Individual income tax – PIT – tax on personal income – The error of considering that under the mentioned denomination the tax is always equitable

The historical evolution allows to identify three great models or systems of personal income taxation that the most received doctrine has denominated them: a) global, b) schedular and c) mixed.

We will analyze in general terms the basic aspects of the technical structure of the mentioned models, in particular the two pure systems (global and schedular) in such a way that we can distinguish the basic conceptual differences they use.

Global System

The “global” system is the most complex in terms of its technical structure and would constitute the “mother” system on the basis of which most of the models have been designed by the different legislations.

The present system is characterized by adding up all the net income, uniting each of the incomes coming from the different factors of production that generate them (categories) such as work, capital and the combination of both, after horizontal compensation of income and tax losses.

The personal situation of the taxpayer is considered, in such a way as to allow the taxation of income that quantitatively exceeds the basic subsistence needs of individuals, which will depend on the economic and social reality of each country.

Progressive rates are applied to the total net income, thus considering the effective taxpaying capacity of the taxpayers, so that the higher the income, the higher the amount to be paid. In other words, it is a personal, global and progressive tax, which gives it an important degree of equity.

Purpose of the tax

It should be borne in mind that the global and progressive personal income tax – GPPIT – is one of the tax instruments whose main purpose is to consider the contributive capacity in order to achieve equity among the affected taxpayers.

Substantial aspects

The tax must meet certain particularities that must be related and that constitute essential elements of its structure, such as:

i) The personal aspect; it means considering everything related to the family situation and subsistence (married, single, dependents, health expenses, education, etc.).

ii) Globality; implies that all income must be considered without exclusions, this is intricately linked to the jurisdictional scope of the tax, for which, in principle, the criterion of worldwide income appears to be the most suitable for such purposes.

iii) Progressivity of the rates; a significant element to achieve equity once all incomes and the personal situation of the taxpayer are considered.

Non-transferability of taxes a hypothesis to be considered

We understand that the issue of tax shifting cannot be avoided. For the present analysis we start from the assumption that the present tax is not transferred, since if this were not the case it would constitute an impediment to achieve the main virtues that characterize it considering its purpose.


In terms of synthesis, “equity”, widely used in the economic and tax field, is synonymous with justice and involves two orientations:

Horizontal: it means that in the face of the same situation or level in terms of contributive capacity, equal tax must be paid.

Vertical: it means that in the face of the same situation or level in terms of contributive capacity, equal tax must be paid.

Contributory capacity

This is a complex and debatable concept, so that attempting to define it would be a too ambitious goal. Therefore, we consider that the most appropriate is to present an economic-tax type description. In this sense, we understand that it could be summarized in the following terms: the economic capacity is the capacity to meet tax obligations considering the personal situation of the taxpayer. In the 18th century Adam Smith called it “capacity to pay”.

It is an economic concept that implies that the taxpayer must be an individual, since his “personal situation” must be considered.

The appropriate and generally used indicators to measure or quantify the taxpaying capacity are income and net worth, although it would be ideal to use both together. They respond to an essentially dynamic reality linked, among others, to economic, social, political and cultural factors.

The contributive capacity is generally identified and expressed through the following concepts:

Non-taxable minimum (NTM)

This is an expression that is representative of the taxpayer’s subsistence level, which it is identified through a quantitative component.

Family expenses

These are fixed deductions that accompany the NTM and are generally related to relatives of the taxpayer according to the degree of consanguinity or even affinity, provided that they are considered to be dependent from the economic point of view.


These are expenditures related to essential aspects such as health, education and housing.

Schedular tax System

Having presented in summary terms the “global” system, this will facilitate the description and characteristics of the “schedular” system, which exempts us from entering into conceptual aspects already analyzed.

The schedular system is characterized by the fact that each income producing source (segments) is considered individually and then taxed independently.

Although the schedules take into account the nature and origin of the income, they lack unity since the income is not related to the taxpayer, showing in this aspect a substantial difference with the global model.

Losses generated in the different schedules cannot be offset with the income of the other segments; this can only be done within each of the segments by carrying forward losses of one year and offsetting them with the income of the following year. In other words, a “horizontal” compensation between income and losses of the sources generating the income is not applied, but it is only allowed vertically, which is consistent with the characteristic and objective of the model.

The tax rates applied to each income-producing source are different and generally proportional, taking into account the nature of the income, which is why they have a different taxable base – net income -. This structure would indicate that in reality each category is a different tax.


The above-mentioned elements allow us to identify substantial aspects of the “schedular” model that show its differences with the so-called “global” model. The aspects to be highlighted are:

1) It lacks unity among the schedules (or segments). 

2) Each schedule constitutes a different tax. 

3) They are “real” and not “personal” taxes. The income is not related to the taxpayer, the taxpayer’s personal situation is not taken into account. 

4) The income of the same individual is divided and the taxpayer’s ability to pay is not considered. 

5) A person can pay the tax for one of the schedules, however, considering all his income horizontally compensated, a “negative income” could be determined, generating important inequities. 

The reality of the above indicates that it would not be correct to consider the schedular system as a single tax, but rather as different taxes that tax the income of an individual separately, according to the factor of production used and without considering the economic situation of the taxpayer as a whole. 

Conclusions about the “schedular system”

a) Las rentas provenientes de las diferentes cédulas o categorías no se integran o sea que no se globalizan, lo cual no permite considerar la capacidad contributiva de las personas y por consiguiente le impide alcanzar la “equidad”

b) Dicho modelo solamente considera el aspecto cuantitativo de cada una de las rentas de cada cédula por separado sin relacionarlas entre ellas o sea que se deja de lado la situación personal del contribuyente. Por lo tanto, desde el punto de vista técnico conceptual se trata de varios impuestos independientes de carácter “real” bajo una misma denominación, que se aleja de las características de un impuesto “personal”.

Final thoughts

The so-called Personal Income Tax shows us that the mere fact that a tax adopts the referred denomination does not mean that it allows equity to be achieved.  

The fundamental thing is to analyze which of the two systems mentioned has been adopted, since only the “global” system is the one that allows to reach such objective through the consideration of the “contributive capacity”.  

The “schedular” system as well as its subsystems, among others the Dual and the Flat-Tax, have a basically tax collection purpose. 


Bibliography: COSTA Ceferino: “Política Tributaria y Estructura de los Impuestos”. Editorial Fundación de Cultura Universitaria, Montevideo 2012.

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