Question

Please define direct taxes and discuss corporate tax base. 500 words (Minimum)

Answer 1

A direct tax is paid directly by an individual or organisation to the imposing entity. A taxpayer, for example, pays direct taxes for different purposes to the government for different purposes including real property tax, personal property tax, tax on assets or income tax. A direct tax the opposite of indirect tax, where the tax is levied on one entity, such as a seller, and paid by another, such as a sales tax paid by the buyer in a retail setting.

Direct taxes are based on the ability to pay principle which means that the higher their capability of paying is, the higher their taxes are.Direct taxes are the responsibility of individual and should be paid by them and no one else.

Advantages of direct taxes:

1. Promotes equality

2. Promotes certainty

3. Promotes elasticity

4. Saves time and money

Corporate tax base - Tax base is a total amount of assets or income that can be taxed by a taxing authority. It is used to calculate tax liabilities. A corporate tax base is firm's operating earnings which are calculated by deducting expenses including cost of goods sold and depreciation from revenues. Then tax rates are applied to generate a legal obligation the business owes the government. Paying corporate tax can be more beneficial to the individual than paying additional individual tax. Corporate tax returns deduct medical insurance for families as well as fringe benefits including retirement plans and tax deferred trusts. It is easier for corporations to deduct losses.

The United States imposes a tax on the profits of US resident corporations at a rate of 21 percent.