1.1 Introduction of the UK tax system
There is a very long time before British tax becomes what it is now, which can be traced back to Ancient times when UK was a part of the Roman Empire. The uniform land tax in 1692 is the basis to the current British tax system; at that time, the land tax is a kind of direct tax and is the main source of government revenue. Before the end of 18th century in British, William Pitt announced income tax to cover the expenses on weapons in the preparation for the Napoleonic Wars. Initially, the tax rate was around 1/120 of the income above £60 and the rate increased to 1/10 of income above £200. In the 20th century, income tax is the main resource for UK government; in the mean time, indirect taxes also became more important through the century. In 1965, the corporation tax and the capital gains tax were introduced, and in 1984 the capital transfer tax was replaced by inheritance tax. Currently, the taxation system in the UK can be mainly categorized as personal tax, including income tax, inheritance tax and council tax, sales taxes and duties, including value added tax, excise duties, stamp duty and motoring taxation, business and personal taxes, including national insurance contributions and capital gains tax and business taxes. As a constitutional monarchy, the power of legislation is highly concentrated. All tax laws are from proposals from the Treasury Department and after approved by parliament and the royal, these proposals can come into effect and become laws. In the UK, nearly 90% of tax income is collected by central government. The HM Revenue ＆ Customs takes charges of tax administration related affairs, including value added tax, sales revenue and tariff. 1.2 Discussion of the UK taxation bases
In computing the tax, we have to consider two parts: tax base and tax rate. Tax base is the economic basis of a certain tax and it is the base amount to compute the tax liabilities. Tax base is different from tax object, for example, the total income is the object of income tax, while only the taxable income can be regarded tax base. On the whole, tax base has two categories: economical tax base and non-economical tax base. Economical tax base means the objects of tax that are related to economical actions, such as revenue, capital and sales; non-economical tax base has nothing to do with people’s economical actions, such as the poll tax that is taxed on every individual person without their actions.
In the UK, there are three kinds of tax bases: income base, capital base and consumption base. The income base is mainly used in individual income tax and corporate income tax. In most countries, revenue from income tax is the main source of government, so income tax base certainly has many advantages. Firstly, income tax base is much larger than other tax bases, because people with income above taxable allowance are the subjects to income tax. Furthermore, for most people, tax based on income is easy to calculate and manage for governmental officers. On the other hand, income tax base also has several disadvantages. Firstly, income tax base is only available for cash income; for income as goods, income tax base would not work. Obviously, it is unfair to not tax on goods income. Secondly, income has many sources; some are easy to track, such as wages and bonus, while some are not easy to detect, such as illegal sales commissions. At last, different people have different ability to pay the tax and income is not a good indictor to measure their tax abilities. So it is very hard to make a rule or rate to keep fair among every taxpayer.
Capital can be used to make income and can reflect individuals’ paying ability, so it seems to be a good base for tax. However, the amount of capital would not generate the same amount of income, so it is not very accurate to use capital as a tax base. Furthermore, there are many kinds of capitals, which are hard to calculate and manage, and taxpayers’...
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