The History of Taxation Around the World From Ancient to Modern Times

“Nothing is certain except for death and taxes.” – Benjamin Franklin

The History of Taxation

The earliest record of formal taxation under the government was during 3000 B.C in Egypt. Scribes” were ordered by pharaohs to raise money in any way possible, like taxing households on cooking oil. In Genesis, it is stated that one fifth of all crops should be handed to the pharaoh.

Ancient Egypt

It is thought income tax originated in Egypt, where the Pharaoh’s gathered taxes from citizens to fund building projects, local activities and grain warehouses. The Pharaohs used taxes in order to enrich and stabilise society. Much of the grain collected by pharaohs and stored in warehouses was used to feed destitute members of society and public workers. The citizens of ancient Egypt did not possess coined money, so in turn taxes were levied on property and harvests. Citizens could expect to pay the government once a year in the form of labour and grain, which would be kept in warehouses. Even though pharaohs were the beneficiaries of the collected taxes, they were not the ones to actually collect them. Instead, ministers called viziers were tasked with collecting taxes as they assumed the roles of tax supervisors. They made sure that the appropriate amount of labour and grain needs were met. (To find out more about the history of taxation in Egypt you can read the article here)

Rome and Greece

Greece continued the practice of taxation as they overhauled much of Europe, The Middle East and North Africa as the common era came nearer and nearer. Taxes were often used for wars. One such tax was eishpora, of which any remaining surpluses from it would be refunded following the end of a war. Another tax that Greece had is one Athens implemented on aliens (foreigners) which was called the monthly poll tax. Another European Empire (Rome) increased the Empire’s bounty by extracting tribute (money given in the name of gratitude or submission/allegiance from one party to another) from colonized people. Julius Caesar implemented a one per cent sales tax. In order to provide members of the military with a retirement fund, Augustus imposed an inheritance tax (imposed on the recipients of an estate of a deceased individual – in modern day the tax rate depends on the state the recipient(s) resides in, the value of the inheritance and the relationship the beneficiary has with the descendent. Inheritance tax is not to be confused with estate tax, as estate tax is assessed on the estate as a whole and on itself before the distribution of inheritances, while inheritance tax only taxes the beneficiaries). The most gainful tribute, however, for both the Roman and Greek Empires was human bondage.

China

Outside of Europe, other civilizations levied taxes, like ancient China, which had one of the longest written records of all time. Authoritative figures (usually the military) that had the power to implement taxes created the first bureaucracies to collect and administer them. During some dynasties, state monopolies were imposed, with the monopoly on salt being especially profitable and stable. State revenue was made from inflation, forced labour, expropriation of rich merchants and landowners and commercial tax, but commercial was only imposed during wars. Yang Yen (a famous tax reformer) introduced an agricultural tax in 180 A.D as well as a progressive personal income tax. The salt tax, a taxation system still used in modern day China, was first introduced during the Qin Dynasty sometime around 221 – 207 B.C. Some of the taxes that are still implemented today, like the livestock tax, the slaughter tax, the rural market tax and customs duties tax have been around for many years tracing all the way back to the times of ancient China.

Religious Taxes

Political institutions were not the only bodies to impose tax, but also religious ones as well. “Tithe” was a taxation imposed on Christians, as Rome fell, which was a tenth of what members of the religion made. The first way of tithing recorded was citizens giving one tenth of all their agricultural produce to the Levite or Aaronic priests (this was done during the first Temple era). The tithe was later given to the kohanim as opposed to the Levites at the start of the construction of the second temple. During this era, other offerings could only be consumed at the tabernacle, while the second Tithe could be consumed anywhere. With Islam becoming more widespread, “the Khums” tax became imposed, which equaled to a twentieth of what Muslims made. Khums were practiced in Africa and Europe, respectively, from the 8th century, when Muslim raiders overtook some African communities and parts of southern Europe. The Khums were practiced in Africa up until the early 20th century. Muslim armies also raided non-Muslim communities/kingdoms in India from the 10th to the 18th century. Portable property that had been looted and spoils from war were subjected to Khums.

The Mongol Empire

In the 11th century, The Mongol Empire which had overtaken much of Asia and had implemented tax policies that would impact widespread production of goods like cotton. The Mongols gave a lot of support to the peasant economy of China in the belief that the Mongols themselves would ultimately benefit as a lot of extra tax revenue would be brought in. They implemented a fixed tax system for Chinese peasants as they did not want to deal with unpredictable and out of the ordinary levies as they had to in the former system that they heavily disliked and resented, to say the least. Under this new fixed tax system, the peasants could accurately predict what was expected to be paid out by them.

Tax in the English Language and Taxation During the Renaissance

With all this happening, the word “tax” had not even existed in English and was only an official word in the 14th century (derived from the Latin word “taxare” which means “to assess”). Before “tax” was used, a word from Old French “task” was implemented. Of which tax involved money from the the giving party and task required labour.

The rulers of Europe during the renaissance era often raised money by imposing taxes on exports, imports, merchandise, salaries, land, property and various other items. The gabelle, a tax imposed on some goods, services, wages and criminal proceedings, was imposed in the 1400s by central and northern Italian cities. A salt monopoly, dogana, was also imposed and it was a rather, quite profitable source of revenue for the government. The government controls both the price and availability of salt. During times of adversity and urgency, rulers increased the price of salt and imposed that citizens purchase a certain amount thereof. Castato, an income tax that was instituted in Florence during 1427, unlike the regular income tax, citizens were not just taxed on their salaries but on their entire wealth. Revenue from Castatos was used to fund war. Meanwhile, in France, rulers only saw taxes as something temporary to only be implemented during times of emergency, not in times of peace. In the late 14th century, pressure from the public caused the king of France to cancel all taxes. To compensate for this decrease in overall revenue, the monarchs resorted to debusing, which is the process of decreasing the quantity of precious metal in the coins used as currency. Tallie (land tax that was imposed on the peasant and non-noble populations of France during the Ancien Régime era – This was imposed on each household and the amount to be paid to the government depended on how much land the household occupied) became the main source of state revenue for the French government in the late 15th century. King Louis XI  (1461 – 1483) earned two-thirds of the state revenue from the Tallie. Though wine and salt were taxable items during his time, they were not as lucrative as they were in Italy.

Income Tax in America

More on the topic of war – personal income tax in America was first signed into law by Abraham Lincoln during the Civil War (Revenue Act of 1862). It was repealed after a decade. Congress once again attempted to implement a federal income tax which the Supreme Court declared unconstitutional.Before the 20th century, most federal taxes came from tariffs, even though an excise tax was imposed on various goods. Finally, in 1909, personal income tax was allowed with the introduction of the 16th Amendment. The 16th Amendment allows for Congress to levy income tax without apportioning it among the states on the basis of the population. It was set out as a result of the 1895 Supreme Court case of Pollock v. Farmers’ Loans & Trust Co (if you want more information about Pollock v. Farmers’ Loans & Trust Co click here). When Congress proposed the 16th Amendment to the states, conservative Republican leaders were worried that the amendment would not be ratified, but a coalition of Democrats, progressive Republicans and other groups made sure that the needed number of states ratified the amendment. Congress then imposed  a federal income tax with the Revenue Act of 1913.

History of Corporate Tax in America

During the beginning years of America, businesses were only in the form of sole proprietorships and partnerships, so the business owners were taxed individually on regular income tax. When corporations first emerged, the government taxed the corporations as their own entities rather than taxing individual owners. Some corporations were taxed on their income while others were taxed on dividends which were distributed. The US first imposed corporate tax in 1894, but corporations did not take it well and challenged it in court and it was repealed after a year. It was reimposed in 1913. The government was careful this time by setting the tax rate to only 1% and gradually increasing it to 15% over the years. During the WWII era, tax rates increased sharply. National security was of great importance during this era, hence the government taxed entities more, especially corporations. Corporate tax made up a big part of state revenue. During 1968, it made up 50% of state revenue!

Modern Principles of Taxation

1. The rational combination of direct and indirect taxes: the utilisation of various kinds of taxes that take into account not only the income of every individual taxpayer but also the overall wealth of every individual taxpayer.

2. The universalisation of taxation: Fair and equivalent benchmark requirements for every payer and a fair way to conduct the deduction of taxes regardless of where the income came from, kind of activity or economic sector. It is unethical to impose additional taxes, increased and differentiated rates or tax allowances for different kinds of ownership, organisational or juridical structure of the entity, citizenship of natural people or other factors. It is also unacceptable to introduce taxes based on political, economic, ethnic factors, etc.

3. One-time taxation: this applies to an item(s) that can have a type of taxation imposed on them only once for a certain space of time as indicated by the law.

4. The scientific approach to the determination of the exact tax rate: this entails setting the tax deduction rate at a point where the payer has enough money to attend to their necessities and purchases relevant to his life. It is unethical to set rates on short term interests of ascertaining revenue for the state, which in turn will slow down/badly impact economic development or badly impact the best interests of the taxpayer.

5. Stability: the endurance of taxation for a lengthy space of time and the ease of deducting the payment. The law should dictate the tax rates and must only be revised periodically.

6. Differentiation of tax rates: corresponding with the income level, which must not become an inhibitive progression. It should also not become an individualisation of rates, which is the fundamental principle of the market.

7. The application of a tax allowances system: leads to the utilisation of investments in entrepreneurial activities and would also serve the role(s) of social justice, such as a minimum standard of living for members of the population. Allowances should be instituted not only for certain payers but should be equal for every payer.

Conclusion

Tax has evolved a lot over the ages. From a form of currency not being used to pay taxes to basic overnight principles on how to tax being implemented around the globe. Taxes have been used with the intention of just enriching the state in which they are imposed, but also to help countries during emergency times such as a crisis or war occurring. Taxation, even though throughout its history it was organized, is even more structured and organised today. It is absurd to think that wars are to thank for many of the taxes we have nowadays.