ICAB CL Principles of Taxation cheat sheet

Principles of Taxation - Core Concepts and Computation Rules

• Tax base classification: income tax is levied on taxable income (assessable income minus allowable deductions); VAT and customs duties are levied on transaction value; wealth tax is levied on asset holdings at a point in time.

• Residence vs source: residents are taxed on worldwide income with relief for foreign tax paid; non-residents are taxed only on source-country income, typically via withholding at the statutory rate.

• Progressive rate structure: tax = sum over brackets of (income falling in bracket × bracket rate); marginal rate applies to the next unit of income, average rate = total tax ÷ total income, and average rate never exceeds marginal rate.

• Allowable deduction test: an expense is deductible only if incurred in producing assessable income, is not capital in nature, and is not expressly disallowed by statute; capital expenditure is relieved through depreciation or capital allowances instead.

• Capital allowances: annual allowance = qualifying cost × statutory rate (straight line) or reducing-balance rate × tax written-down value; balancing charge arises when disposal proceeds exceed tax written-down value, balancing allowance when they fall short.

• Loss relief ordering: current-year loss is set against other income of the same year, then carried back (where permitted) and carried forward, subject to continuity-of-ownership tests.

• Withholding tax mechanics: the payer deducts tax at the statutory rate from gross payment and remits it; the net amount is what the recipient receives, so gross-up = net ÷ (1 − withholding rate).

• VAT/GST computation: output tax on taxable supplies minus input tax on creditable purchases; exempt supplies give no input credit, zero-rated supplies do. Tax fraction of a VAT-inclusive price = rate ÷ (1 + rate).

• Administrative timeline: registration, filing of return, self-assessment, payment, and objection/appeal each have statutory deadlines; late filing and late payment attract fixed penalties plus interest computed on the unpaid tax.