In 2016, the Chinese government overhauled the Chinese tax system. It broadened VAT (sales tax) from sales of goods to sales of services, which allowed the corporation tax rate to be cut. Taxes on goods and services are usually regressive. The Chinese government aimed to improve living standards and expected that lowering the tax rate paid by firms would make the country more attractive to multinational companies (MNCs).
(a)[2]
State two reasons why taxes are imposed.
(b)[4]
Explain how a progressive tax differs from a regressive tax.
(c)[6]
Analyse how cuts in corporation tax and income tax rates may affect the number of MNCs that establish themselves in the country.
(d)[8]
Discuss whether people in a high-income country always have a higher living standard than people in a low-income country.
Worked solution & mark scheme
This 20-mark question has a full step-by-step worked solution and mark scheme. One marking point: “Generate revenue” …