Economic nature of taxes

1. Learning objectives

Economic nature of taxes.
The basis of structure of taxes and taxation.
The tax system of RK: stages of
development and contemporary conditions.

2. Basic terminology

tax agent — a person who in accordance
with this Code is entrusted with the duty of
assessment, withholding and transfer of
taxes withheld at source of payment;
taxes — obligatory monetary payments to
the budget as established by the state
through legislation in a unilateral procedure,
except for the cases specified in this Code,
which are paid in certain amounts, which
are irrevocable and non-refundable

3. Basic terminology

A
tax can be defined as a payment to support the cost
of government. A tax differs from a fine or penalty
imposed by a government because a tax is not intended
to deter or punish unacceptable behavior. On the other
hand, taxes are compulsory rather than voluntary on the
part of the payer.
A
tax differs from a user's fee because the payment of a
tax does not entitle the payer to a specific good or
service in return. In the abstract, citizens receive any
number of government benefits for their tax dollars.
Nevertheless, the value of government benefits received
by any particular person is not correlated to the tax that
person must pay.

4. Basic terminology

A
taxpayer is any person or organization required by law to
pay a tax to a governmental authority. In our country, the term
person refers to both natural persons (individuals) and
corporations. Corporations are entities organized under the
laws. These corporate entities generally enjoy the same legal
rights, privileges, and protections as individuals.
The
incidence of a tax refers to the ultimate economic
burden represented by the tax. Most people jump to the
conclusion that the person or organization who makes a direct
tax payment to the government bears the incidence of such tax.
But in some cases, the payer can shift the incidence to a third
party. Consider the following examples.

5. Income tax incidence

Government G imposes a new tax on corporate
business profits. A manufacturing corporation with
monopoly on a product in great demand by the
public responds to the new tax by increasing the
retail price at which it sells the product. In this case,
the corporation is nominally the taxpayer and must
remit the new tax to the government. The economic
burden of the tax falls on the corporation's
customers who are indirectly paying the tax in the
form of a higher price for the same product.

6. The Relationship between Base, Rate, and Revenue

Taxes are usually characterized by reference to their
base. A tax base is an item, occurrence, transaction,
or activity with respect to which a tax is levied. Tax
bases are usually expressed in monetary terms. For
instance, real property taxes are levied on the
ownership of land and buildings, and the dollar value
of the property is the tax base. When designing a tax,
governments try to identify tax bases that taxpayers
cannot easily avoid or conceal. In this respect, real
property is an excellent tax base because it cannot
be moved or hidden, and its ownership is a matter of
public record.

7. The Relationship between Base, Rate, and Revenue

The amount of a tax is calculated by multiplying the
base by a tax rate, which is usually expressed as a
percentage. This relationship is expressed by the
following formula.
Tax (T) = Rate (r) X Base (B)
A single percentage that applies to the entire tax
base is described as a flat rate. Many types of taxes
use a graduated rate structure consisting of
multiple percentages that apply to specified portions
or brackets of the tax base.

8. Standards for good taxes

Theorists maintain that every tax can and should
be evaluated on certain basic standards. These
standards can be summarized as follows:
A good tax should be sufficient to raise the
necessary government revenues.
A good tax should be convenient for the
government to administer and for people to pay.
A good tax should be efficient in economic
terms.
A good tax should be fair.

9. Sufficiency

The first standard by which to evaluate a tax is its
sufficiency as a revenue raiser. A tax is sufficient
if it generates enough funds to pay for the public
goods and services provided by the government.
After all, the reason that governments tax their
citizens in the first place is to raise revenues
needed for specific purposes. If a tax (or
combination of taxes) is sufficient, a government
can balance its budget. Tax revenues equal
government spending, and the government has no
need to raise additional funds.

10. Sufficiency

What is the consequence of an insufficient tax
system? The government must make up its
revenue shortfall (the excess of current
spending over tax receipts) from some other
source. We know that state governments now
depend heavily on legalized gambling as an
alternative source of funds. Governments may
own assets or property rights that they can
lease or sell to raise money.

11. Sufficiency

Another option is for governments to borrow
money to finance their operating deficits
Debt financing is not a permanent solution to an
insufficient tax system. Like other debtors,
governments must pay interest on borrowed funds.
As the public debt increases, so does the annual
interest burden. At some point, a government may
find itself in the untenable position of borrowing
new money not to provide more public goods and
services but merely to pay the interest on existing
debt.

12. TAXES SHOULD BE CONVENIENT

Our second standard for evaluating a tax is convenience.
From the government's viewpoint, a good tax should be
convenient to administer. Specifically, the government
should have a method for collecting the tax that most
taxpayers understand and with which they routinely
cooperate. The collection method should not overly intrude
on taxpayers' privacy but should offer minimal opportunity
for noncompliance.
A good tax should be economical for the government. The
administrative cost of collecting and enforcing the tax
should be reasonable in comparison with the total revenue
generated.

13. TAXES SHOULD BE CONVENIENT

From the taxpayer's viewpoint, a good tax
should be convenient to pay. The
convenience standard suggests that people
can compute their tax with reasonable
certainty. Moreover, they do not have to
devote undue time or incur undue costs in
complying with the tax law. A retail sales tax
receives high marks when judged by these
criteria. People can easily compute the sales
tax on a purchase and can pay the tax as part
of the purchase price with no effort
whatsoever!

14. TAXES SHOULD BE EFFICIENT

Our third standard for a good tax is economic
efficiency. Tax policymakers use the term :
efficiency in two different ways. Sometimes the
term describes a tax that does not interfere with
or influence taxpayers' economic behavior. At
other times, policymakers describe a tax as
efficient when individuals or organizations react
to the tax by deliberately changing their
economic behavior.

15. The Classical Standard of Efficiency

The classical economist Adam Smith believed
that taxes should have as little effect as possible
on the economy. In his 1776 masterwork, The
Wealth of Nations, Smith concluded the
following:
A tax ... may obstruct the industry of the people,
and discourage them from applying to certain
branches of business which might give
maintenance and employment to great
multitudes. While it obliges the people to pay, it
may thus diminish, or perhaps destroy, some of
the funds which might enable them more easily
to do so.

16. The Classical Standard of Efficiency

The laissez-faire system favored by Adam Smith
theoretically creates a level playing field on which
individuals and organizations, operating in their own
self-interest, freely compete. When governments
interfere with the system by taxing certain economic
activities, the playing field tilts against the competitors
engaging in those activities. The capitalistic game is
disrupted, and the outcome may no longer be the best
for society.
Of course, every modern economy has a tax system,
and firms functioning within the economy must adapt
to that system. Business managers become familiar
with the existing tax laws and make decisions based on
those laws. To return to the sports metaphor, these
managers have adjusted their game plan to suit the
present contours of the economic playing field.

17. Taxes as an Instrument of Fiscal Policy

The
British economist John Maynard Keynes
disagreed with the classical notion that a good tax
should be neutral. Keynes believed that free markets
are effective in organizing production and allocating
scarce resources but lack adequate self-regulating
mechanisms for maintaining economic stability.
According to Keynes, governments should protect
their citizens and institutions against the inherent
instability of capitalism.

18. Taxes as an Instrument of Fiscal Policy

Historically, this instability caused cycles of
high unemployment, severe fluctuations in
prices (inflation or deflation), and uneven
economic growth. Lord Keynes believed
that governments could counteract these
problems through fiscal policies to promote
full employment, price-level stability, and a
steady rate of economic growth.

19. Taxes as an Instrument of Fiscal Policy

In the Keynesian schema, tax systems are
a primary tool of fiscal policy. Rather than
trying to design a neutral tax system,
governments should deliberately use taxes
to move the economy in the desired
direction. If an economy is suffering from
sluggish growth and high unemployment,
the government could reduce taxes to
transfer funds from the public to the
private sector

20. Taxes as an Instrument of Fiscal Policy

The tax cut should both stimulate demand for
consumer goods and services and increase
private investment. As a result, the economy
should expand and new jobs should be created.
Conversely, if an economy is overheated so that
wages and prices are in
an inflationary spiral, the government could
raise taxes. People will have less money to
spend, the demand for consumer and investment
goods should soften, and the upward pressure on
wages and prices should be relieved.

21. Taxes and Behavior Modification

Modern governments use their tax systems
to address not only macroeconomic
concerns but also social problems. Many
such problems could be alleviated if people
or institutions could be persuaded to alter
their behavior. Governments can promote
behavioral change by writing tax laws to
penalize undesirable behavior or reward
desirable behavior. The penalty takes the
form of a higher tax burden, while the
reward is some type of tax relief.

22. Taxes and Behavior Modification

Some of the social problems that the federal income
tax system tries to remedy are byproducts of the free
enterprise system, which economists refer to as
negative externalities. One of the most widely
recognized is environmental pollution. The tax system
contains provisions that either pressure or entice
companies to clean up their act, so to speak.

23. Income Tax Preferences

Provisions in the federal income tax system designed as
incentives for certain behaviors or as subsidies for
targeted activities are described as tax preferences.
These provisions do not contribute to the accurate
measurement of the tax base or the correct calculation
of the tax. Tax preferences do not support the primary
function of the law, which is to raise revenues. In fact,
tax preferences do just the opposite. Because they allow
certain persons or organizations to pay less tax,
preferences lose money for the Treasury. In this respect,
preferences are indirect government expenditures.

24. Taxes should be fair

Ability to pay
A useful was to begin our discussion of equity
is with the proposition that each person’s
contribution to the support of the government
should reflect that person’s ability to pay.
In the tax policy literature, ability to pay refers
to the economic resources under person’s
control. Each of the major taxes is based on
some dimension of ability to pay.

25. Taxes should be fair

For instance, income taxes are based on the
person’s inflow of economic resources during
the year;
Sales and excise taxes are based on a different
dimension of ability to pay: a person’s
consumption of resources represented by
purchase of goods and services
Real and personal property taxes complement
income and sale taxes by focusing on the third
dimension of ability to pay: a person’s
accumulation of resources in the form of
property

26. Horizontal equity

If a tax is designed so that persons with the
same ability to pay (as measured by the tax
base) owe the same amount of tax, that
system can be described as horizontally
equitable. The structure of certain taxes
guarantees their horizontal equity.

27. Vertical Equity

A tax system is vertically equitable if
persons with a greater ability to pay owe
more tax than persons with a lesser ability to
pay. While horizontal equity is concerned
with a rational and impartial measurement of
the tax base, vertical equity is concerned
with a fair rate structure by which to
calculate the tax.

28. The classification of taxes

Mainly the taxes can be classified based on different
conditions:
1. Depending on the burden of the tax payer;
2. Depending on the type of a tax ;
3. Depending on subject of tax;
4. Depending on jurisdictions;

29. The classification of taxes

1) Depending on the burden of the tax payer;
A direct tax – the tax
burden is levied
directly on the
taxpayer by reducing
his property . The
example of such tax
might be income tax.
Indirect tax- where
the subject of taxation
transfer its burden to
the other party that
actually pays the tax.
The example of such
tax might be Value
added tax

30. 2. Depending on type of tax

Taxes in kind the subjects of
taxation are
things (part of
the harvest);
Cash taxes –
taxes paid by
cash (without
consideration of
object and
subject of
taxation);

31. 3) Depending on subject

Taxes of legal Taxes of
entities (for
Natural person
instance, CIT)

32. 4) Depending on jurisdiction

State taxesincomes of
general state
funds
Local taxesIncomes of
local budgets

33. Tax system of the Republic of Kazakhstan

Tax system
Kazakhstan
of
Corporate income tax;
2) Individual income tax
3) Value added tax
4) Excise taxes
5) Rent tax on export
6) Subsoil users’ taxes
7) Social tax
8) Vehicle tax
9) Land tax
10) Gambling industry taxes
11) Property tax
12) Fixed tax
1)
the
Republic
of

34. The Taxation Principles in the Republic of Kazakhstan

The tax legislation of the Republic of Kazakhstan
shall be based upon the taxation principles. The
principles of the obligatory nature, of the certainty,
fairness of taxation, unity of the tax system and
publicity of the tax legislation of the Republic of
Kazakhstan shall be recognised as the taxation
principles.

35. The Principle of the Obligatory Nature of Taxation

The taxpayers shall be obliged to perform tax
obligations, the tax agents — the obligation of the
assessment, withholding and transferring taxes in
accordance with the tax legislation of the Republic
of Kazakhstan in full volume and within
established time.

36. The Principle of Certainty of Taxation

Taxes and other obligatory payments to the
budget of the Republic of Kazakhstan must be
well-defined. The certainty of taxation shall be
understood as establishing in the tax legislation
of the Republic of Kazakhstan of all reasons
and procedure for the emergence,
implementation and termination of tax
obligations of taxpayers, duties of tax agents
with regard to the assessment, withholding and
transfer of taxes.

37. The Principle of Fairness of Taxation

1. Taxation in the Republic of Kazakhstan
shall be universal and obligatory.
2. It shall be prohibited to grant tax privileges
of individual nature.

38. The Principle of Unity of the Tax System

The tax system of the Republic of
Kazakhstan shall be uniform in the entire
territory of the Republic of Kazakhstan with
regard to all taxpayers (tax agents).

39. The Principle of Publicity of Tax Legislation of the Republic of Kazakhstan

Regulatory legal acts which regulate issues
of taxation shall be subject to obligatory
publication in official publications.

40. Contemporary conditions

At February 6, 2008, the President of
Kazakhstan assigned to the government of
the Republic of Kazakhstan to establish
new tax code. In his speech to the nation, the
President outlined such main objective as to
update tax system in accordance with new
stage of development of Kazakhstan,
facilitate diversification and modernization
of the economy and reduce tax pressure on
non-industrial sectors of the economy.

41. Contemporary conditions

As a result of the outlined objectives, the
working group was established by the
decree of the Prime Minister to create new
tax code.
At August 2008, the draft of the new tax
code was presented to the Mazhylis of the
Republic of Kazakhstan. It was signed by
the President of Kazakhstan at December
10, 2008.

42. Contemporary conditions

In
the light of these changes, it is planned to
reduce gradually the rate of Corporate income
tax; from January 2009 up to 20%, from 2010
up to 17,5%, and in 2011 up to 15%.
The new tax code excludes payments in
advance for small and medium businesses
The rate of Value added tax was established at
the rate of 12 %. This is one of the lowest VAT
rates in the world.
The tax reform also considered the
simplification of the methods of tax
computation.

43.

Thank you for your attention!!!