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Questions and Answers
Which of the following is NOT a component of good fiscal management?
Which of the following is NOT a component of good fiscal management?
What is the primary purpose of the Government Procurement Reform Act (R.A. 9184)?
What is the primary purpose of the Government Procurement Reform Act (R.A. 9184)?
Which initiative aims to enhance the income and asset declaration system of public officials?
Which initiative aims to enhance the income and asset declaration system of public officials?
What is one of the goals of the Comprehensive Tax Reform Program?
What is one of the goals of the Comprehensive Tax Reform Program?
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What does the National Government budget represent?
What does the National Government budget represent?
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Which of the following best describes the basis of taxation based on income?
Which of the following best describes the basis of taxation based on income?
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What principle emphasizes the need for a tax system to have low administrative costs and compliance requirements?
What principle emphasizes the need for a tax system to have low administrative costs and compliance requirements?
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In a progressive tax system, what typically happens to the tax rates as income increases?
In a progressive tax system, what typically happens to the tax rates as income increases?
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Which method of taxation is primarily focused on individuals' spending habits?
Which method of taxation is primarily focused on individuals' spending habits?
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What does the principle of fairness in taxation require?
What does the principle of fairness in taxation require?
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What does tax incidence depend on?
What does tax incidence depend on?
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How does industry structure impact tax incidence?
How does industry structure impact tax incidence?
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What role does general equilibrium analysis play in understanding tax incidence?
What role does general equilibrium analysis play in understanding tax incidence?
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What is an example of a market that can be affected by a tax on consumption?
What is an example of a market that can be affected by a tax on consumption?
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What is the purpose of cost and benefit analysis in assessing taxes?
What is the purpose of cost and benefit analysis in assessing taxes?
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What principle does vertical equity assert about individuals' taxation?
What principle does vertical equity assert about individuals' taxation?
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What is a significant problem associated with implementing vertical equity in tax systems?
What is a significant problem associated with implementing vertical equity in tax systems?
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Which tax is specifically levied on the transfer of wealth after an individual’s death?
Which tax is specifically levied on the transfer of wealth after an individual’s death?
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Which of the following is NOT cited as a criticism of income-based taxation?
Which of the following is NOT cited as a criticism of income-based taxation?
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Which factor contributes to the complexity of income tax systems?
Which factor contributes to the complexity of income tax systems?
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Study Notes
Introduction to Taxation
- Taxation is the inherent power of a sovereign state to impose financial burdens on individuals and property.
- It's used to fund government expenses.
Principles of Taxation
- Efficiency: The tax system should not distort economic activity.
- Administrative Simplicity: The tax system should have low administrative costs and be easy to comply with.
- Flexibility: The tax system should adapt to changing circumstances.
- Political Responsibility: The tax system should be transparent.
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Fairness: The tax system should be fair, treating similar individuals the same and imposing higher taxes on those who can afford them.
- Horizontal Equity: Individuals in the same circumstances should pay the same amount.
- Vertical Equity: Individuals in a better position to pay should pay higher taxes.
- Problems of Fairness: Defining who should pay at higher rates, implementing the principles, and deciding how much more higher-earning individuals should contribute.
Income as a Basis of Taxation
- Income-based taxation is based on an individual's earnings over a specific period, typically a year.
- Income includes wages, salaries, business profits, interest, dividends, and rental income.
- Governments compute taxes based on a taxpayer's income, applying different tax rates in different income brackets.
- A progressive tax system assigns higher rates to higher earners.
Consumption as a Basis of Taxation
- Consumption-based taxation is based on spending, not income.
- Taxes are levied when goods and services are purchased.
- Common forms include sales taxes, value-added taxes (VAT), and excise taxes.
Lifetime Income as a Basis of Taxation
- Lifetime income-based taxation considers an individual's total earnings throughout their lifetime.
- It's an alternative to annual income or consumption-based taxation.
- Wealth taxes and estate/inheritance taxes are forms of lifetime income taxation.
- Wealth taxes assess total assets, while estate/inheritance taxes apply upon death.
Summary of Taxation
- Income-based Taxation: Fair, progressive but complex and prone to evasion. Examples: Income tax, corporate tax.
- Consumption-based Taxation: Simple, stable revenue. Examples: Sales tax, VAT, excise tax.
- Lifetime Income-based Taxation: Fair over the long term but hard to track. Examples: Wealth tax, inheritance tax.
Criticisms of Income-Based Taxation
- Complexity and Administrative Burden: Tax systems often involve intricate rules and numerous deductions which increases administrative cost for taxpayers and governments.
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Description
Explore the essential principles of taxation, including efficiency, fairness, and political responsibility. Understand how these principles shape the tax system and its impact on economic activities and government funding. This quiz will test your knowledge on these fundamental concepts.
