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A Clear Cut Type of Taxation System Is Needed To Evoke Confidence in the Citizens

Tax is regarded as the imposition of financial charge or levy upon the taxpayer by the State or functional government. There is a certain specified process of taxation by which governments encourage expenditure by imposing charges on citizens and corporate entities. There are basically two types of taxation forms under which taxes consist of direct tax or indirect tax and may be paid in money. In other word it can be defined as a “financial burden laid upon individuals or property owners to support the government.”

Principally, taxation should be neutral in its effects on the different sectors of an economy, and probably governments use it to encourage or discourage certain economic decisions. A tax is not a voluntary payment or donation, but a type of enforced contribution may be under the name of toll, tallage, duty, gabel, custom, tribute, subsidy, aid etc.

There are basically two types of taxes imposed by the government- direct tax and indirect tax. Direct tax is directly paid to the government by the people on whom it is imposed. Unlike consumption tax or indirect tax, direct tax is based on the principle of ‘ability to pay’ and sometimes it works as a distinctive to work harder and earn more. On the other hand indirect tax is imposed by the government on consumption, expenditure and other consumer expenses. It is collected by an intermediary from the person who bears the ultimate economic burden of the tax. One can also call it consumption taxes and they are regressive measures. The type of taxation works on some basic concepts by which a government designs and implements the equitable taxation regime. They include- adequacy, broad basing, compatibility, convenience, earmarking, efficiency, equity, neutrality, predictability, restricted exemptions, simplicity etc.

Different countries adopt different principles for taxation. Some of the major heads of the government taxes include income taxes, property taxes, consumptive taxes, corporate taxes, payroll taxes, capital gains taxes, inheritance or estate taxes. Overall, an appropriate type of taxation is required by the countries that ultimately defines the path of welfare expenditure and growth of economy.