Ch20. Tax

Question 1

Taxable Person

Answer 1

The entity that is liable to pay tax. Can be an individual, corporation or other body.

Question 2

Formal Incidence

Answer 2

This is on the individual or entity who has direct contact with the tax authorities. E.g. with VAT it is the company collecting the tax on behalf of the goverment

Question 3

Actual or Effective Indience

Answer 3

This is on the individual or entity who bears the end cost of the tax E.g. with VAT this is the end consumer

Question 4

Competent Jurisiction

Answer 4

The country whose tax laws apply to an enterprise.

Question 5

Progressive Tax

Answer 5

Higher incomes levels lead to a proportionately higher tax charge

Question 6

Proportional Tax

Answer 6

The tax is the same proportion of income at all levels

Question 7

Regressive Tax

Answer 7

Higher income levels lead to a proportionately lower tax charge

Question 8

Direct Tax

Answer 8

Cannot be passed on to another taxable person
Paid directly to the government
May be administered by others such as employers (income tax)

Question 9

Indirect Tax

Answer 9

A tax which is collected by intermediaries on behalf of the government but borne by the final consumer e.g. sales tax or VAT

Question 10

Unit Taxes

Answer 10

Charged based on units or weight of goods

Question 11

Ad Valorem Taxes

Answer 11

Charged based on a value e.g. VAT

Question 12

Excise Duties

Answer 12

Charged on the sale of specific goods e.g. alcohol

Question 13

Property and Wealth Taxes

Answer 13

Based on individual net worth including assets such as property, cash and investments

Question 14

Consumption Taxes

Answer 14

Taxes on spending on goods and services e.g. VAT, excise duties

Question 15

Hypothecation

Answer 15

Raising taxes for specific purposes e.g. car tax to pay for road repairs

Question 16

Schedular System

Answer 16

A tax system with a number of schedules setting out how different types of income should be treated for tax purposes e.g. trading, investment income

Question 17

Tax Base

Answer 17

Something that is subject to tax e.g. income, assets, consumption

Question 18

Classical System

Answer 18

The company and the individual are treated separately and therefore the income is taxed twice

Question 19

Inputation System

Answer 19

The individual is given full credit for the tax already paid by the company

Question 20

Partial Inputation System

Answer 20

The individual is given some credit, but not full credit, for the tax already paid by the company

Question 21

Split Rate System

Answer 21

Company profits which are distributed as dividends are taxed at a lower rate than those retained in the business.

The recipient of the dividend may have to pay additional tax depending on whether the classical or imputation system applies.

Question 22

Code Law

Answer 22

Where accounting rules are driven by tax laws

Question 23

Tax avoidance

Answer 23

The legitimate use of tax rules to minimise the amount of tax payable by an entity. aka tax planning

Question 24

Tax evasion

Answer 24

Illegal and involves deceiving the tax authorities as to the true level of tax that should be paid to them

Question 25

Tax gap

Answer 25

The difference between what is theoretically collectable and what is actually collected