Taxation

Abie

https://richardkleincpa.com/importance-of-taxes/ Governments impose

charges on their citizens and businesses as a means of raising revenue, which is then used to
meet their budgetary demands. This includes financing government and public projects as well as
making the business environment in the country conducive for economic growth.

Importance of Taxes in Society

Without taxes, governments would be unable to meet the demands of their societies. Taxes are
crucial because governments collect this money and use it to finance social projects.
Some of these projects include:

• Health

Without taxes, government contributions to the health sector would be impossible. Taxes go to
funding health services such as social healthcare, medical research, social security, etc.

• Education

Education could be one of the most deserving recipients of tax money. Governments put a lot of
importance in development of human capital and education is central in this development.
Money from taxes is channeled to funding, furnishing, and maintaining the public education
system.

• Governance

Governance is a crucial component in the smooth running of country affairs. Poor governance
would have far reaching ramifications on the entire country with a heavy toll on its economic
growth. Good governance ensures that the money collected is utilized in a manner that benefits
citizens of the country. This money also goes to pay public servants, police officers, members of
parliaments, the postal system, and others. Indeed, with a proper and functioning form of
government, there will be no effective protection of public interest.

Other important sectors are infrastructure development, transport, housing, etc.

Apart from social projects, governments also use money collected from taxes to fund sectors that
are crucial for the wellbeing of their citizens such as security, scientific research, environmental
protection, etc.

Some of the money is also channeled to fund projects such as pensions, unemployment benefits,
childcare, etc. Without taxes it would be impossible for governments to raise money to fund
these types of projects.
Furthermore, taxes can affect the state of economic growth of a country. Taxes generally
contribute to the gross domestic product (GDP) of a country. Because of this contribution, taxes
help spur economic growth which in turn has a ripple effect on the country’s economy; raising
the standard of living, increasing job creation, etc.

Governments also use taxes as a deterrent for undesirable activities such as the consumption of
liquor, tobacco smoking, etc. To achieve this, governments impose high excise levies on these
products and as a result, raise the cost of these products to discourage people from buying or
selling them.

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Importance of Tax to Businesses

For business to flourish in the country, there has to be good infrastructure such as roads,
telephones, electricity, etc. This infrastructure is developed by governments or through close
involvement of the government. When governments collect money from taxes, it ploughs this
money into development of this infrastructure and in turn promotes economic activity throughout
the country.

The concept of taxation is also important to businesses because governments can fund this
money back into the economy in the form of loans or other funding forms.

Taxes help raise the standard of living in a country. The higher the standard of living, the
stronger and higher the level of consumption most likely is. Businesses flourish when there is a
market for their product and services. With a higher standard of living, businesses would be
assured of a higher domestic consumption as well. Taxes are essential and every citizen is meant
to reap benefits of these taxes. This is why it is important that citizens endeavor to pay taxes and
understand that it is meant to be more than just a “money grab” from the government.

michael

taxation. Taxation refers to the practice of a government

collecting money from its citizens to pay for public services.
Without taxation, there would be no public libraries or parks. ...
Taxation is the practice of collecting taxes (money) from
citizens based on their earnings and property.
Lester
Different Types of Taxation
As mentioned above, taxation applies to all different types
of levies. These can include (but are not limited to):
 Income tax: Governments impose income taxes on
financial income generated by all entities within their
jurisdiction, including individuals and businesses.
 Corporate tax: This type of tax is imposed on the
profit of a business.
 Capital gains: A tax on capital gains is imposed on
any capital gains or profits made by people or
businesses from the sale of certain assets including
stocks, bonds, or real estate.
 Property tax: A property tax is asses by a local
government and paid for by the owner of a property.
This tax is calculated based on the property and land
values.
 Inheritance: A type of tax levied on individuals who
inherit the estate of a deceased person.
 Sales tax: A consumption tax imposed by a
government on the sale of goods and services. This
can take the form of a value-added tax (VAT), a
goods and services tax (GST), a state or provincial
sales tax or an excise tax.

Kristel
Direct and Indirect Taxes
The most fundamental classification of taxes is based on
who collects the taxes from the tax payer.
Direct Taxes, as the name suggests, are taxes that are
directly paid to the government by the taxpayer. It is a tax
applied on individuals and organizations directly by the
government e.g. income tax, corporation tax, wealth tax
etc.
Indirect Taxes are applied on the manufacture or sale of
goods and services. These are initially paid to the
government by an intermediary, who then adds the
amount of the tax paid to the value of the goods / services
and passes on the total amount to the end user.
Examples of these are sales tax, service tax, excise duty
etc.

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Important Direct and Indirect Taxes
Direct Taxes

1. Income Tax
Income Tax is paid by an individual based on his/her
taxable income in a given financial year. Under the
Income Tax Act, the term ‘individual’ also includes
Hindu Undivided Families (HUFs), Co-operative
Societies, Trusts and any artificial judicial person.
Taxable income refers to total income minus applicable
deductions and exemptions.
Tax is payable if the taxable is above the minimum
taxable limit and is paid as per the differing rates
announced for each tax slab for the financial year.

1. Corporation Tax

Corporation Tax is paid by Companies and Businesses

operating in India on the income earned worldwide in a
given financial year. The rates of taxation vary based on
whether the company is incorporated in India or abroad.

1. Wealth Tax

Wealth tax is applicable on individuals, HUFs or

companies on the value of their assets in a given financial
year on the date of valuation. It is taxed at the rate of 1%
of the net wealth of any assesse exceeding Rs 30,00,000.
‘Net wealth’ here includes, unproductive assets like cash
in hand above Rs 50,000, second residential property not
rented out, cars, gold jewellery or bullion, boats, yachts,
aircrafts or urban land. It does not include productive
assets like commercial property, stocks, bonds, fixed
deposits, mutual funds etc.

1. Capital Gains Tax

The profits made on sale of property are taxable under

Capital Gains Tax. Property here includes stocks, bonds,
residential property, precious metals etc. It is taxed at two
different rates based on how long the property was owned
by the taxpayer – Short Term Capital Gains Tax and Long
Term Capital Gains Tax. This deciding period of
ownership varies greatly for different classes of property.
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Indirect Taxes

1. Sales Tax

Sales Tax is charged on the sale of movable goods. It is

collected by the Central Government in case of inter-state
sales (Central Sales Tax or CST) and by the State
Government for intra-state sales (Value Added Tax or
VAT). The rates of taxation vary depending on the
product type.
1. Service Tax
Service tax is applicable on all services provided in India
except a specified negative list of services that are
exempt. It is paid by the service provider to the
government who in turn collects it from the end user by
the service provider at the time of provision of such
service.

1. Excise Duty
Excise duty is applicable on the manufacture of goods
sold in India. Once goods are manufactured, it is
originally paid by the manufacturer directly to the Central
Government. When goods change hands from the
manufacturer to the buyer, this tax is bundled by the
manufacturer along with the cost of goods and passed on
to the buyer.