Taxes are a tribute that is paid to the state as support for various public payments. These payments are mandatory and are required from both legal and natural persons. Through taxes, most of the public income is obtained. With them, the State obtains sufficient resources to carry out its actions.
Taxes are used to finance certain expenses presented by the creditor, generally the State. The taxable capacity suggests that those who have more assets, must therefore pay a greater amount of taxes. However, this factor is not always fulfilled, because in many cases other situations and causes are prioritized.
What is the function of taxes?
Tax functions can be classified into:
- Fiscal functions: These are based on satisfying public needs through the collection of money, and in this way the proceeds are destined to finance the public services that cause that need.
- Extra-fiscal functions: Like fiscal functions, taxes are used to solve a public need, their difference is that they also satisfy public interests. It also does it in a direct way, that is to say that everything collected is used clearly for those needs. An example of this is taxes on alcoholic beverages and cigarettes.
- Mixed functions: Its function lies in the search to satisfy both sets of the two previous functions
To consider a contribution tax, it must meet certain characteristics that are:
- It is an amount that constitutes an obligation.
- They must be established by law.
- They must be proportional and equitable.
- The collection must be in charge of individuals and legal entities.
- They are established in the legal situation provided for by Law.
- They must be used to cover public expenses.
What are the fundamental elements of taxes?
If we take the tax as a manifestation of financial activity, we can distinguish the following elements:
Active subject. It is the entity or individual who has the right to request the payment of the tax, but the law attributes the conditions of the individual, and of other entities or public bodies. In other words, only the law can assign the active subject of the tax obligation.
The active subjects vary depending on the regulations of each country. Administrators can be municipal, state, local or national, and they are in charge of deciding who will be the final recipients of certain attributes.
Passive subject. It is the natural or legal person, which has the obligation to pay tax benefits according to the law. It is important to highlight two types of taxpayers. The first defines the taxpayer, therefore, they are all the entities that the law assigns the payment of the tributaries. The second is the appointment of the substitute for the taxpayer or legal representative, which refers to the person entrusted to ensure the material fulfillment of the commitment.
Taxable Fact. They are the facts or acts that are executed following a tax obligation, which depends on the rules that are established by law. In this category are located acts as different as the provision of services, the sale of goods, inheritance or inheritance rights, among many others. It should be noted that all the facts may vary, depending on the income tax law of each country.
Tax base. They are the amounts of the taxable act. This results in the determination of the tax obligation, which will be paid by the natural or legal entity
Tax type. It is the type of fixed or variable proportion, which is used frequently on the tax base to determine the final calculation of the tax. The result of the tax is commonly established, according to the needs of each country, said this may vary depending on the item.
Tax rate. It is nothing more than the number amounts that symbolizes the lien. These fees can be a fixed amount or can be calculated by multiplying the tax base by the type of duty tax.
Tax debt. This is the definitive debt that must be paid to the active subject according to a series of regulations previously established in each country. In this way, the quota will be obtained with the deductions, if any.
Taxes are classified into two important groups which are:
- Direct taxes: They are those that apply to the direct and immediate manifestation of the taxpayer’s economic capacity. That is to say, obtaining a heritage that generates an income.
- Some examples of direct taxes are:
- Substitute tax on capital income.
- Personal and corporate income tax.
- Regional tax on productive activities.
- Council tax.
- Contributions to social security.
- Subjective contributions.
- Indirect taxes: Generated by an indirect manifestation of economic capacity, that is, by the circulation of wealth through acts of transmission or consumption. In these cases the use of wealth is taxed. In addition, these taxes are the same for everyone and the taxpayer’s ability to pay is not taken into account. Examples of some indirect taxes are:
- Value added tax (VAT).
- Special taxes.
- Entertainment tax.
- Mortgage tax.
- Inheritance and gift tax.
- Advertising tax.
Among the types of taxes we can name:
- State taxes. As its name suggests, they are all those taxes that are required by the state, this means that their use is for the entire national territory.
- Regional taxes. They are taxes requested by the autonomous communities to cover their needs. These taxes are used for the entire territory of these communities.
- Ceded taxes. They are those taxes that are established and regulated by the state, but their collection is used or transferred to the autonomous communities.
- Municipal taxes. These taxes are requested by the town councils of a municipality and their application lies in the territory of said municipality.
- Personal or real taxes. These are based on the structure and components taking into account a specific individual, either naturally or legally.
- Objective taxes. These taxes are what the individual’s situation is not reflected in the contribution.
- Subjective taxes. Contrary to objective taxes, these contemplate the situation or circumstance of the individual in the contribution.
- Synthetic taxes. Synthetic taxes are those whose tax base does not differentiate the origin of the income. A clear example of this is corporate taxes, since the tax rate is used at the taxable base of this, in the total profit that the entity has obtained.
- Analytical taxes. These taxes are distinguished by detailing, their origin and between the different items that make up the tax base.
To apply taxes, certain criteria or principles are used, which we mention below:
- Principle of justice : this principle resides on the people who make up a nation, who have the obligation to contribute to the maintenance of the government, in correspondence to their economic possibilities and depending on the equality in the obligation.
- Principle of certainty : It mentions this principle that any tax must be fixed in its essential components such as rates, exemptions, payment period, infractions and penalties, among others; to avoid any type of unfair acts on the part of the collecting authority.
- Comfort principle : this principle is based on the fact that taxes must be collected in a timely manner where it is possible to obtain payment from the taxpayer.
- Principle of economy : This principle is that the utility of taxes should be as high as possible while their collection should not be so overloaded.
Here are some examples of the taxes that are usually charged to the taxpayer.
Value Added Tax: This is the tax we know as VAT. It is a type of tax, indirect and regressive. It is imposed on the value produced by a company.
Personal Income Tax: It is a type of direct, personal and progressive tax. It is the tax that we all pay when filing our income tax return. Being progressive indicates that the more a person earns, the percentage of the tribute for this tax will be higher.
Inheritance and donation tax: It is also a type of direct, personal, subjective and progressive tax, in which donations and other businesses that are free of charge for the acquiring party and are carried out between living persons are due. This means that it will be the tax to be paid to the state for having received, for example, an inheritance.
Conclusion on taxes
We can conclude that a tax is a tribute or an amount of money that we pay to the State, the autonomous community or the city council on a mandatory basis, and that it is established on all people, whether natural or legal, with the aim of contributing to the public finances, to finance the expenses of the State and other entities.
Taxes exist for a fundamental reason, which is to be able to pay for public spending and that translates into payments for public services, the construction of infrastructures, the provision of public health services, education, defense, social protection systems, etc.