What Is Basis of Taxation?

Types of Taxation Basis

• Taxation basis means which portion of income a country taxes.
• Two common types are worldwide income taxation and territorial taxation.
• Other less common types are zero tax and remittance tax.

Worldwide Taxation vs. Territorial Taxation

• Worldwide taxation means all worldwide income is taxed.
• Territorial taxation means only income inside the taxing country is taxed.

Tax Basis and Capital Gains

• Tax basis is an asset’s value for determining capital gains/losses when sold.
• It often equals the purchase price minus depreciation.
• Tax basis helps determine depreciation, amortization, depletion, casualty losses, and more.

Taxation Principles

• Seven principles of taxation are stability, sustainability, adequacy, progressivity, efficiency, transparency and responsiveness to externalities.
• The benefit principle bases taxes on willingness to pay for public goods received.
• The sacrifice theory says taxation should equally sacrifice or minimize sacrifice.

Government Taxation Function

• The government taxes the public to perform governmental functions and provide benefits.
• This exemplifies the benefit-received theory where taxation depends on reciprocal duties of governmental protection and public support.