Tax.

Tax - Money Matters.

This post is about tax. Tax is an important subject. It determines the health of a government. Government needs money to undertake welfare projects and tax is a source for income for a government.

Government collects tax from people. People run businesses. When people earn money for themselves, they do it for the country too.

Why Tax People?

All governments are dependent on its citizens for money. Tax is income for government. Only people who have money can pay taxes. Government cannot tax somebody who has no money. Government suffers when businesses are down; when people have no income. When people earn less, revenue from tax becomes less as well.

As government spends money for welfare of citizens, its financial condition should be good and strong. Tax is a legitimate way for generating income for any government. When people become rich, government gets rich too by collecting taxes from them.

Why Tax Hurts?

Although tax is an income for government, it is an expense for citizens. People always complain about taxes, but when income crosses taxable limit, they have to be taxed. Tax hurts when expenditures are high and when people have many obligations to meet. Taxpayers feel pain when there are many taxes to pay because it reduces money which they want to save.

Different Taxes.

Tax is income for the government. Government can devise many ways to generate revenue. It can tax many things without hurting people. Increasing tax base is one such way. By increasing tax base, the government improves its revenue without putting undue burden on its citizens. With many different kinds of taxes, the government increases its tax base.

Taxes could be imposed on many things. Some of them are:

(1) Businesses and corporate units: Corporate units and big business enterprises are rich sources for tax. Taxes collected from business units are called corporate taxes. It is collected on the basis of size of the units and the business they make. As big enterprises naturally have and make all the money, taxing them is easy.

(2) Individual income: Income tax is collected from individuals on the basis of their annual earnings. The annual income of a person, if exceeds the taxable limit set by government, is liable for tax.

(3) Accumulated wealth: Wealth is taxable if it is too much. Wealth tax are collected from individuals on the basis of their accumulated wealth.

(4) Sale of goods or commodities: When a high value sale takes place, either between individuals or between businesses, taxes are levied. Taxes are put on commodities depending upon its value.

(5) Sale of services: Services can be taxed because they make money. As service generates income for an organisation or for an individual service provider, they could be taxed.

(6) Import of goods: Taxes are applicable when goods are imported from another country.

(7) Public amenities: Taxes could be collected for using public amenities like roads. Road tax is collected from people who purchase a vehicle. The road tax is collected on the basis of the price of vehicle.

Cess.

Cess is also a type of tax levied by government for undertaking a particular project or purpose or task. Cess is collected with the name of the purpose or task or project for which it is meant. For example, for providing education for children, the government collects money by terming it as education cess.

Exemptions in Tax.

Tax exemption usually means no taxes to pay. Exemptions are given for some investments and their returns to encourage maximum participation of people. Tax exemptions are given for various reasons. It could be for helping the taxpayer. It may be provided for encouraging maximum participation for a particular investment like life insurance.

In India, the Income Tax Act permits exemptions in tax for some specific categories. There are some sections of the Income Tax Act which permit exemptions like Section 80C and Section 10D.

Exemptions are good for the taxpayer. However, when taxpayers device their own methods for avoiding tax, it adversely affects tax collection.

Hindrances in Tax Collection.

There are many hindrances in collecting tax. Some of them are technical in nature like lack of availability of actual taxpayers data, errors in data or mismatched data. The other hindrance is tax evasion.

Evasion of Tax.

Evasion of tax means deliberately avoiding to pay taxes even when income or returns or assets are taxable. Tax evasion is a crime. It deprives the government of its rightful share of income or revenue. Nobody gains anything by evading tax. There are laws governing taxes and its administration.

Tax Laws.

Tax is for government and government cannot control anything without laws. Laws make administration easy and legally binding. Laws are necessary for curbing corruption. Tax laws act as a deterrent against unlawful practices. The government can amend tax rules as per requirements.

People fear to pay taxes because they think that it will cripple them financially. This is a wrong notion because taxes are not meant to harm anybody. In fact, people who pay taxes are respected for their sense of responsibility.

Tax is an intricate subject. A common man may not show much importance to this subject as there are other worries that engulfs his mind, particularly when his income is not taxable. When income is not taxable it means that the individual is not earning enough which is more worrying than the worry of paying taxes.

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The previous post was about salary.

The next post is on how to start saving money?

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