The main source of budget formation has always been taxes, so the well-being of the country will depend on how well the tax system is built. All citizens and companies receiving income are required to pay taxes to the state treasury calculated according to the established taxation model.
In economics, there are several methods for regulating incoming accruals. Each of them has a different economic meaning and has characteristic features.
Flat, progressive and regressive taxation - what is the difference
Due to the fact that the main task of the tax system is to effectively replenish the state treasury, lawmakers are constantly coming up with various models that meet the conditions of a given economic period of the country. Among the accepted options, there are three of the most successful tax systems that were used at one time, and some are currently used to charge fees:
- Flat taxation is currently used in our country. This method involves the accrual and payment of equal taxes for all segments of the population. Such a system does not take into account the social interests of citizens and commercial structures, but today it is the most simple and optimal.
- A progressive system suggests an increase tax rate as income grows. Moreover, in the transition from one step to another, only that part of the profit that exceeded the established indicators is taxed. Such a tax was applied in Russia in relation to personal income tax. The method is based on the redistribution of the tax burden from the poor to the richer.
- Regressive taxation is the exact opposite of progressive taxation, as the tax rates of the system are reduced due to rising income. This model has proved to be the most effective method of collecting tax payments.
Why a reduced rate can bring high returns
Let us consider in more detail the regressive model for constructing tax deductions. In order for the taxpayer to be confident in the fairness of the application of a particular system, as well as to reduce the concealment of part of the income, legislators have developed regressive taxation.
Such a system became a powerful incentive for the country to begin the mass legalization of income, in connection with this phenomenon, the state began to receive additional income, despite the fact that tax rates were reduced.
Why is the regression scale dangerous?
The regressive taxation system has a rather thin line between the pros and cons. Long-term use of the model can disrupt the social equilibrium and lead to some discontent among various sectors of society. Such public sentiments adversely affect the replenishment of the country's budget.
In addition, if the government is trying to patch up budget holes, the regression model will do it rather slowly, and in a crisis economy, such a pace is unacceptable.
Who is the most profitable tax payment regression system for?
If we take the sphere of small business as an example, then for its representatives, regressive taxation means a system that requires you to pay an equal income tax regardless of the security of the company.In other words, the wealthier the company, the less it charges payments. From the point of view of equality, this looks rather unfair. But, on the other hand, this model motivates the management of the company to increase revenue and legalize the wages of employees.
Regarding which taxes regressive taxation may apply: examples
Despite the fact that the regression model is a rather profitable system of charging payments, it is not considered to be particularly popular. In Russia, regressive taxation was applied at the beginning of the 2000s in relation to single social tax. You can also cite as an example indirect taxes, which consumers ultimately pay.
VAT and excise taxes in relation to certain types of goods have lower nominal rates. Thanks to this, the population has the opportunity to purchase essential goods, seasonal products and things that fall under the preferential excise regime at the most affordable price. In this case, the regressive taxation system has obvious advantages.
The state duty is also regressive in nature, as it has a certain scale of rates. When filing claims on property matters, the amount of the fee is reduced depending on the size of the claim.
Which tax system is most appropriate for modern economic conditions
At present, our state is experiencing some budget deficit, which can be partially covered by tax payments. In this regard, economists are carefully considering a new model of the tax regime, which will ideally suit the conditions of modern business.
The regressive taxation scale at such times is not entirely acceptable, since it is not able to restore a rather large shortfall. In this regard, lawmakers have developed a bill that has a progressive multi-stage nature of charging fees. It is based on strictly defined standards by which tax rates will be determined. Such taxation will be affected by personal income tax. If you delve into the real numbers of the model, you can see that the proposed system has a rather low starting tax rate (5%). To some extent, it even resembles regression compared to the current regime.
The system under development does not yet find the general agreement of the legislators, and therefore has been postponed until better times. Perhaps, in connection with the changing economic situation in the country, such a bill will get its ticket to life.
Tax systems are used to formally withdraw part of the proceeds in favor of the state budget. The extent to which the current model arouses public confidence depends on the amount of contributions received. Regressive taxation has established itself as a stimulating model of income legalization, but nevertheless, the system was created for a certain economic course and cannot be applied in conditions of overcoming the crisis.
