Taxation

Question 1

What were the three distinct roles for an active state set out by usgrave and peacock in 1958

Answer 1

1- allocative- correcting market failure through regulation, taxation subsidies and providing public goods

2- distributional - achieving a fair society by regulation, progressive taxation and subsidies

3- stabilisation- controlling economic growth, unemployment and inflation

Question 2

What is direct tax? And how is it reported

Answer 2

A tax on the person who pays it, for example income tax and inheritance tax

An appropriation in the income statement

Question 3

What is indirect tax? And how are they reported ?

Answer 3

If a tax on goods and services for example vat

Vat is reported as a cost of goods however indirect taxes can also be listed in operating expenses

Question 4

How do you calculate VAT

Answer 4

output tax - input tax

Output tax = sales x %of vat due
Input tax = purchases x % of taxable purchases x % of vat

Question 5

What is progressive tax?

Answer 5

Tax represents increasing portion as the value of the tax base rises
Marginal tax rate> avg tax rate

An example is income tax

Question 6

What is proportional tax?

Answer 6

Tax represents constant portion of the value of the tax base
Marginal tax rate = average tax rate

An example is council tax

Question 7

What is regressive tax ?

Answer 7

Tax represents declining portion as value of the tax base rises.
Marginal tax rate< average tax rate

Example is VAT