What Is Tax ?: Types of Taxes

Tax
What is tax ?
A tax is a mandatory payment or change collected by local,state,and
national govrements from individuals or business to cover the costs of
general government services,goods,and activities. Or it is compulsory
finansial charge or some other type of leavy imposed on a tax payer (an
individual or legal intity) by a govermntal organization in ordre to fund
govremente spending and varios public expenditure (regional,loca,or,
National) and tax compliance refrs to policy actions and individual

behavior aimed at insuring that tax payers are paying the right amount
of tax at the right time and securing the correct tax allowance and tax
reliefs. The first known taxation took place in ancient Egypt around
3000-2800 BC.
Types of Taxes
There are several very common types of taxes:-
 Income tax: A percentage of generated income that is

relinquished to the state or fedral government .
 Pay roll: A percentage with held from an employees pay by an
imployer,who pays it to the government to the employees be
have to fund medicare and social security programs
 Corporate tax: A percentage of corporate profits taken as tax by
the government to fund federal prorams
 Sales tax: taxes levied on certain goods and services varies by
jurisidication
 Poverty tax: based on the values of land and property assets
 Tariff: taxes on imported goods imposed with the aim of
strengthening domestic businesses
 Estat tax: Rate applied to the fair market value (FMV) of property
in a persones estate at the time of death the total estate must
exceed thresholds set by state and federal goverments
Classification of taxes
Direct and indirect taxation
1. Direct taxation- this is taxation on in come. This covers taxes like

income tax ,profits tax and wealth taxes on inheritances
2. Indirect taxation: this is taxation on expenditure. This covers
taxes like vat, excise duties (tax on cigarettes,alchol etc……..)
Progressive,regressive and proportional

taxes
Taxes differ according to their impact on different income groups
 Progressive tax: a tax that takes a great proportion of a person

income as their income rises.
 Regressive tax: a tax that takes a smaller proportionof a
persones in come as their income rises
Proportional tax: a tax whear the percentage of in come payed in taxation always stays the same
Tax rate
In a tax system the tax rate is the ratio (usually expressed as a
percentage) at which a business or a person is taxed. There are
several methods used to present a tax rate: statutory, average,
marginal and effective. This rates can also be presented using
different definitions applied to a tax base inclusive and excusive.
Tax base
A tax base is the total amount of property, consumption, assets,
transactions, income or other sorts of economic activity that is
subject to taxation by an authority such as the government while a
narrow tax base is considerd to be non-neutral and inefficient,a
broad tax is known for reducing tax administration costs allowing for
more revenune to be raised at lower rates.
Example:- such as state and fedral government and is based on the

total amount of:
 Income
 Assets
 Property
 Transaction
 Other economic activity
Fedral, state,and corporative tax bases

Fedral in come taxto fedral income taxes the tax base is the amount
of income that gets taxed the tax rate is afraction of that base and is
collected by taxation there for to calculate the total tax liability you
will multiply the tax rate by the tax base
State sales tax

On a state level state tax is a strong example of how a narrow tax
base comes to be. Many states have a narrow tax base because sales
tax only applies to goods and not services
Corporate income tax

Because business income is considerd to be fedral taxable income,
business income contribute to acorporate income tax base
How a tax base works

It all depends on what type of tax base you are dealing with on an
overarching level, there are two types of tax bases: narrow and
broad
The five basic conditions:-

1. Fair ness or equity : means that every body should pay a fair
share of taxes. There are three important concepts of equity: the
ability to pay principle, horizontal equity principle, vertical equity
principle.
a. Ability to pay principle: payment of tax shoul be on the ability
of tax payer if he can he must pay if he can not he must not to
pay.
b. Horizontal equity principle: means that tax payer in similar
financial condition should pay similar amount in taxes.
c. Vertical equity principle: is just as important however it means
that tax payer who are better must pay more than who get
little income.
2. Adequacy : means that taxes mustprovide enouph revenue to
meet the basic needs of society. A tax system meets the test of
adequacy it is provides enouph revenue to meet the demand for
public services,if revenue growth each year is enouph to fund the
growth in cost of services and if there is enouph economic activity
of the type being taxed so rates can be kept relatively low.
3. Simplicity: means that tax payer can avoid a maze of taxes, forms
and filling reqirments. A simpler tax system healps tax payer
better understand the system and reduces the costs of impliance.
4. Transparency: means tax payers and leadrs can easily find
information about the tax system and how tax money is used.
How match they are paying and what is being done with the
money. We also can find out who(in broad terms) pays the tax
and who benefits from tax excemptions, deductions,and creadits.
5. Administrative ease: means that the tax system is not to
complicated or costiy for either tax payer or tax collector.rules are
well know and fairely simple forms are not too complicated the
state can tell if taxes are paid on time and correctly and the state
can conduct audits in a fair and efficient manner. The cost of
collecting a tax should be vary small in relation to the amount
collacted.
Important of tax in government

Government impose changes on their citizens and businesses as a
means of raising revenune which is then used to meet their
budgetary demands this include financing government and public
projects as well as making the business environment in the country
conductive for economic growth.
Important of tax in society

Whith out taxes governments would be unable to meet the demands
of their societies. Taxes are crucial because government collects this
money and use it to finance social projects.
Important of tax in health

Whith out taxes government contribution to the health sector whould
be impossible. Taxes go to funding health service such as social health
care, medical research, social security etc…..
Important of tax in education

Education could be one of the most deserving reciplents of tax money
governments put a lot of important in development of human capital
and education in cetral in this development.
Tax payment is our national obligation

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Tax

National) and tax compliance refrs to policy actions and individual

 Income tax: A percentage of generated income that is

1. Direct taxation- this is taxation on in come. This covers taxes like

Progressive,regressive and proportional

 Progressive tax: a tax that takes a great proportion of a person

Example:- such as state and fedral government and is based on the

Fedral, state,and corporative tax bases

State sales tax

Corporate income tax

How a tax base works

The five basic conditions:-

Important of tax in government

Important of tax in society

Important of tax in health

Important of tax in education

Tax payment is our national obligation

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