TAXES: Meaning, features &kinds

 TAXES: Meaning, features &kinds

Taxes are thus compulsory financial charges or levies imposed by any government on individuals, businesses, and other entities for funding public expenditure. They are, therefore, quite important in the running of any government, as they aid it in the provision of public goods and services that include infrastructure, education, health care, defense, and running social welfare programs.

 This is a mandatory financial charge or levy imposed by a government on individuals or organizations to fund public expenditures. In essence, it's one way a government gets revenue to provide public services and infrastructure. 

Why do we pay taxes?

The money collected through taxes is used to fund various government activities such as:

Public infrastructure: Roads, bridges, airports, public transportation, etc.   

Education: Schools, colleges, universities

Healthcare: Public hospitals and healthcare programs

Social Welfare: Pensions, unemployment benefits, and other welfare programs

Defense: Military and national security

Public Safety: Police and fire

FEATURES OF TAX

1. Compulsory Payment

Taxes are the amount that is levied by any government on an individual or business and which has to be paid compulsorily. Inability to do this can result in penalties.

2. Source of Revenue

The tax system forms the main source of revenue supply for most governments to provide common goods, services, and infrastructure. This includes healthcare, education, and other services like defense.

3. No Direct Benefit

Taxpayers are not provided with immediate or direct benefits for the taxes paid. Rather, they are distributed among the society, thereby benefiting them.

4. Variety of Types

They come in the form of income tax, corporate tax, sales tax, property tax, excise tax, and many more, all targeting different sources of income or consumption.

5. Progressive, Regressive, and Proportional

Progressive Tax: Larger share paid by those earning higher incomes. Example: Income tax

Regressive Tax: Large share of the income of low-income earners. Example: Sales tax

Proportional Tax: The share of everyone's income is the same. Example: Flat tax.

6. Ability to Pay

The ability of the taxpayer to pay is usually a consideration of the general tax system. It is normally held that the more money a citizen makes the more tax he needs to pay.

7. Effects on Economy

Taxes may be used to alter the behavior of an economy. They may encourage or discourage particular economic activities, such as spending, investments, or saving, by offering tax incentives or imposing penalties.

8. Legal Duty

Taxes are created through legislation and are enforced according to defined regulations, detailing all matters connected with their levy, collection, and enforcement.

9. Periodic Contributions

Taxes are usually levied at some periodic interval, yearly, quarterly, or monthly, based upon the type of tax.

10. Fiscal Policy Tool

Taxation serves as a tool of fiscal policy of the government, conducive to economic growth, inflation, and employment.

11. Redistribution of Wealth

Through progressive taxation and the included social expenditure, financed by taxes, it tries to reduce income inequality and reduce wealth.

12. Incentive for Compliance

Most systems of taxation provide deductions, credits, and exemptions that lower tax 

liabilities for those who pay their taxes properly.

13. Transparency and Accountability

Governments should be transparent with regard to tax collection and accountable in terms of the spending of tax revenues.

TYPES OF TAXES

There are two broad kinds of taxes:

1. Direct Taxes

Taxes that are directly applied to individuals or corporations.

In these taxes, the responsibility to pay the tax to the government is directly on the taxpayer.

Income Tax: This is actually the most prevalent form of direct tax levied against an individual's or corporation's earned income. It can be progressive, where higher income attracts a higher rate of tax, or flat, where the rate remains the same for all incomes.  

Corporate Tax: This is a tax levied against the profits made by corporations.

Wealth Tax: It is the tax that is charged based on an individual's net wealth that exceeds a certain base. 

Capital Gains Tax: The tax that is charged on gains obtained from the sale of assets, which can be property, stocks, or bonds. 

Gift Tax: A tax is charged on the amount of property or money given to another as a gift. 

2. Indirect Taxes

Indirect taxes are the levies on goods and services. The taxpayer indirectly faces the burden of tax as the tax is included in the product price or service.   

 

Sales Tax: It is the tax on sales of goods and services; while still in practice left at some locations, it has extensively been replaced by VAT and GST at most places.

Value-Added Tax: A multi-stage consumption tax levied on the value added to a product at each stage of production and distribution.

Goods and Services Tax: This imposes a comprehensive indirect tax on the supply of goods and services. It has replaced many indirect taxes in a lot of countries.

Excise Duty: This is a tax on certain specified goods, for example, alcohol, tobacco, petrol, and diesel.

Customs Duty: Tax imposed on goods imported.  

Service Tax: The tax is levied on the provision of services. It has been subsumed into GST in many countries.  

Other Taxes

Property Tax: This is the tax based on the value of real estate possessed by an individual or company.  

Stamp Duty: It is a tax charged on legal documents like the transfer of property, shares, etc.

Entertainment Tax: A tax is levied on tickets for entertainment events, such as movies or concerts. 

Luxury Tax: It is the tax that is charged on luxury goods and services. 

Environmental Tax: These taxes are levied based on those activities that cause damage to the environment; examples include carbon taxes. 

Note: The type and structure of taxes vary immensely across countries.

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