Every country has a tax system through which they collect a certain amount of money from its people in the form of different taxes that is later on used for different operations of the state. But the biggest debate regarding the taxation system of any country is that does the tax system of the country benefits all people fairly or not. Now a question arises about a fair tax system. Every person who is related to the field of business or is studying business keeps an eye on the taxation system as a big share of the taxes comes from this sector. That is why business essay help services not guide them about the tax system but also offer expert help in writing essays on this topic.
What is a fair tax system?
A fair tax system is where all the state’s citizens have a fair share in tax and are treated equally, where the tax burden is not only on poor people but where the rich people and big companies pay their required and allotted share regularly. In simple words, in a fair tax system, the person who earns more pays more. A fair tax system makes the idol circulation of money. There are two concepts of equality in fair taxation that is horizontal and vertical equity.
Horizontal equity is when all the people with similar financial status or conditions pay a similar amount of tax, whereas vertical equity refers to taxation where people who are financially well-off pay tax from their income that is only equivalent to the amount of tax that people from lower financial condition pays. Vertical equity is further divided into three classes or types.
- Regressive tax
A regressive tax is a tax where people with low income or financial resources have to pay more share of their income than rich people. We can understand it through a very easy example. All the taxes that people have to pay while buying necessities are considered regressive taxes. While purchasing food items from a grocery store, the rich and poor pay the same amount of the sales tax. Where this sales tax is paid from a small share of a financially stable person’s income, it becomes a large share of a poor person’s income. Although both rich and poor are paying an equal amount as tax, it does not benefit both people fairly.
- Progressive tax
A progressive tax is when the people with higher income and financial resources pay higher tax, and people with lower income pay less amount of the tax. The theory and framework behind this taxation system are that people who are financially stable and have sufficient financial resources can pay a large amount of tax easily. Still, it would be difficult or, to some extent, impossible for poor people to afford the same amount as tax.
- Proportional tax
A situation of proportional tax occurs when all the people who are paying tax pay an equal share of their income. Although, in reality, there is no taxation like that to some extent, we can say that taxes on corporate income meet the criteria of proportional tax because usually, they have a similar tax rate.
Does our country’s tax system benefit all fairly?
Yes, we can say that the taxation system applied in the United Kingdom is beneficial for all and is fair for all because every year, different taxes are collected from the people of the United Kingdom. These taxes include income tax, customs duty, VAT, capital gain tax, corporation taxation, property tax, UK inheritance tax and many other different taxes.
But we are saying that our country’s tax system is benefiting all fairly because all of these taxes are progressive taxes. And we all know that progressive tax means that people will higher income will pay more taxes, and people with low income will pay less amount of tax. The tax collected during the year 2020-2021 was approximately 584£ billion. The tax collection was made from 32 million people approximately.
Understanding the UK tax system:
Some people say that the tax system of the UK is very complicated and complex. And usually, it is preferable to take guidance to understand the United Kingdom taxation system. During the financial year 2020-21, the earning of £12,570 was tax-free for the people who were earning between £12,571 to £50,270 will have to pay 20% tax from the income. Similarly, people who earned from £50,271 to £150,000 were required to pay 40% tax. And those whose income exceeds this amount will pay 45% tax.
The United Kingdom has imposed two types of taxes on its people. Indirect taxes and direct taxes. Taxes like corporation tax, tax on income, and property are included in direct taxes. HMRC (central government) is responsible for the collection of taxes.
Indirect or unobvious taxes include all (VAT) that a person has to pay. These taxes are not obvious as direct taxes. In direct taxes, you know that you are paying tax, and all the amount you pay is included as tax. But in indirect tax, the price of the good or service you are availing of is also added. That is why it is not prominent and is considered an indirect tax. A good example of indirect tax is the sales tax you pay while buying anything from a bar of soap to a home appliance.
Conclusion:
Every country has its own policies for the collection of taxes. Developed countries like the UK have an exemplary tax system that different developing countries follow it. Basically, tax collected from the country’s citizens is then used to provide different public services for the people. These services include healthcare and welfare services, infrastructure, administrative services and many more. And one of the reasons behind the development of any country is its right, beneficial and fair tax system. The perfect way to define tax is that it is the money of the people that are used for the betterment of the people.
