This document distinguishes between direct and indirect taxes. Direct taxes include income tax, corporation tax, capital gains tax, and capital transfer tax, which are paid by individuals and businesses directly. Indirect taxes are levied on the consumption of goods and services, through taxes like customs duty, excise duty, stamp duty, and sales/consumption taxes that are paid by manufacturers and importers and passed on to consumers. Examples are provided of calculating income tax, capital gains tax, customs duties, and excise taxes to illustrate how these different types of direct and indirect taxes are applied.

1. Taxation:
Part 2
Prepared by Sandrea Butcher

2. Objectives
• distinguish between direct and indirect taxes
• state examples of direct and indirect taxes

3. DIRECT TAXES?

4. This type of tax is
usually applied to
income and capital
and is paid by
individuals.

5. Examples
1. Income tax
• A percentage of the taxpayer’s income
over a certain threshold amount is taken
from their wage packet.
• It is normally paid by the employer.

6. Exercise
• Assume Antonio is paid $55,000 per
annum. He is allowed a personal
allowance of $25,000 because he has
expenses to cover every year. The income
tax rate is 12% of taxable income.
a. Calculate his taxable income.
b. Determine his monthly tax payable.

7. Solution
Taxable income = Gross wage – personal allowance
‫؞‬ Taxable income = $55,000-$25,000
= $30,000
Annual taxes = $30,000 x 12%
= $3,600
Monthly taxes =
$3,600
12
= $300

8. 2. Corporation tax
• This is a tax which is applied to the
declared profits of an incorporated
business.
• Therefore sole traders and partnerships
do not pay corporate profits.

9. 3. Capital gains tax
• This is a tax on increases in the value of
assets.
• The tax is levied on the increase in the
sale price of the asset compared to the
price of the asset when it was initially
purchased.

10. Example
• Pierre purchased 1100 shares issued by
Pet Stop Inc in June 2018. Each share was
sold at $0.25. In June 2019 he sold each
share at $0.41. Capital gains tax in the
country is 5%.
• Calculate the capital gains tax that Pierre
would have to pay in 2019.

11. Solution
Capital gains ($0.41-$0.25) =$0.16 per share.
Total gains were $0.16 x 1100 = $176
Capital gains tax = $176 x 5%
=$8.80

12. 4. Capital transfer tax (inheritance tax)
• This is a tax on money and assets
given by one person to another, for
example in the will of a relative who
dies.
• The tax is levied on gifts of over a
certain amount specified by the
government.

13. INDIRECT TAXES

14. • These taxes are levied on consumption of goods and
services and are usually paid by the manufacturers or
importers.

15. • These taxes can either be:
– specific taxes - tax is a certain amount levied on
each good, such as a $5 tax on every bottle of rum
– ‘ad valorem’ taxes – a percentage applied to the
value of the good, such as 14% tax

16. Examples
1. Custom duty
• These are taxes applied to imported goods.
• They are paid by the importer at the point of entry
and passed onto customers.

17. Example
• Hunte & Browne Motors imports a car valued at
$10,000.
• The customs duties on new cars is 250%.
• The company will pay ($10,000 x 250% =) $25,000 in
customs duties

18. 2. Excise duty
• These are levied on
goods that are deemed
to have a negative
effect on society, such
as alcohol and
cigarettes.

19. • There is a 10% excise
tax on sweetened
beverages in Barbados.

20. 3. Stamp duty
• This is a tax charged on
the legal recognition of
certain documents,
such as the deed of sale
on a house or a receipt
for the sale of goods.

21. 4. Sales/consumption tax
• This kind of tax is applied to goods and services that are
consumed.
• A consumption tax is collected for the government by
• producers.

22. • Examples of sales/consumption taxes include:
• Value Added Tax in Barbados (VAT) - 17.5%
• General Consumption Tax in Jamaica (GCT) – 15%
• Sales Tax in Miami (7%)
• Sales Tax in New York (4%)

23. The end