Classification of Taxes

1. Classification of Taxes Prepared By – Debby Wu

2. Classification of Taxes Tax • (1) According to the • incidence of tax • (a) Direct Tax • (b) Indirect Tax • (2) According to the • percentage of income • being taxed • (a) Progressive Tax • (b) Proportional Tax • ( c ) Regressive Tax

3. Direct Tax • Tax on individuals directly Direct Tax Tax burden cannot be shifted to other people

4. Examples of Direct Tax Profits Tax Property Tax Salaries Tax Estate Duty

5. Indirect Tax • Tax on goods and services • Tax burden can be shifted to other people Indirect Tax Producers Consumers

6. Examples of Indirect Tax Betting Duty Rates Entertainment Tax Stamp Duties stocks Motor Vehicles First Registration Tax Tax on Alcoholic Liquor

7. Direct and Indirect Tax • http://www.cuhk.edu.hk/eco/cyber/tax.html

8. Average Tax Rate Income Progressive Tax • Average tax rate ________ as income increases increases Progressive Tax

9. Example (I) of Progressive Tax ( I ) Salaries Tax Tax rate progresses from 2% to 17% while the standard tax rate is 15%. Salaries Tax

10. Example (II) of Progressive Tax • ( II ) Estate Duty Tax rate from 6% to 18% on the wealth of a deceased person passes to his inheritor valued above $5 million. Estate Duty

11. Illustration of Progressive Taxe.g. Salaries Tax • Taxable Income = Annual Income – Tax Allowance 23,000 1150 5% 48,000 4800 10% 78,000 11,700 15% Tax Payment = Taxable Income X Average Tax Rate

12. Conclusion of Progressive Tax e.g. Salaries Tax • As income increases, tax payment takes an ___________ percentage of taxable income. increasing

13. Average Tax Rate Income Proportional Tax • Average tax rate remains the ________ at all levels of income same Proportional Tax

14. Example (I) of Proportional Tax • Profits tax rate of unincorporated business = 15.0% • Profits tax rate of corporations = 16.5% Profits Tax

15. Example (II) of Proportional Tax Property Tax = 15% Property Tax

16. Illustration of Proportional Taxe.g. Profits Tax • Profits Tax Rate • = Net Profits X Average Tax Rate $15,000 $75,000

17. Conclusion of Proportional Taxe.g. Profits Tax • As net profit (income) is increased, the taxpayer pays the _______ percentage of income as tax, i.e. the average tax rate remains __________ as income is increased. Conclusion same constant

18. Average Tax Rate Income Regressive Tax • Average tax rate ______ as income increases. falls Regressive Tax

19. Examples of Regressive Tax • Can you tell some examples of indirect tax? Air Passenger Departure Tax Cross Harbour Tunnel Passenger Tax Hotel Accommodation Tax All types of sales tax (indirect taxes) are regressivetaxes which are taxed on goods and services.

20. Illustration of Regressive Taxe.g. First Registration Tax • Tax Payable = Import Price X Tax Rate 120,000 30% 120,000 15% Proportion of Tax to Income = Tax Payable / Annual Income

21. Conclusion of Regressive Taxe.g. First Registration Tax • The higher the income of the consumer, the _______ the proportion of his income is paid in tax. Conclusion lower

22. Regressive Tax • http://www.cuhk.edu.hk/eco/cyber/Dtax.html

23. For further information about taxation in Hong Kong, you can visit the following web site. • http://www.info.gov.hk/ird