System of Taxation

A tax system used in the United Kingdom in which income levels are divided into different classifications for determining tax rates. Each income classification represents a different source of income such as business profits, capital gains, employment income, entitlements, that is taxed according to the specific provision of the Tax Act to which it applies. http://www. businessdictionary. com/definition/schedular-system-of-taxation. html A progressive tax is one in which the tax rate increases as the amount being taxed increases.

Most western countries use a progressive tax in one way or another. A progressive tax is one of many systems governments use to raise revenue. How It Works/Example: Federal income tax in America is considered a progressive tax. There are income tax-brackets to assure this. As you can see, those who make the least amount of money owe the lowest marginal tax rate. The more money one makes, the higher the tax rate. This table can be a little confusing without further explanation. Please note that everyone is taxed in steps.

A person earning $100,000 is not taxed 28% on the entire amount. Instead, he is taxed 10% on the first $8,350 earned, 15% for the portion up to $33,950, 25% for the portion up to $82,250, and 28% for the remainder: This clarification is important to quell some misleading rumors. It has been suggested that if an employee earning $33,950 (take home after taxes: $28,857) is offered a $5 pay raise (enough to boost him into the next tax bracket), it will actually decrease the total amount he takes home (suggested take home after taxes: $25,466).

But this is incorrect. Only the $5 above $33,950 will be taxed the higher 25%. In this case, his ACTUAL after taxes take home would be $28,861http://www. investinganswers. com/financial-dictionary/tax-center/progressive-tax-1536 Definition of ‘Regressive Tax’ A tax that takes a larger percentage from low-income people than from high-income people. A regressive tax is generally a tax that is applied uniformly. This means that it hits lower-income individuals harder. Investopedia explains ‘Regressive Tax’ Some examples include gas tax and cigarette tax.

For example, if a person has $10 of income and must pay $1 of tax on a package of cigarettes, this represents 10% of the person’s income. However, if the person has $20 of income, this $1 tax only represents 5% of that person’s income. Sales taxes that apply to essentials are generally considered to be regressive as well because expenses for food, clothing and shelter tend to make up a higher percentage of a lower income consumer’s overall budget. In this case, even though the tax may be uniform (such as 7% sales tax), lower income consumers are more affected by it because they are less able to afford it.

http://www. investopedia. com/terms/r/regressivetax. asp Definition of ‘Proportional Tax’ A tax system that requires the same percentage of income from all taxpayers, regardless of their earnings. A proportional tax applies the same tax rate across low-, middle- and high-income taxpayers. The proportional tax is in contrast to a progressive tax, where taxpayers with higher incomes pay higher tax rates than taxpayers with lower incomes. A proportional tax is also called a flat tax. Investopedia explains ‘Proportional Tax’.

For example, in a proportional tax system, all taxpayers may be required to pay 10% of income in taxes. A sales tax can be considered a type of proportional tax since all consumers, regardless of earnings, are required to pay the same fixed rate. Supporters claim that proportional tax systems are fair and that they may encourage people to earn more money because they would not have to pay higher tax rates. Opponents believe that proportional taxes are similar to regressive tax (where the tax rate drops as the amount subject to taxation rises), placing a greater tax burden on low-income.