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Diana Tax

Uganda PAYE meets the four key requirements of a good tax system to varying degrees. It considers equity in burden distribution through principles like ability to pay. It aims for efficiency in resource use by balancing tax costs and government benefits. It seeks economy in collection by keeping administration and compliance costs low relative to revenue. And it pursues ease of administration through fairly simple rules and forms.

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Womayi Samson
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20 views4 pages

Diana Tax

Uganda PAYE meets the four key requirements of a good tax system to varying degrees. It considers equity in burden distribution through principles like ability to pay. It aims for efficiency in resource use by balancing tax costs and government benefits. It seeks economy in collection by keeping administration and compliance costs low relative to revenue. And it pursues ease of administration through fairly simple rules and forms.

Uploaded by

Womayi Samson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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REG. NUMBER
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MODULE
Date of submission

QUESTION
In examining the requirement of a good tax system, it is stated a tax system should be designed
so as to meet requirements of equity in burden distribution, efficiency in resource use, economy
in collection, and ease of administration,
With illustration discuss the extent to which the Uganda PAYE meets the above four
requirements
Pay as You Earn (PAYE) refers either to a system of income tax withholding by employers, or
an income-based system for student loan repayments. In the context of taxes, Pay as You Earn
requires employers to deduct income tax and in some cases the employee portion of social
insurance benefit taxes from each paycheck delivered to employees as a form of advance
payment on taxes due.
Equity in burden distribution,
Uganda PAYE meets the requirement by following the principle of fairness of different tax
policies: The ability to pay principle and the benefits received principle do not identify one tax
policy as more equitable than another, but they can be used to clarify and support judgments
about equity. When making judgments about the overall equity of government policy, it is
important to consider both how individuals are taxed and how the benefits of government
spending are distributed. Even if some judge tax policy to be inequitable, government policy as a
whole may be considered more equitable once the distribution of both taxes and government
benefits is accounted for.

Uganda PAYE also considers Horizontal and Vertical Equity: The concepts of horizontal equity
and vertical equity are refinements of the ability to pay principle. Horizontal equity requires that
taxpayers who have similar ability to pay taxes receive similar tax treatment. Targeted tax
expenditures, such as deductions and credits, could affect horizontal equity throughout the tax
system because they may favor certain types of economic behavior over others by taxpayers with
similar financial conditions. For example, two taxpayers with the same income and identical
houses may be taxed differently if one owns his or her house and the other rents because
mortgage interest on owner-occupied housing is tax deductible. Vertical equity deals with
differences in ability to pay. Subjective judgments about vertical equity are reflected in debates
about the overall fairness of the following three types of rate structures, where for this example;
income is used as the measure of ability pay:

Efficiency in resource use,


Uganda PAYE considers one reason people bear taxes is they desire the benefits of government
programs and services. As taxpayers, they balance the costs of taxes with the benefits of
government. From a taxpayer’s perspective, the cost of taxes includes more than the tax liability
paid to the government. These costs include efficiency costs, which result from taxes changing
the economic decisions that people make decisions such as how much to work, how much to
save, what to consume, and where to invest. These changes, referred to by economists as
distortions, reduce people’s well-being in a variety of ways that can include a loss of output or
consumption opportunities. These reductions in well-being are efficiency costs, also called
deadweight losses, excess burdens (excess because they are a cost in addition to the tax liability),
or welfare losses.

Economy in collection,
Uganda PAYE considers every tax ought to be so contrived as to both take out and keep out of
the pockets of the people as little as possible over and above what it brings into the public
treasury of the state. Administration and compliance costs should be as low as is compatible with
the other objectives. The collection of the tax should be economical: Another principle of a good
tax system is that the amount of money that government generates from collecting the tax should
be higher than the cost of collecting the tax. If the cost of collecting the tax is greater than the
revenue generated from the tax, and the primary objective of the tax is to raise revenue, then it
would be better not to impose such a tax at all.
Ease of administration,
Administrative ease is the tax system is not too complicated or costly for either taxpayers or tax
collectors. Examples of costs of revenue collection to the government include pay for employees
and equipment used to track taxpayers, prepare forms and instructions, calculate tax owed, and
handling appeals. Costs to taxpayers are compliance cost; tax preparer’s fee and pay for hiring
accountants. Therefore, the rules should fairly simple; forms are not too complicated and easy to
comply. Enforcement of a tax needs to inform taxpayers whether taxes are paid timely and
correctly, and the state can perform audits in a fair and efficient manner. The cost of collecting a
tax should be small in relation to the amount collected.
REFERENCES

Smith, A 1776, Wealth of Nations

Baumol, J.W, Microeconomics: Principles and Policy

Cordes, J.J 1999, An edition from The Encyclopedia of Taxation and Tax Policy Urbane
Institute.

Fiaz Ahmed, Notes on Economics.

Alistair Darling, 2009 The Pre-Budget Report 2009

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