Question

In: Economics

There are three theoretical bases for taxation: income taxes, consumption taxes, and wealth taxes. In Canada,...

There are three theoretical bases for taxation: income taxes, consumption taxes, and wealth taxes. In Canada, we have a mixture of all three.

Provide some thoughtful comments on one or more of these theoretical bases of taxation. (Note: You could rave/rant about one in particular or you could compare/contrast two of them or even all three of them.)

(100 words)

Solutions

Expert Solution

The government requires capital availability for providing to the general public facilities such as roadways, railways, hospitals, nutrition etc on one hand, and on the other having the capability to provide facilities such as the defence sector, army etc.

There are thus different types of taxes which are charged from people, three of which are as follows: -

`1) Income Taxes: -

Income taxes are charged on the total receipts of money which you have as a business or as a salaried person, the salary which you earn, in addition to all other sources of revenue is added to the total income, which is then charged on the basis of slabs which the government may modify from time to time. It is important to know, that these are subject to standard deductions. For example, the expenses in business are deducted from income, subject to certain pre conditions. On the other hand, expenses for salaried people such as on housing rent are also deducted while calculating net income but is subject to local by laws.

2) Consumption Taxes: -

These taxes are charged on the basis of each subsequent product or service which you purchase in the markets. A large share of those taxes is given to the government per unit of consumption and are not determined by your income but rather your consumption pattern. The consumption taxes on necessitates are lower than that of luxury items or items such as cigars which are bad for personal health.

3) Wealth Tax: -

While, Income tax is charged on the net income generated in a year, Wealth tax is taxed on the stock of income which a person has in the market place. We then are looking at people who have accumulated income over a period of time and may earn dividend or interest over the same. These taxes are usually high and are for people who are rich and have acquired huge amounts of money over a period of time.

The key difference with income tax as explained in the sections above is that while one is focussed on annual growth in income, the other one is a stock value of the held money which a person has in the economy

Please feel free to ask your doubts in the comments section.


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