As we know that the most important source of revenue for the government is the tax. So, we can define it as a compulsory payment which an individual or companies have to pay on their income, property, expenditures or earned profits.
Types of Taxes
There are basically three types of taxes levied upon taxpayers. They are the following;
- Progressive Tax
- Proportional Tax
- Regressive Tax
The progressive tax is a kind of tax dependable on the level of the income. That is, as income increases, the tax rate also increases. Similarly, the tax rate decreases with the decrease in income. So, the tax under this system is based on the taxable income. The person with higher income will pay more and the one with the lower income will pay less. The example of such a tax would be income tax. As your income rises, so does your tax rate.
The proportional tax is a kind of tax which remains constant even if the income increases. Your level of income may be anything but you will still be paying a fixed tax rate. you can also this tax flat-tax rate.
The regressive tax as the name implies is the opposite of the Progressive tax. Under this system, the taxpayers with low income pay the higher amount of their income in the taxes as compared to those who earn more. An example of such a tax can be a sales tax which you pay while purchasing everyday products or services. In short, this type of tax doesn’t take into account the income level.
The two other types of taxes can be grouped as direct and indirect taxes;
It is the type of taxes which the taxpayers have to pay directly to the tax authorities. Examples of such taxes are income tax, and taxes paid on profit etc. The taxpayer can’t shift the burden of such a tax to any other party. The example of a direct tax is an income tax whose burden is borne by the salaried person himself.
A type of tax which is not directly paid by the consumers but is paid indirectly by the suppliers. I.e. the prices of the products contain such a tax. We can also say these types of taxes are paid upon the expenditures made by the consumer. However, the entrepreneurs can shift the burden of such taxes to their consumers. Examples of such taxes are sales tax and excise duty tax.