When did Income Tax Start?

When Did Income Tax Start?

The origin of tax can be traced back to the ancient times, in Roman and Egyptian civilizations. In those times, tax payment was made according to the measure of one’s wealth and prosperity. For instance in Rome, tax was paid by the wealthy at a rate of 1%. However, in times of war, the tax would be increased to 3% and was based on someone’s wealth and prosperity. Wealth was weighed in terms of slaves, money (cash), animals, personal property, and real estate among other things.

Origin of Modern Income Tax

Modern income tax began in 1798 as solution to satisfy the budget needs of the United Kingdom. Prime Minister William Pitt Jr. expressed the need for government to meet the additional cost of the French Revolutionary War. Hence, in a budget meting it was agreed that low income earners would be taxed 20 old pence while the high income earners would pay 20% of their earnings as tax. However, this was a temporary directive and so between 1799 and 1802, the income tax system was abolished. Again in 1803, Prime Minister Henry Addington reintroduced taxed in the United Kingdom. The tax system was abolished again after the Battle of Waterloo which saw the defeat of Napoleon. The trend observed was that taxes in the UK were only used to raise funds to cater for war expenses at any time that they were involved in war. 26 years later, Prime Minister Sir Robert reintroduced the tax system. This was necessitated by the budget deficit in the country and was imposed on those who earned £150 only. Since then, the income tax in Great Britain has remained. The only changes that have been made are the interest rates and the introduction of the tax brackets.

History of Income Tax in America

In America, Income tax was devised by Abraham Lincoln in 1862 in order to cater for the Civil War expenses. At the time, those who earned $600-$10,000 paid tax at the rate of 3% while those who earned $10,001 and above were levied 5% tax. However, in 1872, income tax was repealed and it was not until 1894 that it was reintroduced. Through the Wilson Tariff Act, a department dealing with income tax was formed as part of the Bureau of Internal Revenue. Since then Americans have been paying taxes albeit influenced by a variety of bills to be what it is today. Some of those bills include The Revenue Act of 1942, Tax Reform Act of 1986, and Economic Growth and Relief Reconciliation Act of 2001.

Payment of Income tax today

Today, about 25.7 million people pay income tax worldwide. In fact it has become the largest source of government revenue in most countries. Besides the UK and US, other countries whose citizens remit income tax include Belgium, Germany, Denmark, Kenya, South Africa, Ethiopia, Greece, Austria, and Hungary among others. However, there are some countries that do not collect income tax as part of their revenue like Saudi Arabia, Kuwait, Qatar, and Cayman Islands.