Tax and its types

Tax & its types

Tax is a compulsory levy which government imposed on us and we are bound to pay from personal obligation without expecting of any return of service or good from the government.

Tax is a public revenue. There are small distinctions between public revenue and public receipt.Public revenue is a narrower concept than public receipt. Public revenue includes income from tax, administrative revenue, tax on goods and services, gifts and grants etc.While public receipt include income from all sources, like borrowing, income from sell of asset etc.

Public receipt=public revenue+income from all other sources+public borrowing from bank+income of the sale of public asset etc.

Public revenue is divided in to two parts. Tax revenue and Non tax revenue.

(A)  Tax revenues are

1) Tax on income, expenditure tax, corporation tax and all other taxes related to income.

2) Gift and grant tax, estate duty, wealth taxes are considered as property tax.

3)Indirect tax like good and service tax, Earlier which is known as custom duty(Tax on import or export of good within the country or outside the country),excise duty(Tax on production  by companies).Now all indirect tax  is  known   as GST only.

(B)Non tax revenues are

1)   Revenue from various government activities and services such as police, administrative service, transport and communication public work etc.

2) Interest receipt from loan given by government to other entities. Income receipt on government investment in companies.

3) Income receipt from fiscal services like post and telegraph, telephone etc.

4) Grants received from foreign country or state received grants from central government.

Direct and indirect burden of taxation

From the earlier discussion it is clear that Direct and Indirect tax both are tax revenue of the government. The example of direct tax are income tax, wealth tax,gift tax ,corporate tax etc.In case of direct tax the tax burden are impose on a particular  individual and he/she is bound to pay the tax. In that case the tax burden is not shifted to any other .If the marginal utility of income is constant then in direct tax regime every individual have to pay a percentage of his income. This is known as proportional tax structure. But in real situation marginal utility of income is diminishing. That is as income increases marginal utility of the additional unit of income decreases and vise versa. Therefore for equality in sacrifice, the tax burden should be more on rich than on poor. This is known as progressive tax structure. If we go through the budget we will see that in income tax  after a certain slab the percentage of tax rate is high.

But the matter is different for the indirect tax .In indirect tax the price is levied on goods and services are the same for all. Moreover the tax burden is shifted from producer to consumer .Here the tax burden is imposed on producer but the ultimate tax burden bear the consumer.So indirect tax is called regressive tax. In India income tax is progressive tax and indirect tax is regressive tax in nature.

Though taxation in these days is not used as means of raising revenue only, but it is an important instrument for achieving socio economic objectives also. Such as regulation of consumption and production, controlling  inflation, promoting economic growth removing inequality of incomes and so on.