Progressive Tax Literature Review Sample
The Name of the Class
The Name of the School
The City and State
A progressive taxation template/framework In a progressive tax system, the rich people are taxed more than the poor people. Progressive tax promotes equality in the society because it requires those with more money to remit more taxes while those with less to pay low tax rates. The notion behind this tax is an individual’s ability to pay. The tax rates go up as income increases, and this helps to balance the burden among all groups of taxpayers (The Policy Institute, 2012pg.3).Thosethatearnhighincome are thegreatestbeneficiaries of goodroads, publichospitals, schoolsandallotherinfrastructures that thegovernmentbuildsusingtax payer money (The Policy Institute, 2012 pg.4). Thehigh-income earners constitute of businessownerswhohaveshopsorstoreslocated in prestigious areas that are easilyaccessible. On thecontrary, many of thosewhoearnlowsalaries are peoplewhoare employedandhaverelativelygoodjobs that enable them to afford a car that theydrive through thatsameroad to and from work. Therefore, thewealthyindividuals are required to payhighertaxratesbecausetheybenefitmore than low-income earners. Thelow-income earners justusetheroad to drive to and from work, butitdoes not help them financially (The Policy Institute, 2012 pg.4). Progressivetaxfoundation consists of two factorsnamely;incomeandexpenditure. Therate of progressivetaxationsystem relies on theamountsalary that one earns. If an individualearns a highsalary, thentherate of progressivetax will be high. Thesecondfactor is expenditure; thismeansthatif a person spends a lotthenhe will paymoretax (Credit-terms, n.d. par.2). Progressive Taxation system is common in manycountriesbecauseit one of thetoptypes of taxes that contributemoremoney to thegovernment, as well as liftingthetaxburden from thepoorindividuals (Credit-terms, n.d. par.3).Advantages of Progressive Tax systempromotesequaldistribution of wealth by takingmore from therichandlessfromthepoor. Similarly, whentheeconomy has deterioratedandthewealthyindividual’s incomedropsthenthey will be taxedless in proportion to their newincome. Itlikewiseenablesthegovernment collect revenueevenwhentheeconomy is unstable, sowhethertheeconomy is goodorbadthegovernmentstillgetsrevenue (Credit-terms, n.d. par.4). Disadvantages of progressivetaxationsystemincludethatitgoes against theconstitution that advocatesforequalitytreatmentfor everyone. Itlikewiseinstillsfear in people that prevents them from takingwell-payingjobsandevenputtingextraeffortinto their businessesbecausethemoreoneearns, themore, themoreitwill be takenaway. Italsomakespeoplego to othercountries to evadetaxationorreluctance to reveal all thewealthand assets (Credit-terms, n.d. par.5). Whenmakingtaxationpolicydecision, thedecisionmakersconsidertheburden of thetaxrather than therate. Thismeansthatindividualsfeellesspressurewhenit is anotherperson that is remittingthetaxdirectly to thegovernmentinstead of them. Therefore, policymakersconsiderthethinkingandresponses of taxpayers before makinganytaxdecision (Watrinand Ullmann, 2008 pg.4). Everygovernment should considergenderfactorswhencoming up with taxationrates. Womenend up with lesswealth in their oldagebecauseduring their primeagetheywereraising their familiesrather than working. Thegovernment can come up with one taxsystemfor a singleindividualandanotherfor a marriedcoupleor one that can be transferred between marriedcouples (Himmelweit, n.d. pg.7). Examples of progressivetaxpolicies in each of themaincategories of taxrevenue i.e. direct/indirectandtrade
Directtaxesrefer to wherethetax’s burdenis felt on directly on an individual, andthesameperson remits thetax to thegovernmentdirectly without usingotherchannels (Mospi, n.d. pg.2). Thisburden of taxcannot be transferred to anotherperson. Indirecttaxrefers to whenthetaxburdenis transferred to anotherpersonand is remitted to thegovernmentindirectly. Thismeansthattheindividualwhopaysthetax is not theonewho remits to thegovernment (Mospi, n.d. pg.3). Directtaxis charged on theincome of an individual (Income tax). Therefore,themoreoneearns, themoreheis charged (progressivetax). Indirecttaxes are charged on expenditurebut not on income of an individual (Vasan&Sampath, Chartered Accountants, Bangalore, n.d. pg.1). Indirecttaxes, forinstance, valueaddedtax (VAT) andexpendituretax, relate to the progressivetaxbecausethemore a consumerpurchasesproducts,orspends his money, themoretaxhe will pay. Progressivetaxationsystemleavespeople with lessmoneybecauseittherates are high. Therefore,thelessmoneypeoplehavethefewergoodsthey will buy. Thisis referred to theincomeeffect, wherepeopleuselessmoney on consumptionandleisure (Roedand Strom, 2002 pg.6). Theotherway that the progressivetaxaffectstrade is thatitdiscouragespeople from workinghardbecausemost of their income will gothegovernment. Thismeansthemore an employeeworks, thelessrewardhereceives (Roedand Strom, 2002 pg.6).
I recommend that the three countries should look for other ways to get revenue to support the activities of the governmenAn overview of taxsystems in Malawi, Uganda,and Honduras The Malawian taxationsystem consists of bothindirectanddirecttaxes; however, incometax under directtax is theprimarysource of revenueforthe Malawi government. In 2008, thetotalincometaxrevenuewas K42.3bn, which is 39% of thetotaltaxcollected. Approximatelyhalf of the K42.3bn totalincometaxcame from Pay as youearn (PAYE) (The centre of socialconcern, n.d. PG.9). The Malawi collectslessrevenue than it should, hencetheneed to identifymoresources. The Malawi government should find a way to havemorepeoplepaytaxesso as toreducetherates levied on taxes (Magalasi, 2009 pg.3). Thereasonthetaxrates are high in Malawi is due to lack of international funding, sothegovernment has to rely on internalrevenue (ShaliziandThirsk, 1990 pg.2). Types of taxes found in Malawi include; direct taxes that incorporate employment income tax, business profit tax, capital income tax and some passive income tax. Indirect taxes; that incorporates value added tax (VAT), custom duties (Magalasi, 2009 pg.10). Thetaxsystem in Uganda has becomeefficient over theyears, butjust like in Malawithe Ugandan governmentcollects its revenue from veryfewsources. Thecountry has experienceddeficit in its budgetformanyyears (Kayaga, 2007 pg.2). Thisleads to low levels of the Gross Domestic Product (GDP). There is inequality in thedistribution of wealth in Uganda, which is a way that thegovernment can use to increase its revenue (SsewanyanaandOkidi, 2008 pg.4).
The government of Honduras defines income as “any kind of yield, gain, profit, rent, interest, proceeds, profit, participation, salary, wage, feeandgenerallyanyperception in cash, securities, creditor kind, that modifytheequity of the taxpayer is consideredincome.” (KPMG, 2012 pg.2) The National Congress is theauthorizedbodyallowed to come up with taxpolicies in Honduras. The corporate tax is 25% and is charged on allgainsandprofitscollected globally forlocalcompanies (The PwC Network, 2013 pg. 30). In Honduras, therate of tax charge on Value added tax is steadilyraisingjustlikeothercountries, for example, Morocco and Israel (Robinson, 2014 PG.9).
The Uganda government has made consideration of gender when making taxation decisions, and has put up a ministry of Gender Labor and social development that makes sure all women taxation issues are taken care of. In Honduras, the government has expanded the maqilla industry that gives all genders equal job opportunities hence equal tax charges. In Malawi, the government’s effort of gender equality are minimal hence very women have good jobs. Countries that use progressive taxation include; United states of America, Namibia, Morocco, Kenya. Summary of findingsandrecommendations
A majority of states favors progressive taxation systembecauseit shields thepoor from theburden of taxation, anditcontributes a lot of revenueforthegovernment. However, critics may arguethatprogressivetaxchargesdifferentratesfordifferentincomegroupshencesome are favored than others. Thereasoning behind this is thattherich are taxedhigher than thepoor; however, thecriticshave to considerthattherichenjoypublicinfrastructuremore than thepoor, sotheyhavenoreason to complain. Ugandan, Malawian governments should lookforotherrevenueresourcesandlifttheheavytaxburdenfrom their citizens. Irecommendthatthey should seekdonor funding, orcome up with othertypes oftaxationsystemandavoid relying on only a fewtaxsystems.
Indirect tax revenue - Malawi
(Chiumia and Simwaka, 2012 pg.4)
GDP - Malawi
(Trading economics, n.d.)
GDP - Uganda
(Trading economics, n.d.)
GDP – Honduras
(Trading economics, n.d.)
The GDP for Malawi was on a steady growth up to 2010 when it started to go down. Honduras GDP has been on the rise since 2006, the same applies to Uganda.
Akiza, N. (n.d.). Direct Tax Revenue and its Contribution to Uganda’s Economic Growth. Statistics. Available at: http://www.statistics.gov.hk/wsc/CPS030-P4-S.pdf [Accessed 29 Mar. 2015].
Chiumia, A. and Simwaka, K. (2012). Tax policy developments, donor inflows and economic growth in Malawi. rbm. Available at: https://www.rbm.mw/documents/research_papers/Tax%20policy%20developments,%20donor%20inflows%20and%20economic%20growth%20in%20Malawi.pdf [Accessed 29 Mar. 2015].
Credit-terms, (n.d.).Progressive taxation system.Available at: http://www.credit-terms.com/tax/progressive-taxation.html [Accessed 29 Mar. 2015].
Demos, (n.d.).Stacked Deck: How the Dominance of Politics by the Affluent & Business Undermines Economic Mobility in America. Available at: http://www.demos.org/stacked-deck-how-dominance-politics-affluent-business-undermines-economic-mobility-america [Accessed 24 Mar. 2015].
Kayaga, L. (2007). Tax Policy Challenges Facing Developing Countries: A Case Study of Uganda.Collections Canada.Available at: http://www.collectionscanada.gc.ca/obj/s4/f2/dsk3/OKQ/TC-OKQ-850.pdf [Accessed 29 Mar. 2015].
KPMG, (2012).Thinking beyond borders.Kpmg. Available at: https://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/thinking-beyond-borders/Documents/honduras.pdf [Accessed 29 Mar. 2015].
Magalasi,, C. (2009). Unmasking the Malawian tax system. Available at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CB0QFjAA&url=http%3A%2F%2Fsomo.nl%2Fdossiers-en%2Feconomic-justice%2Ftax-justice%2Fttj%2Fdocuments%2Funmasking-the-malawi-taxation-system&ei=yqUXVfeDOcnVatDlghg&usg=AFQjCNFNXO3aPhIbkBrwFUHqlRwluzQKBw&sig2=JuLBYnDyg2KcNIhe47q3iw&bvm=bv.89381419,d.ZGU [Accessed 29 Mar. 2015].
Mospi, (n.d.).Direct and Indirect taxes.Mospi.Available at: http://mospi.nic.in/Mospi_New/upload/statistical_year_book_2011/SECTOR-1-INDIA%20AN%20OVERVIEW/CH-06-DIRECT%20&%20INDIRECT%20TAXES/DIRECT-INDIRECT%20TAX-WRITEUP.pdf [Accessed 29 Mar. 2015].
Robinson, P. (2014). Indirect in 2014.EY.Available at: http://www.ey.com/Publication/vwLUAssets/EY-PDF-Indirect-tax-2014/$FILE/EY-Indirect_Tax_2014.pdf [Accessed 29 Mar. 2015].
Roed, K. and Strom, S. (2002). progressive taxes and the labour market: Is the trade-off between equality and efficiency inevitable?. Google.com. Available at: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB0QFjAA&url=http%3A%2F%2Fwww.researchgate.net%2Fprofile%2FKnut_Roed2%2Fpublication%2F4991801_Progressive_Taxes_and_the_Labour_Market_Is_the_Trade-Off_between_Equality_and_Efficiency_Inevitable%2Flinks%2F0912f50e6ada1cb07d000000.pdf&ei=a6AXVeqyIdLzav-OgRg&usg=AFQjCNFjUC7-09BYWPRL7yH9hn37Zmooow&sig2=dqink_KvI71AzJF-ZXxUxA&bvm=bv.89381419,d.ZGU [Accessed 29 Mar. 2015].
Shalizi, Z. and Thirsk, W. (1990). Tax reform in Malawi.Core.Available at: http://core.ac.uk/download/pdf/6521650.pdf [Accessed 29 Mar. 2015].
Ssewanyana, S. and Okidi, J. (2008).A Micro simulation Of The Uganda Tax System (UGATAX) And The Poor From 1999 To 2003. [online] AgEcon.Available at: http://ageconsearch.umn.edu/bitstream/54940/2/series55.pdf [Accessed 29 Mar. 2015].
The centre of social concern, (n.d.).Study of Malawian taxation system.CfscMalawi.Available at: http://www.cfscmalawi.org/pdf/CFSC%20TAX%20RESEARCH%20REPORT.pdf [Accessed 29 Mar. 2015].
The Policy Institute, (2012). “Tax” Is Not a Four-Letter Word: Ideas for a More Progressive Taxation System in Montana. ThepolicyInstitute.Available at: http://www.thepolicyinstitute.org/prog_tax.pdf [Accessed 29 Mar. 2015].
The PwC Network, (2013). Doing Business.Available at: https://www.pwc.com/ia/es/publicaciones/assets/doing-business/doing-business-2013-4-honduras.pdf [Accessed 29 Mar. 2015].
Trading economics, (n.d.). Malawi Personal Income Tax Rate . Available at: http://www.tradingeconomics.com/malawi/personal-income-tax-rate [Accessed 29 Mar. 2015].
Vasan&Sampath, Chartered Accountants, Bangalore, (n.d.).Indirect taxes.Available at: http://www.vscaglobal.com/images/images/INDIRECT%20TAXES.pdf [Accessed 29 Mar. 2015].
Watrin, C. and Ullmann, R. (2008). Comparing direct and indirect taxation: The influence of framing tax compliance.The European Journal of Comparative Economics.Available at: http://eaces.liuc.it/18242979200801/182429792008050102.pdf [Accessed 29 Mar. 2015].