Create a 7 pages page paper that discusses the uk taxation system. The UK Tax system is based upon a combination of both these forms of taxation and a compromise between them, with individuals being taxed progressively higher, in accordance with their income level. Tax incentives are provided to encourage savings by providing relief from taxation for such amounts. Earnings arising from gifts or winnings from gambling may be exempt from tax, capital gains are taxable, although it may not fall specifically under the category of income tax. (Macleary, 1991: 22). Tax exemption is provided on a personal allowance, usually about 5000 pounds a year.
The application of progressive tax rates indicates that different tax rates apply for different income bands, with higher tax percentages being applied to higher-income bands. Such a tax system is justified on the basis of fairness, and because it provides a buffer for the poor to be protected from indirect taxation, promoting social cohesion by using taxes collected from the rich for health, educational and other programs to benefit of the poor. (Ruane, 1999).
However, it is also argued that progressive tax is unfair because it is akin to a form of double taxation because those who earn more income already pay a greater share of tax even on a standard rate (Ruane, 1999). This method of taxation results in maximum revenues coming from a small segment of the executive population, hence in a recession, there is a real danger of a sudden drop in taxes collected. The higher income bracket of talented individuals may also be tempted to migrate to other countries where tax rates are more conducive, thus creating a brain drain. There is also a greater tendency to evade the payment of taxes when the rates are too high and the Government in the long run, ends up with a reduced amount collected from taxes because the tendency to double taxation is resented by individuals, who try to escape it through various means.