Contribution for the support of the government by the citizens on income or activity is known as tax. If the contribution is against the corporate or personal income it is known as direct tax. If it is levied on the goods or services it is then known as indirect tax. Indirect taxes are usually taken from the end customer.
Taxation helps the government to solve public issues or support the government. With these taxes the government runs their matters, improves the infrastructure etc. Tax helps government finance government expenditure like making roads or law and order situation. From law enforcement agencies to the clerk in the government offices the salaries are paid only through taxes. Taxes are to be paid by law and they are not voluntarily support for the government. It is imposed by the government in the name of custom, toll, excise, aid, subsidy, gabel etc.
Taxes are paid as a percentage known as the tax rate. Taxes rates can be distinguished as effective/average rate or the marginal rate. Effective rate is determined by total tax paid divided by the total amount on which it has been paid. While marginal rate is the tax paid on the next dollar earned over the income.
The basic purpose of the tax is to finance government expenditure which includes wars, flood, health, protection of property, economic infrastructure, pensions, old age benefits, public services. In some other cases some part of these taxes is used to pay off the government debt and the interest on it. Government uses different types of taxes with different rates, and it is done to distribute the resources among all the citizens equally and for the betterment of the country.
A country’s tax system is designed to distribute the tax burden among people. It reflects the values of those in power or the communal values. In democratic countries public elect the persons who become in charge of choosing the taxation system. These people decide how much tax is to be paid and where these taxes should be spent. Paying taxes is must in all the democratic countries because the end result is for the betterment of the country only.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software
Most WantedFinancial Terms
- Most Important Financial Ratios
- Debt-to-Equity Ratio
- Financial Leverage
- Current Ratio
- Interest Coverage Ratio (ICR)
- Receivable Turnover Ratio
- Return On Capital Employed (ROCE)
- Accounts Payable Turnover Ratio
- Debt Service Coverage Ratio
- Solvency Ratio
Have 10 minutes to relax?Play our unique
Play The Game