chapter 10 - the tax and ethical framework

why to governments collect tax

• raise money for public servcies

• redistribute wealth from higher earners to support those on lower incomes

• control the economy by changing spending levels

• encourage or discourage behaviour (eg tax relief on pensions, higher taxes on cigarettes)

what makes a good tax system

• neutral - doesnt unfairly influence decisions

• efficient - inexpensive to administer

• simple and certain 0 easy to understand and calculate

• effective - raises the money needed by the goc

• fair (equitable) based on the taxpayers ability to pay

tax structure

• how country’s tax system is organised

tax rates and base

• tax base - amount that will be taxed

• tax rate -% applied to tax base

• income tax- rate varies on income from eg salary

• CGT - capital gains made by individuals (one-off profits o disposal of capital items) rate is varies.

• NI - earnings made by individual from employment or self employment. rate varies

• Inheritance tax - value of wealth transferred by an individual. rate varies.

rate of tax

• progressive tax- increases as the amount to be taxed increases (eg most tax rates, income tax)

• regressive tax - rate decreases as the amount to be taxed increases

• proportional tax - rate is the same despite income levels (eg VAT)