A tax is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by the government such that failure to pay is punishable by law. Taxes are also imposed by many administrative divisions.
There are several types of taxes. Some of them are: income tax, payroll tax, VAT, sales tax, corporate tax.
Taxes are sometimes referred to as "direct taxes" or "indirect taxes" and may be paid in money or as its labor equivalent. If tax is levied directly on property, business, personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or service before they reach the consumer who ultimately pays the taxes as part of the market price of the commodity, then it is called an indirect tax. An example of an indirect tax is a value-added tax (VAT), which is paid on the value added to the product at each stage of production, distribution, and sales.
The purpose of taxation is to finance government expenditure. One of the most important uses of taxes is to finance public goods and services, such as street lighting and street cleaning. Since public goods and services do not allow a non-payer to be excluded, or allow exclusion by a consumer, there cannot be a market in the good or service, and so they need to be provided by the government or a quasi-government agency, which tend to finance themselves largely through taxes.
Every business has to pay a variety of taxes based on the company's structure, physical location, ownership and nature of the business. Business taxes can have a major impact on the profitability of businesses and the amount of business investment. Taxation is a very important aspect in the financial investment and decision-making process because a lower tax burden allows the company to lower prices and make more revenue, which can use it out to pay wages, salaries and/or dividends.
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