Taxation Concepts and Principles

Comprehensive vocabulary flashcards covering the basic principles, types, and rate structures of taxation as presented in the lecture notes.

Horizontal equity

The principle of tax fairness where similar taxpayers are treated the same.

Vertical equity

The principle of tax fairness where different taxpayers are treated differently.

Certainty of a tax

A concept of a good tax referring to the clarity regarding the amount borne by the taxpayer and the revenue received by the government.

Convenience of a tax

Refers to the collectability, assessability, and administrability of a tax system.

Economical tax

A tax characterized by the lowest possible compliance and administration costs.

Transfer tax

A transaction tax imposed on the transfer of assets, such as a stamp tax on the transfer of shares and securities.

Tariffs

Customs duties imposed on goods.

Individual income tax (IIT)

An income-based tax applied to the income of individuals, which includes salary or employment tax.

Corporate income tax (CIT)

An income-based tax applied to the profits of corporations.

Withholding tax (WHT)

A method to indirectly levy income taxes, often from dividends, interests, or royalties, which is treated as a prepayment on the recipient's tax liability.

Tax base

The amount (such as net sales price or taxable income) to which a tax rate is applied to determine the tax due.

Tax rate

The percentage rate applied to the tax base to calculate the tax owed.

Tax incidence

The economic burden of a tax, which distinguishes between the entity paying the tax and the entity that ultimately bears it economically.

Progressive tax

A tax structure where the tax rate increases as the tax base increases, resulting in higher income being subject to higher rates.

Regressive tax

A tax structure where the tax rate decreases as the tax base grows larger.

Flat (proportional) tax

A tax structure where the rate remains constant over the tax base, such as Value Added Tax (VAT).

Value Added Tax (VAT)

A sales tax levied on the value added at each stage of production.

Marginal tax rate

The tax rate applied to the next monetary unit of income.

Average tax rate

$$\frac{\text{total tax liability}}{\text{taxable income}}$$

Effective tax rate

$$\frac{\text{total tax liability}}{\text{total economic income}}$$

Tax evasion

An illegal and fraudulent practice involving dishonest conduct such as concealing information in a tax declaration.

Tax avoidance

A legal arrangement that minimizes a taxpayer's liabilities while staying within the boundaries of the law.

§ 42 of the Fiscal Code of Germany

A provision regarding the abuse of tax planning schemes, stating that tax legislation cannot be circumvented by abusing legal options.