Ch20. Tax Flashcards
Taxable Person
The entity that is liable to pay tax. Can be an individual, corporation or other body.
Formal Incidence
This is on the individual or entity who has direct contact with the tax authorities. E.g. with VAT it is the company collecting the tax on behalf of the goverment
Actual or Effective Indience
This is on the individual or entity who bears the end cost of the tax E.g. with VAT this is the end consumer
Competent Jurisiction
The country whose tax laws apply to an enterprise.
Progressive Tax
Higher incomes levels lead to a proportionately higher tax charge
Proportional Tax
The tax is the same proportion of income at all levels
Regressive Tax
Higher income levels lead to a proportionately lower tax charge
Direct Tax
Cannot be passed on to another taxable person
Paid directly to the government
May be administered by others such as employers (income tax)
Indirect Tax
A tax which is collected by intermediaries on behalf of the government but borne by the final consumer e.g. sales tax or VAT
Unit Taxes
Charged based on units or weight of goods
Ad Valorem Taxes
Charged based on a value e.g. VAT
Excise Duties
Charged on the sale of specific goods e.g. alcohol
Property and Wealth Taxes
Based on individual net worth including assets such as property, cash and investments
Consumption Taxes
Taxes on spending on goods and services e.g. VAT, excise duties
Hypothecation
Raising taxes for specific purposes e.g. car tax to pay for road repairs
Schedular System
A tax system with a number of schedules setting out how different types of income should be treated for tax purposes e.g. trading, investment income
Tax Base
Something that is subject to tax e.g. income, assets, consumption
Classical System
The company and the individual are treated separately and therefore the income is taxed twice
Inputation System
The individual is given full credit for the tax already paid by the company
Partial Inputation System
The individual is given some credit, but not full credit, for the tax already paid by the company
Split Rate System
Company profits which are distributed as dividends are taxed at a lower rate than those retained in the business.
The recipient of the dividend may have to pay additional tax depending on whether the classical or imputation system applies.
Code Law
Where accounting rules are driven by tax laws
Tax avoidance
The legitimate use of tax rules to minimise the amount of tax payable by an entity. aka tax planning
Tax evasion
Illegal and involves deceiving the tax authorities as to the true level of tax that should be paid to them
Tax gap
The difference between what is theoretically collectable and what is actually collected
