A tax is basically a mandatory financial obligation or any other sort of levy paid on a taxpayer by some government body in order to finance various state and government spending, as well as personal expenses. Evasion of or refusal to pay tax, and/or preparation of fraudulent return, is punishable by criminal law. In United States, the Internal Revenue Service is the chief tax collecting agency. The US President is generally responsible for administering the tax system, except in cases of federal agencies. There are several types of taxes. In general, there are four major types of taxes: income, sales, property, and corporate.
Income tax is based on the income of an individual or company. Most countries levy taxes on personal incomes (which include salary and dividends) at the national level and corporate incomes through companies at the corporate level. Some countries, including the United States, exempt some personal incomes from taxation entirely. Sales tax is usually proportional to the price of a product and capital gains tax is based on the increase in the stock of a corporation that resulted from an increase in its assets.
Capital gains tax on the sale of certain kinds of properties is called ‘excise duty’. Excise duty is not normally charged on the transfer of immovable property. Other taxes levied include income tax, inheritance tax, and inheritance tax and corporate taxes. These taxes are collected by governments at the federal, state, or county levels.
Income tax takes into account the net incomes of the people in a year. The taxes are progressive, meaning that the higher the net incomes of the individuals, the higher percentage of the taxes that are charged. The taxation system in the United States and in many developed countries is based on the concept of income tax. Many countries have national laws pertaining to income tax, and a number of countries levy inheritance taxes (Estate tax) and corporate taxes. Income tax rates are usually proportional to the taxable income of individuals.
Many people do not understand the difference between gross revenue and net revenue. Gross revenue indicates the total income generated from various sources by the institution. Net revenue takes into account the value of property that has not been sold or transferred to someone else. Some countries also have separate tax systems for use and excise. Excise duty is the tax imposed on the importation of goods for consumption within a country and it is the duty that are paid on the exportation of goods for personal consumption within a country.
When goods are imported to a country they are generally taxed according to the customs rate of that country. The importer is expected to pay customs duty on all goods that enter that country. Some importers may choose to charge taxes on goods that they do not import. This is referred to as counter-trade tax. For goods that are imported by way of freight, the importer is required to charge an Excise fee.
There are two major ways in which a taxpayer can avoid paying tax to the Government. One of these is by declaring bankruptcy, or by paying underpaid tax. Underpaid tax may be declared by a person who has his possessions seized by the Government for failure to payment of taxes. Similarly, tax evasion is a crime, whereby a person deliberately tries to evade paying taxes.
There are two methods of calculating taxes. One is based on a percentage of annual income and the other is based on a flat rate. In the former case, the calculation is done by dividing the amount of taxes paid by the total annual income of the taxpayer. In the latter case, the computation is done by multiplying the tax amount by one’s annual income and the highest rate of taxation applicable. All taxpayers should make it a point to learn about their tax regime as it could affect their capacity to carry out their day-to-day activities.
