Importance of Tax, Types and Objectives of Tax
There are many responsibilities of state to its countrymen. State is represented by the government. Hence, the government of any country performs a number of activities in order to maintain law and order, peace and security, satisfying with the requirement of basic needs and public utilities etc. It also initiates various development programmes and maintains diplomatic and friendly relation with other nations in the world. In order to carry out all these activities and discharge its overall responsibilities towards the people, it needs sufficient revenue. Such a revenue is known as government revenue. It is also known as public revenue. Government revenue is collected through various sources according to the provisions of the financial acts and rules and regulations. Such sources of revenue are taxes, fees and charges, fines and penalties, foreign grants etc. Among them, tax is the main sources of collecting the government revenue.
The concept of tax was initiated from Great Britain in 1799 to collect revenue for the government to manage the war against France. It didn't come into practice after that for a long time. Income tax system was regularly begun from 1840 onwards in different countries in the world. It was begun from 1840 in Switzerland, 1849 in Austria, 1860 in England and India, 1862 in USA, 1864 in Italy and 1959 in Nepal as a regular source of government revenue.
What are the essentials of Tax
- A tax is a compulsory contribution of a person or entity to the state as per the rules.
- The tax payer does not receive direct and or special benefit in return.
- It is spent by the government for the common interest and benefit of the people.
- It is paid only by those persons and entities who earns income exceeding a certain specified limit.
What are the Different Types of Tax with Examples
Taxes may be categorized into different as their nature as direct taxes, indirect taxes, progressive taxes, regressive taxes etc.
A direct tax is the one, which is paid by the person or entity on whom it is legally imposed. It is collected from the persons or entities on the income they have earned exceeding a certain specified limit. Tax is generally calculated at a certain percentage on the income. Income tax, corporate tax, land revenue tax etc. are the examples of direct tax.
An indirect tax is the one, which is imposed to one person or entity but paid partly or fully by others. It is transferable to others. The tax is collected from customers by including it in the price of the goods or services they have purchased. The producers collect such a tax from wholesalers the wholesalers from retailers and the retailers from the final consumers. Excise duty, custom duty, VAT etc. are some of the examples of indirect tax.
Personal income Tax
Personal income tax refers to the tax imposed on individuals or families who earn income exceeding a certain specified limit subject to change as per the provisions made in financial rules and regulations.
Corporate tax is the tax imposed on the incomes of a business entity. It occupies the most part of the government revenue collected from taxes. Corporate tax rates are generally applied in flat system with high rate of large undertakings and low rates for smaller ones. The small and large undertakings are categorizes as per the size of the activities.
Excise duty is the tax levied on luxurious products. It is intended to discourage the the consumption of harmful products on one side and to collect government revenue in considerable extent on the other side.
Custom duty is the tax charged on the goods dealt in the foreign trade especially on the imported goods to encourage and promote export and to protect national industries. Government simply gives exemption of this tax on export trade and imposes on import trade. Custom duty may be export duty or import duty as its nature and imposed to the trading goods.
Land revenue Tax
Land revenue tax is the one, which is imposed to the landlords on the revenue generated from land especially while selling or purchasing land.
Value Added Tax (VAT)
Value added tax is the tax levied on value added on the price of the product at each stage of production, and or distribution activities. Value added is the difference between sales values and purchase value or the conversion cost plus profit. Conversion cost means the expenses on rent, depreciation, maintenance, insurance, salary etc. It is imposed on the goods at import, production and selling stages.
What are the objectives of Tax
The concept of tax was initiated with a view to generate government revenue in its very beginning stage. In course of time it has been utilized for various purposes.
- To raise government revenue for development and welfare programmes in the country.
- To maintain economic equalities by imposing tax to the income earners and improving the economic condition of the general people.
- To encourage the production and distribution of the products of basic needs and discourage the production and harmful ones.
- To discourage import trade and protect the national industries.
What are the Importance of Tax
Tax is a major source of government revenue and its contributes for the overall development and prosperity of a country.
- Raising government revenue in terms of income tax, custom duty, excise duty, entertainment tax, VAT, land revenue tax etc. from various sectors in order to initiate development and welfare programmes.
- Maintaining economic stability by reducing economic inequalities by means of equitable distribution of wealth by way of imposing tax to the income earners and improving the economic condition of the general people.
- Regulating the economic sectors into right direction by encouraging the production and distribution of useful goods and discouraging the harmful products by imposing high tax rate on them.
- Building and strengthening the national economy by encouraging and protecting national industries and promoting export trade.
- Reducing regional economic disparity by encouraging the entrepreneurs to establish industries in remote and backward regions by giving tax exemptions, rebates and concessions etc.