[PDF] Principles of taxation

PRINCIPLES
OF
TAXATION

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
(A) Tax Systems..........................................................................................................................1
(B) Various types of tax in UK taxation System.........................................................................6
CONCLUSION ...............................................................................................................................7
REFERENCES ...............................................................................................................................8

INTRODUCTION
United Kingdom tax is possibly one of the longest sets of tax codes in the world from a
micro view. UK tax or the most expects is relatively straight forward. Taxation in the united
kingdom may involve payments to at least three different levels of government such as central
government, local government and develop government (Basu, 2016). Central government
revenues come primarily from income tax, national insurance contributions, value added tax and
fuel duty. Local government revenues come primarily from grants from central government
funds, business rates in England and Wales. Many resources will declare the UK tax system is
complex.
In this report covers progression taxation, regressive taxation, proportional taxation and
ad valorem principle that re define united kingdom tax system. Identify different types of tax in
UK taxation system.
MAIN BODY
(A) Tax Systems
Progressive taxation
It is describing as a higher percentage of taxes from people with higher incomes. It
elaborated that the more an individual earns, the higher his average rate of tax will be. It effected
as Lower to higher income group and decided tax rate according to earning that is follows as -
 Income tax threshold (0%) - £ 10000
 Basic rate 20% - £10000, to £31865
 Higher rate 40% - £31866 to £150000
 Additional rate 45% - income over £150000
The aim of of progressive tax are as follows -
 It is using to bring down inequality between lower average taxes and low wage earners.
 Identification of the decreasing marginal utility of revenue (Brooks, 2015).
 To addition the motivator for people to take reduced paid jobs like as move off benefits
into work.
For example -
Income tax % of income
1500 0
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1800 0
2500 0
3000 0
Tax threshold 3500 0
5000 0
6500 273 4.20%
25% basic rate 7000 500 7.10%
8500 799 9.40%
9000 1000 11.10%
11000 1500 13.60%
12500 1825 14.60%
13000 2000 15.40%
15000 2500 16.70%
Interpretation – Income tax threshold of £5000 that is shows that no need to pay any income tax
on first £5000. Then marginal income is taxed at 25% that means someone earning £6500 pays
£273 or 4.2% of their income in tax. If some one earning £15000 pays £2500 or 16.7% od
income in tax.
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(Source: Progressive taxation. 2016)
Interpretation – In this case when person earning £10000 is paying 20% for their income in tax.
Is is estimate that £2000 paying tax on their income. When the person earning £20000 is liable to
paying according to taxation system is 30% of there particular income so after calculation it is
£6000 is paying.
Regressive taxation
A regressive tax is tax obligatory in such a way that the tax rate reduce as the amount in
the subject to taxation rise up. It is report an arrangement effect on income or expenses, mention
to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal
tax rate (Frecknall-Hughes, 2014).
Reasons for regressive taxes -
 A regressive taxes are non distortionary because may in income tax people discourage
from working.
 This tax may be organized in order to cut down demand for disadvantage goods and good
with neutral position like as a tobacco tax
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 Tax parts are highly progressive but therefore some regressive taxes will not reason
intense difference because they are calculated balanced by the progressive tax (Wallace,
2015).
(source: Regressive taxation. 2016)
Interpretation – This chart on the basis of assume that there are poll tax of £3000 is paid
regarding to income. In the above case the person earning £10000 of the rate 30% of their
income in tax £3000. So according to case if some one earning £30000 so liable to pay 10% of
their income is £3000. and some one earning £100000 have to pay just 3.33% of their income
tax.
Examples of regressive taxes1. Gambling taxes – Those on low incomes have a high propensity to spend money on
gambling and there fore pay a higher percentage of their income on gambling expense.
2. Excise duty – Those on high income may spend more on petrol, but it is unlikely to be
too significant, therefore as income rises, the percentage of income going on petrol tax is
likely to fall.
Proportional taxation
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It is the form of taxing execution there are taxing authority accusation the equal rate of
tax form each tax payer person, regardless of net income (Tresch, 2014). This implementation
that lower class or middle class or high class people pay the same quantity of tax. Since the tax is
charged at a level rate for every one, whether earning higher income or lower income, so it is
also known as flat tax (Henneman, 2015).
This tax related to that theory is everyone is equal and taxes will be charged in equal way
with everyone. It is happen when an increase in income leads to the same percentage in tax. In
this tax it is not good to charge more if anybody having a higher income. The government of UK
charges a flat rate 30% on the income earned by the companies in UK.
For example – National insurance contributions (NICs) and Sales tax is also an example of this
tax because all customers related to income, they are paying to the same fixed rate. If same tax
rate apply on individuals so flat taxes can be reasoned regressive because a big amount of
income is take from those with lower incomes.
It is divided in the equity to described of the proportional taxation system, they are as
follows -
Horizontal equity – In this section pretend equal treatment of the people that are related to same
situation. So these types of people provides equity because they do no feel inequality.
Vertical equity – This type of equity are distribution from the amended off to the better off in the
cause of taxes this way the rich gainful proportionately more taxes than the poor.
Ad valorem principle
An ad valorem tax is a the value of assessed for example, land or individual property. The
examination between particular and ad valorem tax collection has been one of the most
established issues in broad daylight fund. It is an assessment of taxation regarding real estate and
sectors that remain associated with creating plans and obligations for creating valuable aspects
and variations. In Cournot markets, with deterministic costs structures, tried and true way of
thinking has it that ad valorem taxation tax‐revenue commands specific. The ramifications of
this, from a strategy point of view, is that the exact assessment of the two sorts of tax assessment
requires an unequivocal thought of cost uncertainty. The most normal advertisement valorem
charges are property taxes levied on land (Johnson, 2014).
Valuation under this taxation assessment mainly based upon saving property taxes and
the leading business accountability. The management mainly helps in assessing the requirements
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on the basis of size, conditions utility and locations. The assessed value also helps in managing
the sections with creating aspects. This assessments may also stretch out to various expense
applications, for example, import obligation imposes on products from abroad. It is demonstrated
that within the sight of vulnerability, in regards to firms' cost structures, and under sensible
conditions, the standard way of thinking probably won't hold.
(B) Various types of tax in UK taxation System
The system of tax in the united Kingdom not describe easily because it has the biggest tag
in world since 2009. UK taxation normally relate to payments to the central government agency
called is Her Majesty's Revenue and Customs (HMRC) and local councils. When local
administrative unit are collected to tax known as is business rates from enterprises and council
tax from social unit. The UK government collect to various types tax from public of UK, they
are as follows -
 Income taxes - The government of united kingdom earns more of the income from
income tax. It also provides to individuals to allowances in income tax and for the scope
of imposing tax are earning up to related amount. The amount of allowances that are
related to taxation is 5225 pounds in the year of 2007-08 for the people prevarication
under the age of 65. According to years the structure changed of income tax (Murphy,
2017). In this tax including capital gain tax that are helping to acquired by marketing as
well as dealing the capital assets such as shares and bonds. This profit can also be earned
by the trading of real assets like as holding.
Capital gain tax are computed according to the companies on the basis of profit. The companies
provide allowance as a indexation are related to retail price cost and the assets tax, which is a
increasing amount. They are not expedited with any annual immunity.
 Corporation tax – In the united kingdom public occupy and habitation have on their
profit have to upper pay the corporation tax. If the enterprises are continually working
and set in the UK so UK government controlled of management of the company and they
will be activated for the companies like as a localise of the UK. Hence the corporation tax
has the range they will be taken below (Peeters, 2014). For the small and middle level
companies are applied on tax reductions and a tax rebate is allowed on the cost of
intangible assets like as company's goodwill and intellectual property etc after 31 march
2002.
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The rate of corporation tax is 30% which is equivalent to required on the revenues if it goes on
the far side a definite bound and that is 150000 pounds. But now companies sets level, the rate is
19% and that limit is 30000 pounds.
 Value added tax – It practical on the commerce of rateable products or services are
prepare in the united kingdom. There are origin of third biggest origin of revenues related
to the UK central government. These are relevant of exported and imported goods that
comes from or goes external side of the European union as well.
Collection of 66000 pounds that is less than to net profit will be interpreted below the direction
of this tax on the basis of cash but not invoice (Riccardi, 2018). In the taxation system set
standard rate is 17.5% related to value added tax. Further more some goods and services are
broken out of the range of value added tax and other like national fuel and quality and also
consider in various power saving outfits etc, are rated at 5%.
 Excise duties – These instruments are basis on various things like motor vehicles,
mineral oils, alcoholic products, tobacco.
 Motor tax – They are open up the vehicle excise fuel duty and excise duty. Many other
taxes that are applied by UK government such as London's congestion charge, statutory
fees etc., are also included in motor tax.
 Stamp duty – It is obligatory that movement of shares and some products. The rate of
stamp duty on shares is 0.5%. It is not levied on transaction, but on the land transactions
are calculated stamp duty tax that has to paid (Szudoczky, 2016).
 Inheritance tax – Any person, localise in the country, discontinue then the range of
acquisition tax will be opened. The instrument will be upon expiry and few long time
movement at a proportion of 20% and 40% individual. However, no tax will be charged
on the first 285000 pounds.
CONCLUSION
The above report is based upon UK taxation laws and legislations. The evaluation helps
in determining the taxation system such as progressive regressive, proportional and ad valorem
principle of assessing taxation. Various type of taxation in UK taxation system are illustrated in
this report that provides relevancy subject to understanding tax assessment.
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REFERENCES
Books and Journals
Basu, S., 2016. Global perspectives on e-commerce taxation law. Routledge.
Brooks, T., 2015. Climate change justice through taxation?. Climatic change. 133(3). pp.419-
426.
Frecknall-Hughes, J., 2014. The Theory, Principles and Management of Taxation: An
Introduction. Routledge.
Henneman, J. B., 2015. Royal Taxation in Fourteenth-Century France: The Development of War
Financing, 1322-1359 (Vol. 1443). Princeton University Press.
Johnson, M., 2014. James M. Buchanan, Chicago, and post-war public finance. Journal of the
History of Economic Thought. 36(4). pp.479-497.
Murphy, L. B., 2017. Institutions and the Demands of Justice. In John Rawls (pp. 3-44).
Routledge.
Peeters, B., 2014. Mobility of EU citizens and family taxation: a hard to reconcile combination.
EC Tax Review. 23(3). pp.118-120.
Riccardi, L., 2018. Introduction to Taxation. In Introduction to Chinese Fiscal System (pp. 1-5).
Springer, Singapore.
Szudoczky, R., 2016. Double Taxation Relief, Transfer Pricing Adjustments and State Aid Law:
Comments. In State Aid Law and Business Taxation (pp. 163-184). Springer, Berlin,
Heidelberg.
Tresch, R. W., 2014. Public finance: A normative theory. Academic Press.
Wallace, S. L., 2015. Taxation in Egypt from Augustus to Diocletian. Princeton University Press.
Online
Progressive taxation. 2016. [online]. Avilable through: <https://www.economicshelp.org/wp-
content/uploads/2017/12/progressive-tax.png>
Regressive taxation. 2016. [Online]. Avilable through:
<https://www.economicshelp.org/macroeconomics/fiscal-policy/regressive-tax/>
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