A major source of government revenue, levied on personal incomes. Income below some lower limit is usually exempt, and the tax rate levied on further slices of income varies, at rates fixed from time to time in the budget. There may also be a range of special tax allowances, such as for charitable covenants. In the UK, income tax is collected at source, by deduction from wages through Pay As You Earn by employers, and deducted from dividends by companies. Income tax is levied in many other countries, with a very wide range of tax rates and systems of allowances. In the USA, income tax was introduced by Constitutional amendment in 1913; some states and cities also have income taxes.
An income tax is a tax levied on the financial income of persons, corporations or other legal entities. Various income tax systems exist, ranging from a flat tax to a progressive tax or graduated income tax system. A tax levied on the income of companies is often called a corporate tax, corporate income tax or corporation tax. Individual income taxes generally 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 writeoffs.
Principles
The 'tax net' refers to what types of money payments are charged the tax. A tax system may use both progressive and flat taxes for different types of income. Deductions lessen the total tax liability by reducing total taxable income.
Income tax systems may allow losses from one type of income to be counted against another. 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.
Income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. Pitt's new graduated income tax began at a levy of 2d in the pound (0.8333%) on incomes over £60 and increased up to a maximum of 2s (10%) on incomes of over £200.
Income tax was levied under 5 schedules—income not falling within those schedules was not taxed. The schedules were:
Schedule A (tax on income from UK land) Schedule B (tax on commercial occupation of land) Schedule C (tax on income from public securities) Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income) Schedule E (tax on employment income)Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.
Finally, UK income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Originally it taxed a person's income regardless of who was beneficially entitled to that income, but now a person only owes tax on income to which he or she is beneficially entitled. Most companies were taken out of the income tax net in 1965 when corporation tax was introduced.
The Finance Act 2004 introduced an income tax regime known as pre-owned asset tax which aims to reduce the use of common methods of inheritance tax avoidance.
Income tax systems
Australia
Since 1942, income tax in Australia has been collected solely by the Federal Government, to the exclusion of the Australian States (see Constitutional basis of taxation in Australia). Australia uses a system of progressive taxation on personal income that is collected as a pay-as-you-go tax (known as PAYG), a flat rate tax on business income (company tax), and a property tax limited to realised capital gains. Australia’s income tax system contains a complex array of deductions and offsets, and is administered by the Australian Taxation Office.
Canada
Income Tax was first imposed in Canada in 1917 on both individuals and corporations under the Income War Tax Act. Tax collection agreements enable both the federal and provincial governments to levy income taxes through a single administration and collection agency. The federal government collects personal income taxes on behalf of all provinces except Quebec and collects corporate income taxes on behalf of all provinces except Alberta and Quebec.
Canada has a graduated tax system, whereby the percentage over the "more than" amount goes up....graduated from 15.25 - 29% (2006)
Hong Kong
There are 3 types of income earned in HK is to be taxed, but they are not called income taxes. Per HK Inland Revenue Ordinance Chapter 112 (In short "IRO"), these 3 types of income are classified into:
Profit tax IRO section 14 Salaries tax IRO section 8 Property tax IRO section 5The Hong Kong OrdinancesInland Revenue Ordinance Cap.112
India
In India, Individual income tax is a progressive tax with three slabs. 185,000 for senior citizens) The highest slab is 30%, with a 10% surcharge (tax on tax) for incomes above Rs. All income taxes are subject to 2% education cess (applicable on the tax paid).
Dividends are income tax free to shareholders - instead, companies are charged a 12% dividend distribution tax. For sales of shares in recognised stock exchanges, long term capital gains are not taxed at all, with only 10% income tax on short term gains (less than 1 year of holding).
there are five heads of income:
Income from Salary Income from house rent Income from Business and profession Capital Gains Income from other sources
Indonesia
The income tax is known as Pajak Penghasilan or PPh for short.
Netherlands
The Netherlands taxes income on personal income (wages, profits, social security);
The tax on personal income is a progressive tax and casts a wide tax net over wages, profits, social security, and pensions.
The tax on business income is a flat tax of 25% only applied to ‘substantial business interests’ which are generally a shareholding of 5%.
Singapore
Individual income tax is a progressive tax with a highest marginal rate of 20% with effect from Year of Assessment 2007.
Sweden
Sweden has a taxation system that combines a direct tax (paid by the employee) with an indirect tax (paid by the employer). Below is a compilation of the taxes that compose the final income tax (2003):
Tax on "gross" income "from the employer": 32.82% (indirect, fixed) Pension "fee" on "gross" income: 6.95% (indirect, fixed) "Municipal tax" on, "gross" income less pension tax and a "base deduction": ~32% (direct, varies by municipality) "State tax" on, "gross" income less pension tax and a "base deduction": 0%, 20% or 25% (direct, progressive)United Kingdom
Income tax is an annual tax and is reimposed each year in the annual Finance Act.
The British income tax system is a progressive one with a number of bands: 10% (lower rate), 20% (basic rate for unearned income), 22% (basic rate on earnings from employment, a trade or profession), and (in respect of the higher rate band and trust income) 32.5% on UK dividends and 40% on other sources of income. However, ratification is disputed by some tax protestors along with other arguments about the validity of the U.S. income tax (see Tax protester arguments). States that do not levy income tax include:
Alaska – no tax on individuals but there is a state corporate income tax Florida – no tax on individuals but there is a state corporate income tax Nevada New Hampshire – does have tax on interest and dividends, wages earned in other states, and wages earned by non-residents South Dakota Tennessee – does have tax on interest and dividends Texas – recently passed a gross receipts tax on businesses; the Texas Constitution places severe restrictions on passage of a personal income tax Washington - Has a corporate tax called the "Business and Operations Tax" WyomingCountries with no personal income tax
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Andorra Bahamas Bermuda Bahrain
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Brunei Cayman Islands Kuwait Monaco
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Oman Qatar Saudi Arabia Somalia
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UAE Uruguay Vanuatu
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