‫جــامــعـــة ســـيــمــد‬
Cover Page
NAME: Ilhan Fuad Ahmed
Faculty: Management science
Program: Banking and finance
Class: BBF09-B
Subject: Accounting for GOVERNMENTAL
Assignment: Principle of good tax system& Tax
influencing
Lecture: Dahir
Princebles of good tax system
A good tax system should meet five basic conditions: fairness, adequacy, simplicity,
transparency, and administrative ease. Although opinions about what makes a good tax
system will vary, there is general consensus that these five basic conditions should be maximized
to the greatest extent possible.
These are: (1) the belief that taxes should be based on the individual's ability to pay, known as
the ability-to-pay principle, and (2) the benefit principle, the idea that there should be some
equivalence between what the individual pays and the benefits he subsequently receives from
governmental activities.
Characteristics of tax good
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.
Goods tax system
A good tax system should follow the principle of diversity Therefore, the tax system should be a
multiple tax system with a large variety of taxes so that all those who can contribute to the public
revenue should be made to do so. This calls for a mix of various direct and indirect taxes.
Basic principle of sound tax system
The principles of a sound tax system are fiscal adequacy, administrative feasibility, and
theoretical justice. Fiscal adequacy means the sources of revenue must be sufficient to meet
government expenditures and other public needs.
Classification of taxes
Proportional, progressive, and regressive taxes
 Taxes
can be distinguished by the effect they have on the distribution of income and
wealth.
 The taxes
that are generally considered progressive include individual income taxes and
estate taxes.
Proportional, progressive, and regressive taxes
Taxes can be distinguished by the effect they have on the distribution of income and wealth.
A proportional tax is one that imposes the same relative burden on all taxpayers—i.e., where tax
liability and income grow in equal proportion. A progressive tax is characterized by a more than
proportional rise in the tax liability relative to the increase in income, and a regressive tax is
characterized by a less than proportional rise in the relative burden. Thus, progressive taxes are
seen as reducing inequalities in income distribution, whereas regressive taxes can have the effect
of increasing these inequalities.
Classes of taxes
Direct and indirect taxes
In the literature of public finance, taxes have been classified in various ways according to who
pays for them, who bears the ultimate burden of them, the extent to which the burden can be
shifted, and various other criteria. Taxes are most commonly classified as either direct or
indirect, an example of the former type being the income tax and of the latter the sales tax. There
is much disagreement among economists as to the criteria for distinguishing between direct and
indirect taxes, and it is unclear into which category certain taxes, such as corporate income
tax or property tax, should fall. It is usually said that a direct tax is one that cannot be shifted by
the taxpayer to someone else, whereas an indirect tax can be.
Direct taxes
Direct taxes are primarily taxes on natural persons (e.g., individuals), and they are typically
based on the taxpayer’s ability to pay as measured by income, consumption, or net wealth. What
follows is a description of the main types of direct taxes.
Individual income taxes are commonly levied on total personal net income of the taxpayer
(which may be an individual, a couple, or a family) in excess of some stipulated minimum. They
are also commonly adjusted to take into account the circumstances influencing the ability to pay,
such as family status, number and age of children, and financial burdens resulting from illness.
The taxes are often levied at graduated rates, meaning that the rates rise as income rises. Personal
exemptions for the taxpayer and family can create a range of income that is subject to a tax rate
of zero.
Improtant to have sound tax system
(1) Taxation should be used to finance public services. (2) The general public should be
taxed according to their ability to pay which in turn will depend upon their income and
family circumstances. Apart from this, a sound tax system should safeguard the interest
of the taxpayers.
The characteristics of a good tax system are as follows:
(1) A good tax system should be fine-tuned to achieve the basic objective of maximum
social advantage.
(2) A good tax system should involve only minimum aggregate sacrifice.
(3) The distribution of tax burden should be equitable. Everyone should be made to pay
his fair share. However, care should be taken to ensure that equity objective will not
hamper productive efficiency.
(4) Tax structure should facilitate the use of fiscal policy for stabilization and growth
objectives. There should be built-in flexibility in the tax structure of both developed and
developing countries to ensure stability and to promote economic growth.
(5) The tax system should have the merits of simplicity, flexibility and diversity. This is
needed for the effective implementation of different tax measures Features of A good tax
system should meet five basic conditions: fairness, adequacy, simplicity, transparency,
and administrative ease. Although opinions about what makes a good tax system will
vary, there is general consensus that these five basic conditions should be maximized to
the greatest extent possible.
Factors Affecting Tax Attitudes and Tax Compliance:
A Survey This study was aimed to bring an about influence of attitudes and considerations of
individual taxpayers on tax compliance in Yemen taking internal and external factors into
consideration. The study was conducted in Sana’a, the capital city of Yemen to evaluate and
rank the factors that reduce taxpayer compliance. Aquestionnaire was designed using a
five point Likert scale and distributed to tax payers in order to learn their opinions. The
results indicated that, high tax rates and unfair tax system are the two most crucial
factors associated with low compliance. Furthermore, insufficient tax auditing, little deterrent
effects of tax penalties and tax amnesties enacted frequently have impact on taxpayers’
compliance decision. The factors like insufficient tax office staff number and frequent tax
code changes affect tax compliance to a lesser extent.It was also revealed that collected taxes did
not return as public goods and services in Yemen. When the responses are compared by gender
and age, females were found to be more compliant compared to males to taxation whereas
age is not a significant factor in general, especially for external factors. Older group was
found to be more compliant compared to young in terms of factors having significant
difference.
Tax, in the simplest form, can be explained as economic obligations imposed by the governments
on natural and legal persons (Tuay & Güvenç 2007). The basic functions of this economic
burden imposed on citizens by the states is to provide source of funds used for development
projects such as provision of infrastructure like good roads, stable power supply, stable water
supply etc.