Most desirable characteristics of an income tax system

Question 1

Define:

Hoizontal equity

Answer 1

Persons at the same economic level are affected by the tax to the same degree in terms of the amount of tax irrespective of the form of income generated.

Question 2

Define:

Vertical equity

Answer 2

Persons at a higher economic level pay a greater share of the tax based on their greater ability to pay than those at a lower economic level.

Question 3

Define:

Neutrality

Answer 3

Tax should not affect economic decisions however the Canadian tax system provides many incentives that affect business decisions and is far from neutral.

Question 4

Define:

Flexibility

Answer 4

The tax system must be sufficiently flexible to permit its use as an instrument of economic policy to achieve specified economic objectives.

Question 5

Define:

Certainty

Answer 5

Taxpayers should know in advance the tax consequences of any transaction so that they may plan their affairs accordingly.

Question 6

Define:

Feasibility and efficiency

Answer 6

The total costs, including those to the taxpayer, of administering and collecting the tax should be as low as possible.

Question 7

Define:

Simplicity and compliance

Answer 7

The Canadian tax system is based on self-assessment. To ensure compliance by taxpayers and limit the number of investigations and reassessments, the tax system must be simple.