A tax is any compulsory financial burden or any kind of administrative levy imposed upon a taxpayer by a government agency in order to finance various public expenses and government spending. A person may be charged a tax even for something not classified as a public expense. A tax can either be progressive or regressive. A regressive tax system provides for higher rates of taxation of high-income people. A progressive tax system provides for lower rates of taxation of middle and lower income people.
Generally, there are three types of taxation that an individual may be liable to pay, depending upon his or her income and standard of living: personal income tax, business income tax and sales tax. There are several other kinds of indirect taxes, which are not included in the purview of income tax. These include property tax, inheritance tax, estate tax, personal services tax, gaming tax, property tax and sales tax. A person may be charged income tax even for borrowing money from friends or relatives, buying educational equipment or obtaining certain loans, whether secured or unsecured.
In Canada, unlike most countries, no tax is imposed for income obtained through social security or government employment. Nor are there any special concessions available for self-employed persons. All revenues accrued by the tax system are automatically passed on to the governments in proportion to the level of income earned. This system of progressive taxation has made Canada one of the more progressive tax systems in the world. By taxing income and not ability to earn income, the taxes in Canada serve the dual purpose of ensuring that the money generated by the country is used efficiently and funds public works and programs as well as providing revenue for other purposes.
Excise duties and custom duties are assessed against the production or importation of goods. Examples of such taxes are customs duties, which are charged when importing goods into the country, and import duties, which are charged on the exportation of goods from Canada. In both cases, the tax payable is based on the amount by which the product or good cost more in the importing country than in the country where the sale is made. Major sources of excise duty are gasoline, tobacco, alcohol, gasoline, soft drinks, chlorine, dyes, minerals, per cent of oil, hops, and salt.
In addition to customs and excise duties, another category of taxes payable in Canada are income tax. The concept of income tax is based on the amount of taxable income. Generally, all incomes are subject to taxation. However, some specific types of incomes are not taxable, including dividends paid to non-residents, interest paid to non-residents, provident funds, trusts, personal possessions, charities, trusts, and dividends received from stock ownership in Canada. In order to determine the taxable income of a resident, all receipts and bank statements relating to the resident’s income are necessary.
Another form of indirect taxation is importation taxation. Importers generally owe taxes on the purchase of items directly shipped to the importer from the manufacturer. Goods imported directly from foreign countries are subject to customs duties. These duties are usually based on the price in dollars and the total weight in kilograms. Direct taxes are different from indirect taxes.
A major source of income is payroll tax. Payroll tax represents the portion of an individual’s income that is attributable to wages or salaries and a portion that is not attributable to any other element. The tax system is progressive, which means that as income increases so does the tax on it. The taxation system also includes Gift, Allowance and Property Tax, which are considered indirect taxes.
Proportional taxation is a proportional tax system that involves tax on income. The principle behind the proportional tax is that a portion of one’s income is taken and that this portion is charged to capital rather than wages or salaries. For example, the annual income of an individual is taken into account in determining the tax on his capital. The percentage of the capital stock is also taken into account in determining how the individual’s income is taxed.