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What is tax?
compulsory payment to govt by all ppl in economy
Why tax?
> Funds p__ expenditure
> Discourage using d__ goods (e.g. tobacco)
> Manage m__ (↓tax = ↑ppl spending power)
> R__ income (tax rich, give back to poor via welfare)
> Discourage spending on i__ (protects domestic firms)
public, demerit, macroeconomy, redistribute, imports
What makes a good tax?
o E__: should be f__
o N__-dis__: shouldn’t impact e__ behaviour (too high tax = why work?)
o C__: ppl should know w__ & how much tax is paid
o Co__: ez to pay & simple process
equity, fair, nondiscretionary, economic, certainty, when, convenience
Tax systems
1. D__ tax: tax on __ e.g. PAYE
direct, income
Direct tax
1. P__ tax system: ↑i__ = __(more/less) tax = ↓i__
progressive, income, more, inequality
Direct tax
1. R__ tax system: ↑i__ = __(more/less) tax = __(more/less) inequality
regressive, income, less, more
Direct tax
3. P__l tax system: s__ amt of tax on any amt of i__
proportional, same, income
Direct tax
> Adv: less i__
> Disadv: tax e__, __(more/less) work incentive
inequality, evasion, less
Tax systems
2. I__ tax: tax on __/s__ sold e.g. GST
> is r__ as ppl w/ lower i__ spend more of their $$ = can’t s__
indirect, goods/services, regressive, income, save
Indirect tax
1. E__ d__: tax on d__ goods
excise duty, demerit
Indirect tax
2. i__ t__: custom duties on value of i__ goods
> as price is __(higher/lower), ppl buy d__ goods instead
import tariffs, imported, higher, domestic
Indirect tax
3. U__ c__: tax on using s__ g__/service e.g. toll
user charges, specific, good
Indirect tax adv
> c__ & easy to collect
> e__ pays, even if retired e.g. GST
> can be used to t__ specific goods to encourage / l__ consumption
> f__ as rate can be changed easily
cheap, everybody, target, lower, flexible
Indirect tax disadv
> R__ (everybody pays same amt so poor pays more of their $$)
> i__ (as ↑price)
> Tax e__
> Hard to p__ revenue
regressive, inflationary, evasion, predict
Effect of indirect tax
↑firm cost of p__
= ↑price
production