general principles of tax chapter 1
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24 Terms
what is tax
a compulsory payment to governement with no direct quid pro quo
types of tax
direct: imposed directly on persons-natural, company, trust(income tax)
indirect: levied on transactions, collected by intermidiaries on behalf of SARS- VAT
Tax base
what is being taxed-income, wealth or consumption
tax structures
fixed
proportional
sliding scale
marginal rate of tax
rate applied if tax base increases by R1
statutory rate
rate imposed by legislation
average rate
rate if total tax is divided by total tax base
effective tax rate
tax liability divided by taxable income
tax incidence
who actually bears the economic burden of tax- not necessarily the person who pays the tax, can be the customers
tax rate structures: progressive
effective tax rate increases as base increase meaning the higher earners pay a larger portion of the tax- standard income tax
tax rate structures: regressive
effective tax rate decreases as base increases meaning higer earners pay a smaller portion of the tax
tax rate structures: proportional
flat rate regardless- everyone pays the same percentage- company tax
principles of a good tax system
equity, certainty, convinience, econoomic efficency, administrative efficency, flexibility and simplicity
equity in depth
based on fairness(actual and percieved)
two underlying principles
ability to pay according to economic capacity
benefit principle- how much benefit is received based on how much is payed
diensions of equity
vertical: different incomes pay different amounts
horiziontal: same income pay the same tax
ability to pay and benefit principle can be assessed under each dimension
VE- ability to pay
VE- benefit
HE- ability to pay
HE- benefit
equity principle
tax should reflect ability to pay and benefit received
certainty
timing, amount and manner of payment must be clear
convinience
paying tax should be easy and not burdensome for taxpayers
economic efficency
tax should not unduly effect economic decision making
administrative efficency
tax should not impose an administrative burden on the taxpayer or SARS
flexibility
tax system should adopt easily to change economic conditions
simplicity
tax should be easy to understand and apply