CAA Taxation & Compliance — Questions and Answers
Question 1: What is the primary purpose of taxation?
- To generate corporate profits
- To fund government services and infrastructure (Correct answer)
- To penalize high-income individuals
- To encourage inflation
Correct answer: To fund government services and infrastructure
Taxes are collected by governments to fund public services, infrastructure, and other governmental operations.
Question 2: Which type of tax is based on an individual's income level?
- Sales tax
- Income tax (Correct answer)
- Property tax
- Excise tax
Correct answer: Income tax
Income tax is levied on individuals and businesses based on their earnings within a given period.
Question 3: What is a tax deduction?
- An additional tax charge
- An amount that reduces taxable income (Correct answer)
- A penalty for late filing
- A tax refund from the government
Correct answer: An amount that reduces taxable income
A tax deduction lowers taxable income, reducing the total amount of taxes owed.
Question 4: Which government agency is responsible for tax collection and enforcement in the United States?
- Federal Reserve
- Internal Revenue Service (IRS) (Correct answer)
- Securities and Exchange Commission
- Department of Commerce
Correct answer: Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is responsible for enforcing tax laws and collecting federal taxes in the U.S.
Question 5: What is tax compliance?
- Evading tax payments
- Adhering to tax laws and filing taxes properly (Correct answer)
- Negotiating lower tax rates
- Avoiding tax obligations legally
Correct answer: Adhering to tax laws and filing taxes properly
Tax compliance refers to adhering to tax laws, filing tax returns on time, and accurately reporting income.
Question 6: Which of the following is an example of an indirect tax?
- Corporate income tax
- Sales tax (Correct answer)
- Capital gains tax
- Personal income tax
Correct answer: Sales tax
Sales tax is an indirect tax because it is collected by businesses and passed on to consumers at the point of sale.
CAA Taxation & Compliance
What is the primary purpose of taxation?