taxation Flashcards
(28 cards)
What is tax?
A compulsory payment by a tax payer to the state through the revenue authority without involving a direct repayment of goods and services in return.
Tax is a key element of public finance and essential for government revenue.
Define budget.
A statement which consists of the revenue and expenditure estimates of the government for one particular year.
Budgets are crucial for planning government financial activities.
What is public finance?
The department of economic theory that deals with public expenditure and revenue.
It focuses on how government funds are raised and spent.
What are the expected activities of a government?
- Maintain internal security and external defense
- Provide infrastructure and communication
- Provide basic social services
- Participate in the production and marketing of goods
- Influence economic activities through regulations
- Redistribute income and wealth
These activities vary by country but generally aim to serve the public.
What is public revenue?
All the amounts which are received by the government from different sources.
Public revenue is vital for financing government operations.
What are the main sources of public revenue?
- Taxes
- Fees
- Prices
- External borrowing
- Fines and penalties
- State property
- Internal borrowing
Each source contributes differently to government funding.
What defines a tax?
An involuntary payment by a tax payer without involving a direct repayment of goods and services.
Taxes are compulsory contributions to public authority.
What is income tax?
Tax imposed on annual gains or profits earned by individuals, limited companies, and other organizations.
Income tax is a primary form of taxation.
What is Value Added Tax (V.A.T)?
Tax imposed on the sale of commodities and services, introduced in Kenya on 1.1.90.
V.A.T. is a significant source of revenue for the government.
What is the purpose of levying taxes?
- Raising revenue
- Economic stability
- Protection policy
- Social welfare
- Fair distribution of income
- Allocation of resources
- Increase in employment
Taxes serve multiple economic and social objectives.
What is the principle of simplicity in an optimal tax system?
A tax system should be simple enough for taxpayers to understand and compute their tax liability.
Complexity can lead to inefficiency and low compliance.
What is meant by taxable capacity?
The maximum tax which may be collected from a taxpayer without producing undesirable effects on them.
It ensures that taxes are fair and manageable.
Fill in the blank: A _______ is a compulsory contribution from a person to the government to defray expenses incurred in the common interest of all.
[tax]
Taxes are essential for funding public services.
True or False: A tax payer is someone who pays tax and may include individuals, companies, and other organizations.
True
Tax payers are essential for the functioning of the tax system.
What are the two aspects of taxable capacity?
Absolute taxable capacity and Relative taxable capacity
These aspects help determine how much tax individuals can afford to pay.
How is Absolute taxable capacity measured?
In relation to the general economic condition and individual position
This includes factors such as the region or industry of the taxpayer.
What does it mean if an individual’s taxable capacity is exceeded in the absolute sense?
The individual pays more tax than they should according to their circumstances and prevailing economic conditions
This indicates a mismatch between tax obligations and actual ability to pay.
How is Relative taxable capacity measured?
By comparing the absolute taxable capacities of different individuals or communities
This comparison helps assess fairness in tax distribution.
What does Neutrality in taxation refer to?
The extent to which a tax avoids distorting the workings of the market mechanism
A neutral tax minimizes substitution effects in the market.
What is meant by the Productivity of a tax?
A tax should generate large revenue adequate for government needs
A single effective tax is preferred over multiple taxes yielding little revenue.
What is an example of a tax that was introduced for its productivity?
Value added tax (VAT)
VAT was introduced as it provides more revenue than Sales Tax.
What does Elasticity in taxation refer to?
The government’s ability to vary taxation rates according to economic circumstances
This allows for adjustments in tax rates to meet revenue needs.
What caution must be taken when increasing excise duty rates?
Avoid charging increased rates from year to year to prevent inflation pressures
Frequent rate increases can negatively impact the economy.
What does Flexibility in taxation imply?
There should be variety in taxation to ensure a wide tax base and even distribution of tax burden
This includes having both direct and indirect taxes.
