Business Taxation Notes Income Tax Notes

INTRODUCTION OF
BUSINESS TAXATION
DONE BY:
NUR EKMA HIKMAH BTE HJ SUHAIMI (08B1913)
ROFIDAH BTE HJ ABD KADIR (08B1916)
PG ANAK ADINARIA BTE PG ANAK HJ IBRAHIM
(08B1920)
KHAIRUNNISA BTE SUNNY (08B1921)
DK. NURSHAMIMI BTE PG. RAHIM (08B1923)
SITI YUSMAHDIZAH BTE HJ MAT YUSOF (08B1924)
OUTLINE:
• Introduction
– Brief History
– Definition
– Principles
– Objectives
• Body
– Direct Tax
– Indirect Tax
– Sources of Tax Revenue Law
• Conclusion
BRIEF HISTORY
 Since the era of Egyptian Pharaohs
 Tax imposed on cooking oil
 Greece’s Athenian War

 Eisphora and Metoikion
 During Roman Empire

 Portoria
 Caesar Augustus instituted an inheritance tax
 Julius Caesar ‘s reign, a 1 percent sales tax was imposed
 Great Britain during occupation of Romans
Income Tax and Tax on Land and Property
Prime minister, William Pitt the Younger announced
income tax to fund the Napoleonic wars in 1798
 Colonial America
Through its Molasses Act (1764) and Stamp Act (1765)
A direct tax was placed on citizens after drafting the
Constitution in 1787
DEFINITION
“A contribution levied on persons, property or business for the

support of government”
Oxford Dictionary
“A compulsory exaction of money by a public authority for public

purposes enforceable by law”
“The process of “raising money for the purposes of government

by means of contributions from individual persons”
High Court of Australia define tax as a payment
that fulfilled the following characteristics:
 Money raised for government purposes

 Payment not penalties
 Compulsory payment
 Not payment for service rendered
 Not arbitrary
 Not be incontestable
Taxation in UK
Part of the government revenue from charges against
its citizen’s person or property or activity
Citizens and corporate entities with UK source of
income, regardless the citizenship or the individual’s
place of residence or the company’s place of
registration
Payments to government that is the central
government (Her Majesty’s Revenue and Customs)
and the local government respectively
PRINCIPLES
 It is important for the federal policy makers and tax
designers to look into important criteria of taxation
(cooperativeindividualism.org).
 The principles (by Adam Smith) which are equity, certainty,

convenience, efficiency are funded on a philosophy which
does not accept the theory of the "social contract" as the
basis for society.
Certainty Convenience
Equity Efficiency
Principles
of
taxation
1. Equity
o The subjects of every state ought to
contribute towards the support of the
government, as nearly as possible, in
proportion to their respective abilities; that is,
in proportion to the revenue which they
respectively enjoy under the protection of the
state.
2. Certainty
o The tax which each individual is bound to pay
ought to be certain, and not arbitrary. The
time of payment, the manner of payment, the
quantity to be paid, ought all to be clear and
plain to the contributor, and to every other
person.
3. Convenience
o Every tax ought to be levied at the time, or in

the manner, in which it is most likely to be
convenient for the contributor to pay it.
4. Efficiency
o Every tax ought to be contrived as both to take

out and to keep out of the pockets of the
people as little as possible over and above
what it brings into the public treasury of the
state.
OBJECTIVES
• Tax is the main source of revenue to finance governance
expenditure. For example, it is used to accommodate funds for
medical services for the people.
• Tax policy will ensure that taxes are collected effectively and at
minimum cost to both the government and taxpayers. This means
that people should disclose the details of their properties for the
inclusion of tax payment.
• It is also used to regulate the private sector of the economy to

maintain the desired level of employment and increase economic
development or growth. For example, it can be used to repair
loopholes on the road.
OBJECTIVES (CONT’)
• Regulate the activities of specific areas of the private sector so as to
encourage activities which are beneficial to the country and to
discourage those which are not desirable in the national interest(s).
• Regulate the distribution of income and wealth between different

types and classes of citizens (i.e. between self-employed and
working people, people with different incomes pay different amount
of tax rates).
• Regulate specific activities of citizens which are thought to be

undesirable, e.g. drinking, smoking, gambling, etc.
• Ensure fairness and equity, i.e. the burden of tax is spread fairly and
equitably among taxpayers.
OBJECTIVES (CONT’)
 In terms of environment, tax is used to accommodate the

maintenance of energy, water and waste management
systems.
 Also, tax can be imposed to protect environmental

issues. For example, tax authorities may charge
companies who do activities that damage the
environment (factories that involve in deforestation)
DIRECT TAX
 It is a tax which is imposed directly to the taxpayer.
 In which, government charge on income, property or

wealth of people or firms (businessdictionary, 2010).
 Based on the ‘ability to pay’ principle (businessdictionary,

2010). All who have income of any sort or who own
property must pay direct taxes.
Types of Direct Taxes
In UK, there are 6 types of direct tax:
1. Income tax
2. National Insurance Contributions tax
3. Corporation tax
main taxes in UK
4. Petroleum tax
5. Inheritance tax
6. Capital Gains tax
1. Income Tax
Based on individual’s income after some allowances

are made.
Will be imposed if the income of any individual,

whether employee or businessman, reaches a
certain limit.
In UK, it is imposed based on 6 schedules that have been
formed according to the Income Tax law. These
schedules are:
 Schedule A: Based on employee's income

 Schedule B: Based on the incomes from land
 Schedule C: Based on the income from public securities
 Schedule D: Based on the commercial absorption of land
 Schedule E: Based on the business income
 Schedule F: Based on the dividend income
2. National Insurance Contribution (NIC) tax
 It is a direct proportional tax taken off the earnings of those

people in employment.
 NICs are sums of money that people pay to the National

Insurance from their earnings.
 Amount required to pay:

~depends on how they earn their money (i.e. employed or
self-employed) and how much they earn.
 To ensure that they are entitled to receive certain state

benefits if they need them, and the State Pension when they
retire.
3. Corporation Tax
 A tax on the profits of limited companies and some
organisations.
 It is a proportional tax charged at 30% for larger companies

and 20% for 'smaller' firms.
 For example, a company making £10,000 profit:

£6,000 – dividend
£10,000
£4,000 – to another company
 So,19% corporation tax will be taken from the £6,000.

4. Petroleum Revenue Tax
This tax is charged on the income from

exploiting North Sea oil and gas. Paid in
addition to corporation tax.
5. Inheritance tax
It is charged on the value of wealth

transferred from one person to another either
at death or during a lifetime.
It is payable by different people in different

circumstances.
- typically, the trustees are responsible for paying Inheritance
Tax on assets in, or transferred into, a trust.
6. Capital Gains tax
 It is a tax on the increase in value of certain assets when they are
sold compared with their value when they were bought.
 In other words, it is a tax on capital ‘gains’.
 People may have to pay Capital Gains tax if, for example, they:
- sell, give away, exchange or otherwise dispose of (cease to own)
an asset or part of an asset
- receive money from an asset - for example compensation for a
damaged asset.
 For instance, if, when you sell or give away an asset it has increased
in value, you may be taxable on the 'gain' (profit).
INDIRECT TAX
Tax on manufactured goods, imports etc and paid
Indirectly by the consumer (included in the price).
(yourdictionary.com, 2010)
In some cases, the burden of the tax depends on the

elasticity of demand.
From UK perspective:
Taxes that are paid by consumer to supplier and
hence to the Government.
Types of Indirect Tax
VALUE ADDED TAX
EXCISE DUTIES
AIR PASSENGER DUTY

1. Value Added Tax
Tax on most businesses transaction in UK.
VAT is added to the price of goods and

services.
Charged to:
1.Business customer
2.Non business customer
Standard • 17.5% on most of the goods
rate and services
• 5% such as domestic fuel

and power, installing
Reduced
energy-saving material,
rate sanitary hygiene products,
children’s car seat and etc
Zero rate
VAT (CONT’)
According to the Emergency Budget, the rate
will be increased to 20% effective from
January 4th 2011.
To tackle the budget deficit they encounter.

2. Excise Duties
Goods from abroad for personal use, sending
or ordering them from abroad.
Includes :
3. Air Passenger Duty
A type of excise duty which is charged on

the carriage, from a UK airport of
chargeable passengers on chargeable
aircrafts.
1. Statute
Law
11. Other countries tax
jurisdictions i.e. double 2. Case Law
tax treaties
10. European
Sources 3. Statutory
Instruments
i.e. Directives
SOURCES OF TAX
9. Business
Economic
Notes
REVENUE LAW 4.
Statements
of Practice
5. Extra-
8. Explanatory
statutory
Leaflets concessions
6. Press releases
7. Internal and
Guidance
tax bulletins
Tax Evasion
Tax evasion consists of seeking to mislead HMRC by either:
 Suppressing information to which they are entitled
 Providing them with deliberately false information
How is it being dealt???
(i) Minor Cases Penalties
Magistrates courts as refer to “statutory
offence of evading income tax.”
(ii) Serious Cases Fines and/or

imprisonment on conviction
Tax Avoidance
 In broad sense, it includes any legal method of reducing tax burden i.e. taking
advantage of tax shelter opportunities explicitly offered by tax legislations.
 In narrow sense, it is designed to produce unintended tax advantage for the

taxpayer.
 In this matter, the court could disregard transactions which were destined and
designed to avoid tax
 i.e. Finance Act 2004 introduced- disclosure obligations on promoters of tax

avoidance scheme and taxpayer to HMRC providing details as to enable HMRC
to introduce counter avoidance measures at the earliest opportunity.
Conclusion
 Tax had existed since the early years.
 It developed over the years thus later spread throughout the
world.
 Tax simply explains that the government can increase their
revenue in order to pay for the goods and services and others
which later will benefit the citizens.
 This characterized how important the tax is to the country.
 With that, principles of taxation is used in which it acts as the
basis structure of tax system.
 Objectives are created to determine the success or the failure
of the system.
 By referring to the UK taxation system, the two types of tax
are introduced; direct and indirect taxes.
 Direct tax is a tax which is imposed directly to the taxpayer.
 Indirect tax is a tax on manufactured goods, imports etc and
paid Indirectly by the consumer (included in the price).
 Different sources of tax revenue law had helped to solve any
disputes between taxpayer and tax authority.
 In order to minimized the tax liabilities, tax avoidance is
legally help to reduce the tax burden. While tax evasion is
illegal due to its unethical behavior.
 Importance of taxation is realized through the rationale of
taxation.
References
• All Sands.com, (2010). History of Taxation. Retrieved on 27th August 2010, from
http://www.allsands.com/history/events/historyoftaxat_xzq_gn.htm
• Business Dictionary, (2010). Retrieved on 26th August 2010, from
http://www.businessdictionary.com
• Capital Gains Tax. Retrieved on 27th August 2010, from http://www.direct.gov.uk
• Direct taxation in the UK. Retrieved on 27th August 2010, from http://tutor2u.net
• Direct Taxes. Retrieved on 27th August 2010, from http://www.economywatch.com
• HM Revenue and Customs (2010). Retrieved on 26th August 2010, from
http://www.hmrc.gov.uk
• National Insurance Contributions. Retrieved on 27th August 2010, from
http://www.monetos.co.uk
• Paine. A., (2010), Sales Tax Hike In U.K. Emergency Budget. Retrieved on 26th August 2010,
from
http://www.billboard.biz/bbbiz/content_display/industry/e3i82a006de3290b1a6186cfabffb4
1bba9
• TaxWorld (1999). History of Taxation. Retrieved on 2nd August 2010,
http://www.taxworld.org/History/history.pdf
• http://www.ehow.co.uk
• http://www.hmrc.gov.uk
~THE END~

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INTRODUCTION OF

 Greece’s Athenian War

 During Roman Empire

“A contribution levied on persons, property or business for the

“A compulsory exaction of money by a public authority for public

“The process of “raising money for the purposes of government

 Money raised for government purposes

 The principles (by Adam Smith) which are equity, certainty,

o Every tax ought to be levied at the time, or in

o Every tax ought to be contrived as both to take

• It is also used to regulate the private sector of the economy to

• Regulate the distribution of income and wealth between different

• Regulate specific activities of citizens which are thought to be

 In terms of environment, tax is used to accommodate the

 Also, tax can be imposed to protect environmental

 In which, government charge on income, property or

 Based on the ‘ability to pay’ principle (businessdictionary,

Based on individual’s income after some allowances

Will be imposed if the income of any individual,

 Schedule A: Based on employee's income

 It is a direct proportional tax taken off the earnings of those

 NICs are sums of money that people pay to the National

 Amount required to pay:

 To ensure that they are entitled to receive certain state

 It is a proportional tax charged at 30% for larger companies

 For example, a company making £10,000 profit:

 So,19% corporation tax will be taken from the £6,000.

This tax is charged on the income from

It is charged on the value of wealth

It is payable by different people in different

 In other words, it is a tax on capital ‘gains’.

In some cases, the burden of the tax depends on the

VALUE ADDED TAX

AIR PASSENGER DUTY

Tax on most businesses transaction in UK.

VAT is added to the price of goods and

• 5% such as domestic fuel

To tackle the budget deficit they encounter.

A type of excise duty which is charged on

(ii) Serious Cases Fines and/or

 In narrow sense, it is designed to produce unintended tax advantage for the

 i.e. Finance Act 2004 introduced- disclosure obligations on promoters of tax

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