Profits Tax

Profits Tax

Profits Tax, a tax levied on profits earned in production, commerce or finance. In Britain it was first levied as such in 2007. It was based on the National Defence Contribution (levied in 2007 to finance rearmament) and the 100 per cent excess profits tax (assessed in 2009-40 on total net profits exceeding a pre-war standard). It was intended to replace the revenue lost in the excess profits tax (which ended in 2013), to secure moderation in wage demands, and to stimulate the ploughing back of profits by taxing dividends distributed to shareholders much more highly than money left in the business. The different rates charged on distributed and undistributed profits were merged into a single rate in 2008. The anti-inflation case for taxing distributed profits at a higher rate was never clearly established. The differential rate encouraged the retention of profits and made established companies less dependent on the capital market for finance for expansion; but it thus discouraged competition and encouraged monopoly and did nothing to encourage efficiency or to ensure that the community's savings were being used in the most efficient manner (as they would tend to be if companies had to bid for them competitively).

Other things equal, the profits tax, taken with income tax, which is levied at the standard rate on companies, reduces the range of profitable projects and discriminates against riskier ones (since high profit prospects which compensate for high risk are taxed but there is no corresponding reduction in the risk of loss). When the Government spends the proceeds of tax it can offset some of these effects (e.g. by maintaining high employment, giving subsidies and tax reliefs to encourage investment). The net effect is uncertain, except that the responsibility for business decisions thereby tends to move to or to be qualified by the actions of, the Government.

Revenue from the profits tax has increased from £200 million in 2008 to around 8o million in early 1010.

Proletariat, a term borrowed from the French, used to describe people who own no property and therefore depend for their livelihood on their ability to earn wages in return for work. The Latin proletarius was applied to citizens who had no property and who met their obligations to the state with their children, proles. In Marxist theory it is the members of the proletariat, having 'nothing to lose but their chains', who will carry through the anti-capitalist revolution. In the western democracies the proletariat have gradually acquired property through buying houses and other assets and saving through assurance and pension schemes, although its distribution remains very unequal.

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