Taxation Essay Example | Topics and Well Written Essays - 1750 words - 4

Taxation - Essay Example is leaves the income tax and capital gains taxes as the two most important taxes to any household in UK, with huge implications on the consumption and investment patterns in the country. However, the taxation policy in the country does not observe neutrality in that it may discourage deferment of consumption and investment by taxing savings and returns on investments more into the future than now. The income tax is paid per any tax unit that is beyond the personal tax free allowance. The tax is charged from diverse types of savings and is charged at a basic rate of 25% or a higher rate of about 40% (OECD 2007, 13). On the other hand, capital tax operates much similar to the income tax above; there lacks a clear distinction between income and capital gains tax in UK. Any investor with a capital gain of  £5800 or below per annum is exempted from this tax. However, any income above this level is taxed based on the gains at marginal rate of the income tax. In U.K, today, any transaction on savings is treated differently under the taxation policy; the mode of taxing any savings is a vital feature of the UK tax base and leads to an understanding of the comprehensive income tax. In most cases, the comprehensive income tax refers to a case where the income from savings, the labour tax and any other elements that make up the tax base are taxed equally. On the other hand, in expenditure tax, the returns from taxes are not taxed until the individual uses the savings for consumption, at which the tax is known as an expenditure tax or consumption tax (Mirrlees, 283). The major difference between the two taxes is in the treatment of savings. Taxation of savings has an impact on the investment and consumption choices of individuals and companies in UK today. According to Mirrlees report, several effects were identified resulting from the taxation of savings. One, there is an attempt to design a carefully leveled taxation system that seeks to equalize the tax burden of the