...S. Tax System The art of taxation was in the “plucking the goose so as to obtain the largest amount of the feathers with the least possible amount of hissing”, said by Jean-Baptiste Colbert, the seventeenth-century French finance minister. (Miller) From the historic perspective, current government of United States has developed a very efficient tax system of plucking its private–sector goose. While it seems this tax system indeed obtain the largest amount of the feathers, but the amount of hissing is growing. Due to a drop in individual income taxes, corporate income taxes, and estate taxes combining with the substantially change in the composition of top incomes, the U.S. tax system has became less progressive. According to the relationship between tax base and tax rate. There are three branches of tax system in the United States: proportional taxation, progressive taxation, and regressive taxation. Progressive taxation and regressive taxation are based on the proportional taxation, in which tax rate is fixed weather the taxable base amount increases or decreases. Based on the proportional taxation system, the progressive taxation is the one in which the tax rate increases as the taxable base amount increases, and the regressive taxation is opposite. Under those three taxation systems, there are kinds of taxes, primary including individual income tax, corporate income tax, estate and gift tax, and payroll tax. From the historic perspective, the overall U.S. federal tax system...
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...Revenue Mobilisation and Economic Growth Bangladesh Economic Update November 2013 Bangladesh Economic Update Volume 4, No. 11, November 2013 Acknowledgement Bangladesh Economic Update is a monthly publication of the Economic Policy Unit of Unnayan Onneshan, a multidisciplinary research organisation based in Dhaka, Bangladesh. A team works under the guidance of Rashed Al Mahmud Titumir, comprising Shahida Pervin and Abid Feroz Khan. © Copyright: Unnayan Onneshan The content of this publication may be reproduced for noncommercial purposes with proper citation (please send output to the address mentioned below). Any other form of reproduction, storage in a retrieval system or transmission by any means for commercial purposes, requires permission from the Unnayan Onneshan. For orders and request, please contact: UNNAYAN ONNESHAN 16/2, Indira Road, Farmgate Dhaka-1215, Bangladesh Tell: + (880-2) 8158274, 9110636 Fax: + (880-2) 8159135 E-mail: info@unnayan.org Web: www.unnayan.org Bangladesh Economic Update, November 2013 Page | 2 1.INTRODUCTION This issue of Bangladesh Economic Update probes into the tax system of Bangladesh in the backdrop of falling investment, missing revenue target and growing pressure on revenue. This issue of Bangladesh Economic Update probes into the tax system of Bangladesh in the backdrop of falling investment, missing revenue target and growing pressure on revenue. Bangladesh has comparatively lower tax to GDP ratio, even compared to most of its...
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...reason for it. The study however does point out that if the prices are increased for a longer period, the demand might in fact be elastic as people would be impacted more by the increase in prices. The research further suggested that the demand elasticity varies amongst poor and rich countries along with the population demographics. (Perucic, 2012) In general when the prices are increased or taxes are raised on inelastic products, the beneficiary is often the producer or the government as the tax burden would be on the consumers. A tax on cigarettes would mean the consumers bearing a greater tax incidence which would in fact discourage them to spend more on tobacco products. (Tax-inelastic-demand n.d.) As seen in the graph above, a tax imposition on cigarettes would shift the supply curve on the left with the equilibrium quantity reducing from Q to Q 1. The inelastic demand would mean that the tax burden is borne by the consumers whereas the producers bear a small fraction of the tax applied. The government while increasing taxes on cigarettes needs to ensure that all relevant substitutes for the...
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...study The political, economic and social development of any country depends on the amount of revenue generated for the provision of infrastructure in that given country. However, one means of generating the amount of revenue for providing the needed infrastructure is through a well structured tax system (ogbona and ebimobewei, 2012). The vital role that taxation play in an economy cannot be overemphasized. Tax is a compulsory levy imposed by government or its agent on her citizens in order to raise revenue for the funding of economic activities. Nkoro and worlu, 2012 defined Tax as a fee charged or levied by a government on a product, income, or activity. If it is levied directly on personal or corporate income, it is called a direct tax. If it is levied on the price of a good or service, then it is called an indirect tax. The main reason for taxation is to finance government expenditure and to redistribute wealth which translates to financing development of the country (Musgrave and Musgrave, 2004, Bhartia, 2009). Apart from revenue generation prowess of tax, it is also used by the government to discourage consumption of certain goods. Taxation is a fiscal tool that most government uses to regulate both the micro and macro aspect of an economy. Generally, The importance of tax lies in its ability to generate revenue for the government, influence the consumption pattern of the people and also regulate the economy through its influence on vital aggregate economic variables such as...
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...Income tax is usually a progressive tax placed upon people who have an income. By being progressive, it means the more a person earns, the more they will have to pay in tax. Income tax is part of fiscal policy and is a major tool used by the government to influence economic performance. In the short run a reduction in income tax would certainly improve economic performance. A reduction in income tax will mean households have more disposable income and so will spend more. This is shown by a shift in aggregate demand from AD1 toAD2. This results in an increase in output and Real GDP of Y1 to Y2 however it also increases the price level from P1 to P2. In the short run this rise in prices is accompanied by a rise in output and real GDP and so is acceptable. However in the Long Run further rises in AD do not cause rises in output and real GDP, instead they only raise the price level This is shown on the above diagram, where the only rise is in the price level which is described by Monetarists as “the greatest economic evil”. As part of the fiscal policy, income tax rates are a demand slide policy, which are used mainly to influence economic growth in the short run. Known as Keynsian approach. Monetarists believe the best way to achieve Long term growth is through supply side policies. These include education and training schemes, corporation taxes and infrastructure. They are all aimed at increasing output and real GDP. As seen above Real GDP and output have increased with no...
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...Background of the Study Tax is an instrument to regulate economic growth and development across every economy. As a result, governments across the world impose one form of tax or the other. The main purpose of imposing tax has been for the government concerned to use the proceeds of the taxation to run the government and to provide essential services. Before a country considers efficient and effective way of administering tax system; it must possess a clear picture of the scope of its tax system as well as considering the tax rate and tax base over time. The quantity and quality of revenue required by tax administrators are to a large extent determined by the type of tax system which is introduced. A nation’s tax goals are not achieved by designing a tax system which is fair, any fair system which is not administered as planned becomes inequitable. Thus, a good tax system is capable of financing the necessary level of public spending in the most efficient and equitable way possible. It should also (1) raise enough revenue to finance essential expenditures without recourses to excessive public sector borrowing, (2) raise the revenue in ways that are equitable; that minimized its disincentive effects on economic activities, (3) do so in ways that do not deviate substantially from international norms. (Tanzi and Zee,2000). It is being noted that the aims and objectives of taxation differ from one country to the other. However, an essential common feature of tax has been the dynamic...
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...The Impact of Vat on the Economic Growth of Bangladesh CONTENTS * Introduction * Objectives of the study * Salient features of Bangladesh’s current tax system * Growth trends and revenue structure of Bangladesh * Contribution of direct and indirect taxes to revenue * Reasons for introducing vat in Bangladesh * Ratio of VAT to Revenue & VAT to Tax * Revenue Structure during Pre and Post VAT Regime * VAT Rates in Selected Countries * VAT Productivity in Selected Countries * Some Important Features of VAT in Bangladesh * Tax Base for VAT * Arguments For VAT * Arguments against VAT * Reforms in VAT: Current Initiatives Introduction: Value Added Tax (VAT) is imposed on value added by a manufacturer of a firm or distributors. Value added tax means a tax on the amount by which the value of an article has been increased at each stage of production. It is a multistage consumption tax imposed on goods and services, which is collected at every stage of production and distribution rather than at the retail stage alone. Objectives of the Study: We can gain knowledge about the tax system (especially VAT) of Bangladesh by studying this topic. As following aspects of tax we can learn from this study: 1. To present an overview of tax system of Bangladesh. 2. To evaluate Govt. Performance in collecting revenue. 3. To identify the effect of the tax system (especially VAT) to economic development of Bangladesh. 4. To identify...
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...average rate at which an individual or corporation is taxed. The effective tax rate for individuals is the average rate at which their earned income is taxed. The effective tax rate for a corporation is the average rate at which its pre-tax profits are taxed. An individual's effective tax rate is calculated by dividing total tax expense by taxable income. For corporations, the effective tax rate is computed by dividing total tax expenses by the firm's earnings before taxes. The effective tax rate is the net rate a taxpayer pays if all forms of taxes are included and divided by taxable income. The effective tax rate is often a more accurate representation of a taxpayer's tax liability than its marginal tax rate. Two companies that are in the same marginal tax bracket, for example, may end up with different effective tax rates depending on their earnings. This occurs particularly with a progressive, or tiered, tax system, where different levels of income are taxed at different rates. For example, the first $100,000 of income may be taxed at 10%, and income between $100,001 and $500,000 might be taxed at a rate of 15%. The corporation's income is taxed at the various levels, and to determine the effective (or average) tax rate, the total tax is divided by the total taxable income The term effective tax rate has different meanings in different contexts. Generally its calculation attempts to adjust a nominal tax rate to make it more meaningful. It may incorporate econometric, estimated...
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...Economic growth is the increasing capacity of an economy to satisfy the wants of its people. This is done by increasing the gross domestic product (GDP), which is what economic growth is measured by. However, economic growth is only good if it can be sustained. If growth is too quick, it is bad as it increases inflationary pressure. However, if the economy is growing too slowly or even contracting, then it is also bad as the unemployment rate will go up. This is why the government prefers to keep economic growth steady at around 4% p.a. Price stability is the avoidance of inflation and deflation. Inflation is the persistent and appreciable rise in the general level of prices and is measured by the consumer price index (CPI). Deflation is a general decline in prices. The RBA’s target range for inflation is 2-3% p.a. The objective of the government is to maintain low inflation. This is because high inflation can impact negatively on economic efficiency and the economic well-being of some people in the society. Full employment is when everyone who wants to work as a job. This is virtually impossible so the goal of government is to maintain a low level of unemployment. The unemployment rate is measured as a percentage of the workforce. A low unemployment rate is favourable as it means the economy is working efficiently and maximising its ability to produce while reducing the level of income inequality. The aim of external balance is to balance the external transactions between...
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...Louisiana Tax Reform: Eliminating Corporate and Franchise Taxes The relationship between tax policies and economic growth is a topic that has been frequently debated. For decades, economists have developed studies exploring this relationship and analyzing its effects. These studies concluded that a negative relationship exists between taxes and economic growth. Taxes have a negative impact on economic growth because of how they influence the activities individuals and firms choose to engage in. Businesses and individuals often base their decisions on the overall tax burden, which creates a disincentive to engage in activities taxed at a higher rate. The Tax Foundation evaluates each state’s business tax climate every year in order to indicate which states’ tax systems are the most attractive to business and economic growth. According to the Tax Foundation’s 2013 State Business Tax Climate Index, Louisiana’s tax system is currently ranked 32nd, far below the rankings of progressive southern states such as Florida and Texas. In addition, Louisiana’s tax structure is poorly perceived because of its complexity. Therefore, in order to create a competitive advantage, the Louisiana tax system must be reformed. Several of the states that rank highest in the 2013 State Business Tax Climate Index do not levy a tax on corporations. Furthermore, the average annual growth rates for those states without a corporate income tax exceeded the growth rate of all other states...
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...The Federal Government’s Efforts to Improve the Economy Economic growth and employment are the basis for increased prosperity. Over the course of American history, there has been much debate regarding whether attaining that increased prosperity is (or is not) a direct reflection of imposed federal, state, and local tax policies. These tax policies are imposed for a variety of reasons, such as to reduce budget deficits, support war efforts, and strengthen the economy. It has become increasingly difficult, however, to ascertain which economic effects are true consequences of changes in tax policy. By reviewing the state of the U.S. economy over time and how growth and employment were affected by taxation, we can see how the Fed has engaged in economic policies. The Great Depression (1929 – 1939) The stock market crashed in 1929 and the Great Depression began. The United States economy spiraled downward as the government increased taxes (through the Tax Acts of 1932 and 1936 as part of President Franklin D. Roosevelt’s “New Deal”) in order to compensate for lost revenue. During this time, public opinion had been that the wealthy were shirking their fiscal responsibilities through aggressive tax avoidance. In response, President Roosevelt’s New Deal tax laws were designed to increase statutory and effective rates on the nation’s wealthiest citizens. The rationale behind the tax increases was that increased government spending without raising taxes would weaken...
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...applied the system of progressive income tax, which was earlier applied in Western Europe. But it soon turned out to be a system that discouraged economic growth. Therefore, some of these countries since 1994 have established the system of flat tax. Flat tax implies the application of a single-level tax system. Flat tax is applied in consideration of the supposition that all income should be taxed only once during their circulation, precisely when they are owned. Flat tax system refers to the unification of taxes in two taxing plans: personal income tax, which is levied on the total income of the individual and corporate tax, which is levied on the profits made by the companies. Flat tax was firstly applied in Albania during 2008 after two years of debates. The tax refers to the application of a 10% levied on the profit or on the total personal income. Keywords, flat tax, progressive tax, rates taxes, tax system in Albania, the consequences of taxation The notion of taxation has been known since the establishment of states. A social organization, as primitive as it may be, requires sufficient financial means to accomplish its goals. Taxes are a substantial means of providing the financial resources of a country. They occupy the leading place in the public income of modern countries. The great part of our neighboring countries and countries with quite a similar economic situation as ours are applying flat tax. So as to improve the economic situation and the fiscal administration...
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...Income Tax Law Income Tax Law and the National Budget 2010-2011 Md. Abdur Rashid, FCMA B.Com. (Hons.), M.Com., DAIBB, LLB, FCMA Income Tax Law explain changes in tax struc-ure of an economy over time under t the impact of economic development and of political and social factors. Tax structure is affected by economic development in three ways: (a) tax base undergoes a change as the develop- ental process m proceeds; (b) change in the tax base brings about changes in the revenue system: and (c) economic development leads to changes in the objectives of tax policy. Bangladesh Government collects taxes on account of custom duty, sales tax, value added taxes, excise duty, cess, fees, fines, penalties, income tax, advalorem duty, etc. It appears that to fulfill the objectives of tax policy the Government every year brings some changes in various tax laws to collect more taxes on the basis of above tax structure. be established for those items to repair or servicing and thus to reduce the unemployment problems in the country. National Budget Every year before preparing National Budget the National Board of Revenue holds series of meetings with various trade bodies, trade associations, groups of people, various academic and professional Institutions. It seems that this year the discussions have been held on various scopes and opportunities of collecting more taxes. The discussions, of course, have been held in various dimensional scopes. In such a meeting organized by Management...
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...The Truth About Taxes and Economic Growth MORE TAX CUTS? The Truth About Taxes and Economic Growth Interview with Joel Slemrod Judging by the political scene in Washington, one would think that low taxes were the main source of economic growth in the United States and around the world. Even most Democrats dare not demand that President Bush’s tax cuts be rescinded. But this leading tax expert, a political centrist, argues that there is no compelling evidence that high taxes impede economic growth. Q There is a widespread belief among the public that low taxes generally mean rapid economic growth. The evidence does not seem to support that conviction. A. That is right. There are many different kinds of evidence one might look at. One place to start is to look across countries to see if there is a clear relationship between how much taxes— say, as a fraction of gross domestic product—a country collects and its economic performance. If you look at the relationship JOEL SLEMROD is Paul W. McCracken Collegiate Professor of Business Economics and Public Policy and director of the Office of Tax Policy Research at the University of Michigan. Challenge, vol. 46, no. 1, January/February 2003, pp. 5–14. © 2003 M.E. Sharpe, Inc. All rights reserved. ISSN 0577–5132 / 2003 $9.50 + 0.00. Challenge/January–February 2003 5 Interview with Joel Slemrod between that tax ratio and the level of prosperity, measured by GDP per capita, there is no supportive evidence for...
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...period. Any income of the entity must be subject to the tax even though they are having profit or suffering loss. The accounting treatment for income taxes is determined by Australian Accounting Standards Board (AASB) 112 which adopts the tax effect method that incorporates both current and future tax consequences of “transactions and other events of the current period that are recognised in an entity’s financial statements and the future recovery (settlement) of the carrying amount of assets (liabilities) that are recognised in an entity’s statement of financial position”. Through this essay, the author wants to explain how unused tax losses create deferred tax assets, discuss whether these deferred tax assets satisfy definition and recognition criteria for assets according to the AASB Framework for the Preparation and Presentation of Financial Statements and would the answer change if the asset definition in the IASB / FASB proposed Conceptual Framework was applied. As the author is more focus on tax loss, therefore future tax consequences is only focus deferred tax asset. Future tax consequences incurred because there is differences between the carrying amount and the tax base which is known as a temporary differences. The future tax consequences of a temporary difference that decrease taxable income relative to accounting profit which is called as a deductible temporary difference (DTD), will be recognised as deferred tax asset (Spiceland, Sepe & Nelson, 2010). However...
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