TAXATIONTAXATION

TO RAISE REVENUE TO TO RAISE REVENUE TO FINANCE GOVERNMENTFINANCE GOVERNMENT

TYPES OF TAXESTYPES OF TAXES

1.1. INCOME TAX (PROGRESSIVE)INCOME TAX (PROGRESSIVE)

2.2. NATIONAL INSURANCE (NIC) – for the Job NATIONAL INSURANCE (NIC) – for the Job Seekers Allowance, paid by both the employer Seekers Allowance, paid by both the employer and employeeand employee

3.3. VALUE ADDED TAX (VAT)VALUE ADDED TAX (VAT)

4.4. COUNCIL TAX COUNCIL TAX

5.5. CAPITAL GAINS TAX (CGT)CAPITAL GAINS TAX (CGT)

6. EXCISE DUTIES (petrol, alcohol, 6. EXCISE DUTIES (petrol, alcohol, cigarettes) – to duscourage cigarettes) – to duscourage spending spendingspending spending

7. CORPORATION TAX ( on the firm’s 7. CORPORATION TAX ( on the firm’s profits)profits)

8. CAPITAL GAINS TAX (CGT)8. CAPITAL GAINS TAX (CGT)

9. CAPITAL TRANSFER TAX9. CAPITAL TRANSFER TAX

BUSINESS CYCLEBUSINESS CYCLECutting taxes – incomes are higher – demand for Cutting taxes – incomes are higher – demand for more products – increase of output – reducing more products – increase of output – reducing unemploymentunemployment

Increase in demand – higher prices – inflation Increase in demand – higher prices – inflation

Cutting taxes = increase in government spendingCutting taxes = increase in government spending

Governments cut taxes in a recession – increase Governments cut taxes in a recession – increase taxes during a boomtaxes during a boom

The function of taxationThe function of taxation raise revenue to finance government raise revenue to finance government

expenditureexpenditure

encourage capital investment (reduceencourage capital investment (reduce

tax bills)tax bills)

dissuade people from smoking, drinkingdissuade people from smoking, drinking

Arguments in favour of taxation Arguments in favour of taxation and government spendingand government spending

1. Developing the infrastructure (roads, 1. Developing the infrastructure (roads, rails, electricity supply, water supply)rails, electricity supply, water supply)

2. Everybody has to contribute toward 2. Everybody has to contribute toward

the support of the government the support of the government (education, health, culture)(education, health, culture)

3. Widespread poverty leads to crime3. Widespread poverty leads to crime

Arguments againstArguments againsttaxation and government taxation and government

spendingspending

1.1. The money people earn is their money, The money people earn is their money, the result of hard work, they should be the result of hard work, they should be kept as low as possiblekept as low as possible

2.2. Taxing savings and capital gains Taxing savings and capital gains encourages consumption and reduces encourages consumption and reduces capital accumulation and therefore capital accumulation and therefore reduces everyone’s future prosperityreduces everyone’s future prosperity

TAX EVASIONTAX EVASION Black/underground/grey/ hidden Black/underground/grey/ hidden

economy (undeclared jobs)economy (undeclared jobs) moonlight, moonlightersmoonlight, moonlighters head offices in tax havens head offices in tax havens laundering money/ launder money laundering money/ launder money

through an offshore bank/ money through an offshore bank/ money

laundry (drugs, prostitution, peoplelaundry (drugs, prostitution, people

trafficking)trafficking)

TAX AVOIDANCE (loopholes)TAX AVOIDANCE (loopholes) perks/benefitsperks/benefits

(company cars, mobile phones, free (company cars, mobile phones, free health insurance, subsidized lunches)health insurance, subsidized lunches)

tax shelters (life insurance policies, tax shelters (life insurance policies, pension funds – postpone the payment of pension funds – postpone the payment of tax)tax)

tax deductibles – donations to charitiestax deductibles – donations to charities tax loss – profits used fir new capital tax loss – profits used fir new capital

expenditureexpenditure

MATCH THESE EXPRESSIONS WITH MATCH THESE EXPRESSIONS WITH TAXTAX TO THEIR DEFINITIONS TO THEIR DEFINITIONS

1.1. Tax deductibleTax deductible a) legal means of not paying tax a) legal means of not paying tax

2.2. Tax rateTax rate b) trying not to pay tax (illegal) b) trying not to pay tax (illegal)

3.3. Income taxIncome tax c) trying not to pay tax (legal)tax collected at each stage c) trying not to pay tax (legal)tax collected at each stage

4.4. Tax shelterTax shelter d) tax added to the price of many goods and services d) tax added to the price of many goods and services

5.5. Tax havenTax haven e) the percentage of the value of something to be paid as tax e) the percentage of the value of something to be paid as tax

6.6. Tax lossTax loss f) a way to delay the payment of tax to a later time f) a way to delay the payment of tax to a later time

7.7. Value-added taxValue-added tax g) a place where taxes are low g) a place where taxes are low

8.8. Tax avoidanceTax avoidance h) expenditures taken away from taxable income/profit h) expenditures taken away from taxable income/profit

9.9. Tax evasionTax evasion i) tax on salaries and wages i) tax on salaries and wages

10.10. Tax loopholeTax loophole j) loss made by a company for which relief from tax is j) loss made by a company for which relief from tax is givengiven