Purpose Of Tax - Chaoter 25

Question 1

What is tax?

Answer 1

Tax is a compulsory payment to the government charged on income, business profits or the price of goods and services.

Question 2

What are the 4 main principles of a fair tax system?

Answer 2

1. Certainty - the amount of tax paid should be clear and predictable
2. Economy - the cost of collecting tax should be less than the amount that will be collected
3. Convenience - it should be easy for a person to pay their taxes
4. Equality - the amount of tax paid by a person should be linked to their ability to pay

Question 3

What is a hidden economy?

Answer 3

Hidden Economy: Very high taxes lead to a hidden shadow economy. This is where people evade tax by being paid cash which is difficult for the revenue to tax as there is no record of it in the bank

Question 4

What is the purpose of taxation?

Answer 4

1. Financial reasons – using tax as a source of income for Government
2. Social reasons – using tax to improve society and peoples lives
3. Legal reasons – complying with the law of the land
4. Ethical reasons – using tax in a way that is fair and just for all