A tax is an annual financial burden or some sort of levy imposed upon a taxpayer by some governmental body so as to finance various public expenses and government spending. Generally, a taxpayer may be required to pay a tax for any legal purpose. In certain cases, the tax amount can exceed the value of the property held by the taxpayer. In other words, if the tax amount exceeds the fair market value of the property, the excess amount is called surplus tax. However, a taxpayer may rebate part or the whole amount of excess tax.
Basically, the concept of taxes is rooted in ancient Greece when the term ‘taxation’ refers to the payment of a fee by the government to someone or some agency as compensation for services rendered. In most modern countries, the word ‘tax’ denotes the process of collecting funds or assets from a person or organization by means of custom fees, sales, property taxes and other types of taxes. Generally, taxes are progressive and, consequently, the heavier the bulk of the tax burden, the higher rate of taxation is applied on the goods and services procurable by that class of persons. A heavy burden of taxation may, for instance, be levied on business and income taxes.
In some instances, the taxes levied do not fall wholly on the basis of income but depend rather on the source from which the tax was levied. For instance, the tax on inheritances may depend on whether the inheritance came from a registered estate or from some other estate. Income taxes, on the other hand, are generally regressive in nature and are normally levied according to your net income and not on the basis of your past and present lifestyle.
Excise duty and property tax are regressive taxes as well and are basically concerned with the blocking of import duties on imported items. They form a major portion of the Federal revenue. Although they are termed as Excise duties, it must be kept in mind that the customs clearance does not include the preliminary assessment of the customs duty.
The customs does not normally include an appraisal of the goods when it comes to determining the charges for imported goods. However, the values are ascertained by the customs, which is itself not an independent source of knowledge as far as comparative values are concerned. When the case involves goods that have been imported from abroad and are destined for resale in the domestic market, the charges for such goods will be determined by the customs. The only exception to this general rule that can be cited is the situation in which the importer is permitted to waive the customs and excise duty on the imported item in return for certain fee that is paid by the importer.
A number of indirect taxes also fall under indirect tax collection. The most common are the income taxes and corporate taxes that are levied directly by the government. Examples of direct taxes include the income tax, customs duty and value-added tax. Examples of indirect taxes include the import tax, sales tax, property tax and franchise tax.
The distinctions among the three types of indirect taxes is primarily based on the extent of taxation. The more extensive the collection, the less well defined the scope of the collection is and the more exceptions there are to the general principle that a direct tax should be collected. In general, however, direct taxes represent a higher percentage of the gross domestic product or GDP than indirect taxes. The exception to this general rule is the wealth tax, which has been established to apply to certain individuals or businesses exclusively.
When the income or profits of a business is subject to direct taxation, the income is taxed twice: once as a direct tax and once as an indirect tax. On the other hand, when a business’ profits come from indirect sources such as the use of its capital assets or income earned through investments, then such profits are not subjected to direct taxes. The term, indirect taxes, therefore, refers to any tax that is assessed against the income of a business but does not come directly from the income of the business. Examples of indirect taxes are the inheritance tax, which is assessed against the estate of the deceased, and the payment of the self-employment tax, which is paid by employees who have their personal earnings taxes deducted from their salaries.