Taxation Principles and Systems

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Questions and Answers

What is the primary purpose of taxes?

To finance government activities.

In what ways can taxes be levied?

On worker's income, business profits, or on the cost of goods and services.

How do taxes differ from voluntary fees?

Taxes are involuntary and enforced by the government.

Who can be subject to taxation?

Individuals or corporations. Signup and view all the answers

What role do government entities play in taxation?

They levy and enforce taxes. Signup and view all the answers

What is one major defect of the paper standard?

It has an inflationary bias. Signup and view all the answers

How does the paper standard contribute to inflation?

It inherently encourages increased money supply, leading to inflation. Signup and view all the answers

Why is inflation considered a problem for economic stability?

Inflation erodes purchasing power and can lead to uncertainty in the economy. Signup and view all the answers

In what ways might the inflationary bias of the paper standard affect consumers?

Consumers may face rising prices for goods and services, reducing their purchasing power. Signup and view all the answers

What might be an alternative to the paper standard to mitigate inflation?

A commodity standard, such as the gold standard, could be an alternative. Signup and view all the answers

What is a proportional tax and how does it differ from a progressive tax?

A proportional tax imposes the same percentage rate on everyone, while a progressive tax imposes higher rates on those with higher incomes. Signup and view all the answers

Explain the primary characteristic of a regressive tax and its impact on low income earners.

A regressive tax imposes a higher percentage rate on low income individuals, often resulting in a heavier financial burden compared to higher income earners. Signup and view all the answers

What defines a direct tax and how does it function in relation to taxpayers?

A direct tax is imposed directly on individuals, requiring them to pay the tax based on their income or property. Signup and view all the answers

How do proportional and regressive taxes place different pressures on varying income levels?

Proportional taxes treat all income levels equally, while regressive taxes disproportionately affect lower income earners by taking a larger share of their income. Signup and view all the answers

Identify a key advantage of progressive taxation for society.

A key advantage of progressive taxation is that it helps reduce income inequality by taxing higher earners at a greater rate, allowing for social support programs. Signup and view all the answers

Why does paper money lack confidence among users?

Paper money lacks confidence because it is not backed by gold reserves. Signup and view all the answers

In what way does the durability of paper money compare to that of metallic coins?

Paper money is less durable than metallic coins. Signup and view all the answers

What specific factors contribute to the vulnerability of paper money?

Fire and insects are specific factors that can easily destroy paper money. Signup and view all the answers

What implication does the lack of a gold reserve backing have on the perception of paper money?

The lack of a gold reserve backing makes people uncertain about the intrinsic value of paper money. Signup and view all the answers

How does the lack of durability in paper money affect its practicality for everyday transactions?

The lack of durability makes paper money less practical as it can be easily damaged or destroyed. Signup and view all the answers

Why is stability an important characteristic of money?

Stability is essential because it ensures that money retains its value over time and is less affected by short-term price fluctuations. Signup and view all the answers

What is meant by divisibility in the context of money?

Divisibility refers to the ability of money to be divided into smaller units without losing its value. Signup and view all the answers

How does stability impact consumer confidence in a currency?

A stable currency fosters consumer confidence as individuals are assured that their money will maintain its value, encouraging spending and saving. Signup and view all the answers

Give one example of how a lack of divisibility can hinder economic transactions.

If a currency cannot be easily divided, it may prevent smaller purchases, forcing consumers to buy more than they need. Signup and view all the answers

What challenges arise from a money system that lacks stability?

A money system without stability can lead to inflation or deflation, causing uncertainty and discouraging investment and savings. Signup and view all the answers

What is meant by the term 'store of value'?

A store of value is an asset that can be saved and retrieved in the future without losing its purchasing power. Signup and view all the answers

How does a store of value differ from perishable commodities?

A store of value can be saved for future use without losing value, while perishable commodities like corn and rice can spoil and decrease in worth. Signup and view all the answers

Why is it beneficial for an asset to function as a store of value?

It allows individuals to save and preserve wealth for future needs, which is particularly beneficial in uncertain economic times. Signup and view all the answers

Can all assets act as a store of value? Why or why not?

Not all assets can act as a store of value; only those that maintain their value over time, like gold or currency, qualify. Signup and view all the answers

Give an example of an asset that serves as a store of value.

Gold is a common example of a store of value because it retains its worth over long periods. Signup and view all the answers

Study Notes

TAXATION

Tax is the main source of government revenue.
It's a compulsory contribution to state revenue.
Taxes are levied on workers' income, business profits, or added to the cost of goods, services, and transactions
Taxes are used to finance government activities.
Taxes fund public works and services, and maintain infrastructure.

SYSTEM OF TAXATION

Effective tax systems have different criteria
Taxes should produce sufficient revenue.
Tax laws should be clear and understandable for both taxpayers and collectors.
Tax collection should be efficient and convenient.
Taxes should be fair and impartial.

PRINCIPLES OF TAXATION

Benefit principle: those who benefit most from government services should pay more in taxes.
Ability-to-pay principle: people should pay taxes based on their ability to pay, irrespective of the benefit they receive.

CLASSIFICATION OF TAXES

According to rate of increase:
- Proportional tax: same percentage rate for all income levels.
- Progressive tax: higher percentage rate for higher incomes.
- Regressive tax: higher percentage rate for lower incomes.
According to payment:
- Direct tax: payable by the person directly taxed (e.g., income tax).
- Indirect tax: imposed on the value of products/services, and are often passed on to consumers (e.g., value-added tax).
According to purpose:
- Capital gains tax: on gains from asset sales.
- Documentary stamp tax: on documents related to obligations, rights, or property.
- Income tax: on annual profits from property or professions.
- Estate tax: on the right of a deceased person to transmit assets to heirs
- Percentage tax: on sales or leases of goods, services or properties; gross annual sales not exceeding 550,000.
- Value-added tax (VAT): on goods, services and real property transfer
- Excise tax: on production, sale, and consumption of certain goods.
- Withholding tax: on income payments, to ensure tax collection.

OTHER SOURCES OF GOVERNMENT FUNDS

Income from government-owned and controlled corporations (GOCCs)
Income from the sale of government-owned capital
Grants-in-aid from local governments
Income from the Philippine Amusement and Gaming Corporation (PAGCOR)

EVOLUTION OF PHILIPPINE MONEY

The first coins in the Philippines were discovered, and were used in barter systems.
The Spanish introduced coins that bore the image of Queen Isabella.
The first paper money was issued by El Banco Español-Filipino de Isabella II, called "Peso Fuertes"

MONETARY STANDARDS

Commodity standard: money's value is based on the value of a commodity (e.g., gold or silver).
- Gold standard: monetary value tied to gold.
- Silver standard: monetary value tied to silver.
Non-commodity standard: money's value is backed by the government's promise.
- Paper standard: using paper currency as money.

FORMS OF MONEY

Commodity money: objects with intrinsic value used for exchange (e.g., gold, silver, cattle).
Fiat money: money's value is based on government decree; it has no intrinsic value (e.g., paper money).
Credit money: instruments or promises to pay money (e.g., checks, credit cards).
Plastic money: electronic forms of payment (e.g., debit cards, credit cards, mobile payment).

CHARACTERISTICS OF MONEY

Durability: withstands physical wear.
Portability: easy to move and carry.
Divisibility: divided into smaller units.
Uniformity: all units are the same.
Acceptability: accepted by most people as a medium of exchange.
Stability: relatively stable value over time.

MERITS OF THE PAPER STANDARD

Economical: cheaper than gold or silver.
Elastic: government can adjust money supply easily.

DEMERITS OF THE PAPER STANDARD

Inflationary bias: potential for excessive money printing.
Exchange instability: fluctuations in exchange rates.

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Description

Explore the core principles and classifications of taxation in this quiz. Understand how taxes serve as a vital revenue source for governments, as well as the criteria for effective tax systems. Test your knowledge of taxation concepts and their implications on public services and infrastructure.