A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e.g. tribes, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity.
Taxes consist of direct tax or indirect tax, and may be paid in money or as corvée labor. In modern, capitalist taxation systems, taxes are levied in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents.
Purposes of Taxes
Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out the functions such as:
1. military defense
2. enforcement of law and public order
3. protection of property
4. redistribution of wealth
5. economic infrastructure - roads, legal tender, enforcement of contracts, etc
6. public works
7. the operation of government itself.
Most modern governments also use taxes to fund welfare and public services, such as:
1. education systems
2. health care systems
3.pensions for the elderly
4.unemployment benefits
5.energy, water and waste management systems
6.public transportation.
Colonial states and moderning states have also used cash taxes to draw or force reluctant subsistence producers into cash economies.
Tax rates
Taxes are most often levied as a percentage, called the tax rate, of a certain value, the tax base (how much income and assets one has, earns, spends, inherits, etcetera). An ad valorem tax is one where the tax base is the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). An alternative to ad valorem taxation is an excise tax, where the tax base is the quantity of something, regardless of its price: for example, in the United Kingdom, a tax is collected on the sale of alcoholic drinks that is calculated by volume and beverage type rather than the price of the drink.
An important distinction when talking about tax rates is to distinguish between the marginal rate and the average rate. The average rate is the total tax paid divided by the total amount the tax is paid on, while the marginal rate is the rate paid on the next dollar of income earned.
Types of Taxes
OECD classification of taxes :
The Organisation for Economic Co-operation and Development (OECD) publishes perhaps the most comprehensive analysis of worldwide tax systems. Income tax :
Income taxes are typically structured to be progressive taxes. For this reason, it is generally advocated by those who think that taxation should be borne more by the rich than by the poor, even to the point of serving as a form of social redistribution. Retirement tax :
Some countries with social security systems, which provide income to retired workers, fund those systems with specific dedicated taxes. These often differ from comprehensive income taxes in that they are levied only on specific sources of income, generally wages and salary (in which case they are called payroll taxes). Retirement tax :
Some countries with social security systems, which provide income to retired workers, fund those systems with specific dedicated taxes. These often differ from comprehensive income taxes in that they are levied only on specific sources of income, generally wages and salary (in which case they are called payroll taxes) Capital gains tax :
A capital gains tax is the tax levied of the profit realised upon the sale of an asset. In many cases, the amount of a capital gain is treated as income and subject to the marginal rate of income tax.
If such a tax is levied on inherited property then it can act as a de facto probate or inheritance tax. Corporation tax :
Corporation tax is a tax on corporate earnings (and often includes capital gains) of a company. Earnings are generally considered gross revenue less expenses. However, corporate expenses that relate to capital expenditures are rarely deducted in full (such as the entire cost of a company truck) and are often deducted over the useful life of the asset purchase. Excises :
Unlike an ad valorem tax, an excise is not a function of the value of the product being taxed. Excise taxes are based on the quantity, not the value, of product purchased.
A tax is a financial charge or other levy imposed on an individual or a legal entity by a state or a functional equivalent of a state (e.g. tribes, secessionist movements or revolutionary movements). Taxes could also be imposed by a subnational entity.
Taxes consist of direct tax or indirect tax, and may be paid in money or as corvée labor. In modern, capitalist taxation systems, taxes are levied in money, but in-kind and corvée taxation are characteristic of traditional or pre-capitalist states and their functional equivalents.
Funds provided by taxation have been used by states and their functional equivalents throughout history to carry out the functions such as:
Taxes are most often levied as a percentage, called the tax rate, of a certain value, the tax base (how much income and assets one has, earns, spends, inherits, etcetera). An ad valorem tax is one where the tax base is the value of a good, service, or property. Sales taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection with another significant event (inheritance tax or tariffs). An alternative to ad valorem taxation is an excise tax, where the tax base is the quantity of something, regardless of its price: for example, in the United Kingdom, a tax is collected on the sale of alcoholic drinks that is calculated by volume and beverage type rather than the price of the drink.
An important distinction when talking about tax rates is to distinguish between the marginal rate and the average rate. The average rate is the total tax paid divided by the total amount the tax is paid on, while the marginal rate is the rate paid on the next dollar of income earned.
OECD classification of taxes :
The Organisation for Economic Co-operation and Development (OECD) publishes perhaps the most comprehensive analysis of worldwide tax systems.