Taxation

When a governmental authority imposes levies on citizens and business organizations

Understanding Taxation

Primarily, the revenue collected is utilized for the welfare of taxpayers; this means that the specific benefit received is independent of the individual payment. However, there are some exceptions, such as payroll taxes, where the taxpayer will directly benefit from medical coverage and retirement benefits.

Taxation patterns differ greatly among developing and developed countries. Higher tax revenues are collected in developed countries than in developing countries due to efficient taxation compliance mechanisms and effective tax collection methods.

However, both of these factors are directly affected by the competency of the political system. Generally, developed countries rely more on income taxation to realize most of their national output, more so than developing countries who rely heavily on consumption and trade taxes.

Types of Taxation

The following are the different types of levies imposed on residents by the government:

1. Income Taxes

Income taxes are levies imposed on the total financial income of an individual, such as wages, investments, and salaries. Most income taxes increase with the rise in the taxpayer’s earnings. This means that higher-income earners pay more taxes than low-earners. This is also referred to as progressive taxation.

2. Corporate Taxes

Corporate income tax is levied on business income. The burden of corporate tax is shared between the business, its consumers, and the employees through setting higher prices and paying low wages. To encourage business growth, most governments levy businesses a corporate tax rate of below 30%.

4. Capital Gain Taxes

Capital gains taxes are levied on capital assets, which include personal properties and investments like stocks, homes, bonds, cars, or jewelry. When an asset increases in value, such as rising stock prices, it is referred to as capital gain.

Therefore, when an individual benefits from a capital gain, tax is paid on the profit earned.

5. Property Taxes

Property taxes are generally imposed on physical property, such as land and buildings. They are the primary revenue source for local state governments. Property levies account for over 70% of local tax revenues. Property taxes finance key public services, such as fire departments, schools, roads, security, and rapid medical services.

 

Classes of Taxes

Taxes are classified into different criteria ranging from the mode of payment, the subject bearing the tax burden, and the extent of shifting the burden.

1. Direct Taxes

Direct taxes are levies subjected to individuals based on the taxpayer’s net wealth, expenditure, or personal net income. Levies on net worth are based on the taxpayer’s assets value minus total liabilities, while expenditure taxes are paid on income that is not directed to savings.

2. Indirect Taxes

Indirect taxes are taxes imposed on transactions such as imports and exports and the production and consumption of goods and services. Examples include value-added taxes, legal transaction taxes, manufacturing taxes, and custom taxes on import duties.

 

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Equity

Equity market is a place where stocks and shares of companies are traded. The equities that are traded in an equity market are either over the counter or at stock exchanges.

Commodity

A commodity market is a marketplace where investors trade several commodities like spices, energy, precious metals, crude oil within a country.

Currency

This is a type of marketplace that will fix the exchange rate for the currencies.

Mutual Fund

A type of certified managed combined investment schemes that gathers money from many investors to buy securities.

Health Insurance

A health insurance policy extends coverage against medical expenses incurred owing to accidents, illness or injury.

Life Insurance

Life Insurance insures an individual against the risk of financial loss in case of death. It does not include a savings plan.

Taxation

When a governmental authority imposes levies on citizens and business organizations

PMS

PMS aims to cater to the investment needs of individuals or entities with high net worth value by providing them with investment solutions.

Loan

A sum of money borrowed from banks or other financial institutions

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FAQ

Frequently asked questions.

Taxation refers to the fees and financial obligations imposed by a government on its residents. Income taxes are paid in almost all countries around the world. However, taxation applies to  all payments of mandatory levies, including on income, corporate, property, capital gains, sales, and inheritance.

Taxation is involuntary; hence it does not require consent from the residents. Therefore, the government may resort to the use of force and threats to implement successful taxation.

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