Comparison essay on tax systems in Great Britain, The United States of America and Lithuania

“Government does not tax to get the money it needs; government always finds a need for the money it gets.” That’s what once said Ronald Reagan about taxes and what it is collected for. Of course, it was a joke, but I may bet there are lots of people, who would agree with that thought. Sometimes they even feel that they are caught in the behemothian jaws of government. In general, tax is money that one has to pay to th

he government so that it can pay for public services.

Great Britain, The United States of America and Lithuania have the similar taxes. And the most known of them, in my opinion, are income tax, state social insurance contributions and VAT (value added tax). Income tax is the amount of money, which is paid by everyone earning a certain income, starting with just a few hundred dollars (pounds, litas) per year. In Lithuania like in other two countries, income tax sh
hould be paid not only by the native residents, but also by people and organizations that work in the country. In Lithuania, the tax rate is 15 per cent on income from distributed profit, interest, seamen income, income from sporting, artistic ac
ctivities, royalties, income from rent or sale or any other form of transfer of property, pensions paid out of Lithuanian pension funds, life insurance payments and 33 per cent for other items, not listed above. That means, that most of Lithuanian working people pays about one third of their salaries to the government. In the USA the income tax rate this year is 29.1 per cent. It means that they give almost 4 per cent less than Lithuanians do. They even calculated that by paying income tax they work from January 1 until April 17 for government. The situation is different in the Great Britain. If a person is single and has no dependants, he may earn up to £4,615 in the tax year (6 April 2003 to 5
April 2004) before any income tax is deducted. If he earns more than that, he would pay income tax of 10% on the first £1,500 of his earnings. Above £1,500, the rate rises initially to 22%. Second main tax is State social insurance contributions. These are money, paid for government programs designed to provide for the basic economic security and welfare of individuals and their dependents. In Lithuania the rate of state social insurance contributions is 1 per cent of the money that person earns. It is
s administrated by social instances (Sodra). In the United States the rate is the same as in Lithuania. These numbers form a great contrast with the Great Britain. There every person aged over 16 years old is given a National Insurance number. The Inland Revenue deducts National insurance contributions on earnings over £89 a week. Third main tax that I would like to talk about is Value Added Tax. The subject to VAT is the supply of goods and services by a taxable person in the performance of his/its economic activities within the territory of the country that are affected for consideration. The standard rate of VAT in Lithuania is 18 per cent. In addition, the reduced rates of VAT of 5 and 9 per cent are applied. The reduced VAT rate of 5 per cent is applied to passenger transportation services, books, newspapers and periodicals, pharmaceuticals and certain medical products and some other goods. The 9 per cent VAT rate is applicable to supplies of services relating to construction, renovation and insulation of residential houses which are financed with state and municipal budget resources as well as with soft credits granted by the state and resources of state special funds. In the Great Britain VAT is very alike in Lithuania – 17.5 per cent. The reduced VAT of 5 per cent is also applied in the UK for domestic fuel and power. Some items like children’s clothes and food are not charged with value added tax. The figures are not very different in the United States of America. There VAT is 14 per cent. And there is one difference between systems of taxation in the USA and other two countries. In the USA VAT is paid only by the final instance, from which goods goes to the consumers. For example, it means that only shop is expected to pay VAT, not the manufacturer and retailer. In Europe all the institutions have to pay it (manufacturer, retailer and the shop).

In Lithuania a tax period is a calendar month. During the month’s period people are allowed to ask for VAT return for the tax period. That they should do no later than by the 25th of the subsequent month. But it is not obligatory. If person haven’t filled the form, he only wouldn’t be able to get the money back. In comparison with the United States it is not a big deal. In the States forms of Income Taxes should be sent by midnight, or the last local postal pick-up on April 15th. It is the law that every taxpayer must complete and submit a tax return to the IRS (Internal Revenue Service). In the USA, estimated taxes are withheld from a taxpayer’s pay check. Tax returns provide documentation and proof that a taxpayer has paid the correct amount of taxes. If his return shows that he has overpaid his taxes over the year, he will receive a refund from the U.S. government. If his return shows that he have underpaid, he must send payment with his return by the deadline date. If his tax return does not correspond to his true earnings and entitled deductions, he would be penalized. These forms are sent only once a year, but the code is so complex that Americans spend over 5.4 billion man-hours computing their taxes and pay over $30 billion each year for professional tax preparation assistance. The system of collecting and reporting about paid taxes are similar in the Great Britain. The situation in Lithuania is a bit different because there is less paperwork that needs to be done. Everything is done by the government. When you start working, you just sign a contract and that’s all. In the USA and the Great Britain you have also to fill in and sign lots of forms. It takes plenty of time.

In Lithuania taxes are collected and administrated by State Tax Inspectorate (STI) According to the Tax Laws, taxes that were not paid on time and fines that were imposed on taxpayers are collected by STI. It also returns overpayments, executes the decisions of local municipality concerning benefits on taxes, levies and deduction to its budget and funds. Moreover, STI organizes the accounting, evaluation and selling of property, which was forfeited, has no owner, was inherited by the government. Tax administrator’s officers have the right to obtain from enterprises, institutions and organizations as well as from other persons, including banks and other credit and finance institutions, information required for the performance of their duties and copies of documents concerning property and income of legal and natural persons. Also to enter without prior notice, upon presentation of official certificate, into a person’s production premises or territory, in order to establish how the person is fulfilling his tax liabilities and to verify the material and technical resources used for activity and the finished products. With or without suit to recover from legal and natural persons: not paid on time taxes, fines and penalties, as well as other sums belonging to the budget as provided by laws. Have rights to compile protocols of administrative violations of law in cases which according to law are attributed to the administrator’s competence. But in comparison with the USA Tax administrator’s, officers in Lithuania have less power and rights. America’s Tax administrator’s office is a branch of the Department of the Treasury, which is the federal tax collection agency for the States government. IRS officers from the beginning of the activity were given the authority to seize property and income in order to enforce the tax laws. These powers remain pretty much the same today, although the IRS is telling that enforcement tactics have been toned down a bit. The IRS and its forms and procedures are extremely confusing even for many lifelong Americans. That’s why they are afraid of IRS even more than of the robbers. In the UK the department o collecting taxes is called HM Revenue & Customs. As a single department, HMRC have the added benefit of producing greater efficiencies, reducing the tax gap and providing a greater customer focus. HMRC is responsible for collecting the main part of tax money as well as paying tax credits and child benefit, and strengthening the UK’s frontiers.

In conclusion, all these three countries don’t differ a lot one from another. They all have similar taxes, the difference in tax rates is not very significant and even the organisations of collecting and administrating the taxes are very alike and have similar functions and rights. Only the attitude towards the taxes and institutions that collects them is very different. In lithuania we even don’t see tax collectors and in the USA they sow fear among people.