QUESTIONS PRINCIPLES OF TAXATION – FUNDAMENTALS I
These questions are question for self-study of the slides of Principles of Taxation. The objective is to answer these
questions on the basis of the information available in the slides. The order of the questions follows the exact order of
the slides. For many questions there is only one answer: yes or no, or correct or incorrect. For some questions with
more than one possible answer it is up to you to identify and mark only the correct answers.
slides 5-6
1. Please indicate with yes or no which payment or burden is to be deemed as a tax?
a) Payment of a fine for a police ticket for speeding
® no
b) Payment of the social contribution by an employee for unemployment insurance
® no
c) Payment of a fee for a passport
® no (a fee is not a tax → a tax: if you don’t pay it, you still get it → a fee: if you don’t pay it, you don’t
get it)
d) Payment of VAT on the cash ticket for the purchase of gasoline
® yes (VAT: value added tax = tax)
slides 7-8-10-11
2. Please indicate with yes or no which legal ground serves as the basis for levying a tax?
a) A contract
® no (Payments on the basis of a contractual obligation are not taxes. That includes contractual
payments between private parties, and contractual obligations between private parties and public
authorities.)
b) The rules with respect to tort liability
® no (Payments on the basis of a non-contractual liability of tort vis-à-vis private parties or public
authorities are not taxes.)
c) Voluntary gifts or donations to public non-profit organisations
® no (A gift or donation, or voluntary payments to public authorities are not taxes. Eg. gifts from private
persons to the government to restore the Notre Dame.)
d) The rules imposing mandatory payments to health care insurance
® no (Because a tax can’t cause any personal compensation.)
slide 11-12-13
3. Please indicate with yes or no the essential elements of a tax?
a) A mandatory contribution
® yes (the taxpayer has no choice but to pay the tax)
b) Imposed in accordance with the rule of law
® yes (no taxation without representation: Magna Charta 1215: principle of legality: very important)
c) Only for the purpose of public administration
® no (public spending (instead of public administration))
d) Without direct personal compensation
® no (any personal compensation (instead of direct personal compensation))
,slides 10-12-16
4. A tax is a mandatory contribution for public spending, but when a citizen disagrees with the way the government
is spending tax revenue, he has the right to refuse partial payment of a tax, that is proportionate with that
spending.
a) Correct
b) Incorrect
® incorrect: The taxpayer has no choice but to pay the tax, even when the taxpayer totally disagrees
with the way the government is spending his money. On top of that, the government is free to
determine for which public purposes taxes are to be spent. Equality between a tax and the amount
spent on a specific goal is very rare.
He has no right to decide how the payment of his tax is spent by public authorities. The public
authority is sovereign in spending the taxes collected from the taxpayer. Control on spending by
the public authority is exercised by parliament.
slide 37
5. The principle of legality in a democracy means that taxes can only be levied when the essential elements of a
tax such as scope, base and rate are approved by collective consent of the representatives of the taxpayers.
a) Correct
® Correct: The principle of legality (how), means that a tax is only due, when the essential elements
of the tax (scope, base, rate and procedural rules of the collection and sanction) are determined by
statute (= a statute is a formal written enactment of legislative authority that governs the legal
entities of a city, state, or country by way of consent. Typically, statutes command or prohibit
something, or declare policy). It is essential that this statute is approved by the representatives of
the people who are subject to the tax: “no taxation without representation”.
b) Incorrect
slides 11-15
6. Please indicate the ultimate foundation for imposing a tax is:
a) The need to raise revenue for public spending
b) The authority which a government exercises over its subjects
® Both are part of the definition of what a tax is. But, the ultimate foundation of imposing a tax is the
authority which a government exercises over its subjects. In order to be a taxpayer, you must be
subject to a government.
slide 16
7. In a democracy the government has no discretionary power to spend taxes but must indicate for each tax what
the spending objectives of that tax are.
a) Correct
b) Incorrect
® Incorrect: The spending of taxes is a political discretionary decision, subject to political arbitrage in
parliament. In practice some taxes are often motivated by specific goals, but equality between a tax
and the amount spent on a specific goal is very rare.
slide 15
8. Please indicate the possible nexus for taxation.
a) Person (legal or natural)
® yes
b) Territory
® yes
® Governments exercise authority in two ways: over persons and over territory. These are the two
nexus for taxation.
, slide 16
9. Governments do not often designate taxes for specific goals, because it is very difficult to achieve equality
between the amount of revenue needed to spend for a specific goal and the amount raised by a specific tax.
a) Correct
® Correct: The government is free to determine for which public purposes taxes are to be spent. In
practice some taxes are often motivated by specific goals, but equality between a tax and the
amount spent on a specific goal is very rare.
b) Incorrect
slide 18-19
10. Which of the following statements is correct?
a) A tax is mandatory and a contribution for public social security is not
® not correct: Like taxes public social contributions are mandatory payments imposed by law.
b) In a tax system there is no personal compensation for the payment, while in public social security access
to the benefits is linked to the obligation to contribute to the system
® correct: Social contributions are not unilateral but entitle the contributor to specific social benefits,
i.e. there is some form of indirect form of compensation: only contributors have access to the
benefits.
c) Like in taxes there is no direct proportional link in mandatory public social security between contributions
and benefits
® correct: In public social security only contributors have access to the benefits. However, there is no
direct proportional link between contributions and benefits. Benefits are distributed on the basis of
need (principle of solidarity).
d) Like in taxes there is no direct proportional link in contractual private social security between contributions
and benefits
® not correct: unlike taxes social contributions are not unilateral, but entitle the contributor to specific
social benefits, ie. there is some indirect form of compensation: only contributor have access to
benefits.
slide 20
11. Were these taxes ever really levied, or are they fantasies?
a) Beard tax
® Yes, (Henry VIII, Peter the Great) Peter was the emperor of Russia and had no beard. He enforced
a ban on beards with a tax, in order to bring Russian society in line with Western European models.
To enforce the ban on beards, police publicly shaved those who refused to pay taxes.
b) Tax on ostentatious clothing
® Yes. Under “sumptuary laws” (= Rules made for the purpose of restraining luxury or
extravagance. Sumptuary laws are designed to regulate habits, especially on moral or religious
grounds. They are particularly directed against inordinate expenditures on apparel, drink, food, and
luxury items)
c) Tax on sexual intercourse
® Yes. In the 1960s, Rhode Island, US was in a financial soup and this made Democratic state
legislator Bernard Gladstone come up with a bill to levy $2 upon every act of sexual intercourse in
the state. The tax was supposed to be voluntary. It was never imposed
d) Poll tax as a condition for voting
® Yes, (Belgium, US 19 century) If you didn’t pay, you couldn’t vote.
