A tax is any financial burden or any sort of levied tax imposed on a person by a government agency, so as to finance various public needs and government expenditure. A person paying tax has certain legal rights based on the nature of the tax and on his or her capacity to pay. A person evading tax or paying under the table is subject to criminal prosecution. A tax is levied either directly or indirectly by a government agency. A tax may be in the form of a direct tax, such as income tax, real estate tax, sales tax, vehicle registration tax, and so on.
In Canada, federal and provincial governments levy direct taxes, which are payable directly at the source, while corporations and trusts levy indirect taxes through income and property taxation. In the United States federal and state governments levy both direct and indirect taxes. Examples of indirect taxes are Excise tax, Franchise tax, and Income tax. A franchise tax means a fee certain establishments pay to the government for using their facilities; an income tax is an obligation certain individuals or organizations must pay to the government; Sales tax includes tax on products purchased by individuals and companies and Gas tax charged on gas purchased by individuals.
Direct taxes are more common in countries with progressive taxation systems; such as in the United States, Australia, New Zealand, and Canada. Progressive taxation means that the higher the income of a person is the greater amount he or she has to pay in tax. In a regressive system, where income is low, a large number of people fall in the lowest tax bracket, and paying less income tax, or no tax at all, to the government, is extremely difficult. The exceptions to this rule are estate and gifts taxes that are generally exempt from income tax.
Generally speaking, taxpayers in countries with a progressive system have to pay lower and bigger taxes than taxpayers in a regressive system. The most glaring difference between these two systems is the amount of tax that is paid on capital gains and dividends. In a progressive system, the taxpayer gets the benefit of tax relief whenever his or her annual income increases; this benefit is granted regardless of the type of increase. Capital gains and dividends however are subject to an additional yearly rate on top of the regular rate.
Proportional taxes include certain types of gifting, interest, rental income and certain business interests. These taxes are always progressive and are calculated as a percentage of the total income. There are also other kinds of proportional taxes include: property taxes, which are usually calculated as a percent of residential and commercial real estate; personal and corporate taxes, both regressive and proportional. There are also some kinds of regressive and proportional taxes include: estate taxes, personal and corporate taxes, inheritance taxes, and estate taxes on certain land. A flat tax system allows people to file their returns online, making it easier for them.
The different kinds of indirect taxes levied include: property taxes, sales taxes, import duties, and the like. Imports and exports are considered part of the transfer of property, which means that the same amount of money spent in buying imported goods will also be passed on to the buyer in the form of indirect taxes. Goods that fall under indirect taxes include: petroleum products, lottery winnings, dividends and interest, art works and certain other tangible personal properties. Sales taxes, on the other hand, are directly proportional to the price of the item purchased. Direct taxes on goods only need to be paid upon sale while indirect taxes need to be computed based on the value of the good.