Question

differentiate the following:

Progressive and Regressive Tax

Personal Income Tax and Corporation Tax

Allowable and Disallowable Expenses

Tax Credit and Tax Relief

Depreciation and Capital Allowance

Direct and Indirect Tax

Answer 1

1. Progressive and regressive tax:

A progressive tax is a type of tax that takes a larger percentage of income from taxpayers as their income rises.An example is the federal income tax.

A regressive tax is the exact opposite. Higher-income taxpayers pay a smaller percentage of their income than lower-income taxpayers because the tax is not based on ability to pay. An example is state sales tax, where everyone pays the same tax rate regardless of their income.

2. Personal Income Tax and Corporation Tax: Corporation tax is paid by companies on their profits.

And income tax is a tax levied on personal income.

3. Allowable and Disallowable Expenses:

Allowable expenses are those expenses which are allowed as deduction from your business income. like Repair and maintanance, wages etc.

and Disallowable expenses are opposite of it i.e. these are not allowed as deduction from your business income.

like capital expenditures, panalities etc.

4. Tax Credit and Tax Relief: Tax credits provide a dollar-for dollar reduction of your income tax liability. This means that a $1,000 tax credit saves you $1,000 in taxes. On the other hand, tax relief lower your taxable income.

5. Depreciation and Capital Allowance: Depreciation is used to write off the cost of an asset over its useful lifetime. it is allowed as deduction from your business income.

There is quite a difference between an asset and an expense, assets being treated differently for tax purposes.  For example, unlike expenses, you cannot claim any tax relief on purchase value of a assest. Instead, you will be able to make a claim for capital allowance.Here are a few examples of the types of expenditure that your business may be able to claim capital allowances for:  Renovating business premises, Capital expenditure on research and development etc.

6. Direct and Indirect Tax: Direct Taxes are the taxes that are levied on the income of individuals or organisations. They include Income tax, corporate tax and wealth tax. Indirect taxes are those paid by consumers when they buy goods and services.