ESSCALAND – INCOME TAX
Leoni Brooke, Tai Fukumoto, Ai-Jun Tai, and Dilsad Ozen
What is income tax?
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Income Tax is a government levy imposed on individuals or entities (taxpayers) that varies with the income or profits (taxable income)
Income tax is a key source of funds that the government uses to fund its activities and serve the public
Common Principles
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Taxpayers and Rates •
Separate taxes are assessed against each taxpayer meeting certain minimum criteria. For example; in many systems married couples are allowed to request joint assessment.
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Tax rates can be collected using •
Statutory tax rate – legally imposed multiple rates for different income levels
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Average tax rate - raio of the total amount of taxes paid to the total taxable income
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Marginal tax rate – tax rate an individual would pay on one additional dollar of income
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Residents and Nonresidents •
Different tax systems for residents and nonresidents
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Residents are generally subject to income tax on all worldwide income. •
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Except Hong Kong and Singapore; they tax residents only on income earned in the country
Defining Income •
Net income of the individual after deductions for various payments for charitable gifts
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calculated on a formula which takes into consideration whether it is paid jointly by a married couple
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The number of dependents of the taxpayers
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Marginal Tax Rate •
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Reasons For
Aims to fairly tax individual based on their earnings Low income earners will be taxed at a lower rate Higher income earners taxed at a higher rate Long-standing, internationally recognized measure
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Reasons Against
An incentive against working harder Disadvantage for individual who are border lining the next tax bracket It is difficult to calculate
Why Is It Intricate? •
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Example in USA if Leoni has taxable income of $100,000, her marginal tax rate will be 28%. This does not mean she will owe $28,000 in taxes. Only the top portion of her income is taxed at the highest level. The first $8,350 of Leoni’s $100,000 income would be taxed at 10%, for a total of $835 in taxes due. The next $25,600 of her income would be taxed at 15%, for a total of $3,840. The next $48,300 of her income would be taxed at 25%, for a total of $12,075. The final $17,750 of her income would be taxed at 28%, for a total of
ESSCALand’s Income Tax Rate Income •
Poverty Line: 7,500€
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Minimum salary: 40 hours a week x 6.50€ an hour; per month 1,040€; per year 12,480€
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Average Salary: 17,500€ perincome year above your Personal Allowance (PA) Tax Rate Taxable Personal Allowance 0%
0€ to 8,800€
Basic Rate 15%
8,801€ to 20,000€ - People with the standard PA start paying this rate on income over 17,601€
Standard Rate 25%
20,001€ to 50,000€
Higher Rate 35%
50,001€ to 150,000€
Additional Rate 45%
Over 150,000
Japan’s Income Tax •
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The progressive taxation
The tax rate 5% - 40%
Reduced rates of tax for certain income earners. (personal allowance up to 8,308€)
Tax Base (€)
Tax
1-15,000
5%
15,001-25,385
10%
25,386-53,462
20% of base exceeding
53,463-69,231
23% of base exceeding
69,232-138,462
33% of base exceeding
138,463 and over
40% of base exceeding
1€=130yen
25,385 €
53,462€
69231€
138,462€
Compare to the United Kingdom Tax Rate
Taxable income above your Personal Allowance (PA)
Basic Rate 20%
£0 to £31,865 – People with the standard PA start paying this rate on income over £10,000
Higher Rate 40%
£31,866 to £150,000 – People with the standard PA start paying this rate on income over 41,866
Additional Rate 45%
Over 150,000 (GOV.UK, 2015)
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ESSCALAND has a Standard Rate of 25% The UK’s Basic Rate and Higher Rate are 5% higher than ESSCALAND In both countries the Additional Rate is the same at 45% ESSCALAND’s PA is lower than the UK
Consequences
→ Enough range before entering another lever of tax bracket → Compare to others countries… → Flexible tax policy → New country, new business opportunities
Sources
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GOV.UK. (2015) Retrieved March 31, 2015, from https://www.gov.uk/income-taxrates/current-rates-and-allowances Income Tax Definition. (2003, November 20). Retrieved March 31, 2015, from http://www.investopedia.com/terms/i/incometax.asp Income Tax. (n.d.). Retrieved March 31, 2015, from http://en.wikipedia.org/wiki/Income_tax Income Tax. (n.d.) West's Encyclopedia of American Law, edition 2. (2008). Retrieved March 31 2015 from http://legal-dictionary.thefreedictionary.com/Income+Tax
