Principles of building tax systems

In the modern world, the tax system of any country is the most important link in not only the financial system of the state, an integral part of which it is, but also the general system of economic regulation. Tax systems are used as an effective tool for implementing the financial and economic policy of the state. With the help of taxes, socio-economic processes are regulated, encouraged or, on the contrary, the development of certain sectors of the economy and activities in the interests of structural restructuring of the economy is restrained, and the general pace of socio-economic development and the level of employment of the population are supported.

The solution to these problems does not automatically occur by introducing a tax system. The ability of the tax system as a whole and each tax separately to fulfill the functions assigned to them depends on the principles on which it is built.

The importance of principles in the tax system

A principle is a proposition or value that is a guide for behavior or evaluation. In law, it is a rule that has to be or usually is to be followed. It can be desirably followed, or it can be an inevitable consequence of something, such as the laws observed in nature or the way that a system is constructed.

The principles of building tax systems are interpreted from different positions. Basically accept classical principles of taxation:

• the principle of justice of taxation;
• certainty and accuracy of taxes (size, terms, method and procedure for calculating);
• convenience of terms and methods of payment;
• the effectiveness of taxes for the state.

The principle of justice

The main principle is considered to be the principle of justice, but there are different meanings. The problem here is that justice is a category, primarily social, moral and ethical; and for economics, this is a very relative concept, subjective in nature and therefore far from ambiguous. Different notions of fairness give rise to different notions of economic and tax fairness.

Currently, in the world tax theory, there are two main points of view on the fairness of taxes.

The first is that taxes should be based on being equal for all taxpayers, regardless of the amount of their income, the conditions for their receipt, and any other factors. At the same time, the level of tax rates should be minimal (as low as possible), benefits should also be minimized, and ideally, they should not be at all.

In accordance with another position, on the contrary, it is believed that the nominal level of tax rates is not of fundamental importance (it can be very high). Taxes, on the other hand, should contain an extensive network of benefits and differentiation of tax rates depending on the level of income. In this case, the principles of horizontal and vertical justice are proclaimed, the observance of which is achieved by equalizing the income of taxpayers.

In accordance with these two positions, the principle of justice is formulated in the first case as the principle of vertical and horizontal equality of taxes, based on the proportional taxation of income at a constant tax rate, independent of the amount of taxable income.

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In the second case, the principle of justice is understood as a combination of two principles:

• the principle of vertical justice, according to which entities in different conditions should be treated differently by tax laws;
• the principle of horizontal fairness - entities that are in the same conditions should be treated equally by tax laws.

The implementation of this principle is achieved through progressive taxation, in which tax rates increase depending on the growth of the level of taxable income of the taxpayer.

Both positions in the tax theory are substantiated by sufficient reasoning, therefore each of them has the right to exist. If we turn to the practice of developed countries, then tax systems are built mostly on the principles of vertical and horizontal fairness. Differentiation of basic tax rates is a widespread phenomenon: both in direct form - in the form of progressive tax rates depending on the level of income (as, for example, basic income taxes are levied in the United States), and in hidden form - mainly through a system of benefits, sometimes directly and hidden form at the same time.

Special principles

In parallel with the classical principles of building tax systems, there are special principles. Among them:

• stability of tax legislation;
• one-time tax collection;
• presentation of equal financial claims to taxpayers;
• optimal level of tax rates;
• validity of the system of tax incentives;
• the optimal combination of tax functions (direct and indirect taxes in budget revenues), etc.

Each of these principles refers to one or another element of the tax system, so their list can be expanded many times over. Together, they constitute the principle of efficiency and optimality of the tax system.

Ultimately

For tax systems, also in a special series is the principle of unity of the tax system, in accordance with which the tax system should be in its main characteristics of a single state in the territory of the entire state. Tax powers provided to regional state authorities and local governments should not lead to the formation of individual regional tax systems, thereby destroying a single tax space.

The principles of building a tax system in their entirety should create conditions for the effective fulfillment of their functions.