The essence and causes of taxation

The essence and causes of taxation

My theme is the essence and causes of taxation. I chose this topic because this topic seemed to me interesting to study and relevant. Many people do not think about what functions taxation performs and what problems it solves, but treat it only as a burdensome duty. Next, I analyzed in detail the functions of taxation and their importance for us and the state

Taxes are one of the essential elements that determine the functioning of the socio-economic system of modern society. At the expense of taxes, the state not only provides financing for the most important public needs (maintenance of the management system, maintenance of the army, law enforcement, education, healthcare, culture, etc.), but also carries out targeted regulation of industrial and economic activities of enterprises and individuals. In modern states, from 30 to 50 percent of GDP is mobilized into the treasury and redistributed through taxes.

Based on the need to fully meet the needs of the state in financial resources, it establishes a set of taxes that should be levied according to the same rules and on the same principles. The first such principles were formulated by Adam Smith, who in his work "Research on the Nature and Causes of the Wealth of Nations", published in 1776, for the first time formulated four basic principles of taxation:

1 The principle of equality and justice: all citizens are obliged to participate in the formation of the state's finances in proportion to their income and opportunities.

2 The principle of certainty: the tax that everyone must pay must be precisely defined, the time of its payment is determined, the method and amount of tax must be clear and known both to the taxpayer himself and to everyone else.

3 The principle of economy: the maximum efficiency of each specific tax should be ensured, expressed in the low costs of the state for tax collection and maintenance of the tax apparatus. In other words, the administrative costs of managing the tax system and compliance with tax legislation should be minimal.

4 The principle of convenience: each tax should be collected at such time and in such a way as is convenient for the taxpayer. This means eliminating formalities and simplifying the act of paying taxes.

Having formulated and scientifically substantiated these principles, Adam Smith laid the foundation (the beginning) of the theoretical development of the fundamental principles of taxation.

The economic essence of the tax is manifested through its functions. Each of the functions performed by the tax shows the internal properties, signs and features of the tax, and also shows how the social purpose of the tax is realized as part of a single process of reproduction, an instrument of distribution and redistribution of income.

Currently, there is no single well-established point of view in economics on the number of functions performed by the tax. Some scientists name only two functions: fiscal and stimulating. According to others, taxes perform at least three more functions: distributive, regulatory and control. The functions of the tax cannot exist independently of one another, they are interconnected and in their manifestation act as a single whole.

The differentiation of tax functions is largely conditional, since they are carried out simultaneously and individual features of one function are inherent in other functions. Let's consider the essence and mechanisms of the tax's manifestation of its functions.

The fiscal function is the main function of the tax. It is inherently inherent in any tax, any tax system of any state. This is natural, because the main task of tax collection is the formation of a state monetary fund by withdrawing part of the income of organizations and citizens to create material conditions for the existence of the state. It is thanks to the fiscal function that the real prerequisites for state intervention in economic relations are created, and it is the fiscal function that determines the appearance of other tax functions.

The American economist A. Laffer discovered the relationship between tax rates and tax revenues, the graphical representation of which was called the Laffer curve. This curve graphically characterizes the dependence of the volume of state revenues on the average level of tax rates in the country. The curve illustrates the existence of an optimal level of taxation at which government revenues reach their maximum.

Its economic meaning is as follows: with tax rates above a certain level, business activity sharply decreases, since there is a tax burden and further entrepreneurial activity becomes unprofitable. At the same time, relatively low tax rates create incentives to work, save, invest, take business risks and increase income. As a result, the tax base is expanding, which can support tax revenues at a high level and at low tax rates. According to the theory of A. Laffer, the optimal level of tax withdrawal is in the range of 30%-50% of the taxpayer's income.

As an active participant in distributive and redistributive processes, taxes cannot but have a significant impact on the reproduction process itself, here the stimulating function of taxes finds its manifestation. Its practical implementation is carried out through a system of tax rates and benefits, tax deductions, tax credits, financial sanctions and tax preferences. Thus, the state, using these tools, forces economic entities to act in the direction that is beneficial to the state. The tax system itself is of no small importance in the implementation of this function: by introducing some taxes and canceling others, the state stimulates the development of certain industries, regions and industries, while simultaneously restraining the development of others. With the help of taxes, the state purposefully influences the development of the economy and its individual sectors, the structure and proportions of social reproduction, capital accumulation. At the same time, there is a close connection between the stimulating function of taxes and the distributive function.

The regulating function has the features of a stimulating function. By changing the tax rates on profits, the state can create or reduce additional incentives for investment, and by manipulating the level of indirect taxes, it can affect the price level, and therefore the level of consumption. A classic example of the implementation of the regulatory function of taxes can be the tax on acetic acid introduced in Germany at the beginning of the XX century and still preserved to this day. The purpose of its establishment is to stop spending wine on the production of acetic acid. Because of this, the price of acetic acid made from wine has increased dramatically, as a result of which it has become unprofitable to produce acetic acid from wine. These measures taken by the state, in turn, pushed manufacturers to create artificial acetic acid. Cash receipts from this tax barely covered the costs of its collection, but the regulatory goal was achieved. This example confirms that with the help of the regulatory function of taxes, the state can influence the processes of production and consumption. Thanks to this tax function, the state can influence not only the economic, but also the social and environmental aspects of society. A striking example is the solution with the help of a tax of such a socially significant task as the fight against smoking. In particular, after a sharp increase in the excise tax on tobacco in a number of economically developed countries, "non-smokers" became significantly more than during a long propaganda campaign about the dangers of smoking for health. In this case, the introduction of the tax was aimed at solving a social problem, but at the same time the fiscal function of the tax was implemented. Thus, the essence of the tax simultaneously manifested itself in two functions.