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TAXATION

Chapter 1 GENERAL CONSIDERATIONS REGARDING TAXATION

1.1. The concept of taxation 1.2. General principles of taxation 1.3. The functions and role of taxation

1.1. The concept of taxation

The concepts of "tax", "taxation" and "tax system" appeared at a certain stage in the development of society, to respond to the financial, social and economic needs of the governments. They have been given multiple interpretations, depending on their component elements, on the perception of their role and functions in the economic and social system or in relation to their purpose. Taxation can be defined as “the imposition or levying of taxes; the action of taxing or the fact of being taxed” (Oxford English Dictionary). A tax is “that part of the income or wealth of private individuals, which the authority of the State appropriates in order to provide for the public expenses incurred for the advantage of the general body of taxpayers”1 Starting from the definition of taxes as a portion of the income or wealth of individuals and businesses taken by the state to cover public spending, in literature taxation is regarded as:    “all taxes enforced by laws “2; "a link between the state and individual or legal persons” 3; "all taxes imposed in a state, providing a overwhelming part of its revenue, each tax having a specific contribution and a regulatory role in the economy"4

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Cossa, L., White, H., Taxation: Its Principles and Methods, BiblioBazaar, LLC, 2008.

2 Şaguna D.D., Drept financiar şi fiscal, Editura Eminescu, Bucureşti, 2000, p. 619 3 Tatu L., Şerbănescu C., Ştefan D., Vasilescu D., Nica A., Fiscalitate. De la lege la practică, Editura All Beck, Bucureşti, 2004, p.1

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1.   The canon of tax convenience. by applying some general principles in order to avoid arbitrariness and prevent relational conflicts between tax authorities and taxpayers. according to which taxes should be levied at the time and manner most convenient for taxpayers. According to the Romania’s Fiscal Code. individuals or legal persons. tax collection procedures. setting.TAXATION Existing theoretical approaches and practical experience lead to the conclusion that taxation defines the system of principles. Such principles were first formulated by the famous English economist Adam Smith.2. 2000. for the awareness and correct application of tax legislation. the tax liabilities. taxpayers assistance. which implies that all the taxes to be determined with certainty. The canon of tax efficiency. unequivocally. 169 2 . Iaşi. recording and settlement of tax liabilities. who considered that fiscal policy must be based on the following “canons”:   The canon of fairness of taxation. General principles of taxation The process of levying and collection of taxes is a complex one and requires some measures necessary for quantification of taxes imposed to taxpayers. Economie şi finanţe publice. the taxes and fees (charges) are based on the following principles: 4 Hoanţă N. thus eliminating uncertainty and arbitrariness. In this context. p. time and place of payment must be clear and known in advance by the taxpayer. Certainty of taxation canon.. under which the taxation must take into account the taxpayers ability to pay and the size of income. tax legislation control and solving the taxpayer complaints. rules and regulations concerning:     taxpayers record and management. which requires that tax collections to be made with minimal administration costs. Editura Polirom.

while the deadlines. Tax neutrality is seen as a manifestation of nondiscretionary application of tax legislation and the existence of a functional market economy. manner and amounts payable are clear for each payer. forms of ownership. This principle requires that tax legislation must be clear and concise. After the determination of the tax liability and its communication to the taxpayer. respectively such payers may follow and understand their tax burden and may determine the impact of their financial management decisions on their tax burden. by developing clear tax legislation. b) certitude of taxation. as well as the personal expenses required for the personal and family maintenance. so that any interpretations will be avoided. that each taxpayer's tax liability to be settled on the ability to pay. rank their priorities and finalize their investment projects. he/she must be convinced that the size of the tax liability imposed on it is a certainty. Applying the principle of equity implies differential taxation of income and property in relation to taxpayers’ ability to pay and the introduction of a tax exemption for certain categories of disadvantaged citizens with low incomes. in accordance with tax legislation.e. According to the understanding of the tax liability.TAXATION a) neutrality of the fiscal measures as regards the various categories of investors and capital. 3 .   the same the tax burden for people belonging to the same social category. The principle of fiscal neutrality requires equal tax treatment for taxpayers in the same position (horizontal equity) without the socio-economic relevance of their ownership or origin of capital (domestic or foreign). by different taxation of incomes based on the size of the incomes. in relation to the income or the value of the property subject to taxation. by ensuring equal conditions for investors and for Romanian and foreign capital. taxpayers are planning their resource allocation. that do not lead to arbitrary interpretations. c) fiscal equity among natural persons. that the taxation is general. Applying this principle implies:   The existence of a minimum amount of income exempted from taxation. i. to include all individuals and legal entities earning income or owning property.

dividends payable to shareholders. Much of the GDP is redistributed through taxes. Compared to the functions assigned to the overall public finance. encouraging businesses to use the labor from persons with disabilities.3. on the other hand. custom duties). profits. is still undergoing a process of redistribution through indirect taxes.  The control function. Taxes. social protection of individuals whose incomes are far below those considered normal or average. rents. in particular by the National Agency for Fiscal Administration. income of the self-employed). which seeks. in comparison with the taxation in force on the date when they adopt major investment decisions.  The social function. the state takes at its disposal some of the revenue made by market participants (wages. taxation satisfies:  Mobilization of financial resources to the state as tax levies. which is reflected by the fact that taxes are used. which reflects the taxes capacity to facilitate the fiscal control in different phases of economic reproduction process. The net income of individuals remaining after paying direct taxes. The main source of tax levies is the gross domestic product. to achieve the distribution of income and wealth among members of society. we consider that taxation actually performs the same functions as public finances. fees and contributions are the typical forms of acquiring financial resources available to the state. With taxes. on the one hand.TAXATION d) efficiency of taxation by providing long-term stability of the provisions of the Fiscal Code. The functions and role of taxation Starting from taxes position in the system of public financial resources. so that such provisions do not to lead to unfavorable retroactive effects for natural and legal persons. the specialized departments of local authorities who are empowered to administer 4 . The objectives pursued by this function are made by specialized agencies of the Ministry of Public Finance. when purchasing goods and services whose price includes the taxes (excise tax. value added taxes.  The distribution function. along with other instruments of fiscal policy. or. in accordance with what society considers to be equitable. and. where appropriate. 1.

In line with its functions. financing of the government expenditures. are priority objectives of fiscal policy. p. to achieve equilibrium in the trade balance. objective achieved by promoting the taxation principles. payable by all natural and legal persons who earn income of the same type or have the same kind of property. This policy must be carried out in correlation with incentives for the sector that produces certain goods. i. Timişoara. contributions or other sums owed to the state general consolidated budget. with favorable consequences for the national economy. influencing output growth and/or consumption of goods. Is the traditional role. The tax system should provide incentives and deductions for lowincome taxpayers and. thus creating jobs and increasing. stimulating exports and reducing imports. 2) The economic role – taxes should serve as instrument for state intervention in the economy. Also. Editura Sedona. The fiscal policy is intended for developing or restricting economic activity in some areas or sectors of the economy. 1) The financial role. so that all tax base is taxed5.TAXATION taxes. economic and social.e. the sectors that produce those consumption goods. increasing exports as well as reducing imports.. such as alcohol or tobacco. the tax base. Finanţele României. fees. on the other hand. The volume of resources may be increased either by introducing new taxes. vol. Talpoş I. when it comes to stimulate consumption and. Consumption of certain goods or services is influenced by reducing indirect taxes. consequently. 148 5 5 . at the same time. 3) The social role. In carrying out its functions. Stimulating businesses to develop certain activities can be achieved through exemptions from corporate income tax or by allowing them the use the accelerated depreciation of fixed assets. A tax has a higher yield if the taxation is universal. i. 1995. the role of taxation is financial.I.e. the state must obtain the financial resources it needs. A policy of restriction of consumption can be achieved by setting higher tax rates for indirect taxes. or by extending them to a larger number of taxpayers. should levy high taxes in order to limit the consumption of some harmful products.

taxable transactions. so that the process of distribution of gross domestic product to provide the resources needed to cover public expenditure. we believe that fiscal policy should optimize the use of tax instruments and procedures with the aim of determining the amount and structure of tax levies. 6 .TAXATION In conclusion.