Income tax
Taxpayers not timely paying tax owed are generally subject to significant penalties, which may include jail-time for individuals.
The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records.
Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common.
Practices such as tithing, or an offering of first fruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.
[1]: 97 The penalty for evading this tax was one year of hard labor and confiscation of the entirety of a person's property.
[1]: 97 In the early days of the Roman Republic, public taxes consisted of modest assessments on owned wealth and property.
These modest taxes were levied against land, homes and other real estate, slaves, animals, personal items and monetary wealth.
[2] One of the first recorded taxes on income was the Saladin tithe introduced by Henry II in 1188 to raise money for the Third Crusade.
[3] The tithe demanded that each layperson in England and Wales be taxed one tenth of their personal income and moveable property.
[5] The inception date of the modern income tax is typically accepted as 1799,[6] at the suggestion of Henry Beeke, the future Dean of Bristol.
[7] This income tax was introduced into Great Britain by Prime Minister William Pitt the Younger in his budget of December 1798, to pay for weapons and equipment for the French Revolutionary War.
The income tax was reintroduced by Addington in 1803 when hostilities with France recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo.
Records were publicly burned by the Chancellor of the Exchequer, but copies were retained in the basement of the tax court.
Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds.
A committee was formed in 1851 under Joseph Hume to investigate the matter, but failed to reach a clear recommendation.
Despite the vociferous objection, William Gladstone, Chancellor of the Exchequer from 1852, kept the progressive income tax, and extended it to cover the costs of the Crimean War.
In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920.
Many systems allow controlled groups of locally organized corporations to be jointly assessed.
Rules on capital allowances vary widely, and often permit recovery of costs more quickly than ratably over the life of the asset.
A few jurisdictions compute net income as a fixed percentage of gross revenues for some types of businesses, particularly branches of nonresidents.
Switzerland and U.S. states generally impose such tax only on corporations and base it on capital or a similar measure.
Payees are generally required to provide to the payer or the government the information needed to make the determinations.
[44] In countries with a sizeable black market, the voluntary compliance rate is very low and may be impossible to properly calculate.
In the US, these taxes generally are imposed at a fixed rate on wages or self-employment earnings up to a maximum amount per year.
Some jurisdictions also impose a tax collected from employers, to fund unemployment insurance, health care, or similar government outlays.
[46] The vicious cycle tends to benefit large corporations and wealthy individuals that can afford the professional fees that come with ever more sophisticated tax planning,[47] thus challenging the notion that even a marginal income tax system can be properly called progressive.
The higher costs to labour and capital imposed by income tax causes dead weight loss in an economy, being the loss of economic activity from people deciding not to invest capital or use time productively because of the burden that tax would impose on those activities.
There is also a loss from individuals and professional advisors devoting time to tax-avoiding behaviour instead of economically productive activities.
In addition, a very small number of countries, notably the United States, also tax their non-resident citizens on worldwide income.
[57] Public disclosure of personal income tax filings occurs in Finland, Norway and Sweden (as of the late-2000s and early 2010s).
