1. IGCSE Economics
5.2 Taxation

2. Learning Outcomes
Describe the types of taxation (direct, indirect, progressive, regressive, proportional) and the impact of taxation

3. In this world nothing can be said to be certain except death and taxes.
Benjamin Franklin

4. 2 Minute Challenge…… What do governments spend their money on?
In pairs write down as many things as you can that governments spend money on…..

6. 2 Minute Challenge……
Where do governments get money from to fund this expenditure
In pairs write down as many sources as you can that governments can obtain funds from

7. Where governments get money…..
Borrowing from the private sector
Rents from publicly owned buildings and land
Admission charges, for example from public museums and monuments
Revenue from the sale of some public services such as postal services and public transport
Proceeds from the sale (or privatization) of government-owned industries and other publicly owned assets
Interest charges on government loans to the private sector and overseas governments
Taxes on incomes, wealth and expenditures

9. 2 Minute Challenge……
Other than to gain revenue, what other reasons might a government have for taxation? In pairs write down as many reasons as you can for why governments tax households and businesses

10. Reasons for Taxation To raise revenue To manage the macro-economy
To reduce income inequality after tax
To discourage spending on imports
To discourage the consumption and production of harmful products
To protect the environment
Increase in income tax rates raises $3 billion
Tax cuts to boost employment and growth
America’s soft drinks industry battles proposals to tax sugary sodas
Use handout for discussion
India introduces carbon tax on coal producers

11. 2 Minute Challenge……
What types of taxes do governments use? In pairs write down as many different types of taxes as you can

12. Any questions on what these taxes are and how they work?

13. Good tax or bad tax?

14. Principles of Good Tax…
Equity/Fairness
Non-distortionary
Certainty
Convenience
Simplicity
Administrative Efficiency

15. Task
Read the article ‘Strange Taxes from around the world’

16. 2 types of taxation Indirect Taxes Direct Taxes
What ‘s the difference????

17. Taxes taken directly from an individual or businesses wealth
2 types of taxation
Taxes
Direct Taxes
Taxes taken directly from an individual or businesses wealth
Indirect Taxes
Taxes only taken when an expenditure is made. Indirect taxes are usually imposed on the producer

18. Direct Taxes….. Pros and Cons
High revenue yield
Can be used to reduce inequalities
Are based on ability to pay
Can reduce work incentives
Can reduce enterprise incentives
Tax evasion

19. Video – Tax Avoidance
Watch the video on the Tax avoidance of major MNCs
Why has this happened?
How has this been able to happen?
What can governments do about this?

20. Indirect Taxes….. Pros and Cons
They are cost effective to collect
A wide tax base. Anyone who buys goods and services will pay some indirect taxes
They can be used to discourage consumption and production of harmful products
The cost of collecting taxes falls to businesses
They are regressive
Tax revenues are less certain because they depend on spending patterns
They add to price inflation

21. What do these words mean in the context of taxation?
Progressive
Regressive
Proportional

22. Progressive Tax
A bit like Robin Hood – Steals from the rich and gives to the poor!
People/Firms with higher incomes pay a higher proportion of their income

23. Proportional Tax
The same proportion of income is paid regardless of income level

24. Regressive Tax
The proportion of income paid in tax falls as income rises
(although the actual amount will increase)

25. Whiteboard Quiz - Which type of tax(es) will apply?
David Beckham’s wages?
A meal in a restaurant?
New trainers?
A flight to Malaysia?
A bottle of Smirnoff Vodka?
Philippines Air buying a new Airbus?
Selling shares at a profit?
Coca-Cola’s Profits?

26. Task – Types of taxation
Fill in the table ‘Types of Taxation’
Be as detailed as you can
If you finish early…….Research the rates of these taxes in the Philippines

27. Balancing the books – Government Revenues and Spending

28. Balancing the budget Budget deficit Budget surplus
In the Budget a government sets out its plans for public spending and raising tax revenues for the financial year ahead
Budget deficit
Public expenditure Tax revenue
Budget surplus
Public expenditure Tax revenue
An expansionary fiscal policy will increase a budget deficit or reduce a budget surplus
A contractionary fiscal policy will reduce a budget deficit or increase a budget surplus

29. UK Budget Deficit as a % of GDP

30. National Debt
A government must borrow if public expenditure exceeds public revenue. This is known as the PSBR – Public Sector Borrowing requirement
The total amount of money borrowed by the public sector of a country over time that has yet to be repaid is the public sector or national debt
Taxes will have to increase or other public spending cut to pay rising interest charges if the national debt expands at a faster rate than national income
US national debt…
US debt as a proportion of US GDP

31. Video
Watch the video ‘Visualisation of Japan’s debt’ to see an explanation of national debt and how it accumulates

32. Task: Textbook Activity 5.12 Homework: Read pages 316-317
Answer questions 1-6