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Develope understanding of taxation (2)

Accounting

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27 views

Develope understanding of taxation (2)

Accounting

Uploaded by

sissaymekonnen483
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Unit title: Develop understanding of taxation

Unit objective

Lo1. Identify and discuss the role of taxation in the Ethiopian economy

Lo2. Identify and discuss direct tax

Lo3. Identify and discuss indirect tax

lo4. Identify and discuss stamp duty tax

Lo5. Manage tax liability


Lo1. Identify and discuss the role of taxation in the Ethiopian economy
1.An over view of taxation
What is tax?
 A tax is a compulsory charge or payment imposed by government on individuals or
corporations.
 A tax is an involuntary fee or more precisely "unrequited payment" made by individuals or
businesses to a government without quid pro quo
 The persons who are taxed have to pay the taxes irrespective of any corresponding return
from the goods or services by the government.
 It is the most important source of revenue for a government.

Taxation is used as a system of raising the lion share of public revenue in modern economic
system.
2.Tax accounting
 Tax accounting is one of the specialized fields of accounting that encompasses activities such as:

 Recording of tax related transactions

 Continuous follow-up of tax laws affecting a taxpayer

 Analyzing the consequences of tax on alternative business transactions/courses of actions

 Determination of tax bases and tax liabilities

 Preparation of tax returns or tax reports and

 Providing tax related information to assist decision makers


3. Objectives of taxation
The objectives of taxation are:
 To Raise public revenue
 To Remove inequalities of income and wealth
 To Ensure economic stability
 To Reduce regional imbalances
 To Create employment opportunities
 To Prevent harmful consumption
 To Divert resources beneficially
 To Encourage exports
 To Enhance standard of Living
4. Basic elements of tax system

The five basic elements of tax system are:

Taxpayer refers to any individual or organization that is obligated to pay tax

Tax Base is the value of everything which is subject to taxation

Tax Rate is the amount of taxes expressed as a percentage of the tax base

Tax Period is the period for tax assessment. It can be a year (tax year), month, week, etc

Tax Administration refers to any government office mainly with a responsibility of tax
5. Basic characteristics
Tax has the following basic characteristics:

 Tax is a compulsory payment (obligatory payment)

 Benefits are not the basic condition in tax payment

 It is a personal obligation

 It is used for Common interest

 It is a Legal collection
Cont..
 It is a periodic and regular payment

 It has Wide Scope

 No discrimination exists in tax payment


6. Classification of taxes

I. Based on the Tax Bases


1. Income Taxes: are taxes levied on income of persons or
businesses

2. Property Taxes: are levied on a property of Persons or


businesses

3. Commodity Taxes: are taxes levied on commodities and


services
II)Based on who Bears the Burden
.1. Direct
Tax which is demanded from the person who also shoulders the burden of the
tax; or tax which the taxpayer cannot shift to another
Cont..
2. Indirect

Tax which is demanded from one person in the expectation and intention that
he should indemnify himself at the expense of another

The impact and incidence of which fall on different persons

Example: VAT

are taxes levied on commodities


7. Tax schedule

Under Ethiopian tax system Based on the source of taxpayers income they can classify in to four

1. Schedule A: from employment ( EIT)

2. Schedule B: from rental of building

3. Schedule C:From business operation

4. Schedule D: Other source of income ; such as from dividend, interest, royalty game of chance,

Gambling etc..
Lo2. Identify and discuss direct tax

The followings are some example of direct tax


1. Employment Income Tax
2. Rental of building income tax
3. Business profit tax
4. Dividend income tax
5. royalty income tax
6. Interest income tax
7. Game of chance income tax
8. Gambling

The impact and incidence of which fall on different persons


1. Accounting For Employment Income Tax

It concerned with:

1. Determining EIT Base i.e. Taxable Employment Income

2. Calculating Employment Income Tax;

3. Preparing Employment Income Tax Declaration; and

4. Recording Employment Income Tax Related Transactions

Applicable Laws:
 Proclamation No. 979/2016
Components of Employment Income

As per the Income Tax Proclamation of (Ethiopia), employment income


shall include any payments or gains in cash or in kind received from
employment by an individual from all the employers.

These include:
Basic salary or wages

Overtime (OT) Income

Allowances

Bonus

Employment termination payments


Over time Income computations
 For OT work b/n 6 am to 10 pm, OHR = RHR x 1.5

 For OT work b/n 10 pm to 6 am, OHR = RHR x 1.7

 For OT work on weekly rest days, OHR = RHR x 2

 For OT work on public holidays, OHR = RHR x 2.5

 OHR = Basic Salary/normal working hours in a month

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