A tax is any tax or payment made by a taxpayer on income or assets for the payment of a tax or benefit. A tax is often levied on goods and services sold, wages and salaries earned, or real property owned. Taxation is one of the most important considerations for all individuals, businesses, and governments.
Taxation is a mandatory annual financial burden or any other sort of financial charge imposed upon a taxpayer by a government to finance various governmental expenses and public use. A person must pay taxes even if he does not incur the expenditure. A person who evades or refuses to pay the tax liability is punished by law, subject to fines. Taxation helps the government collects information on incomes and spending habits of people. By imposing taxes, governments are able to understand and control the distribution of resources in the society.
Taxation is important in a modern economy, as it provides a source of revenue for the government to administer programs such as education, healthcare, unemployment benefits, etc. Without tax revenues, government would not be able to undertake many of its programs. The main objective of taxation is to raise money for these purposes. Taxation also plays an important role in ensuring that the country’s natural resources are protected. Efforts by governments to tax private possessions and investment portfolios have failed primarily because of resistance from many individuals and private enterprises.
Taxation as an important source of revenue has been criticized by many citizens. The fact that many people consider taxes harsh and unjustified, makes them uneasy when asked to pay taxes. Many feel that the rich should not be required to pay taxes as they have earned their money legitimately. Some also feel that the wealth of a country should not be threatened through taxation.
Since taxation is viewed with some skepticism by many citizens, governments have taken certain measures to avoid controversy over taxation. Governments have formulated certain tax policies that are favorable to the majority of taxpayers while allowing some portion of the taxes to be raised for other social services. Most governments allow individuals and businesses to contribute to social welfare programs through taxation. This is done through direct taxation or via indirect taxation through progressive or proportional tax system.
There are various kinds of indirect taxes that are implemented by both federal and state governments. These include income tax, corporate tax, property tax, vehicle registration tax, personal income tax and so on. Income tax is collected by the employer directly, corporate tax is collected by the state or federal governments and the property tax is collected by municipalities. All the mentioned indirect taxes are calculated based on the income of the citizen of the nation. This article attempts to provide an introduction to taxation and the way it is administered.