Analysis of Tax Systems: Progressive, Regressive, and UK Tax Laws

This report provides a comprehensive overview of tax systems, focusing on progressive and regressive models, with examples illustrating their application and impact. It delves into the sources of UK tax law, differentiating between direct and indirect taxes and examining the roles of statute law, case law, and HMRC guidance. The report then contrasts tax avoidance and tax evasion, outlining their implications for both individuals and the government, including legal and economic consequences. The analysis includes comparisons between the two tax systems and offers an opinion on which is fairer. The report concludes with a discussion on the implications of each for the economy and the government. The document is contributed by a student to be published on the website Desklib. Desklib is a platform which provides all the necessary AI based study tools for students.

PRINCIPLES OF TAXATION

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
TAX SYSTEMS .............................................................................................................................1
Progressive tax systems with examples......................................................................................1
Regressive tax systems with examples.......................................................................................1
Comparison in two systems with opinion on better and fairer system.......................................2
SOURCES OF TAX LAWS............................................................................................................3
Discussing different sources of tax law In UK...........................................................................3
TAX AVOIDANCE VERSUS TAX EVASION............................................................................5
Differentiating among tax avoidance and evasion with implications of both on individual and
on government.............................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Tax is replicates as compulsory payment made through individuals and companies to
government with context to well established rules along with criteria like property owned,
income earned, capital gains made or expenditure incurred on imported and domestic articles.
The present report will provide discussion about progressive and regressive tax system with
appropriate examples. Similarly, this would give comparison of these tax systems and discussion
of different sources of tax law in UK. Lastly, this report will differentiate among tax avoidance
and tax evasion with reference to implication of both on individual and on government as well.
TAX SYSTEMS
Progressive tax systems with examples
Progressive tax is a tax rate which is taxable as value raises as this is segmented into tax
brackets which progress to successively with higher rates. This is a tax which impose lower tax
rate on earners of low income compared with higher income on basis of ability of taxpayer to
pay. It means for undertaking larger percentage through high income earners than it does from
individuals of low income (Bird and Davis-Nozemack, 2018). This is the one which charges of
high tax rate for one who earns high income. The main reason behind this that lower income
would spend a great percentage of their lower income for maintaining standard of living.
Simultaneously, who are richer typically afford the necessities in life. This system decreases the
tax burdens on people who could least afford for repay and these systems leave more money in
pockets of low-wage earners who spend money and stimulate the economy. This tax systems has
capability for collecting more taxes comparatively to flat taxes and tax rates indexed for
increment as income climb. In simple words, it allows people with great amount of resources to
fund a high portion of services as everyone relies to people and business .
The example of progressive tax are stated as investment income taxes which are most of
the activities which generate income and it reduces through excess money for involving and
saving in investment. Similarly, estate tax is form of tax levied against whom succeed a deceased
as this only applies when estate of deceased is above a specific amount as set through
government.
Regressive tax systems with examples
Taxes are regressive when it impose harsh burden on poor compared to rich. On basis of
poor families, high proportion of their income pays for food, transportation and shelter. This tax
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is applied uniformly by undertaking large percentage of income through low income earners
compared to high income earners. Simultaneously, it is applied in such aspect that decrement in
tax rate with increment in income of tax payer. This places high burden on demographics of low
income instead of population of high income and imposes burden is identified through
percentage of tax amount to income. Moreover, low income population carries more burden as
this tax system is not used for purpose of income taxation. On the contrary, this is used with
many other taxes like sales or sin tax. It is directly opposite to progressive tax. This tax system
encourages investment and saving as high income earners pays less tax as they have presence of
discretionary funds for application of savings and investment. These savings and investments,
high earners of income produce more income which is subject to income taxes. If wealthy
generates more income, then theory goes with aggregate of economy and growth GDP to nation.
These taxes raises net government revenue as additional investments generates high taxable
income and cycle initiates again as more wealth, investment, tax revenues and all through lower
regressive taxes.
The example of regressive taxes as A and B went for shopping and bought clothes where
each cost was 300 as rate of sales tax is 13%. However, each paid 39 as taxes and salary of A is
3000 per month and B as 4000. As A and B both paid similar amount of tax, so proportion of tax
amount to income from B was 39/4000 as 0.975% and A as 39/3000 as 1.30%. Henceforth, sales
tax is regressive.
Comparison in two systems with opinion on better and fairer system
 Progressive tax is elaborated as tax whose rate raises along with increment in income of
payer. The individuals who attain high income has high proportion of income undertaken
for paying tax (Progressive tax, 2019). Conversely, regressive rate is one with increment
in rate as with decrement in income of payer.
 Progressive tax is tax where average tax rate or aggregate of total amount paid as
particular income percentage. The tax might be progressive if people with higher income
repays a higher tax rate. On alternative basis, taxes could be progressive if levied tax on
action or purchase which is common in wealthier people such as inheritance tax, luxury
car tax.
 However, regressive tax is opposite with average tax rate or amount of tax paid as
particular income percentage, reduces when income raises (Regressive tax, 2019). The
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example of this tax is lump sum tax, head tax which needs to be paid by every tax payer
as similar tax amount.
Basis Regressive tax Progressive tax
Consideration Indirect taxes Direct taxes
Benefits High income group Low income group
Assessment Asset purchased with
particular percentage
(Difference Between
Progressive and Regressive
Tax, 2019).
On profit or income
In nutshell, opposite of progressive system is regressive tax rate where liability decreases
as increment in taxable amount. Regardless of rate applied, objective of government is to gather
money through citizens and after pooling all money, it give public goods and services such as
security and affordable health care.
SOURCES OF TAX LAWS
Discussing different sources of tax law In UK
The taxation system of UK is composed of number of multiple taxes such as direct or
indirect taxes. Moreover, direct taxes are charged on income, other gains and profit are either
deducted at specific source or directly paid to authorities of tax. The main direct taxes are
payable through individuals are capital gains tax, income tax and inheritance tax. Although main
direct tax payable through organizations are corporation tax. These taxes are directly
administrated through HM revenue and customs merge with inland revenue (Introduction to the
UK tax system, 2018). Simultaneously, Indirect taxes are referred as taxes on spending as they
are charged when taxpayer purchases item paid to particular vendor as contribution of purchase
price of item. This is replicated as duty of vendor for surpassing tax on to authorities of tax. The
indirect taxes considers value added tax, custom duties, stamp duties along with excise duties
which are directly levied on tobacco, alcohol and petrol (Armour and et.al., 2018). There is
absence of any single source of tax law of UK as basic rules laid in Act of Parliament but it is
left to courts for purpose of interpreting these acts and to offer with detail of tax system.
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The tax system of UK applies throughout the UK as England, Wales, Northern Ireland,
Scotland and various other smaller islands around British cost. There is consideration of oil
drilling platforms in British territorial waters but excludes Channel island, Republic of Ireland
and the Isle of man.
Statute law
The basic rules of tax system of UK are directly embodied in numerous tax statues or
with parliament Act (A complete guide to the UK tax system, 2019). At the current stage, main
statues is in force for every tax is stated below:
Although, these statues are directly amended every year through annual Finance Act on
basis of proposals of budget are put forwards through Chancellor of the Exchequer. These tax
statutes offers to make detailed regulation through statutory instrument (Hearson, 2018). This is
a document which is directly laid prior to parliament and then it becomes law within stated
duration unless with objections raised to it.
Case law
Over the past many years, tax authorities and taxpayers have disagreed frequently over
tax act's interpretation. As per its outcome, multiple of thousands of tax cases have brought prior
to courts. Generally, these decisions are made through judges in these cases form important
contribution of UK's tax law.
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HMRC guidance and statement made through tax authorities
The main statements along with other documents generated to HMRC as guidance for
taxation law is stated below:
 Statement of practice sets HMRC interpretation of legislation of tax along with clarifying
method in which law would be applied in practice.
 The Extra Statutory concession comprises relaxation which provides reduction to
taxpayers in liability which is not entitled under strict letter of law. Usually, concessions
are prepared for purpose of resolving anomalies or for relieving hardship. The process of
providing statutory impact to certain ESC is underway and is being done through mode of
statutory instruments.
 Press releases are issued throughout year on variety of related to tax subjects as of special
interests are press releases along with notes issued on daily budget which gives detail
explanation on budget proposals.
 HMRC gives comprehensive set of manual of internal tax for purpose of guidance of its
staff. These manuals might be directly inspected at HMRC enquiry centres linked of
accessed through internet.
TAX AVOIDANCE VERSUS TAX EVASION
Differentiating among tax avoidance and evasion with implications of both on individual and on
government
Tax avoidance is made to beat intent of law by undertaking unfair advantage of
shortcomings with tax rules. This is referred to extracting tools or methods for avoiding taxes
payment which are within limits of law. Generally, this could be done through adjusting accounts
in such manner which would not violate any tax rules and tax concurrence will also be
minimised. Tax invasion is an illegal act made to escape through paying taxes as these illegal
practices could be deliberate concealment of income, accounts manipulations, disclosure of
unreal expenses for deductions, reflects personal expenditure as business expenses,
overstatement of tax credit or suppression of capital gains and profits etc.
Tax avoidance Tax evasion
This minimizes tax liability by undertaking for
not violating tax rules.
It is meant that decreasing tax liability with
application of illegal methods.
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This is replicated as hedging of tax. It implies to tax suppression.
It involves undertaking advantage of loopholes
in law.
This includes the deliberate concealment of
multiple material facts.
The main objective is to reduce burden of tax
with application of script of law.
It helps in minimising the tax liability through
exercising the unfair mean.
The arrangement for tax avoidance is formed
prior with occurrence of liability of tax.
On basis of tax evasion, arrangements are
formed after occurrence of tax liability.
This is completely legal activity. This is a criminal activity.
The outcome of tax avoidance is tax
postponement (Difference Between Tax
Avoidance and Tax Evasion, 2019).
As per consequences of tax evasion, if assessee
is found guilty so either penalty or
imprisonment or both as well.
Implications of tax evasion
 This is very unfavourable influence might be on equity as it misshapes economic
efficiency.
 It gives decreasing effect on growth of the economy.
 Tax evasion through rich society of economy, government is directly forced for raising
tax rates to increase result of revenue each year. In case income tax officer figures about concealed income, penalty would be levied
which could be anywhere up to 3 times the amount of concealed income.
Implications of tax avoidance
It has been implicated that one is exposing to self to significant costs, often higher than
potential tax advantage. One must be always aware of disruption created through revenue
enquiries, prolonged uncertainty and potential litigation about the outcome.
CONCLUSION
On basis of above report, it had been concluded that tax is known as compulsory payment
made by individuals for establishing rules with criteria such as earned income, capital gains
made or on domestic and imported articles. It has shown about analysis of tax systems such as
progressive and regressive tax system with examples as regressive is beneficial to high income
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groups and progressive gives advantages to low income group. Moreover, it has articulated
about sources of tax laws of UK which are statue law, case law and HRMC guidance. Thus, it
has shown about tax avoidance and tax evasion where avoidance is legal but evasion is illegal
activity.
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REFERENCES
Books and Journals
Armour, J. and et.al., 2018. Putting technology to good use for society: the role of corporate,
competition and tax law. European Corporate Governance Institute (ECGI)-Law Working
Paper. (427).
Bird, R. and Davis-Nozemack, K., 2018. Tax avoidance as a sustainability problem. Journal of
Business Ethics. 151(4). pp.1009-1025.
Hearson, M., 2018. Transnational expertise and the expansion of the international tax regime:
imposing ‘acceptable’standards. Review of International Political Economy. 25(5). pp.647-
671.
Online
A complete guide to the UK tax system. 2019. [Online]. Available through
<https://www.expatica.com/uk/finance/taxes/a-complete-guide-to-the-uk-tax-system-
758254/>.
Difference Between Progressive and Regressive Tax. 2019. [Online]. Available through
<https://keydifferences.com/difference-between-progressive-and-regressive-tax.html>.
Difference Between Tax Avoidance and Tax Evasion. 2019. [Online]. Available through
<https://keydifferences.com/difference-between-tax-avoidance-and-tax-evasion.html>.
Introduction to the UK tax system. 2018. [Online]. Available through
<http://catalogue.pearsoned.co.uk/assets/hip/gb/hip_gb_pearsonhighered/samplechapter/
Melville16.pdf>.
Progressive tax. 2019. [Online]. Available through
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/progressive-tax-
system/>.
Regressive tax. 2019. [Online]. Available through
<https://corporatefinanceinstitute.com/resources/knowledge/accounting/regressive-tax-
system/>.
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