TAX2601 ASSIGNMENT 2 [QUIZ &
COMPLETE ANSWERS] SEMESTER
2 2024
A GUARANTEED
1. Taxation Principles
Question: Explain the principle of tax equity and its importance. Answer: Tax equity means
that the tax system should be fair and just. There are two main types: horizontal equity, which
means individuals in similar financial situations should pay similar amounts of tax, and vertical
equity, which means individuals with higher incomes should pay a higher proportion of their
income in taxes. This principle is important because it ensures that taxpayers are treated fairly
and that the tax system is perceived as just, which can enhance compliance and reduce
evasion.
2. Tax Deductions vs. Tax Credits
Question: Compare and contrast tax deductions and tax credits. Answer: Tax deductions
reduce the amount of taxable income, which in turn reduces the amount of tax owed. For
example, if a taxpayer has a deduction of $1,000 and is in a 20% tax bracket, the tax saving is
$200. On the other hand, tax credits reduce the actual amount of tax owed. For example, a
$1,000 tax credit directly reduces the tax liability by $1,000, regardless of the taxpayer’s tax
COMPLETE ANSWERS] SEMESTER
2 2024
A GUARANTEED
1. Taxation Principles
Question: Explain the principle of tax equity and its importance. Answer: Tax equity means
that the tax system should be fair and just. There are two main types: horizontal equity, which
means individuals in similar financial situations should pay similar amounts of tax, and vertical
equity, which means individuals with higher incomes should pay a higher proportion of their
income in taxes. This principle is important because it ensures that taxpayers are treated fairly
and that the tax system is perceived as just, which can enhance compliance and reduce
evasion.
2. Tax Deductions vs. Tax Credits
Question: Compare and contrast tax deductions and tax credits. Answer: Tax deductions
reduce the amount of taxable income, which in turn reduces the amount of tax owed. For
example, if a taxpayer has a deduction of $1,000 and is in a 20% tax bracket, the tax saving is
$200. On the other hand, tax credits reduce the actual amount of tax owed. For example, a
$1,000 tax credit directly reduces the tax liability by $1,000, regardless of the taxpayer’s tax
