Taxation Flashcards

1
Q

Taxation

A

the means by which the government raises revenue from individuals and firms to provide public goods and services.

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2
Q

Tax

A

a compulsory payment to be made by a citizen to a government, for which he or she receives direct benefit in return.

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3
Q

Purposes/Objectives of Taxation include:

A

To raise government revenue
To control consumer spending
To achieve greater equality in the distribution of wealth and income

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4
Q

Two main types of taxes

A

Direct Taxes
Indirect Taxes

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5
Q

Direct tax

A

taxes on income and is when the actual payment and ultimate burden of a tax fall on the same person

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5
Q

Examples of direct tax

A

Income tax, corporation tax, capital gains tax, capital transfer tax

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6
Q

Define income tax, corporation tax, capital gains tax, capital transfer tax

A

Income tax- this is a tax placed on earned income
Corporation tax- this is a tax placed on the profits of companies
Capital gains tax- this is a tax placed on the proceeds from the sale of assets
Capital transfer tax- this is a tax placed on the transfer of property

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7
Q

Advantages of direct tax

A

The taxpayer cannot shift the burden of the tax to be paid ( gov adv)
Direct taxes are progressive and thus promotes equality in the distribution of wealth and income (gov adv)
The taxpayer knows in advance how much tax he has to pay ( taxpayer adv)

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8
Q

Disadvantages of direct tax

A

High tax causes the taxpayer to work for loopholes to evade taxes
High taxes can contribute to a disincentive to work and also a reduction in earnings
Under the Pay As You From system the real burden of the deduction is not known by the employee, especially in the face of increasing government expenditure

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9
Q

Indirect taxes

A

taxes on consumption and is when the actual payment and ultimate burden of a tax fall on different persons

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10
Q

Examples of indirect taxes

A

V.A,T, Purchase tax, excise duty and customs duty

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11
Q

V.A.T

A

this is a tax placed on goods at each stage of production

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12
Q

Purchase tax

A

this is a tax placed on certain consumer items

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13
Q

Excise duty

A

this is a tax placed locally manufactured goods

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14
Q

Customs duty

A

this is a tax placed on imported products

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15
Q

Advantages of indirect taxes

A

They are less painful to the taxpayer because the burden is shared(adv to the taxpayer)
They are optional, unlike direct taxes (adv to the taxpayer)
They are the best way to raise revenue from the lower income earners ( adv to the government)
The government can use flexible tax rates ( adv to the gov)

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16
Q

Disadvantages of indirect taxes

A

Indirect taxes are regressive and thus do not promote equality in the distribution of wealth and income
Indirect taxes lead to an increase in prices (inflation) and the cost of living
Regressive indirect taxes show different preferences for consumption and savings since each commodity is taxed differently.

17
Q

Forms of taxes

A

Progressive,regressive, proportional

18
Q

Define progressive

A

this tax system is designed to collect higher taxes from those who make more money

19
Q

Define regressive

A

this is a tax system which collects the same amount of money from everyone regardless of income

20
Q

Proportional

A

A system where there is a fixed rate tax no matter how much you earn

21
Q

Ways in which the government utilizes the revenue earned from taxation

A

to provide public goods and services eg roads
to fund government projects that will bring further revenue
to provide social services eg welfare benefits

22
Q

Other forms of govermment taxes

A

NIS(national insurance fund, local and central borrowing

23
Q

Two main banks

A

commercial eg royal bank and republic bank and central eg central bank of trinidad and tobago

24
Q

Define commercial banks

A

A financial institution which provides money transmission services to its customers

25
Q

Functions/Services provided by Commercial Banks are

A

Accepts deposits for safe keeping
Lending funds from deposits collected
Making payments on behalf of customers
Providing foreign exchange services for importers,exporters and other customers.

26
Q

Types of deposits/accounts

A

Savings, Current and Fixed

27
Q

Define current,savings,fixed

A

Savings- designed for small savers who save mainly for precautionary reasons
Current-allowed to view cheques on their accounts
Fixed- an account into which money is paid with intention of leaving it in the bank for a specific time period

28
Q

Type of funds lended

A

Overdraft, Loan of a fixed sum, holding treasury bills

29
Q

Define Central Bank

A

a national bank that provides financial and banking services for its country’s government and commercial banking system.

30
Q

Functions of the Central Bank

A

The issuing and regulating of currency, Banker to the government, Being a lender of last resort, Advisor to the government

30
Q

Functions of the Central Bank

A

The issuing and regulating of currency, Banker to the government, Being a lender of last resort, Advisor to the government, supervising the operations of commercial banks

31
Q

Ways in which the central bank supervises

A

By open market operations, by the cash reserve, variations in the liquid assets ratio

31
Q

name and define two main cheques

A

Open cheque- one without crossing and can be cashed across the counter and crossed cheque- has two parallel transverse line drawn across the face of the cheque and must be paid in a bank account.

31
Q

Advantages of a cheque

A

They may be made out for any sum of money
They are the safest way of transmitting money
They may be easily traced

31
Q

Sources of capital

A

Money and capital

32
Q

Define money market

A

A component of the economy which provides short-term funds and deals with short-term loans include commercial banks, finance houses, credit unions and insurance companies.

33
Q

Define capital market

A

The part of the financial system concerned with raising capital by dealing in shares, bonds and other long-term investments include development banks, building societies, stock market and investment banks.

34
Q

Define credit union

A

an organization of persons where members with a common bond pool their savings by depositing them in a credit union.

35
Q

Benefits to a credit union

A

It teaches people to save
It assists in capital formation
It is a cheap source of loans