Let's break down your questions one by one, providing explanations and calculations where applicable.
1. Differences between Direct and Indirect Taxes
Direct Taxes:
- Definition: Taxes paid directly to the government by the taxpayer.
- Examples: Income tax, property tax, corporate tax.
- Characteristics:
- Based on the taxpayer’s ability to pay.
- Progressive in nature; higher income results in higher tax.
- Cannot be shifted to another party.
Indirect Taxes:
- Definition: Taxes imposed on goods and services, which can be passed on to consumers.
- Examples: Value-added tax (VAT), sales tax, excise tax.
- Characteristics:
- Can be regressive; poorer households may spend a higher proportion of their income on these taxes.
- Added to the price of goods/services.
- Easy to collect by businesses.
2. Merits and Demerits of Tax Structures
Merits:
- Revenue Generation: Taxes are the primary source of government revenue.
- Redistribution of Wealth: Progressive tax structures help reduce income inequality.
- Economic Stability: Taxes can regulate economic activity by influencing spending and investment.
- Encouragement of Compliance: A well-structured tax system can promote adherence to tax laws.
Demerits:
- Complexity: Complicated tax codes can confuse taxpayers and may lead to non-compliance.
- Tax Evasion: High taxes may encourage individuals and corporations to evade taxes.
- Disincentives for Investment: Higher taxes can discourage business investments and economic growth.
- Compliance Costs: High costs associated with filing taxes can burden businesses and individuals.
3. Techniques of Deficit Financing
- Borrowing from Domestic Sources: Government borrowing from banks and financial institutions.
- Foreign Loans: Obtaining loans from international organizations or foreign governments.
- Issuance of Bonds: Selling government bonds to raise funds.
- Monetary Financing: Central bank printing money to finance government spending, which may lead to inflation.
- Utilization of Reserves: Utilizing foreign exchange or government reserves to meet financing gaps.
4. Indirect Taxes in Ethiopia
A. Value Added Tax (VAT):
- VAT is a consumption tax levied on the value added to goods and services.
- Businesses collect VAT on behalf of the government, charging it on sales and claiming credits on purchases.
B. Excise Tax:
- A selective tax imposed on specific goods like alcohol, tobacco, and fuel.
- Aims to discourage the consumption of certain products and generate revenue.
C. Turnover Tax:
- A tax levied on businesses based on their revenues, applicable to small enterprises not registered for VAT.
- A simplified tax structure to ease compliance for small businesses.
5. Calculations for Gamo Private Limited Company
1. Determine Depreciation Base of Computer:
- Opening Balance (Cost) = 150,000
- Add: Data Storage Equipment = 75,000
- Add: Software = 50,000
- Add: Upgrade Cost = 12,000
- Less: Sale of Old Machines = 8,500
- Add: Compensation for Non-Functioning Equipment = 15,000
Depreciation Base = 150,000 + 75,000 + 50,000 + 12,000 - 8,500 + 15,000 = 283,500
2. Determine Depreciation Expense: (Assuming straight-line depreciation, more details like useful life or method are needed, but for calculation, let’s assume a straight-line basis over a useful life of say, 5 years):
If straight-line depreciation is to be calculated over an assumed useful life, say 5 years: \[ \text{Annual Depreciation} = \frac{ \text{Depreciation Base} }{5} = \frac{283,500}{5} = 56,700 \]
6. Rental Income Calculation for Secha Trading Share Company
1. Gross Rental Income Calculation:
- Total Rooms = 100
- Rent per Room = 5,000
- Occupied Rooms = 100 - 30 = 70 rooms
- Months Vacant = 6
Gross Income = (70 rooms * 5,000 * 12 months) \[ \text{Gross Rental Income} = 70 * 5,000 * 6 + 100 * 5,000 * 6 = 4,200,000 \]
2. Taxable Rental Income Calculation: \[ \text{Gross Rental Income} - \text{Total expenses} \] Instructions for expenses:
- Maintenance Expense = 50,000
- Land & Building Tax = 10,000
- Advertising Expense = 21,000
- Annual Land Lease Cost = 100,000
- Other Deductible Expenses = 65,000
Total Expense = 50,000 + 10,000 + 21,000 + 100,000 + 65,000 = 246,000
Taxable Rental Income = 4,200,000 - 246,000 = 3,954,000
7. Employee Earnings and Deductions
Due to space constraints, let's summarize the calculations for gross earnings, taxable income, total deductions, and net pay for each of the employees.
-
Abel Tena
- Basic Salary: 2,400
- Overtime: 30 hours at 2,400 / 160 = 15 * 1.5 = 22.5 * 30 = 675
- Allowance: 250
Gross Earnings = 2400 + 675 + 250 = 3,325
- Deductions: 10% for credit association = 332.5.
- Net Pay = 3,325 - 332.5 = 2,992.5.
-
Sara Chala
- Basic Salary: 3,200
- Overtime: 20 hours = 3,200 / 160 = 20 * 1.5 = 30 * 20 = 600.
- Allowance: 500.
Gross Earnings = 3,200 + 600 + 500 = 4,300
- Deductions: 10% of salary.
- Net Pay = 4,300 - 430 = 3,870.
-
Nega Girum
- Basic Salary: 1,600
- Overtime: 10 hours = 1,600 / 160 = 10 * 1.5 = 15 * 10 = 150.
- No Allowance is taxable.
Gross Earnings = 1,600 + 150 = 1,750.
- Deductions: 10% of basic = 160.
- Net Pay = 1,750 - 160 = 1,590.
8. Interest Income Tax Calculation
\[ A = P(1 + \frac{r}{n})^{nt} \] Where:
- \( A \) = the amount of money accumulated after n years, including interest.
- \( P \) = principal amount (the initial amount of money).
- \( r \) = annual interest rate (decimal).
- \( n \) = number of times that interest is compounded per year.
- \( t \) = the number of years the money is invested.
Calculating Interest:
- Deposit \( = 200,000 \)
- Rate \( = 12% \) \( = 0.12 \)
- Compounded Monthly \( n = 12 \)
- Time \( = 2 \)
\[ A = 200,000 \left(1 + \frac{0.12}{12}\right)^{12 \times 2} \] \[ A = 200,000 \left(1 + 0.01\right)^{24} \] Calculating \( A \): \[ = 200,000 \times (1.01)^{24} \approx 200,000 \times 1.26824179 \approx 253,648.36 \] Interest Earned = A - P = 253,648.36 - 200,000 = 53,648.36
Tax on Interest: Usually, the tax on interest may vary, suppose it's 10%: \[ \text{Interest Income Tax} = 53,648.36 \times 0.10 = 5,364.84 \]
This is a comprehensive outline of the questions and calculations requested. Please specify if you need additional details or clarifications on any specific point!