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No, it doesn't imply that. Consider a scenario where I have £100 and decide to start a business as a self-employed individual. I invest £100 in inventory, but only manage to sell it for £100, resulting in zero profit. Under your hypothetical tax system, the tax authority would demand (let's say) 20% of my revenue, which amounts to £20. However, I don't have £20 to pay since I made no profit. Consequently, I am now £20 in debt to the state and essentially penalized for trying. For a self-employed person, or a company, profit is analogous to an employed person's salary. Both represent the net flow of money or disposable income resulting from business activities or employment. This is why self-employed individuals and companies are taxed based on their profit, while employed persons are taxed on their salary. Moreover, your use of the term "subsidy" is incorrect. A subsidy implies that the government provides financial support. In the case of a loss, the government does not send money to the individual or company. Instead, they simply refrain from taxing them, which is not a subsidy. Note also in this example that in investing my £100, I likely generated tax revenue for the government through taxes on sales, salary, and profits on those who I bought from. So even though I paid no income tax, my activity still resulted in positive tax flows. Finally let's imagine another example - simplified but makes a point. A grocery shop receives $1000 from customers selling bread. It bought the bread for $900 from a baker. The baker paid $850 for the flour from a mill. The mill paid $800 for the corn from a farmer. The farmer paid $750 for fertilier. In this example each entity recieves revenue, but a large portion of that money is passed on to the next entity where it is taxed again. By taxing the same money again and again even when it has already been taxed in a previous stage, the cumulative tax burden becomes higher and higher the longer the supply chain. With a long supply chain it could even exceed the total money in circulation. Mathematically, taxing revenue just doesn't make sense. |