Taxation is a term for when a taxing Authority, usually a government, levies or imposes a tax. The term ‘taxation’ applies toall types of involuntary levies, from income to Capital gains to estate taxes. Though taxation can be a noun or verb, it is usually referred to as an Act; the resulting revenue is usually called ‘taxes’.

Taxes:

Taxes are compulsory payments to the Government without expectations of direct or Return or benefit to the taxpayers. According To Prof. Seligman, taxes are defined as a Compulsory contribution from a person to the Government to defray the expenses incurred in the common interest of all without reference to Special benefits conferred.

Why are Taxes Imposed?

Everybody is obliged by law to pay taxes. Total Tax money goes to government exchequer. The government decides how are taxes to be spent and how the budget is to be organized. Tax Payment is not optional. An individual has to pay tax if any income comes under the income Tax slab. It is a duty of every citizen to pay taxes. More collectin of tax allows the government to implement more and more welfare schemes.

Principle of taxation:

Adam Smith’s principles or cannons of taxation still form the basis of the tax structure of a Modern state.

Canon of Equality:

The government should Impose taxes in such a way that people have to pay according to their ability. It does not mean equal amount of tax but it means that the Burden of a tax must be fair and just.

Canon of Certainty:

Certainty creates Confidence in the taxpayers cost of collection of Taxes and increases economic welfare because it Tends to avoid all economic waste.

Canon of Convenience:

Taxes should be levied and collected in such a manner that it provides a maximum of convenience to the Taxpayers. It should always be kept in view that the taxpayers suffer the least inconvenience in Payment of the tax.

Canon of Economy:

Minimum possible Money should be spent in the collection of Taxes. Collected amount should be deposited in The Government treasury.

Taxation Types:

There are three types of Taxation:

1. Proportional Tax
2. Progressive Tax
3. Regressive Tax

Proportional Taxation is a method, where the rate of tax is same regardless the size of the Income. The tax amount realized will vary in the same proportion as that of income. If tax rate is 5% on income and Mr. X getsAn income of Rs.1,000, he will pay Rs.50, Mr. BGets an income Rs.5,000, he will pay tax of Rs.50. In short, proportional tax leaves the relative financial status of taxed persons unchanged.

Progressive Taxation is a method by which the rate of tax will also increase with the Increase of income of the person. If a person With Rs.1000 income per annum pays a tax of 10% (i.e) Rs.100, a person with an income of Rs.10,000 per annum pays a tax of 25% (i.e) Rs.2,500 and a person with income of 1 lakh per Annum pays the tax of 50% that is Rs.50,000.

Regressive Taxation:

A regressive tax is a tax applied uniformly, Taking a larger percentage of income from low Income earners than from high income earners. It is in opposition to a progressive tax.

Importance of Tax:

Without taxes, governments would be Unable to meet the demands of their societies. Taxes are crucial because governments collect This money and use it to finance under the Following social projects.

Health:

Without taxes, government contributions to The health sector would be impossible. Taxes go to Funding health services such as social healthcare, Medical research, social security, etc

Education:

Education could be one of the most Deserving recipients of tax money. Governments put a lot of importance in the development ofHuman capital and education is central in this Development.

Governance:

Governance is a crucial component in the smooth running of country affairs. Poor governance would have far reaching Ramifications on the entire country with a Heavy toll on its economic growth. Good Governance ensures that the money collected is utilized in a manner that benefits citizens of the country.

Other important sectors are infrastructure Development, transport, housing, etc.Apart from social projects, governments Also use money collected from taxes to fund Sectors that are crucial for the wellbeing of their Citizens such as security, scientific research, Environmental protection, etc.

Some of the money is also channeled to Fund projects such as pensions, unemployment Benefits, childcare, etc. Taxes can affect the state of economic growth of a country. Taxes generally Contribute to the gross domestic product (GDP) of a country.

Types of tax:

In modern times taxes are classified into two types. There are:

1. Direct Tax
2. Indirect Tax

Direct Tax:

A Direct tax is paid directly by an individual or organisation to imposing entity.A tax payer, for example, pays direct taxes To the Government for different purposes, Including real property tax, personal property Tax, income tax or taxes or on asserts.

Corporation Tax:

It is levied on profit of corporations and companies. It is charged on royalties, Interest, gains from sale of capital assets Located in India, fees for technical services And dividends

Wealth Tax:

It is imposed on property of individuals depending upon the value of property. The Same property will be taxed every year on its Current market value

Gift Tax:

It is paid to the Government by the recipient of gift depending on value of gift.

Estate Duty:

It is charged from successor of inherited Property. It is not desirable to avoid payment of taxes .They are levied directly on income and property of Persons, who pay directly to the government.

Indirect Tax:

On the other hand when liability to pay a tax is on one person and the burden of that tax shifts on some other person, this type of tax is called an Indirect tax. Indirect Tax is a tax whose burden can be shifted to others.

Service Tax:

It is raised on provision of Service. This tax is collected from the service recipients and paid To the Central Government.

Sales Tax or VAT:

It is an indirect tax on sale of goods because Liability to collect tax is that of shopkeeper but the burden of that tax falls on the customer. The shopkeeper realizes the tax amount from the customer by including it in the price of the Commodity that he sells.

Excise Duty:

It is paid by the producer of goods, who Recovers it from wholesalers and retailers. This Tax in India is levied by the Central Government.

Entertainment Tax:

The state governments charge such Tax on every transaction related to Entertainment. Some examples are movie tickets, video Game arcades, stage shows, exhibitions, Amusement parks, and sports-related Activities.

Stamp duty:

Stamp duty is a tax that is paid on official Documents like marriage registration or Documents related to a property and in some Contractual agreements.

Goods and Services Tax (GST):

Goods and Services Tax is a kinds of tax Imposed on sale, manufacturing and usage of goods and services. This tax is applied on services and goods at a national Level with a purpose of achieving overall economic growth. GST is particularly designed to replace the indirect taxes Imposed on goods and services by the Central and State.

The goods and service tax (GST) is one of the indirect taxes. The GST was passed in Parliament on 29 March 2017. The act came into effect on 1 July 2017. The motto is one Nation, one market, one tax

France was the first country to implement GST in 1954.

Structure of Goods and Service Tax (GST):

State Goods and Service Tax (SGST): Intra state (within the state) VAT/sales tax, purchase tax, entertainment tax, luxury tax, lottery tax and state surcharge and Cesses

Central Goods and Service Tax (CGST): Intra state (within the state) Central Excise Duty, service tax, countervailing duty, additional duty of customs, surcharge, Education and secondary/higher secondary cess

Integrated Goods and Service Tax (IGST): Inter state (integrated GST)

There are four major GST rates: (5%, 12%, 18% and 28%) Almost all the necessities of life like vegetables and food grains are excempted from this tax.

Tax Evasion:

Tax evasion is the illegal evasion of taxes by Individuals, corporations and trusts. Tax evasion Activities included

• Underreporting income
• Inflating deductions or expenses
• Hiding money
• Hiding interest in offshore accounts

Tax evasion penalties:

1. If a person wilfully commits the act of tax Evasion, he may face felony charges. Tax evasion penalties include imprisonment of Up to five years and high amount as fines.
2. The defendant may also be ordered to pay For the costs of prosecution.
3. Tax evasion penalties can be harsh, Depending on the severity of the crimeTaxes and Development

The role of taxation in developing Economies is as follows.

Resource mobilisation:

Taxation enables the government to mobilise a substantial Amount of revenue. The tax revenue is generated by imposing direct taxes such as Personal income tax and corporate tax and Indirect taxes such as customs duty, excise Duty, etc.

Reduction inequalities of income:

Taxation follows the principle of equity. The direct taxes are progressive in nature. Also certain indirect taxes, such as taxes on luxury goods, is also progressive in Nature.

Social welfare:

Taxation generates social Welfare. Social welfare is generated due to higher taxes on certain undesirable products like alcoholic products.

Foreign exchange:

Taxation encourages Exports and restricts imports, Generally Developing countries and even the Developed countries do not impose taxes on export items.

Regional development:

Taxation plays an important role in regional development, Tax incentives such as tax holidays for Setting up industries in backward regions, which induces business firms to set up Industries in such regions.

Control of inflation:

Taxation can be used as an instrument for controlling inflation. Through taxation the government can Control inflation by reducing the tax on the commodities.