The tax payable should be concurrent and equitable as per the ability of an individual or households to pay. This is called the taxable capacity. Tax is the only source of government for revenue generation. Governments finance their all expenses through taxes. Those expenses include,
To finance defense expense
To finance development work and to carry on social welfare
To finance administrative expenses
Despite that trade driven expenses like budget deficit is also financed through taxes. There are three basic types of taxes. On the basis of those types, further types of taxes are originated.
• A proportional tax is a tax whose burden is the same proportion of income for all households.
• A progressive tax is a tax whose burden, expressed as a percentage of income, increases as income increases.
• A regressive tax is a tax whose burden, expressed as a percentage of income, falls as income increases. Excise taxes (taxes on specific commodities) are regressive. The retail sales tax is also regressive.
Further there are two types of taxes; Direct Taxes and Indirect Taxes.
Direct Taxes are levied directly on income, capital value, wealth, corporate assets. Consequently, following are the types of Direct taxes. Income tax, Capital Value tax, Wealth tax, and Corporate Assets tax are Direct taxes. These taxes are directly applied on the capital gain, profit, earnings and salaries of people. Income tax is a kind of progressive tax whereas corporate tax is a kind of proportional tax or applied on flat rate.
Indirect taxes are charged hidden without the prior information of payee. Mostly these are consumption taxes. Most common indirect taxes are sales tax, central excise tax, and customs. These are called consumption taxes.
Customs are explained as below
• These are the duties charged at imports / exports
• Showing downward trends because of reduction of rates (WTO etc.)
• Protection to local manufacturing industry
• Trading blocs (SAARC, ECO, ASEAN….)
• Has come down from the largest contributor of revenue to one of the least
• Administered by collectorates at major cities/ States
Sales tax is explained as below
• Largest contributor to the exchequer
• Value added tax
• On imports and supply of goods
• Some services also charged to tax on behalf of the provinces
• General rate is 15% (all countries have different rates)
• Monthly filing of returns
• Concepts of input, output tax and zero rated and exempt goods
• Many business and individual specific treatments meted out through adhoc executive orders
• About 155,000 registered persons
• Still largely at manufacturing and import stage
• Administered by executive and adjudication collectorates.
• Executive collectorates have functional division of work i.e; audit, enforcement, refund etc.
Excise Duty is explained as below
• Quantity tax
• Largely collected at manufacturing stage
• Showing downward trend
• Gradually replacing by the advalurum tax (sales tax)
This is the basic information that should be known to everyone.
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