essay on the importance and responsibility of paying taxes

UC Berkeley’s Premier Undergraduate Economics Journal

The Hidden Importance of Taxes: More Than Just a Nuisance for Taxpayers

ARDA TUNCTURK – MARCH 6TH, 2024

EDITOR: EVAN FREDERICK DAVIS

Imagine coming home from work. You sit down, grab something to eat and drink, and then turn on the TV. On the screen, you see the same old debate between politicians, normative philosophers, and social scientists: taxes. Should the rich be taxed more? Should the poor be given tax credits to help them survive? Among all of this, you ask a very simple yet profound question: What is the point of arguing over marginal tax rates anyway? 

Unless you’re an athlete or very rich, you would arguably be completely right. For many people, the marginal tax rate does not affect their day-to-day lives. While you do have to pay some taxes when purchasing gasoline, many states do not have any taxes for groceries, and, barring economic anomalies such as the COVID-19 pandemic, the income tax rate you face yearly will probably never change. So, with that being said, is wondering about the marginal tax rate completely useless? No. 

In economic theory, marginal tax rates are seen as a way of funding public projects and reducing income and wealth inequality, with a new and growing emphasis on the latter. So, rather than just thinking of taxes as the traditional mechanism with which the government amasses revenue that will be used to pay for various social, military, health, and development programs, one could also think of taxes as a way to combat wealth inequality and support the middle and lower classes in a given country. That said, while this article will mainly look into optimum taxes in terms of minimizing wealth inequality, it’s also worth looking at the optimum tax rate in terms of the maximization of government revenue. While minimizing economic inequality is certainly an admirable goal, it would not mean anything if everyone in the country had a low standard of living. In this case, although inequality would be very low since wealth is not unequally concentrated in a certain percentile of the population, since people have a low standard of living, this minimization of inequality is not really doing any good for the general welfare of the people. This is where looking at the maximization of government revenue comes in. 

If one were to maximize government revenue, then the government could create more social programs, build more infrastructure, and provide more stimulus than it would under a non-optimum state. While we would not be minimizing economic inequality under this model, we would be increasing the standard of living in the country, which is another incredibly important goal and further highlights how important taxes are as a mechanism that the government can use to improve all facets of the economy.

Economic Growth, Productivity, and International Mobility 

Two of the main talking points surrounding tax rates are the effect of increasing taxes on economic growth and productivity. Alinaghi and Reed ( 2020 ) find that a 10% increase in taxes in some cases produced a 0.2% decrease in GDP, and in other cases produced a 0.2% increase in GDP. That is to say that even a significant increase in the tax rates has only a moderate impact on a country’s GDP. In contrast, a paper by Romer and Romer (2010) found that the robust effect of a 1% increase in taxes corresponds to a roughly 2.5% decrease in a country’s GDP. An explanation for the differences in the findings between these two papers is that Alinaghi and Reed fail to account for the type of tax rate increases that are implemented. For example, a higher marginal tax rate (a progressive tax) on top innovators in the United States — who also, for the most part, make up the richest citizens in the United States — could decrease innovation within the United States, which in turn would cause a decrease in GDP. 

This idea is exactly what Akcigit & Stantcheva ( 2018 ) found in their paper when analyzing the effects of U.S. state marginal tax rates on patent production. They noted that an increase in the marginal tax rate decreased patent production. Furthermore, Stantcheva ( 2020 ) further corroborated the idea that an increase in marginal tax rates for top earners could reduce innovation since the top earners are also the top innovators. 

Along those lines, Akcigit & Stantcheva ( 2018 ) also analyzed the effects of an increase in taxes on international mobility — how investors choose to migrate to different countries based on each country’s given tax level. They analyzed the U.S. 1986 Tax Reform Act under the Reagan administration — which lowered the top tax rate on ordinary income from 50% to 28% — finding that the number of top 1% foreign investors in the U.S. increased after the act passed into law relative to a synthetic counterfactual country. A synthetic counterfactual country is a country that had the same trend in the number of foreign superstars as the U.S before the new tax code implementation in the U.S. This synthetic country is used as a control group in the experiment to see what would have happened to the number of foreign superstars in the U.S. if the tax change was not implemented. The difference between the synthetic country and the U.S. after the implementation is the treatment effect caused by the new law. These findings suggest that it may be beneficial to a country’s economy to decrease taxes if its goal is to increase innovation and economic growth. In terms of policy implications, if the U.S. were recovering from a recent recession, then decreasing taxes — on top of the regular monetary policy response — could lead to a quick recovery, as lower taxes would cause growth and productivity to increase, which would increase GDP. 

Photo Credit: Akcigit & Stantcheva ( 2018 )

Taxes and Public Policy 

Now that the effects of increasing the taxes have been talked about, what is even the point of increasing taxes in the first place? Over time, there has been a shift in economic discourse regarding social welfare. For many years, economists focused on income inequality as the driving force of evaluating how unequal a country’s economy is, and it, understandably, was a pretty good measure. Financial assets, such as stocks, were far from being the main makeup of a person’s wealth. However, throughout the last decade or so, wealth concentrated in the top 10% has grown a lot faster than income concentrated in the top 10% in the United States, according to the Realtime Inequality database by Thomas Blanchet, Emmanuel Saez, and Gabriel Zucman. This growing wealth inequality inside the United States has led to discussions about progressive policy measures, such as progressive wealth taxes, which are tax rates that increase as one’s wealth increases, with the tax rate depending on the wealth bucket that the economic agent is in.

Even if there is significant discourse about using wealth taxes to curb inequality between America’s rich, the middle class, and the poor, many economists have tried to utilize mathematical economic models to determine the “optimal” tax rate, where the optimal tax rate is defined as the one that maximizes the social welfare of society. This is typically measured in terms of monetary consumer and producer surplus, where consumer surplus is the benefit received by consumers for paying less for a good than what they value it, and producer surplus is profits for firms. This is referred to as the Utilitarian perspective on social welfare and is, for the most part, the most popular way of measuring it. There are also the Libertarian and Rawlsian perspectives. Libertarians reject the concept of measurable utility and instead focus on establishing a regulatory framework promoting free entrepreneurship, and Rawlsians conceive of social wellbeing as the utility of the person who is the worst off in society. Some possible reasons for why these two perspectives are not used in economics are that the Libertarian perspective does not allow for the consideration of public policy in the form of wealth transfers since it does not consider utility to be measurable, and the Rawlsian perspective focuses too much on the poorest individual’s situation at the expense of society as a whole. 

With that being said, Piketty, Saez, and Stantcheva ( 2014 ) found a highest marginal tax rate of 83% for top labor incomes. Granted, there might be issues, such as international mobility effects or tax loopholes exploited by the rich, that change the marginal tax rate for behavioral reasons. Nevertheless, this is a significant finding and contributes to the idea that higher marginal tax rates on the top income brackets are in fact a way of reducing income inequality, which is in itself a significant societal and economic goal for any developed country. In addition, while the paper looked at marginal tax rates in the form of optimizing the level of income inequality rather than maximizing societal welfare, in a country like the U.S., which is already pretty rich across the board, the goal should be to minimize inequality between the rich and the poor rather than trying to increase what is already probably a high level of societal welfare. 

Interestingly, when Piketty and Saez ( 2013 ) analyzed optimal inheritance taxes (an example of a wealth tax), they found an economically conflicting idea: people in the highest bequest percentiles should receive inheritance subsidies, whereas people in the lowest bequest percentiles should face an average inheritance tax of roughly 50% in the United States and a little more than 55% in France. Additionally, the paper also notes two studies — Chamley ( 1986 ) and Judd ( 1985 ) — that suggest that in an economy with zero stochastic shocks (i.e., random economic events), the optimal inheritance tax is 0% in the long run, since any nonzero tax would distort intertemporal economic choices by economic agents, which would in turn harm economic decision making due to complications in the short term decision-making process. 

To note, there is dissent from libertarian-leaning economic think tanks, such as the Cato Institute , who argue that the traditional derived optimal tax formulae produce too generous marginal tax rates (sometimes as high as 83%) due to flawed economic assumptions in producing said mathematical models. They also argue that there is a general lack of empirical substantiation for optimal tax claims, on top of incorrect assumptions that higher marginal tax rates on the top labor income brackets do not affect future taxable capital gains, corporate gains, and GDP.

The increasing concentration of individuals’ wealth — mainly in the form of financial assets, such as stocks — has led to a discussion about an optimal capital gains tax structure that minimizes wealth inequality. While research on this topic is sparse, a Joint Economic Committee study by the U.S. Congress, authored by James D. Gwartney and Randall G. Holcombe, does discuss an optimal (in terms of government revenue) marginal capital gains tax of 20%. While the paper does not analyze the optimum rate for wealth inequality, it does provide some estimate as to what optimum capital gains taxes could look like. Something interesting to note is that the suggested capital gains tax of 20% was actually lower than the tax rate at the time (1997) of 28%, which is consistent with the idea that a tax rate that is too high can decrease innovation and economic growth, which would decrease overall wealth taxable in the future. Thus, a higher tax rate does not necessarily suggest higher government tax revenues. This idea of an optimum tax rate in terms of government revenue maximization shows up in economics in the form of the Laffer curve, which is a curve where government revenue originally increases but later decreases as a function of the tax rate. Therefore, the optimum rate of tax is one that is neither too high nor too low based on the given curve. While the curve is critiqued as “too simple” by some economists, it is nevertheless a good illustration of how a tax rate that is too high disincentivizes innovators, which in turn decreases total taxable wealth.

Photo Credit: Investopedia

With taxes being seen as a “necessary evil” by many people, it can be difficult to remember the profound effects that taxes have on the economy as the whole. To think that taxes exist in an isolated echo chamber where they only affect government revenues would be sorely wrong. Taxes affect economic growth, innovation, and have significant effects on public policy in combating income and wealth inequality, along with bettering the standard of living in a given country. So, while it may be boring for some, it is a “necessary evil” for those bored by the effect of taxes to read up on all of the different outcomes caused by a change in the marginal tax rate, whether it be an inheritance tax, income tax, or something completely different.

Featured Image Source:  Patriot Software

Disclaimer: The views published in this journal are those of the individual authors or speakers and do not necessarily reflect the position or policy of Berkeley Economic Review staff, the Undergraduate Economics Association, the UC Berkeley Economics Department and faculty, or the University of California, Berkeley in general.

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Paying Taxes Essay

This is an IELTS  Paying Taxes Essay.  In nearly all countries people have to pay some kind of taxes.

In this essay you have to decide whether you agree or disagree with the opinion that everyone should be able to keep their money rather than paying money to the government. 

Here is the question:

Some people believe that they should be able to keep all the money they earn, and should not have to pay tax to the state.

To what extent do you agree or disagree?

Considering Both Sides

A good answer that looks at all the issues presented in the question would consider the following points:

• Why people may want to keep all the money they earn
• Why people should have to pay money to the state

Those are the two sides, so you should brainstorm some ideas around those two questions/opposing opinions before you start to write.

And of course it is very important to make sure you are very clear what your opinion is .

Now take a look at the paying taxes essay model answer.

You should spend about 40 minutes on this task.

Write about the following topic:

Give reasons for your answer and include any relevant examples from your own experience or knowledge.

Write at least 250 words.

Model Answer

People work hard and earn money which ideally they would like to retain for themselves. However, a significant portion of this usually has to be given to the state. In my view, it is right that people pay their fair share of taxes. 

Money is everything in today’s world. This is because money is used to buy all the necessities such as food, water, and shelter. Money is also used to help a family’s children in the form of school fees and other activities. In addition to this, people do not only need money to cater for their necessities, but also for future investments. The more that people have to invest, the more they believe they can accumulate in the long term. As a result, many are reluctant to lose some of their income through the deduction of tax. 

Nevertheless, citizens should be obliged to pay taxes to the government for a number of reasons. They should accept that the taxes they pay help the government offer them the public services all over the country. These public services are things such as the construction of roads, bridges, public hospitals, parks and other public services. The same tax money helps the country’s economy to be stable. Through taxes, the government can also pay off its debts. In short, money received through taxes is a way of ensuring that people have comfortable livelihoods.

In conclusion, even though many people think that they should not pay taxes, that money is useful to the stability of any country. Therefore, people should not avoid paying taxes as it may affect the country’s economy and services that it provides. 

(272 Words) 

Task Response

• The question is fully addressed so the essay would get a good score for task response.
• The first body paragraph explains the reasons why people may not want to pay tax and the second body paragraph explains why it is important to pay.
• Reasons and examples are given to support the ideas.
• The writer’s opinion is also very clear. It is presented in the thesis statement and repeated in the conclusion. It is explained in body paragraph two.

Coherence and Cohesion

• The paying taxes essay is well organized. Each of the main points is explained in a separate paragraph and a logical argument is presented to support the writer’s opinion.
• Cohesion is also maintained by good uses of linking words to join the ideas and paragraphs.

Lexical Resource

There is some good use of vocabulary and collocations and spelling and word forms are correct.

For example:

• a significant portion of
• necessities
• reluctant to
• deduction of tax
• be obliged to pay
• construction of
• the stability of

Grammatical Range and Accuracy

There is good accuracy in the grammar and a good range of sentence structures. For example:

• People work hard and earn money which ideally they would like to….  
• This is because money is used to buy all the necessities such as…
• people do not only need money to cater for their necessities, but also for future investments.
• In conclusion, even though many people think that they should not pay taxes…

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IELTS Writing Task 2 Sample Answer Essay: Responsibility, Society, and Taxes (Real Past IELTS Tests)

by Dave | Real Past Tests | 2 Comments

This IELTS Writing Task 2 Sample Answer Essay deals with taxes and whether or not individuals have any additional responsibilities towards society.

I think it is a (very rare!) interesting IELTS question!

Read below for my answer, analysis, vocabulary, practice and more!

If you are able, please consider supporting my efforts (and receiving exclusive IELTS Ebooks!) by signing up for my Patreon here .

Some people think that paying taxes is their only responsibility towards society while others feel that everyone should do more. Discuss both views and give your own opinion. Real Past IELTS Tests

Many are of the opinion that taxpayers are fulfilling their obligations to society at large while other feel that responsibilty extends beyond a financial contribution to the government. In my opinion, paying taxes greatly helps fund social programs but individuals have little choice but to do more if they also want to think highly of themselves.

The main reason that many see taxes as enough are the far reaching impact of tax dollars. Take some well-run European socialist countries such as France for example. In France, there are social welfare programs underpinning their progressive society such maternity leave for new mothers, world renowned unemployment benefits, top notch schools, not to mention more basic services like police, fire, and infrastructure maintanence. These are the direct result of taxes and though their net effect varies by implementation in various countries, they are clearly the foundation of stable societies globally.

Despite the discernible impact of taxes, individuals are responsible for their daily decisions related to society. Every job will touch on, with varying degrees of strength, society. A doctor who takes his job seriously, rather than simply trying to push new drugs or unnecessary tests to drive up premiums, helps families in their most dire situations. Even a cashier has a role to play. They can do their job responsibly with a positive attitude and send out other people into society with a good impression or contribute to the rising tide of cynisism in today’s culture. These actions are unavoidable and anyone who feels the need to think of themselves as a good person has no choice but to take up a larger role in making society a better place to live.

In conclusion, thought taxes are part of what a person owes to society, they will necessarily also have a positive or negative day to day impact. People should rightly see their contributions as essentially self-interested excuses to feel good about themselves.

1. Many are of the opinion that taxpayers are fulfilling their obligations to society at large while other feel that responsibilty extends beyond a financial contribution to the government. 2. In my opinion, paying taxes greatly helps fund social programs but individuals have little choice but to do more if they also want to think highly of themselves.

• Write a simple paraphrase of the topic. Don’t waste time on this sentence.
• Give your opinion – be clear!

1. The main reason that many see taxes as enough are the far reaching impact of tax dollars. 2. Take some well-run European socialist countries such as France for example. 3. In France, there are social welfare programs underpinning their progressive society such maternity leave for new mothers, world renowned unemployment benefits, top notch schools, not to mention more basic services like police, fire, and infrastructure maintanence. 4. These are the direct result of taxes and though their net effect varies by implementation in various countries, they are clearly the foundation of stable societies globally.

• Your topic sentence should have the topic (taxes) and your main idea (for me it is the impact of tax dollars).
• Start your example right away!
• Develop that same example. Be speficic and detailed for the rest of your paragraph.
• Draw a conclusion/result to your example to conclude the paragraph.

1. Despite the discernible impact of taxes, individuals are responsible for their daily decisions related to society. 2. Every job will touch on, with varying degrees of strength, society. 3. A doctor who takes his job seriously, rather than simply trying to push new drugs or unnecessary tests to drive up premiums, helps families in their most dire situations. 4. Even a cashier has a role to play. 5. They can do their job responsibly with a positive attitude and send out other people into society with a good impression or contribute to the rising tide of cynisism in today’s culture. 6. These actions are unavoidable and anyone who feels the need to think of themselves as a good person has no choice but to take up a larger role in making society a better place to live.

• Write another topic sentence – this time my main idea is that people make daily decisions that related to society beyond taxes.
• Explain your main idea if necessary.
• Here I use a hypothetical example – always have an example.
• I switch to a related hypothetical example.
• Then I develop those two examples.
• Conclude your paragraph.

1. In conclusion, thought taxes are part of what a person owes to society, they will necessarily also have a positive or negative day to day impact. 2. People should rightly see their contributions as essentially self-interested excuses to feel good about themselves.

• Restate your opinion.
• Add in an extra detail or a final thought for full points for your task achievement score.

Figure out what the words in bold below mean:

The main reason that many see taxes as enough are the far reaching impact of tax dollars. Take some well-run European socialist countries such as France for example. In France, there are social welfare programs underpinning their progressive society such maternity leave for new mothers, world renowned unemployment benefits , top notch schools , not to mention more basic services like police, fire, and infrastructure maintanence. These are the direct result of taxes and though their net effect varies by implementation in various countries, they are clearly the foundation of stable societies globally .

Despite the discernible impact of taxes, individuals are responsible for their daily decisions related to society. Every job will touch on , with varying degrees of strength , society. A doctor who takes his job seriously , rather than simply trying to push new drugs or unnecessary tests to drive up premiums , helps families in their most dire situations . Even a cashier has a role to play. They can do their job responsibly with a positive attitude and send out other people into society with a good impression or contribute to the rising tide of cynisism in today’s culture. These actions are unavoidable and anyone who feels the need to think of themselves as a good person has no choice but to take up a larger role in making society a better place to live.

fulfilling satisfying

obligations duties

society at large all of the world

extends beyond means more than

financial contribution money given

greatly a lot

fund social programs invest in social welfare

little choice but to must

think highly love

far reaching impact large impact

well-run efficient, good

socialist large government

social welfare programs support for the poor

underpinning serving as the foundation for

progressive society liberal

maternity leave time off for mothers

world renowned unemployment benefits money when you’re not working

top notch schools great schools

not to mention also

direct result clear impact from

net effect varies by implementation different situations

stable societies globally well-rounded countries around the world

discernible impact clear effect

touch on relates to

varying degrees of strength stronger and weaker

takes his job seriously professional

push new drugs recommend pharmaceuticals

unnecessary tests uneeded testing

drive up premiums cost more for insurance

most dire situations worst contexts

responsibly dutifully

positive attitude good outlook

a good impression likeable

rising tide becoming more common

cynisism negative attitude

unavoidable can’t get around/away from

take up a larger role become more important

owes must pay back

day to day every day

rightly correctly

self-interested excuses justifications

Vocabulary Practice

Remember and fill in the blanks:

Many are of the opinion that taxpayers are ______________ their ______________ to ______________ while other feel that responsibilty ______________ a ______________ to the government. In my opinion, paying taxes ______________ helps ______________ but individuals have ______________ do more if they also want to ______________ of themselves.

The main reason that many see taxes as enough are the ______________ of tax dollars. Take some ______________ European ______________ countries such as France for example. In France, there are ______________ their ______________ such ______________ for new mothers, ______________ , ______________ , ______________ more basic services like police, fire, and infrastructure maintanence. These are the ______________ of taxes and though their ______________ in various countries, they are clearly the foundation of ______________ .

Despite the ______________ of taxes, individuals are responsible for their daily decisions related to society. Every job will ______________ , with ______________ , society. A doctor who ______________ , rather than simply trying to ______________ or ______________ to ______________ , helps families in their ______________ . Even a cashier has a role to play. They can do their job ______________ with a ______________ and send out other people into society with ______________ or contribute to the ______________ of ______________ in today’s culture. These actions are ______________ and anyone who feels the need to think of themselves as a good person has no choice but to ______________ in making society a better place to live.

In conclusion, thought taxes are part of what a person ______________ to society, they will necessarily also have a positive or negative ______________ impact. People should ______________ see their contributions as essentially ______________ to feel good about themselves.

Pronunciation

fʊlˈfɪlɪŋ   ˌɒblɪˈgeɪʃənz   səˈsaɪəti æt lɑːʤ   ɪksˈtɛndz bɪˈjɒnd   faɪˈnænʃəl ˌkɒntrɪˈbjuːʃən   ˈgreɪtli   fʌnd ˈsəʊʃəl ˈprəʊgræmz   ˈlɪtl ʧɔɪs bʌt tuː   θɪŋk ˈhaɪli   fɑː ˈriːʧɪŋ ˈɪmpækt   wɛl-rʌn   ˈsəʊʃəlɪst   ˈsəʊʃəl ˈwɛlfeə ˈprəʊgræmz ˌʌndəˈpɪnɪŋ   prəʊˈgrɛsɪv səˈsaɪəti   məˈtɜːnɪti liːv   wɜːld rɪˈnaʊnd ˌʌnɪmˈplɔɪmənt ˈbɛnɪfɪts tɒp nɒʧ skuːlz nɒt tuː ˈmɛnʃən   dɪˈrɛkt rɪˈzʌlt   nɛt ɪˈfɛkt ˈveəriz baɪ ˌɪmplɪmɛnˈteɪʃən   ˈsteɪbl səˈsaɪətiz ˈgləʊbəli dɪˈsɜːnəbl ˈɪmpækt   tʌʧ ɒn ˈveəriɪŋ dɪˈgriːz ɒv strɛŋθ teɪks hɪz ʤɒb ˈsɪərɪəsli pʊʃ njuː drʌgz   ʌnˈnɛsɪsəri tɛsts   draɪv ʌp ˈpriːmiəmz məʊst ˈdaɪə ˌsɪtjʊˈeɪʃənz rɪsˈpɒnsəbli   ˈpɒzətɪv ˈætɪtjuːd   ə gʊd ɪmˈprɛʃən   ˈraɪzɪŋ taɪd   cynisism   ˌʌnəˈvɔɪdəbl   teɪk ʌp ə ˈlɑːʤə rəʊl əʊz   deɪ tuː deɪ   ˈraɪtli   sɛlf-ˈɪntrɪstɪd ɪksˈkjuːsɪz  

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https://www.theatlantic.com/politics/archive/2018/12/rich-people-are-getting-away-not-paying-their-taxes/577798/

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These actions are unavoidable and anyone who feels the need to think of themselves as a good person has no choice but to take up a larger role in making society a better place to live.

Coul you please explain the grammar of above sentence? I can not underestand this part” but to take up a larger role…”

It is part of this phrase: ‘has no choice but to…’

That phrase means that you must do it.

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Ielts essay 1138 - paying taxes is a big enough contribution to society, ielts writing task 2/ ielts essay:, some people think paying taxes is a big enough contribution to their society, while others think people have more responsibilities as members of society than only paying taxes..

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Why Do Taxes Matter?

What are the different types of taxes and how does a government's ability to collect tax revenue shape a country's economic and social development? 

Income tax forms are seen at the Des Plaines Public Library on March 15, 2005 in Des Plaines, Illinois.

Source: Photo by Tim Boyle/Getty Images

In 1789, Benjamin Franklin famously said only two things in this world are certain: death and taxes.

And, well, he wasn’t far off. Taxes are practically unavoidable.

For nearly every country in the world, taxes provide most of a government’s revenue. That funding pays for everything, including schools, hospitals, tanks, and roads. A government’s ability—or inability—to collect taxes can mean the difference between a thriving society with a robust social safety net and a country that struggles to provide for its citizens’ basic needs.

In this resource, we’ll break down different types of taxes, explore various approaches and challenges to tax collection, and consider how sound policymaking around this issue can support healthy and wealthy societies.

What are taxes?

Put simply, taxes are compulsory payments that governments impose; they are required by law.

They come in all different shapes and sizes. If you live in the United States, you’re likely accustomed to paying a little extra at the end of a meal (sales tax) or seeing some money disappear from your paycheck (income tax). The United States and many other countries also have special taxes for businesses, property, investments, and inheritances.

Tax revenue is critical for funding public services. In 2022, the U.S. federal government collected nearly $5 trillion in tax revenue, the bulk of which came from individual income taxes. State and local governments collect taxes to fund their operations too; New York’s state tax revenue totalled over $111 billion in 2022.

However, taxes do not exclusively exist to generate funds for government spending. Policymakers can also use them to influence people’s behaviors. For example, governments can impose “sin taxes” on things like gambling and buying cigarettes to disincentivize those activities. Conversely, countries can offer tax breaks to incentivize certain behavior, such as using green energy.

Taxes typically fall into one of three categories: regressive, proportional, and progressive.

Regressive taxes take a higher percentage of income from poorer people than wealthier people. Sales taxes are one example. Think of a tax on gasoline purchases: wealthy and poor drivers pay the same amount in taxes when filling up their cars; however, that dollar amount constitutes a larger percentage of the poorer driver’s income. Since regressive taxes place a heavier burden on the poor, some U.S. states do not impose sales taxes on necessities like food.

Proportional taxes do not take an equal dollar amount but rather an equal percentage of income from all people. A proportional (or flat) income tax would mean that a person making fifty thousand dollars and another making five hundred thousand dollars would both pay, say, 20 percent in taxes. Proportional-tax proponents argue that this method is fair, especially because high-income earners still provide the bulk of government revenue.

Progressive taxes take a higher percentage of income from wealthier people than poorer people. In theoretical a progressive income-tax system, the bottom 50 percent of earners could pay just a 5 percent rate whereas the top 1 percent of earners could pay a 45 percent rate. Progressive-tax proponents argue that each additional dollar of income is relatively less valuable as earnings increase. For example, an extra 5 percent of income for a poorer family that struggles to pay the bills is likely far more significant than an extra 5 percent of income for a wealthy family that lives a much more comfortable life. Some critics, however, claim that overly progressive tax systems can disincentivize work if wealthier people continuously have to pay higher tax rates.

The U.S. tax system is progressive, but it has become less so in recent years. In 1963, the top tax bracket for Americans was over 90 percent. In 2022, the top bracket was taxed at just 37 percent.

How do taxes affect economies and societies?

Governments typically use tax revenue to fund public services that accelerate economic and social development, such as schools and health-care systems. With less taxation—whether due to lower rates or greater difficulty collecting taxes—governments have fewer resources to dedicate toward public services.

To understand the development-related effects of tax policy, let’s compare two countries: Paraguay and Uruguay. Between 2005 and 2010, the two South American nations had relatively similarly sized economies—or gross domestic products (GDPs). However, over that same period, Uruguay collected more than twice as much tax revenue as a percentage of GDP than Paraguay. In addition, Uruguay spent twice as much on health care, social security, and other welfare programs. In 2010, Uruguay covered 97 percent of its population with health insurance, compared to just 23 percent in Paraguay.

Decisions about how a government should tax and spend are known as fiscal policy. Fiscal policy is fiercely debated in many countries and a common source of sharp partisan rifts , with policymakers often arguing over tax rates and the allocation of tax revenue.

What challenges do governments face collecting taxes?

Every country collects taxes differently. Some countries have steep income-tax rates—like Finland, which collects nearly 60 percent from its highest earners. Others choose not to impose income taxes at all—like Qatar, which collects most of its government revenue from the country’s highly lucrative oil and gas industry.

However, not every country that wishes to collect taxes is necessarily capable of doing so. Let’s explore a few roadblocks to tax collection.

Informal economies: Billions of people worldwide work in roles that governments neither monitor nor regulate. Informal sector jobs often include small-plot farming, temporary construction work, craft making, and housekeeping. In Africa, roughly 86 percent of all paid laborers work in this informal economy. Without sufficient record keeping, governments struggle to provide services for or collect taxes from this workforce.

Conflict: In many countries experiencing civil unrest, governments struggle to collect taxes from their citizens. Often, they cannot reach those citizens because opposition forces control portions of the country. In Somalia, for example, the militant group al-Shabab collects nearly as much in taxes as the central government in Mogadishu.

Corruption: Corrupt government officials—particularly in resource-rich countries—sometimes use tax revenues for personal enrichment rather than public services. In 2019, the International Monetary Fund found that curbing corruption could generate an additional $1 trillion in worldwide tax revenue.

Tax avoidance: Individuals and corporations can exploit loopholes in tax laws or use other means to lower their tax burden. Moving money to low-tax countries—or tax havens—is one form of tax avoidance that has become increasingly common . In fact, extremely high-net-worth individuals held about 10 percent of the world’s GDP ($8.7 trillion) in tax havens in 2017. Although many governments discourage tax avoidance, the practice is often legal.

Tax evasion: Individuals and corporations can underpay or altogether fail to pay their tax obligations. Unlike tax avoidance, this practice is illegal. In 2021, the Internal Revenue Service—the federal body responsible for collecting taxes in the United States—estimated that the country loses $1 trillion in taxes every year, largely due to tax evasion by wealthy individuals and corporations.

Is there a global tax policy?

When taxes are progressive and broadly paid, they can redistribute wealth between income groups and reduce economic inequality . But in recent years, taxes have become less progressive , with average top personal-income taxes declining by more than 15 percent across advanced economies since 1981.

Experts maintain that top tax rates have fallen to appease individuals and corporations seeking low-tax zones. In France, for instance, an estimated forty-two thousand millionaires rescinded their citizenship between 2000 and 2012 to avoid paying a wealth tax.

Today, however, many governments are pushing for more equitable tax structures worldwide. In particular, policymakers seek to prevent corporations from moving their profits to low-tax shelters overseas to avoid paying higher taxes at home. To this end, 136 countries agreed in 2021 to a global minimum corporate-tax rate. Once implemented in 2024, this policy would ensure that the wealthiest corporations pay a minimum of 15 percent in taxes regardless of their location. An overwhelming majority of countries—accounting for 90 percent of the global economy—have already agreed to the policy.

Should this policy go into effect, it would only further vindicate Benjamin Franklin’s claim about the inevitability of paying taxes.

Tax Policies Around the World

Click the arrows or swipe to explore tax policies in select countries..

Good Reasons for Taxes

Subscribe to the economic studies bulletin, diane lim rogers dlr diane lim rogers chief economist, the concord coalition.

April 16, 2006

WITH TAX-FILING upon us, many people, ordinary citizens and politicians alike, complain of how high Americans’ tax burdens are. President Bush recently used his radio address to say that, as Americans are finishing up their tax returns, they should be reminded of the need to make the 2001-03 tax cuts permanent.

Left unsaid, though, is that even with our imperfect tax system, the revenues provided by taxes strengthen, not weaken, our nation’s economy. They fund essential public goods and services, they contribute positively to national saving, and many of the things that they fund — from highways and schools to biomedical research and national parks — indirectly create private wealth as well. As Justice Oliver Wendell Holmes put it in 1927, ”Taxes are what we pay for a civilized society.”

Policy makers who argue that taxes are too high are typically not just in favor of low taxes; they are also in favor of smaller government. They ignore the fact that the recent tax cuts have not shrunk government spending. The recent tax cuts instead have increased the budget deficit, reduced national saving, and made it more likely that our children and grandchildren will face a weaker economy and lower standard of living than would otherwise be possible.

Since President Bush took office, the 10-year budget outlook has deteriorated from a $5.6 trillion surplus to a nearly $3 trillion deficit , according to the official ”baseline” estimates of the Congressional Budget Office. That $8 trillion turnaround actually understates the fiscal damage associated with current policies, because the CBO baseline assumes that the 2001 tax cuts expire at the end of 2010 and the 2003 dividend and capital gains tax cuts expire at the end of 2008.

Those who have supported the tax cuts typically deny that the tax cuts have had anything to do with this deteriorating budget outlook. In fact, many have argued that revenues would have been lower without the tax cuts, i.e., that the tax cuts more than pay for themselves.

But the facts show that the tax cuts already enacted will cost more than $3 trillion just through 2016. Thus, contrary to the view that the tax cuts were neutral or even beneficial, the tax cuts have been a huge factor in the deterioration of the 10-year outlook and our currently high and rising deficits.

Making the 2001-03 tax cuts permanent, as the president is calling for, would bring the total cost through 2016 to $6 trillion, including interest. Yet the president says this is the way to ”stay on track to meet our goal of cutting the budget deficit in half by 2009.”

Unfortunately, the goal of cutting in half the huge deficit created during this administration is a bit like a retailer marking up prices just before a sale. President Bush took office facing trillions of dollars in surpluses and said that his administration would reduce the federal debt by nearly $1 trillion in his first four years. Instead, the debt ceiling has been raised four times, by a total of more than $3 trillion.

Finally, the argument that tax cuts grow the economy, while tax increases shrink it, is incomplete and incorrect. Economists generally agree that true tax reform, where marginal tax rates are reduced while the tax base is broadened and the revenue collected stays the same, is good for economic growth. But tax cuts that diminish revenue are harmful to economic growth if they increase deficits and reduce national saving.

So as we work on our tax returns, what should we be pondering about the deeper meaning surrounding this painful and tedious task?

Rather than making fiscally unsustainable tax cuts permanent, let us remember that taxes are collected for a reason: to provide vital public services such as a strong defense, homeland security, healthcare, retirement and income security, education and training, and disaster relief.

And let us be wise when we hear politicians pitching more tax cuts, understanding that every dollar of additional tax cuts that we receive now only adds more than a dollar to the future tax bills of our children and grandchildren. Our current tax burden is historically low, not high: Federal taxes were less than 17 percent of gross domestic product in 2003-04, the lowest since the 1950s. A civilized society shouldn’t go on a spending spree with an unwillingness to pay sufficiently for it, only to stick the bill to future generations with no political voice.

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Do you have a moral duty to pay taxes?

Assistant Professor of Philosophy, Director of the Law, Liberty, & Justice Program, Clemson University

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It’s tax season. Americans will pay an average of US$10,489 in personal taxes – about 14 percent of the average household’s total income.

Most will do so because they think it is their civic duty . Many believe they are morally obliged to obey the law and pay their share. But as tax day approaches, many Americans will bemoan their tax bill and complain that it is unfair.

So, how are we to know if paying taxes is the right thing to do? Perhaps philosophy has some clues?

Reasons to obey the law

Many philosophers agree that we should obey the law. In his book, “The Crito,” Plato, for example, describes Socrates’ choice after the Athenian jury sentenced him to death for impiety. Crito, a wealthy friend of Socrates, arranges for him to escape from the prison a night before his execution. Socrates refuses saying he ought to obey the law.

In explaining his decision , Socrates hinted at roughly three reasons why it would be wrong for him to break the law: First, he had chosen to stay in the city for many years despite being at liberty to leave if he did not like the laws. Second, he might hurt other people – by damaging the state if he disobeyed. Finally, he had benefited from the laws in the past.

More recent scholars endorse many of these claims . Eighteenth-century philosophers like John Locke and Jean-Jacques Rousseau argued that citizens agreed to the law of the state by continuing to live in the place. Locke, for example, held that “if a man owns or enjoys some part of the land under a given government, while that enjoyment lasts he gives his tacit consent to the laws of that government and is obliged to obey them.”

Twentieth-century British philosopher R.M. Hare suggests that citizens should obey the law to promote good social outcomes.

Another British philosopher of the same era, H.L.A. Hart argued that citizens should comply out of fairness to others who obey. He held that it is unfair , and therefore wrong to benefit from their actions, without doing the same for them in turn.

Is there a moral duty to pay taxes?

Yet it is hard to see why these arguments would give the average citizen a moral responsibility to pay their taxes.

Most of us never consented to the law. We were simply born here. Leaving would be costly, and even the chance to emigrate is dependent on another country’s willingness to accept us.

Given the amount of government waste and its total budget individual citizens could think that their tax bill is unlikely to make a difference to the services the government can provide. Even if they agree with how the government spends money, they might therefore conclude they have no reason to contribute. After all, one person’s ten thousand dollars is not going to determine whether the military can secure national borders.

The most commonly defended argument from scholars for why one should pay taxes is a duty of fair play . Fair play is the notion of reciprocity, the idea that you should not take advantage of others.

As philosophers like George Klosko argue, people benefit from their fellow citizens paying their taxes .

They enjoy the roads that everyone helps pay for, the fire departments they fund. They ought to pay back fellow citizens who benefited them, just like you ought to do something for a friend who gives you a ride to the airport.

The case against paying taxes

As a philosopher who studies civic ethics, I have argued in a recent paper that this kind of responsibility still does not explain why one should pay taxes.

The idea that we have to pay your taxes because other people have benefited by paying theirs rests, from my perspective, on a wrongly narrow view of what it means to satisfy one’s duties of reciprocity. All that reciprocity requires is that one should compensate people for the work they have done that benefits us.

Just like we can repay a friend who gives us a ride to the airport by doing something else that benefits them – say, making them dinner or helping them move – so too can we repay our fellow citizens by doing something other than paying our taxes.

Lots of actions benefit your fellow citizens that you might pay for – taking a pay cut to do legally discretionary work to help the environment, volunteering to do policy research, choosing a career in public service over a more financially rewarding line of work, and more.

If you do enough such acts, it could be argued, you would have no duty of reciprocity to pay your taxes. You would already have done enough to compensate your fellow citizens.

Why pay taxes

Given this, the best argument for paying our taxes, as I argue in my paper, is “intellectual humility.” And here is what it means.

Satisfying these duties of reciprocity requires successfully compensating our fellow citizens for all the burdens they took on our behalf. As one can imagine, it is a hard calculation to make.

It is difficult to know if we have done enough. If we choose not to pay taxes because we think we have already repaid our fellow citizens in other ways, we run a strong risk of getting it wrong.

Paying the tax bill is one way of avoiding that risk and making sure we treat our fellow citizens fairly.

Editor’s note: This piece is part of our series on ethical questions arising from everyday life. We would welcome your suggestions. Please email us at [email protected] .

• Moral responsibility
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• Everyday ethics
• Jean Jacques Rousseau

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Some People Think that Paying Taxes Is Enough to Contribute to The Society

Some people think that paying taxes is enough to contribute to the society. Others argue that being a citizen involves more responsibilities. Discuss, what is your opinion?

In contemporary society, the debate over the responsibilities of a citizen extends beyond the mere payment of taxes. While some individuals argue that fulfilling tax obligations contributes to societal development, others believe that the duties of a citizen are far more extensive. This essay will discuss both perspectives and argue that, although paying taxes is fundamental, active participation in societal activities is equally imperative for the holistic growth of a community.

On the one hand, proponents of the viewpoint that paying taxes is an adequate contribution emphasize the role of government in societal development. Taxes are a primary source of revenue for the state, funding crucial sectors such as healthcare , education, and infrastructure. From this perspective, citizens indirectly participate in the nation-building process by contributing their fair share of taxes. Moreover, in a democratic setting, citizens express their preferences and elect representatives, fulfilling their duty through a structured financial contribution to the collective well-being.

On the other hand, a segment of society advocates for a broader interpretation of a citizen’s duties. This perspective argues that being a part of society involves an active engagement that transcends financial contributions. Volunteering, participating in community initiatives, and being informed and involved in local governance are considered integral to a robust society’s fabric. For instance, community clean-up programs, neighbourhood watch groups, and local educational tutoring address immediate needs and foster a sense of unity and collective responsibility. This broader engagement ensures that citizens are not passive residents but active architects of their community’s future.

In my opinion, while the importance of tax contributions cannot be understated, defining citizenship solely by this metric is limiting. Taxes do not account for the moral and social duties that bind a community. Active engagement in societal issues cultivates empathy, fosters communal bonds, and instils a sense of ownership and pride in one’s locality. These non-monetary contributions are the bedrock of a vibrant and resilient society. They complement the financial inputs by filling in the gaps a government might overlook despite its best efforts.

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In conclusion, while the payment of taxes is a significant and obligatory contribution to society, the amalgamation of these financial duties with active community involvement truly encapsulates the essence of citizenship. A society thrives when its members contribute to its treasury and participate in its day-to-day tapestry, nurturing it through fiscal support and active engagement.

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Band 8+: Some people think paying taxes is a big enough contribution to society, while others think people have more responsibilities as members of society than only paying taxes. Discuss both these views and give your own opinion.

Some people believe that paying taxes is a sufficient contribution to society. This perspective holds that taxes fund essential services and infrastructure such as healthcare, education, public safety, and transportation. By fulfilling their tax obligations, individuals are supporting the government in providing these services, which benefits society as a whole. Additionally, paying taxes is a legal requirement, and complying with this obligation demonstrates a level of civic responsibility and support for the functioning of the state.

Others argue that individuals have more responsibilities to society beyond merely paying taxes. They believe that active participation in the community, such as volunteering, helping those in need, engaging in civic duties, and promoting social justice, is crucial. This view emphasizes the importance of personal involvement in societal improvement and the development of a strong, supportive community. It suggests that societal well-being depends on more than just financial contributions; it requires active and engaged citizens who work towards the betterment of their communities.

While paying taxes is undeniably important and a fundamental duty of every citizen, I believe that responsibilities to society extend beyond this. Taxes are essential for maintaining public services and infrastructure, but the social fabric is strengthened by the direct actions and involvement of individuals. Volunteering, community service, and civic engagement foster a sense of belonging and shared responsibility, which are vital for a healthy and thriving society. Therefore, while paying taxes is a necessary contribution, active participation in societal activities and efforts is equally important to create a balanced and supportive community.

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• Study Abroad Test Prep /

IELTS Daily Essay Topic: Some people think paying taxes is enough to contribute to society.

• Updated on  
• Jun 10, 2024

Brainstorming Ideas

Refer to the following brainstorming ideas to get a better understanding of the answer.

Reasons people believe that paying taxes is a sufficient contribution to society:

• They are a significant source of government revenue.
• Later on, this money will be used to fund public services.
• It is a contribution to the overall development and welfare of society.

Reasons people believe that  their responsibilities go beyond paying taxes and why I support this:

• Being a member of society also means emphasizing the following civic duties such as voting, volunteering and adhering to laws.
• Societies nowadays thrive on cooperation and mutual support. 
• That is why active participation in community activities is equally important.

Q. Some people think that paying taxes is enough contribution to society, others believe that they have more responsibilities than paying taxes. Discuss both the views and give your opinions.

Ans . The debate on the extent of individuals’ societal responsibilities is a topic of interest for many. Some individuals state that paying taxes is a sufficient contribution to society, while others believe that societal responsibilities extend beyond taxation. I believe as a member of society, people have more responsibilities than making financial contributions.

On the one hand, some individuals believe that paying taxes adequately contributes to society. They argue that taxes are a significant source of government revenue, which is later used to fund public services such as education, healthcare and infrastructure. So by fulfilling tax obligations, they are contributing to the overall development and welfare of society. For instance, in many developed countries, tax revenues are the primary source of funding for public services, highlighting the importance of tax contributions.

On the other hand, some people believe that societal responsibilities go beyond paying taxes. They argue that being a member of society also means emphasizing following civic duties such as voting, volunteering and adhering to laws. For example, during times of natural disasters, individuals often come together to volunteer, providing aid and support to those affected, showcasing that societal contribution can take many other forms than monetary.

In my opinion, while paying taxes is a crucial aspect of societal contribution, it should not be seen as the sole responsibility of an individual. Societies nowadays thrive on cooperation and mutual support, which extends beyond financial contributions. That is why active participation in community activities, respect for laws, and consideration for others’ well-being are equally important.

To conclude, while the act of paying taxes is a fundamental duty, it is not the only responsibility that an individual has towards society. So, recognizing the non-fiscal contributors is essential as well for a harmonious and progressive society. 

Paraphrased Statement: The debate on the extent of societal responsibilities of individuals is a topic of interest for many. Some individuals state that paying taxes is a sufficient contribution to society, while others believe that societal responsibilities extend beyond taxation. 

Thesis Statement:  I believe as a member of society, people have more responsibilities than making financial contributions.

Body Paragraph 1-Topic Sentences: On the one hand, some individuals believe that paying taxes adequately contributes to society. 

Body Paragraph 1- Supporting Reasons and Explanations: They argue that taxes are a significant source of government revenue, which is later used to fund public services such as education, healthcare and infrastructure. So by fulfilling tax obligations, they are contributing to the overall development and welfare of society. For instance, in many developed countries, tax revenues are the primary source of funding for public services, highlighting the importance of tax contributions.

Body Paragraph 2- Topic sentence: On the other hand, some people believe that societal responsibilities go beyond paying taxes. They argue that being a member of society also means emphasizing following civic duties such as voting, volunteering and adhering to laws. 

Body paragraph 2- Supporting Reasons and Explanations: For example, during times of natural disasters, individuals often come together to volunteer, providing aid and support to those affected, showcasing that societal contribution can take many other forms than monetary. In my opinion, while paying taxes is a crucial aspect of societal contribution, it should not be seen as the sole responsibility of an individual. Societies nowadays thrive on cooperation and mutual support, which extends beyond financial contributions. That is why active participation in community activities, respect for laws, and consideration for others’ well-being are equally, important.

Body Paragraph 3- Topic sentence: In my opinion, while paying taxes is a crucial aspect of societal contribution, it should not be seen as the sole responsibility of an individual. 

Body Paragraph 3- Topic sentence: Societies nowadays thrive on cooperation and mutual support, which extends beyond financial contributions. That is why active participation in community activities, respect for laws, and consideration for others’ well-being are equally important.

Conclusion: To conclude, while the act of paying taxes is a fundamental duty, it is not the only responsibility that an individual has towards society. So, recognizing the non-fiscal contributors is essential as well for a harmonious and progressive society. 

Vocabulary in Use

Linkers and Connectors Used:

Following are the linkers and connectors used:

• On the one hand
• For instance
• On the other hand
• For example
• In my opinion

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• Environmental Science

The Importance of Paying Taxes

15 Nov 2022

Format: APA

Academic level: College

Paper type: Essay (Any Type)

Downloads: 0

Electricity is the most used source of energy and with the rapid population and advancement in technology, there is a necessity of producing more electrical energy. Averagely, about $ 300 billion goes to conventional power sources each year. Out of the $300 billion, only thirty percent of it goes to renewable energy each year. This means that every year, 90 billion is spent on renewable energy (Buxbaum, 2014). Two reasons can explain the variance in the amount spent on renewable energy. Firstly, eighty percent of the investment decline came because of the decreasing cost of renewable energy technology, chief among them being solar panels. For instance, the cost of a rooftop solar system that is considered a good national trend barometer is reported to have fallen by almost a third. The other twenty percent was a result of a reduction in actual construction activity. This was influenced by subsidies from the government as well as general sluggishness in economics. With PTC, the cost of energy is significantly reduced. For this reason, businesspersons controlling other non-renewable energy, are using the media to convince people to stop using PTC because they are seeing it as a threat to their business. The majority of the citizens are gradually diverting to PTC products. The PTC is so important to the economy, and thus it must be saved. These tax credits are reported to have benefited many people by playing a significant role in the growth of the America economy, enhancing energy security, and job creation, and providing support to the new manufacturing process in the US among other benefits. Besides, PTC has to increase the production of wind energy which is clean and affordable (Roach, 2015). For proper regulation of energy, it is crucial to have an energy policy. This policy is essential since energy is a basic requirement for most social and economic activities in industrialized nations. The cost of energy has to be regulated because it affects production in industries as well as the living conditions of the citizens. 

References  

Buxbaum, R. (2014). Driving Renewable Energy Growth Through Effective Public Policy: A Financial and Policy Analysis of Cash Grants, Tax Credits and Pass-Through Tax Structures (MLPs and YieldCos). 

Delegate your assignment to our experts and they will do the rest.

Roach, T. (2015). The effect of the production tax credit on wind energy production in deregulated electricity markets.  Economics Letters ,  127 , 86-88. 

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Some people think paying taxes is enough of a contribution to their society, while others think people have more responsibilities as members of society than only paying taxes. Discuss both views and give your opinion.

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Why tax matters

It is often assumed that tax is a bad thing: that governments want to deprive citizens of their hard-earned money. But from an economic justice and human rights perspective, taxes are crucial for four reasons, which can be summarised as the four ‘Rs’:

Revenue: funding to deliver the services citizens need

Redistribution: to address poverty and inequality, representation: building accountability of governments to citizens and reclaiming policy space.

• Repricing: limiting public ‘bads’; encouraging public ‘goods’.

Below we explain the importance of each in turn and their links to economic and social justice issues.

‘Taxation funds the lion’s share of the education budget, particularly the salaries of teachers, and so requires more attention if countries are to meet the Education for All Objectives by 2015.’ ActionAid and Education International, 2009 1

Tax is a vital source of revenue for most governments enabling them to fund essential services and infrastructure for their citizens. Of course, revenues will not automatically be used for such social goods. But when governments get revenue from tax, citizens are in a far stronger position to exert pressure that it be spent on the services to which they are entitled.Taking education as an example, in 1995 the Ghanaian government introduced a new value added tax (VAT) of 17.5 per cent, which initially led to widespread protests. The government was forced to revoke the policy and in 1997 VAT was introduced at 10 per cent, accompaniedby an intensive government campaign to create awareness among citizens about what therevenues from the tax would be used for. Subsequently the level of VAT was raised to 12.5 per cent, with the revenue from the added 2.5 per cent ring-fenced for education through the Ghana Education Trust Fund. With education being key to everybody, it caught on well. 2

ActionAid has stressed that ‘governments prefer to use tax revenue, rather than aid or loans, to cover the salaries of teachers, because it is relatively secure and predictable. They do not want to hire teachers with aid money and then find they cannot pay the salaries two or three years later, as making teachers redundant is politically very sensitive. So, the best way to get more money for more teachers is to expand the national tax base.’ 3 When aid contributions have enabled governments to improve provision of services, domestically raised revenue tends to also be an important factor. In Kenya the declaration of free primary education in 2005 led to the realisation by the state of the need to improve fiscal resources to maintain the president’s electoral promise. This, together with other societal needs, has led to increased tax targets and collection in order to improve education and other services. 5

What is true of education is true of many other services that rely on government support and funding. Millions of small farmers in southern countries rely on governments to provide training, research and credit and to develop markets for inputs and outputs; yet governments in Africa tend to spend far too little in this area, and donor support to agriculture has been woefully inadequate over recent decades. Increased earnings from domestic tax would enable governments to provide more of these services or at least provide citizens with the scope to argue the case for this spending to take place. Addressing high maternal and infant mortality rates, successfully tackling HIV, reducing the blight of malaria and other tropical diseases all require reliable long-term funding from governments. Of course, financing through taxation is not the only factor that will drive the provision of such services. Other factors such as political will are crucial. But tax is an important part of the solution. For this reason, citizens in many countries have sought to influence tax policies in order to get the services to which they are entitled.

So, if you are campaigning for the provision or improvement of education, health or other services, engaging in tax issues should be a central part of your efforts.

Tax and human rights

Every government in the world has certain responsibilities regarding its citizens.The human rights legal framework spells out those responsibilities.However, human rights encompass not just social and political rights, but also economic and social rights.The minimum requirements for the fulfilment of economic and social rights include the provision of available foodstuffs for the population, essential primary healthcare, basic shelter and housing, and the most basic forms of education.Groups working on human rights should be concerned about how rights are realised through the budget, and how they are violated when states are unable to meet their obligations through weak or unfair taxation.

In 1986 the United Nations made explicit the link between this right and the resources required to fund it. More recently the millennium development goals (MDGs) are an attempt to create a practical benchmark for states to work towards implementing human rights.

MDG campaigners often focus on pushing countries to fulfil their aid pledges, aimed at meeting the MDGs. While this is important, there is an increasing recognition that the progressive realisation of rights, in the long term, requires domestic resource mobilisation through tax. Indeed, a recent analysis by theTax Justice Network showed a strong relationship between African countries with high levels of tax collection and those making progress with regard to the MDGs. 6

Are resources being mobilised to ensure that governments fulfill their responsibilities towards the progressive realisation of rights? If not, a government may be failing in its human rights obligations and may be held to account for doing so.

Tax policy can play an important role in redistributing wealth within an economy. The provision of services discussed in the previous section is one way of addressing poverty and inequality through taxation – as it is the poor who tend to depend more on key services such as publicly funded health and education. As we saw with the Bolivia case study on page 2, tax policy has the potential to redistribute a country’s riches from the wealthy (in this case oil and gas companies) towards the poorest and most vulnerable (old people, and children who would otherwise lack education). This is an example of ‘progressive’ and equitable taxation.

Tax systems can include progressive or regressive elements. For example, a country could rely on taxation of resource wealth, corporate taxation or taxation of property while collecting less tax from those on low incomes. Or income taxes could be differentiated between those on lower and higher incomes. These would generally be considered progressive policies. Conversely, a reliance on consumption taxes (levied on food, fuel and other goods) would be considered regressive.

In reality, tax systems the world over are often regressive. This is even more likely to be the case in many southern countries, which tend to have particularly low levels of taxation on income and an over-reliance on consumption taxes. For example in Latin America individual income taxes contribute only 4 per cent of the overall tax collection. Some southern countries fare better. In Bangladesh direct taxation comprises 20 per cent. In Ghana the figure is 22 per cent, but this is much higher than most of its regional neighbours and is still far below the developed country average of 35 per cent. 8 A regressive tax system can do a lot of damage and can even contribute directly to increasing the concentration of wealth – as it has been shown to do in Latin America where inequality is greater after tax than before taxes are paid.

The ‘tax consensus’ pushed by the International Monetary Fund (IMF), World Bank and others over the last two to three decades has tended to contribute to furthering the ‘regressive’ nature of many tax systems. While countries have been strongly encouraged to minimise the taxation of foreign investors as well as to reduce trade taxes that were previously important sources of revenue for social spending (both of these trends are explained in detail later in this chapter), governments have meanwhile been encouraged to increase taxes on purchases – generally known as ‘value added tax’ (VAT) or sometimes referred to as a ‘goods and services tax’ (GST) or ‘consumption taxes’. These policy recommendations are based on the premise that taxes should be economically neutral and should focus on raising revenue only, ignoring the potential for tax to challenge inequality.

‘It is hardly possible to speak of the struggle for an equitable society and for social justice unless the agenda of progressive taxation is concretely articulated.’ Freedom from Debt Coalition, the Philippines 7

VAT unfair on the poorest

Most southern countries have very large informal sectors and significant rural populations, from whom it is difficult for governments with weak tax administrations to collect income tax. Even if governments had better systems in place, these are often the citizens least able to afford to pay tax. In response to this problem as well as to pressures from international financial institutions (IFIs) and donors, many southern countries have increasingly relied on an expansion of VAT for their tax revenues. While developed country economies tend to rely on VAT for about 30 per cent of total tax revenues, in southern countries it is often dramatically higher. In Latin America consumer taxes account for almost two-thirds of tax revenues, with VAT being the most important of these.

Yet consumption taxes such as VAT or GST are usually regressive taxes. Unless a comprehensive set of exemptions is applied to the basic goods and services consumed by poor people, they will spend a much higher percentage of their minimal incomes on the goods and services that carry this tax than those with large disposable incomes. So too much reliance by a government on VAT for its revenue can end up deepening inequality in a country. For this reason VAT has been a focus for tax justice protests in countries around the world.

‘Progressive’ or ‘regressive’ taxation?:

Gender inequality in the tax system 12.

Tax systems can also play a role in addressing or exacerbating economic inequality between women and men. This can either be implicit or explicit. Implicitly, an identical tax may have a differential impact on women and men because of their differing social and economic roles. For example:

• A high rate of tax on part-time earners is likely to affect women more than men because women are more likely to work part time to accommodate family responsibilities.
• If the tax code treats a married couple as a single unit (combining their earnings for tax purposes), the couple can face a ‘marriage penalty’ whereby they end up paying more than when they filed their taxes separately as single people. This usually affects women disproportionately because the higher tax is effectively placed on the ‘second’ earner. Women are more likely to be earning less than their spouses and their earnings are thus usually regarded as ‘secondary’.
• A shift from direct taxes to indirect taxes such as VAT can produce greater gender inequalities if taxes are levied on essential goods that are consumed disproportionately by female-headed households. 13
• Men are more likely than women to benefit from corporate and income tax exemptions as they are more likely to own property and shares.

There are also sometimes explicit differences built into the tax system between how women and men are taxed. In Pakistan, for instance, the tax code allows working women to shield a greater amount of their income from tax than working men. In contrast, in South Africa prior to 1994, married women were taxed at higher rates than married men. So, it is important for groups working on tax to assess the gender implications of tax structures and to challenge those systems that are regressive along gender lines.

‘A tax system should be progressive, meaning that those with higher incomes pay greater taxes as a share of income than those with lower incomes.’ Taxation and Development in Ghana: Finance, Equity and Accountability, 2009 15

‘If the government continues to give tax cuts and tax holidays to attract investors, where will we get money to finance primary education, build roads, and reduce infant mortality? We will source it from indirect taxes such as the Value Added Tax which burdens more Filipinos.’ Professor Leonor Magtolis-Briones, Social Watch 16

Who holds the money – central or local governments?

In many southern countries, local taxation accounts for only a tiny share of total tax revenue. In Ghana, districts continue to be fiscally dependent on central transfers and donor revenues. However, there is remarkably little coordination between local authorities and the national tax authorities. Citizens are consistently confronted with two distinct and uncoordinated sets of tax collectors and tax demands, while some national tax officials report that local tax officials sometimes seek to increase local collection by encouraging the evasion of national taxes. This undermines the credibility of the system as a whole and may lead to poorly educated or uninformed citizens paying more tax than they should.

The importance of CSOs speaking out directly on tax equity issues is highlighted by recent trends in tax reform. A PricewaterhouseCoopers/ World Bank report makes clear that the most popular change to tax systems worldwide between 2004 and 2006 was reducing corporate profit tax rates. 17 The private sector has been effective in ensuring reforms for its benefit. Unfortunately it is less common to hear the voices fighting for an increase in tax collection and equitable tax reforms. Civil society groups can promote pro-poor tax policies by ensuring that crucial equity issues are part of tax debates.

Building accountability of governments to citizens

If you are working on governance and accountability issues, tax should also be on your agenda. Taxation is about more than revenue- raising; it is also a fundamental part of state- building and democracy. One important study examined the link between democracy and taxes in 113 countries between 1971 and 1997. It found that introducing or increasing taxes without simultaneously increasing and improving service delivery led to citizens demanding their rights and to subsequent democratic reforms. 18

Campaigners have always challenged governments when they raise and spend public revenue in unfair or corrupt ways. In many countries the imposition of unfair taxes has been an important catalyst of social and political change, from the poll tax in medieval England through the Boston tea party to VAT in 1990s Ghana. The long-term relationship between taxation and the development of more accountable and responsive governments has a number of components:

• Collective bargaining around tax revenue creates a ‘social contract’ between members of society who are paying taxes and voting for political parties, and officials who are expected to raise and spend those revenues in a manner that benefits the constituents who elected them. Taxes make government more immediate and visible, and ultimately more accountable. Critically, fairness in the tax system is important for building that accountability between governments and citizens – without the perception that the big players are contributing their fair share, the incentive for ordinary citizens to do so is considerably diminished.
• A state that depends on taxes needs a healthy economy to generate them. That requires citizens and businesses that flourish, so the government has an interest in responding to their needs.
• To raise tax reliably, governments need efficient, accountable and honest revenue services (that is good administrative governance).

However, without transparency and access to information, citizens are less able to hold governments to account. Without knowing how much tax is being raised and from where, the people are less able to make proposals about how the money should be spent. Lack of transparency and lack of freedom of information are both issues that are also central to the democratic control that a population holds over its government. The demand for transparency and freedom of information is therefore a campaign issue in its own right, as well as a central aspect of tax justice campaigns. Many organisations and activists are finding ways of getting governments to share this information and of holding them to account.

‘Tax provides people with a weapon: if government doesn’t act well, you can withhold tax, particularly when it comes to high- level corruption. Government responsiveness is higher from government to citizen than before.’ Alvin Mosioma, Tax Justice Network Africa

Protests on tax and representation

• In colonial India, Ghandi organised salt tax marches in the 1940s against the unjust taxes that the British colonial administration imposed on Indian people without the right to decide how they were spent.
• In the UK, when women campaigned for the vote they adopted the slogan ‘no vote, no tax’.
• During the events that led to the US war of independence in 1776, British colonists who were not represented in the UK Parliament rallied around the cry ‘no taxation without representation’.This established the precedent for the right to be taxed only by one’s own elected representatives.

In times of independence, some tax justice activists have reversed the slogan of the US independence campaigners to say ‘no representation without taxation’, recognising that proper representation is unlikely to be achieved without a transparent and fair tax system.

Citizens campaign for right to information on tax

The counterpart to pushing for fair enforcement of taxation is pushing for transparency and inclusiveness in the tax system. In Sierra Leone, citizens desperately need detailed information about how taxes are assessed, how much tax revenue is collected and how that revenue is used. At the local government level, this is particularly important where citizens complain that tax assessment is arbitrary and that information about how much revenue is collected and how it is spent is unavailable. Transparency can be the basis for encouraging voluntary tax compliance and more broadly building the legitimacy and accountability of government. 19 In recognition of this importance, a number of civil society campaigns have aimed to ensure greater tax transparency, in conjunction with budget monitoring and advocacy.

Building tax into budget monitoring

Many organisations across the South are involved in monitoring their government’s budget, in order to guard against corruption and to ensure that funds are being directed appropriately and spent effectively. Budget monitoring usually focuses on how government money is spent; but increasingly citizens are recognising that it is equally important to track where the money comes from, as no government programme or policy can succeed without funds to implement or enforce it.

As the International Budget Partnership (IBP) points out in its guide for non-governmental organisations (NGOs) thinking of working on tax, 21 the budget is one of the most important public documents produced by a government, expressing its priorities and commitments. It is the place where a government proposes how much revenue it plans to raise and how it plans to use these funds to meet the nation’s competing needs, from bolstering security to improving healthcare to alleviating poverty. Given its wide-ranging implications for a nation’s citizens, the budget should be the subject of widespread scrutiny and debate. The IBP rightly points out that groups that are knowledgeable about both sides of the budget – expenditure and revenues – will ultimately be more effective.

Unfortunately, expenditure that targets the poor is often the easiest to sacrifice, because the poor tend to be unorganised and politically weak. CSOs may find that they can more easily defend these programmes if they also engage with tax issues and work to ensure revenue adequacy. Moreover, if civil society groups are advocating new expenditure policies that require substantial funding, they can strengthen their case by proposing specific taxes or other revenue sources to pay for them. Knowing how the tax burden is borne by different groups – rich or poor, male or female, urban or rural, employers or workers – can help civil society advocate new, fairer tax policies.

‘Government support via tax will lead to more influence by citizens than where government is reliant on external sources for funding.’ Siapha Kamara, SEND Foundation, Ghana

Reclaiming policy space and achieving independence from aid and debt

The previous section discussed the role of tax in improving the accountability of governments towards their citizens. Unfortunately, many southern country governments depend on aid and debt for a high percentage of their revenue, which means their greatest accountability is often towards donors and lenders. Donors and IFIs can impose harmful policy conditionalities that are inequitable and actually make it harder to raise revenue and obtain independence from debt. Shifting the balance away from external financing towards greater revenues from taxation can provide greater policy-making space at the national level. Tax is therefore a critical element of strengthening the power of citizens to make demands on their governments.

Tax is also a more sustainable source of finance than aid or loans because it is less likely to dry up and does not involve interest repayments.

Take debt: financing development projects through debt is a short-term fix but is not sustainable – indeed, it leaves a legacy whereby the limited tax raised domestically goes on paying off the debt for past projects instead of being used on much-needed essential services.

Latin America suffered extensively during the debt crisis. However, in recent years, thanks to strong growth and high commodity prices, many countries have made efforts to reduce their debt burdens. This, alongside debt write-offs under the Heavily Indebted Poor Country (HIPC) Initiative, means that the region’s external debt as a share of GDP has fallen significantly. The IMF reports the region’s external debt to have fallen from 59 per cent of GDP in 2003 to 32 per cent in 2008. However, in many countries the internal debt burden remains high, and debt servicing continues to have a serious detrimental impact on social spending. In Brazil, where tax collection is relatively high, 30 per cent of the federal budget goes on servicing the internal and external debt. In comparison, health spending is just under 5 per cent of the federal budget. Low-tax Latin American countries can find themselves similarly constrained by debt servicing. In Nicaragua, for example, external debt stood at 60 per cent of GDP in 2008 (and the total debt burden, including domestic debt, stood at 80 per cent of GDP). Debt servicing that year amounted to US$275 million – around 4.4 per cent of the country’s GDP. In fact, debt servicing managed to swallow up 25 per cent of the country’s annual tax take. This was equivalent to 36 per cent of total public social spending and dwarfed the country’s entire health budget, which amounted to only 3.7 per cent of GDP.

In the Philippines, the debt service for interest payments from 1986 to 2008 already averaged around 25.72 per cent of the national budget – this was without paying off any of the principal sum. In the recent 2010 budget of the Philippine government (US$32.2 billion), US$7.9 billion (24.34 per cent) was spent for interest payments and US$9.3 billion (28.95 per cent) for payment of the principal. This means that 53.3 per cent of the entire 2010 budget of the Philippines went to debt payments alone. On the other hand, only US$9.2 billion (28.5 per cent) was allocated for basic social services (education, health and housing).

Raising more tax domestically, through improving the tax take from those able to pay, reduces countries’ reliance on loans and the onerous repayment of those loans in the future. Critically, mobilising domestic revenue also helps governments to break away from dependency on western powers and from the often harmful conditions attached to their financing.

For these reasons it is important for organisations working on debt to look at how tax can be used to reduce the dependence of southern country governments on unsustainable external financing.

Too much dependency on development assistance also comes with a series of problems, such as the unwillingness of donors to fund certain socially important projects, a lower incentive for governments to improve tax collection and a continued tendency for donors to condition aid on a country’s acceptance of their policy ‘advice’. A further problem is that if aid is channelled towards projects that would otherwise have been paid for by tax revenues, those tax revenues may be diverted to corruption.

In sum, increasing revenue from tax reduces dependency on foreign donors and helps governments and their citizens to escape the aid and debt trap.

Repricing: limiting public ‘bads’; encouraging public ‘goods’

Taxes can be used to ensure that all social costs and benefits of production or consumption of a particular good are reflected in the market price. The design of a tax system can contribute to the achievement of other social benefits by making it costly to engage in actions considered socially undesirable, or by incentivising behaviour that is considered beneficial to society.

On the consumption side, this may include taxing tobacco to limit damage to health, or petrol to limit environmental costs. It may also be used to discourage speculation on essential products and services, which prevents the poor from accessing them. In the context of climate change, it is clear that market mechanisms do not price our consumption and production in a way that considers the impacts on future generations. However, advocacy on tax in this area also needs to consider any potential negative impacts on the poor.

On the production side, inhibitive taxes can, for instance, be imposed on aspects of mining activities that potentially cause environmental strain on the immediate ecosystem and nearby communities. Studies have pointed out that the social and environmental costs that occur as a result of the extraction of minerals are largely unaccounted for when making the decision about whether or not to embark on a mining project. 25 Such social and environmental costs are not normally valued by the markets or by most economic actors, including mining companies, but instead are borne by local communities living near the mines. Thus, taxes can go some way towards internalising these otherwise unaccounted for costs, for example through allocating a share of the mining royalty to local development funds earmarked for community needs. Another approach could be to tax carbon emissions generated through maritime transport, or aviation in particular, and use the receipts for climate change adaptation and mitigation efforts.

As noted by the FDC, ‘the point here is not to generate resources for government but to impel economic actors to shift to more environmentally friendly technologies and methods even if these entail more costs. But it must be stressed that these taxes should go hand in hand with regulatory mechanisms (such as anti-pollution laws and regulations) to attain social objectives.’ 26

Some people think that paying taxes is their only responsibility towards society while others feel that everyone should do more. Discuss both views and give your own opinion.

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Some people believe that it is best to accept a bad situation, such as an unsatisfactory job or shortage of money. Others argue that it is better to try and improve such situations. Discuss both these views and give your own opinion.

You should spend about 40 minutes on this task. write about the following topic: it is argued that mibile phones and other electronic devices have no place in the classroom. to what extent do you agree or diagree with this view give reasons for your answer and include any relevant examples from your own knoledge of experience. write at least 250 words., in the past, many people got married when they were very young, but today, many people do not get married until later. why do you think they do this, and is it a good or a bad idea, countries with a long average working time are more economically successful, but they are also likely to suffer from negative social consequences. to what extent do you agree or disagree, people who read for pleasure in their free time have a better imagination than those who prefer to watch tv. to what extent do you agree or disagree.

• Paying Taxes

This topic recorded the taxes and mandatory contributions that a medium-size company must have paid or withheld in a given year, as well as the administrative burden of paying taxes and contributions. The most recent round of data collection for the project was completed on May 1, 2019 covering for the Paying Taxes indicator calendar year 2018 (January 1, 2018 – December 31, 2018). See the  methodology  and video  for more information.

To learn more about the results of Paying Taxes in calendar year 2018, see the Paying Taxes 2020 report . 

• Doing Business Score
• What is Measured
• Why it Matters
• Good Practices
• Other Resources

Why it matters?

Why do tax rates and tax administration matter?

To foster economic growth and development governments need sustainable sources of funding for social programs and public investments. Programs providing health, education, infrastructure and other services are important to achieve the common goal of a prosperous, functional and orderly society. And they require that governments raise revenues. Taxation not only pays for public goods and services; it is also a key ingredient in the social contract between citizens and the economy. How taxes are raised and spent can determine a government’s very legitimacy. Holding governments accountable encourages the effective administration of tax revenues and, more widely, good public financial management. 1

All governments need revenue, but the challenge is to carefully choose not only the level of tax rates but also the tax base. Governments also need to design a tax compliance system that will not discourage taxpayers from participating. Recent firm survey data for 147 economies show that companies consider tax rates to be among the top five constraints to their operations and tax administration to be among the top 11. 2  Firms in economies that score better on the  Doing Business  ease of paying taxes indicators tend to perceive both tax rates and tax administration as less of an obstacle to business (figure 1).

Why tax rates matter?

The amount of the tax cost for businesses matters for investment and growth. Where taxes are high, businesses are more inclined to opt out of the formal sector. A study shows that higher tax rates are associated with fewer formal businesses and lower private investment. A 10-percentage point increase in the effective corporate income tax rate is associated with a reduction in the ratio of investment to GDP of up to 2 percentage points and a decrease in the business entry rate of about 1 percentage point. 3  A tax increase equivalent to 1% of GDP reduces output over the next three years by nearly 3%. 4  Research looking at multinational firms’ decisions on where to invest suggests that a 1-percentage point increase in the statutory corporate income tax rate would reduce the local profits from existing investment by 1.3% on average. 5  A 1-percentage point increase in the effective corporate income tax rate reduces the likelihood of establishing a subsidiary in an economy by 2.9%. 6

Profit taxes are only part of the total business tax cost (around 39% on average). In República Bolivariana de Venezuela, for example, the nominal corporate income tax is based on a progressive scale of 15–34% of net income, but the total business tax bill — even after taking into account deductions and exemptions — is 73.31% of commercial profit owing to a series of other taxes (a profit tax, four labor taxes and contributions, a turnover tax, a property tax and a science, technology and innovation tax).

Keeping tax rates at a reasonable level can encourage the development of the private sector and the formalization of businesses. Modest tax rates are particularly important to small and medium-sizeenterprises, which contribute to economic growth and employment but do not add significantly to tax revenue. 7  Typical distributions of tax revenue by firm size for economies in Sub-Saharan Africa and the Middle East and North Africa show that micro, small and medium-size enterprises make up more than 90% of taxpayers but contribute only 25–35% of tax revenue. 8  Imposing high tax costs on businesses of this size might not add much to government tax revenue, but it might cause businesses to move to the informal sector or, even worse, cease operations.

In Brazil, the government created  Simples Nacional , a tax regime designed to simplify the collection of taxes for micro and small enterprises. The program reduced overall tax costs by 8% and contributed to an increase of 11.6% in the business licensing rate, a 6.3% increase in the registration of microenterprises and a 7.2% increase in the number of firms registered with the tax authority. Revenue collections rose by 7.4% percent as a result of increased tax payments and social security contributions.  Simples Nacional  was also credited with increasing the revenue, profit, paid employment and fixed capital of formal-sector firms. 9

Businesses care about what they get for their taxes. Quality infrastructure is critical for the sound functioning of an economy because it plays such a central role in determining the location of economic activity and the kinds of sectors that can develop. A healthy workforce is vital to an economy’s competitiveness and productivity — investing in the provision of health services is essential for both economic and moral reasons. Basic education increases the efficiency of each worker, and good-quality higher education and training allow economies to move up the value chain beyond simple production processes and products.

The efficiency with which tax revenue is converted into public goods and services varies around the world. Recent data from the World Development Indicators and the Human Development Index show that economies such as Ireland and Malaysia — which all have relatively low total tax rates — generate tax revenues efficiently and convert the gains into high-quality public goods and services (figure 2). The data show the opposite for Angola and Afghanistan. Economic development often increases the need for new tax revenue to finance rising public expenditure. At the same, time it requires an economy to be able to meet those needs. More important than the level of taxation, however, is how revenue is used. In developing economies high tax rates and weak tax administration are not the only reasons for low rates of tax collection. The size of the informal sector matters as well; the tax base is much narrower because most workers in the informal sector earn very low wages.

Why tax administration matters

Efficient tax administration can help encourage businesses to become formally registered, thereby expanding the tax base and increasing tax revenues. Tax administration that is unfair and capricious is likely to bring the tax system into disrepute and reduce the government’s legitimacy. In many transition economies in the 1990s, the failure to improve tax administration when new tax systems were introduced resulted in the uneven imposition of taxes, widespread tax evasion and lower-than-expected tax revenue. 10

Compliance with tax laws is important to keep the system working for all and supporting the programs and services that improve lives. One way to encourage compliance is to keep the rules as clear and simple as possible. Overly complicated tax systems are associated with high tax evasion. High tax compliance costs are associated with larger informal sectors, more corruption and less investment. Economies with simple, well-designed tax systems are able to boost businesses activity and, ultimately, investment and employment. 11   New research shows that an important determinant of firm entry is the ease of paying taxes, regardless of the corporate tax rate. A study of 118 economies over six years found that a 10% reduction in the tax administrative burden — as measured by the number of tax payments per year and the time required to pay taxes — led to a 3% increase in annual business entry rates. 12

Tax administration is changing as the ecosystem in which it operates becomes broader and deeper, mostly owing to the vast increase in digital information flows. Tax administrations are responding to these challenges through the introduction of new technology and analytical tools. They must rethink how they operate, offering the prospect of lower costs, increased compliance and incentives for compliant taxpayers. 13  The government of Tajikistan has made tax reform a major priority for the country as it seeks to achieve its development goals. In 2013, Tajikistan launched the Tax Administration Reform Project and, as a result, the country built a more efficient, transparent and service-oriented tax system. The modernization of IT infrastructure and the introduction of a unified tax management system increased efficiency and reduced physical interactions between tax officials and taxpayers. Following the improvement of taxpayer services, the number of active firms and individual taxpayers filing taxes has doubled and revenue collections have risen strongly. A taxpayer in Tajikistan spent 28 days in 2016 complying with all tax-related regulations, compared with 37 days in 2012.  14

A low cost of tax compliance and efficient procedures can make a significant difference for firms. In Hong Kong SAR, China, for example, the standard case study firm would have to make only three payments a year, the lowest number of payments globally. In Qatar and Saudi Arabia, it would have to make four payments, still among the lowest in the world. In Estonia, complying with profit tax, value added tax (VAT) and labor taxes and contributions takes only 50 hours a year, around 6 working days.

Research finds that it takes a  Doing Business  case study company longer on average to comply with VAT than to comply with corporate income tax. However, the time it takes a company to comply with VAT requirements varies widely. Research shows that this is explained by variations in administrative practices and in how VAT is implemented. Compliance tends to take less time in economies where the same tax authority administers VAT and corporate income tax. The use of online filing and payment also greatly reduces compliance time. Frequency and length of VAT returns also matter; requirements to submit invoices or other documentation with the returns add to compliance time. Streamlining the compliance process and reducing the time needed to comply with the requirements is important for VAT systems to work efficiently. 15

Why do postfiling processes matter?

Filing the tax return with the tax authority does not imply agreement on the final tax liability. Often, the ordeal of taxation starts after the tax return has been filed. Postfiling processes — such as claiming a VAT refund, undergoing a tax audit or appealing a tax assessment — can be the most challenging interaction that a business has with a tax authority. Businesses might have to invest more time and effort into the processes occurring after filing of tax returns than into the regular tax compliance procedures.

Why VAT refund systems matter?

The VAT refund is an integral component of any modern VAT system. In principle, VAT’s statutory incidence is on the final consumer, not on businesses. According to tax policy guidelines set out by the Organisation for Economic Co-operation and Development (OECD), a VAT system should be neutral and efficient. The absence of an efficient VAT refund system for businesses with an excess input VAT in a given tax period will undermine this goal. VAT could have a distortionary effect on market prices and competition and consequently constrain economic growth. 16

Refund processes can be a major weakness of VAT systems. This view is supported by a study examining VAT administration refund mechanisms in 36 economies worldwide. 17  Even in economies where refund procedures are in place, businesses often find the process complex. The study examined the tax authorities’ treatment of excess VAT credits, size of refund claims, procedures followed by refund claimants and time needed for the tax authorities to process refunds. The study found that statutory time limits for making refunds are crucial but often not applied in practice.

Delays and inefficiencies in the VAT refund systems are often the result of fears that the system might be abused and prone to fraud. 18  Moved by this concern, many economies have established measures to moderate and limit the recourse to the VAT refund system and subject the refund claims to thorough procedural checks. That is also one of the reasons why, in some economies, it is not uncommon for a claim for a VAT refund to automatically trigger a costly audit, undermining the overall effectiveness of the system.

The  Doing Business  case study company, TaxpayerCo., is a domestic business that does not trade internationally. It performs a general industrial and commercial activity and it is in its second year of operation. TaxpayerCo. meets the VAT threshold for registration and its monthly sales and monthly operating expenses are fixed throughout the year, resulting in a positive output VAT payable within each accounting period. The case study scenario has been expanded to include a capital purchase of a machine in the month of June. This substantial capital expenditure results in input VAT exceeding output VAT in the month of June.

The results show that, in practice, only 107 of the economies covered by  Doing Business  allow for VAT cash refund in this scenario. This number excludes the 26 economies that do not levy VAT and five economies where the purchase of a machine is exempted from VAT. 19  Some economies restrict the right to receive an immediate cash refund to specific types of taxpayers such as exporters, embassies and non-profit organizations. This is the case in 34 economies including Belarus, Bolivia, Colombia, the Dominican Republic, Ecuador, Kazakhstan, Mali and the Philippines.

In other economies businesses are only allowed to claim a cash refund after carrying forward the excess credit for a specified period of time (four example, four months). The net VAT balance is refunded to the business only after this period ends. This is the case in 26 economies of the 190 measured by  Doing Business .

The legislation in other economies — typically those with a weaker administrative or financial capacity to handle cash refunds — may not permit refunds outright. Instead, tax authorities require businesses to carry forward a claim and offset an excess amount against future output VAT.

Insofar as procedural checks are concerned, in 77 of the 107 economies which allow for a VAT cash refund in the  Doing Business  case scenario, a claim for a VAT refund will probably lead to an additional review being conducted before approving the VAT cash refund. Effective audit programs and VAT refund payment systems are inextricably linked. Tax audits (direct and indirect) vary in their scope and complexity, ranging from a full audit — which typically entails a comprehensive examination of all information relevant to the calculation of a taxpayer’s tax liability in a given period — to a limited scope audit that is restricted to specific issues on the tax return or a single-issue audit that is limited to one item.

In Canada, Denmark, Italy and Norway a request for a VAT refund is likely to trigger a correspondence audit, which requires less interaction with the auditor and less paperwork. By contrast, in most economies in Sub-Saharan Africa, where an audit is likely to take place, taxpayers are exposed to a field audit in which the auditor visits the premises of a taxpayer.

As far as the format of the VAT refund request is concerned, in 52 of the 107 economies the VAT refund due is calculated and requested within the standard VAT return submitted in each accounting period. In the other economies, the request procedure varies from filing a separate application, letter or form for a VAT refund to completing a specific section in the VAT return as well as preparing some additional documentation to substantiate the claim. In these economies, businesses spend on average 5.5 hours gathering the required information, calculating the claim and preparing the refund application and other documentation before submitting them to the relevant authority.

Overall, the OECD high-income economies are the most efficient at processing VAT refunds with an average of 14.3 weeks to process reimbursement (including some economies where an audit is likely to be conducted). Economies in Europe and Central Asia also perform well with an average refund processing time of 23.1 weeks. These economies provide refunds in a manner that does not expose businesses to unnecessary administrative costs and detrimental cash flow impacts.

Doing Business  data also show a positive correlation between the time to comply with a VAT refund process and the time to comply with filing the standard VAT return and payment of VAT liabilities. This relationship indicates that tax systems that are harder to comply with when filing taxes are more likely to be challenging throughout the process.

Why tax audits matter?

Tax audits play an important role in ensuring tax compliance. Nonetheless, a tax audit is one of the most sensitive interactions between a taxpayer and a tax authority. It imposes a burden on a taxpayer to a greater or lesser extent depending on the number and type of interactions (field visit by the auditor or office visit by the taxpayer) and the level of documentation requested by the auditor. It is therefore essential that the right legal framework is in place to ensure integrity in the way tax authorities carry out audits. 20

A risk-based approach takes into consideration different aspects of a business such as historical compliance, industry and firm-specific characteristics, debt-credit ratios for VAT-registered businesses and the size of a business in order to better assess which businesses are most prone to tax evasion. One study showed that data-mining techniques for auditing, regardless of the technique, captured more noncompliant taxpayers than random audits. 21

In a risk-based approach the exact criteria used to capture noncompliant firms, however, should be concealed to prevent taxpayers from purposefully planning how to avoid detection and to allow for a degree of uncertainty to drive voluntary compliance.  22   23  Most economies have risk assessment systems in place to select companies for tax audits and the basis on which these companies are selected is not disclosed. Despite being a postfiling procedure, audit strategies can have a fundamental impact on the way businesses file and pay taxes. To analyze audits of direct taxes the  Doing Business  case study scenario was expanded to assume that TaxpayerCo. made a simple error in the calculation of its income tax liability, leading to an incorrect corporate income tax return and consequently an underpayment of the income tax due. TaxpayerCo. detected the error and voluntarily notified the tax authority. In all economies that levy corporate income tax — only 10 out of 190 do not — taxpayers can notify the authorities of the error, submit an amended return and any additional documentation (typically a letter explaining the error and, in some cases, amended financial statements) and pay the difference immediately. Businesses spend 5.7 hours on average preparing the amended return and any additional documents, submitting the files and making payment. In 76 economies the error in the income tax return is likely to be subject to additional review (even following immediate notification by the taxpayer).

In 37 economies this error will lead to a comprehensive review of the income tax return, requiring that additional time be spent by businesses. In the majority of cases the auditor will visit the taxpayer’s premises. On average, it takes about 83 days for the tax authorities to start the comprehensive audit. In these cases, taxpayers will spend 24 hours complying with the requirements of the auditor, going through several rounds of interactions with the auditor during 10.3 weeks and wait 8.1 weeks for the auditor to issue the final decision on the tax assessment. Economies in the OECD high-income group and Central Asian economies have the easiest and simplest processes in place to correct a minor mistake in the income tax return. In 28 economies in the OECD high-income group a mistake in the income tax return does not trigger additional reviews by the tax authorities. Taxpayers are only required to submit an amended return and, in some cases, additional documentation and pay the difference in taxes due. Economies in Latin America and the Caribbean suffer the most from a lengthy process to correct a minor mistake in an income tax return, as in most cases it would involve an audit imposing a waiting time on taxpayers until the final assessment is issued.

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1  FIAS. 2009. “Taxation as State Building: Reforming Tax Systems for Political Stability and Sustainable Economic Growth.” World Bank Group, Washington, DC. 2  World Bank Enterprise Surveys ( http://www.enterprisesurveys.org ). 3  Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.”  American Economic Journal: Macroeconomics  2 (3): 31–64. 4   Romer, Christina, and David Romer. 2010. “The Macroeconomic Effects of Tax Changes: Estimates Based on a New Measure of Fiscal Shocks.”  American Economic Review  100: 763–801. 5   Huizinga, Harry, and Luc Laeven. 2008. “International Profit Shifting within Multinationals: A Multi-Country Perspective.”  Journal of Public Economics  92: 1164–82. 6   Nicodème, Gaëtan. 2008. “Corporate Income Tax and Economic Distortions.” CESifo Working Paper 2477, CESifo Group, Munich. 7   Hibbs, Douglas A., and Violeta Piculescu. 2010. “Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy.”  American Journal of Political Science  54 (1): 18–33. 8   International Tax Dialogue. 2007. “Taxation of Small and Medium Enterprises.” Background paper for the International Tax Dialogue Conference, Buenos Aires, October. 9   Fajnzylber, Pablo, William F. Maloney and Gabriel V. Montes-Rojas. 2011. “Does Formality Improve Micro-Firm Performance? Evidence from the Brazilian SIMPLES Program.”  Journal of Development Economics 94 (2): 262–76. 10   Bird, Richard. 2010. “Smart Tax Administration.”  Economic Premise  (World Bank) 36: 1–5. 11   Djankov, Simeon, Tim Ganser, Caralee McLiesh, Rita Ramalho and Andrei Shleifer. 2010. “The Effect of Corporate Taxes on Investment and Entrepreneurship.”  American Economic Journal: Macroeconomics  2 (3): 31–64. 12   Pontus Braunerhjelm, and Johan E. Eklund. 2014. “Taxes, Tax Administrative Burdens and New Firm Formation.”  KYKLOS  67 (February): 1–11. 13   OECD (Organisation for Economic Co-operation and Development). 2017.  Comparative Information on OECD and Other Advanced and Emerging Economies.  Paris, France: OECD. 14   IFC (International Finance Corporation). 2018. “Improved Tax Administration Can Increase Private Investment and Boost Economic Development in Tajikistan.” International Finance Corporation, Washington, DC. 15   Symons, Susan, Neville Howlett and Katia Ramirez Alcantara. 2010.  The Impact of VAT Compliance on Business . London: PwC. 16   OECD (2014), Consumption Tax Trends 2014: VAT/GST and excise rates, trends and policy issues, OECD Publishing, Paris. 17   Graham Harrison and Russell Krelove 2005, “VAT Refunds: A Review of Country Experience” IMF Working Paper WB/05/218, Washington D.C. 18 Keen M., Smith S., 2007, “VAT Fraud and Evasion: What Do We Know, and What Can be Done?”. IMF Working Paper WP/07/31. 19   It is worth noting that 28 economies analyzed in  Doing Business  do not levy VAT. 20   OECD (2006), Tax Administration in OECD and Selected Non-OECD Countries: Comparative Information Series (2006), OECD Publishing, Paris. 21   Gupta, M., and V. Nagadevara. 2007. “Audit Selection Strategy for Improving Tax Compliance: Application of Data Mining Techniques.” In Foundations of E-government, eds. A. Agarwal and V. Ramana. Proceedings of the eleventh International Conference on e-Governance, Hyderabad, India, December 28–30.  22   Alm J., and McKee M., 2006, “Tax compliance as a coordination game”,  Journal of Economic Behavior & Organization , Vol. 54 (2004) 297–312 23   Khwaja, M. S., R. Awasthi, J. Loeprick, 2011, ”Risk-Based Tax Audits Approaches and Country Experiences”, World Bank, Washington, DC.

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Introduction: Why Ethics Matter in Taxation

• First Online: 03 November 2019

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• Robert F. van Brederode 2  

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This chapter is the introduction to the book and provides an overview of the content of each chapter within the framework of a general, but necessarily short, theoretical treatise on the interaction of morality and taxation, touching topics such as the philosophical justification of taxes, the obligation to pay and the morality of tax avoidance and planning, voluntary compliance, and tax law enforcement and its ethical challenges. It provides context to the individual chapters, places footnotes by positions taken and shows alternative perspectives.

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Justice, Equality and Taxation

Ethics of Tax Interpretation

Outlining the field of tax justice.

This idea goes back to the 19th century German lawyer and philosopher Lorenz von Stein, see Vogel ( 1988 ).

The OECD Average is a weighted average by GDP for all countries excluding the United States.

The story is apocryphal, however. The coined phrase appeared for the first time in the Redland’s Daily Facts on March 15, 1952. Sutton denied in his autobiography ( 1976 , 160) that he ever said it and credits an enterprising journalist.

This is, however, not an argument against progressive taxation per se, but a demonstration of the practical difficulty with implementing such a tax fairly.

That explains why in practice there exists no uniform rate of graduation. The progressive income taxes applied around the world are levied at different rates and use varying income brackets to which these are applied. For example, the U.S. has 7 tax rates for federal personal income tax: 10, 12, 22, 24, 32, 35, and 37% for income over $500,000. In comparison, the Netherlands applies 4 brackets on earned income with the top rate of 51.75% kicking in at income over €68,508; Germany has 3 rates with the top rate of 45% applying to income over €256,304; Australia has 4 rates of 19, 32.5, 37%, and a top rate of 45% which applies to income over AU$180,001.

Tax law could also violate constitutional norms. For the U.S., Vance ( 2013 ) argues that Congress has made the tax code so complex that it violates the due process requirement of the Fifth Amendment that a person of ordinary intelligence must be able to understand how to conform their behavior to the requirements of the law.

See, e.g., Alm et al. ( 1992 ), Alm, and Torgler ( 2006 ), Cummings et al. ( 2005 ), Picur and Riahi-Belkaoui ( 2006 ), Slemrod ( 1992 ), Torgler and Schneider ( 2007 ), Fjeldstad et al. ( 2012 ).

The terminology used to describe unfavorable human actions in the area of reducing tax payments are not neutral but value-based (Sage-Fuller and Lippe 2014 ). The adjective ‘aggressive’ in aggressive tax planning, or the word ‘abuse’ in abuse of law, or ‘harmful’ in harmful tax planning are purposefully used to convey moral condemnation of the action with the intent to steer public opinion towards moral rejection as well. And with notable success as press coverage is also mostly negative towards tax avoidance and arguments defending the practice are generally ignored. The public perception is of course relevant as it determines both the latitude given to companies and individuals in the area of tax planning and the extent and methods available to the state in combatting tax avoidance.

Determining such standards is no sinecure if we take to mind Judith Freedman’s caution (drawing on the work of Onora O’Neill) that increased transparency can actually lower tax morale and the willingness of taxpayers to pay their taxes voluntarily (Freedman 2018 , 130).

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van Brederode, R.F. (2020). Introduction: Why Ethics Matter in Taxation. In: van Brederode, R. (eds) Ethics and Taxation. Springer, Singapore. https://doi.org/10.1007/978-981-15-0089-3_1

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3 Top Reasons Why We Pay Taxes in the Philippines

The Benefits of Paying Taxes and Why It Matters

In a rapidly developing country like the Philippines, providing essential services and infrastructure to its citizens is a top priority. Taxes play a crucial role in financing these important projects and services and paying the right taxes will surely give our nation benefits.

In this blog post, we’ll delve into the significance of tax revenue in funding key government initiatives, such as constructing and maintaining roads and bridges, communication and power facilities, educational and health services, and ensuring peace and order.

We’ll also explore how these investments contribute to the country’s overall growth and development, and how we as responsible tax-paying citizens can take part in shaping a brighter future for the Philippines.

The Importance of Taxes in the in Infrastructure Development

• Roads and Bridges: Paving the Way for Economic Growth

An efficient road network is fundamental for any thriving economy. In the Philippines, taxes are utilized to build, maintain, and repair roads and bridges. These infrastructure projects are essential for connecting urban and rural areas, promoting trade, and providing access to necessary services. Improved road connectivity leads to increased economic activity, job creation, and better living conditions for Filipinos.

Under its “Build, Build, Build” program, the Philippine government has initiated numerous road and bridge projects to accelerate infrastructure development across the country. Some notable projects include the Metro Manila Skyway Stage 3, the North Luzon Expressway (NLEX) Harbor Link, and the Cebu-Cordova Link Expressway. Funded by tax revenue, these projects are expected to significantly reduce traffic congestion, enhance connectivity, and stimulate economic growth.

• Communication and Power Facilities: Empowering the Digital Age

Taxes also contribute to the construction and maintenance of communication and power facilities, which are crucial for the nation’s growth in the digital age.

Communication infrastructure, such as cell towers and fiber-optic networks, allows the Philippines to stay connected with the rest of the world. This connectivity fosters economic growth, encourages innovation, and improves access to information.

The government, through the Department of Information and Communications Technology (DICT), has launched the National Broadband Plan , aiming to provide high-speed internet access to every Filipino household by 2026. This ambitious project, funded by tax revenue, will bridge the digital divide, improve e-governance, and support the growth of the digital economy.

Power facilities, like power plants and electric grids, supply the energy required to power homes, businesses, and industries. Tax revenue is crucial for maintaining and upgrading these facilities to meet the increasing demand for electricity and ensure a stable energy supply for the entire country.

The government has implemented various power sector reforms, such as the Electric Power Industry Reform Act (EPIRA) , to encourage private sector participation and investment in the power sector. These reforms aim to increase power generation capacity, improve the reliability of the power grid, and ensure affordable electricity rates for consumers.

Investing in the Future: Education and Health Services

• Educational Services: Shaping a Brighter Future

A well-educated population is essential for a country’s growth and competitiveness. Taxes enable the Philippine government to invest in educational services, such as building schools, training teachers, and providing scholarships to deserving students. These investments ensure that every Filipino child has access to quality education, empowering them to become productive members of society and contribute to the nation’s progress.

The Department of Education (DepEd) receives a significant portion of the national budget, funded by tax revenues, to implement various educational programs and initiatives. These include the K-12 program, which aims to enhance the basic education curriculum and provide students with a strong foundation for college and future careers. Additionally, the government has been increasing its efforts to strengthen the Alternative Learning System (ALS) to cater to out-of-school youth and adult learners, ensuring that no Filipino is left behind.

Moreover, tax revenue also supports tertiary education through state universities and colleges (SUCs) and the Commission on Higher Education (CHED). The government has implemented the Universal Access to Quality Tertiary Education Act, providing free tuition and other financial assistance to students enrolled in SUCs. This landmark legislation, funded by taxes, has made higher education more accessible to low-income families, helping to break the cycle of poverty and promote social mobility.

• Health Services: Building a Healthy Nation

Health is another crucial aspect of a country’s development. Tax revenue enables the government to invest in health services, such as constructing and maintaining hospitals and health centers, training medical professionals, and providing affordable healthcare to the population. Investing in health services ensures a healthy and productive workforce, which is vital for economic growth and national development.

The Philippine government, through the Department of Health (DOH), allocates a significant portion of the budget to public health programs and initiatives. These include the implementation of the Universal Health Care (UHC) Law, which aims to provide all Filipinos with access to quality and affordable health services. Tax revenue plays a critical role in funding the UHC program, which covers primary care, hospital services, and preventive and promotive health services.

Additionally, taxes support the government’s efforts to improve public health infrastructure, such as the construction of new hospitals, upgrading existing facilities, and providing essential medical equipment. These investments contribute to better healthcare services, improved health outcomes, and ultimately, a healthier population.

Peace and Order: The Backbone of a Thriving Society

Tax revenue also plays a vital role in maintaining peace and order in the Philippines. The government uses taxes to fund the country’s police force, military, and judiciary, ensuring that citizens can live and work in a safe and secure environment. A stable and peaceful society is crucial for attracting investments and fostering economic growth.

The Philippine National Police (PNP), the Armed Forces of the Philippines (AFP), and the judiciary receive significant funding from tax revenue. These funds are used to train personnel, procure modern equipment, and implement various peace and order programs. Some notable initiatives include the intensified campaign against illegal drugs, the modernization of the AFP, and the strengthening of the judicial system through the construction of new courthouses and the digitization of court records.

Furthermore, taxes also support the government’s efforts to promote peace and development in conflict-affected areas, such as the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM). These initiatives aim to address the root causes of conflict, promote social cohesion, and create sustainable development opportunities for marginalized communities.

Conclusion:

In my heart, I truly believe that taxes are a fundamental part of any modern society, and the Philippines is no exception. By understanding the role of taxes in funding essential government projects and services, we can genuinely appreciate the value of our tax contributions.

Paying taxes not only helps build a progressive and sustainable Philippine economy but also allows us to take pride in knowing we have played our part in creating a nation where everyone can enjoy the benefits of well-developed infrastructure, quality education and health services, and a secure and peaceful society.

As responsible citizens, let’s passionately commit ourselves to do our share by paying the correct taxes, and together, we can contribute to a better and brighter future for our beloved country.

Marie is the knowledgeable voice behind Tax Maven Ph, a trusted Philippine blog simplifying tax matters for individuals and businesses. As a Certified Public Accountant with extensive experience at the country's premier tax collecting agency, Marie shares her expertise on various tax topics, demystifying tax laws and helping readers navigate the tax system with confidence. Stay informed and gain valuable insights by connecting with Marie through Tax Maven Ph, your go-to resource for navigating the complexities of the Philippine tax system.

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The Importance and Responsibility of Paying Taxes in Liberia

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The collapse of Liberia’s economy during the civil war led to the country’s financial system having problems. However, Liberia’s financial system improved since the election of President Ellen Johnson Sirleaf in 2006. The major source of government revenue in Liberia is taxed, which are levied on companies’ profits and personal incomes, real estate property, international trade, and sales of goods and services domestically. Despite being the primary source of government revenue, Liberia’s tax system faces myriads of challenges, including withholding taxes and tax evasion. Additionally, the tax collection system is dependent on integrity amongst civil servants, although integrity is far from being guaranteed. Widespread corruption also presents a significant challenge to Liberia’s tax system. Indeed, reports of dismissal of three senior tax collectors in 2010 following a conspiracy with a rubber company to reduce taxes indicated a problem with the system. These challenges notwithstanding, Liberians have a responsibility to pay taxes and payment of taxes because in Liberia, like other countries, paying taxes increases government revenues that help in financing schools, hospitals, and other important infrastructure.

All citizens and residents living within Liberia’s territorial confines have a responsibility or duty to pay taxes because the system has stabilized. Liberia’s tax system steadied after the enactment of the Revenue Code of Liberia 2001. Moreover, a major boost to Liberia’s tax system came in 2015 when the Government of Liberia enacted legislation that created the Liberia Revenue Authority (LRA). The LRA is a key player when it comes to Liberia’s tax collection and channeling the tax revenues to the government to help fund public services (USAID 6). Individuals in Liberia have a duty to pay income tax, which is levied on the gross income of resident and non-resident individuals in Liberia (PricewaterhouseCoopers 7). Another type of tax levied by the LRA is corporate tax involving the taxation of legal entity residents, including general company, life insurance, agricultural and renewable resource projects, as well as mining and petroleum companies (PricewaterhouseCoopers 11). Another major type of tax in Liberia is withholding tax, some of which include interest, royalties, license fee, and similar payments; dividend excluding resident corporations; rent where the aggregate annual rental income exceeds LIB$ 70,000; gambling earnings; and payments by mining, petroleum and renewable resources projects in the form of interest, dividends, and services. Others include payment for the acquisition of an investment asset in Liberia, payments to high-risk suppliers, other payments other than for employment services (LIB$100,000 or more for services), as well as payment by a government agency other than those already mentioned (PricewaterhouseCoopers 18). There is also a goods and services tax that is imposed on every taxable supply of goods by a registered manufacturer; every importation of goods that are considered taxable; and every supply of services considered taxable by registered services providers.

The Liberian government has improved tax payment systems by integrating technology. In 2018, the government, led by President George Weah, launched a mobile payment system that was developed with assistance from USAID’s Revenue Generation for Governance and Growth (RG3) team (Kitain and Shavurov). The system has since enhanced the ability of Liberians to pay taxes, thereby increasing government revenues channeled to important infrastructural projects. Moreover, thanks to e-filing, Liberia’s annual tax collected in 2020 is expected to increase from that collected in 2018, as shown in the chart below.

Figure 1. Liberia’s Total Annual Tax Collection (2008-2020)

Source: https://tradingeconomics.com/liberia/total-tax-rate-percent-of-profit-wb-data.html

paying taxes in Liberia offers revenues to the government, thus reducing the country’s financial burden and dependency on donors and borrowing. For instance, Liberia’s national and supplemental budget for the 2010/11 financial year allocated around $390 million in total expenditure (Rohacek et al.). This money was used to develop the country rather than wait for donors to help the country to develop it. Moreover, taxes accounted for roughly 64 percent of government revenues that year with non-tax revenue from fees accounting for 19 percent. Donor and borrowed funds accounted for only 17 percent of the government’s revenue in the 2010/11 financial year (Rohacek et al.). The significant difference between tax revenue and donor/borrowed revenue highlights how important paying taxes is with regard to reduction in donor/borrowed funds. Payment of taxes in Liberia is important as it also promotes domestic growth. With the improved tax payment systems in the country, many citizens and residents can now pay taxes and fees with ease (Webmaster Admin). More people are involved in tax payment, and as a result, revenues and funds are channeled to small businesses that are undergoing rapid growth in the country. Lastly, a significant rise in the number of people paying taxes in Liberia has helped the government in terms of paying salaries and wages of public servants. With a growing public servant population, Liberia requires a huge budget that is adequately settled by tax revenues.

Taxes are a major source of government revenue in Liberia. Citizens and residents within Liberia’s territorial confines have a civic duty to pay taxes. Failure to pay them can result in huge fines and imprisonment. Paying taxes is important as it increases government revenues that help in financing schools, hospitals, and important infrastructure; reduces the country’s dependency on donors and borrowing; promotes domestic growth, and helps the government in terms of paying salaries and wages of public servants.

Works Cited

Kitain, Alexander, and Umar Shavurov. “Liberia Launches Mobile Tax Payments, Opening Doors to Increased Revenue for Domestic Development.” 23 July 2018, dai-global-developments.com/articles/liberia-launches-mobile-tax-payments-opening-doors-to-increased-revenue-for-domestic-development

PricewaterhouseCoopers. “A quick guide to taxation in Liberia/” 2013. https://www.pwc.com/gh/en/assets/pdf/a-quick-guide-to-taxation-in-liberia-2013.pdf

Rohacek, Martin, et al. “Re-Starting Liberia’s Tax System from Scratch.”  D+C , 24 May 2011, www.dandc.eu/en/article/re-starting-liberias-tax-system-scratch

USAID. Benchmarking the Tax System in Liberia: A Study Prepared by The Revenue Generation for Governance and Growth (RG3) Project, 2017. https://www.dai.com/uploads/BENCHMARKING%20THE%20TAX%20SYSTEM%20IN%20LIBERIA.pdf

Webmaster Admin. “Liberia: Compliance with Taxation Is Easy When Citizens Get the Benefits It Yields.”  AllAfrica.com , 17 Apr. 2018, allafrica.com/stories/201804170257.htm

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Important alert title goes here

Property taxes.

Ad valorem taxes are based on the value of real property for the tax year beginning January 1st to December 31st. Taxes are paid in arrears beginning on November 1st of the tax year. The office of the Property Appraiser establishes the value of the property and the Board of County Commissioners, School Board, City Commissioners and other levying bodies set the millage rates.

Non-Ad valorem assessments are not based on the value. They are set amounts provided by various taxing authorities and are included on the tax notice.

Using these values and allowing for exemptions, the tax roll is completed by the Property Appraiser and he passes the certified tax roll to the Tax Collector. The Tax Collector merges the non ad valorem assessments into the certified tax roll and mails the tax notice to the owner’s last record of address, as it appears on the certified tax roll.

In the cases where the property owner pays through an escrow account, the mortgage company, meeting criteria established by the Tax Collector, can request and be sent the tax bill, and the owner will receive a copy of the bill for information.

Taxpayer Responsibility

Section 197.122 Florida Statutes charges all property owners with the following three responsibilities: (1) the knowledge that taxes are due and payable annually; (2) the duty of ascertaining the amount of current or delinquent taxes, and (3) the payment of such taxes before the date of delinquency. Therefore, if for whatever reason, the property owner fails to receive a tax bill, it is the property owner's responsibility to inquire as to the amount as well as pay the tax before the date of delinquency.

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