Taxation System

Question 1

Objectives of taxation

Answer 1

1. Revenue- to manage economy
2. Re distribution- to develop society and provide public goods
3. Re pricing- to influence behaviour

Question 2

Designing a tax system (4 cannons of taxation)

Answer 2

1. Equity (fairness)
   -tax people according to their ability to pay
2. Certainty
   -simple to understand
   -individual can calculate
3. Convenience
   -easy to pay
   -compliance costs
4. Efficiency
   -economic (not have impact upon allocation of resources)
   -administration (cheap to administer)

Other features to consider
-simplicity
-flexibility (respond to changes in economic environment)

Question 3

Tax design must consider

Answer 3

1. Economic
2. Accounting
3. Political
4. Environmental
5. Social

Question 4

Distribution of the tax burden

Answer 4

1. Proportional = tax paid increases directly in relation to increase in tax base
2. Progressive = tax paid increases faster than increase in the tax base
3. Regressive = tax paid increases more slowly than increases in the tax bases

Question 5

Marginal rate…

Answer 5

… describes the rate of tax that would apply to the next £1 of income received by a taxpayer

Question 6

Tax bases

Answer 6

-> a system should balance the bases to achieve the objectives of a good tax system
1. Wealth taxes
2. Income taxes
3. Consumption taxes

Question 7

Wealth taxes

Answer 7

-> based on accumulated wealth (land, cash, shares, business, future earnings, future pension)
1. CGT
2. Inheritence tax
3. Stamp duty
4. Council tax

Question 8

Income taxes

Answer 8

1. Income tax
2. National insurance contributions
3. Corporation tax

Question 9

Consumption taxes

Answer 9

-> taxes what individual take out of society
1. VAT
2. Customs and excise duty
3. TV licence
4. Vehicle exercise duty