An overview of the characteristics of taxes and methods of taxation

Characteristics of a good tax system adam smith

Although opinions about what makes a good tax system will vary, there is general consensus that these five basic conditions should be maximized to the greatest extent possible. For a VAT and sales tax of identical rates, the total tax paid is the same, but it is paid at differing points in the process. Some countries impose taxes on raw materials, intermediate goods e. In order to prevent the death duties from being circumvented through an exchange of property prior to death, tax systems may include a tax on gifts above a certain threshold made between living persons see gift tax. We also can find out who in broad terms pays the tax and who benefits from tax exemptions, deductions, and credits. A carbon tax is a tax on the consumption of carbon-based non-renewable fuels, such as petrol, diesel-fuel, jet fuels, and natural gas. License fees[ edit ] Occupational taxes or license fees may be imposed on businesses or individuals engaged in certain businesses. Regressive tax: A tax is regressive if those with low incomes pay a larger share of income in taxes than those with higher incomes. The VAT , which increased in popularity during the second half of the 20th century, is commonly collected by allowing the taxpayer to deduct a credit for tax paid on purchases from liability on sales. In most countries, the stamp has been abolished but stamp duty remains. It is an example of the concept of fixed tax.

Proponents of land-value tax argue that it is economically justified, as it will not deter production, distort market mechanisms or otherwise create deadweight losses the way other taxes do. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing requirements.

principles of taxation ppt

Similar taxes may exist on tobaccopornographyetc. Taxes on legal transactions are levied on the issue of shares, on the sale or transfer of houses and landand on stock exchange transactions.

The question of whether they are generally progressive or regressive is a subject of much current debate. The same tax rate can be applied to all taxed items, or different items such as food or clothing can be subject to different rates.

definition of taxation by different authors

Multiple jurisdictions may tax the same property. The VATwhich increased in popularity during the second half of the 20th century, is commonly collected by allowing the taxpayer to deduct a credit for tax paid on purchases from liability on sales.

These taxes may be imposed in both the country and sub-country levels. Multistage taxes are applied at each stage in the production-distribution process. Fairness, or equity, means that everybody should pay a fair share of taxes.

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Characteristics of an Effective Tax System