Chapter 1 Flashcards
General Principles of Taxation
define tax
a compulsory payment that is imposed on citizens to raise revenue in order to fund general government expenditure
define tax base
(Or taxable amount Or taxable income)
the amount on which tax is imposed
define
marginal tax rate
tax rate that will apply if the tax base increases by R1
define
Statutory tax rate
tax rate imposed on tax base, as determined by legislation
define
Average tax rate
Rate at which tax is paid
with reference to the total tax base of a taxpayer
calculate
average tax rate
total tax liability/total tax base
define
Effective tax rate
- used as a measure to facilitate comparability between tax systems of diff countries + tax liabilities of different taxpayers
- allows for comparison
calculate
effective tax rate
tax liability/ economic profit or income
(no adjustments made)
define
Progressive tax rate structure
(effective) tax rate increases
as tax base increases
define
Regressive tax rate structure
(effective) tax rate increases
as tax base decreases
Example: VAT - the higher your income, the lower your effective tax %
define
Proportional tax rate structure
- a tax rate that does not change in line with tax base
- tax rate applies to all income levels / any size tax base
- flat rate tax
name the principles of taxation
7
- equity
- certainty
- convenience
- economic efficiency
- administrative efficiency
- flexibility
- simplicity
explain the principle of equity
tax should be imposed on ones ability to pay
explain the principle of certainty
timing, amount and manner of tax payments should be certain
explain the principle of convenience
time of payment and manner of payment should be convenient
explain the principle of administrative efficiency
no unreasonable admin burden on the taxpayer or revenue authorities
principle of economic efficiency
taxes should not unduly influence economic decision making
flexibility principle
a good tax system should be designed in such a manner that it can easily adjust in response to changing economic circumstances
simplicity principle
taxes should be designed in a manner that is easy to understand and apply
describe vertical and horizontal equity
which tax rate structure represents this?
vertical: a TP with greater economic capacity (ability to pay) bears a greater burden of tax than a TP with lesser ability.
horizontal equity: TP with equal econ capacity bear an equal tax burden
progressive tax rate structure achieves both this
what is the ability-to-pay principle that underpins the equity principle
equity is established where:
the tax liability imposed on a TP should take into account their economic capacity - how much they can afford to pay
what is the benefit principle that underpins the equity principle
equity is established where:
TP pays tax in proportion to the benefit received from government (via tax revenue spending)
[tax province that uses the roads example]
give example of convenience principle being taken into account
- Complete tax returns via internet
- VAT included in retail selling prices
where tax is inefficient, tax payers would be motivated to change their behaviour in effort to avoid paying tax. is this always a negative thing?
no
it can encourage desired behaviour. tax on plastic bottles
