ACCA Paper F6(SGP) Taxation

Today(04-07-11) is my 1st class of Taxation. My lecturer is Mr Tommy Yee. I am sitting in front, normally i felt a bit tired in class due after working still having a class. I just remind myself if I need higher pay, please to complete my ACCA level 2. For 1st class, I will share about Singapore Tax system & Basic Concepts- Income Tax is adminstered by the Inland Revenue Authourity of Singapore (IRAS), a statutory board.

Explain the fundamental differences between direct and indirect taxation.

Direct taxation is a tax paid directly by the person who bears the tax to the authority.

An example is Singapore income tax where tax is charged on the income of any person. It is based on the principle that the burden of taxation is in accordance with person's ability to pay. Therefore the higher the income level of a person, the higher would be his tax burden.

Indirect taxation is a tax borne by one party but collected via another party.

An example is goods & services tax where tax is charged on the consumption of goods and services. It is based on the principle that he burden of taxation is in accordance with the consumption

A person in the high-income bracket pays the same amount of indirect tax as a person in low-income bracket if both persons consume the same amount of goods or services.

"Compensation recieved by a trader for cancellation of a trading contract is always a taxable income receipt"

Discuss the validity of the above statement

Compensation received by a trader for cancellation of a trading contract is not always a taxable income receipt. It depends on the importance of the contract to the business.

If the contract is of such importance as to constitute the profit making apparatus, the compensation received is for the loss of the profit-making apparatus and is therefore a capital receipt which is not taxable.

However, if the contract is an ordinary trading contract, the compensation received by which is in lieu of trading receipts and is therefore a revenue receipt and thus taxable.

When deciding whether the compensation received is for the loss of the profit-making apparatus or in lieu of trading receipts, the following factors should be considered:

The proportion of the contract value to the total business turnover

The impact on the viability of business and scale of operations as a result of the cancellation.

I stop here...to be continue...