The Role Of Taxation In An Economy Economics

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Added on 2021-04-27

The Role Of Taxation In An Economy Economics

Added on 2021-04-27

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The Role Of Taxation In An Economy Economics_1

Purpose of taxation in the modern economyA taxation system impacts on the economy of a country as a whole.Economic, social and environmental factors may affect the government’s tax policiesFocus on UK tax system: Finance Act 2019 The UK tax system encourages (economic aspects):1.Saving on the part of the individual, by offering tax incentives such as tax-free Individual Savings Accounts (ISAs) and tax relief on pension contributions2.Charitable donations through Gift Aid scheme3.Entrepreneurs who build their own business, through reliefs from capital gains tax4.Investment in Plant & Machinery through capital allowances5.Marriage and civil partnerships through transferable personal allowance (marriage allowances).The UK tax system discourages:1.Motoring – fuel duties2.Smoking and alcoholic drinks – taxes on these items

The Role Of Taxation In An Economy Economics_2

Purpose of taxation in the modern economy•Social aspect:•In a free market, some individuals generate greater amounts of income and capital than others and once wealth has been acquired, it tends to grow through the reinvestment of investment income received.•This can lead to the rich getting richer and the poor poorer, with economic power becoming concentrated in relatively few hands.•Electors make the value judgment that these trends should be countered by taxation policies which redistribute income and wealth away from the rich towards the poor.

The Role Of Taxation In An Economy Economics_3

Purpose of taxation in the modern economyDifferent taxes have different social effects:•Direct taxes: based on income and profits (income tax), gains (capital gains tax) or wealth (inheritance tax). These taxes tax only those who have resources•Indirect taxes: paid by the consumer (VAT). These discourage spending and encourage saving. Lower or nil rates of tax can be levied on essentials, such as food•Progressive taxes: e.g income tax, where the proportion of the income or gains paid over in tax increases as income/gains rise, target those who can afford to pay. Personal allowances and the rates of taxation can be adjusted so as to ensure that those on very low incomes pay little or not tax•Taxes on capital or wealth ensure that people cannot avoid taxation by having an income of zero and just living off the sale of capital assets

The Role Of Taxation In An Economy Economics_4

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