Personal Versus Corporate Income Tax

PERSONAL VERSUS CORPORATE INCOME TAXES

Personal vs corporate income tax

Introduction

What is a tax? A tax is considered to be a contribute to state revenues, imposed by government on individuals and entities profits or income. We can define corporate tax as a tax which is levied on the business profits and income. Also the company is subject of it on chargeable gains accruing to companies. They are charged with this tax when they complete the accounting period, also known as financial year. While an income tax is a tax imposed on individuals or businesses. It varies according to the income of the taxpayer. This kind of

Government justifies the business taxes by being imposed as a factor of production along with land, labor, capital etc, and it is interesting the fact that it is not imposed there voluntary. As we know every factor of production has its costs and it is not different for the government. In this case the cost that the businessman has to pay is the tax. Tax that should be paid to government is determined by a voting process where business has a very small impact. All taxes are imposed over the income or the capital of the individual, and what we want to know is if business tax will make possible a more equitable division among individuals. According to benefit analysis corporate taxes are considered to be payments for the opportunity to operate as limited liability company. The government also tries to ensure the efficiency of competition . Another argument for corporate income tax is that entities pays separately from the stockholders. Corporate tax is impersonal and doesn’t distinguish shareholders. A shareholder who has a small portion of shares is equally taxable as the wealthy shareholder, because they are paid with dividends, which are subject of the same tax. It is argued that corporate tax has some progressive elements because it is mostly paid by wealthy individuals. The level of tax is different for dividends, different for managers incomes, different from wages etc. it doesn’t only values a high

This ability is supposed to reach individuals income tax in form of capital gain. However capital gains are not favored directly by the tax system, but when the taxpayer dies, they are wiped out entirely. The provider is allowed a basis for assets at the time of capital gain. Many critics recommend to incorporate a way in taxation of capital gain, by including an averaging feature, in order to allow the taxpayer some relief from graduating rates. This provides the taxpayer with the privilege of paying a tax based on the average income of a specific number of years, and not on his annual profit. There may be individuals with high and low income, who are gaining capital. For high incomers seems not to ambitious an undertaking, while for small income receipt the benefit from averaging makes them use the unused exemptions. Here we understand that the averaging method can bring equitable taxation of capital gains, and the taxation of capital I a equitable way is a prerequisite to the integration of corporate and personal tax. Anyway the government doesn’t wait for the realization of capital gains because it has to apply its tax system to corporate investment. Some taxes need to be collected when the income is earned and reinvestment occurs. But how can we collect tax from undistributed earnings? One way is to collect a corporate tax on personal level . It is used as a withholding levy.