Tax

GST stands for Goods and Services Tax which is an indirect tax levied on the supply of goods and services. It is levied at every step of the production process i.e. on raw materials purchased by the manufacturer, on products sold to wholesaler by the manufacturer, on products sold to retailer by the whole seller and finally on the sale of product to the consumer. Goods and Services Tax is meant to be refunded to all the parties except the end consumer.

Long and Short Essay on GST in English

Below we have provided long and short essay on GST of varying word length, to improve your information about the Government’s new tax regime. The essays will be more useful to the school and college students, as well as the aspirants who are preparing for SSC (Staff Selection Commission), UPSC (Union Public Selection Commission) and other competitive exams.

Short Essay on GST and its Importance – Essay 1 (100 Words)

GST stands for the Goods and Services Tax, which is an indirect tax levied by the Government of India, on all the parties of a supply chain of goods and services. GST came into effect from 1^st July 2017, by One Hundred and First Amendment of the Constitution of India.

The most significant aspect of GST is that, it follows a uniform tax rule for specific products, throughout India. The GST is a uniform indirect tax which has replaced all central and state indirect taxes, treating whole of India as a single market. Goods and Services Tax (GST) is also levied on imported goods.

Short Essay on GST in India – Essay 2 (150 Words)

Goods and Services Tax, India is a uniform tax levied on goods and services, treating whole of India as one market. The tax came into effect from 1^st July 2017 and replaced the existing multi level central and state taxes. GST divides goods and services into five tax slabs – 0%, 5%, 12%, 18% and 28%. Though, products like petroleum products, alcohol and electricity, still follow the old tax regime.

The GST Council is the governing body which formulates the tax rates, along with the rules and regulations. It consists of the central finance minister as well as the finance minister of the states. GST replaces many indirect taxes levied by both central and state at various stages, resulting in a reduced tax burden, elimination of cascading of taxes and lower time loss. Before the GST, most of the goods were in the tax range of 26.5 %, but after GST, they have mostly fallen under the tax range of 18%.

Essay on Objectives of GST – Essay 3 (200 Words)

GST is an abbreviation for Goods and Services Tax, India. It is a uniform indirect tax, replacing various indirect taxes at different stages, levied before by both central and state governments. GST treats India as one big market following a uniform tax regime throughout the country, irrespective of states.

Though GST is charged by all the registered dealers in a supply chain (raw materials supplier, manufacturer, wholesaler, retailer, consumer), from the next customer, the ultimate burden of the tax is on the end customer i.e. the consumer. All the other dealers registered with GST act as intermediaries collecting GST from the consumer and passing it onto the government, getting tax credit in return. This tax credit is called “Input Tax Credit” and is placed against the GST charged by the dealer to the customer, to which he/she is supplying goods.

Any registered dealer is also eligible for tax refund if the input tax credit exceeds the output tax credit, as according to the provisions provided by law in this regard. Moreover, no GST credit could be claimed for the purchase of exempted goods. The GST is not levied on all types of vegetables, organic manure, contraceptives, printed books, stamp papers, agricultural equipments etc.

Essay on Use of GST in India – Essay 4 (250 Words)

Introduction

Goods and Services Tax in India, is a tax levied uniformly throughout India on the supply of goods and services as well as on the import of goods from foreign destinations. GST has divided particular goods and services under uniform tax slots, which initially varied from state to state. GST is an indirect Tax i.e. the dealers registered with GST act as intermediaries, collecting the tax from the end customer, which is the consumer, who ultimately bears the final burden of tax.

How GST Works

The basic mechanism of taxation under GST is that it is levied at every stage of the supply process. It is subsequently paid by the manufacturer, wholesaler, retailer and consumer. Though, the registered dealers (manufacturers, wholesalers and retailers) charge GST, they don’t keep the amount, rather pay it back to the government with a tax invoice and claim credit for the tax thus collected.

This leaves the end user i.e. the customer as the one who bears the final burden of tax. The end customer has to pay prescribed GST on the product purchased or on the services availed, without any provision of claiming the return or credit.

Conclusion

An uniform Goods and Services Tax replaces other central and state indirect taxes like – VAT (Value Added Tax), CENVAT (Central Value Added Tax),  excise tax, customs tax, state excise tax etc.  In a way, the GST has integrated the central and state taxation system into one uniform tax regime.  In a layman’s term, the manufactures and suppliers of a particular product, now have to pay a uniform tax throughout India.

Essay on Meaning and Types of GST – Essay 5 (300 Words)

Introduction

GST stands for Goods and Services Tax, India. It is a comprehensive tax levied by the government on the supply of goods and services. It is also an indirect tax, replacing other central and state levied indirect taxes. GST has brought the whole India under one tax regime, saving time and resulting in low tax burden.

Types of GST

There are basically four types of Goods and Services Taxes, as described below-

1) Central Goods and Services Tax (CGST)

CGST is the GST levied by the Central Government of India on the transaction of goods and services with a state or Union Territory. CGST replaces other central taxes like – Central Excise Duty, Central Sales Tax, Custom Duty and SAD (Special Additional Duty) Tax.

2) State Goods and Services Tax (SGST)

SGST is the GST levied by state on transactions of goods and services within the state. It is one of the two taxes levied within a state, other being the CGST. State GST replaces the state levied taxes – Value Added Tax, Luxury Tax, Entry Tax, Entertainment Tax etc. The revenue thus collected under the SGST is solely claimed by the respective state government.

3) Integrated Goods and Services Tax (IGST)

While CGST and SGST are the GST levied on intrastate (within the state) transactions of goods and services; IGST stands for the GST levied on the interstate (between two states) transaction of goods and services. However, IGST is collected by the central government and reimbursed later to the respective state.

4) Union Territories Goods and Services Tax (UTGST)

UTGST is the GST levied on the transaction of goods and services in these five Union Territories of India – Andaman and Nicobar Islands, Daman and Diu, Dadra and Nagar Haveli, Chandigarh and Lakshadweep. Total GST levied in a Union Territory is the sum of CGST and UTGST. State GST isn’t applicable to UTs, as it would require a legislature. Union Territories of Delhi and Pondicherry rather have SGST, because they have their own legislature.

Conclusion

The main reason for GST is to bring whole India under one uniform tax regime. It has reduced the unnecessary tax burden of different state and central taxes, on the dealers and has made the goods cheaper for both the stakeholders and the consumer.

Essay on GST (History and Significance) – Essay 6 (400 words)

Introduction

Goods and Services Tax, India abbreviated as GST is a tax based on the consumption of goods or services throughout India.  GST is an indirect tax which has replaced the previous indirect taxes. Direct taxes like – income tax, corporate tax etc, are not affected by the GST.

Brief History of GST

Goods and Services Tax (GST) was proposed in 1999, in the government of the then Prime Minister of India, Atal Bihar Vajpayee. Further, a committee was setup by Prime Minister Vajpayee under the then Finance Minister of West Bengal, Asim Dasgupta to formulate a GST model. Since then, the GST could not be implemented, until recently on 1^st July 2017 by the NDA (National Democratic Alliance) government led by the BJP (Bhartiya Janata Party).

Significance/Importance of GST in India

Goods and Services Tax is an essential indirect tax reform in India. Before GST, India had many indirect taxes levied respectively by both central and state governments, resulting in high amount of taxes also requiring high amount of resources for their collection and maintaining records.

Integration of both central and state taxes into one, will forego many adversities of previous tax system i.e. multiple taxations, cascading, loss of time and resources etc. Besides, GST considers whole of India as one unified market, consequently promoting foreign investment.

By eliminating the cascading of tax at various levels, GST makes the goods cheaper for the registered dealers as well as the end consumer consequently leading to economic growth of the nation. India is a developing nation, still struggling with the issue of unemployment. GST is expected to create new employment opportunities in the field of taxation and accountancy along with vacancies in the manufacturing sector.

A centralized GST has resulted in elimination of various check posts during the interstate transportation of goods. The travel time of interstate goods transport vehicles, have reduced considerably by 20% due to the absence check posts. Also, the multi party involvement in GST will improve the compliance level.

Conclusion

GST will lead to a more transparent and corruption free taxation system. The GST is formulated in such a way, so that it benefits both the businesses and the consumers. India needed a better tax reform on indirect tax like the Goods and Services Tax. GST places India at a better place to negotiate in international market. Also, by bringing SMEs (Small and Medium Enterprises) and other organized sector, under its gambit, GST leads to a more stable Indian industrial sector and an improved economy.

Corruption is an important topic because it affects every part of society. Politics, education, medicine, and business are all sectors that are affected by bribery and illegal under-table deals. Scandals involving influential individuals are published daily exposing unethical behavior for self-serving purposes. The Panama Papers revealed that a large number of highly influential individuals hid billions of dollars in offshore accounts to avoid paying taxes ( Douglas Dalby, Amy Wilson-Chapman . 2017 ) . However, corruption is difficult to identify, since it comes in many different forms. Although there are many anti-corruption laws put in place to prevent this type of behavior, many politicians have found ways to avoid prosecution under these laws.

Furthermore, the introduction of cryptocurrencies has made it even more difficult to track corruption, due to the fact that they are untraceable, and so proving corruption will be impossible. This gives individuals a number of ways to act in their own self-interest without any accountability.

Theoretical approach

Before talking about the impact of corruption, mentioning the reasons behind corruption is important to know how corruption works :

• 1- Globalization,

“ the globalization of the economy is adding new urgency to the corruption problems ” (Elliott K. 1997 ). Globalization tends to influence developed countries more than lower developing countries, a study was inducted shows there is no leaner correlation between the level of corruption and Globalization (Ioannis Vavouras . 2011), however, the same study shows middle and high-income countries are more affected with globalization.

• 2- Political and economic systems

Political systems and economics which tend to be more democratic and high transparency are more likely to have less corruption, indeed the connection between the political institutions and political corruption is concerning. Allocating resources and taxation are considered to be the main income for governmental budget. In contrast, reducing tax evasion is a challenging task for governments, therefore fiscal deficit appears. Studies have concluded that the existence of corruption, in the long run, decreases tax revenues (Fjeldstad & Tungodden, 2001). Corruption is closely linked to the share of private investments and therefore decreases the rate of economic growth

• 3 – Historical Drivers

The historical factors can play in deciding levels of corruption in different countries, including colonial history. “ Corruption is the greatest obstacle to progress in post-communist countries “ (Rose, 2001, p. 105). By comparing post-communist countries and democratic counties an obvious correlation is accursed, for instance, North Korea got 14 out of 100 in the CORRUPTION PERCEPTIONS INDEX, CPI is the best known of our tools to measure perceived levels of corruption in the public sector in 183 countries. Also, Russia which was the main part of the soviet union got 28 out of 100.

Individuals more often know corruption with an enormous amount of money, in some cases low ranked employees accept a small amount of corrupt money, and that act considered to be called “ petty corruption” ( Juraev J . 2018 ). Petty Corruption is again public interest, this unethical act has been a system for the highest corrupted counties, instead of corrupt money goes the state’s treasury, it goes to a person’s pocket.

It had been war but on Saturday morning the war had stopped and the beach down the road stretched enticingly in a gleam and glister of sand and gleaming sea. Deep holes in which the men and women of war had hid in for protection from gunfire and dropping bombs. It now laid silent sound of waves lapping the shore. I was eleven and old enough to be aloud out where ever I wanted to go with my friends.

Sean, Nick and I stood in our sandals with our eyes gazing at this watery paradise when to my fury I realized that my eight year old sister Sam had tagged along “Go away” I shouted

” You are not old enough to go out with me”

She looked smug “Dad’s gone into town and mum has left us so you have to look after me remember!”

I glared at her and pulled a face of pure sisterly hatred but Sean shrugged and said, “Are we going to the beach or what?”

To tell the truth in the first place we were scared to go on the beach even before Sam had showed up in all of her curvaceous glory. It wasn’t the fact that the whole beach had signs around it saying, “beware of mines keep out!”

But no one had exactly told us we weren’t aloud to go for a swim.

In one way or another we did not want our parents to no that we had gone down to the beach for a swim but it was the fact that there was no fence there to keep us out from the gorges archers of sand and miles of sea. I glanced at Sam again “Go away” I shouted

“Never”

“Well don’t blame me if you get hurt!”

After that we all ran throw off our sandals and jumped into the cool refreshing sea. We surfed the giant crashing waves out to sea leaving Sam sitting alone on the beach.

We wondered around the rocky floor of the cliffs and rock pools. We climbed up the cliffs, leaving a trail of falling rocks and mud we dumped off of the cliffs in to the sea and through stones at pesky Seagulls, We sat in rock pools and ate stale bread and drank bad water left over from the war.

Sam’s upset little face made us all feel a little bad inside.

We dared each other to climb over the most dangerous rocks and into some of biggest rock pools that you could have ever seen. We also dared each other to look inside the pockets of the dead soldiers that lay scattered and dead all over the rocks from men desperately trying to climb the giant cliffs to safety. Soaked and covered with sand we began to head towards home.

I than heard something that I will remember for the rest of my life I heard a giant explosion and me and my friends were knocked clean of are feet as we got up I felt a lot of pain I had bits of shrapnel shot into my legs and arms and stomach. Than Sean shouted “where’s Sam”

“I don’t know” I replied

“She’s your sister go and find her”

Than I heard her screaming for help. I was terrified I could not see anything there was too much smoke and dust from the explosion.

Than I saw it a trail of blood in the sand and only half my sister Sam, laying there she had lost half of 1 leg and the whole of the other leg. She was screaming to me “help help oh please help”

I shouted for help and only Sean had come because Nick had ran home in pain from the bomb. When Sean came we both had to pick her up Sean was also in a lot of pain from the mine Because he had broken his hand on the way down to the from the explosion we both pulled her up and carried her all the way home struggling trying to keep the blood from gushing from her legs.

By this time she had fallen unconscious we didn’t know if she was dead or not all that mattered to me was getting her to the hospital that had been set up during the war for injured soldiers. We finally got her there and there and the took her inside right away into another room we tried to follow but we were stopped and taken into an office to be treated ourselves.

Than two hours later my dad showed up he was pale and looked sick. He saw me and sat down and started to talk to me ” Your sister was very badly injured in the explosion” he said quietly

” I know,” I said

“Well she didn’t make it she bleed to death in surgery” He said very sadly

“I want you to show me were it happened and tell me everything” he said very sternly

My mouth was dry I couldn’t say a word I was to upset about the loss of my sister I just said very gently “ok”

I took him down to the beach and showed him were it had happened and told him everything that we did that day leaving out some of the stuff that he would have told me off about like playing with the left over guns.

He saw the blood and one of her legs with half of the mine wedged into it. His face turned wight and turned away from it and started to walk home.

The purpose of the essay is to identify the potential impacts of the Balearic Island’s in ‘abolishing’ the eco-tax and recommend alternative strategies to compensate for its effects. In order to achieve this, it is necessary to shed some light on both positive and negative impacts concerning the tourists, host community, hoteliers and the environment. Reasons for eliminating the eco-tax will be highlighted, whilst also concerning its consequent effects on the Balearic Islands.

It is fundamental to understand the term ‘eco’ which is basically, concerns of the environment. One way it can be described is through eco-tourism, which according to Honey & Stewart (2002) is:

“…responsible travel to natural areas, which conserves the environment and improves the welfare of local people”

This suggests that tourists should be aware of the environment and its residents in order to minimise the negative effects their tourism can have on a community. Honey (2002) believes that tourism can create negative ecological externalities in the form of environmental damage. The tourism industry is suggested to damage the natural resources that form the basis for eco-tourism. Eco-tourism can therefore enhance the opportunities for better management of natural resources whilst providing a satisfying experience for the visitor.

It is also vital to understand the term ‘tax’, which according to Mak (2004) is

“an involuntary payment to the government that does not entitle the payer to receive a direct benefit of equivalent value in return”

In simple the aim of introducing the payment of a tax is to ensure everyone is supported. The Balearic Islands achieved this by introducing an eco-tax on 1st May 2002 in order to help restore the environmental damage caused by tourism. The hoteliers were responsible for collecting the payment of approximately 62p a day for each person at a three star hotel of persons over 12 years old. This meant that almost �35 was added to an average family holiday. (www.bbc.co.uk)

An article from Tourism Concern (2002) ‘Balearics eco-tax gets the vote’ stated that the eco-tax was reinforced to reduce environmental impacts; nevertheless the revenue earned would be used on

“cleaning up the beaches, estates restored, heritage sites maintained, cycle and walking routes developed, rural economies boosted, and hotels encouraged to implement energy and water conservation measures.”

The tax was set to bring in 25 million Euros from the 2002 visitors with subsequent years contribution predicted to top 45 million euros.

An article by Palmer (2001) ‘Eco tax not enough to save the planet’ suggests that

“everyone will be paying ‘eco tax’ or ‘environmental tax’, happy in the knowledge that they are saving the planet”

This article shows slight sarcasm, as although taxes are introduced, it may not be helping the environment. To some extent this can be valued as true, but surely paying a tax will mean maybe less people will travel to destinations hence less damage to the environment.

The Balearic Islands have been recognised as a low cost, low quality package holiday destination. Therefore Spain, may have introduced the eco-tax to diminish this image and help re-educate the traveller; at the same time providing funds for conservation, which would directly benefit the economic development and help local communities.

The Balearic Islands have a population of approximately 800,000 residents, yet nearly 11 million tourists visited each year. Therefore one can imagine the negative effects caused by the mass tourism. Hunter et al., (1996) believes that the impact of tourism upon the environment can be reported as short term or long term, direct, indirect or induced into two categories of negative and positive changes.

An article by Morgan (2000) ‘A Taxing Time’ suggested that the eco-tax was part of the electoral programme and most people saw it as a positive measure, recognising the importance of investing in the environment, restoring and conserving certain areas of special importance. Others assumed the tax would reduce the number of tourists wanting a cheap holiday and focus on having less, higher spending tourists.

So, what were the reasons for the government of the Balearic Islands to abolish the eco-tax if the revenue received would benefit them? There are many different theories suggested a number of which will be discussed.

A news extract from The Times stated that the “Government has decided to abolish the controversial eco-tax”, taking place on October 2004. The tourism Minister believed that in having the eco tax “did more harm than good”. An article from The Sun ‘Tax Axed for Holiday Isles’, reinforced the ” negative effect” on tourism. Suggesting that the eco-tax was not favourable for the Balearic Islands.

Again supporting its abolition, .an article in the Express on Sunday Jeferies (2003) suggested about the eco-tax that

“it is a move in the completely opposite direction to the one the government should be working in. They need to change strategy and adopt policies to revive and boost tourism”

It is understood that the Balearic Islands need to introduce other ways in which the environmental damage is minimised and ensure that visitor numbers are increasing at the same time.

Balearics Tourism office spokesman Jaun Vallespir suggested that the majority of tourists and foreigners were in favour of the tax, the drop in visitor numbers was down to economic problems in Europe and Post September 11th. Suggesting that there were a number of other reasons affecting tourism.

Nevertheless a survey carried out by ABTA (Association of British Travel Agents) found that 64% of tourists would be willing to pay an extra �10 to �25 to ensure environment standards, associated with their holiday were met. If such a high percentage of tourists were willing to pay why would the government still decide to abolish the tax?

The Express on Sunday (2003) suggested that although the revenue obtained from the eco-tax could help protect the environment, it showed that visitor figures in 2002 were down by 900,000, creating a deficit of more than 800 million. Only 28 hotels out of the 100 were now staying open during the winter season.

Spain’s Balearic Islands have been internationally famous for having experienced rapid tourism development but were now suffering following the introduction of the eco-tax. “The islands depend on tourism for 84% of the Gross Domestic Product” (http://www.tourismconcern.org.uk. This indicates that the Balearic Islands have been heavily reliant upon tourism.

Jaimw Puig suggested having an eco-tax gave an impression that the islands are in undesirable conditions. (http://www.ft.com)

“The regional government gave the impression that the Islands were in a bad state of repair, that it is a terrible image to send abroad”

This suggested that by having the eco-tax The Balearic Islands were portraying a bad image for the resorts by suggesting they needed money to improve their environment. However, this may be due to lack of knowledge and accessible information tourists require.

Knight (2002) – http://www.observer.co.uk “…they are doing a lot to change their image but they are coming across as greedy.” Maybe the Balearic Islands could implement a tax for those tourists partaking in certain activities that are harmful to the environment. This is identified as a user charge, according to Mak (2004) it is

“a price charged by governments to users to pay for specific government services or privileges”

User charges are an appropriate way to finance public services when most or all of the benefits go to identifiable users, and non-payers can be excluded from using the services at a reasonable cost. By doing so, they would still have tourism coming in and revenue earned from taxes would be used to rejuvenate areas of that are environmentally damaged. According to Gilpin (2000) Belgium had imposed eco-taxes on products since 1993, applying them to goods considered to be harmful to the environment (Pittevils 1996- cited in Gilpin, 2000, pg 150) Alternatively the new ‘coach tax’ levied in Venice is apparently an attempt by the city to reduce the number of motor coaches coming into the congested city. User charges used for such purpose are most effective when demand is price elastic.

Westwood (2002- http://www.travel.telegraph.co.uk)

“the tax could deprive the Islands economy of more than �300 million per year if tourists go elsewhere”

Balearic Islands are very dependent on tourism therefore need to implement something that is feasible. The Gambia Tourism Authority has introduced a tourism development levy of �5 per tourist from the 1st November 2002. The tax would be used to develop green areas, improve lighting in tourist areas, security and training for employees within the tourism sector.

According to Barrett (2002) ‘Unfair yob tax or fair pay?’ suggested that people were annoyed with the extra costs. The Sunday Times reported, “hotels are less than 40% full” there has been a huge fall in visitor numbers that the tourism industry are blaming on the eco-tax. Travel Trade Gazette – cited in Tourism Concern 2002 reported that hotels were handing out food and drink tokens to pacify the guests. The tax was unpopular with holidaymakers as it added an extra cost on holidays. The hoteliers didn’t agree with the idea, as they were responsible for collecting the tax and tour operators felt that it had caused a decline in visitor numbers. Therefore maybe abolishing the tax would help resolve some of the problems, but at the expense of the environment.

Increased competition from tour operators has led to cheaper flights. There is a direct flight that British Airways have recently started, from UK to Menorca costing approximately 125 euros (www.bbc.co.uk). Having cheaper flights to Balearic Islands will mean an increase in numbers to the destination hence have a knock on effect on the environment. The tax is being abolished yet more and more competition between airlines, means a huge increase in the number of visitors. To exploit this, an alternative solution would be to have customers pay an airline tax instead.

According to an article from Friends of the Earth (FOE), they believe that if a charge for the UK flights was left unaltered but the charge of flights to Europe increased by �5 and other international flights by �10 the longest and damaging journeys would be taxed more heavily. This would raise an extra �700 million per year. www.foe.co.uk, by including tax via flights it would seem part of the cost rather than an additional payment. Whilst, also reducing friction between guest and hoteliers.

Additional alternative strategies could be to ensure that the carrying capacity is under control. Mathieson and Wall (1982:21 – cited in Holden 2000 pg. 138)

“carrying capacity is the maximum number of people who can use a site without unacceptable alteration in the physical environment and without an unacceptable decline in the quality of the experience gained by the visitors”

If the carrying capacity is controlled in the Balearic Islands this could minimise the environmental damage. This could be instead of the eco-tax and may not result in the fall of visitor numbers. However environmental impacts will continue, therefore they could carry out environmental impact assessments (EIA), which would be beneficial to the destination, as they can assess certain areas affected.

In conclusion, in order for the Balearic Islands to remain in the competitive market of tourism certain changes need to be addressed. Abolishing the eco-tax means that the alternative strategies put in place need to be carefully planned to ensure they are customer friendly, cost effective and not economically damaging. Clearly the eco-tax was introduced to provide financial support for the damage caused through tourism. Yet it failed to predict the decline of visitors, which in the long term would have a more adverse effect on its economy, yet a promising effect on its environment.

Due to the fact the Balearic Islands relied heavily on its tourism income it would be seen as a positive measure to abolish the eco-tax. However this meant other solutions would be required to conserve the environment. As suggested airline taxes, user charge and carrying capacity are just some of the strategies suggested to alleviate the problems. As these have just been newly developed it will still require time and research to see their success in relation to the Balearic Islands. Therefore whilst these measures have been recommended as solutions to the abolishment of the eco-tax one will have to wait and see its success.

The libertarian claim that any money gained though employment or business is none that they are fully entitled to is false, therefore the claim that the redistribution of that wealth through taxation Is a form of theft Is also false based on the grounds that no one fully owns all of their wealth. The reason that no one fully owns all of their wealth is that we live in a society where many aspects of our economy that contribute to the generation of wealth are paid for by society as a whole. An example of this is a child who goes to school.

This child will graduate knowing how to read, write, do math, use computers, etcetera. These are all skills required both for them to have Income and for future employers o profit from. These skills allow employers to hire them knowing that they can have a basic level of expectation of this child, and even If they are not employed, business owners can also assume a basic level of expectation in the ability to use the products being sold. To clarify, let’s look at an example using Bill Gates, one of the richest men in the world.

Bill Gates would never have become wealthy if he did not have the basic expectation that the majority of people in America had the education and knowledge to use computers. He did not pay for this knowledge, society as a whole did. The fact that society Is responsible for educating our people to the basic level required for the use of Bill Gates’ products Is the reason why Bill Gates does not fully own all of his wealth. Again, to own something is to assume that you are fully Bill Gates owes part of his wealth to society for the education it provided which allows us to use computers.

Another reason why people do not completely own all of their wealth Is that we all owe something to the government who protects our wealth and our ability to gain wealth. The government provides security from outside influence in the world, laws which govern our business practices to protect us from each other, and allows the environment in which we are able to perform business. Because of these reasons we all owe the government because we are able to take advantage of the system that our government has provided.

Since the wealthy are able to take a much greater advantage of this system, It Is natural to assume that the wealthy also owe more to the government than do the poorer and middle class citizens. The fact Is that we live in a society in which we are not paid for the labor we do or for the product in which we provide to society as a whole. Instead we are paid based on how well we are able to take advantage of the systems in place. This system allows for unfair advantages for some and the only way to balance out those unfair advantages is through taxation.

As I nave calmer Deter, ten wangle purpose AT taxation In ten TLS place Is as a Tort of redistribution of wealth. Services need to be paid for and the government must have money in order to run. Taxation allows the government to redistribute wealth in a fashion which should be fair (though many times is far from fair) in order to provide the necessary services for our country to prosper. If our country has too large of a gap between the wealthy and the poor it also looses the ability create new wealth. What I mean is this. The wealthy are able to create wealth by taking advantage of the poor and middle classes.

This is not always a bad thing however. Since the poor and middle class make up the vast majority of the countries’ population, it is also them who purchase, manufacture, and provide the majority of the products and services offered by the wealthy. The wealthy are able to make money because the rest of the countries’ citizens spend money. If these citizens have o money to spend there is no money for the wealthy to make and they must begin to look outside of our country for that wealth. Again, this comes down to the advantages provided by our government which allow for overseas trade and the import and export of goods and services.

If the wealthy are to take advantage of foreign trade, they again owe extra to the government, and society as a whole, for the advantage which is provided to them. In the end however, it is simply a good idea to redistribute wealth back to the poorer in our country in order to provide all citizens at the very least an opportunity to get some of that wealth back from them. Our economy is a never ending circle of exchanges in which the most affluent are able to take the greatest advantage, thus owing the most back to their government and society.

I do agree that people have a right to their own property (as long as it was obtained honestly), however, how much property does one really need and to what extent do they really own it. There must be a point at which a certain amount of wealth is too much. How many of the richest people in the world will ever be able to spend all of their money? It is basically for this reason that I am against the views hat it should not be the government’s responsibility to use taxation as a way to redistribute income.

This is in fact the sole reason for taxation in the first place and the reason why the rich pay a higher amount of tax than the poor. This higher taxation is especially necessary in a society such as ours where the average CEO make something along the lines of 400-500 times as much as the average worker (much higher than any other country in the world). I see no reason why we can’t increase taxes on the richest in order to fulfill our obligation to the poor, not only at home but across the world.

SLIP is a privately held investment corporation founded in 1961. It had become a diversified company consisting of a total of 9 subsidiaries. The oldest three were In the home products business: a Virginia-based brass software company, an outdoor lantern company based In Maine, and an antique reproduction furniture company in Maryland. A second group of four subsidiaries formed in the sass’s was focused on research in the fields of consumer product marketing, computer software, tax research, and investment financial analysis.

Hoping to capitalize on their tax and investment expertise, they recently armed Spring Lane Development Corporation and Spring Lane Natural Resources, which were Involved In real estate development natural resource exploration, respectively. Spring Lane employed a total of 525 people and had revenues of $30 million in 1987. Spring Lane Natural Resources was formed to pursue natural resource exploration because SLIP management felt that favorable tax laws provided them opportunities to achieve significant profits In this arena.

Their primary goal was to find and produce natural gas from shale, to capture the so-called “Section 29” tax credits associated with such gas. Ingress passed this tax credit In 1978 as part of the Natural Gas Policy Act in order to stimulate drilling for natural gas found in shale. Although natural gas exploration was clearly riskier than their other investments, SLIP felt the risks could be managed by drilling only sites that were surrounded on three or four sides by existing wells. To date, SLUR had drilled four wells.

It wasn’t difficult operationally to drill the wells, but It was challenging to find enough high- quality investment opportunities. In the first five months of production, one of the wells had already paid back 52 percent of its initial investment well ahead of the argue payout. The other wells were also doing quite well and all were on schedule for meeting their target return on investment. SLUR hopes to drill 20 more wells in 1988. Formed. This gave SLUR full responsibility for choosing the sites and managing the well if gas was found. SLUR would retain about 25 percent ownership and sell the rest to several general partners.

As managing general partner, SLUR was responsible for hiring a general contractor who would do the drilling. Slur’s geologist, Brad Thomas, would determine whether there was enough gas to make it worth completing the well. If he decided to go ahead, the general contractor would be in charge of the day-to-day operations of the well. SLUR had entered into a Joint venture with Excel Energy of Bridgeport, West Virginia, in which it was agreed that Excel would act as the general contractor for all of Slur’s wells in West Virginia. Excel also agreed to take a small ownership interest in each of these wells.

The Bailey Prospect: Base Case Analysis Exhibit 1 is a copy of the spreadsheet developed by Lisa Weatherboard to analyze the Bailey Prospect. The Bailey Prospect is surrounded by four producing wells from the target gas formation. Thus, SLUR was pretty confident that they would hit the gas formation, but they were mindful that there is always a possibility that due to geological anomalies (e. G. , drilling into a fault), a well might fail and result in zero production. Brad Thomas (the geologist) estimated the probability of this kind of failure at the Bailey Prospect to be about 10 percent.

If they were successful, SLUR would sell the gas to pipeline distributors who would pay a price for the gas that depends on the BTU content of the gas. [2] The BTU content of the gas would not be known until the well was producing, but once reducing, the BTU content would not change over the lifetime of the well. Brad Thomas estimated the BTU content of the gas to be 55 BTU per cubic foot; this was the average of the BTU contents at the nearby wells. The current price paid by the pipeline is $1. 90 per AMBIT (million BTU); the price paid by the pipeline would be tied to the market prices for gas and, hence, might change over time. 3] Lisa assumed that prices would grow with inflation over time. [4] The rate at which gas would flow from the well would not be known until the well was completed. Brad estimated that the gas would initially flow at a rate of 33,000 Mac thousand cubic feet) per year and then decline following the schedule shown in Exhibit 1. The spreadsheet shown in Exhibit 1 is essentially an income statement over the life of the well. (The spreadsheet goes out 25 years; only the first 13 years are shown in the exhibit. ) The gross revenue is the price per Mac of gas times the Mac of gas produced in a given year.

To get to net cash flows, royalties, expenses, and taxes must be deducted: 1) From gross revenue, a 12. 5 percent royalty payment to the owner of the mineral rights is deducted, leaving net revenue. This royalty rate was the standard argental pall to ten property owners In ten west Valhalla area. 2) Excel Energy would be paid approximately $300 per month to operate the well. Lisa had budgeted an additional $3,000 per year for other expenses associated with the lease that might be incurred but couldn’t now be accurately forecast. These costs were increased annually to reflect inflation. 3) Local taxes of 4. Percent times the gross revenue would be paid to the county and a severance tax[5] of 3. 4 percent would be paid to the state of West Virginia. 4) Depreciation expense for year O equaled the intangible drilling cost[6], which as 72. 5 percent times the total well cost. The remainder of the drilling cost would be depreciated on a straight-line basis over seven years. 5) To compute profit after tax, depletion[7], and state and federal income taxes were subtracted from profit before tax. Numerically, depletion was the smaller of 50 percent times the profit before tax or 1 5 percent times the revenue. ) The state income tax equaled the tax rate multiplied by the difference between profit before tax and depletion. This tax was then reduced by a credit equal to one- half of the severance tax paid to the state. ) Federal income tax was calculated by multiplying the tax rate times the profit before tax less depletion and state tax paid. The federal tax was then reduced by an energy tax credit as allowed in Section 29 of the tax code: the tax credit was determined by multiplying the current tax credit rate ($0. 76 per AMBIT in year 1) by the amount of qualifying production that year.

The tax credit rate was increased each year with inflation, but its future value was in the hands of Congress and far from certain. The after-tax cash flow is given by adding back depreciation and depletion to the after-tax profit. Finally, there is the issue of the lease bonus. A lease bonus is a cash payment or bonus paid too landowner in exchange for the drilling and mineral rights. The proposed drilling area at the Bailey Prospect lies on a farm where the owners Mr.. And Mrs.. Bryan Cotter had been reluctant to allow drilling on their land; this is why the surrounding areas were developed and this property was not.

Mr.. Cotter had recently passed away and Mrs.. Cotter (at the urging of her children) was now willing to allow drilling and production on her land. Though no offer had yet been made, SLUR had proposed offering Mrs.. Cotter a bonus of $40,000; the lease bonuses for similar properties in the area had been in this range. Financially, if the well is successful, the lease bonus comes directly off the bottom line, providing no tax deductions or depreciation. [8] on ten Dad’s AT tense mummers, ten prospect looked good It NAS an rater-tax equity payback period of about 35 months and an internal rate of return of about 29%.

To calculate the net present value (NP), Lisa discounted the cash flows using a discount rate of 15 percent, which was Slice’s hurdle rate for projects like this. The result was an NP of approximately $79,000. Your Assignment Your boss, Steve Bodily, had presented the results of Alias’s analysis to Henry Oysters, a potential general partner. Oysters was impressed with the base-case scenario, but was very concerned about the potential downside risks. “What if the well doesn’t work? How do you know that it will produce that much gas? What if gas prices continue their recent decline?

Just about every number in here is a guess. ” Bodily was prepared for the first question and knew that, if the well failed, the pretax loss would be approximately $170,000 the cost of drilling the well plus the lease bonus or a net after-tax loss of Bodily was not prepared for the other questions but promised Oysters that he would get back to him with a complete description of the risks associated with the Bailey Prospect. The goal wasn’t Just to evaluate the Bailey Prospect but, more generally, to get a better understanding of the risks associated with the kinds of investments SLUR was pursuing.

Since Lisa Weatherboard is out of town, Bodily came to you and asked you to examine the risks associated with the Bailey Prospect. Your report will go to SLIP as well as to Oysters. In your conversation with Bodily, he posed the following questions: ) What are the key risks here? 2) What is the project’s expected NP taking into account all of these risks? 3) How risky is this project? What is the chance that we have a negative NP on this? 4) How big lease bonus can we afford? Not that I plan to offer Mrs.. Cotter more than $40,000, but it would be good to know how far we can go and still make money. ) What if the Section 29 credit goes away? Congress has been making some noise about that lately. 6) What if the well fails? While we’ve got the crew out there, should we drill another well? 7) Finally, I know that you don’t have time to run numbers for our whole portfolio f properties, but suppose we had 20 opportunities Just like the Bailey Prospect, how risky would this portfolio be? Which would the key uncertainties be? A qualitative discussion will suffice: we don’t need hard numbers on this, but we should be prepared Tort ten question.

Bodily concluded, “Those are the kinds of things that come to mind. Of course, I haven’t had much time to think about it and could be missing some important issues. I’ve scheduled a meeting with Oysters and some of the SLIP partners for next Thursday. Could you prepare a 20-minute presentation on this for then? Good. Thanks. I’ll be out of town until then. If you have any questions about doing these kinds of analyses, you might try Jack Grayson. He’s done a lot of these risk analyses and will be at the meeting on Thursday. You might want to talk to Brad Thomas as well. Additional Information Fortunately, Brad Thomas (the geologist) was available and offered to help. As far as drilling another well in the event the first one fails, Thomas said, “Yeah, that might be a good idea. A second well would be cheaper to drill. Of course, it would also be less likely to succeed. If the second one fails too, it would be pointless to drill a third ell. ” He estimated the cost of drilling the second well to be roughly 75% of the cost of drilling the first well “you don’t have to truck all the drilling equipment out again and you don’t have to pay another lease bonus. The cost of completing a second well (if successful) would be the same as the cost of completing the first. Thomas estimated the probability of the second well succeeding (given that the first fails) to be . 50. He also indicated that, if the first well fails, he would revise his estimated initial flow rate down by a third. The decline rate would remain the same. Thomas also indicated that it would not make sense to drill a second well if the first is successful since the two wells would be draining the same area. A second well would speed production you’d get roughly twice as much production at first but you probably double the decline rate as well and end up with about the same total amount of gas (maybe slightly more) and be stuck with twice the drilling cost. ” On the other issues Thomas said, “Yeah, this business is pretty much a crap shoot. I’m a geologist. I can’t tell you much about Congress or natural gas prices, but I did work up some ranges on the estimates I gave Lisa. See Exhibit 2. ) I’ve found that I give better estimates if I think about the ranges before I give a particular value.

I actually keep track of my estimates and then later see how I did. While I don’t always get the right answer, my ranges are pretty good. ” These ranges, Thomas says, can be interpreted as 10th and 90th percentiles numbers such that there is a I-in-10 chance that the true value will be below and above these amounts. The base case numbers used in Alias’s spreadsheet can be interpreted as 50th percentiles or medians. “Let me know if you need anything else. ” Jack Grayson at SLIP could only offer general advice. As far as developing ranges for the other uncertainties, use your Judgment.

I can send you some historical data on inflation and natural gas prices (see Exhibit 3), but looking forward we’ll have to guess. If it is important, I may be able to get you more information next week. I know a consultant won may De addle to Nell us Walt ten gas price Toreros t. He could probably get us more on inflation too. I also know a lawyer in D. C. Who has been working with the IRS on Section 29 issues. She might be able to tell us more about that. But I don’t want to call these people unless it is important.

Let’s talk on Monday ND we can decide then whether to call them. ” Grayson also suggested that you should be careful about the discount rate. “The 15 percent rate that Lisa used is risk adjusted – it informally adjusts for the possibility that the well fails, uncertainty about operating costs, etc. Since you are going to explicitly model these risks, you should use a lower discount rate. Because all of these risks with this investment – including natural gas prices – are pretty much uncorrelated with the market as a whole, I would suggest using a risk-free discount rate.

The yield of 5- to 10-year treasury bonds is currently around 9 percent why onto you use that rate instead. See you on Monday. ” [pick] [pick] *Note: The production decline rates – shown near the top of the spreadsheet – are highly correlated. If you have rapid decline in the first year, you are likely to have rapid decline in subsequent years as well. Similarly, if you have slow decline in the first year, you are likely to have slow decline in subsequent years. To capture this dependence, we need to vary all of the decline rates together.

Wearing the school uniform, Yu arrived at the food shop operated by her parents in Taichung. “Mom,” said Yu, “Give me a sandwich for lunch… quick, please! I’m going to be late.” “So why didn’t you have your lunch in school? You won’t be late if you did do so…” The mother mumbled. “I’m sorry.” You dared not to argue with her mother. After fetching the sandwich, she had to rush to school in a hurry. She’s only young once. That year she was a seventeen-year-old girl in Taiwan. That was a sunny day. When Yu was on her way home, she saw a group of people filming a movie in the street. “Action!” A man with sun-glasses shouted. Driven by curiosity, Yu stood aside and watched. Suddenly a man came into her sight— he was ordinary and was about twenty-something years old. He sat on the stairs nearby for taking a rest. You noticed that he hurt his leg. He was bleeding! Being always kind-hearted, she went in front of the man, gave him a tissue paper, and then asked him softly, “Are you alright?” “Thanks,” The man nodded and smiled, “I’m fine. It doesn’t matter.” It was about half-past six already. You could not go back home too late or else she would be punished, “I need to go now… bye!” “Bye,” the man responded. “What a lovely girl!” he thought.

It had been one week since the day Yu met the man. From that day onward, Yu went and watched the movie filming after school every day. She did enjoy watching it. But, somehow she found that chatting with that man named Paul was indeed much more fun. “Yu, why are you so late again?” mother asked. “Sorry mom,” Yu answered, “I have so many things to do in school these days.” Yu returned to her bedroom, writing her diary: “Watching the movie filming after school has become part of my daily life! Paul is so humorous! He told me lots of things today. Surprisingly, he was born in a poor family in Hong Kong; this made him not have the chance of studying in secondary school. Therefore, he started working when he was just about 14 years old. With relatively low educational level but has great knowledge in Chinese kung fu, he applied for the movie stunt man… Well, I think Paul’s life is extraordinary. By the way, he got much better now. I mean the new cut on his hand has healed up already! Thanks, God! Besides, he……”

Paul gave a bunch of red roses to Yu. “Happy birthday!” he said. Yu was glad, “thank you so much! This is my first time receiving flowers…” “Yu,” Paul felt a bit embarrassed, “Could I… have dinner with you tonight?” “Sure!” You answered, “But let me go home and get dressed first.” “Okay. I will wait for you in front of the Good Luck Restaurant. See you!” Paul said. Yu was really excited. Paul always gave her a surprise. He was great. So far, he was the only one who would give her such special feelings. “Mom,” Yu said, “I need to go out for dinner…” “With whom?” mother wondered, “And why? We have prepared something to celebrate your birthday already…” “With my friends… I mean my classmates. They have booked a table in the restaurant to celebrate with me, that’s why I couldn’t refuse them. I promise you, I will go back home before ten o’clock and then celebrate with you again…” You went out of her bedroom. She was already dressed and prepared to go out, “I need to go now. Bye, mom!” She went out quickly, leaving her mother looking at the bunch of roses questioningly, “What’s going on with my daughter?”

Paul and Yu were sitting at the table near the windows of the Good Luck Restaurant. “Yu, do you know… it has been thirty-three days since I first met you,” Paul said. “Oh, you still remember?” Yu was delighted. “Yes, I do. I remember… every moment being with you… always.” They smiled, looking at each other. After that Paul abased his head, “actually, the movie filming is going to finish within these few days.” “Oh… where will you go then?” Yu was nervous. “I will go back to Hong Kong… I may not see you in the near future. Therefore, I want to tell you something important before I leave…” Paul said it seriously, “Yu, I don’t want to be your friend…” “What?” You didn’t understand. Paul fixed his eyes on Yu, “I mean, I want to be your boyfriend!” “Boy… boyfriend?” “Yes. Because I love you… truly love you that I can no longer treat you as my ordinary friend!”

Time was still. It seemed that they were the only two people in the whole world…

You had got into big trouble. Those days without Paul were lengthy and lonely. Every time when she thought of the time being with Paul, every time when she thought of the words Paul told her on her birthday, every time when she thought of the promise made by Paul… it was really a kind of torture! Nothing would be sadder than two people who love each other so much being separated. Paul had gone for nearly a year already. These days, Yu could only communicate with him by writing letters. If it was possible, Yu would phone him. They missed each other a lot and their love never stopped growing. Sometimes, when Yu was in a weak moment, she wondered if the relationship between her and Paul could keep long. Paul was in Hong Kong whereas she was in Taiwan. She promised him she would write many many letters to him, but was it enough to maintain their love? Would their love be a “soon got, soon gone” one? He promised her he would marry her when he got enough money but was it a joke? Would it be fulfilled? Hardly could Yu see her future through a mist. Anyway, she would wait for Paul.

Yu’s mother noticed her daughter’s suspicious acts, having checked her daughter’s diary and letters, she knew that her daughter had fallen in love with a guy called “Paul”. She started questioning and arguing with Yu, “tell me!” she shouted at Yu, “who is Paul? You think that I know nothing else right?” Yu was angry too, “I want to ask you too! Why did you read my diary and letters without asking me? You never respect me!” You cried, “I don’t understand why you never give me the freedom to do what I want to do!” Mother bemused. Never could she think that her daughter would talk to her in this way. The “cold war” between Yu and her mother thus broke out. They stopped talking to each other for nearly half a month. Yu’s father, who was always a clam but a mind reader, understood everything clearly and tried to do something rebuilding the relationship between Yu and her mother.

“Yu,” father told her, “you should tell your mother what you feel. And, if it can be done, introduce that guy to your mom.” Yu was worried, “Paul will come to Taiwan again next week. He said he’s going to marry me…” “And do you wish to? Are you sure? Marry in haste, and repent at leisure…” Yu’s father was shocked, but he kept calm. “I did think about it deeply before.” Yu said, “Marriage is a lottery. Once you meet your Mr. Right, you should not give him up. I truly know what I am doing, what I am looking for.” “So bring him here,” Father promised, “I will always support you.”

A tense atmosphere. Sitting on the sofa, the mother stared at Paul. “You told me that… you are a movie stunt man?” “Yes auntie” Paul answered politely. “Maintaining a family is not easy. It is the responsibility for a man to take good care of his family… provide all the best for his family… you know what I mean?” “I have stable salaries. And, I live in a flat in Hong Kong with my mom… though it’s not very big. I have the ability to take good care of my family. I’m sure, though I’m not rich…” Paul stressed. “So have you studied in any university… or any secondary school?” Mother was being so mean. “No,” Paul replied, “but I don’t think that it’s a big problem at least, I can earn a living now…” “Fine. Do you think that Yu can accommodate herself in a strange place? If she goes to Hong Kong with you… I will…” Yu’s mother couldn’t control her emotion. She was in tears. “Mom,” Yu also melt into tears, “I know you love me so much… But the point is, I don’t want to marry a person that I know that I can live with; I only want to marry someone that I cannot live without!”

In silence. Yu’s father touched her wife on the shoulder, “let her go… she has the right to choose.” At the wedding ceremony, the bridegroom and the bridge were a good match. “Yu,” Paul said, “I will make a good match for you.” You smiled, “later, I can prove to my dad and mom that, I had made a good match too.” This is the end of this story. However, it is just a new start between Paul and Yu. Their own story will continue, until the end of their lives.