U4 Ch.16 Taxation

Question 1

Taxation

Answer 1

levy imposed by government on individuals and businesses

Question 2

Reason for taxation

Answer 2

1. Government Revenue
2. Redistribution of wealth
3. Discouraging consumption

Question 3

Direct Taxation

Answer 3

Levied on income and paid directly to the government

Question 4

Indirect Taxation

Answer 4

Levied on what people spend, rather than earnings

Question 5

Taxes paid by businesses and households

Answer 5

VAT
Motor Tax
CGT
Customs duty
Excise Duty
Carbon Tax
PRSI

Question 6

Taxes paid by only households

Answer 6

PAYE income tax
Self-assessment income tax
USC
DIRT
LPT
CAT

Question 7

Taxes paid by only businesses

Answer 7

Corporation Tax
Commercial Rates

Question 8

VAT

Answer 8

Value Added Tax.
Tax on goods and services. Not all goods have same rate and some are exempt. Paid by households when they buy g + s. Business pay VAT and also collect VAT on g+s it sells on behalf of Revenue Commissioners. If business pays more VAT than collected in period it will be entitled to a VAT refund.

Question 9

Motor Tax

Answer 9

paid on all motor vehicles that use public roads. Rates set by government and collected through local authorities

Question 10

CGT

Answer 10

Capital Gains Tax.
on any profit made from the sale of an asset. You pay CGT on chargeable gain. Chargeable gain is the difference between the price you paid for the asset and the price you disposed of it for. Allowable expenses can be deducted such as cost of disposing asset

Question 11

Customs duty

Answer 11

on goods imported to ireland from countries outside the EU. This makes imported goods more expensive and encourages purchase of goods from the EU

Question 12

Excise duty

Answer 12

on certain goods to discourage their consumption such as alcohol or tobacco. Different rates depending on good

Question 13

Carbon Tax

Answer 13

on products that emit carbon such as heating oil, diesel and petrol. Aims to discourage use and help pay for climate change programmes

Question 14

PAYE

Answer 14

on income if employed or self-employed. Collected at the source by employer. Businesses collect and deduct PAYE from employee’s gross wages and send money to revenue. Businesses, such as limited companies, do not pay PAYE on their profits

Question 15

Self-Assessment income tax

Answer 15

paid by self-employed people on their business profits and other income earned. by 31 October each year preliminary tax(estimate of tax due) must be paid

Question 16

USC

Answer 16

Universal Social Charge. paid by all who earn more than 12,000 per annum

Question 17

DIRT

Answer 17

Deposit Interest Retention Tax.
On interest earned on savings in deposit accounts. Financial Institution is responsible for deducting this at source

Question 18

LPT

Answer 18

Local Property Tax
Self assessed tax charged on market value of residential properties in the state. Households pay but businesses do not

Question 19

CAT

Answer 19

Capital Acquisitions Tax
on gifts and inheritances. Amount depends on relationship between person giving and recieving. Closer the relationship, the lower the amount of tax. There is no CAT between spouses

Question 20

Corporation Tax

Answer 20

Certain business, limited companies, must pay corporation tax to revenue on their profits. Ireland’s corporation tax is 15%

Question 21

Commercial Rates

Answer 21

levied by local authority on firm’s property. Used to finance local government services. Amount is based on value of property and size and nature of business.

Question 22

Progressive Tax

Answer 22

Taxes that impose higher rates on higher incomes

Question 23

Regressive Tax

Answer 23

Amount of tax is levied uniformly

Question 24

Tax rate/band

Answer 24

Specifies range of income for an individual that is subject to standard(20%) or higher rate(40%)

Question 25

Tax credits

Answer 25

reduce amount of PAYE income paid by employee

Question 26

PPSN

Answer 26

Personal Public Service Number
unique reference number for each person in Ireland. Enables access to social welfare benefits and public services and identifies them for employment and tax purposes

Question 27

Tax Evasion

Answer 27

Avoiding paying the correct amount of tax by under-claiming income or over-claiming tax deductions. This is illegal

Question 28

Tax avoidance

Answer 28

Reduces tax liability legally by using tax laws or loopholes

Question 29

Calculations Gross Pay

Answer 29

Basic pay + overtime + bonuses

Question 30

Calculations Gross income

Answer 30

gross pay + financial value of BIKs

Question 31

Calculations Gross PAYE Tax

Answer 31

gross income X tax rates

Question 32

Calculations Net PAYE Tax

Answer 32

gross PAYE tax - tax credits

Question 33

Calculations Net Pay(Take-home pay)

Answer 33

gross income - PAYE - PRSI - USC

Question 34

Benefits of taxation

Answer 34

1. Redistribution
2. Improved Public Service
3. Tax Incentives (reduce costs to expand)
4. Low Corporation Tax (kinda?)

Question 35

Negatives of taxation

Answer 35

1. Less disposable income
2. higher goods prices
3. regressive taxes affect low incomes more
4. Employer’s PRSI (for businesses)
5. Discourage Enterprise

Question 36

Depreciation

Answer 36

loss in value of a fixed asset over its useful economic life due to wear and tear and passage of time

Question 37

Business and Household Tax similarities

Answer 37

1. Registration (on revenue)
2. Tax Compliance
3. Tax Avoidance (can be done by both)
4. Keep record of taxes

Question 38

Business and Household Tax differences

Answer 38

1. Only a company pays corporation tax
2. Business collect VAT and can reclaim it
3. More taxes apply to businesses
4. Business collect tax on behalf of Revenue Commissioners