ACC5003 Personal and Business Taxation

CONSUMPTION AND INCOME TAX
Tax collection is very important for any country as through this collection
the economy of the country grows, and tax is levied on individuals or
organisations for buying and selling of goods and services.(Miller and Rose
) But as many people are not happy with [paying taxes to the government
but still they are very important for the growing economy as these
contributions are used to build many new projects in the country like for
example school for education, construction of roads,hospitals,wages of
government employee and government servants including others. This is
very much justified to impose tax on the public and organisations for the
welfare of the economy(De Groot 2006)
Classification of tax can be done in two broad categories one is direct tax
and the other one is indirect taxes both taxes can be either in cash or
through electronic way. According to Meade(2013) difference is that direct
taxes is paid directly by the person who is liable to pay like income tax,
property tax, corporation tax .The other is indirect taxes like vat, service
tax ,sales tax which is not directly paid .collection of tax play a very
important role as according to survey 25 to 45 percentage of national
income is collected through tax, Many countries manage their deficit
issues by generating more revenue through collection of tax from public
which is very important to meet the current economy scenario(Vogel
2014)
However about current tax scenario every individual should have clear
and proper understanding of the tax principles and system of it .A clear
understanding and a clear picture gives a proper information of the tax
system in the country which helps the tax payers to easily co link the tax
to be paid to the government.(Mirrlees 2011)
INDIRECT TAXES
Indirect taxes are taxes paid by the tax payer when goods are purchased
from the seller and as a part of the goods value it is paid directly to the
seller of the goods as an expenditure towards the product and then it the
seller responsibility to pass on the taxation part to the government.
Indirect taxes generally include value added tax, postage duty tax,
custom duties and excise duty levied on tobacco products, alcohol and
other products.
The concept of value added tax has received more attention in recent
time. As at the time when European Union formed and consist of ten
states most of the European Union members used value added tax as the

tax policy rather than other tax system. Comparison to old European
Union members(McCormick 2017) they have higher rate of tax compare to
new European Union members states. This difference in tax structure has
increased competition between old European Union member state and
new European member state.(McCormick 2017)
According to Schenk(2015).The value added tax came into effect on 1st
January 1973 in UK.This is tax charged on sales value of the goods. This
tax has become an important source of government revenue and
increasing the treasury of the government fund and it comprise of total of
16 percent of total taxes collected.
The value added tax is such a tax which cannot be avoided and it has to
be paid, though the nation UK has exempted many items which are out of
scope of VAT as comparison to other nation, as UK AND Ireland are the
main nation in the European union in which zero rate tax prevail for most
of the goods like books and clothes to children. In few European nations
there are products in which standard rate of tax is applicable to few
extreme products. The expense on which the vat is applicable is very
high.
According to Keen(2008)The value added tax can be considered as an
income as it is a type of final tax levied on final product and depending
upon the nature of the product prices can vary. The most important fact is
that value added tax can be levied on input part only which ensures that
the small and Medium Enterprises are not taxed. People believe that the
main advantage of value added tax is to increase revenue but the main
purpose is to bring fairness, efficiency and transparency which are
relevant for discussion. Some believe it is a very good tax as it is does not
affect the incentives to work, some argue it is a bad way of generating tax
as the main burden to borne the tax shifted to poor people who are not in
a position to pay rather than on rich people, in reality both the views are
not correct regarding the value added tax.
DIRECT TAXES
Direct taxes are taxes which are paid directly by the individual or
organisations in his or capacity to the authorities of tax. According to
Mirrlees (2012)The main source of income generation of tax authorities
through direct tax are income tax, capital gain tax, corporation tax and
inheritance tax. Companies pay the most important direct tax i.e. the
corporation tax. These taxes rates are looked after by HM Revenue and
custom department which was formed in the year 2005, April through the
merger of Customs and Excise and the Inland Revenue and National
Insurance Premium, they both are managed by National Insurance
Contribution Authority of HMRC.

The income tax slab is made in a progressive pattern slab, that is if you
receive a higher salary than you come under a higher tax bracket and a
higher rate of tax will be payable by you. This idea of progressive pattern
of slab is supported by many great ideologists and scientists. Generally in
almost all nations income tax is applied in a progressive style and this is
accepted with utmost heart and not with any criticism.
Income on which direct taxes applicable are salary income, self employed
income, bank interest, pension income, companies engaged in
construction, business which are non registered and dividend etc.Income
generated as profit from social service are not considered as income and
subject to income tax. Government also allow few income to be non
taxable in the hands of receiver like state pension but government has not
set up any benefit or allowances for people with disability. Any donation
given to relief fund or registered charity can be deducted from the total
income for reduction in tax. Individual is not liable to pay income tax on
certain income such as income from saving certificate,kmk certificate,
saving investment product and individual saving account. Pension
contribution by employer and employee and social security contributions
are not allowed as deduction from employee salary for taxation purpose.
(MacDonald and Osberg 2014)
ADAM SMITH AND FOUR CANONS?
According to Adam smith taxes should be taxed in such a way and
accordingly in a way the citizen derives benefit from the state and the
taxing system should be appropriate, fairer and effective.
The tax should be proportioned in such a way the person derives benefit
from living in the society. The proportion of income should be very much
fair whether it is a rent, wages, income or profit. Adam also pointed out
that how few taxes like luxury tax fall dis proportionately only on the rich
people but is not bad too, but the main principle which smith focussed on
is proportionately. Every state needs to contribute towards the
government according to the earning capacity and profit and the
protection and benefit derived from the state in proportion to their ability
and benefit derived from the state.
Smith compared the tax system to the joint owners of an estate ,who are
obliged to contribute on the basis of the respective interest derived from
the estate. So taxpayers are also like shareholders whose shareholding is
more in a venture contributes more and whose shareholding is less they
contribute accordingly, this is similar to Nozicks theory of a private state.
Adam smith second point is that the tax which is required to paid by
everyone in the nation should be certain and clear enough .The time of
payment, manner and quantity of amount to be paid should be clear to
the tax payer and every other person .Knowing taxes to be paid by the tax
payer makes to create better plans for future investment and also