Tax is a word which comes from the Latin word “taxare” which means to estimate. It the extra money charged by the government on the services to run the government, the country or the city. It is sometimes charged by the sub-national entities also.
There are four main purposes for the taxation. These are the four R’s- Revenue, Redistribution, Reprising and Representation. The main function of taxation is revenue which helps to raise money for the various government functions like to spend money on schools, hospitals and on other responsibilities like making roads. The second function is redistribution of wealth which helps to transfer money to the poorer section from the richer ones. The third purpose is to reprise the utilities as in case of tobacco which is taxed so as to discourage smoking. The forth function is representation which enables the taxpayer to get their demands fulfilled at cost of the taxes they pay.
There are two types of taxation direct and indirect taxation. In direct taxation the government gets more amount of money for better governance from the taxpayers or citizens in form of income taxes while the indirect taxes add up small effects only.
There are various kinds of taxes. Seventeen of these kinds are Ad Valorem, excises, income tax, sales tax, consumption tax, poll tax, capital gains tax, corporation tax, inheriting tax, environmental affecting tax, tariffs, retirement tax, property tax, toll, wealth tax, transfer tax and value added tax. The Organization for Economic Co-operation and Development publishes the categorization in such a manner that it covers all the regimes through out the world.
In tax system there is another important feature available which is the percentage of tax burden. It enables us to relate with income or the total consumption by the person. There are mainly three terms which are used for this are progressive, regressive, and proportional tax which are used to describe the flow of rate is from low to high, high to low or it is proportionally flowing respectively.
These all terms and the features help you to understand the tax system properly. Well there is lot more to know about this which you can easily get just by mere awareness.