Taxation Assignment
Taxation Assignment
Essay I
In taxation tax equity represents the principles of justice of fairness through contributions to the society. Tax refers to compulsory contributions that a government imposes on its people so as to raise revenue. In most instances, the tax is levied on income, property, and goods. The principle of equity in taxes means that taxes should be fairly imposed on different individuals in the society. Tax equity stipulates that the payment of taxes should be based on the ability of an individual to pay (Salis, 2007). This is to say that an individual with a large amount of income must incur higher taxes than individual with middle and low income earners.
There are different categories of tax equity. Horizontal equity is based on the idea that individual with the same capability to pay taxes should pay similar amounts of taxes. One example is a group of income earners earning between $1000 and $2000 per months should pay an equal amount of tax (Toshov & Briumbaugh, 2007). The ideology of horizontal tax equity rises from the concept of neutrality. The concept of neutrality in terms of taxation states that tax systems should not discriminate against similar things and persons. The second category of equity tax is vertical equity, which stipulates that individuals with the greatest potential to pay taxes should pay more. This is to say that individual categorizes rich should pay more taxes that middle and low class individual.
In the society today, it is impossible to apply tax equity. Most tax systems rely on the ability to pay as a mode of taxation. This means that those with the highest ability to pay are taxed more than those with minimal abilities. However, the ability to pay principle is not applicable to all forms of taxes that an individual can face. One example of such a tax is the Value Added Tax (VAT). VAT is a tax that is levied on various goods and services. VAT is standard on consumer’s products. It does not discriminate whether an individual has a means of paying this tax or not. Prior to purchasing a product, an individual is expected to pay the taxes. The aspect of tax equity does not, therefore, apply in this context. The second reason why tax equity is impossible lies in the mode of categorizing tax payers (Salis, 2007). It is tasking to categories potential tax payers as income earners, middle incomer earners or low income earners. A clear cut distinction between the different classes can prove difficult hence making tax equity impossible.
Essay Two
Good afternoon people of Hydrangea. As the Queen of Hydrangea, we assemble today to discuss with you about taxes. The country is in need of taxes and according to Article 1; Section 8 of the Hydrangean Constitution, tax money accumulated will pay Hydrangea’s debts and cater for defense and interests of all Hydrangeans. The practice of taxation should thus not be viewed as a merely a means of raising revenue for the country. It should be seen as the government attempts to attain numerous economic and social goals. These social and economic goals will not only benefit a few individual but will benefit the entire population of Hydrangea. Taxation will enable the government to enhance distributive equity as resources and wealth will gradually shift from the few wealthy individuals to the poor. Hydrangeans should embrace the idea of taxation as it will stabilize the economy in various ways.
First, it will ensure that prices of commonly used goods and services are stable and affordable. Taxes are also important in stimulating economic growth hence better standards of living for the citizens of Hydrangeans.
To generate taxes, the government will introduce a Value Added Tax (VAT) on products of general consumption. The taxation will be of a minimal percentage so that the citizens are not affected by increased prices of commodities. VAT guarantees that all citizens contribute in tax payments when they purchase a product. The VAT mode of payment is preferred compared to direct taxation where the citizens will feel the economic impact of a deduction of their earnings. The second method that the government will rely on to realize taxes involves imposing g taxes on earnings. Tax on earnings means that all individuals earning salaries will be taxed (Bird, 2006).
Taxation on total income will be fairly done in that individuals will high income will be taxed more than those with minimal income. Unlike consumption tax, such as VAT in which assessment of tax revenues is not clearly defined. Tax on income easily be accounted for and put into good use. A tax on earning is also preferred compared to a straight tax as it would make life more expensive for the low income earners. A straight tax is where a tax payer directly pays for a commodity or service before use. Low income earners would be economically pressed by such a form of tax as life would generally be expensive. Another viable source of tax is on property. Property in Hydrangean refers to personal or real estate structures that individual may own. This is a viable way to earn tax as it is easy to track defaulters. It is also easy to track the tax collected from property tax.
The people of Hydrangea are expected to adhere to these taxation methods. The rates of taxation will be reasonable, and citizens will hardly feel the effects. Payment of taxes if areas such as property will be done on a monthly basis. This means that the rates will be more affordable that payment of property taxes on an accumulative yearly basis. Conduct such as tax avoidance and tax evasion will be viewed as forms of non tax compliance that will not be tolerated in Hydrangea.
Sophisticated citizens of Hydrangea, taxation are the surest way of managing local and national expenses. Every citizen must make some sacrifice to see the nation prosper in all spheres. One form of tax that will not be adopted in Hydrangea is business tax. This refers to licenses and operational fee charged on business enterprises. This is a strategy aimed at encouraging potential entrepreneur to open up new ventures. Without operational taxations, foreign investors will venture into Hydrangea and open up more opportunities for citizens (Toshov & Briumbaugh, 2007). Taxation on business entities is the reason why many corporations delay venturing into various countries. The cost of putting up new business entities in areas that emphasize on taxation of business entities is high thus driving investors away. Taxes boost the economic and social growth of a nation. However, they should not be used to impede growth. Not everything on earth must be taxed. Business entities will not be taxed thus encourage entrepreneurs who will subsequently improve the country’s economy.
Reference
Bird, R. (2006). Is VAT the best way to impose a general consumption tax in developing countries? International studies program. Retrieved from http://ayspsprodweb.gsu.edu/drupal/isp/files/ispwp0618.pdf
Salis, G. (2007). A brief introduction to the principle of tax equity. American academy of financial management
Toshov, B. & Briumbaugh, D. (2007). Taxation and Tax policy Issues. Nova publisher
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