Tax is a bitter reality of life when you start working and your income or turnover exceeds the certain limit. Well, there are people who don’t give tax but it is a duty of every person to pay tax to government of whatever country they live in. However, the question is how much tax a person should pay? Well, it all depends upon the income of a person. Do you think we pay tax easily? No, not at all. Whenever tax name comes in our mind, we only say what the heck this is. Why we need to pay tax? Right. All these questions are basics. But do you exactly know what taxation is? Its types, benefits, and whether it’s mandatory for you to pay tax or not. These questions would be hovering in your mind, right?

Don’t get fret! This article has answer to all these questions. Here I will talk everything about taxation. Ready to know?

Let’s start and dive in to the topic below.

What exactly the concept of taxation is?

Simply putting, tax is a certain amount of money that you have to pay to the government so that the government can utilize that money for public services. Tax is a compulsory contribution to state revenue. Moreover, taxes are levied in almost every country of the world, especially to raise revenue for government expenditures; in fact, they serve other purposes as well.

According to Wikipedia, tax is a financial charge usually calculated in percentage (%) or other levy imposed upon a taxpayer by a state or the functional correspondent of a state to fund various public disbursements.  

Different types of taxes

Taxes are categorised in various types as follows –

1. Direct tax

As the term suggests, you (public) directly pay tax to the government. As a taxpayer you directly pay to the respective government authorities. The example is income tax.

2. Indirect tax

It is opposite to direct tax. So the taxes that public pay directly to the government of the nation is called indirect tax. Potential consumers can’t see this type of tax for example service tax.

3. Wealth tax

Another type of tax is wealth tax which is derived from the ownership of a property. The property of a person will be taxed every year on its current market value.

4. Corporate tax

This tax is basically on corporate or companies which are separate legal entity. So the companies are charged on interest, royalties, fees for services provided etc.

5. Value added tax (VAT)

This is one of the most important taxes for state government. Why? Because it is a major source of revenue for the state government. This tax is applies on the sale of goods and products. VAT differs in every state based on goods.

6. Property tax/Capital Gains tax  

As the name suggests, property tax is imposed directly on property. It is an annual payment which a land owner pays to the local government or the municipal corporation of his area. This property includes all tangible real estate property for example house, office building and the property he has rented to others.

7. Income tax

This is the most crucial and significant tax for the government. Income tax is levied on the net income of the taxpayer. This tax is used in to fund public services, pay government obligations, and provide goods for citizens.

The list of types of taxes doesn’t end here as there are many more types of taxes that come in this. But I have only talked about those that are important for you to know. Well, you can use accounting software to pay taxation such as Quickbooks.

Have you ever thought about why do you pay tax?

Whenever it comes to tax, the question which comes in our mind is why do I need to pay my hard earned money to government in the form of tax? Right. Here you can read why –

Firstly, tax is an amount that government takes from us to pay for programs and services. For instance, making of affordable healthcare, the welfare system as a safety net for those who need it, and building roads so that you can safely drive your cars around. All these services need money which directly or indirectly comes in the form of tax. Therefore, if you want to utilize all these services, you have to pay tax to government as revenue that they can use to pay for these costs.

I hope now you have a fair idea as why it is important to pay tax to government, right.

Some moots points to remember

  • Tax is a mandatory contribution required for the welfare of the society.
  • It requires legal sanction.
  • The charges of the tax are based on the total income of the year.
  • Paying taxes on time is the responsibility of all to contribute on time.

Final track

I hope this article was enough informative for you to understand the concept of taxation. So you learned the concept of taxation, its different types, and why it is important to pay to the government. As a responsible citizen of the country, always pay tax to the government and do the needful for the betterment of the society or country.  

For enhancing your knowledge in corporate world, just Get in touch with us.