Taxation has existed for over 8,000 years. Mesopotamia, a historical region covering the Tigris–Euphrates river system, introduced a Bala tax in 6,000 BC. The taxes included livestock, fish, grain, labour and craft products.
The idea of taxing income is a modern innovation and requires three things: a money economy, an accurate accounting system, and thirdly, an orderly society.
A money economy is a system of trade where money has replaced barter. The word 'money' originates from a temple of Juno, on Capitoline, one of Rome's seven hills. In the ancient world, Juno was associated with money, and the temple of Juno Moneta in Rome was the location of the mint of Ancient Rome. Money is any item or verifiable record accepted as payment for goods and services and repayment of debts in a particular country. The main functions of money are distinguished as — a medium of exchange, a unit of account, a store of value, and sometimes a standard of deferred payment.
An accurate accounting system also requires a clear understanding of receipts, expenses, and profits. For this, we can thank Luca Pacioli (c.1447 – 1517) the 'Father of Accounting'. Luca published works for the double-entry accounting system based on procedures in use by Venetian merchants during the Italian Renaissance. Most of the accounting principles and cycles described by Pacioli are still in use today, including double-entry accounting, journals, ledgers, trial balances, year-end closing dates, cost accounting, accounting ethics, and the Rule of 72.
An orderly society is a group of people involved in persistent social interaction, or a large social group sharing the same geographical or social territory—typically subject to the same political authority and dominant cultural expectations. They are bound together by their national or cultural identity, social solidarity, language, or hierarchical structure.
For most of the history of civilisation, these three preconditions required for taxing income did not exist. Consequently, wealth, social position, and ownership of the means of production (typically land and slaves) were taxed instead.
Governments levy taxes for two reasons, to raise revenue to fund their spending or change citizens behaviours. Carbon taxes, for example, have been introduced by Governments to reduce carbon dioxide emissions. In 1979, economist Milton Friedman said ‘the best way to deal with pollution is to impose a tax on the cost of the pollutants emitted by a car and make an incentive for car manufacturers and for consumers to keep down the amount of pollution’. In 2012 the Australian Federal government introduced a carbon price of AUD$23 per tonne of emitted CO2 on selected fossil fuels consumed by major industrial emitters and government bodies. This carbon tax cut Australia’s annual carbon emissions by 17 million tonnes and produced the most significant annual reduction in greenhouse gas emissions in 24 years.