Unit 30-LO1 Analyse taxation systems and the legislation which governs them BTEC-HND LEVEL 4 & 5

Course: Pearson BTEC Levels 4 and 5 Higher Nationals in Business

Taxation systems and legislation are designed to work for the collective good. It varies by country, but often countries have their own tax system with laws governing it.

Taxes are levied by governing authorities on behalf of the state or other subjects. Taxes consist of direct, indirect, and hidden taxes.

• Direct tax is a person’s income, the deduction for pension contributions, etc; 
• Indirect Tax is excised/sales tax, customs duty, etc.; and 
• Hidden Tax includes Black Money (money paid in cash without declaring the amount).

Tax is the price of civilization and it should not be seen purely as a means to raise revenue for the government. It can also be used as a tool in distributional policies—raising some taxes and lowering others, effectively redistributing income from those who have paid more in tax than they consume public services (the rich) to those who need more in public services than what they pay in taxes (the poor).

The role of taxation laws—whether raised by central or state governments—as well as legislation governing corporate bodies like private companies and trusts is vital.

Taxation systems

Taxation systems are important not just in their own right, as it provides revenue and money to the government for its support; but also, in light of all the technological change around them, they must be considered an essential part of a country’s financial future. The amount of tax revenue that countries receive from exported goods is often significant.

Usually, the tax system is an amalgamation of fuel sales and general sales taxes, with some systems hybrids. For example, in Nigeria, the taxable base is manufacturing over the law which shall implement taxation on capital goods under the heading Goods. Countries such as Chile establish goals and taxes for all types of income. Denmark has very high taxes for foreign companies selling products in their country. Paying tax exempted foreigners from owing taxes to another country even if that country has a longstanding agreement allowing such deductions, known as full cash flow benefits (FCFB).

Taxation legislation

Tax legislation is an example of relying upon international agreements, aimed at international firms to encourage legal actions that minimize transparency and disputes when it comes to profit and revenue sharing rules for publicly traded EU countries. 

Countries such as the UK and Italy have introduced very strict regulations designed to combat tax evasion. Tax law examples may include permanent establishments tests for companies with international operating units, withholding tax on interest activity it is permissible for a simple to trade bitcoin, or withholding tax on precious metals sales by public utilities.

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