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 |
tax |
Payments |
| N |
N |
| A |
B |
| Jawara |
15,000.00 |
1,500.00 |
1,200.00 |
| Ade |
25,000.00 |
2,000.00 |
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 columns 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 have 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.
Percentage tax rate \(=\dfrac{\text{tax}}{\text{income}}\times 100\). Column A = base tax, Column B = payments.
(a) Percentage rates
- (i) Jawara: A \(=\dfrac{1500}{15000}\times 100 = 10\%\); B \(=\dfrac{1200}{15000}\times 100 = 8\%\)
- (ii) Audu: A \(=\dfrac{6000}{60000}\times 100 = 10\%\); B \(=\dfrac{3000}{60000}\times 100 = 5\%\)
- (iii) Ade, column B \(=\dfrac{2000}{25000}\times 100 = 8\%\)
- (iv) Eke, column B \(=\dfrac{2240}{32000}\times 100 = 7\%\)
(b)(i) Systems of taxation
Column A applies the same rate (about 10%) to every earner regardless of income, so it is proportional taxation. In column B the rate falls as income rises (Jawara 8%, Ade 8%, Eke 7%, Audu 5%), so column B is regressive taxation.
(ii) Under column B the earner with the least burden is Audu, paying the lowest rate (5%).
(c)(i) Revenue at a 15% flat rate
Total income \(= 15000 + 25000 + 32000 + 60000 = 132000\).
\[0.15\times 132000 = \text{N}19{,}800\]
(ii) Disposable income = income minus the 15% tax:
| Earner | Income (N) | Tax at 15% (N) | Disposable income (N) |
|---|
| Jawara | 15,000 | 2,250 | 12,750 |
| Ade | 25,000 | 3,750 | 21,250 |
| Eke | 32,000 | 4,800 | 27,200 |
| Audu | 60,000 | 9,000 | 51,000 |
Percentage tax rate \(=\dfrac{\text{tax}}{\text{income}}\times 100\). Column A = base tax, Column B = payments.
(a) Percentage rates
- (i) Jawara: A \(=\dfrac{1500}{15000}\times 100 = 10\%\); B \(=\dfrac{1200}{15000}\times 100 = 8\%\)
- (ii) Audu: A \(=\dfrac{6000}{60000}\times 100 = 10\%\); B \(=\dfrac{3000}{60000}\times 100 = 5\%\)
- (iii) Ade, column B \(=\dfrac{2000}{25000}\times 100 = 8\%\)
- (iv) Eke, column B \(=\dfrac{2240}{32000}\times 100 = 7\%\)
(b)(i) Systems of taxation
Column A applies the same rate (about 10%) to every earner regardless of income, so it is proportional taxation. In column B the rate falls as income rises (Jawara 8%, Ade 8%, Eke 7%, Audu 5%), so column B is regressive taxation.
(ii) Under column B the earner with the least burden is Audu, paying the lowest rate (5%).
(c)(i) Revenue at a 15% flat rate
Total income \(= 15000 + 25000 + 32000 + 60000 = 132000\).
\[0.15\times 132000 = \text{N}19{,}800\]
(ii) Disposable income = income minus the 15% tax:
| Earner | Income (N) | Tax at 15% (N) | Disposable income (N) |
|---|
| Jawara | 15,000 | 2,250 | 12,750 |
| Ade | 25,000 | 3,750 | 21,250 |
| Eke | 32,000 | 4,800 | 27,200 |
| Audu | 60,000 | 9,000 | 51,000 |
