Tax and it Types

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Tax

A tax is a compulsory contribution to the public authority to cover the cost of services rendered by the state for the general benefit of its people.
So the tax is compulsory payment to the public authority. Secondly, a tax is to be paid by a person on whom it is levied whether he derives any benefit from it or not. A person who pays taxes cannot claim to provide a specific service to him or his family.


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Direct Taxes
A tax is said to be direct when the impact and incidence of a tax are on the one and the same person, i.e when the person on whom the tax is levied is the same who finally bears the burden of the tax. 

Direct taxes are always levied over income or capital. 

Income tax, corporate tax, surtax, profit tax, wealth tax, property tax, inheritance tax; stamp duty, and estate or death duty are the common examples of direct taxes.
Indirect Taxes
If the impact of the tax falls on the one person and incidence on the other is call indirect tax. 
Indirect taxes are that taxes which are ultimately borne by the consumers when they buy goods and services, but are initially paid by the producers, importers, exporters, wholesalers, retailers etc. 
Sale or purchase tax, import and export duty, and excise duty are the main examples of indirect taxes.

Types of Taxes

Proportional Tax
A proportional tax is one in which the rate of tax is the same irrespective of the size of income. In absolute terms, the richest pay more as compared to lesser rich. 
The same rate or % is charged from the different income groups. Generally the Govt. fixes some % of tax e.g. 15%. 
A man income of Rs.15,000/-  will pay Rs.2250/- and another person with an income of Rs.50,000/- will pay Rs.7500/- to the state. 
The major drawback of this system is that it does not maintain equal sacrifice. So if a rich and poor are taxed at the same rate, it will be injustice and inequitable.
Progressive Tax
A progressive tax is the one where the rate of taxation increases with the increase in the capacity of payee. 
The monthly income of a person is Rs.10,000/- and he is asked to pay 5% of his income to the Govt. Similarly, his income rises from 10,000/- to 25,000/- per month, now the Govt. impose a tax @ 8% instead of 5%. 

Higher the income higher will be the tax rate.  

Income tax, surtax, wealth tax, and estate duties are the common example of progressive taxation.
Regressive Tax
A regressive tax is that where the burden of tax falls more heavily on the poor than on the rich. 

It is opposite to the progressive taxes and no civilized government levies it. 

There are, however, certain taxes which mainly affect the poor, such as, the sale tax, excise duty on matches, LPG and kerosene oil, and sale tax on low priced food and households’ items. 
Regressive taxation works unfairly as it takes a greater portion of the income.

Indirect taxes on necessities are of regressive nature since they bear no relation to the consumer’s ability to pay.
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For correction and improvements please use the comments section below.  


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Naeem Javid Muhammad Hassani

NJMH is working as Deputy Conservator of Forests in Balochistan Forest & Wildlife Department (BFWD). He is the CEO of Tech Urdu (techurdu.net) Forestrypedia (forestrypedia.com), Majestic Pakistan (majesticpakistan.pk), All Pak Notifications (allpaknotifications.com), Essayspedia, etc & their YouTube Channels). He is an Environmentalist, Blogger, YouTuber, Developer & Vlogger.

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