Worksheet on Taxation (Student Version: Beginners)
Sue Hall
Head of Sixth Form
Embley Park School
Romsey
This worksheet is designed to help you understand the issues of taxation using data obtained from the Internet.
The assignment aims to:
- Research the main sources of government revenue
- Look at the reasons for taxation
- Study the recent changes in the tax system
Step 1
Government revenue
Governments have no money of their own. Any money the government spends must come from taxation. There are two types of taxation, direct from income and indirect on expenditure.
Use the Survey of the UK Tax System http://www.ifs.org.uk/publications.php?publication_id=1711 from the IFS Web site.
Read table 1 Sources of Government Revenue 2004-05 forecasts.
Use the total values in each of the categories below and illustrate the data as a bar graph on the axis provided:
Income Tax
National Insurance contributions
Corporation Taxes
Capital Taxes
VAT
Other Indirect Taxes
Council Tax
Other
What is the largest source of government revenue?
What is the smallest source of revenue?
What is council tax and what percentage of the government's income comes from Council tax?
Step 2
A good tax
In the 1770's Adam Smith outlined the canons of taxation which are just as applicable today. A 'good tax' should be easy to pay, cheap to collect, certain so that you know what you are paying and also equitable or fair.
In our tax system we have got three different types of taxation.
Progressive
which take a higher percentage of the incomes of higher income earners
Proportional
which take the same percentage of everybody's income
Regressive
Which take a higher percentage of income from the lower income earner than the high income earner
Fill in the table below to show whether a tax is progressive, proportional or regressive.
| Tax | Type |
|---|---|
| Income Tax | |
| Corporation Tax | |
| VAT |
Step 3
Types of Taxation
Find out the current tax rates for each of the taxes outlined below using the web site of the Institute of Fiscal Studies http://www.ifs.org.uk/
Use the search facility to look at the articles containing information on taxation. This is easily done by putting TAX into the search facility.
| INCOME TAX | |
|---|---|
| VAT | |
| CAPITAL GAINS TAX | |
| CORPORATION TAX | |
| EXCISE DUTY |
Step 4
Reducing Consumption
Excise duties are flat rate taxes levied on alcoholic drinks, tobacco and petrol. Changes in the rate are made to raise revenue for the government but also for environmental and health considerations to reduce the amount of these goods consumed.
To illustrate the price of a product graphically we can use a supply and demand diagram. Below are the supply and demand schedules for a new alcopop called Jessie Pop. Plot the supply and demand curves on the graph provided, remember to fully label your diagram.
| Price of Jessie Pop (£) | Quantity of Jessie Pop Demanded |
|---|---|
| 1.60 | 10 |
| 1.80 | 8 |
| 2.00 | 6 |
| 2.20 | 4 |
| 2.40 | 2 |
| Price of Jessie Pop (£) | Quantity of Jessie Pop Supplied |
|---|---|
| 1.60 | 2 |
| 1.80 | 4 |
| 2.00 | 6 |
| 2.20 | 8 |
| 2.40 | 10 |
What is the equilibrium price?
The government puts a flat rate tax on Jessie pops which raises the price of the drink by 20p. On the graph below show what happens to the supply curve.
What is the price paid by the customer?
What is the new quantity demanded?
Step 5
UK Tax Reform
Taxation has a number of effects. It reduces the amount of money people are able to spend, it redistributes income, it affects prices and reduces the ability to save. Taxation may also affect effort. The governments Fiscal Policy is where it changes the level of government expenditure and taxation with the aim of controlling demand.
Use the site http://www.ifs.org.uk/publications.php?publication_id=1711. Read the section from a Survey of the UK Tax System on the 'summary of recent trends' and look briefly at other sections.
The government has made a number of tax reforms in the past ten years. Use the information from the site to find out the main changes and fill in the table below.
| Personal Income Tax | |
| VAT | |
| Excise Duties | |
| Local Tax |
If you were Chancellor of the Exchequer outline 3 reforms you would make to the tax system and explain why.
| 1. | __________________________________________________________________ __________________________________________________________________ |
| 2. | __________________________________________________________________ __________________________________________________________________ |
| 3. | __________________________________________________________________ __________________________________________________________________ |
Use information from the treasury site http://www.hm-treasury.gov.uk/about/about_budguide.cfm. Read the information provided on the Budget and summarise the main changes in the most recent Budget.