Taxes — are the obligatory payments collected from legal and juridical entities. Then, these payments are assigned to social expenditures such as medical and educational projects or the development of the city infrastructure. The regular return of duties and their proper distribution are necessary for a stable economy. Tax evasion is a serious crime, and is punishable by imprisonment.
Who Collects Taxes
The taxes are collected by the corresponding revenue authorities. They are responsible for the control and supervision of fiscal performance. It controls the proper computation of taxes and their timely transfer. Also, the revenue authorities address the issues concerning tax evasion and audits.
Certain units of this body may administer the payments directed to the financial support of the various categories of citizens (disabled persons, unemployed citizens). Besides, the revenue authorities are responsible for the collection of excise tax from certain industries (alcohol, tobacco, viticulture).
Classification of Taxes
There are two major types of taxes — direct and indirect. The direct taxes can’t be delivered to other entities, and they are paid directly to the government (capital gain taxes, corporate income tax). The indirect taxes can be passed to another entity or person, these taxes are imposed on the goods and services (sales and value-added taxes).
Types of taxes:
Income tax. This is a tax levied by income from individuals or businesses. Some countries have progressive taxation. This means that a more individual or business gains, the more they pay. Other ones have a flat tax rate schedule. In this case, the tax rate doesn't depend on the amount of the tax base. And the third type is the regressive tax. This tax implies a larger amount of the tax base for a lower tax rate.
Capital gains taxes (CGT). This tax is related to the sale of the non-inventory asset (real estate, gold, stocks). Capital gains are recognized when assets are sold for a higher price than the price at the moment of purchase, when they generate some form of additional value, such as interest or dividends. Capital gains tax is levied only on the difference between current and initial value.
Such a tax doesn’t exist in all countries. Some countries like Jamaica, the Cayman Islands, or Bahrain don’t have it. The amount of tax also depends on the profit received from the sale.
Payroll tax. This tax is imposed on businesses and employees. It is computed as an amount of money withholding from the salary of an employee. As for the self-employed citizens that don’t hire the staff, a relatively fixed amount of insurance premiums for mandatory pension and compulsory health insurance is established.
Corporate tax (corporation tax, company tax). This tax is imposed on the company’s capital. It is applied both to local and foreign companies. Also, it is applied to the companies that make money abroad or the resident companies. The taxes from the large government-owned and private corporations are necessary because they allow the government to develop the important economic sectors.
Sales tax. This tax is paid for the sales of certain goods. This applies to the excise tax, so the price for the excise may be quite high. The excise tax forces the manufacturer to increase the price to cover the losses for the payment of excise. Usually, this applies to gasoline, tobacco, and alcohol. In some states, this tax is also applied to cannabis, gambling, or environmentally harmful products (hydrocarbons, energy).
Another sales tax is a value-added tax (VAT). In some countries, it is called goods and services tax (GST). The tax is already included in the cost of the goods. It is a form of partial withdrawal of the product’s added value. This sum arrives at the budget earlier than the sale, that’s why it is called added. From the point of view of the end consumer, VAT is fully equivalent to sales tax. Since a consumer can’t deduct the tax paid to the seller, then for him the amount of tax paid is the nominal tax burden.
Property tax. This is a direct tax imposed on the property of organizations or individuals. It is a percentage that the individual should pay to the state. The owner of a property may pay it every year or at the moment of a real estate transaction. Also, this tax can be levied on the rented property (rent tax) or land (land value tax). The amount of this tax varies in different countries.
Inheritance tax. This tax is paid when the individual comes into the inheritance of the dead relative. It is necessary to distinguish it from the estate tax. Inheritance tax is paid by the heir. An estate tax is a sum from the inheritable money in favor of the state.
Tariff. This is a payment for different products and services provided by companies and institutions. The category of tariffs also includes systems of wage rates. In international trade, the tariff on imports and exports is called the customs tariff. Tariffs are aimed to protect the local good alongside quotas.