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Chapter No 2 Tax

The document discusses various topics related to taxation including: 1) Definitions of tax, different forms of business organization (sole proprietorship, partnership, company), and the purposes of taxation which include financing government expenditures and public services. 2) Requirements of a good tax structure including raising revenue, paying taxes according to ability, and being non-discriminatory. 3) Adam Smith's four canons of taxation - equality, certainty, convenience, and economy - which are still considered characteristics of a good tax system. 4) Types of taxes like direct, indirect, proportional, progressive, regressive, and degressive taxes. It also provides examples of different direct

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39 views24 pages

Chapter No 2 Tax

The document discusses various topics related to taxation including: 1) Definitions of tax, different forms of business organization (sole proprietorship, partnership, company), and the purposes of taxation which include financing government expenditures and public services. 2) Requirements of a good tax structure including raising revenue, paying taxes according to ability, and being non-discriminatory. 3) Adam Smith's four canons of taxation - equality, certainty, convenience, and economy - which are still considered characteristics of a good tax system. 4) Types of taxes like direct, indirect, proportional, progressive, regressive, and degressive taxes. It also provides examples of different direct

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salwaburiro
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CHAPTER NO 02

TAXES
Forms of organization
 Sole proprietorship

 Partnership

 company
TAX
Definition
A fee charged (levied) by a government on
a product, income, or activity.

 The purpose of taxation is to finance government


expenditure. One of the most
important uses of taxes is to finance public
goods and services, such as street lighting and street
cleaning etc
Requirement of a Good Tax Structure /
System
 The tax structure is a part of economy. No tax system that does
not satisfy these basic conditions can be termed as good one.

1) The primary aim of the tax should be to raise revenue for


public services.

2) People should be asked to pay taxes according to their ability


to pay and assessment of their taxable capacity should be
made primarily on the basis of income and property.

3) Tax should not be discriminatory in any aspect between


individuals and also between various groups.
 Adam Smith was the first economist to develop a
list of Canons of Taxation. These canons are still
regarded as characteristics or features of a good
tax system.
 Adam Smith gave following four important canons
of taxation.

 1. Canon of Equality

 2. Canon of Certainty

 3. Canon of Convenience

 4. Canon of Economy
1. Canon of Equality

 social justice to the people.

 every person should pay to the government


depending upon his ability to pay.
2. Canon of Certainty

 According to Adam Smith, the tax which an


individual has to pay should be certain, not
arbitrary. The tax payer should know in advance
how much tax he has to pay, at what time he has to
pay the tax, and in what form the tax is to be paid
to the government.
3. Canon of Convenience

 The mode and timing of tax payment should be as


far as possible, convenient to the tax payers.
4. Canon of Economy

 This principle states that there should be economy


in tax administration. The cost of tax collection
should be lower than the amount of tax collected.
Types of tax

1. If tax is levied directly on personal or corporate


income, then it is a direct tax.
2. If tax is levied on the price of a good or service,
then it is called an indirect tax.

 The term direct tax generally means a tax paid


directly to the government by the persons on whom it
is imposed.
Types of tax
 Proportional

 Progressive

 Regressive

 Degressive
Proportional Taxation

 Itis a tax system in which the tax rate remains


constant.
Progressive taxation

In progressive taxation, as your income increases,


tax rate also increases.
Regressive Taxation

 Itis one where the rate of tax decreases as income


increases.  So, the rate of tax decreases for higher
incomes.
Degressive Taxation

 It is one where the rate of tax increases up to a


certain limit and after that the rate of tax is
constant for further increases in income.  This
system may be called as a mixture of proportional
and progressive tax systems.
Single and Multiple Tax Systems
 Single Tax means only one kind of tax.  It implies tax on
only one thing or one class of things or one class of people. 
The tax may be collected regularly at periodic intervals.

 Multiple tax system means a tax system comprising several


types of tax.  They may include both direct and indirect
taxes.  In such a system, every class of citizen may be called
upon to “contribute his mite” towards State revenues.
Direct tax include
 A direct tax is one imposed upon

 Income tax 
 corporation tax
  property tax 
 inheritance (estate) tax
 gift tax 
 Livestock
 crops
Indirect tax include
 customs duty
  central excise duty
  service tax
  sales tax
  value added tax (VAT)
  securities transaction tax
 An indirect tax (such as sales tax, a specific
tax, value added tax (VAT), or goods and services
tax (GST) is a tax collected by an intermediary
(such as a retail store) from the person who bears
the ultimate economic burden of the tax (such as
the consumer).

A direct tax is one that cannot be shifted by the


taxpayer to someone else, whereas an indirect tax
can be.
 An indirect tax may increase the price of a good so
that consumers are actually paying the tax by
paying more for the products. Examples would be
fuel, liquor, and cigarette taxes.
 Following
are the PROPOSED INCOME TAX
SLAB RATES FOR SALARIED CLASS IN
PAKISTAN 2013-14.

 Total number of tax slabs had been increased from


the current six to 12. According to officials, the
incidence of income tax on middle income group
has also been increased.
S.No Taxable income Rate of tax
1 Where the taxable income does not exceed Rs.400,000 0%
2 Where the taxable income  exceeds Rs.400,000 but does not exceed 5% of the amount exceeding Rs.400,000
Rs.500,000
3 Where the taxable income  exceeds Rs.500,000 but does not exceed Rs.5,000 + 7.5% of the amount exceeding
Rs.800,000 Rs.500,000
4 Where the taxable income  exceeds Rs.800,000 but does not exceed Rs.27,500 + 10% of the amount exceeding
Rs.1,300,000 Rs.800,000
5 Where the taxable income  exceeds Rs.1,300,000 but does not exceed Rs.77,500 + 12.5% of the amount exceeding
Rs.1,800,000 Rs.13,00,000
6 Where the taxable income  exceeds Rs.1,800,000 but does not exceed Rs.140,000 + 15% of the amount exceeding
Rs.2,200,000 Rs.1,800,000
7 Where the taxable income  exceeds Rs.2,200,000 but does not exceed Rs.200,000 + 17.5% of the amount exceeding 
Rs.2,600,000 Rs.2,200,000
8 Where the taxable income  exceeds Rs.2,600,000 but does not exceed  Rs.270,000 + 20% of the amount exceeding Rs.
Rs.3,000,000 2,600,000
9 Where the taxable income  exceeds Rs.3,000,000 but does not exceed  Rs.350,000 + 22.5% of the amount exceeding  Rs.
Rs.3,500,000 3,000,000
10 Where the taxable income  exceeds Rs.35,00,000  but does not exceed Rs. 462,500 + 25% of the amount exceeding 
Rs.4,000,000 Rs.3,500,000
11 Where the taxable income  exceeds Rs.40,00,000 but does not exceed Rs.587,500 + 27.5% of amount exceeding the
Rs.7,000,000 4,000,000
12 Where the taxable income  exceeds Rs.7,000,000 Rs.1,412,500 + 30% of the amount exceeding 
Rs.7,000,000”
THE END

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