History of Income Tax in Europe

History of Accounting > Tax History > History of Income Tax in Europe

In Europe the first approach to the income tax appears in some of the mediaeval town taxes, where the earnings of artisans and tradesmen were taxed as evidence of their ability to pay proportionally with property and land-owners. Some of the mediaeval states also taxed the rents of land, official salaries and professional gains.3 In England, anciently land was taxed at a percentage of the income which it returned ; but personal property was taxed at a percentage of its whole amount. The first general income tax in Europe was imposed by Pitt in 1799 during the Napoleonic wars.4 On the failure of his “triple assessment” of the tax on expenditures, he introduced and passed an income tax. This required a general return of all incomes; exempted all that were less than £60 a year ; and imposed a graduated percentage upon the rest of one one hundred and twentieth part when it was between £60 and £65, with a rise in the scale up to a tax of ten per cent. on an income of £200 and upwards. This rate of ten per cent., experience taught the English Exchequer to regard as “the natural limit of the tax.” 6 There were further exemptions to householders with more than two children. Of these, householders with incomes
1 General Property Tax, by Prof. Edwin R. A. Seligman, 5 Political Science Quarterly, 24, 57-58. The Income Tax, by the same author, 9 Political Science Quarterly, 610-612.
« Ibid.
3 General Property Tax, by Prof. Edwin R. A. Seligman, 5 Political Science Quarterly, 24, 57.
* 39 Geo. 3, c. 13.
6 This term was given by Lord Henry Petty Chancellor of Exchequer, Dowell’s Income Tax, 3d Ed. XXXIII.
between £60 and £400 had a reduction at the rate of four per cent, for each child; those between £400 and £1,000 at three per cent. ; those between £1,000 and £5,000 at two per cent. ; and those who had £5,000 and upwards at one per cent. for each child.1
The tax was re-imposed in 1803 by Addington when the war broke out after the peace of Amiens.2
This retained the exemption of incomes under £60, and further exempted the incomes of colleges and halls in universities, hospitals, public schools, and aim-houses, friendless societies and charitable institutions.
In 1806 the Coalition Ministry of Grenville imposed a new tax, in which the rate was raised to ten per cent. This statute, which seems to have been drawn by Lord Henry Petty, the Chancellor of Exchequer, was the model of the later legislation upon the subject. It narrowed the exemption of small incomes to £50, and then only when they belonged to laborers, farmers, members of the trades and professions, officers, pensioners, and life annuitants. Laborers and artisans, whose earnings were less than thirty shillings a week, were also exempt from the tax, and an abatement of a shilling on a pound allowed on all incomes between £50 and £150. It contained the other exemptions in the former acts slightly extended in the same direction. This tax continued until April 5, 1816, when Parliament refused to continue it beyond the end of its statutory term.3
The second income tax in England was imposed by Peel in 1842.4 It was drawn by Timm, Solicitor of Stamps and Taxes. It imposed a tax of seven pence upon the pound, but was in other respects substantially a copy of the Act of 1806, with a few insertions such as specific references to gas-works and railways and the tithe commutation rent charge. Since then, an income tax has become a permanent part of British finance. It was ex
1 Dowell’s Income Tax, 3d Ed. XXXIII. » 43 Geo. 3, c. 122.
• 46 Geo. 3, c. 65. 4 5 and 6 Vic, c. 35.
tended by Gladstone in 1853 ;1 and with few alterations, is the law throughout Great Britain to-day.2
Incomes under £150 are exempted under the present income tax, and there are certain other exemptions which are extensions of exemptions in the Act of 1806. Certain abatements are also allowed upon incomes of less than £500.
In Italy an income tax was adopted by Cavour in 1864. In France, the Dixieme and Vingtieme of the eighteenth century failed of practical enforcement except upon incomes from land. In 1871, however, a tax was imposed on the income of corporations and associations.
Income taxes are also found in the different States of Germany, Holland, Switzerland, South Australia, Tasmania, New South Wales, and New Zealand.3 In New Zealand the tax is limited to incomes in excess of £300.4

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