Know Everything
About Taxes?
A tax is a
compulsory financial charge or some other type of levy imposed upon a taxpayer
by a governmental organization in order to fund various public expenditures. A
failure to pay, along with evasion of or resistance to taxation, is punishable
by law. Taxes consist of direct or indirect taxes and may be paid in money or
as its labour equivalent.
Most countries have
a tax system in place to pay for public, common or agreed national needs and
government functions. Some levy a flat percentage rate of taxation on personal
annual income, but most scale taxes based on annual income amounts. Most
countries charge a tax both on corporate income and dividends. Countries or
subunits often also impose wealth taxes, property taxes, sales taxes,
valueadded taxes, payroll taxes or tarrifs.
Overview
The legal
definition, and the economic definition of taxes differ in some ways such as
economists do not regard many transfers to governments as taxes. For example,
some transfers to the public sector are comparable to prices. Examples include,
tuition at public universities, and fees for utilities provided by local
governments. Governments also obtain resources by "creating" money
and coins, through voluntary gifts, by imposing penalties, by borrowing, and
also by confiscating wealth. From the view of economists, a tax is a nonpenal,
yet compulsory transfer of resources from the private to the public sector,
levied on a basis of predetermined criteria and without reference to specific
benefit received.
In modern taxation
systems, governments levy taxes in money; but inkind and corvée taxation are
characteristic of traditional or precapitalist states and their functional
equivalents. The method of taxation and the government expenditure of taxes
raised is often highly debated in politics and economics. Tax collection is
performed by a government agency such as the Ghana Revenue Authority,
Canada Revenue
Agency, the Internal Revenue Service in the United States, Her Majesty's
Revenue and Customs in the United Kingdom or Federal Tax Service in Russia.
When taxes are not fully paid, the state may impose civil penalties or criminal
penalties on the nonpaying entity or individual.
Purposes and effects
The levying of
taxes aims to raise revenue to fund governing or to alter prices in order to
affect demand. States and their functional equivalents throughout history have
used money provided by taxation to carry out many functions. Some of these
include expenditures on economic infrastructure, military, scientific research,
culture and the arts, public works, distribution, data collection and
dissemination, public insurance, and the operation of government itself. A
government's ability to raise taxes is called its fiscal capacity.
When expenditures
exceed tax revenue, a government accumulates debt. A portion of taxes may be
used to service past debts.Governments also use taxes to fund welfare and
public services. These services can include education systems, pensions for the
elderly, unemployment benefits, and public transportation. Energy, water and
waste management systems are also common public
utilities.
According to the
proponents of the chartalist theory of money creation, taxes are not needed for
government revenue, as long as the government in question is able to issue fiat
money. According to this view, the purpose of taxation is to maintain the
stability of the currency, express public policy regarding the distribution of
wealth, subsidizing certain industries or population groups or isolating the
costs of certain benefits, such as highways or social security.
Effects can be divided in two fundamental categories:
Taxes cause an
income effect because they reduce purchasing power to taxpayers. Taxes cause a
substitution effect when taxation causes a substitution between taxed goods and
untaxed goods. If we consider, for instance, two normal goods, x and y, whose
prices are respectively px and py and an individual budget constraint given by
the equation xpx + ypy Y, where Y is the income, the slope of the budget
constraint, in a graph where is represented good x on the vertical axis and
good y on the horizontal axes, is equal to py/px . The initial equilibrium is
in the point, in which budget constraint and indifference curve are tangent,
introducing an ad valorem tax on the y good y Y), the budget constraint's slope
becomes equal to py/px. The new equilibrium is now in the tangent point with a
lower indifferent curve.
Why does the government charge taxes from citizens?
In fact, any
government has to spend a lot of money on the citizen service that provides
services to people and institutions living in their jurisdiction. It includes
roads, electricity, water and security and administration expenses. Subsidy or
help given to farmers and poor people on different facilities etc. is also
included in these expenses.
How many types are tax?
Taxes are taken in two ways to meet government
expenditure in the whole world including India. Take part of the first person's
income, that is, direct. Income tax (IT) or income tax comes in this category.
Another way of taxing is to impose taxes on the use of services and goods, that
is, indirect or indirect taxes.
The largest tax in
direct tax or direct tax is Income Tax (IT) or Income Tax. According to the
rules already fixed every year, the government charges income tax from all the
citizens and institutions of the country, whose income is worth the tax.
People file an
Income Tax Return (ITR or ITR) only to pay income tax.
What is constitutional provision?
In the Schedule 7
of Indian Constitution, the Central Government has been empowered to recover
tax from people whose income is from sources other than agriculture.
These taxation will
be calculated on the terms and conditions of the citizens and institutions of
the country, details of these are given in the Income Tax Act 1961 and Income
Tax Act, 1962.
The central
government's Central Board of Direct Taxes (i.e. CBDT) also issues instructions
in this regard from time to time. To fill Income Tax Return (ITR), ITR forms
issue CBDT only.
Agricultural income
in section 10 (1) of the Income Tax Act (ITA) is excluded from income tax or
income tax. The income of agricultural income will be considered, it has been
mentioned in section 2 (1A) of the Income Tax Act.
