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Questions and Answers
What is the primary purpose of taxation?
What is the primary purpose of taxation?
Which type of tax is levied directly on individuals and businesses?
Which type of tax is levied directly on individuals and businesses?
What is the principle of taxation that states taxes should be levied based on an individual's ability to pay?
What is the principle of taxation that states taxes should be levied based on an individual's ability to pay?
What is the term for the amount of income or expenditure subject to taxation?
What is the term for the amount of income or expenditure subject to taxation?
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What is the type of taxation where tax rates increase as the tax base increases?
What is the type of taxation where tax rates increase as the tax base increases?
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What is the term for illegal attempts to avoid paying taxes?
What is the term for illegal attempts to avoid paying taxes?
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What occurs when the same income is taxed in two or more countries?
What occurs when the same income is taxed in two or more countries?
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What is the term for legal provisions that allow taxpayers to reduce their tax liability?
What is the term for legal provisions that allow taxpayers to reduce their tax liability?
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Study Notes
Definition of Taxation
- Taxation is the process by which a government collects money from its citizens to fund public expenditures and achieve social and economic goals.
Types of Taxes
-
Direct Taxes: Levied directly on individuals and businesses, examples include:
- Income tax
- Wealth tax
- Property tax
-
Indirect Taxes: Levied on goods and services, examples include:
- Sales tax
- Value-added tax (VAT)
- Customs duty
Principles of Taxation
- Ability to Pay Principle: Taxes should be levied based on an individual's ability to pay.
- Benefit Principle: Taxes should be levied based on the benefits received by the taxpayer.
- Equality Principle: Taxes should be levied equally among all taxpayers.
- Certainty Principle: Taxes should be clear and certain to avoid confusion.
Tax Bases and Rates
- Tax Base: The amount of income or expenditure subject to taxation.
- Tax Rate: The percentage of the tax base that is payable as tax.
- Progressive Taxation: Tax rates increase as the tax base increases.
- Proportional Taxation: Tax rates remain constant regardless of the tax base.
- Regressive Taxation: Tax rates decrease as the tax base increases.
Taxation Objectives
- Revenue Generation: To raise revenue for public expenditures.
- Redistribution of Income: To reduce income inequality by taxing the wealthy and providing benefits to the poor.
- Economic Stabilization: To stabilize the economy by influencing aggregate demand and supply.
- Social Welfare: To promote social welfare by discouraging harmful activities and encouraging desirable ones.
Tax Evasion and Avoidance
- Tax Evasion: Illegal attempts to avoid paying taxes.
- Tax Avoidance: Legal attempts to minimize tax liability.
- Tax Loopholes: Legal provisions that allow taxpayers to reduce their tax liability.
International Taxation
- Double Taxation: The taxation of the same income in two or more countries.
- Tax Havens: Countries with low or no taxation, used to avoid paying taxes in other countries.
- Transfer Pricing: The pricing of goods and services between subsidiaries of the same company in different countries.
Definition of Taxation
- Taxation is a process where the government collects money from citizens to fund public expenditures and achieve social and economic goals.
Types of Taxes
- Direct Taxes are levied directly on individuals and businesses, including income tax, wealth tax, and property tax.
- Indirect Taxes are levied on goods and services, including sales tax, value-added tax (VAT), and customs duty.
Principles of Taxation
- The Ability to Pay Principle states that taxes should be levied based on an individual's ability to pay.
- The Benefit Principle states that taxes should be levied based on the benefits received by the taxpayer.
- The Equality Principle states that taxes should be levied equally among all taxpayers.
- The Certainty Principle states that taxes should be clear and certain to avoid confusion.
Tax Bases and Rates
- Tax Base is the amount of income or expenditure subject to taxation.
- Tax Rate is the percentage of the tax base that is payable as tax.
- Progressive Taxation involves tax rates increasing as the tax base increases.
- Proportional Taxation involves tax rates remaining constant regardless of the tax base.
- Regressive Taxation involves tax rates decreasing as the tax base increases.
Taxation Objectives
- Revenue Generation aims to raise revenue for public expenditures.
- Redistribution of Income aims to reduce income inequality by taxing the wealthy and providing benefits to the poor.
- Economic Stabilization aims to stabilize the economy by influencing aggregate demand and supply.
- Social Welfare aims to promote social welfare by discouraging harmful activities and encouraging desirable ones.
Tax Evasion and Avoidance
- Tax Evasion involves illegal attempts to avoid paying taxes.
- Tax Avoidance involves legal attempts to minimize tax liability.
- Tax Loopholes are legal provisions that allow taxpayers to reduce their tax liability.
International Taxation
- Double Taxation involves the taxation of the same income in two or more countries.
- Tax Havens are countries with low or no taxation, used to avoid paying taxes in other countries.
- Transfer Pricing involves the pricing of goods and services between subsidiaries of the same company in different countries.
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Description
Learn about the definition, types, and principles of taxation. Understand direct and indirect taxes, and how governments use taxation to fund public expenditures and achieve social and economic goals.
