What is a Tax? – Definition,Types, Principles, and More

Definition

A tax is a tribute that is paid to the state to support public expenses.

There are different types of taxes.

All mandatory is the taxable event that burdens it is carrying out.

With Debitoor, you can control VAT (Value Added Tax).

These mandatory payments are required both from individuals and from legal entities.

Tax collection is the state’s way (as we know it today) to finance itself and obtain resources to carry out its functions.

Also read: What is GPS? – Definition, Work, Uses, and More

What are the Types of Tax?

The types of taxes are

Taxes according to the base

Indirect taxes

These are applied to goods and services and therefore affect people “indirectly” the best known is the value-added Tax.

Direct taxes

They are those that directly tax people or companies.

For example, tax income,  the profits or companies, inheritances and donations, and tax equity.

Taxes according to rate-based relationship

Progressive

The higher the base, the higher the applicable tax.

Thus, for example, the higher the family’s income, the greater the amount that must be paid.

Proportional

All taxpayers pay the same proportion of their base.

For example, a 10% tax is applied regardless of the number of company profits.

Regressive

Taxpayers with a lower base end up paying a higher amount.For example, when the most impoverished people end up paying more taxes than the richest.

What are the Fundamental Principles of the Tax?

Generally, governments want taxes to be apply as fairly as possible.

The two fundamental principles apply horizontal equity and vertical equity.

The first holds that taxpayers who have the same characteristics should be treated in the same way.

The second principle indicates that people in different circumstances should be treat differently following some criteria of justice.

What are the Examples of Tax?

Value added Tax

Indirect and regressive.

.Personal Income Tax: Direct, individual, progressive.

Inheritance and gift tax: Direct, personal, subjective, progressive.

Economic activities tax

Direct, real, periodic.

Real estate tax

Direct, total.

Tax on patrimonial transfers and documented legal activities Indirect.

What is the Classification of Taxes?

Tax is classified in various ways according to their characteristics.

Direct taxes

they are those that fall directly on the person, society, company, etc.

Since they are base on economic capacity: possession of assets and obtaining income.

Direct taxes include personal income tax, corporation tax or inheritance, and gift tax.

Indirect taxes 

contrary to the previous ones, indirect taxes are imposing on goods and services and the transactions carrying out with them.

That is when a purchase of goods or services is end.

For example, people indirectly pay tax.

The Tax does not fall on the specific person, although this person pays it but falls on the good or service that is acquired.

Examples of indirect taxes would be VAT, property transfer tax, or special taxes on alcoholic beverages.

We have a second classification that differentiates taxes between proportional, regressive, and progressive.

Proportional taxes 

The fee to pay is calculating through a fixed percentage, such as VAT.                               The tax base or income of the individual subject to Tax is not taking into account.

Regressive taxes

the higher the profit or income, the lower the percentage of taxes that must be paid.

An example would be the VAT on essential goods since it affects individuals with lower incomes to a greater extent.

Progressive taxes 

the higher the profit or income, the higher the percentage of taxes that must be paid.

What are the Main Elements of Tax?

The main elements that will help us understand what taxes are are:

Taxable event

The situation or activity that motivates the tax obligation.

Taxpayer

The person or organization that faces the obligation.

Taxable base

The amount on which the Tax is applying.

Tax rate

It is the proportion that is applying to the tax based to calculating the amount to be paid.

Tax quota

This is the amount that should be paid.