Write 2 pages with APA style on Consider and discuss the advantages and disadvantages of the following features of a tax system: a) direct and indirect taxes, b) progressive and regressive taxes.. The UK Tax Policy The history of taxation in the UK started during the war against Napoleon in 1799. Since then the law of taxation has undergone a number of transformations in suit to the deficiency of the economy. The most known tax systems in the UK and world in general, are indirect and direct taxes. progressive and regressive taxes. These kinds of taxes bore range of advantages and disadvantages to government and citizens as well.
Advantages of Direct Tax
The first advantage of direct tax system under UK legislation is that, it relieves other individuals the burden of paying taxes without predefined plans (Chowdry and Ladds 26). Direct tax under the UK legislation is reliable and certain since the government is aware of exact individuals expected to pay tax, and this reduces cases of corruption (Chowdry and Ladds 26). Moreover, direct taxation relieves the government of extra collection cost considering the fact that it is collected straight from the respective tax payers. Since taxes are collected by the government for the purposes of financing national projects, increase in population of tax payers will source more taxes that would be used to develop economy for the sole benefit of tax payers. In addition, direct tax system helps citizens develop sense of responsibility thereby enabling them to draw proper budgets after accounting for the tax.
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Disadvantages of Direct tax
Direct tax has made it easy for businessmen to evade real tax by quoting amounts that are incongruent to the exact income. In case of tax levy on wealth and inheritance, UK tax legislation does define particular scopes of taxes imposed on certain amount of wealth. Direct tax system tends to be unfair as it only imposes the burden on the working population whose contributions are used to cater for the entire population including the unemployed.
Advantages of Indirect tax
Indirect tax ensures equality in contribution since it is levied on consumer products most of which are basic. Indirect tax passes direct burden to the consumers since they encounter the tax in their process of consumption. Furthermore, indirect tax is easy to regulate especially when the government wants to amend its budget to cover certain goals. In addition, indirect tax enables businessmen to reduce their costs of operation by passing the impacts to the final consumer by including the value added tax in the final price of a product (Chowdry and Ladds 19).
Disadvantages of Indirect tax
Indirect tax transfers the burden to the final consumers who in real sense does not bear legal mandate to cater for the tax burden. The production and manufacturing companies transfer the burden of taxes charged on production activities to the employees who end up receiving less income with regard to the real margin. Indirect tax poses negative implications to traders since some stable businessmen in the market may manipulate the VAT to lower the costs of goods in their premises (Chowdry and Ladds 18)
Advantages of progressive tax
With reference to UK tax legislations, progressive tax displays sense of fairness as it charges individuals in accordance with their income thereby cushioning low income earners from severe implications of taxation. Progressive tax system ensures protection to the tax payers during recession since it maintains the trend of income levels. In addition, progressive taxation ensures consistent income flow to the government despite effects of depression (Chowdry and Ladds 30).
Disadvantages of progressive tax
Determining the exact values to be paid at each level of income is normally very complex. Progressive taxation also discourages hard work among individuals since the more they earn the more they pay in taxes.
Regressive tax system in accordance to UK tax legislation encourages savings and investment since a larger proportion of income is spared from taxation. Regressive system of taxation encourages hard work since the more money one earns the less tax paid thus raising productivity of a country (Chowdry and Ladds 30).
Progressive and direct tax are similar in that both tend to be unfair to individual tax payers since whatever their contribution is used to finance services for every citizen whether employed or not. It can also be noted that direct tax system and progressive tax system assures the government of revenue collection despite of any effect that may occur in the country’s economy. Direct taxation displays sense of fairness to the individual tax payers since the taxable margin increases with increase in income as the same also apply to progressive taxation. This kind of trend ensures that low income earners are deprived to extreme poverty levels. Regressive tax and indirect tax on the other hand exhibits features of fairness to the tax payers across the board. It is vital to acknowledge that indirect taxation and regressive taxation systems have positive impacts to the tax payers since both encourage hard work. The desire to consume more will compel an individual to work harder to meet the demands yet paying for tax simultaneously. Longitudinally, desire to reduce tax burden as per the regressive tax system will induce an individual to work hard and earn more to low tax margins.
Chowdry, Monica and Ladds David. Taxation principles and policy. London: University of London Press, 2007. Print.