What are the main Systems of taxation, Taxation especially direct tax can be classified according to the following systems. These:- Progressive Tax: Progressive tax is a form of tax in which the rate of tax increases as the income, stock of wealth or value of property to be taxed increases. This type of tax is graduated in such a way that its rate arises according to the level of income or wealth of the taxpayer.
The main systems of taxation can vary between countries, but some common systems include:
- Progressive Taxation: This type of taxation system imposes a higher tax rate on individuals or businesses with higher incomes. As income increases, the tax rate also increases, typically in a graduated manner. The aim is to distribute the tax burden more equitably based on one\’s ability to pay.
- Regressive Taxation: In contrast to progressive taxation, regressive taxation imposes a higher tax burden on individuals or businesses with lower incomes. This system takes a larger percentage of income from those with lower earnings, which can be seen as placing a heavier burden on the less affluent.
- Proportional Taxation: Also known as a flat tax, this system applies the same tax rate to all individuals or businesses, regardless of their income level. The tax amount paid is directly proportional to the income earned. In other words, everyone pays the same percentage of their income in taxes.
- Value Added Tax (VAT): This is a consumption tax levied on the value added to goods and services at each stage of production and distribution. It is typically collected at the point of sale to the final consumer. VAT is used by many countries around the world as a significant source of revenue.
- Corporate Taxation: Corporate taxes are imposed on the profits earned by corporations or businesses. The tax rates can vary depending on the jurisdiction and can be progressive, proportional, or a combination of both. Corporate tax rates often differ from individual income tax rates.
- Sales Tax: Sales tax is a consumption-based tax imposed on the sale of goods and services. It is usually levied as a percentage of the purchase price at the point of sale. Sales tax rates can vary between regions or states within a country.
- Property Tax: Property taxes are levied on the value of real estate, including land and buildings. The tax amount is typically determined based on the assessed value of the property and is used to fund local services such as schools, infrastructure, and public safety.
People with higher incomes are taxed more heavily than those that receive low incomes. The tax burden increases with increasing income levels or as the amount of wealth possessed increases. A good example of a progressive tax is Pay As You Earn (P.A.Y.E) system. Systems of taxation Progressive tax is demonstrated by a graph
Proportional tax: A proportional tax is a form of tax in which the rate of tax is the same irrespective of the level of income or wealth, other words; it is a system of taxation in which payers pay the same percentage or proportion of their income (or wealth) as tax.
A good example of proportional tax is the company tax in which companies are required to pay a fixed percentage of their profits as tax. Proportional tax is demonstrated by a graph; Regressive tax: Regressive tax is a tax system where the tax rate decreases as income increases. Systems of taxation
In this case, the higher the income of a consumer, the lower the rate of tax. In regressive tax, a poor person pays a higher proportion of his income than a rich person. A good example of a regressive tax is a poll tax.
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Systems of taxation