Understanding the Purpose of Taxation: Financial, Social, Legal, and Ethical Perspectives
Taxation is a crucial method governments use to collect funds for public services. This chapter delves into the principles of a fair tax system, exploring how taxes should be related to income, predictable, cost-effective to collect, and convenient for taxpayers. It also discusses the redistribution of income through taxes, the financial, social, legal, and ethical reasons behind taxation, and how taxes finance government services and meet economic objectives.
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Chapter 34 Learning intentions In this chapter you will learn to: Explain the term taxation Outline the principles of a fair tax system Examine the purpose of tax from a financial, social, legal and ethical point of view. Textbook page reference: 396
Chapter 34 What is taxation? Taxation is the way the government collects money to pay for public services. Textbook page reference: 397
Chapter 34 What is taxation? The Office of the Revenue Commissioners (Revenue) is the state body responsible for collecting all taxes in the Republic of Ireland. Textbook page reference: 397
Chapter 34 Principles of a fair (ethical) tax system The amount of tax that a person has to pay should be related to their ability to pay in other words, those who earn more should pay more. Equality The amount of tax that a person must pay should be clear and predictable. Certainty The cost of collecting a tax should be less than the amount that will be collected. Convenience It should be easy for each person to pay their taxes when they fall due. Economy Textbook page reference: 397
Chapter 34 What is taxation? The government uses tax to redistribute income. A fair tax system should be used to collect money from those who earn higher incomes in order to look after those in our society who need help. Textbook page reference: 398
Chapter 34 The purpose of taxation Financial reasons: Using taxation as a source of income to fund government spending. Social reasons: Using taxation to try to improve society and people s lives. Legal reasons: Complying with the law of the land. Ethical reasons: Using tax in ways that are just and fair to all. Textbook page reference: 398
Chapter 34 Financial reasons Financing the work of government: The government uses the money to pay for the services it provides to people living in Ireland, for example education, health, policing and social welfare payments. Textbook page reference: 399
Chapter 34 Financial reasons Meeting economic objectives: Taxes may be used to control inflation. Inflation is a sustained increase in the general level of prices from one year to the next. Textbook page reference: 399
Chapter 34 Financial reasons Higher taxes will reduce disposable income and help keep prices stable. Low taxes encourage spending and can cause inflation. Textbook page reference: 399
Chapter 34 Financial reasons Assisting enterprise: Money collected from taxes is used to encourage and help entrepreneurs. State bodies such as Enterprise Ireland and Local Enterprise Offices provide grants or services to entrepreneurs or businesses. Textbook page reference: 399
Chapter 34 Financial reasons Repaying the national debt: Interest and repayments have to be paid on money that the government borrows. Textbook page reference: 399
Chapter 34 Financial reasons Interest payments as % of government revenue Debt servicing means paying the interest on our national debt. Textbook page reference: 399 400
Chapter 34 Social reasons Redistributing wealth and income for the common good: A major purpose of taxation is to transfer money from those on high incomes to those on lower or zero incomes. Textbook page reference: 400
Chapter 34 Social reasons Meeting social objectives: Taxes are used to promote behaviour that may have a positive impact on society and discourage behaviour that may have a negative impact on society. Textbook page reference: 400
Chapter 34 Legal reasons Fulfilling a legal requirement: Paying taxes is compulsory under Irish law. Individuals and businesses that do not pay their taxes face high interest payments and severe penalties. Textbook page reference: 401
Chapter 34 Ethical reasons Fairness: Tax must be fair and apply to everyone, depending on their ability to pay. Everyone has a responsibility to pay their fair share of taxes. This supports the work of government in improving the economy and providing public services. Textbook page reference: 401
Chapter 34 Recap and review Can you? Explain the term taxation Outline the principles of a fair tax system Examine the purpose of tax from a financial, social, legal and ethical point of view.
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