Incidence of Income Tax Term Paper Example | Topics and Well Written Essays - 1500 words

Incidence of Income Tax - Term Paper Example Under the progressive income tax policy (a progressive tax takes a larger share of the income of high-income taxpayers than of low-income taxpayers).   The incidence of the tax is shifted more on the high-income group than to the low-income group (Samuelson and Nordhaus 1992). Following are the effects of taxation on income: Under progressive income tax policy, ya family with $50,000 income is taxed more than one with $20,000 of income. Not only does the higher-income family pay a larger income tax, but it in fact pays a higher fraction of its income. Such income tax policies are aimed to minimize the distortions between haves and have-nots. It influences the consumption patterns of higher-income families and affects overall consumption patterns of an economy. On the other hand, progressive income taxation policies are politically controversial issues and are regularly used in electoral campaigns. A larger share of the burden of VAT falls upon the consumers because the producer/manufacturer (VAT registered persons or companies) pass on the financial impact of such a tax on to the consumers. Suppose that a product, say the laptop, has been imposed a VAT. The burden of this tax imposition will not be born by the supplier or manufacturer of the laptops rather it will be passed on to its customers by raising the price of laptops by the percentage of the tax imposed. The ultimate consumer bears the burden of VAT and it’s him whose consumption is being affected through a value-added tax. Advantages: Registration for VAT makes an overall good impression for your company. Since large corporations usually register for VAT, therefore, if a newly established company registers itself for VAT, the customers, and for that matter suppliers, heed it as an established, large company. Registration for VAT also has financial benefits. If a newly-established company registers for VAT then it automatically avoids the penalties for non-registering when it becomes legally mandatory to register for VAT. It is a precautionary step.