Business, Economics, Law

Tax and Types of Tax

Tax and Types of Tax

The word “tax” means “burden or duty”. It is an amount of money paid to the government, which is based on person’s income or the cost of goods or services which a person has bought.

DEFINITION

A compulsory contribution made by the public for the support of a Government. The contribution is from persons, groups, or businesses within the domain of that Government.

TYPES OF TAX

  1. Direct Tax
  2. Indirect Tax
  3. Proportional Tax
  4. Progressive Tax

1. Direct Tax

The tax which is paid by the same person upon whom it is levied is called direct tax. For example, income tax, property tax etc.

2. Indirect Tax

The tax which is levied on one person and paid by the other person is called indirect tax, or, indirect tax is that tax whose burden is shifted to other person. For example, sales tax, excise tax etc.

3. Proportional Tax

If the rate of tax remains the same irrespective of the level of income earned, this kind of tax is called proportional tax.

For example: If the Government announces that the income tax on the income of every person is 5% irrespective of the level of income earned, it will be proportional tax because it remains the same for all persons for all the levels of income earned whether low or high.

4. Progressive Tax

If the rate of tax increases with the increase in the level of income, this kind of tax will be known as progressive tax.                                                                  

For Example: 

5% for the income below $3000                                                                            7% for the income between $3,000 to$6,000                                                             15% f or the income between $6,000 to 20,000 and so on….                                

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