What is Tax? – Varieties of Taxes and Importance

Tax or Taxation is a compulsory monetary contribution that is mandatorily charged on an individual or other legal entity by a governmental organization in order to fund various public expenditures. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures. Taxes and rated or measured in percentages, and it involves mandatory charges from individuals and organizations. Most scale taxes based on annual income amounts.

Types of Taxes

  • Income
  • Payroll
  • Property
  • Consumption
  • Tariff (taxes on international trade)
  • Capitation, a fixed tax charged per person
  • Fees and tolls
  • Effective taxes

Income tax

An income tax is a tax that governments impose on income generated by businesses and individuals within their annually. In other words, taxes put on everything you earned over the past year as income.

Payroll tax

Payroll tax is taxes imposed on employers or employees which is deducted from salaries. take for instance my mom who happens to be a civil servant, each time I got the chance to see her pay-slip is not the same figure she brings back home. This is because there is usually an automatic deduction. Insurance premiums and retirement savings are deducted from the paycheck.

Property Tax

As the name implies, this is a type of taxes you pay for acquiring properties like; house, cars, etc. This is one of the key things to check before buying one because acquiring properties means you have to add property tax into the budget. Not everyone pays property tax though, that is unless you qualify for property tax exemptions for seniors, veterans or disabled residents then you won’t have to pay.

Consumption tax

This is the tax on spendings by consumers, such as a sales tax or VAT. A value-added tax (VAT) is a consumption tax levied on products at every point of sale where value has been added, starting from raw materials and going all the way to the final retail purchase.

Tariff (taxes on international trade)

This is a kind of tax that directs on imports or exports between sovereign states. It is a form of regulation of foreign trade and a policy that taxes foreign products to encourage or period domestic industry. A business must be prepared to pay additional taxes, duties, and fees associated with each foreign shipment, in spite of the sales tax dues on imports.

Capitation, a fixed tax charged per person

A tax levied on the basis of a fixed amount per head. It is also referred to as Poll tax or Head tax.

Fees and tolls

A toll fee is charged for the maintenance and other expenses related to roads.

Effective taxes

The effective tax is the average rate at which a business or individual is taxed on the earned income. In other words, it is calculated as the total tax paid divided by the taxable income. If this information was helpful to you tell others and if you face any challenge applying drop it on the comment box so that we can serve you better

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