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CONCEPTS IN TAXATION  — Economics Keypoint

CONCEPTS IN TAXATION 

  1. TAX EVASION -An illegal acts whereby people companies try to dodge payment of taxes. 
  2. TAX AVOIDANCE – An illegal act of attempting to escape or exploit the loopholes in tax law. 
  3. PROPORTIONAL TAX – A situation where people pay the same percentage of their income. 
  4. PROGRESSIVE TAX – This is a case where the amount of tax paid increases.
  5. REGRESSIVE TAX – This is a case where the tax rate decreases as income increases.

THE INCIDENCE OF TAXATION: This is the effect of tax and how the burden of tax is distributed between the seller and the buyer of a commodity. It is upon the person who pays it.

INCIDENCE ON DIRECT TAX – This is where the Incidence of a tax is borne by the person who pays it.

INCIDENCE OF INDIRECT TAX – This is where the Incidence Is borne mainly by the consumer, seller, or both depending on the elasticity of demand for the commodity.

COMMODITY WITH PERFECTLY INELASTIC DEMAND -This is when a tax is imposed on articles whose demands are perfectly inelastic. Here, the incidence of tax falls mostly on the consumers or buyers.

COMMODITY WITH PERFECTLY ELASTIC DEMAND – This is when a tax is imposed on a commodity with perfectly elastic demand. Here, the incidence of tax is borne entirely by the producers or sellers.

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