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A Direct taxes
Governments finance most of their expenditure by taxation. If they spend more than they levy or charge in taxes, they have to borrow money.
Direct taxes arc collected by the government from the income of individuals and businesses.
• Individuals pay income tax on their wages or salaries, and most other money they receive.
• Most countries have a capital gains tax on profits made from the sale of assets such as sticks or .shares. This is usually imposed or levied at a lihh.]i lower race than income tax.
• A capital transfer tax (commonly called death duty in Britain) is usually imposed on inherited money or property. Other names for this tax are inheritance tax or estate tax.
• Companies pay corporation tax on their profits. Business profits arc generally taxed twice, because after the company pays tax on its profits, the shareholders pay income tax on any dividends received from these profits.
• Companies and their employees also have to pay taxes (called national insurance in Britain) which the government uses to finance social security spending - unemployment pay, sick pay, etc.
B Indirect taxes
Indirect taxes are levied on the production or sale of goods and services. They arc included in the price paid by the final purchaser.
• In most European countries, companies pay VAT or value-added tax, which is levied at each stage of production, based on the value added to the product at the stage. The whole amount is added to the final price paid by the consumer. In Canada, Australia, New Zealand and Singapore, the tax is called goods and services tax or GST.
• Inthe USA, there are sales taxes, collected by retailers, levied on the mail price of goods.
• Governments also levy excise taxes or excise duties - additional sales taxes on commodities like tobacco products, alcoholic drinks and petrol.
• Special taxes, called tariffs, are often charged on goods imported from abroad.
Income tax for individuals is usually progressive: people with higher incomes pay a higher rate of tax (and therefore a higher percentage of their income) than people with lower incomes. Indirect taxes such as sales tax and VAT are called proportional taxes, imposed at a fixed rate. Bur indirect taxes are actually regressive: people with a low income pay a proportionally greater part of their income than people with a high income.
C Non-payment of tax
To reduce die amount of income tax that employees have to pay, some employers give their staff advantages instead of taxable money, called perks, such as company tars and free health insurance.
Multinational companies often register their head offices in tax havens - small countries where income nixes for foreign companies are low, such as Liechtenstein, Monaco, the Cayman Islands, and the Bahamas.
Using legal methods to minimize your tax burden - the amount of tax you have to pay - is called tax avoidance. This often involves using loopholes - ways of getting around the law, because of an error or a technicality in the law itself. Using illegal methods - such as not declaring your income, or reporting it inaccurately - is called tax evasion, and can lead to big penalties.
What are the standard names for the tax or taxes paid on the following? Look at A and B opposite to help you.
1. alcoholic drinks and tobacco products
2. company profits
3. goods bought in stores
4. money received from relatives after their death
5. salaries and wages
6. goods made in other countries
7. money made by selling stocks at a profit
Find words in A and B opposite with the following meanings.
1. an adjective describing taxes on revenue or income
2. a tax has rate that there is the same for everybody
3. money paid by government to sick and unemployed people
4. a tax that has a higher rate for taxpayers with a higher income
5. an adjective, describing taxes on consumption or spending
Are the following statements true or false? Find reasons for your answers A, B and C opposite.
1. Capital gains are generally taxed at a higher rare than income.
2. The same sum of money can be taxed more than once.
3. Sales taxes can be both proportional and progressive at the same time.
4. Excise duties are extra sales taxes on selected products.
5. Many international companies have their registeredheadquarters in small countries when they do only a small proportion of their business.
6. Employees will generally pay less tax if their employer reduces their salary a little and provides them with a car.
7. Tax avoidance is illegal.
8. Perks and loopholes are forms of tax evasion.
Find five verbs in A and B opposite that can he used to make word combinations with ‘tax’.
Source: Professional English in Use: Finance by Ian MacKenzie
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