Taxation is the imposition of levies on individuals, industries or corporate organizations by the government. Such levies imposed by the government are referred to as TAX. Taxation is the major way of generating revenue by the government for its expenditures. The governmental body in charge of collecting
and regulating taxes is referred to as The Internal Revenue Service.
Also, the government uses taxation to regulate the consumption of harmful products like tobacco. This is done by increasing the amount of tax levied on such products which in turn increases their prices and therefore discouraging the purchase of such products.
There are various ways the government issues taxation to generate revenues. The individuals who pay tax are known as tax payers. The tax payers do not necessarily need to have a direct benefit for paying tax based on the amount they paid. Revenue gotten from taxes are used generally for the good of the whole. Everyone benefits equally from the government despite the amount of tax paid.
In most countries, taxes are allocated based on the income generated by an individual or the wealth rate.
Taxation generally is classified into two; direct taxes and indirect taxes
DIRECT TAXES: These are taxes that are paid directly by a tax payer to the government. Usually, there is a fixed amount allocated to the tax payer based on the tax payer’s ability to pay. This type of tax is adjustable as the tax payer’s money worth increases or decreases.
Different forms of direct taxes include but not limited to;
INCOME TAX: This is the tax paid by salary earners directly to the government. Income tax is calculated based on the tax payer’s salary and is deducted every month.
INHERITANCE TAX: This is the kind of tax paid by the next of kin of a deceased. Such tax is issued on the properties of the deceased which has been inherited by the next of kin.
PROPERTY TAX: This kind of tax is levied on one’s assets. It is paid by the owner of such assets based on the asset’s worth.
CAPITAL GAINS TAX: This is the tax levied on the sale of properties like buildings or businesses. It is calculated with consideration to the depreciation of the property. This is done by calculating the difference in the worth of such property on purchase and at the point of sale.
CORPORATE TAX: These are taxes levied on independent companies based on their profits. This kind of tax is only payable by business corporations alone and not by other forms of business.
INDIRECT TAXES: Unlike direct taxes, indirect taxes are taxes that can be passed on to others. This means that such taxes can be made to be paid by a third party. Indirect taxes are mostly charged on products and services and therefore are automatically paid by people who purchase these goods or pays for those services. The most common is the value added tax (VAT) which is tax paid on the purchase of products. Indirect taxes are paid most times without the individual knowing it has been paid as they are evenly distributed and added to the price of products.
Various forms of indirect taxes include but not limited to;
SALES TAX: These are taxes levied on basic household items. The sales tax is automatically added to the price of commodities.
CUSTOM TAX: This type of tax is charged on all imported products. Custom tax is mostly the reason why foreign products are expensive as the amount of custom tax is added to the price of the products which the buyer pays on purchase.
EXCISE TAX: This type if tax is levied on the purchase of raw materials. Manufacturers are made to pay excise tax when buying raw materials for their production.
Generally, indirect taxes are usually pushed to the consumers who pay these taxes most times without feeling it.
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