Tax Law Overview

These flashcards encapsulate the key concepts and principles outlined in the Tax Law lecture notes.

What is the definition of Tax Law?

Tax Law refers to compulsory, unrequited payments to the government that fund public institutions and services.

What is nontax revenue?

Nontax revenue is money the government receives in exchange for specific goods or services, like passport fees or toll payments.

What are the two main areas of tax law?

Substantive law (criteria for taxation) and procedural law (regulates how tax liability is assessed and collected).

What does the principle of legality in taxation require?

It requires that only law can create a tax, thus taxation requires a legislative act.

What is the principle of equality in tax law?

It prohibits arbitrary taxation without reasonable foundations.

What branches of government are involved in taxation?

Legislative branch (creates tax laws), Executive branch (enforces tax laws), Judiciary (settles tax disputes).

What is a direct tax?

A tax where legal and economic incidences fall on the same person.

What is an indirect tax?

A tax where legal and economic incidences fall on different individuals.

What are the goals of taxation?

Revenue generation, redistribution of wealth, and regulation of economic behavior.

How do high taxes affect economic growth?

High taxes can have a negative effect on economic growth.

What is progressive taxation?

A tax system where higher income individuals pay a higher percentage compared to lower income individuals.

What is regressive taxation?

A tax system where average tax rates decrease as income increases.

What is a proportional tax?

A tax system where tax liability as a percentage of wealth remains the same regardless of income.

What is incidence of tax?

It refers to who ultimately bears the burden of the tax.

What are personal taxes?

Taxes that are directed at individuals or take into account their specific characteristics.

What is a transactional tax?

Taxes imposed on transactions that do not consider the personal situation of the individual.

What does the term 'tax base' refer to?

The total amount of assets or income that is subject to tax.

What is the VAT?

Value Added Tax, the most important general transaction tax.

What is the purpose of tax credits?

Tax credits reduce the amount of tax liability on a dollar-for-dollar basis.

What is the definition of taxable income?

Taxable income is the amount of income subject to tax after deductions and exemptions.

What are allowances and deductions?

Allowances and deductions reduce the amount of income available to tax.

What is the difference between average tax rates and marginal tax rates?

Average tax rate is total taxes divided by total taxable income; marginal rate applies to the last unit of income earned.

What is global taxation?

A system where income and wealth are taxed based on total global activities.

What is source jurisdiction in taxation?

Taxing authority limited to activities and properties of individuals within a specific state's borders.

What is tax planning?

A method by which taxpayers select options that will yield the most favorable tax outcome.

What is tax avoidance?

Using legal methods to minimize tax liability through loopholes.

What is tax evasion?

The illegal act of not paying owed taxes.

What is the purpose of international tax treaties?

To provide rules that address jurisdictional issues between states.

What is the role of the tax authority?

To assess, collect, and enforce tax liabilities impartially and proportionately.

What is a tax return?

A statement of information submitted to the tax authority to determine tax liability.

What happens during an audit by the tax authority?

The tax authority examines a taxpayer's records to confirm compliance with tax laws.

What is the significance of tax liability?

Tax liability represents the amount of tax that an individual owes to the government.

What are withholding taxes?

Taxes withheld by a third party from payments made to a taxpayer.

What constitutes criminal tax law?

Crimes like tax evasion and fraud, which result in legal penalties.

How do exemptions affect taxability?

Exemptions allow certain types of income to be free from tax.

What is deadweight loss in taxation?

Economic inefficiency that occurs when taxes distort economic decision-making.

What does it mean to tax net wealth?

Taxing an individual's total assets minus their liabilities.

What is an estate tax?

A tax levied on the value of the deceased's entire property.

What is an inheritance tax?

A tax applied only to the portion of the estate received by the heir.

What kind of taxes are estate and gift taxes?

Taxes imposed on the transfer of property ownership.

What principle does a flat tax follow?

A tax system with a single proportional tax rate and limited deductions.

What is the invoice credit method?

A method used in VAT where taxes are collected fractionally at each stage of the production process.

What is the purpose of tax regulations?

To ensure compliance and uniform application of tax laws.

What does 'tax burden' refer to?

The total economic impact of taxation on individuals and businesses.

How does tax policy affect economic behavior?

Tax policy influences decisions on work, investment, and consumption based on tax consequences.

What is a tax relief provision?

Provisions that lessen the tax burden on individuals or corporations.

What are the implications of globalization on taxation?

Globalization raises questions about fair tax distribution among multinational corporations.

What is tax competition?

When countries create tax policies to attract businesses and commerce.

What role do tax treaties play internationally?

They help prevent double taxation and clarify jurisdictional issues between countries.

What is the significance of the timing of income taxation?

Income is taxable when it is realized, meaning when it is actually received or recognized.

What types of taxation can incentivize economic growth?

Taxes that are neutral can incentivize economic growth by minimizing behavioral distortion.

What is a compliance failure in tax obligations?

Failing to meet tax filing and payment responsibilities, resulting in penalties.