TAX ACCOUNTING (1)

Tax on income of natural persons

Questions and examples

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 Question (1)
Indicate whether the following statements are true or false, and
correct the false ones:
1. Tax is imposed and collected by individuals according to
laws and regulations.
2. Taxes can be paid in the form of cash or in-kind.
3. Tax is used by government to cover private spending.
4. Tax is used by government to cover public spending such
as health, education, and utilities in the form of roads,
water, electricity.
5. Taxpayers refer to only natural persons (individuals).
6. Taxpayers refer to natural persons (individuals & sole
proprietorship) and Legal persons (Partnerships,
corporations or other forms of companies)
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7. The incidence of a tax refers to the burden represented
by the tax.
8. incidence means the person or organization that paid a
indirect tax payment to the state bears the incidence of
such tax.
9. In some cases the taxpayer can shift the incidence to a
third party such as the value added tax .
10. The tax base is the amount subjected to tax after
deducting the exempted bracket.
11. The tax amount is the amount subjected to tax.
12. Tax base refers to the total tax collected by the state
and available for public use.

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 Answer
No T or F Correction
1 F Tax is imposed and collected by the state according to laws and
regulations.
2 F Taxes can be paid only in cash
3 F Tax is used by government to cover public spending such as health,
education, and utilities in the form of roads, water, electricity
4 T
5 F Taxpayer refers to both natural persons (individuals) and corporations
or other forms of companies (Legal persons).
6 T
7 T
8 incidence means the person or organization that paid a direct tax
F
payment to the state bears the incidence of such tax.
9 T
10 T
11 F taxable income is the amount subjected to tax.
12 F Tax Revenue refers to the total tax collected by the state and available for
public use. 4
Example (1):
Suppose that the taxable net income is L.E 45,000,
Required : compute the tax due on this taxpayer using :
1) Proportional tax rate 10%.
2) Escalating or progressive tax rate based on the
following rates:
• 1st bracket of the taxable income up to L.E 7,200 is
exempted.
• 2nd bracket: More than L.E 7,200 up to 30,000 is
subject to tax at 10%.
• 3rd bracket: More than 30,000 up to 45,000 is
subject to tax at 15%.
• 4th bracket: More than 45,000 up to 200,000 is
subject to tax at 20%.
• 5th bracket: More than 200,000 is subject to tax at
22.5%. 5
 Solution
Proportional Tax Escalate rate
1st L.E 7,200 exempted
45,000 × 10% = L.E 4,500. 2nd 22,800 × 10% = 2,280
3rd 15,000 × 15% = 2,250
45,000 4,530

45,000

Zero 7,200 30,000 45,000 200,000

1st 2nd 3rd 4th 5th
7,200 22,800 15,000 155,000 The rest balance
Exempted 10% 15% 20% 22.5%
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Example(2):
Suppose that the taxable total net income is L.E 6,000.
Required : compute the tax due on this taxpayer using :
1) Proportional Tax rate 10%.
2) Escalating or Progressive Tax rate based on the following
rates:
• 1st bracket of the taxable income up to L.E 7,200 is
exempted.
• 2nd bracket: More than L.E 7,200 up to 30,000 is subject
to tax at 10%.
• 3rd bracket: More than 30,000 up to 45,000 is subject to
tax at 15%.
• 4th bracket: More than 45,000 up to 200,000 is subject to
tax at 20%.
• 5th bracket: More than 200,000 is subject to tax at
22.5%.
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 Solution
Proportional Tax Escalate rate
1st
6,000 × 10% = L.E 600. L.E 6000 exempted

6,000

Zero 7,200 30,000 45,000 200,000

1st 2nd 3rd 4th 5th
7,200 22,800 15,000 155,000 The rest balance
Exempted 10% 15% 20% 22.5% 8
Example(3):
Suppose that the taxable income is L.E 20,000.
Required : compute the tax due on this taxpayer using :
1) Proportional Tax rate 10%.
2) Escalating or Progressive Tax rate based on the following
rates:
• 1st bracket of the taxable income up to L.E 7,200 is
exempted.
• 2nd bracket: More than L.E 7,200 up to 30,000 is subject
to tax at 10%.
• 3rd bracket: More than 30,000 up to 45,000 is subject to
tax at 15%.
• 4th bracket: More than 45,000 up to 200,000 is subject to
tax at 20%.
• 5th bracket: More than 200,000 is subject to tax at
22.5%.
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 Solution
Proportional Tax Escalate rate
1st L.E 7,200 exempted
20,000 × 10% = L.E 2,000. 2nd 12,800 × 10% = 1,280
20,000 1,280

20,000

Zero 7,200 30,000 45,000 200,000

1st 2nd 3rd 4th 5th
7,200 22,800 15,000 155,000 The rest balance
Exempted 10% 15% 20% 22.5% 10
Example (4):
Suppose that the taxable income is L.E 40,000.
Required : compute the tax due on this taxpayer using :
1) Proportional Tax rate 10%.
2) Escalating or Progressive Tax rate based on the following
rates:
• 1st bracket of the taxable income up to L.E 7,200 is
exempted.
• 2nd bracket: More than L.E 7,200 up to 30,000 is subject
to tax at 10%.
• 3rd bracket: More than 30,000 up to 45,000 is subject to
tax at 15%.
• 4th bracket: More than 45,000 up to 200,000 is subject to
tax at 20%.
• 5th bracket: More than 200,000 is subject to tax at
22.5%.
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 Solution
Proportional Tax Escalate rate
1st L.E 7200 exempted
40,000 × 10% = L.E 4,000. 2nd 22,800 × 10% = 2,280
3rd 10,000 × 15% = 1,500
40,000 3,780

40,000

Zero 7,200 30,000 45,000 200,000

1st 2nd 3rd 4th 5th
7,200 22,800 15,000 155,000 The rest balance
Exempted 10% 15% 20% 22.5% 12
 Question (2)
Indicate whether the following phrases are true or false, and correct
the false phrases:
1. The person who bears indirect tax burden is the one who pays it,
such as the taxes on income.
2. The person who pays the direct tax can transfer its burden to
another person, such as sales tax.
3. In unified tax system, income is classified according to its source,
and tax is imposed on each type of income as an independent tax
different from the other types of incomes.
4. In qualitative or schedule tax system, The tax is imposed on the
total incomes regardless of the source of income.
5. In-kind tax takes the taxpayer's payment capacity into consideration
and allows him some exemptions.

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6. Personal tax is imposed on the total income of the taxpayer
without any exemptions, such as sales tax.
7. Proportional Tax is imposed on a fixed rate on the taxable income
regardless of the amount or the type of income that the taxpayer
has, such as income tax of legal person.
8. Escalating or progressive tax rate increases with the increase of
the taxable amount and vice versa, such as tax on salaries and the
like.
9. Taxes may be paid directly by the taxpayer to tax department
such as tax on salaries and the like.
10. Taxes may be deducted at source by an intermediary such as tax
on revenues of commercial and industrial activities.

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 Answer
N T /F Correction
1 F Direct Tax
2 F Indirect Tax
3 F In Qualitative or Schedule Tax system
4 F In Unified Tax system
5 F Personal Tax
6 F In-kind tax

7 T
8 T
9 tax on revenues of commercial and industrial activities
F
10 F tax on salaries and the like

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 Question (3)
Indicate whether the following phrases are true or false, and correct
the false phrases:
1. According to the Egyptian tax system, tax is imposed on only the
natural persons income .
2. According to the Egyptian tax system, tax is imposed on only the
legal persons income .
3. According to the Egyptian tax system, tax is not imposed on
expenditure & consumption .
4. According to the Egyptian tax system, tax is imposed only on the
income of the real estate.
5. Stamp tax is a type of Tax on income .
6. The Unified Tax on Income of natural person is indirect tax.

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 Answer
N T /F Correction
1 F natural & legal persons income
2 F natural & legal persons income
3 F tax is imposed
4 F tax is imposed on the income & ownership of the real estate.
5 F Tax on expenditure & consumption
6 F direct tax.

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 Question (4)
Indicate whether the following phrases are true or false, and correct
the false phrases:
1- The tax is obligatory cash collected by the government from the
individuals and business entities according to specific laws and
rules to provide private services.
2- The taxes can be collected in a cash form or in-kind form.
3- The natural persons can collect taxes and spend it for private
purposes.
4- The direct taxes are imposed on the uses of wealth.
5- In the direct taxes, the taxpayer bears its burden.
6- The personal taxes are imposed on wealth or income regardless of
its owner.
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7- There is intermediary between the taxpayer and the state in the
indirect tax.
8- Law 91/2005 is governing now the income tax system in Egypt.
9- The in-kind taxes take the taxpayer's payment capacity into
consideration and allow him some exemptions such as family
charges exemption and the cost of minimum living exemption.
10- The taxes can be divided into direct and in-direct tax in terms of
the type of the tax system.
11- The proportional taxes vary in tax rates with the taxable amount.
12- The taxes can be divided into proportional and progressive tax
according to the tax collection method.

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 Answer
No. Answer The Correction
1 False The tax is obligatory cash collected by the government from the individuals and
business entities according to specific laws and rules to support the public
spending and achieve economic and social objectives.
2 False The taxes can be collected in a cash form only.
3 False The natural persons cannot collect taxes and spend it for private purposes but it is
collected by the state and spent it for public purposes.
4 False The indirect taxes are imposed on the uses of wealth.
5 True
6 False The in-kind taxes are imposed on wealth or income regardless of its owner.
7 True
8 True
9 False The personal taxes take the taxpayer's payment capacity into consideration and
allow him some exemptions such as family charges exemption and the cost of
minimum living exemption.
10 False The taxes can be divided into qualitative and unified tax in terms of the type of
the tax system.
11 False The progressive taxes vary in tax rates with the taxable amount.
12 False The taxes can be divided into taxes paid directly by the taxpayer to the tax
administration and taxes deducted at source in terms of the tax collection method.

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The end of Ch. (1) ☺