1:1 Introduction and objectives of taxation

Question 1

What is a tax?

Answer 1

A compulsory levy, imposed by government on either income, expenditure or capital assets, from which the tax payer receives nothing directly in return.

Question 2

Objectives of taxation (6)

Answer 2

Providing public goods e.g. Fire service
Managing the economy e.g. inflation
Developing society e.g. providing social welfare and health system
Regulation e.g. protecting the environment
Redistribution of wealth
Harmony with trading partners
Influence the behaviour of the population

Question 3

Previous taxed (3)

Answer 3

Hearth tax in 1622 - block hearths
Land taxes in 1688 - impossible to avoid
Window tax in 1696 - block windows

Question 4

Main sources of tax revenue in 1792 (2)

Answer 4

Food taxes

Direct taxes on land etc

Question 5

Tax revenue in 18/19 (3)

Answer 5

Income tax
VAT
National insurance contributions

Question 6

Main bases for tax to be levied (3)

Answer 6

Income
Wealth
Consumption

Question 7

What is a direct tax?

Answer 7

A tax levied directly on the person who is intended to pay it e.g. Income tax

Question 8

What is an indirect tax?

Answer 8

A tax paid by someone other than the person that is suppose to pay it. e.g. VAT

Question 9

What is a progressive tax?

Answer 9

A tax that represents increasing proportion as the value of the tax basis rises
MTR>ATR

Question 10

What is a proportional tax?

Answer 10

A tax that represents constant portion of the value of the tax base
MTR=ATR

Question 11

What is a regressive tax?

Answer 11

A tax that represents declining portion as value of the tax basis rises
MTR

Question 12

What is the Marginal Tax Rate? (MTR)

Answer 12

Amount of tax paid on next £1

Question 13

What is the Average Tax Rate (ATR)

Answer 13

Total tax due/ total income