This question was attempted by nearly all the candidates being a traditional question. The candidates that attempted it demonstrated a good understanding of the concept of taxation,rates of taxation and the principles of a good tax system as required in the (a) ,(b) and (c) parts of the question but few candidates mistook one principle for the other in the (c) part of the question. Candidates’ performance in this question was quite impressive. 

These candidates were expected to give the following answers to score the maximum marks:

(a)        A tax is a compulsory levy imposed by the government or its agency on individuals, companies or on goods and services.                                                           

(b)(i)    A progressive tax is one in which as the level of income rises, the tax rate also rises.                                                                                                          
(ii)   A tax is proportional when all tax payers pay the same percentage as tax irrespective of their levels of income                                        

   (iii)    A regressive tax is one in which as the level of income rises, the rate of tax rather falls,      thus the higher income earners are taxed at lower rates than lower income earners.               

                                                                       
(c)(i)    Equity: This means fairness and states that tax should be based on ability to pay in            order not to cause hardship to the tax payer.                     

    (ii)    Convenience: The payment of the tax should be convenient to the tax payer i.e. time and method of payment should be convenient.                     

    (iii)   Economy: The cost of collecting the tax should be small in relation to the revenue obtained from the tax.