University of Rwanda Huye Campus Principle of Taxation Cat Marketing Departiment MPIRANYA Jean Marie Vianney REG NUMBER: 220009329

UNIVERSITY OF RWANDA
HUYE CAMPUS
PRINCIPLE OF TAXATION CAT
MARKETING DEPARTIMENT
MPIRANYA Jean Marie Vianney
REG NUMBER: 220009329
Qn1. Discuss the appropriate criteria to evaluate alternative tax systems
The criteria of tax systems are:
1. SIMPLICITY
Simplicity means that tax collector should tell when tax payer pays taxes.
A simple tax for tax payer can avoid maximum money than he/she earns or income per
month, Simplicity means that taxpayers can avoid a maze of taxes, forms and filing
requirements. A simpler tax system helps taxpayers better understand the system and
reduces the costs of compliance. Transparency means that taxpayers and leaders can
easily find information about the tax system and how tax money is used.
2. EQUITY
Equity should fairly and not burden to anyone who have ability to pay and fair among
the population. Rich peoples should tax more tax paid than lower-level income earners
paid less taxes according to His/her income. The ability to pay principle states that the
amount of tax an individual pays should be dependent on the level of burden the tax will
create relative to the wealth of the individual. And equity is that taxes should be
impartial and just.
3. ECONOMIC EFFICIENCE
Tax should be economically not affecting and lead to depression of economy, when
individual or business pays the least amount of taxes required by the law.
Tax efficiency is when an individual or business pays the least amount of taxes required
by law. Tax should be controlled inflation to a given state.
4. ECONOMIC COMPETITIVENESS
In other words, competitiveness is the amount state or government earns or imposed on
company without affected investment. If the competitive pillar of an economy is strong, it
is generally more able to impose corporate income tax without discouraging investment.
5. ADEQUACY
Adequacy means that taxes must provide enough revenue to meet the basic needs of
society. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing
requirements. A simpler tax system helps taxpayers better understand the system and
reduces the costs of compliance.
Qn2. Demonstrate how taxes influence basic business, investment, personal, and
political decisions
 Taxation policy affects business costs. For example, a rise in

corporation tax (on business profits) has the same effect as an increase in costs.
A rise in interest rates raises the costs to business of borrowing money, and also
causes consumers to reduce expenditure (leading to a fall in business sales)
 A bout the investment, taxes reduce your investable income, that is, the amount
of income you can invest. When you pay taxes before you invest, you have less
money to invest into the stock market and other investments. If you have less
money to invest, then you don't earn as high a return. High marginal tax
rates can discourage work, saving, investment, and innovation, while
specific tax preferences can affect the allocation of economic resources.
But tax cuts can also slow long-run economic growth by increasing deficit.
 Personal influence Taxes by reduces the amount of your income that is subject

to tax. And reduce inflation in whole economy, the amount of the deduction you
are eligible to claim is precisely the amount of the reduction to your
taxable income. When sales tax rates are high, consumers spend more money
on taxes and have less to spend on additional goods.
 Political can influence taxes whereby, the government can change the
way businesses work and influence the economy either by passing laws, or
by changing its own spending or taxes. Extra government spending or lower
taxes can result in more demand in the economy and lead to higher output and
employment.
Qn3. Discuss what constitutes a tax (criteria to qualify as a tax) and the general
objectives taxes.
The general Objectives of taxes:
 ECONOMIC DEVELOPMENT
One the important objectives of taxation are development. Economic development of

any country is largely conditioned by the growth of capital formation. To overcome the
scarcity of capital of capacity, governments of these countries mobilize resources so
that a rapid capital accumulation takes place. Through proper tax planning, the ratio of
savings to national income.
 FULL EMPLOYMENT
The level of employment depends on effective demand; a country desirous of achieving
the goal of full employment must cut down the rate of taxes. The effects of disposable
income will rise and, hence demand for goods and service will rise. Increased demand
will reduce investment leading to a rise in income and employment and employment
through the multiplier.
 PRICE STABILITY
Taxation can be used to ensure price stability, a short run objective of taxation. Taxes
are regarded as an effective means of controlling inflation. By raising the rate of direct
taxes, private spending can control. Naturally, the pressure on the commodity market is
reduced. Opposite affect will occur when taxes are lowered down during deflation.
 CONTROL OF CYCLICAL FLUCTUATION

During the depression, taxes are lowered while during boom taxes increased so that
cyclical fluctuation is tamed. So, it controls cyclical fluctuations period of boom and
depression is considered to be another objective of taxation.
 REDUCTION OF BOP (BALANCE OF PAYMENT) DIFFICULTIES

Taxes like custom duties are also used to control imports of certain goods with the
objective of reducing the intensity of balance of payments difficulties and encouraging
domestic production of import distribution.
 NON-REVENUE OBJECTIVE
Finally, Non-revenue is another extra-revenue or non-revenue objective of taxation is
the reduction of inequalities in income wealth. This can be done by taxing the rich at
high rate than the poor or by introducing a system of progressive taxation.
Qn4. Taxation system can be classified in many ways. It could be based on method
used in the computation of the tax or based on the incidence/responsibility for the
payment of the tax. You are required to explain the structural or classification of the
Rwandan tax system.
Classification of Rwandan tax system are three (3) which are regressive, progressive,
and proportional tax system.
 Regressive Taxes
Regressive taxes include property taxes on goods and excise taxes are fixed and they
are including in price of the product or service. Low-income individuals pay a higher
amount of taxes compared to high-income earners under a regressive tax system.
That's because the government assesses tax as a percentage of the value of the asset
that a taxpayer purchases or owns. This type of tax has no correlation with an
individual's earnings or income earners. Examples regressive are Taxes on most
consumer goods, sales, gas, and Social Security payroll.
 Progressive Taxes
A progressive tax imposes a greater tax rate on higher-income. Taxes under a

progressive system are based on the taxable amount of an individual's income. so high-
income earners pay more than low-income earners. Tax rate, along with tax liability,
increases as an individual's wealth increases. The overall outcome is that higher
earners pay a higher percentage of taxes and more money in taxes than do lower-
income earners. Examples are income taxes, ACA taxes, estate taxes, and earned
income tax credits.
 Proportional tax
Is the taxing mechanism in which the taxing authority charges the same rate of tax from
each taxpayer, irrespective of income. This means that lower class, or middle class, or
upper-class people pay the same amount of tax for example, If the sales tax is12
percent, every buyer of a laptop that is worth $1,200 would pay $120 in sales tax,
regardless of personal income.

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UNIVERSITY OF RWANDA

The criteria of tax systems are:

 Taxation policy affects business costs. For example, a rise in

 Personal influence Taxes by reduces the amount of your income that is subject

The general Objectives of taxes:

One the important objectives of taxation are development. Economic development of

 CONTROL OF CYCLICAL FLUCTUATION

 REDUCTION OF BOP (BALANCE OF PAYMENT) DIFFICULTIES

A progressive tax imposes a greater tax rate on higher-income. Taxes under a

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