Types of Income Tax and Progressive Tax Systems

A tax is an obligatory administrative charge or any kind of levy imposed upon a taxpayer by a government agency in order to finance various public needs and government spending. A person not liable to collect income tax, who fails to pay the tax may be subject to criminal prosecution. Evasion of or refusal to pay tax, and related crimes, are punishable by federal law. A tax relief may be available for certain taxpayers to encourage them to pay their taxes.

Federal tax law covers many issues, such as: corporate income tax, employment tax, estate tax, stamp duty, and property tax. Excise duty and sales tax are collected by state governments. Many states have special taxing districts that are empowered to collect taxes on goods sold within their jurisdictions. A tax on purchases is called an import tax.

Auctions, sales, and import duties are collected by states, municipalities, or counties. In the United States, the Internal Revenue Service is the trustee for all U.S. citizens who owe taxes. The IRS is part of the U.S. Department of the Treasury. Excise duties, when imposed, are typically exempt from taxation. Certain taxes levied by state and local governments are imposed by the suffrage of the people through their representatives in the state and local assemblies.

In Canada, the taxation system does not include personal income tax. Instead, the income tax was added to the revenue collected from the tax system of Canada. The purpose of taxation is to raise funds for public services and programs. Income tax rates are progressive, with rates increasing from high income levels and reducing with each step up the income ladder. Some countries, including Canada, levy a basic personal income tax, which is refundable on all income taxes paid in the course of the year. Most of Canada’s income tax systems do not have a national level of taxation and individuals, business corporations, and trusts to file their tax returns at the regional offices of the Revenue Canada.

Income tax rates are generally progressive across the board. There is a tax credit for high income earners, but not for other income levels, such as low or modest. This tax credit is called the nil tax, which is earned on income taxes paid and is nontaxable for income tax purposes. Income tax rates can also be regressive, which means that high-income earners pay relatively higher taxes than other income levels.

A regressive tax system is characterized by taxes that are progressively heavier for higher incomes. The rate of taxation is based on how much an individual earns from work and how much is taxed by the federal government. Generally speaking, GST or goods and services tax rate is higher for higher incomes. Excise duties are levied on imports and exported goods, and are based on the difference between the value imported and the value purchased.

Progressive taxation is the combination of graduated rates of taxation. Some of the most common types of progressive taxes include income taxes, property taxes, sales taxes, corporate taxes, and gasoline tax. Progressive taxation is considered proportional, meaning that high earners pay less than the lower classes. Progressive taxation includes Goods and Services Tax and Excise Duty.

In some provinces, income taxes and some provinces don’t associate the GST with income tax because it is considered revenues that are derived from sales rather than production. In some cases, low-income earners would have to pay both income tax and PST. The PST is sometimes referred to as “other taxes,” because it is often required to fulfill a national infrastructure requirement. Some provinces, such as British Columbia, do not charge income tax and do not include PST within the purview of their standard sales tax. The harmonization of provincial tax systems is one of the objectives of the Canada Revenue Agency.

Mitchel Campbell