Taxes are the main source of income for governments around the world and are considered one of the monetary sums that are compulsorily collected by the country's tax authority.
types of taxes
The classification of taxes varies in different ways according to:
- who pays it,
- who bears the brunt of it,
- The extent to which the burden can be shifted, and various other criteria.
- Taxes are also commonly categorized as either direct or indirect. There is also great disagreement among economists about the criteria for distinguishing between direct and indirect taxes.
- The direct tax is made clear that the taxpayer cannot transfer it to another person, while the indirect tax can be.
direct taxes
They are taxes on natural persons and are based on the taxpayer's ability to pay according to income, consumption, or net wealth.
Some types of direct taxes
Income taxes: levied on the total net personal income of the taxpayer over a specified minimum. It is also adjusted to take into account circumstances that affect the ability to pay, such as: “family status, number and age of children, and financial burdens resulting from illness.” Personal exemptions for the taxpayer and family can also create a pool of income subject to a zero tax rate.
Wealth taxes: levied on a person's total net worth, as happens with income tax. The personal circumstances of the taxpayer may also be taken into account.
"Direct consumption" expenditure taxes: These are levied primarily on all types of income that are not directed to savings. Unlike indirect taxes on spending. It can be adjusted according to one's ability to pay by allowing marital status, age, number of dependents, etc. This type of tax has only been used in two countries, India and Sri Lanka.
Flat tax: A tax that achieves economic effects similar to a direct consumption tax by exempting most income from capital. But no country has adopted a flat tax basis, although many tax income at only one rate.
Taxes upon death: It contains two forms:
- Inheritance tax: Where the taxable thing is well received by the person who inherits, it also sometimes takes into account the personal circumstances of the taxpayer.
- Inheritance tax: It is the total inheritance left by the deceased, such as the relationship of the taxpayer with the donor and his net worth before receiving the will.
- Estate taxes are generally included according to the size of the estate. In some countries, it provides tax-free transfers to the husband and gives an allowance for the number of heirs involved.
indirect taxes
They are levied on the production or consumption of goods and services or on transactions, including imports and exports. The types of indirect taxes include:
- General sales taxes.
- Value Added Taxes (VAT).
- Taxes on any aspect of manufacturing or production.
- Taxes on legal transactions.
- Customs or import duties.
General Sales Taxes: This applies to a significant portion of consumer spending, and the same tax rate can be applied to all taxable items. Single-stage taxes can be collected at the retail level, or they can be collected at the pre-retail level.
Value Added Tax: This tax is collected by allowing the taxpayer to deduct credit for tax paid on purchases from liability on sales. VAT has largely replaced sales tax and is only levied on certain goods or services.
Sales tax: It is a tax on each stage of the production and distribution chain, with no exemption for the tax paid in the previous stages. The cumulative effect of sales tax distorts economic decisions. Sales taxes sometimes exempt requirements to reduce the tax burden on low-income families.
Some countries impose taxes on raw materials, intermediate goods (such as mineral oil and alcohol), and machinery.
other kinds
Taxes are distinguished by their effect on the distribution of income and wealth, too:
- Proportional tax: It imposes the same proportional burden on all taxpayers.
- Progressive tax: It is characterized by a more than proportional increase in the tax liability about the increase in income “the higher the income, the higher the value of the tax paid.” Progressive taxation is seen as reducing inequality in income distribution.
- Regressive tax: It is characterized by a less than proportional rise in the proportional burden. Regressive taxes are seen as having the effect of increasing inequality in the income distribution.
Taxes that are considered progressive include individual income taxes and property taxes. But nominally progressive income taxes may become lower in higher-income categories, especially if the taxpayer is allowed to lower his tax base by declaring deductions or by excluding some components of income from his taxable income.
