Tax –What ShouldYou Know About It?
If you are a professional working at a corporate house or a self-employed person, you must have definitely heard a lot of discussions about taxes. You must be wondering – “What is tax”? Well, tax is a fee charged by the Government on any kind of income, activity or products.
Tax can be mainly divided into two types – direct tax and indirect tax. When the taxes are imposed directly on corporate or personal income, then it is known as direct tax. However, when the tax is imposed upon the value of a good or service, it is considered to be indirect tax.
Purpose of taxation
Once you have known “What is tax?” you should also know the purpose of this taxation. The main aim of levying taxes is to fund any kind of government expenditure. With the help of money collected from taxes, the government will be able to fund public services and goods. This includes the likes of street cleaning, lighting the street, cleaning the drainage system, etc.
It should be noted here that in case of public services and goods, there is no discrimination between a tax-payer and a non-tax payer. As a result, there is no market for such goods and services. Thus, such goods and services need to be provided either by the government or by any quasi-government agency. These organizations or the agencies get the funds from the taxes paid by us.
Different types of taxes that are levied on individuals
Well, there are different types of taxes imposed on the individuals. Let’s take a look at what are they:
Income tax: This is charged to the individuals based on their income. It should be noted here that the amount of income subject to tax depends upon the tax accounting rules of that particular state or country. It does not depend on the financial accounting principles. Also, it should be noted here that the taxable income includes all your income irrespective of the source.
Property tax: This tax is levied by the local authorities or the state government. The property tax is dependent on the fair market value (FMV) of the property at present. As far as school buildings and religious buildings are concerned, they are governed by separate tax laws. Certain jurisdictions even tax business properties.
Sales tax: Another form is taxation is sales tax. Most states impose this kind of tax on the sale of different types of goods and services. The tax rate differs from one jurisdiction to another depending upon the goods and services that are taxed. It should be noted that unlike other taxes, this tax is collected by the seller at time of sale of the goods or services.
Estate and gift tax: Such taxes are mainly levied by the federal and state governments at the time of property transfer or inheritance with the help of will or any other form of life-time property transfers. These taxes are imposed on worldwide property of citizens and residents.
Hope now your idea about what is tax all about has been cleared.
What is a tax?