Taxation in Theory and Practice Assignment Essay

Taxation in Theory and Practice Assignment - Essay Example In addition to that, the Spinney state is in dire need of increasing its revenues. The capital saved by the wealthy individuals can be used to finance the state investment projects (Palil, 2009, p.60). Thus, individuals should be taxed annually depending on their income (GBP) as illustrated in the table below. Income(GBP) % 1-2,440 10 1-37,400 20 37,401-150,000 40 Over 150,000 50 Data source: UK Tax rates 2010-2011(http://www.worldwide-tax.com/uk/uk_taxes_rates.asp) The rate of 10% responds to the income savings of up to 2,440, whilst income dividends below 37,400GBP tax rate is 10%, whereas, income dividend of GBP 37,400-150,000 is taxed at a rate of 32.5%. Finally, those exceeding 150,000GBP should be taxed at a rate of 42.5%. In terms of social security, individuals should be deducted based on their salary. For instance, employers should be deducted a tax rate of 12.8% on salaries above 5,715 GBP, employees at a rate of 11% on salaries of GBP between 5,715-43,875 and an additional of 1% for salaries above GBP of 43,875. On the other hand, self employed should pay a tax rate of 8% for income of 5,715-43,875GBP with an additional of 1% on incomes above GBP 43,875. Corporate tax should be at a rate of 28%. For UK based resident companies, the tax rate should be 21% only if their annual profits are below 300.000GBP. Individual capital gains should be deducted at a tax rate of 18%. The mayor of spinney state should ensure transparency so that no conflict might arise when implementing the tax system. Tax Burden Distribution Regressive tax system is majorly used by numerous states. This implies that the state average rate of tax declines with income. This type of tax system moves taxes burden disproportionately to deprived individuals. In that case, it tends to limit the taxpaying burden on individuals with greater capabilities of paying. This, therefore, is an unjust agenda to the poor individuals with low income levels. Despite their low income levels, they are s upposed to pay the same amount of tax in relation to highly paid individuals. It works effectively in reference to taxes that are fixed regardless of an individual income level. For better illustrations, here is an example to drive the point home. Cigarettes taxation by state and federal is a perfect example of a regressive system. Smokers categorized as low-income pay taxation rates that are higher compared to their counterparts. Despites its limitations, it has its own advantages. The regressive system helps in freeing more investment finances from individual with high incomes. This is because their income greater portion is always saved. Alternatively, a state can employ progressive system of taxation. In this system, the percentage tax paid by an individual increases with income. Thus, the more you earn, the more you pay relieving burden from deprived individuals. For instance, an individual earning 120,000 pounds will pay a tax rate of 12,000 pounds (10% tax rate), whilst one w ith 20,000 will pay a tax of 1,600pounds (8% tax rate). Unlike progressive taxation, regressive taxation operates in a way that tax reduces with income increase. Thus, in progressive tax system, tax paid proportion, increases as income rises. There is no tax that can be proportional as individuals cannot pay the same level and amount of tax. United Kingdom with Different tax rate In the