesburgh, Tomlin, G Lowndes

    JUDGMENT George Lowndes, J.

    1. This is an appeal from a judgment of the High Court at Calcutta delivered on a reference made to it under Section 66 of the Indian Income-tax Act, XI of 1922.

    The reference arose out of an assessment to income tax upon the respondents for the year 1929-30, in respect of an item of Rs. 9,88,361, part of a larger euro of Rs. 15,25,000 received by them in 1928 as compensation for the termination of certain agencies.

    2. The respondents carry on business in Calcutta as merchants and agents of various companies and have branch offices in different parts of India.

    For years before 1928, they acted as distributing agents in India of the Burma Oil Company and the Anglo-Persian Oil Company but had no formal agreement with either company.

    In or about the year 1927, the two companies combined and decided to make other arrangements for the distribution of their products,

    The respondents’ agency of the Burma Company was accordingly terminated on December 18, 1927, and that of the Anglo-Persian Company on June 30 following,

    Some time in the early part of 1928, the Burma Company paid the respondents a sum of Rs. 12,00,000 ” as full compensation for cessation of the agency.”

    In August of the same year, the Anglo-Persian Company paid them another sum of Rs. 3,25,000 as “compensation for the loss of your office as agents to the Company“.

    The quotations are from letters by which the payments were recorded and are accepted on both sides as correctly expressing the nature of the transactions.

    3. The income tax officer, in computing the assessable income of the respondents for the relevant year, took these two receipts into account as profits or gains of their business in the year ending December 31, 1928, but allowed certain deductions from that place in respect of compensation paid by the respondents to various employees, leaving a balance of Rs. 9,83,861 which he included in the total income of the respondents found assessable for the year 1929-30.

    4. The respondents objected to the assessment and appealed to the Assistant Commissioner, who confirmed the assessment.

    After that, on the requisition of the respondents, the Commissioner drew up a statement of the case and referred the questions of law therein set out to the High Court with his own opinion thereon, which was against the contentions of the respondents.

    5. The questions so formulated were as follows:-

    1. Was not the sum of Rs. 9,83,361, which had been included in the total income of the assessees for purposes of assessment for 1924-30, in the nature of capital receipt and therefore not income, profits or gains within the meaning of the Income-tax Act?
    2. If it could be said to be income, profits or gains within the meaning of the Act, was it liable to be assessed under either of Sections 10 and 12 of the Act, forasmuch as (I) it was not the profits, or gains of any business Carried on by the assessees within the meaning of Section 10 of the Act, nor (2) income, profits or gains from other sources within the meaning of Section 12 of the Act.
    3. In the alternative, was not the payment of Rs. 9,13,361 an ex gratia payment like a present from the oil companies in question, and was it not exempt under Section 4 (3)(vii) of the Act?

    6. The reference was heard by the Chief Justice sitting with Ghose and Buckland JJ.

    The Chief Justice delivered the judgment of the High Court, and his colleagues concurred.

    7. The learned Judges appear to have returned a formal answer only to question (a), which the Chief Justice stated to be “the real question in the case.”

    He thought that if the respondents could not escape because of the contention raised by this question, they must fail.

    The other questions, he thought, fell within a recent decision of the Court in the case of Turner Morrison & Co. Ltd., In re (1928) I.L.R. 56 Cal. 211; he had nothing to add to what was then said on these points.

    8. Their Lordships agree that the fundamental matter for decision falls under (a), but they think that this question is not happily worded, as it seems to suggest that it was only if the sum there referred to was ” in the nature of a capital receipt” that it would be exempt from assessment.

    In contrast, the correct proposition would seem to be that it was only if it was in the nature of an income receipt that it would fall to be assessed to the tax,

    The question was, however, re-stated by the learned Chief Justice in more precise terms, viz., “whether these sums are income, profits or gains within the meaning of the Act at all,” and for the reasons stated in his judgment he came to the conclusion that they were not.

    Their Lordships think that his conclusion was right though they arrive at this result on a slightly different road.

    9. In one part of his judgment, the Chief Justice seems to hold that the “compensation for loss of these agencies is a receipt in respect of a capital asset in the nature of goodwill.”

    Still, it has been objected with some force that there is nothing upon which this finding can be based.

    There was, so far as the facts disclose, no transfer of the goodwill of the respondents and no agreement by them not to compete with the new selling agency of the companies.

    10. In another part of the judgment, the payment seems to be regarded as in the nature of compensation in lieu of notice.

    But here again, their Lordships think that there are no facts to support such a conclusion, and they doubt if Section 2C6 of the Indian Contract Act has any application upon which reliance is placed.

    11. Again, their Lordships would discard the case law that has been so painfully evolved in the construction of the English Income Tax Statutes- both the cases upon which the High Court relied and the flood of other decisions that have been let loose in this Board.

    The Indian Act is not in pari materia; it is less elaborate in many ways, subject to fewer refinements, and in arrangement and language, it differs significantly from the provisions the Courts in this country have had to deal with.

    Under such conditions, their Lordships think that little can be gained by attempting to reason from one to the other, at all events in the present case in which they believe that the solution of the problem lies very near the surface of the Act and depends mainly on general considerations.

    12. The object of the Indian Act is to tax “income,” a term that it does not define.

    It is expanded, no doubt, into “income, profits and gains,” but the expansion is more a matter of words than of substance.

    Income, their Lordships think, in this Act connotes a periodical monetary return ” coming in” with some regularity, or expected regularity, from definite sources.

    The source is not necessarily one which is expected to be continuously productive.

    Still, it must be one whose object is producing a definite return, excluding anything in the nature of a mere windfall.

    Thus income has been likened pictorially to the fruit of a tree or the crop of a field.

    It is essentially the production of something, often loosely spoken of as ” capital.”

    But capital, though possibly the source of income from securities, is, in most cases, hardly more than an element in the production process.

    13. The sources from which the taxable income under the Act are to be derived are enumerated in Section 6, which runs as follows:–

    Save as otherwise provided by this Act, the following heads of income, profits and gains shall be chargeable to income tax in the manner from now on appearing, namely:-

    1. Salaries.
    2. Interest in securities.
    3. Property.
    4. Business.
    5. Professional earnings.
    6. Other sources.

    14. the taxing authorities claim that the sum in question is chargeable under the head (4) business,

    By Section 2 (4), business “includes any trade, commerce or manufacture, or any adventure or concern in the nature of trade, commerce or manufacture”.

    The words used are undoubtedly wide, but underlying each of them is the fundamental idea of the continuous exercise of an activity.

    Under Section 10, the tax is to be payable by an assessee under the head business “in respect of the profits or gains of any business carried on by him.”

    Again, their Lordships think the same central idea: the words italicised are an essential constituent of that which is to produce the taxable income: it is to be the profit earned by the process of production,

    And this is borne out by the provision for allowances which follows.

    They include rent paid for the premises where the business is carried on; the cost of current repairs in respect of such premises; interest on money borrowed for carrying on the business, etc.

    15. Some reliance has been placed in argument upon Section 4 (3)(v), which appears to suggest that the word “income” in this Act may have a broader significance than would ordinarily be attributed to it.

    The Sub-section says that the Act “shall not apply to the following classes of income,” and in the category that follows, Clause (v) runs:-

    Any capital sum received in commutation of the whole or a portion of a pension, or in the nature of consolidated compensation for death or injuries, or in payment of any insurance policy, or as the accumulated balance at the credit of a subscriber to any such Provident Fund.

    16. Their Lordships do not think that any of these sums, apart from their exemption, could be regarded in any scheme of taxation of income, and they believe that the clause must be due to the anxiety of the draftsman- to make this clear beyond possibility of doubt.

    They cannot construe it as enlarging the word “income” to include receipts of any kind-which are not specially exempted. They do not think the clause is of any assistance to the appellant.

    17. Following the line of reasoning above indicated, the sums which the appellant seeks to charge can, in their lordships’ opinion, only be taxable if they are the produce, or the result, of carrying on the agencies of the oil companies in the year in which the respondents received them.

    However, once this business has some compensation for its compulsory cessation, the answer seems pretty plain.

    18. If the business had been sold-even if that somewhat indeterminate asset known as the “goodwill” had been assigned to the employing companies, as the High Court seems to have thought it had-it is conceded that the price paid would not have been taxable,

    But why?

    Plainly because it could not be regarded as profit or gain from carrying on the business, and their Lordships think that the same reasoning must apply when the sum received is in the nature of a solatium for cessation.

    19. It is contended for the appellant that the “business” of the respondent did go on throughout the year, and this is no doubt true in a sense.

    They had other independent commercial interests which they continued to pursue, the profits of which have been taxed in the ordinary course without objection.

    But it is clear that the sum in question in this appeal had no connection with the continuance of the respondents’ other business.

    Their profits in 1928 were the fruit of a different tree, the crop of another field.

    20. For the reasons given, their Lordships believe the High Court rightly answered that question (a) in favour of the assessee.

    No objection has been taken to the form of the answer or its sufficiency, and it would seem unnecessary, therefore, to deal with the other two questions,

    Their Lordships will only add that the reasoning of this judgment would apply equally if the appellant based his claim on the head (6) “other sources’ and the Corresponding provisions of Section 12.

    21. About the claim to an exemption under Section 4(3)(vii), their Lordships think that the decision in the case of Turner Morrison & Co., In re, to which reference has been made above, may need re-consideration in the light of this judgment.

    In their Lordships’ view, the expression “receipts arising from business” in that clause must mean receipts arising from the carrying on of business.

    22. Their Lordships will humbly advise His Majesty that this appeal should be dismissed with costs.

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