HISTORY

To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities. Taxes consist of direct tax or indirect tax, and may be paid in money or as its labour equivalent often but not always unpaid labour. A tax may be defined as a "pecuniary burden laid upon individuals or property owners to support the government a payment exacted by legislative authority."A tax "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name. The legal definition and the economic definition of taxes differ in that economists do not consider many transfers to governments to be taxes. For example, some transfers to the public sector are comparable to prices. Examples include tuition at public universities and fees for utilities provided by local governments. Governments also obtain resources by creating money (e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public universities and museums),by imposing penalties (e.g., traffic fines), by borrowing, and by confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer of resources from the private to the public sector levied on a basis of predetermined criteria and without reference to specific benefit received. In modern taxation systems, taxes are levied in money, but in-kind and corve taxation are characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and the government expenditure of taxes raised is often highly debated in politics and economics. Tax collection is performed by a government agency such as Canada Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her Majesty's Revenue and Customs (HMRC) in the UK. When taxes are not fully paid, civil penalties such as fines or forfeiture or criminal penalties such as incarceration may be imposed on the non-paying entity or individual.

PURPOSES AND EFFECTS

Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out many functions. Some of these include expenditures on war, the enforcement of law and public order, protection of property, economic infrastructure roads, legal tender, enforcement of contracts, etc., public works, social engineering, and the operation of government itself. Governments also use taxes to fund welfare and public services. These services can include education systems, health care systems, pensions for the elderly, unemployment benefits, and public transportation. Energy, water and waste management systems are also common public utilities. Colonial and modernizing states have also used cash taxes to draw or force reluctant subsistence producers into cash economies. Governments use different kinds of taxes and vary the tax rates. This is done to distribute the tax burden among individuals or classes of the population involved in taxable activities, such as business, or to redistribute resources between individuals or classes in the population. Historically, the nobility were supported by taxes on the poor; modern social security systems are intended to support the poor, the disabled, or the retired by taxes on those who are still working. In addition, taxes are applied to fund foreign aid and military ventures, to influence the macroeconomic performance of the economy the government's strategy for doing this is called its fiscal policy - see also tax exemption, or to modify patterns of consumption or employment within an economy, by making some classes of transaction more or less attractive. A nation's tax system is often a reflection of its communal values or/and the values of those in power. To create a system of taxation, a nation must make choices regarding the distribution of the tax burden who will pay taxes and how much they will payand how the taxes collected will be spent. In democratic nations where the public elects those in charge of establishing the tax system, these choices reflect the type of community that the public and/or government wishes to create. In countries where the public does not have a significant amount of influence over the system of taxation, that system may be more of a reflection on the values of those in power. The resource collected from the public through taxation is always greater than the amount which can be used by the government. The difference is called compliance cost, and includes for example the

labour cost and other expenses incurred in complying with tax laws and rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a tax on alcohol to pay directly for alcoholism rehabilitation centres, is called hypothecation. This practice is often disliked by finance ministers, since it reduces their freedom of action. Some economic theorists consider the concept to be intellectually dishonest since in reality money is fungible. Furthermore, it often happens that taxes or excises initially levied to fund some specific government programs are then later diverted to the government general fund. In some cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls. Some economists, especially neo-classical economists, argue that all taxation creates market distortion and results in economic inefficiency. They have therefore sought to identify the kind of tax system that would minimize this distortion. Also, one of every government's most fundamental duties is to administer possession and use of land in the geographic area over which it is sovereign, and it is considered economically efficient for government to recover for public purposes the additional value it creates by providing this unique service. Since governments also resolve commercial disputes, especially in countries with common law, similar arguments are sometimes used to justify a sales tax or value added tax. Others (e.g. libertarians) argue that most or all forms of taxes are immoral due to their involuntary and therefore eventually coercive/violent nature. The most extreme anti-tax view is anarcho-capitalism, in which the provision of all social services should be voluntarily bought by the persons using them

Tax Laws
The Income Tax Law generally exempts NGOs from taxation on grants, donations, membership dues, and non-economic sources of income. Under the Law on Property, associations are, however, subject to a 2.5% tax on monetary gifts they receive, provided the following conditions are the value of the gift exceeds 9,000 Serbian diners (approximately USD $13) the donor is a private person, rather than a state or local government authority the gift is not covered by a bilateral or multilateral agreement to which Serbia is a party. Property tax is not levied on non-monetary gifts as long as the transfer of those gifts is subject to VAT. Profits from related and unrelated economic activities are exempt up to 300,000 dinars (USD $4,300), provided that certain conditions are satisfied. A VAT regime went into effect on January 1, 2005, with a standard tax rate of 18 percent, and a reduced tax rate of 8 percent for certain goods and services. Foreign grants and donations are not subject to VAT, nor are imported humanitarian goods. There are limited incentives for philanthropy, and the concept of public benefit status is not well developed.

General Legal Forms The legal framework in Serbia permits both membership and nonmembership NGOs to operate. On October 22, 2009, a new Law on Associations came into force. Under this law, an "association" is defined as a "voluntary, non-governmental, and not-for-profit organization composed of natural and/or legal persons, established to pursue mutual or public benefit goals, which are not prohibited by the Constitution and law" (Article 2, Law on Associations). law provides for three categories of non-membership, property-based organizations. All must pursue public interest objectives. Categories are based on the type of founders and source of funding:

A foundation can be established only by legal persons using socially owned resources i.e., public property or that belonging to a collective). Because the 2006 Constitution no longer recognizes the concept of socially-owned property, the legal status of foundations is currently unclear. According to information from the registry office, very few of them operate. The Ministry of Culture has recently prepared a new draft Law, which is under review and would reconceptualize the notion of a foundation. A legacy can be established only by natural persons using private resources. A legacy may be established inter vivos or by a testamentary act. A fund can be established by natural or legal persons using socially owned resources or a combination of socially owned resources and private assets.

Public Benefit Status The concept of public benefit is not well-developed in NGO legislation. For example, the law provides that foundations must serve the public benefit, but it is unclear what criteria registration officials use to make this determination. Moreover, the framework laws and tax laws reflect different concepts of public benefit.

Economic Activities Associations may engage directly in economic activities insofar as the following conditions are those activities are related to the organization's statutory goals they are envisaged in the statute of an organization they are incidental in terms of their volume, or are carried in volume which is deemed necessary to advance the statutory goals of an association (Article 37, Law on Associations). The Law on Foundations is rather general on this point: it provides that foundations may generate income from passive investments, gifts, and other sources in accordance with the law. This presumably indicates that a foundation may also generate income from both related and unrelated economic activities (Article 15, Law on Foundations) - as stipulated in the Enterprise Profit Tax Law.

Tax Exemptions
Associations, foundations, legacies, and funds are exempt from income tax on foreign and domestic grants, donations, membership dues, and similar forms of income not related to the organization's economic activities. Associations are subject to 2.5% taxes on gifts (movable assets and real estate alike) they receive; these taxes are not levied on foundations, legacies and funds. There is some discretion on how to interpret the difference between gifts - which are subject to taxation - and donations - which should be exempt - though cases at the local level have been reported in which the tax police have sought to impose taxes on donations. Under the Enterprise Profit Tax Law, profit generated by an NGO is exempt from income tax, provided that: a) income from economic activities did not exceed a given threshold of 300,000 dinars (or USD $4,300). b) earnings were not distributed to the founders, employees, members of the management board, or any affiliated person thereof. c) salaries for the members of the management board and employees do not exceed double the average salary paid by organizations engaged in the same activities in the commercial sector. d) all earned profit was used to further the objectives for which the organization was created. e) the NGO's economic activities do not give rise to unfair competition with the private business sector, as defined by the antitrust law.

Income Tax rate Tax chargeable Income liable at special rates Apply s686D Income liable at special rates Tax rate Tax chargeable Less charged at basic rates Tax due Total Less repayable tax suffered Less non-payable tax credit Tax due

Nonsavings income 200 22% 44 200 (200) 0 -

Savings Dividend income type income 200 200 20% 10% 40 20 200 200 (200) 0 40 (100) 100 32.5% 32.50 (10) 22.50 20 -

Total 104 22.50 126.50 (40) (20) 66.50

The 500 band is first applied against the rental income of 200, then against the savings income of 200. This leaves 100 of the band remaining, which is set against the dividend income. As a result only 100 of the gross dividend income is subject to the special trust rate.

FACTORS OF SUCCESS
1. Attention to Political Leadership and Local Ownership: The project identified and engaged champions for tax reforms and carefully constructed analytical rationales for those reforms. Even with frequent changes in political leadership, especially in the RS, TAMP staff worked patiently with counterparts and managed to forge close relations with key stakeholders who helped keep the reform agenda on track. A senior advisor to the Federation Minister of Finance once remarked that the broad-based, democratic participation sought in bringing the income tax proposals into the public forum was unprecedented in BiH history. Without TAMPs careful attention to this requirement, it is unlikely that the reforms would have gotten so much traction. 2. Flexibility: The ability of the USAID assistance team to adapt quickly to the needs of counterparts and the changing demands of the International Community was essential to the success of the project. In 2004, the project moved quickly to pick up efforts to strengthen audit and enforcement functions when the EU program diverted its attention to the State-level ITA and the introduction of the VAT. The project was also quick to recruit and mobilize the necessary resources to lead and provide new energy to the direct tax reform agenda. This flexibility was essential to the progress made in all aspects of USAIDs tax assistance. 3. Competition: An underlying Inter-Entity competitiveness motivated counterparts to work with TAMP to implement tax administration, and later tax policy, changes. RS counterparts in particular worked aggressively to be the first to achieve certain objectives, and often took initiative in expanding on the systems and processes developed with TAMP support. Often this sense of rivalry had a further demonstration effect on other counterparts. In 2005, when tax administration reforms in the Federation were lagging behind those in the RS, TAMPs Chief of Party accompanied the Federation Tax Director to Banja Luka to view

first-hand the progress the RS Tax Administration had already made in developing its automated systems. The visit reinforced the importance of IT modernization for the Federation Director, who swiftly accelerate the pace of implementation within his own agency. 4. Innovation: The microwave solution allowed the tax administrations to leapfrog the existing communications options, enabling secure, reliable and high-speed data transmission and drastically reducing their communications costs. Once in place, the microwave system became the first communications network with nationwide reach in all of BiH, drawing attention from others in the BiH governments as possible solutions to their data communications needs. Today, the network is used not only by the three tax administrations, but also by the state border police, the ITA, and a number of other Entity and state-level government agencies. In the future, perhaps the privatization of the Post and Telecommunications (PTT) agency would supplant and obviate this microwave infrastructure, but in the present environment the microwave.

ASSIGNMENT ON :

TAXATION

POLICIES

OF

THE

COUNTRY

YUGOSLAVIA

SUBMITTED BY : R.VIRONA FERNANDO CLASS: S.Y.BBI ROLL NO: 24007 SUBJECT: TAX SUBMITTED TO : PROF. VINOD.V.NAYAK

INDEX HISTORY PURPOSES AND EFFECTS TAX LAW TAX EXCEPTIONS FACTORS OF SUCCESS DECENTRALIZED DECISION MAKING