ICAB CL Principles of Taxation flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Taxable income

The base on which income tax is charged, computed as assessable income for the period less allowable deductions, and after reliefs and exemptions permitted by the governing tax statute.

Assessable income

All gains and profits of an income nature arising from employment, business, property, or investments that fall within the charging provision, before any deductions are subtracted.

Residence basis of taxation

A rule taxing persons who are resident in the jurisdiction on their worldwide income, with credit relief for foreign tax paid, regardless of where the income arises.

Source basis of taxation

A rule taxing income by reference to where it arises rather than where the recipient lives, so non-residents pay tax only on income sourced within the jurisdiction.

Marginal tax rate

The statutory rate applied to the next unit of taxable income, determined by the bracket into which the top slice of that income falls.

Average tax rate

Total tax payable divided by total taxable income, expressing the overall burden; it is always lower than or equal to the marginal rate under a progressive scale.

Progressive tax structure

A rate schedule in which the marginal rate rises as taxable income increases through successive brackets, so the average rate increases with income.

Regressive effect

A distributional outcome where a tax takes a larger proportion of income from lower-income persons, typical of flat-rate indirect taxes on basic consumption goods.

Allowable deduction

An expense subtracted in computing taxable income because it was incurred in producing assessable income, is revenue rather than capital in nature, and is not expressly disallowed.

Capital allowance

A statutory deduction spread over several years that relieves capital expenditure on qualifying plant, machinery, or buildings, replacing depreciation for tax purposes.

Balancing charge

An amount added to taxable income when disposal proceeds of a qualifying asset exceed its tax written-down value, recapturing allowances previously granted.

Balancing allowance

A further deduction permitted when disposal proceeds of a qualifying asset are less than its tax written-down value, reflecting the unrecovered cost.

Tax written-down value

The qualifying cost of an asset less all capital allowances previously claimed on it; it is the base on which the reducing-balance allowance is computed.

Trading stock valuation

Closing stock is valued at the lower of cost or net realisable value, and the opening and closing stock figures adjust cost of sales in the trading computation.

Withholding tax

Tax deducted at source by the payer from specified payments such as interest, dividends, royalties, or fees, then remitted to the revenue authority on behalf of the recipient.

Tax gross-up

Converting a net-of-withholding amount to its gross equivalent by dividing by one minus the withholding rate, so the correct tax liability can be computed.

Tax credit relief

A deduction from domestic tax equal to foreign tax already paid on the same income, limited to the domestic tax attributable to that foreign-source income.

Value added tax

A multi-stage indirect tax charged on taxable supplies, where registered businesses reclaim input tax so the burden ultimately falls on the final consumer.

Output tax

VAT charged by a registered business on its own taxable sales and supplies during the return period, collected from customers and payable to the authority.

Input tax

VAT paid by a registered business on purchases and expenses used for taxable supplies, recoverable as a credit against output tax for the period.

Zero-rated supply

A taxable supply charged VAT at a rate of zero percent, which still permits full recovery of related input tax by the supplier.

Exempt supply

A supply outside the scope of VAT charging, so no output tax arises but the supplier cannot recover input tax attributable to making it.

VAT fraction

The proportion of a VAT-inclusive price representing tax, computed as the rate divided by one plus the rate, for example 15/115 at a fifteen percent rate.

Taxable person

A person whose taxable turnover exceeds the registration threshold, or who registers voluntarily, and is therefore required to charge and account for VAT.

Self-assessment

A system in which the taxpayer computes its own liability, files a return by the statutory date, and pays the declared tax, with later audit by the revenue authority.

Objection and appeal

The statutory process for disputing an assessment: a written objection within the prescribed period, a review decision, then appeal to the tax tribunal or court.

Tax avoidance

Arranging affairs within the letter of the law to reduce tax, which may be counteracted by general anti-avoidance rules or specific statutory provisions.

Tax evasion

Deliberate understatement of income or overstatement of deductions, or concealment of taxable activity, which is a criminal offence attracting penalties and prosecution.

Double taxation

The imposition of comparable taxes by two jurisdictions on the same income of the same person for the same period, relieved by credit, exemption, or treaty provisions.

Permanent establishment

A fixed place of business through which a non-resident carries on business in a jurisdiction, giving that jurisdiction taxing rights over attributable business profits.

Presumptive tax

A simplified method of assessing tax on a deemed base, such as turnover or standard industry margin, used for small businesses where record keeping is limited.

Tax neutrality

The principle that a tax system should not distort business or investment decisions, so economically similar transactions and entities bear comparable tax burdens.

Ability-to-pay principle

The equity principle that tax burden should rise with a person's capacity to bear it, supporting progressive rates and personal allowances for lower-income taxpayers.