History of Income Tax

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Income tax is a vital source of funds to any government. Money raised by taxing the working population can be used to fund infrastructure development as well as improving the standard of living in the country. United Kingdom was the first the country to establish a working income tax on its civilians in 1799. Initially implemented as a temporary source of income to fund the war to beat Napoleon, income tax is now an essential source of revenue for the government all over the world. This report will look at the significance of income tax in the UK since the late 18th century, through World War 1 and World War 2, and how it has evolved into the tax system, currently in practice. Income tax still remains as a temporary tax, and must be renewed on 5th of April through an annual financial Act by the parliament.

The Prime Minister, and the Chancellor of Exchequer William Pitt the Younger introduced income tax in 1799. The sole reason the tax was introduced was to beat the French army under Napoleon. Napoleon’s army was better prepared and Britain was in danger. The cost of war was high which led to Britain under national debt. This led to the army being provided with less food and treated poorly, which resulted in the soldiers to go on an open rebellion against the government. Direct tax upon income was intended to be a temporary solution and it was referred to as a tax to beat Napoleon. The tax was to be paid in six equal installments at a rate of 10%, people earning above £60 had to pay the tax. Only about one-sixth of the money was raised from the income tax, but it had proven itself a most valuable addition to the government revenue. Pitt’s income tax was not very successful as he estimated an unrealistic figure of £10 million in 1799, but the actual amount received was less than £6 million. In 1800 he estimated £7 million yet it was below £6 million. In the following year in 1801 he budgeted a realistic value of £6 million but it dropped to £5,300,000....
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