Some Examples of Income Tax

A tax is an obligatory financial burden or any other sort of levy charged on a taxpayer by some governmental body so as to finance various public needs and government expenditure. A person liable to tax, who does not comply with the provisions of tax law, is liable to the penalty referred to as “fault tax”. evasion of or disobedience to tax, and also failure to repay, is punishable with fine or even imprisonment. The need for levy is primarily to ensure the payment of public expenses and obligations by the taxpayer.

Many kinds of taxes are imposed on individuals and businesses in various countries. Some taxes are levied to help support the development of various local, national and international public policies. Examples of such taxes are customs duties, income taxes, estate taxes, and inheritance taxes. In most developed countries, taxes are also applied to certain industries or activities related to business.

Custom duty: All taxes are based on the rate of markup added to the goods or services of a producer or seller. The tax on the price of goods depends on the difference in the price charged at the retail level and the price charged to the wholesale seller. Thus, when you buy a pen, you pay taxes to the government, just as you do when you buy an ink-jet printer or a car. The burden of such taxes depends on the quantity of taxes applicable.

Income tax: This is the most common type of tax and is calculated by subtracting the amount of profit or loss from the gross value of the product or service purchased. The burden of income tax, however, depends on the extent of tax that is applied. The more the number of sales, the more will be the burden of income tax. Generally, though, the more the sales, the less will be the income tax. A standard tax deduction will usually reduce the burden of income tax.

Excise tax: In case it can be proved that a person acquired a benefit directly or indirectly from the production or sale of a particular asset, he gets a credit or deduction in the form of an excise tax. The persons who get a large number of indirect benefits from the production or sale of assets are often liable for heavy amounts of excise tax. A good example of such persons are those who receive a large part of their income as dividends and those who receive payments as bonuses.

There are several types of excise duties: A standard duty may be based on the quantity or value of a product while a custom duty is determined by the conditions associated with the production of a specific good. Excise taxes are assessed against the persons who are charged with or attempt to evade the payment of the tax. For instance, when a farmer is selling pumpkins to the public, he cannot deduct the cost of the pumpkins. Thus, the farmer is indirectly charged with excise duty.

Capital Gains Tax: Capital gains tax (GST) on the transfer of certain assets is calculated according to the amount gained and the rate of profit at maturity. The rate of profit on capital gains tax depends on the accrual and distribution of taxable surplus over the period of ownership of the asset. The rates of the capital gains tax and the inheritance tax are different from state to state. However, both direct and indirect taxes are usually included in the same calculation.

Value Added Tax: This tax is calculated on the difference between the invoice price and the selling price of an item. The rates of value added tax differ from state to state. A good example of a product having high value added tax is the wine. Other items which are regularly charged with VAT include gas, cigarettes, and alcohol.

Mitchel Campbell