PUBLIC FINANCE CLASSIFICATION OF TAXES Classification of Taxes

PUBLIC FINANCE

CLASSIFICATION OF TAXES

Classification of Taxes 1. Single Tax-Plural Tax Classification 2. Classification for Object of Tax - Individual Taxes - Goods Taxes 3. Classification for Payment Types - Tax in kind - Cash Taxes 4. Classification for Tax Payers Personal Conditions - Objective Taxes - Subjective Taxes

Classification of Taxes 5. Classification for Tax Bases - Advalorem Taxes - Specific Taxes 6. Classification of Taxes for Economic Sources - Income Tax - Property Tax - Expenditure Tax 7. Classification of Direct-Indirect Tax

Classification of Taxes for Economic Sources INCOME TAXES 1. In terms of Definitions - Source Oriented Theory - Net Increase Theory 2. In Terms of Income Tax Implementation - Unitary Income Tax - Schedular Income Tax - Mixed Tax 3. In Terms of Income Tax Payer - Individual Income Tax - Corporate Tax 4. In Terms of Tariff Structure - Progressive Income Tax - Proportional (flat) Income Tax

Classification of Taxes for Economic Sources PROPERTY TAXES 1. In Terms of Object of Property Tax - General Property Tax - Private Property Tax 2. In Terms of Time Criteria - Permanent Property Tax - Temporary Property Tax 3. In Terms of Quality - Real Property Tax - Apparent Property Tax 4. In Terms of Property Tax Implementation - Taxes on Property Transfer - Taxes on Appreciation of Property Value

Classification of Taxes for Economic Sources EXPENDITURE TAX 1. General Expenditure Taxes 2. Sales Taxes - First Classification Value. Added Tax (VAT) Collective Transactions Tax - Second Classification General Sales Taxes Private Consumption Tax (PCT)

TAX BURDEN

CLASSIFICATION OF TAX BURDEN 1. Total Tax Burden Tb = f ( Tp , It ) Tb = Tp / GNP 2. Individual Tax Burden tb = f ( tp , I i ) tb = tp / I i tb = f (tp , b, Ii , d ) tb = tp- b /Ii -d 3. Sectoral Tax Burden Tb = f ( Tp , Is ) Tb = Tp / Is

TYPES OF TAX BURDEN 4. Regional Tax Burden T b = f ( T p , I r) T b= T p / I r 5. Tax Burden to Income Groups Tb = f ( Tp , Ig ) Tb = Tp / Ig 6. Net Tax Burden Individual Tax Burden tb = f ( tp , b, ig , d ) tb = tp- b / ig -d Total Tax Burden T b = f ( T p , B , I g, D ) Tb = Tp – B / Ig - D

TAXATION TECHNIQUES

Assessment Methods of Tax Base 1. Advalorem Taxes 2. Specific Taxes Kinds of Tax Rate 1. Average Tax Rate T/X 2. Marginal Tax Rate ΔT / Δ X

Kinds of Tax Tariff 1. Proportional (Flat) Tax T / X = ΔT / Δ X 2. Progressive Tax T/X < ΔT / Δ X - length difference - hight difference 3. Progressive Tax with tax bracket procedure T / X increase/decrease depend on tax base ΔT / Δ X constant 4. Hidden Progressive Tax T / X increase/decrease depend on tax base ΔT / Δ X constant 5. Regressive Tax T/X > T/X

Proportional (Flat) Tax a) T , ∆T X ∆X X b) T T(X) X

Proportional (flat) tax Fig (a) X-axis shows tax base and y-axis shows tax rate. The tax rate does not change but due to an increase in income and of course in tax base, tax revenue increases. So tax revenue line is parallel to x-axis. Fig (b) X-axis shows tax base and y-axis shows tax revenue. Although tax rate dos not change (increase), due to an increase in income and of course in tax base, tax revenue increases. So tax revenue line has an increasing slope.

Progressive Tax T X Increasing Progressivity Flat Decreasing X

Progressive Tax Flat progressivity: Tax rates increase due to increases in tax base. Decreasing progressivity: This line has a decreasing slope towards x-axis showing that when tax base increases tax rate decreases. This is against ability to pay principle because high income groups pay less. Increasing progressivity: This line has an increasing slope towards y-axis showing that when tax base decreases tax rate increases and this is against ability to pay principle because low income groups pay more.

length difference hight difference Progressivity Degree 10 v. H 8 7 6 5 4 Progressivity Degree 3 2 1 0 10 20 30 40 50 60 70 length difference at progressivity 80 90 100. 000 hight difference at progressivity 9

Smooth and Tough Tax Tariffs Smooth Tax Tariff: When length difference increases, the tariff gets smoother. Tough Tax Tariff: When height difference increases, the tariff gets tougher. Length difference: The difference between the lowest tax base and the highest tax base. Height difference: The difference between the lowest tax rate and the highest tax rate.

Regressive Tax T X Decreasing Regressivity Flat Increasing X

Regressive Tax Flat regressivity: when tax base increases tax rate decreases. This is against ability to pay principle because high income groups pay less. Decreasing regressivity: Same as flat regressivity. So when tax base increases tax rate decreases. This is against ability to pay principle because high income groups pay less. Increasing regressivity: when tax base decreases tax rate increases and this is against ability to pay principle because low income groups pay more.

Progressive tax with tax bracket T , ∆T X ∆X ∆T ∆X T X X 1 X 2 X 3 X

Progressive tax with tax bracket Tax bases increase showing different income groups (between x 1 -x 2, x 2 -x 3, etc. ). In figure the tax revenue line although increases with an increase in tax base and tax rates, due to different levels of tax bases this line has some breaking points and these points lead the line to be a line with tax bracket.

Hidden Progressive Tax T T(X) Minimum living allowance X

Hidden Progressive Tax When minimum living allowance is used, the income under this certain amount is out of tax. This means he pays zero percent tax. When the person’s income increases he will be a tax payer and he will pay tax according to his ability to pay at a certain tax base and tax rate (for example 10 percent tax). Before the increase in income, his tax burden was zero percent but now it is 10 percent. This is hidden progressive tax.