TAX THROUGH THE AGES

They say that there are two inevitabilities in life, death and taxes. When you look at the history of taxation you also realise that with taxation came the other inevitability, tax avoidance. Income tax as we know it today is however a relatively new innovation.

One of the earliest examples of tax was in the time of the Egyptian Pharaohs who imposed a tax on the consumption of cooking oil. The possibility that this tax was being avoided is evidenced by the activities of the scribes charged with collecting the tax. They visited households to ensure the occupants were not using lard and other forms of fat to avoid paying the tax by using less oil.

Other examples of early taxation were those levied by the Romans. These included customs duties charged at ports on both imports and exports, and an inheritance tax used to provide funds for retired soldiers. Julius Caesar imposed a 1 per cent sales tax that that was eventually increased to 4 per cent on the sale of slaves.

Many of the earliest forms of tax in Great Britain were imposed on products and land. The land taxes took many forms including a tax based on the land area a house occupied or one based on the number of windows a house had. One aspect of the distinctive look of Tudor style houses was prompted by a desire to minimize tax.

Apart from the use of painted white panels with wood, many Tudor style houses are also distinctive because the ground floor is smaller than the upper stories. This creates a wide overhang of the building over the street. This was evidently done because the less land the ground floor occupied the less the property taxes were.

Another feature of English architecture is the number of houses that appear to have once had windows that are now bricked up. This was another early form of tax minimization. To reduce a tax based on the amount of glass windows a property had some were bricked up.

The earliest form of income tax was first introduced in Great Britain to finance the war against Napoleon in 1799. There was a tax-free threshold of 60 pounds, with a tax rate of 10 per cent on incomes above that. Not surprisingly it was an unpopular tax that many people must have found ways to avoid it. Instead of collecting an expected 10 million pounds in the first year they only got 6 million.

When a peace treaty was signed with France the tax was repealed, but reintroduced when war broke out again. It is this second tax act that is the model for most modern tax systems. In addition to imposing tax on different classes of income, such as property, farming, retirement annuities, self-employed and wages, there was also a withholding tax on interest income paid by the Bank of England.

This second version of income tax was again extremely unpopular and, after the victory at Waterloo, it was not only repealed but all records associated with it destroyed.

The current income tax system operating in the UK was introduced in 1842 as another temporary tax supposedly for only 3 years. Even today it is still a temporary tax that expires each year on 5 April, which must be reapplied by an annual finance act.

The history of American income tax is similar to that of the UK. An income tax based on the original 1799 income tax was drawn up to fund the war of 1812. This income tax was never imposed and it was not until the Civil War when a progressive income tax was commenced. Again, tax avoidance must have been high as only 276,661 people filed tax returns in 1870 out of a total population of approximately 38 million.

At TaxBiz Australia we know and understand the various forms of income tax that apply today. If you need assistance with managing your tax obligations and making sure that you are not paying more than you have to do, and what accounts that concentrate on clients rather than the numbers, contact us.