Finance Operations Cima Study Notes
Financial Operations
Principles of Business Taxation
UK & USA is based on a benchmark tax regime Government needs tax to finance expenditure on public services and Gov borrowing
Government uses tax to both stimulate and control the economy.
Adam Smith’s Wealth of Nations
Good Tax should be;
Fair
Absolute
Convenient
Efficient
3 Major principles of any good tax policy
3 E’s
Equity
Efficiency
Economic Effect
American Institute of Certified Public Accountants – 10 Principles
Neutrality
Appropriate Gov Revenues
Minimum Tax Gap
Economic Growth and Efficiency
Simplicity
Transparency and Visibility
Economy of Collection
Convenience of Payment
Equality and Fairness
2 Types of Tax
Directs – income tax, corporation tax etc
Indirect – VAT
Incidence – the distribution of the tax burden has 2 elements Formal – the person who pays they tax Actual – the person who bares the cost
Competent Jurisdiction – Tax authority that has the legal power to assess and collect tax
Hypothecation – Taxes devoted to certain types of expenditure – ie road tax to spending on roads and transport
Tax Gap – the difference between what’s collected and what’s actually owed.
Tax rate structure
Progressive – increases in proportion as amount of income rises
Proportional – same proportion as income rises
Regressive – Decreasing proportion as income rises
Sources of Tax Rules
Legislation
Agreements between countries – ie double tax treaties
Precedents
Directives
Taxes are classified according to their tax base – what’s being taxed.
Trading Income – Tax Base = Profit
Standard Proforma $
Accounting Profit X
- Income exempt from tax, or taxed under other rules (X)
+ Disallowable expenses X
+ Depreciation X
- Tax Depreciation (capital allowance) (X)
= Taxable Profit X
Income exempt = income not relating to the main trading activity of the organization i.e.
Principles of Business Taxation
UK & USA is based on a benchmark tax regime Government needs tax to finance expenditure on public services and Gov borrowing
Government uses tax to both stimulate and control the economy.
Adam Smith’s Wealth of Nations
Good Tax should be;
Fair
Absolute
Convenient
Efficient
3 Major principles of any good tax policy
3 E’s
Equity
Efficiency
Economic Effect
American Institute of Certified Public Accountants – 10 Principles
Neutrality
Appropriate Gov Revenues
Minimum Tax Gap
Economic Growth and Efficiency
Simplicity
Transparency and Visibility
Economy of Collection
Convenience of Payment
Equality and Fairness
2 Types of Tax
Directs – income tax, corporation tax etc
Indirect – VAT
Incidence – the distribution of the tax burden has 2 elements Formal – the person who pays they tax Actual – the person who bares the cost
Competent Jurisdiction – Tax authority that has the legal power to assess and collect tax
Hypothecation – Taxes devoted to certain types of expenditure – ie road tax to spending on roads and transport
Tax Gap – the difference between what’s collected and what’s actually owed.
Tax rate structure
Progressive – increases in proportion as amount of income rises
Proportional – same proportion as income rises
Regressive – Decreasing proportion as income rises
Sources of Tax Rules
Legislation
Agreements between countries – ie double tax treaties
Precedents
Directives
Taxes are classified according to their tax base – what’s being taxed.
Trading Income – Tax Base = Profit
Standard Proforma $
Accounting Profit X
- Income exempt from tax, or taxed under other rules (X)
+ Disallowable expenses X
+ Depreciation X
- Tax Depreciation (capital allowance) (X)
= Taxable Profit X
Income exempt = income not relating to the main trading activity of the organization i.e.