Chp 1 CAF 2

Question 1

Adam Smith Canon

Answer 1

2c 2e
Tax liabilities should be clear and certain.

Taxes should be collected at a time and in a mannerconvenient for taxpayer.

Tax payments should be proportional to income and appliedequally to all concerned areas.

Taxes should not be expensive to collect and should notdiscourage business.

Question 2

Benefit principles levy of tax

Answer 2

This principle holds that the individuals should be taxed in proportionto the benefits they receive from the Govt. and that taxes should be paidby those people who receive the direct benefit from Govt. programs andprojects.

Question 3

Equal distribution principle

Answer 3

Income, wealth and transaction may be taxed at a fixed percentage; thatis, people who earn more and spend more should pay more taxes, butnot pay a higher rate of tax. (Proportional tax)

Question 4

Proportional/ flat tax

Answer 4

Income increases tax increase tax rate is fixed

Question 5

Progressive tax

Answer 5

Income increases tax increases
Tax rate also increases

Question 6

Regressive tax

Answer 6

Income increase tax is fixed as result tax rate decreases.
As result regressive tax is applied uniformly therefore it hits low income at high rate and high income groups at low rate.

Question 7

Taxation

Answer 7

Taxation is a process by which government through its law making body raises revenue in order to use it for expenses of government

Question 8

Non Revenue Objective

Answer 8

Tax can be used in different ways for the development of the country.
1.Taxing rich at high rate and low income groups at lower rate.
2.Imposition of high custom duty
Import of luxury items or items are manufactured in Pakistan therefore tax is used as tool to local industries and manufacturers by foreign competition.
3. Tax incentives for agro bases projects in order to promote agriculture activities.
4.tax credit on charity and donations to promote welfare activities.
5.Tax exemption to charitable and educational institutions to promote these activities.
5. Government can declare some areas as tax free zones and economic zones in order to provides incentives business man and to develop and tobring prosperity in under developed areas.
Taxation is also utilized as a tool to carry out the national objective of social and economic development.

To strengthen weak enterprises by granting them tax exemptions or other conditions or incentivesfor growth;

To protect local industries against foreign competition by increasing local import taxes;

As a bargaining tool in trade negotiations with other countries;

To counter the effects of inflation or depression;

To reduce inequalities in the distribution of wealth;

To promote science and invention, finance educational activities or maintain and improveefficiency of local forces;

To implement laws which eliminate discrimination among various elements in themarkets/businesses.

To discourage certain undesirable sectors and activities.

For documentation of economy.

Question 9

The ability to pay principle

Answer 9

The ability to pay principle holds that tax imposition is related to income and ability to pay. Individuals who with higher income and can afford to pay should be taxed at higher rate.

Question 10

Direct tax

Answer 10

Direct tax is which directly taxpayer to the government. It is the tax directly applied the government to organisations and individuals.

Question 11

Indirect tax

Answer 11

It is the tax collected by the intermediary from the person who bears ultimate economic burden of tax.

Question 12

FED

Answer 12

Fed is levied on limited number of goods manufacturered and services provided in Pakistan. It is levied on the basis of value or retail price. O% fed is levied on exports. It is also levied on quantity basis

Question 13

Characteristics of tax

Answer 13

EC kC Pa Taw Sj Lt Pi.
England Canada ka ca par
Hvea

> Tax is levied by the state which has jurisdiction overthe person or property i-e only persons, properties,acts, right or transaction within the jurisdiction of thetaxing state are subject to taxation.

> Tax is levied by the law making body of the state andtaxation laws must be approved first by the

Parliament in Pakistan.

> Tax is levied for public purposes and to support thegovernment in implementation of projects and programs.
Tax is an enforced contribution and not voluntaryin nature.

> Tax is generally payable in cash (bank). Paymentby cheques, promissory notes, or in kind is notaccepted.

> Tax is proportionate in character; payment of taxesshould be based on the ability to pay principle.>Tax is levied on income, transactions or property.There are taxes that are imposed or levied on acts,rights or privileges.

Question 14

Fiscal adequacy

Answer 14

Sources of revenue taken as a whole should be sufficient to meet theexpenditures of the Govt. Revenues should be capable of expanding orcontracting annually in response to variations in public expenditures.

Question 15

Equality or Theoretical Justice

Answer 15

Taxes levied must be based upon the ability of the citizen to pay.

Question 16

Consistency or Compatibility with Economic Goals

Answer 16

Tax laws should be consistent with economic goals or programs of thegovernment which pertain to basic services intended for the masses.