On the division of taxes on direct and indirect taxes and taxation

2.1.2. On the division of taxes on direct and indirect

In the literature on taxation, as well as in the tax laws of individual states, the division of taxes into direct and indirect taxes is used. This division has been used for almost three centuries.

The division of taxes into direct and indirect taxes is usually based on the criterion of the tax burden. This criterion was first used at the end of the 17th century. J. Locke, who proceeded from the premise that any tax, from whom he was levied, ultimately lays a heavy burden on landowners. Income from landed property at that time was considered the only net income that served as a source for paying any taxes. Taxes levied on land ownership, he called direct taxes, and all other taxes - indirect. A. Smith initially followed the same approach, then to direct taxes began to include not only taxes levied from the land, but also taxes on profits and wages. To indirect taxes they were treated by all other types of taxes. A somewhat excellent concept was used by J. St. Mill, who believed that direct taxes are those taxes, the burden of which should be borne directly by taxpayers, and indirect - which must be transferred by taxpayers to other persons. This approach was also used by L. Wagner, as well as practically all United States authors of tax works in the XIX century.

It should be noted that in the XIX century. many found the eligibility criterion used for tax classification inadequate. On the one hand, it was noted the possibility of transferring to other persons taxes that are attributable to direct taxes. So, taxes on landed property are in fact always included by the owner of the land - the lessor in rent. The rent costs are included by the tenant in the price of the goods produced. If the landowner and the land user are the same person, the costs of paying the land tax are included in the costs of agricultural production and thus their burden is transferred to the buyers (consumers). Taxes on profit in the presence of favorable conditions can also be shifted to consumers. On the other hand, under unfavorable conditions, the burden on a number of such traditionally indirect taxes, like excises, must be borne by the producer or seller of the corresponding excisable goods. Taxes, transfer of which to other persons is extremely difficult, are taxes on personal income, but only in those cases where the payer of taxes is an individual who does not carry out entrepreneurial activities. Taxes on incomes of individuals engaged in entrepreneurial activities are transferable.

With respect to some taxes, it is very difficult to determine whether they are transferable or ist. Customs duties may be levied on goods imported by individuals for their own consumption, as well as goods intended for sale. By importing items intended for personal consumption and paying a fee, an individual can not transfer the burden of the fee paid to another person. If the customs duty is paid for the import of goods intended for further sale, the costs of its payment are included in the selling price and are thus transferred by the person who imported the goods to the buyer.

The same can be said about property taxes. The tax can be paid for the house used for living, and for the house rented out (for rent). In the first case, there is no possibility of transfer, and in the second - the paid tax can be included by the lessor in the cost of rent.

Indirect taxes include VAT. However, this tax may be imposed on the construction of a legal entity for objects for their own needs. If this legal entity does not realize the sale of goods (works, services), then it is not able to shift the burden of this tax to other persons.

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