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Principle of abiity to pay

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  • 1. Principle of Ability to Pay &Progressive Taxation (In Nepal) PRESENTER : MR. MILAN REGMI NATIONAL COLLEGE
  • 2. Principle of Ability to Pay 2 It’s a concept of Economics that says that “those who have more resources (wealth), or earn higher incomes, should pay more taxes”. The ability to pay taxes are used as means of income redistribution. (such as income tax or tax on luxury goods) Under the ability-to-pay principle, tax burdens should be related not to what taxpayers receive from government, but rather to their ability to bear the tax burden—that is, to tolerate a sacrifice(threshold to bear the burden of Tax). Regmi Milan 007 1/14/2013
  • 3. Illustration 3 For instance, An idea of paying a dollar is a lesser sacrifice for a well-to-do person than for a poor person. An equal sacrifice requires higher tax payments from the well-to-do person.Regmi Milan 007 1/14/2013
  • 4. But the difficulty is to determine how this ability to pay can best be measured? 5 mainly depends on the concept ability to pay. Should it be in respect of Property, Income or Expenditure? Some Tests are discussed further !!Regmi Milan 007 1/14/2013
  • 5. If measured on the basis of property! 6 Some economists argue that , If a tax is imposed according to the property that a person possesses, it will be equitable. But property is not a correct index of a persons ability to pay. But why ? CHECK OUT THIS !! One person may possess one dozen houses from each of which he gets a monthly rent of Rs. 100, whereas another person may have one centrally situated building from which he may be getting Rs. 1500 as rent. Hence, we cannot be merely guided by the extent of a mans property while imposing a tax.Regmi Milan 007 1/14/2013
  • 6. If measured on the basis of Expenditure ! 7 It is often argued that, if a man is able to spend a very large amount, he must be in a position to pay a very high tax. This is a wrong conclusion. Why ???? Again !!! A man may have to spend a large amount of money because he has a large number of dependants. Expenditure, therefore, as an indicator of a persons ability to pay must be rejected.Regmi Milan 007 1/14/2013
  • 7. The Best Test : INCOME 8 Because , what ever amount of Tax s/he pays is out of their INCOME. There’s no other alternative. The tax system as a whole should be a just one.Regmi Milan 007 1/14/2013
  • 8. Progressive Taxiation Progressive 9Regmi Milan 007 1/14/2013
  • 9. Types of Tax Rates 10Regmi Milan 007 1/14/2013
  • 10. Progressive Taxiation A progressive tax structure is one in which an individual or 11familys tax liability as a fraction of income rises with income. If, for example, taxes for a family with an income ofRs. 20,000 are 20 percent of income and taxes for afamily with an income of Rs. 200,000 are 30 percentof income, then the tax structure over that range ofincomes is progressive.One tax structure is more progressive than another ifits average tax rate rises more rapidly with income. Regmi Milan 007 1/14/2013
  • 11. Nepal Income Tax Rates for: Individuals 12Income (Rs.) Tax Rate0 - 160,000 1%160,001 - 260,000 15% (+ Rs. 1,600)Above Rs. 260,000 25% (+ Rs. 16,600)Tax rate for MarriedIncome Tax Rate0 - 200,000 1%200,001 - 300,000 15% (+ Rs. 2,000)Above Rs. 300,000 25% (+ Rs. 17,000)Regmi Milan 007 1/14/2013
  • 12. Why It Matters? 13 A progressive tax is one of many systems governments use to raise revenue. The idea of a progressive tax has always been debated. Backers of a progressive tax argue that people with higher incomes can more easily afford a higher tax burden. Opponents tend to claim that it punishes high earners for their success and eliminates monetary incentives for workers wanting to increase their income level. Taxation is one of the most widely (and heatedly) debated topics out there, with many people arguing for and against certain systems. The progressive tax is no exception.Regmi Milan 007 1/14/2013
  • 13. Federal Income Tax Brackets 14Regmi Milan 007 1/14/2013
  • 14. Thank you ! 15Regmi Milan 007 1/14/2013