Chapter 1: Features of Taxation and the regulatory environment Flashcards
What characteristics should a good tax have?
Fair
Absolute
Convenient
Efficient
What are the 3 major principles of a good tax policy?
Equity
Efficiency
Economic Effects
What are direct taxes?
Paid directly to the government by the person or entity liable for them.
e.g. tax on personal income such as salaries, tax on business profits
What are indirect taxes?
Borne by one party but collected and paid to the government by another party.
e.g. sales tax
What is the incidence of a tax?
Distribution of the tax burden - who actually pays the tax
What are the two elements that incidence is split into?
Formal Incidence
Actual/effective incidence
What is formal incidence?
On the person or organisation who has direct contact with tax authorities.
e.g. VAT is paid to HMRC by seller
What is actual/effective incidence?
On the person or organisation who ends up bearing the cost of the tax.
e.g. the consumer would bear the incidence
What is the tax base?
Identifies what is subject to tax
What is a taxable person?
The person accountable for the tax payment
What is hypothecation?
Certain taxes are devoted entirely to certain types of expenditure.
e.g. road tax is used solely for maintaining and improving the roads
What is the tax gap?
Gap between the tax theoretically collectable and the amount actually collected
What are the three types of taxes?
Progressive Taxes
Proportional Taxes
Regressive Taxes
What are progressive taxes?
Takes an increasing proportion of income as income rises.
e.g. UK income tax has higher rates of tax for higher levels of income
What is proportional taxes?
Takes the same proportion of income as income rises
What is regressive taxes?
Takes a decreasing proportion of income as income rises. Takes a higher percentage of tax revenue from those on low incomes