In American history, taxation evolved as a means of funding
first the Civil War, and then WWII. In 1986, the Internal
Revenue Code was redesigned as a management tool for the economy.
A major premise was that consumer spending could be curtailed
by imposing greater tax rates.
Locally, we have experienced a progressive lowering of the
tax rate, so that now, 2006, people earning less that $60,000
per year, pay no taxes. For all else, income is taxed at a
rate of 25 per cent.
Early in 2006, there was significant confusion about the
interpretation of the new tax laws, and several individuals
discontinued their individual annuity contributions erroneously.
Now in the last quarter, it is important that we revisit,
exactly what deductions and credits remain for income tax
return purposes. Individuals will have up until the last business
day in 2006 to maximise their claim allowances.
There remains a maximum claim of $12,000, per year for individuals
with approved pension plans, and deferred annuity plans. This
$12,000-claim must also take into consideration the allowed
70 per cent of NIS contributions for the year.
To derive maximum benefit, individuals must add up the allowable
amount of NIS contributions, pension deductions and annuity
payments. If this figure is less than $12,000, then the individual
can pay the difference into an annuity account.
With respect to tertiary education at foreign institutions
an individual can claim up to $18,000. If two parents together
fund the tertiary education costs, of a child, each parent
can claim. In effect a household can claim up to $36,000,
for education in 2006.
If you are a first time homeowner, with a property acquired
between January 2003 and December 2005, you can claim $10,000.
All alimony and domestic maintenance payments approved by
a Court can be claimed in the tax returns.
If you have investments in a venture capital company, you
are entitled to claim up to 25 per cent.
All your claims are to be deducted from gross income, what
is then left is called chargeable income, and
taxed at 25 per cent.
When an individual saves/invests what is left over from
wages or salary, he is using money on which he has paid taxes.
In reality it is the difference between saving $75, after
you have paid taxes, as opposed to saving $100, which is tax
Apart from the claims, the tax laws have shifted some responsibility
for the collection of taxes to the employer.
Employers are now liable if they fail to collect an approved
Tax Declaration Form 1 - the TD1, from employees. Such employees
are not required to file.
Those who have to file tax returns are those who receive
income from more than one source, those whose claims exceed
the amount approved on the TD1, those who are self-employed,
and those who have temporary work, from different employers.
Failure to abide by the laws, or rampant evasion, will lead
to increased tax rates, which will warrant some heavy spending
later on, because taxation is a revenue device. Alternatively,
it will reduce consumerism!