#1
Which of the following is not a principle of taxation?
Voluntary compliance
ExplanationVoluntary compliance is not a principle of taxation; it's a characteristic of tax compliance behavior.
#2
What does the ability-to-pay principle in taxation suggest?
Tax should be based on the taxpayer's ability to pay.
ExplanationIt suggests that taxes should be proportionate to an individual's ability to pay.
#3
What is the primary purpose of tax planning?
To minimize tax liabilities within the legal framework.
ExplanationTax planning aims to optimize financial decisions to reduce tax obligations legally.
#4
What is the primary purpose of a tax audit?
To detect and prevent tax evasion and fraud.
ExplanationTax audits are conducted to ensure compliance with tax laws and identify instances of evasion or fraud.
#5
What is the 'benefit principle' in taxation?
Tax should be imposed in proportion to the benefits received from public goods and services.
ExplanationThe benefit principle suggests that those who benefit from public services should bear the costs through taxes.
#6
Which taxation system imposes a higher tax rate on higher-income earners?
Progressive tax
ExplanationProgressive tax imposes higher rates on higher incomes, aligning with the ability-to-pay principle.
#7
What is the primary objective of a tax incidence analysis?
To determine who bears the economic burden of a tax.
ExplanationTax incidence analysis identifies how the burden of a tax is distributed among various parties.
#8
What is the principle behind the benefit received principle in taxation?
Tax should be imposed in proportion to the benefits received from public goods and services.
ExplanationIt suggests that individuals should pay taxes corresponding to the benefits they receive from government services.
#9
Which taxation system imposes the same tax rate on all income levels?
Proportional tax
ExplanationProportional tax applies the same tax rate regardless of income, ensuring equal treatment.
#10
What is the difference between tax evasion and tax avoidance?
Tax evasion involves intentionally failing to pay taxes owed, while tax avoidance involves minimizing tax liabilities within the legal framework.
ExplanationTax evasion is illegal and involves deliberately evading taxes, whereas tax avoidance is legal and involves using legal means to minimize tax liability.
#11
Which of the following is not a criterion for an effective tax system?
Evasion
ExplanationEvasion is a tax compliance issue, not a criterion for evaluating tax system effectiveness.
#12
Which of the following taxes is considered an indirect tax?
Value-added tax (VAT)
ExplanationIndirect taxes like VAT are collected from consumers through the purchase of goods and services.
#13
Which of the following taxes is generally considered the most regressive?
Sales tax
ExplanationSales tax disproportionately affects low-income individuals, making it regressive.
#14
What is the 'horizontal equity' principle in taxation?
Taxpayers with similar abilities to pay should pay the same amount of tax.
ExplanationIt asserts that individuals in similar financial situations should face similar tax liabilities.
#15
In a tax system, what does the term 'elasticity' refer to?
The ability of taxpayers to change their behavior in response to changes in tax rates.
ExplanationElasticity measures how sensitive taxpayers are to changes in tax rates, affecting tax revenue.
#16
Which tax base is most commonly used for a progressive income tax system?
Income
ExplanationProgressive income tax systems primarily tax income, adjusting rates based on income levels.
#17
What is the 'vertical equity' principle in taxation?
Taxpayers with higher incomes should pay a higher proportion of their income in taxes.
ExplanationVertical equity asserts that individuals with higher incomes should contribute a greater proportion of their income in taxes.