Income tax

Income tax

Overview
An income tax is a tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 levied on the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence
Tax incidence
In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax...

. Income taxation can be progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

, proportional
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

, or regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

. When the tax is levied on the income of companies, it is often called a corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs).
Discussion
Ask a question about 'Income tax'
Start a new discussion about 'Income tax'
Answer questions from other users
Full Discussion Forum
 
Unanswered Questions
Recent Discussions
Encyclopedia
An income tax is a tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

 levied on the income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 of individuals or businesses (corporations or other legal entities). Various income tax systems exist, with varying degrees of tax incidence
Tax incidence
In economics, tax incidence is the analysis of the effect of a particular tax on the distribution of economic welfare. Tax incidence is said to "fall" upon the group that, at the end of the day, bears the burden of the tax...

. Income taxation can be progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

, proportional
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

, or regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

. When the tax is levied on the income of companies, it is often called a corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...

, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs). Various systems define income differently, and often allow notional reductions of income (such as a reduction based on number of children supported).

Principles


The "tax net" refers to the types of payment that are taxed, which included personal earnings (wages), capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...

s, and business income. The rates for different types of income may vary and some may not be taxed at all. Capital gains may be taxed when realized (e.g. when shares are sold) or when incurred (e.g. when shares appreciate in value). Business income may only be taxed if it is significant or based on the manner in which it is paid. Some types of income, such as interest on bank savings, may be considered as personal earnings (similar to wages) or as a realized property gain (similar to selling shares). In some tax systems, personal earnings may be strictly defined where labor, skill, or investment is required (e.g. wages); in others, they may be defined broadly to include windfalls (e.g. gambling wins).

Tax rates may be progressive, regressive, or proportional. A progressive tax applies progressively higher tax rates as earnings reach higher levels. For example, the first $10,000 in earnings may be taxed at 7%, the next $10,000 at 10%, and any more income at 30%. Alternatively, a flat tax taxes all earnings at the same rate. A regressive income tax may apply to income up to a certain amount, such as taxing only the first $90,000 earned. A tax system may use different taxation methods for different types of income.

Personal income tax is often collected on a pay-as-you-earn
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...

 basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government by taxpayers who did not pay enough during the tax year; and tax refund
Tax refund
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the...

s from the government to those who overpaid. Income tax systems often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.

The idea of a progressive tax has garnered support from macro economists and political scientists of many different ideologies - ranging from Adam Smith
Adam Smith
Adam Smith was a Scottish social philosopher and a pioneer of political economy. One of the key figures of the Scottish Enlightenment, Smith is the author of The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations...

 to Karl Marx
Karl Marx
Karl Heinrich Marx was a German philosopher, economist, sociologist, historian, journalist, and revolutionary socialist. His ideas played a significant role in the development of social science and the socialist political movement...

, although there are differences of opinion about the optimal level of progressivity. Some economists trace the origin of modern progressive taxation to Adam Smith, who wrote in The Wealth of Nations
The Wealth of Nations
An Inquiry into the Nature and Causes of the Wealth of Nations, generally referred to by its shortened title The Wealth of Nations, is the magnum opus of the Scottish economist and moral philosopher Adam Smith...

:
Income taxes are used in most countries around the world, but are not without criticism. Frank Chodorov
Frank Chodorov
Frank Chodorov was an American member of the Old Right, a group of libertarian thinkers who were non-interventionist in foreign policy and anti–New Deal...

 wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession." Some have argued that the economic effects of an income tax system penalize work, discourage saving and investing, and hinder the competitiveness of business and economic growth. Income taxes are also not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies cannot be removed when exported to a foreign country (see Effect of taxes and subsidies on price
Effect of taxes and subsidies on price
Taxes and subsidies change the price of goods and, as a result, the quantity consumed.- Tax impact :A marginal tax on the sellers of a good will shift the supply curve to the left until the vertical distance between the two supply curves is equal to the per unit tax; when other things remain equal,...

)
. Alternate tax systems such as a national sales tax or value added tax
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...

 remove the tax component when goods are exported and apply the tax component on imports.

History


The concept of taxing income is a modern innovation and presupposes several things: a money
Money
Money is any object or record that is generally accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past,...

 economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...

, reasonably accurate accounts
Financial accountancy
Financial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, employees, government agencies, owners, and other stakeholders...

, a common understanding of receipts, expenses and profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...

, and an orderly society with reliable records. For most of the history of civilization
Civilization
Civilization is a sometimes controversial term that has been used in several related ways. Primarily, the term has been used to refer to the material and instrumental side of human cultures that are complex in terms of technology, science, and division of labor. Such civilizations are generally...

, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth
Wealth
Wealth is the abundance of valuable resources or material possessions. The word wealth is derived from the old English wela, which is from an Indo-European word stem...

, social position, and ownership of the means of production
Means of production
Means of production refers to physical, non-human inputs used in production—the factories, machines, and tools used to produce wealth — along with both infrastructural capital and natural capital. This includes the classical factors of production minus financial capital and minus human capital...

 (typically land
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...

 and slaves) were all common. Practices such as tithing
Tithe
A tithe is a one-tenth part of something, paid as a contribution to a religious organization or compulsory tax to government. Today, tithes are normally voluntary and paid in cash, cheques, or stocks, whereas historically tithes were required and paid in kind, such as agricultural products...

, or an offering of firstfruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.

Han Dynasty (ancient China)


In the year 10 CE, Emperor Wang Mang
Wang Mang
Wang Mang , courtesy name Jujun , was a Han Dynasty official who seized the throne from the Liu family and founded the Xin Dynasty , ruling AD 9–23. The Han dynasty was restored after his overthrow and his rule marks the separation between the Western Han Dynasty and Eastern Han Dynasty...

 of the Xin Dynasty
Xin Dynasty
The Xin Dynasty was a Chinese dynasty which lasted from AD 9 to 23. It followed the Western Han Dynasty and preceded the Eastern Han Dynasty....

 instituted an unprecedented tax—the income tax—at the rate of 10 percent of profits, for professionals and skilled labor. (Previously, all taxes were either head tax or property tax.) He was overthrown 13 years later in 23 CE and earlier laissez-faire
Laissez-faire
In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 policies were restored during the Later Han.

United Kingdom


An income tax was levied in Britain
Kingdom of Great Britain
The former Kingdom of Great Britain, sometimes described as the 'United Kingdom of Great Britain', That the Two Kingdoms of Scotland and England, shall upon the 1st May next ensuing the date hereof, and forever after, be United into One Kingdom by the Name of GREAT BRITAIN. was a sovereign...

 by William Pitt the Younger
William Pitt the Younger
William Pitt the Younger was a British politician of the late 18th and early 19th centuries. He became the youngest Prime Minister in 1783 at the age of 24 . He left office in 1801, but was Prime Minister again from 1804 until his death in 1806...

 in his budget of December 1798, to pay for weapons and equipment in preparation for the Napoleonic wars
Napoleonic Wars
The Napoleonic Wars were a series of wars declared against Napoleon's French Empire by opposing coalitions that ran from 1803 to 1815. As a continuation of the wars sparked by the French Revolution of 1789, they revolutionised European armies and played out on an unprecedented scale, mainly due to...

. Pitt's new graduated income tax began at a levy of 2d in the pound
Pound sterling
The pound sterling , commonly called the pound, is the official currency of the United Kingdom, its Crown Dependencies and the British Overseas Territories of South Georgia and the South Sandwich Islands, British Antarctic Territory and Tristan da Cunha. It is subdivided into 100 pence...

 (0.8333%) on annual incomes over £60 and increased up to a maximum of 2s
Shilling
The shilling is a unit of currency used in some current and former British Commonwealth countries. The word shilling comes from scilling, an accounting term that dates back to Anglo-Saxon times where it was deemed to be the value of a cow in Kent or a sheep elsewhere. The word is thought to derive...

 in the pound (10%) on incomes of over £200 (£170,542 in 2007). Pitt hoped that the new income tax would raise £10 million (£8,527,100,000 in 2007), but actual receipts for 1799 totaled just over £6 million.

The tax was repealed in 1816 and opponents of the tax, who thought it should only be used to finance wars, wanted all records of the tax destroyed along with its repeal. Records were publicly burned by the Chancellor of the Exchequer but copies were retained in the basement of the tax court.

United States


In order to help pay for its war effort in the American Civil War
American Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...

, the United States government imposed its first personal income tax, on August 5, 1861, as part of the Revenue Act of 1861
Revenue Act of 1861
The Revenue Act of 1861, formally cited as , included the first U.S. Federal income tax statute . The Act, motivated by the need to fund the Civil War , imposed an income tax to be "levied, collected, and paid, upon the annual income of every person residing in the United States, whether such...

 (3% of all incomes over US $800) ($ in dollars). This tax was repealed and replaced by another income tax in 1862.

In 1894, Democrat
History of the United States Democratic Party
The history of the Democratic Party of the United States is an account of the oldest political party in the United States and arguably the oldest democratic party in the world....

s in Congress passed the Wilson-Gorman tariff, which imposed the first peacetime income tax. The rate was 2% on income over $4000 ($ in dollars), which meant fewer than 10% of households would pay any. The purpose of the income tax was to make up for revenue that would be lost by tariff reductions. Also, the Panic of 1893
Panic of 1893
The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...

 is said to have something to do with the passage of Wilson-Gorman.

In 1895 the United States Supreme Court, in its ruling in Pollock v. Farmers' Loan & Trust Co.
Pollock v. Farmers' Loan & Trust Co.
Pollock v. Farmers' Loan & Trust Company, , aff'd on reh'g, , with a ruling of 5–4, was a landmark case in which the Supreme Court of the United States ruled that the unapportioned income taxes on interest, dividends and rents imposed by the Income Tax Act of 1894 were, in effect, direct taxes, and...

,
held a tax based on receipts from the use of property to be unconstitutional. The Court held that taxes on rent
Economic rent
Economic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....

s from real estate, on interest
Interest
Interest is a fee paid by a borrower of assets to the owner as a form of compensation for the use of the assets. It is most commonly the price paid for the use of borrowed money, or money earned by deposited funds....

 income from personal property and other income from personal property (which includes dividend
Dividend
Dividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...

 income) were treated as direct taxes on property, and therefore had to be apportioned. Since apportionment of income taxes is impractical, this had the effect of prohibiting a federal tax on income from property. However, the Court affirmed that the Constitution did not deny Congress the power to impose a tax on real and personal property, and it affirmed that such would be a direct tax. Due to the political difficulties of taxing individual wages without taxing income from property, a federal income tax was impractical from the time of the Pollock decision until the time of ratification of the 16th Amendment in 1913.

In 1913, the Sixteenth Amendment to the United States Constitution
Sixteenth Amendment to the United States Constitution
The Sixteenth Amendment to the United States Constitution allows the Congress to levy an income tax without apportioning it among the states or basing it on Census results...

 made the income tax a permanent fixture in the U.S. tax system. The United States Supreme Court in its ruling Stanton v. Baltic Mining Co.
Stanton v. Baltic Mining Co.
Stanton v. Baltic Mining Co., 240 U.S. 103 , was a case decided by the Supreme Court of the United States.- History of the case :Plaintiff John R...

stated that the amendment conferred no new power of taxation but simply prevented the courts from taking the power of income taxation possessed by Congress from the beginning out of the category of indirect taxation to which it inherently belongs. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945.

Personal


A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...

 basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refund
Tax refund
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the...

s from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.

Corporate



Corporate tax refers to a direct tax levied on the profits made by companies or associations and often includes capital gains of a company. Earnings are generally considered gross revenue minus expenses. Corporate expenses related to capital expenditures are usually deducted in full (for example, trucks are fully deductible in the Canadian tax system, while a corporate sports car is only partly deductible) over their useful lives by using percentage rates based on the class of asset they belong to.

Accounting principles and tax rules about recognition of expenses and revenue will vary at times, giving rise to book-tax differences. If the book-tax difference is carried over more than a year, it is referred to as a deferred tax
Deferred tax
Deferred tax is an accounting concept , meaning a future tax liability or asset, resulting from temporary differences or timing differences between the accounting value of assets and liabilities and their value for tax purposes.- Temporary differences :Temporary differences are differences between...

. Future assets and liabilities created by a deferred tax are reported on the balance sheet
Balance sheet
In financial accounting, a balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A...

.
See also: Excess profits tax
Excess profits tax
In the United States, an excess profits tax is a tax, some say excise tax, on any profit above a certain amount. A predominantly wartime fiscal instrument, the tax was designed primarily to capture wartime profits that exceeded normal peacetime profits....

, Windfall profits tax
Windfall profits tax
A windfall profits tax is a higher tax rate on profits that ensue from a sudden windfall gain to a particular company or industry.-United Kingdom:In the United Kingdom, the Windfall Tax was a tax levied on privatised utility companies.-United States:...


Payroll



A payroll tax generally refers to two kinds of tax
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...

es: employee and employer payroll taxes. Employee payroll taxes are taxes which employers are required to withhold from employees' pay
Wage
A wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...

, also known as withholding
Withholding tax
Withholding tax, also called retention tax, is a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government. In most jurisdictions, withholding tax applies to employment income. Many jurisdictions also require...

, pay-as-you-earn
PAYE
Pay as you earn or PAYE refers to a system of withholding of income tax from payments to employees. Amounts withheld are treated as advance payments of income tax due. They are refundable to the extent they exceed tax as determined on tax returns. PAYE may also refer to withholding of the...

 (PAYE) or pay-as-you-go (PAYG) tax. These withholdings contribute to the payment of an employee's personal income tax obligation; if the payments exceed this obligation, the employee may be eligible for a tax refund
Tax refund
A tax refund or tax rebate is a refund on taxes when the tax liability is less than the taxes paid. Taxpayers can often get a tax refund on their income tax if the tax they owe is less than the sum of the total amount of the withholding taxes and estimated taxes that they paid, plus the...

 or carryforward to future periods.

Employer payroll taxes are paid from the employer's own funds, either as a fixed charge per employee or as a percentage of each employee's pay. Payroll taxes often cover government social insurance
Social insurance
Social insurance is any government-sponsored program with the following four characteristics:* the benefits, eligibility requirements and other aspects of the program are defined by statute;...

 programs, such as social security
Social security
Social security is primarily a social insurance program providing social protection or protection against socially recognized conditions, including poverty, old age, disability, unemployment and others. Social security may refer to:...

, health care
Publicly-funded health care
Publicly funded health care is a form of health care financing designed to meet the cost of all or most health care needs from a publicly managed fund. Usually this is under some form of democratic accountability, the right of access to which are set down in rules applying to the whole population...

, unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

, and disability
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...

. These payments do not count toward the income taxes of employees and employers, but are normally deductible by the employer as a business expense.

Inheritance



The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. In international tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However, this distinction is not universally recognized. For example, the "inheritance tax" in the UK is a tax on personal representatives, and is therefore, strictly speaking, an estate tax.

Capital gains tax



A capital gains tax is the tax levied on profits from the sale of capital assets. In many cases, the amount of a capital gain
Capital gain
A capital gain is a profit that results from investments into a capital asset, such as stocks, bonds or real estate, which exceeds the purchase price. It is the difference between a higher selling price and a lower purchase price, resulting in a financial gain for the investor...

 is treated as income and subject to the marginal rate of income tax.

In an inflationary environment, capital gains may be, to some extent, illusory. If prices in general have doubled over five years, then selling an asset for twice the price it was purchased at five years earlier represents no gain at all. Partly to compensate for such changes in the value of money over time, some jurisdictions, such as the United States, give a favorable capital gains tax rate based on the length of holding. European jurisdictions have a similar rate reduction to nil on certain property transactions that qualify for the participation exemption. In Canada, 20–50% of the gain is taxable income. In India, Short Term Capital Gains Tax (arising before one year) is 10% [15 % from F.Y 2008-09 as per Finance Act 2008] flat rate of the gains and Long Term Capital Gains Tax is nil for stocks and mutual fund units held one year or more, provided the sale of shares involved payment of the Securities Transaction Tax, and 20% for any other assets held three years or more.

Around the world


Income taxes are used in most countries around the world. The tax systems vary greatly and can be progressive
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

, proportional
Flat tax
A flat tax is a tax system with a constant marginal tax rate. Typically the term flat tax is applied in the context of an individual or corporate income that will be taxed at one marginal rate...

, or regressive
Regressive tax
A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

, depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.

Transparency / Public Disclosure


Public disclosure of personal income tax filings occurs in Finland and Norway.

See also

  • Income tax in Australia
    Income tax in Australia
    Income tax in Australia is the most important revenue stream within the Australian taxation system.Income tax is levied upon three sources of income for individual taxpayers: personal earnings , business income and capital gains...

  • Income tax in Canada
  • Income tax in India
    Income tax in India
    The government of India imposes an income tax on taxable income of individuals, Hindu Undivided Families , companies, firms, co-operative societies and trusts and any other artificial person. Levy of tax is separate on each of the persons. The levy is governed by the Indian Income Tax Act, 1961...

  • Income tax in the Netherlands
    Income tax in the Netherlands
    Income tax in the Netherlands is regulated by the Wet inkomstenbelasting 2001 .The fiscal year is the same as the calendar year. Before April 1 citizens have to report their income from the previous year...

  • Income tax in Singapore
  • Income tax in Tanzania
    Taxation in Tanzania
    In Tanzania the Income Tax Act, 2004 came into effect in July 2004. This act restructured the income tax system in line with modern requirements and repealed the previous Income Tax Act, 1973. Tax is levied on income from employment, income from business and income from investment. Taxable...

  • Income tax in the United States
    Income tax in the United States
    In the United States, a tax is imposed on income by the Federal, most states, and many local governments. The income tax is determined by applying a tax rate, which may increase as income increases, to taxable income as defined. Individuals and corporations are directly taxable, and estates and...

  • Lifetime income tax
    Lifetime income tax
    A lifetime income tax is an income tax that would tax a person based on their cumulative lifetime income, rather than their yearly income as is currently done throughout the world...

  • Local income tax
    Local income tax
    The Scottish Government planned to bring forward legislation to replace the council tax with a local income tax , as part of the funding for Scottish local authorities....

  • Negative income tax
    Negative income tax
    In economics, a negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government. Such a system has been discussed by economists but never fully implemented...

  • Papal income tax
    Papal income tax
    Papal income tax was first leveled in 1199 by Pope Innocent III, originally requiring all Catholic clergy to pay one-fortieth of their ecclesiastical income annually in support of the Crusades...

  • Wealth tax
    Wealth tax
    A wealth tax is generally conceived of as a levy based on the aggregate value of all household holdings actually accumulated as purchasing power stock , including owner-occupied housing; cash, bank deposits, money funds, and savings in insurance and pension plans; investment in real estate and...


External links