4.4 Taxation Flashcards
(31 cards)
Reasons for taxation
- Government revenue - Run country.
- Redistribution of wealth - PAYE system collects money & uses it for social welfare.
- Discourage consumption - High taxes on unhealthy products, Cigarettes.
What is direct taxation?
Taxes imposed on the income earned by households/businesses & paid directly to the government.
Example: PAYE & Corporation Tax.
What is indirect taxation?
Taxes based on what you spend rather than what you earn.
Example: VAT & Import duties.
What is VAT?
A tax on goods & services paid by both households & businesses. Some goods & services are exempt from VAT & % can vary. Standard rate = 23%.
Example: 0% on food staples & medicine.
What is customs duty?
A tax levied on goods imported to Ireland from countries outside of the EU. This makes it more expensive to import goods & encourages citizens to buy Irish/EU.
What is CGT?
Capital gains tax. This is a tax on the gain made when a household/business sells an asset, e.g., land/shares. The capital gain is the difference between the selling price & original price.
Current rate = 33%.
What is excise duty?
A tax on certain goods: Alcohol, tobacco. It is used by the government to discourage consumption. Different rates apply to different goods.
What is carbon tax?
A tax levied on products that emit carbon into the atmosphere, e.g., Heating oil, coal. Used to discourage consumption as it is harmful & funds climate programmes.
What is PRSI?
Pay Related Social Insurance. A compulsory deduction taken from gross income. Both employee & employer share the cost of PRSI. Used to fund Jobseeker’s benefit & maternity benefit.
Need 39 PRSI to claim these benefits.
What is PAYE?
Pay As You Earn. This is a direct tax that is compulsory. Under PAYE system, employer must collect it & send directly to revenue commissioners. It is used to run the country.
Charged at 2 rates, standard (20%) + higher (40%).
Features of PAYE tax system
- Progressive - imposes higher rates on higher incomes.
- Direct - Levied on income & paid directly to revenue commissioners.
What is USC?
Universal social charge. A compulsory deduction taken from gross income & sent directly to revenue commissioners.
All employees earning over 12,000 pay it.
What is self-assessment tax?
A tax paid by self-employed people on their business profits & other income earned. By 31st of October each year, an estimate of tax due for current year must be paid.
What is DIRT?
Deposit interest retention tax. A tax on interest earned on savings in deposit accounts, e.g., Banks & credit unions. Financial institution is responsible for deducting it.
What is LPT?
Local property tax. Tax based on value of residential property, e.g., Main home/house rented to people. It is paid by household each year to local authority.
What is CAT?
Capital acquisitions tax. This is a tax on gifts & inheritance. The amount paid is based on the relationship with the person giving & receiving the money.
Example: 0% for spouse. Rate of 33%.
What taxes are only paid by businesses?
- Corporation tax/ self assessment income tax (one or the other)
- Commercial rates.
What is corporation tax?
A tax on a firm’s annual profits. Standard rate is 12.5%. This is one of the lowest in the EU & attracts FDI (MNCs) to set up here.
Only fo public and private limited companies.
What are commercial rates?
Taxes levied by local authorities on property used for commercial purposes to help finance local government services.
Example: Street cleaning.
What is a progressive tax?
Taxes that impose higher rates on those who earn higher incomes.
Example: PAYE.
What is a regressive tax?
The amount of tax is levied uniformly. It is not based on income, resulting in a larger % of income from low earners than high earners.
Example: VAT.
What are tax credits?
Reduces the amount of PAYE income tax a person has to pay. They are non-refundable.
Example: Single person tax credit & employee tax credit.
What is tax evasion?
Households & businesses avoid paying the correct amount of tax by under declaring income/over claiming tax credits. This is illegal & has high penalties awarded by revenue commission.
What is tax avoidance?
Reduces the tax liability. This is a legal method achieved by minimizing income & maximizing tax credits.
