Ch 13: Taxation Flashcards
What is the role of a taxation system?
- raising revenue
- redistribution of income from the wealthy to the poor
- in decisions about how resources are allocated among competing uses
- in regulating the economic fluctuations associated with the business cycle
What is impact and incidence of a tax?
a way of classifiying tax
impact - where the tax is levied or collected
incidence - where the burden of the tax falls (who pays the tax)
How is tax is classified via whom they are collected from?
Direct taxation
- legal and effective burden or incidence of direct taxation is the same (the burden can’t be transferred)
- income tac, company tax, capital gains tax
Indirect taxation
- legal and effective incidence of indirect taxation is different
- i.e. GST(business can pass most of the tax to their consumers), excise duty, passenger transfer tax
How are taxes classified according to how they are levied?
Progressive tax
- claim an increasing proportion of income as income increases
- i.e. income tax - marginal tax rate increase as taxable income moves into higher tax brackets (stepped relationship between income and tax payable)
Regressive tax
- place a greater burden on lower income earners as they tale a decreasing proportion of income as income increases
- i.e. GST, excise tax
Proportional tax
- takes a constant proportion of income
- i.e. company tax (all pay 30% of profits), flat income tax
What are specific and ad valorem taxes?
specific tax - charged on the volume of sales
ad valorem taxes - levied as a percentage of price
What makes an effective tax system?
- fairness/equity - features horizontal equity and vertical equity
- relatively simple - participants should be able to understand what taces they are liable to pay and how much they are liable to pay. Also the process of collection should be as convinient as possible for taxpayers and collectors
- effecient - benefits must outweigh its cost of collection. Must minimise excess burden (harm on the performance of the economy)- if tax distorts decision - making/operates in a discriminatory manner
A taxation system that achieves these characteristics will help improve the standard of living, because it will efficiently provide revenue for the government at minimal overall cost to taxpayers
What are the advantages and disadvantages of tax?
Advantages
- reduces social disharmony through the provision of public services
- provides infrastructure
Disadvantages
- reduces incentives and rewards to create wealth
- more tax avoidance
- greater govt. intervention
What are the main Commonwealth taxes?
- income tax (35%)
- compant and resources rent tax (25%)
- GST (17%)
- excise tax (8%)
Describe examples of income tax:
- personal income tax: levie on all wage and salary income, direct tax, progressive
- company tax: tax on profits of company, indirect tax, proportional, 30%
- fringe benefits tax - levied on the value of non-cash benefits given to employees (company cars, school fees for children, low interest loans)
- medicare levy - about 1.5% of taxable income for most taxpayers. Used to finance medicare
What are taxes on the provision of goods and services?
- goods and services tax: 10% tax on the price of mos g & s, indirect tax, regressive, revenue collected by govt. and distributed to state hence regarded as a state tax
- excise duties: imposed at a flat rate on domestically produced goods, generaly price inelastic, intended to reduce social costs/externalities on community apart from revenue raising i.e. alcohol, cigarettes, oil, LPG
- customs duty: indirect tax levied on amny imported goods, aimed at protecting Aus producers from overseas competition
What are taxes on property and wealth?
- capital gain tax: progressive tax levied on capital gains (profit) from the sale of assets
- stamp duty: regressive indirect tax applies to transfers of property and assets
