What Are The Theories And Basis Of Taxation?

What is the theory of optimal taxation?

The standard theory of optimal taxation posits that a tax system should be chosen to maximize a social welfare function subject to a set of constraints..

What are the 3 types of tax systems?

Tax systems in the U.S. fall into three main categories: regressive, proportional, and progressive and two of the three impact high- and low-income earners differently.

What are types of tax?

In fact, when every tax is tallied – federal, state and local income tax (corporate and individual); property tax; Social Security tax; sales tax; excise tax; and others – Americans spend 29.2 percent of our income in taxes each year.

What are the 3 types of income?

Understanding The Three Types Of IncomeEarned Income. The first type of income is the most common: earned income. … Capital Gains Income. The next type of income that you can earn is called capital gains income. … Passive Income. The final type of income that you can earn is called passive income.

What do you mean by optimal taxation?

Optimal taxation is a set of normative prescriptions for tax policy usually based on maximizing social welfare for a given revenue requirement.

What are the four characteristics of a good tax?

Four characteristics make tax a good tax and they are: certainty, equity, simplicity and efficiency. Certainty is characteristics by which every tax payer must be certain how much tax does he or she own, when payment of tax is due and how it should be paid.

What is expediency theory?

The expediency theory: This theory asserts that every tax proposal must pass the test of practicability. It must be the only consideration weighing with the authorities in choosing a tax proposal. Economic and social objectives of the state as also the effects of a tax system should be treated as irrelevant.

How do you calculate income tax payable?

* Subtract the Deductions under Chapter VI-A from your Gross Total Income. The result will be your total taxable income. After calculating your total taxable income, apply the tax rates relevant for the financial year for which the income has been calculated to compute your tax liability.

What is the benefits principle of taxation?

The benefit principle is a concept in the theory of taxation from public finance. It bases taxes to pay for public-goods expenditures on a politically-revealed willingness to pay for benefits received. The principle is sometimes likened to the function of prices in allocating private goods.

Who are exempted from paying tax in the Philippines?

Updated March 2018 Page 2 2 Starting January 1, 2018, compensation income earners, self-employed and professional taxpayers (SEPs) whose annual taxable incomes are P250,000 or less are exempt from the personal income tax (PIT).

What is the theory and basis of taxation?

9. Theory and basis of taxation • Basis – Taxation is based on the reciprocal duties of protection and support between the government and its people. – Government receives taxes from the people which is used to perform functions of government and other benefits. – Benefit-received theory.

What is the basis of taxation in the Philippines?

The basic source of Philippine tax law is the National Internal Revenue Law, which codifies all tax provisions, the latest of which is embodied in Republic Act No. 8424 (“The Tax Reform Act of 1997”). It amended previous national internal revenue codes, which was approved on December 11, 1997.

What are the main points of the two principles of taxation?

Principles of Taxation The benefit principle of taxation is based on two ideas. The first and foremost is that those who benefit from services should be the ones who pay for them. Secondly, people should pay taxes in proportion to the amount of services or benefits they receive.

What is a single tax system?

A single tax is a system of taxation based mainly or exclusively on one tax, typically chosen for its special properties, often being a tax on land value. The idea of a single tax on land values was proposed independently by John Locke and Baruch Spinoza in the 17th century.

What is the best form of taxation?

And the general answer is that fairness in a taxation system requires that those with the greatest capacity to pay should pay more tax than those with a lesser capacity to pay….Bill Gates Points To The Best Tax System, The Progressive Consumption TaxShare to Facebook.Share to Twitter.Share to Linkedin.

What is the most efficient tax?

The most efficient tax system possible is one that few low-income people would want. That superefficient tax is a head tax, by which all individuals are taxed the same amount, regardless of income or any other individual characteristics. A head tax would not reduce the incentive to work, save, or invest.

What is the main purpose of tax?

The main purpose of taxation is to raise revenue for the services and income supports the community needs. Public revenues should be adequate for that purpose.

How many percent is tax in the Philippines?

32%Income of residents in Philippines is taxed progressively up to 32%. Resident citizens are taxed on all their net income derived from sources within and without the Philippines.

What is the meaning of expediency?

noun, plural ex·pe·di·en·cies. the quality of being expedient; advantageousness; advisability. a regard for what is politic or advantageous rather than for what is right or just; a sense of self-interest.

What is sacrifice theory of taxation?

Utility and “sacrifice” theory has generally been used to justify progressive taxation, although sometimes proportional taxation has been upheld on this ground. … The former states that every man should sacrifice equally in paying taxes; the latter, that society as a whole should sacrifice the least amount.

What is ability to pay principle of taxation?

The ability-to-pay philosophy of taxation maintains that taxes should be levied according to a taxpayer’s ability to pay. The idea is that people, businesses, and corporations with higher incomes can and should pay more in taxes.