micro tax system
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it is about tax systemTRANSCRIPT
Introduction
Group Members Basit Saeed Faiq
Kamal Faisal Khalid Topic Tax system
What is Tax system Methods of Taxation Tax System of Pakistan A look at some figures
What Is Tax system ?
Ten Principles of Economics: The Government
can sometimes improve market outcomes.
From where does the Government gets its Funds ?????????????
Taxes e.g. In a vegetable market the T.M.A
takes Taxes and in return provides shades and a clean space
Central Government Tax as GDP
TAXES AND EFFICIENCY
Policymakers have two objectives in designing a tax system...
Efficiency Equity
TAXES AND EFFICIENCY
One tax system is more efficient than another if it raises the same amount of revenue at a smaller cost to taxpayers.
An efficient tax system is one that imposes small deadweight losses and small administrative burdens.
TAXES AND EFFICIENCY
The Cost of Taxes to Taxpayers The tax payment itself Deadweight losses Administrative burdens
Administrative Burdens
Complying with tax laws creates additional deadweight losses. Taxpayers lose additional time and
money documenting, computing, and avoiding taxes over and above the actual taxes they pay.
The administrative burden of any tax system is part of the inefficiency it creates.
Dead weight losses
If government raises the tax on cold drinkes people stop taking cold drinks
Similarly if taxes are increased on earning people start to work less and enjoy more leisure
Taxes reduces incentives and hence dead weight losses are increased
Marginal taxes v/s Average TaxesLump sum Taxes
Methods of Taxation
MARGINAL TAX RATES VERSUS AVERAGE TAX RATES
Lump – Sum Taxes
A lump sum tax is a tax of a fixed amount that has to be paid by everyone regardless of the level of his or her income. Lump sum taxes are considered efficient taxes because they do not influence a person’s decision on how much to work.
But why are they no lump sum taxes ????
Lump sum Taxes a Failure in Pakistan For explaining why lump sum taxes cannot work in
Pakistan lets consider only two types of a people for easiness of a MNA and a Unskilled laborer. Average monthly pay of MNA is 360000 and that of laborer is 5000 so if we take the average and 15% to both and lets analyze the results
360000+5000=365000 (adding) 365000/2=185200 (taking average)
(27375/360000)*100=7.6% TAX for MNA
(27375/5000)*100=547.6% TAX for laborer Now the results shows that the laborer have to 5.4 times
more than he earns and the MNA only has to 7.6 percent of his income
How should the burden of taxes be divided among the population?How do we evaluate whether a tax system is fair?
TAXES AND EQUITY
Principles of TaxationBenefits principleAbility-to-pay principle
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Benefits Principle
The benefits principle is the idea that people should pay taxes based on the benefits they receive from government services.
An example is a gasoline tax: Tax revenues from a gasoline tax are
used to finance our highway system. People who drive the most also pay the
most toward maintaining roads.
Ability-to-Pay Principle The ability-to-pay principle is the
idea that taxes should be levied on a person according to how well that person can shoulder the burden.
The ability-to-pay principle leads to two corollary notions of equity. Vertical equity Horizontal equity
Ability-to-Pay Principle Vertical equity is the idea that
taxpayers with a greater ability to pay taxes should pay larger amounts. For example, people with higher
incomes should pay more than people with lower incomes.
Ability-to-Pay Principle Vertical Equity and Alternative Tax
Systems A proportional tax is one for which high-
income and low-income taxpayers pay the same fraction of income.
A regressive tax is one for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers.
A progressive tax is one for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers.
Tax Incidence—the Study Of Who Bears The Burden Of Taxes WHO PAYS THE CORPORATE INCOME TAX?
People pay all taxes The owners, workers or the costumers E.g. if tax is increased on fertilizer
company who will be effected 1. Owners 2. Workers 3. Customers
The Federal Government
Budget Surplus A budget surplus is an excess of
government receipts over government spending.
Budget Deficit A budget deficit is an excess of
government spending over government receipts.
The Federal Government
Financial Conditions of the Federal Budget A budget deficit occurs when there is an
excess of government spending over government receipts. Government finances the deficit by borrowing
from the public. A budget surplus occurs when government
receipts are greater than government spending. A budget surplus may be used to reduce the
government’s outstanding debts.
Governments Spending
Federal Government Spending Expense Category:
Social Security National Defense Medicare Health Other
Tax System Of Pakistan
Direct taxationIndirect taxation
Direct Taxation
Salaries Interest on securities; Income from property; Income from business or professions Capital gains; and Income from other sources.
Indirect Taxation
Customs: goods exported or Imported
Central Excise: limited # of goods produced and services provided . It is charged on the basis of value or retail price. Some items are, however, chargeable to duty on the basis of weight or quantity
Sales Tax : goods imported, supplies made in Pakistan by a registered person
Tax on Companies: All public companies (other than banking companies) incorporated in Pakistan are assessed for tax at corporate rate of 39%.
Ratio Of Direct Taxes And Indirect Taxes In Total Taxes
Sales Tax on Imports
Sales Tax On Domestic Products