What Is a Tax?
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Taxation is one of the most important subjects for every individual and company. It is vital for all businesses and individuals to know their tax responsibilities. It is mandatory for everyone to pay their share in taxes to the revenue department. Every individual and business has to pay taxes to various government departments like Income Tax, Corporate Tax, Sales Tax etc. A tax is any form of levy or financial charge imposed on a person by a government organization so as to finance various public welfare programs and government spending.
A proportional tax is a tax that is levied on certain products of a trade based on its price and weight. Some examples of proportional taxes include the customs, value added tax, value added payroll tax and the uniform commercial code tax. The purpose of a tax on goods is to reduce the distortions created by special taxing jurisdictions and to eliminate biases due to regional differences in taxation practices. A tax on gross receipts taxes includes income taxes and personal wealth taxes.
There are basically three kinds of taxes, which taxpayers have to pay irrespective of whether they are paying them direct or indirectly. These taxes are: General Tax, Self-Employment Tax, and Employment Tax. General tax rates are charged on the income of an individual or business and are calculated on the basis of net income derived from work performed by the citizen or proprietor and includes income from salary and wages, property acquired using loan or lease and certain dividends, interest and other returns. Self-employment tax rates are paid by employers for the income earned by their employees and include the amount remuneration paid to the employee and the tax imposed on the employee’s behalf under the prescribed wage scales.
Tax on income and wealth is basically a proportion of the net value of all the assets that are owned by the taxpayers. Net asset value (NAV) is the value that one gets by transferring a liability or asset from a liability and an asset to an asset, and net worth is the value that an individual or entity owns less the value that it would have if it had its cash and assets tied up in assets. The difference between the NAV and the actual value is called the capital gain or profit. It should be kept in mind that taxes are always implied into the cost of doing business and are not free in nature. This implies that the indirect taxes levied by the government on businesses and individuals are passed on to the customers directly through the tax systems. These taxes are different from direct taxes as they are levied indirectly and are deductible from the income tax that has to be paid by the individuals or businesses before the deduction can be applied to the taxes payable to the government.
One can classify indirect taxes in two ways, first, where the tax falls levied indirectly and is not attached to any specific action and second, where the tax itself falls directly and is attached to some specific activity. The concept of indirect taxation is used to describe taxes that are levied by the government that fall on the cost of doing business. These taxes include taxes on income, property, consumption and some basic expenses. The concept of direct tax on the other hand is used to describe taxes that are levied directly by the government on the production of goods and services. Direct taxes include such things as tariffs, Excise Duties, central Excise and several forms of central taxation.
These two types of indirect taxes can often be confused with each other but they are different concepts. As mentioned earlier direct taxes fall on the cost of doing business, while indirect taxes are levied later and are passed down to the customers indirectly. The direct taxes include such things as tariffs, central Excise and so on. These tariffs are collected by the government and passed on to the customers. These indirect taxes on the other hand are collected by the government and paid to the individuals or organizations by whom the products were produced. The most common type of indirect tax includes customs duties, which are imposed by the country on imports and exports.
