The most important source of revenue of the government is
taxes. The act of levying taxes is called taxation.
A tax is a compulsory charge imposed by government on
individuals or corporations. The persons who are taxed have
to pay the taxes irrespective of any corresponding return
from the goods or services by the government. The taxes
may be imposed on the income and wealth of persons or
corporations and the rate of taxes may vary.
This is one of the branches of public finance. It deals with the
various sources from which the state might derive its income.
These sources include incomes from taxes, commercial
revenues in the form of prices of goods and services supplied
by public enterprises, administrative revenues in the form of
fees, fines etc and gifts and grants.
Public finance is the branch of knowledge which is concerned with the
income and expenditure of public authorities and with the adjustment of
one to another.
It deals with the study of revenue and expenditure of the government at
the centre, state and local bodies. The public authorities have to perform
various functions such as maintenance of law an order, provision of
defense, production for bringing in economic development. The
performance of these functions require large amount of funds which is
raised through taxes, fees, fines, commercial revenues and loans.
Taxation problems date back to earliest recorded history.
During the various reins of the Egyptian Pharoahs tax collectors were
known as scribes.
During one period the scribes imposed a tax on cooking oil. To insure
that citizens were not avoiding the cooking oil tax scribes would audit
households to insure that appropriate amounts of cooking oil were
consumed and that citizens were not using leavings generated by other
cooking processes as a substitute for the taxed oil.
In times of war the Athenians imposed a tax referred to as
eisphora. No one was exempt from the tax which was used to
pay for special wartime expenditures. The Greeks are one of
the few societies that were able to resind the tax once the
emergency was over. When additional resources were gained
by the war effort the resources were used to refund the tax.
Athenians imposed a monthly poll tax on foreigners, people
who did not have both an Athenian Mother and Father, of one
drachma for men and a half drachma for women. The tax was
referred to as metoikion.
The earliest taxes in Rome were customs duties on imports and exports
Caesar Augustus was consider by many to be the most brilliant tax
strategist of the Roman Empire. During his reign as "First Citizen" the
publicani were virtually eliminated as tax collectors for the central
government. During this period cities were given the responsibility for
collecting taxes. Caesar Augustus instituted an inheritance tax to provide
retirement funds for the military. The tax was 5 percent on all inheritances
except gifts to children and spouses. The English and Dutch referred to the
inheritance tax of Augustus in developing their own inheritance taxes.
During the time of Julius Caesar a 1 percent sales tax was imposed.
During the time of Caesar Augustus the sales tax was 4 percent for slaves
and 1 percent for everything else.
Saint Matthew was a publican (tax collector) from Capernaum
during Caesar Augustus reign. He was not of the old publicani but
hired by the local government to collect taxes.
In 60 A.D. Boadicea, queen of East Anglia led a revolt that can be
attributed to corrupt tax collectors in the British Isles. Her revolt
allegedly killed all Roman soldiers within 100 miles; seized
London; and it is said that over 80,000 people were killed during
The Queen was able to raise an army of 230,000. The revolt was
crushed by Emperor Nero and resulted in the appointment of new
administrators for the British Isles.
During feudal times Aids was a type of tax or due paid by a
vassal to his lord. The amount of the Aids varied with the
time and place, although in England the aids specified in the
MAGNA CARTA (1215 a.d.) were paid only when the lord's
eldest son was knighted or his eldest daughter married. Aids
were also paid to ransom the lord from captivity. Aids were
similar to SCUTAGE and TALLAGE. In France, aids
continued as a royal tax until the French Revolution (1789).
Historical stages of taxation
According to historical development, taxation can be divided into three
The initial stage covers a period characterized by the lack of a financial
apparatus for the identification and collection of taxes, from ancient
times to medieval times.
The second phase of the taxation development is the period in which
the direct and indirect taxes, including the XVI-XIX centuries, were
The third stage is related to the nature of taxation, with the emergence
of scientific-theoretical views.
The initial form of taxation at the initial stage of state organization
was sacrifice. Although the sacrifice was actually voluntary, it was
unofficially binding. Even this form of taxes was determined by an
element of taxation - tax rate.
One of the first organized tax systems is considered to be Ancient
Roman taxation system. Roman citizens were taxed on the basis of
their application for their property and family status. At present, this
form of the application forms declarations. In the IV-III centuries
B.C., when the Roman state developed, new colonies emerged, the
basis of which was the communal economy. Public and communal
(local) taxes were then formed.
The reorganization of the financial state of the Roman state was
one of the principal tasks of the Emperor Augustus Octavian (63
B.C.- 14 A.D.).
He created financial institutions to control the implementation of
taxation in all provinces. As a result of his reforms, the first
general tax paid in the form of a tributary appeared.
The cadastre was drawn up for the revaluation of the tax potential
of the provinces.
This tax rate was 1/10 of the land tax. Even "Torah" indicates that
whatever happens on earth, one tenth of them belongs to God. The
first tax rate for income was 10%.
In the Roman Empire there were indirect taxes, along with direct
taxes. Among the most important taxes in ancient Rome were: a 1%
turnover tax, a special duty tax on 4% slavery sales, a 5% tax on
the release of slaves through a market price, a 5% inheritance tax,
and so on.
At that time, the most widespread tax types in European countries
were land tax, construction tax, living tax, or taxes per person,
excises, customs duties, utility bills, or local taxes.
One of the oldest and most widespread taxes was tax on buildings.
Under the name of smoke tax, this type of tax was available until the
twentieth century. In the Middle Ages, there were 2 shillings tax in
the UK for the number of smoke from them.
Those who did not own land or property were liable to living tax or
per capita tax. During the Roman invasion, widows and orphans in
Europe were free to pay this tax. The tax was being paid for people
who did not reach the full age by the parents , and for serf-laborers
by the feudal lords.
From XIII century, many excises rates have been introduced in
Europe for many primary consumer goods. Usually, the excises were
seized at the city gates of imported and exported goods. The excise
rate was between 5% and 25%.
At the time of the spread of Islam, the basic taxes were zakah, jizyah, kharaj,
and ushr. These taxes were determined by the legal status of the taxable land
and the taxpayer's community and religious status.
Zakat is one of the five main requirements in the religion of Islam. Consisting
2.5% of collected taxes were paid by Muslims. This tax revenue was
distributed among the poor and the needy.
Jizyah was taken from the Muslims living in the Muslim lands. The poor, the
women, the children, and the elderly were exempt from this tax.
The kharaj-tribute was land tax. It was collected in the form of tribute money
or natura. The tribute was a collection of all land taxes, which was about 25
percent of the taxes levied by the Muslim population in medieval Azerbaijan.
Ushr was collected in irrigated soils as 5 percent and in non-irrigated soils 10
percent of the produce. This tax was applied at 10 percent of the value of
imported goods from countries where applied taxes to muslims.
Taxes in the Azerbaijan Democratic Republic (1918-1920)
One of the most important economic events planned by the Republic
of Azerbaijan regarding the financial situation was the regulation of
the financial system in the country and the accumulation of funds to
the state treasury.
At first, the work in this area was limited to adjusting and
supplementing the relevant laws of the former Russian Empire, and
later, the separate draft laws on various taxes were debated and
This was mainly used by the traditional tax system - indirect taxes -
monopoly collections, customs duties and excises to meet the treasury
The budget of the Azerbaijan Democratic Republic was
formed by the following types of taxes:
- Direct taxes - land tax, real estate tax, state income tax, industrial tax,
income tax, capital tax, military duty tax, notary tax;
- Indirect taxes - taxes, customs duties and revenues collected from
tobacco, papyrus paper, sugar, tea, white oil, gasoline, kerosene,
lubricants and other petroleum products;
- Stamp fee - income from judicial, clerical, documentary
- Government monopoly taxes - mining revenues, mail revenue,
telegraph revenue, income from forests, fish farms, cotton-growing
- State railway revenues - revenues from cargo transportation
During 1920-1991 Azerbaijan was part of the USSR, tax issues were
regulated by the Soviet Union's tax laws.
After the 1917 revolution, the major income of the Soviet state was
money emission, contribution (or compensation) and food distribution.
The first tax reform is coincident with the New Economic Times
(1921-1925). At that time the basis of the tax system of the Soviet state
In 1921, the Azerbaijani peasants were exempted from food tax
however it re-applied in 1922.
In the year 1923, had been applied 8% income tax from state and
In the same year a single agricultural tax was applied. At first he was
kept in both money and natural form. Since 1924 it has only been
caught in the form of money.
In 1930, substantial tax reforms were initiated in the country. The
excises were completely abolished, and two types of tax payments – tax
on turnover and deductions from profit were identified.
During the Great Patriotic War of 1941-1945 military tax, tax on
single and having few child families was applied.
Taxes after 1941-1945 war
taxes from the population - income tax, agricultural tax, tax on income,
tax on single citizens and with low family content;
taxes from enterprises – tax on turnover and deductions from profit of
state enterprises, income tax from cooperative and non-profit
The basic tax type of the 1950s was the turnover tax. In 1954,
revenues from turnover taxes amounted to 41 percent of the state
In 1959, the XXI Congress of the CPSU decided to gradually
liquidate the taxes levied on the population.
The Law on the Elimination of Taxes on Wages and Employees'
Payments was adopted on May 7, 1960. However, by the Decree of the
Presidium of the Supreme Soviet of the USSR of September 22, 1962,
the termination of the taxes levied on the workers 'and workers'
salaries was held at another time, and then completely forgotten.
The main task of the Soviet tax system, closer to the early 1990s,
was the alienation of the income of every citizen or enterprise to the
benefit of the state, ie fiscal function.
Until the mid-1980s, more than 90 percent of the revenue of the
USSR's state budget was formed by means of funds from the
national economy. The share of taxes levied on the population was
only 6-7 percent.
The transition to new mechanisms of reconstruction and farming has
led to the revival of taxation in the USSR. Starting from the second
half of the 1980s, various forms of ownership began to emerge. This
demanded new approach to taxes. In July 1990, Tax Service was
established within the Ministry of Finance with the aim of ensuring
the state control over compliance with tax legislation and regulation
of prices by legal and natural persons.
Development of taxes in Azerbaijan
On October 18, 1991, the "Constitutional Act on the Independence of
the Republic of Azerbaijan" was adopted.
On November 9, 1991, "On Taxes of Legal Entities and Separate
Types of Income"
On December 31, 1991, the first tax laws of the Republic of
Azerbaijan "On Value Added Tax" and "On Excise"
The Law “On the Income Tax on Physical Persons” in the Republic of
Azerbaijan (24 June 1992) was adopted.
Tax rates for tax types have been identified:
- income tax from individuals - 12-55%
- Value added tax - 28%
- Profit tax - 35%.
Among the greatest achievements in the area of taxation the adoption
of the Tax Code in 2000 and the establishment of an effective
legislative framework has a great importance.
The main purpose of the Tax Code is to carry out the following tasks:
- establishing a fair, fixed, integrated tax system, establishing legal
mechanisms for the interaction of all its elements in the single tax
- taking into account the balanced interests of the state and the
- formation of the legal base of tax law, improvement of the system of
responsibility for tax violations.
For contributing to perfection of legislation on taxes provisions of the creation of
a stable tax environment in the country, reducing the tax burden, applying the
system of tax privileges, encouraging free entrepreneurship, protecting the rights
and interests of taxpayers have been included in the Tax Code.
In the last 10 years the profit tax rate has been reduced from 27% to 20%, VAT
rate from 20% to 18%, simplified the mechanism of calculation of income tax for
physical persons, this tax calculation scale has been reduced from 6 to 2 steps,
two tax rates (14% and 25%), maximum taxable income of individuals increased
to 2500 manats. In order to stimulate the development of the agrarian sector,
agricultural producers were exempted from all taxes, except for land tax, and
privileges were imposed on the collection of income tax on individuals' deposits,
and part of the profit, directed to increase the share capital of banks, insurance
and reinsurance companies, was exempt from income tax.
Legal and economic essence of taxes
The necessity of taxes arises from the classic functions of the state that
performs various types of activities (political, economic, defense,
social, etc.) requiring funds. There is no source of funds other than
taxes to finance the state's activities. The state sometimes uses
government bonds to cover its expenses. However, there is still a need
for repayment of bonds and repayment of additional interest. In some
special cases, the state provides additional cash to circulation.
However, this measure causes a heavy economic outcome for the
country - inflation. Therefore, the main source of state budget revenues
is taxes. In developed countries, taxes account for 80-90 percent of
A.Smit has introduced the concept of the tax system and has proposed
four key principles of its formation: equality, certainty, convenience of
payment and cheap tax administration.
The economic essence of taxes was investigated by the English
economist D.Ricardo. In his view, taxes constitute part of the country's
commodity and labor, and the tax is ultimately paid out of the country's
capital and income.
Keynes attached a great importance to the role of tax in economic
development. The tax revenue should be directed into the investment
through the budget.
The legal essence of taxes
The main signs of the taxes as a legal category are derived from the
economic context of common sense, compulsion, non-refundable
The state has the dominant character in establishment and collection
of taxes, the legislative and executive bodies have authoritative power,
the legal entities and natural persons should pay taxes in due time and
in full. Obligation to pay taxes is ensured by the state's coercion
mechanism and the fear of compulsion.
The coercion is the legal basis of tax relations.
Tax is a compulsory, individual and non-refundable
payment made to the state or local budget in the form of
collection of monetary means from taxpayers with the
purpose of providing the financial basis to the state and
Duty and charges
State authorities receive fees and tariffs for providing various services
to individuals and legal entities.
The customs authorities receive customs duties during the import and
export service for their services.
Different fees and fees are also charged during services provided by
However, these taxes, which are not regulated by the Tax Code, are
not considered tax.
The main sign of the tax is unrequited - it is not here.
Taxes differ from other fees by a number of signs:
alienation of a part of income of the subject in favor of the state;
the legitimacy of its appointment and enforcement;
their binding character;
payment in the form of cash;
their indisputable character;
their abstraction payment.
The economic essence of the taxes also includes the
proper identification of taxes arising on the state territory.
Determining the fair tax and not attempting to repay the
payments links the legal and economic essence of the tax.
Some countries by creating favorable tax environment
attract other countries' capital and tax potential.