The tax is the monetary amount that is delivered to the state, jurisdiction or council in a mandatory way to contribute with its income, with them the State will have enough to carry out its functions. Tax collection is the state's way of financing itself and obtaining resources to pay for services such as the construction of roads, ports, airports, provision of public health services, education, defense, social protection systems for unemployment, benefits for disability or work accidents, etc.
What is tax
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Taxes are the most important tributes, through which most of the public income is obtained. With them, the State obtains the necessary resources to carry out its actions, an example of what is imposed refers to the administration, infrastructures or the provision of services, which is carried out in the national territory of a certain country, or also in those nations where the imposed council is carried out on a mandatory basis and without any flexibility.
Its main characteristics are the following: each amount stipulated by an entity or government is mandatory; they must be established in the laws of a certain country; it must be proportional and equitable; These taxes must be destined to cover public expenses, in this way it begins to clarify what is tax.
There are different types, but their main classification is direct and indirect; A direct tax is one that is applied to individuals and legal entities, when obtaining an income from their assets and economic income, including income taxes. Then the indirect, is the one that applies to consumable objects, or to the services that are used; An example of this type of tax is the value added tax.
On the other hand, there is also the revolutionary tax, this is the monetary amount that a terrorist group demands from a businessman or wealthy person under the threat of death. There is also the imposed council, where the communities take care of the nation's assets.
What is the role of taxes
These are generally calculated based on percentages, mostly tax rate, on a particular value, taxable base, tax rates or aliquots and are classified as:
- Progressive tax: the higher the profit or income, the higher the percentage of duties on the base.
- Regressive tax: the higher the profit or income, the lower the percentage of duty that must be paid on the total taxable base.
- Proportional or flat tax: when the percentage is not dependent on the tax base or income of the individual who is subject to pay taxes.
Progressive taxes reduce the burden on lower-income people, since they pay a lower percentage of their earnings. Sometimes the progressive or regressive tax is classified as a tariff whose effects may be more favorable or unfavorable on people with lower incomes.
The discussion on the regressivity or progression of a tax is linked to the tax principle of "equity", which in turn refers to the principle of "tax capacity" or contributory. For example, in the Constitution of the Argentine Nation (art. 16) it reads: "Equality is the basis of the tax and public charges", which the doctrine understood as "equal efforts" or "equality between equals." Thus, the concept of horizontal and vertical equity of the tax emerges.
Horizontal equity indicates that, for equal income, consumption or equity, taxpayers must contribute in equal measure. Vertical equity indicates that, the higher the income, consumption or assets, the greater the contribution must be made, that is, at higher rates, to achieve “equal efforts”.
Based on this last concept, the use of the term “ regressivity ” has become generalized to qualify those taxes that require a greater tax effort from those who have less tax capacity.
For example, the lower classes have to make a greater effort to cancel VAT, which is paid through the purchase of basic necessities and others.
What are the elements of a tax
In tax as a phenomenon of financial activity, the following elements are distinguished: the taxable and active subject, the taxable matter or object of the tax, the event that generates the tax or taxable event, the taxable base, the tax rate or quota, the source of tribute.
- Active subject: it is who has the right to demand payment of the tax. This figure normally falls on the state, however, the law can attribute the condition of the active subject to other entities or public bodies. Therefore, only the law can designate the active subject of the tax obligation.
- Taxable person: it is the natural or legal person, who contracts the obligation.
The taxable matter is the object subject to the tariff and from where it usually takes its name. The subject or object of the tax may be:
- An asset (Real estate or personal property).
- A capital.
- An income
- A product
Taxable event: are those acts or circumstances that have the obligation to pay a tax.
Tax Base: this is where a rate must be applied to achieve the tariff, in other words it refers to the economic quantification of the taxable event.
Tax Rate or Quota: is the percentage that must be determined from the taxable base to calculate the tax.
The source of the tax: refers to the economic source from which the taxpayer obtains the means to pay the tax to the active subject (State).
Tax types
There are several types of tariffs, which must be classified for better understanding, below are mentioned:
Direct tax
It is applied directly depending on the purchasing power of the taxpayer. Some examples of this tax are personal income tax, corporation tax or wealth tax.
The income of the taxpayer or his assets are direct taxes, because they go specifically to the taxpayer. On the other hand, the indirect ones are controlled not so much over people but over economic transactions, consumption or the transmission of assets.
Some direct taxes are: non-resident income tax, corporation tax, wealth tax, and gift tax. The economic capacity of people and many of them are scalable, based on that same economic capacity.
Indirect tax
tribute that mainly affect consumption, an act that shows the purchasing power of the taxpayer. The most popular levies are VAT or excise duties.
Among the indirect ones, the main one is VAT, which taxes consumption instantly on most purchases / sales and services. In addition, one can count among them the Tax on alcohol or tobacco, the tax on hydrocarbons, etc.
Although the corresponding authorities have stated that there are more options for increasing indirect taxes that increase VAT, the truth is that this is the only one that has a theoretical capacity to increase state revenues. In addition, it is theoretical, and in fact many question it, because an increase in VAT notably damages consumption, whose fall is evident and can be detected with the reduction in collection through the VAT itself. This is the scenario that the Tax Administration has been experiencing in recent months.
Progressive tax
The progressive tax is one of the classifications into which the various taxes that are part of the financing of a State are divided. The problem is that, as with many of the economic terms used on a daily basis, it is not clearly known what this type of tariff consists of or how it works. Therefore, it is important to explain in detail what a progressive tax is and what types of this tax exist.
A progressive tax refers to the following example, the higher an income, the more this tax will be paid. What this type of tax seeks is to redistribute the tax burdens of individuals by making them pay more money, the greater the economic capacity they have and the less amount when it is available with less purchasing power.
There are many criticisms of this type of tax, as it is believed that it can reduce economic growth. Within the objective of this indicator is to mitigate the economic pressure on the most vulnerable classes that have fewer resources.
In fact, it is not simply paying more for the fact that you have more money. The base establishes that what is paid is the income or the available resources of each one and it is understood which is the best, the greater the economic capacity, the more tax can be borne.
A clear example of a progressive income tax, since the higher the income received, the greater the amount of duty must be paid.
Regressive tax
This duty, whose tax is expressed as a percentage of income, is explained as said Income rises.
What is income tax
Income Tax is an annual charge collected on earnings (wages and / or commissions), and unearned income (dividends, interest, rents, trading earnings).
There are two basic types of income tax. First is the personal income tax, applied to the income of individuals, households, associations and sole property. Second is the corporate profit tribute, collected from the net profits of the incorporated companies.
By law, companies and individuals must file a tax return on their annual income to determine whether they must pay taxes or whether or not they are eligible for a tax refund.
In all countries, income tax is the ally of governments, since they depend on it to finance public services and various planned activities.
Who must pay income tax
In most of the countries of the world, the payment of tariffs is an imposition of the Law, which generally specifies that it must be carried out through the Tax Declaration and applies to all natural persons, salaried and non-salaried persons. over 18 years old who are economically active.
On the other hand, all required legal entities will declare certain of the income generated.
The entity in charge of carrying out this inspection in each country is autonomous and independent. In the case of Mexico, the agency is a subdivision of the Ministry of Finance and Public Credit called SAT, which means Tax Administration Service.
How to pay income tax
The declaration and payment of income tax is made directly through the web portal every year at the beginning of April before the fiscal year ends. This declaration can also be made in the offices of the SAT, in some banking entities of the state or in the collection days that the organization implements in different locations of the country.
What is income tax for?
Income tax is the way to assign to each person the responsibility for the payments and expenses of the nation, in other words, it is the tax provision that each individual fulfills for the needs of financing the nation's expenses that will serve as common needs and it is important that each person contributes a portion to do so, in fact it is established in the income tax law.
The tax is as old as the existence of the thinking man, there has always been the need for a few to organize the needs of society and others will pay a tribute to obtain it.
Currently, each country has its tariff number, different variations of the legality with which it is handled and the amount that is allocated to each item of the state, it is also justified and endorsed by the income tax law.
Other taxes in Mexico
Finance and accounting professionals consider that the field's main function is to take care of the financial health and cash flow of the company. Which represent the variables affected by the various types of existing tariffs in the Mexican tax system.
What is payroll tax
These types of fees are mandatory for individuals and companies, they are characterized by not requiring a direct or determined consideration by the tax administration (tax creditor).
The payroll tax, for example in Mexico, is local in nature for each province of the Mexican Republic and is established in the regulations issued by said entity, which is levied on making payments of money for remuneration for personal work in relation to dependency, so any company that has workers must pay it.
This payroll tax has the same importance and character as a federal tax, which is why it is mandatory by law, and its non-compliance may generate modifications by the tax authority and restrictions such as fines or surcharges. It must be modified with the 2% method on payroll.
Value Added Tax Law
In the Federal Republic, the mechanics of VAT or Value Added Tax is similar. These are taxes without indirect taxation that is levied on the consumption of goods and the companies managed as collection entities, although with the difference in VAT returns it is made monthly in all cases and there are only two types of VAT, a 16 and 0% (the rate of 11% for border areas has been withdrawn in the reform of the Value Added Tax Law in 2018).
In Mexico, the Value Added Tax Law distinguishes between natural persons (individuals) and legal entities (legal entities) as taxpayers of the tax, which is applied at a rate established at 16% for purchases, sales and provision of services, and the activities typified at 0%, among which are the sale of books and press, the sale of animals and vegetables, gold, jewelry, artistic pieces, the provision of services such as the supply of water to homes, the slaughter of cattle, poultry among others.
The companies and organizations monthly to the state coffers, which in Mexico is administered by the Ministry of Finance and Public Credit (SHCP), the difference between the VAT paid (creditable) and that collected (transferred) in the Informative Declaration of Operations with Third Parties (DIOT). If the balance is favorable, it can be discounted the following month or even offset with other taxes.
Capital gains tax
When the capital gains tax is explained, it refers to the added value that a property gains over time, increasing its cost of buying and selling within the market.
Items that can influence the value of the equity are the location of the property, the services in the area, the age of the construction, the costs of remodeling, and so on. In a few words, in capital gains tax, it can be explained with the following example, you are not only selling or buying a house for what it is in itself, but for the environment that surrounds it and the investment that has been made in the same.
In this sense, the Housing Law was presented in Mexico City, where it is proposed to eliminate the term 'capital gain' within the value of the property, and it has been said that a cause of this will reduce the earnings of the person who is selling the property - For example, when a sale is made, you must pay a limited amount of sales tax.
IEPS tax
The special tax on production and services (IEPS) is the tariff that is paid for the production and sale or importation of gasoline, alcohol, beer and tobacco. The IEPS tax is indirect, because the taxpayers do not cancel it but rather it is transferred or collected by the clients.
These are paid monthly no later than the 17th of the month following the payment. According to the Income Law of the Federation for the Fiscal Year 2019, the quotas specified in the Special Tax on Production and Services (IEPS) are updated and will be in force from January 1, 2019.
The subjects of the IEPS are natural or legal persons who dispose of the following assets:
- Drinks with alcoholic content and beer.
- Wrought tobaccos.
- Diesel.
- Soft drinks, hydrating or rehydrating drinks.
That is, the natural or legal persons that sell these physical assets obliged to pay the IEPS.
Property tax
During the beginning of the year, all states will have to collect the 2020 Property tax, the tax levied on the valuation of rustic and urban properties; necessarily to: land, buildings and fixed installations as long as they form an integral part of it.
The particularity of the Property Tax 2019, as every year, is that it is entirely a municipal jurisdiction. which means that collection, inspection and administration is under the responsibility of the municipality where the property is located. In this case, then, it is not relevant where the owner is located, but where the land is located.
The tax calculation
The process of calculating taxes in Mexico is different for each type of taxpayer and, determined, it undergoes some changes over time due to the modifications that are made to the laws. In these lines, the process of the tax calculation referring to the accounts of natural persons will be explained in broad strokes.
First, it is important to mention that there are 2 taxes that currently exist in Mexico: VAT (value added tax) and ISR (income tax).
There are some others such as local taxes, council tax, the IEPS (special tax on production and services), and there are some others such as the IETU or the asset tax, a schedule tax that is the income obtained from business activities, enjoyment of real estate, etc.
The cedular tax is processed in Mexico, but for this case it is not worth delving into any of them.
VAT is variable in a consumption tax, in which there is no tax calculation as such, the final consumer simply pays the seller 16% of the value of the purchased good and this in turn is transferred to the SAT. There are certain things you can do with the tax, such as withholdings, credit the VAT collected against the VAT paid, etc. But these are actually ways of handling VAT, but there is no complex calculation
