Theory question 102
Public FinanceSection A (data response: answer one question only from this section)
The table below shows the tax payments of four income earners in a year. Use the information in the table to answer the questions that follow:
Income Earners | Income Base (N) | Tax Payments A (N) | Tax Payments B (N)
Jawara | 15,000.00 | 1,500.00 | 1,200.00
Ade | 25,000.00 | 2,500.00 | 2,000.00
Eke | 32,000.00 | 3,200.00 | 2,240.00
Audu | 60,000.00 | 6,000.00 | 3,000.00
(a) Determine the percentage rate of taxation paid by (i) Jawara in columns A and B (ii) Audu in columns A and B (iii) Ade in column B (iv) Eke in column B.
(b)(i) Identify the systems of taxation employed in columns A and B. (ii) Which of the income earners has the least burden under column B?
(c)(i) If government increases its rate of taxation to 15% flat rate, how much revenue will be generated from the payees? (ii) At 15% flat rate taxation, calculate the disposable incomes of Messrs Jawara, Ade, Eke and Audu.
Show the model answer
(a)(i) Jawara: A = 1,500/15,000 × 100 = 10%; B = 1,200/15,000 × 100 = 8%.
(ii) Audu: A = 6,000/60,000 × 100 = 10%; B = 3,000/60,000 × 100 = 5%.
(iii) Ade, B = 2,000/25,000 × 100 = 8%.
(iv) Eke, B = 2,240/32,000 × 100 = 7%.
(b)(i) Column A: proportional tax (same 10% rate for all). Column B: regressive tax (rate falls from 8% to 5% as income rises).
(ii) Audu (lowest rate, 5%).
(c)(i) Total income = 15,000 + 25,000 + 32,000 + 60,000 = N132,000; 15% of it = N19,800.
(ii) Disposable income = 85% of income: Jawara N12,750; Ade N21,250; Eke N27,200; Audu N51,000.
Tax rate = tax paid ÷ income × 100.