The tax is a tribute or charge that people are obliged to pay to an organization (government, king, etc.) without there being a direct consideration. This is, without being delivered or assured a direct benefit for its payment.
But then what are taxes? Tax is a non-exchange payment but we generally expect some indirect benefit. In most modern countries, citizens pay taxes to the government in order to finance its activities, aid programs, and other services.
What are taxes for?
Taxes allow the State to offer citizens certain goods and services that are aimed at increasing social welfare. In this sense, they are used to pay the payroll of those people who work in the public sector. Along with this, thanks to them, infrastructures are built that allow the development of society.
Taxes make it possible to create a public educational system that trains all the children and young people of a country so that they can later join the labor market and generate wealth. Education is the foundation of any nation’s progress. On the other hand, let’s imagine a country without roads, railway infrastructures or ports that allow the transport of merchandise. This situation would completely block the economy and make life very difficult for citizens.
The payment of taxes allows the creation of a public structure that allows to act on market failures, increasing the efficiency of the market. It also allows granting subsidies that reduce inequality and provide greater progress to the society of a country.
The origin of taxes can be found in Ancient Egypt since the first known tax system dates between 3,000 and 2,800 BC. C.
Later, Ancient Greece also created an elementary Public Treasury that was in charge of collecting taxes. In spite of everything, it was not a solid and bulky tax system. The payment of taxes was something circumstantial to cover certain state expenses.
Finally, the Roman Empire also introduced a tax system in which citizens were obliged to pay taxes to the state. They began by establishing taxes of 1% that in times of war or difficulties increased to 3%. As the Empire advanced and it was possible to generate more wealth, the tax system was strengthened despite the fact that they faced the problem of carrying out accurate censuses.
Main elements of taxes
The main elements that will help us understand what taxes are are:
- Taxable event: The situation or activity that motivates the tax obligation.
- Taxpayer: The person or organization that faces the obligation.
- Taxable base: The amount on which the tax is applied.
- Tax rate: This is the proportion that is applied to the tax base to calculate the amount to be paid.
- Tax quota: It is the amount that must be paid.
The types of taxes are:
Taxes according to base
- Indirect taxes: These are those that are applied to goods and services and therefore affect "indirectly" people, the best known is the value added tax.
- Direct taxes: They are those that directly tax people or companies. For example, income tax, profits or partnerships, inheritance and donations, and wealth tax.
Taxes according to rate-base relationship
- Progressive: The higher the base, the higher the applicable tax. Thus, for example, the higher the income of a family, the greater the amount that must be paid.
- Proportional: All taxpayers pay the same proportion of their base. For example, a 10% tax is applied regardless of the amount of company profits.
- Regressive: Taxpayers with a lower base end up paying a higher amount. For example, when the poorest people end up paying more taxes than the richest.
Fundamental principles of the tax
Generally, governments want taxes to be applied in the fairest way possible. To achieve this, two fundamental principles apply: horizontal equity and vertical equity. The first holds that taxpayers who have the same characteristics should be treated in the same way. The second principle indicates that people in different circumstances should be treated differently following some criteria of justice.
Examples of taxes
Finally, we explain some examples of taxes in both Spain and Mexico. In the case of Spain we can mention the following:
- Value Added Tax (VAT): This is an indirect tax levied on the acquisition of a certain product. There are some products that are exempt from VAT.
- Personal Income Tax (IRPF): It is a type of direct and progressive tax that is levied on obtaining economic returns from a citizen.
- Real Estate Tax (IBI): It is a direct tribute to the owner of a real estate and taxes its value.
In the case of Mexico:
- Special Tax on Production and Services: It is a tax levied on the production, sale or import of tobacco, alcohol or gasoline.
- New Car Tax: This tax is direct and is levied on the acquisition of a new vehicle. Along with this, VAT must also be paid.
- Tax on Entertainment and Public Shows: Taxes the generation of income from the performance of games and public shows such as concerts.
In summary, taxes are the different payments that a citizen must make to the State for obtaining economic returns, acquiring goods and services or owning a good. Taxes are paid without receiving direct consideration.