Taxation

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Tax is a compulsory levy on individuals and companies by the state to
meet the expenses of the government. Taxation is imposition of compulsory
levies on persons or other entities by governments. Taxes are levied
in almost any country of the world, primarily to raise revenue for government
expenditures. One useful way to view the purpose of taxation is to
distinguish between objectives of resource allocation, income redistribu-

tion, and economic stability. Economic growth or development and international
competitiveness are sometimes listed as separate goals.
Taxes are most commonly classified as either direct or indirect, an example
of the former type being the income tax (inheritance tax, real estate
tax) and of the latter the sales tax (value-added tax, excise tax). Direct
taxes are taxes on persons; they are aimed at the individual’s ability to pay
as measured by his income or his net wealth. Income taxes are levied on
total personal net income in excess of some stipulated minimum. They are
also adjusted to take into account the circumstances influencing the ability
to pay of the individual, such as family status, number and age of children,
and financial burdens resulting from illness. Inheritance taxes are taxes on
the money or property that you give to someone else after you die. Real
estate taxes are taxes imposed upon immovable property consisting of
land, any natural resources, and buildings.
Indirect taxation is a system of collecting taxes by adding an amount to
the price of goods and services that people buy. Sales tax is a tax that you
have to pay in addition to the cost of something you are buying. Valueadded
taxes are taxes on the rise in value of a product at each stage of manufacture
and marketing. Sales tax is levied on the manufacture, purchase, sale
or consumption of a specific commodity is known as an excise tax.
There is always a lot of debate as to the fairness of tax systems. Business
profits, for example, are generally taxed twice: companies pay tax on
their profits and shareholders pay income tax on dividends. Income taxes
in most countries are progressive, and are one of the ways in which governments
can redistribute wealth. On the other hand, most sales taxes are
slightly regressive, because poorer people need to spend a larger proportion
of their income on consumption than rich.