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In India, Islamic rulers imposed jizya starting in the llth century. It was abolishedby
Akbar.
Quite a few records of governmenttax collection in Europe since at leastthe 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. Government expendituresand
revenue in France during the 17th century went from about 24.30 million livres in 1600-10 to
about L26.86miltion livres in years1650-1659 to about LL7.99million livres in years1700-17I0
when governmentdebt had reached 1.6 billion livres. In 1780-L789it reached42L50 million
livres. Taxation as a percentageof production of final goods may have reached I5To - 207o
during the 17th century in placeslike France,the Netherlands,and Scandinavia.During the war-
filled years of the eighteenth and early nineteenth century, tax rates in Europe increased
dramatically as war became more expensive and governmentsbeoame more centralizedand
adept at gathering taxes. This increasewas greatestin England, Peter Mathias and Patrick
O'Brien found that the tax burden increasedby 85Voover this period- Another study confirmed
this nurnber,finding that per capita tax revenueshad 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. Average tax rates were higher in Britain
than Francethe yearsbefore the FrenchRevolution, twice in per capita income comparison,but
they were mostly placed on internationaltrade.In France,taxes were lower but the burden was
mainly on landowners,individuals, and internaltradeand thus createdfar more resentment.
The Russian financial system started to develop a little later. The unification of the
Ancient RussianStatebeganonly at the end of the IX century.The main sourcesof income in
the sovereign'streasurywere the tributes.In essencetheseconstitutedinitially a sporadic,but
later a more systematic direct tax. Indirect taxation existed in the form of sales and court
charges.Transit dues called "mit" were collectedfor the transferof goods through mountain
gaps, shipment dues were char$ed for transporting goods over rivers, "hotel" dues were
charged for the right to own warehousesand the "retail" tax was required for the right to
organisemarket events.
The taxation-system changed its form and improved under the influence of class
conflicts. Its regressivecharacter,conditionedby the preponderanceof indirect taxesstartedto
change in the 20'h century in direct conformity with the transition to progressiveincome
taxation. The taxation systemof the 20thcentury,as a result of the effort( rnadein the finance
scienceand practiceis distributing the taxationburdenmore uniformly than ever in the history
of taxation.
In general,the taxation systemis a complex and effective mechanismfor the regulation
of economic conditions; it is a flexible instrument, which influences the profitability of
various ownershipforms, and the effectivenessof national economiesin the conditionsof the
current sciencedevelopmentand of economicglobalisation.However, the taxationpolicy of
the state(which is defined as the manoeuvringof the ratesand types of taxes)is subjectto the
lag effect, in contrast to the banking-monetary policy, Which is causedby the fact that any
changeof the tax rate must take the form of a legal document.
A nation'stax systemis often a reflectionof its communal valuesor the valuesof thosein
powei. To createa systemof taxation, a nation must make choicesregardingthe distribution of
the tax burden-who will pay taxes and how much they will pay- and how the taxescollected
witl be spent.In democraticnations where the public elects those in chargeof establishingthe
tax systern,these choicesreflect the type of community that the public wishes to.create. In
countries where the public does not have a significant amount of influence over the system of
'
taxation,that systemmay be more of a reflectionon the valuesof thosein power.
The functions of taxes area manifestationof their essence;they area meansto represent
the characteristicsof taxes.The functionsof taxationillustrateits socialpurposeof the galue-
traseddistribution and redistributionof income.
Each of the functions fulfilled by the taxation instrument is a manifestation,of an
internal feature,an indicator or trait or this economiccategory. -
While the main function of taxationis to providerevenue.it alsohasimportantsubsidiary
functionsand is one of the ways in which the governmenteffectsits policies.The first of theseis
to reducethe inequalityof incomes.This has been achieved- and is still being maintained- by
income tax and capital transfer tax, thesetaxes are progressive.The amount people pay is in
accordancewith what they can afford, so that a personwith a high income pays more income tax
than one who earns less and, in addition, account is taken of their financial responsibilities.
Consequently,if two individuals receive the same amount in wages bul one is single and the
other is married and hastwo children, the single personwill pay more incometax. This systemis
operatedby giving allowancesand relievesagainstincome. Income tax and capital transfertax
(which replacedestateduty) have, therefore,been the main causesof the more equal distribution
wealth, particularly sincethe end of the SecondWorld War II
The second subsidiary function of taxation is to Control the level of economic activity.
Selective employment tax fell into this category, since it encouragedeconomy in the use of
labour in thb service and construction industries. The repayment of the tax, together with
additional sums to manufacturing; industries in the development areas,was an added incentive
firms to move to those areasand therefore stimulated economic activity in them.
Similarly, a substantial increasein corporation tax could causefirms to limit their plans
for development and expansion, while a reduction in the rate charged would encouragefirms to
adopt an expansionistpolicy.
Taxation's third subsidiary function is to influence production and consumption. The
imposition of a tax when goods are bought, or exciseduty on certain goods,can reducethe total
consumptionof them. The imposition of tariffs on imported goods,will discouragepeople from
buying them and stimulatethe salesof home-producedgoods;This was one of the measuresused
at.theend of the 1960sto help to correctthe balanceof payments.
More detail the functions of taxations can be presentedas follows: Taxation theory
usually determinefive main functions of taxes: fiscal, redistributbr!, regulating,controlling,
and promoting.
1) The main function of taxation rs the fiscal one. It is through fiscality that taxes play
their role in the formation of the state budget necessaryfor the realisation of national and
holistic stateprogrammes.The fiscal function providesfor the achievementof the'main social
goal of taxation-the formation of the state's financial resourcesnecessaryfor executingthe
role of the latter (defence,social,environmentalprotection,etc.)
- ,2) The allocation function of taxation expressestheir essenceas a specialcentralised
instrument of allocation relations and consists of the social income redistribution among
various groups of cittzens:from wealthy to deprived ones, which ultimately provides for the
assuranceof the social stability of the population.
3) The resulatom function of taxation was initiated as soon as the statestartedto take
active part in the economic set-upof the society.This function is aimed at achievingspecific
goals of the taxation policy through the taxation mechanism.Taxation regulationentails three
sub-functions:
a. The stimulatins sub-function is aimed at the development of special socio-
economic processes,and is implemented through a system of allowances,exemptionsand
preference affangements.The legislation in force stipulatesthe stimulation of a number of
taxpayercategoriessuch as the ownersof small enterprises,the agriculturalproducers,capital
investors,or charities
b. The destimulatine sub-functioninhibits some socio-economicprocessesthrough
the conscious exaggerationof the taxation burden.As a rule, the effect of this sub-functionis
related to the introduction of excessivetax rates. These are, for example, the protectionist
measuresof the state,aimed at supportinglocal producersthrough prohibitive import custom
duties. It is important to keep in mind, nevertheless,that taxation relations, as any other
relations,must replicatecontinuously.Taxes must be collectedtoday, tomorrowand always.
This is why the utilization of the destimulatingsub-functionshouldnot lead to the weakening
of the taxation basis, to suppression,or even to liquidation of the tax source.Such an
exaggerationmay resultin a situationwheretherewill be no income/processes to be taxed.
c. The replication (reqenerstionl function is explained as follows: by taxing the
utilisation of natural resources,roads, rnineral and primary resources,the state uses these
proceedsin order to regenetatethe exploitedresources.
4) The controlling function of taxation-through taxation, the state controls the
financial-economic activity of juridical and natural persons. This also contributes to
controlling the sourcesof income and the directionsof spending.