Every government collects taxes from its people. This is a common thing which is accepted all over the world. Every country has different rules and methods to collect taxes. But the application of these taxes is almost the same. The revenue collected is utilised in providing essential services to the people. This includes education, transport, healthcare etc. The government provides various services from taxes collected from different sectors. This is important for the country's growth and economic development. This article will brief you more about the different taxes and their importance. It will also answer questions like why taxes are collected and how it's circulated in an economy.
The different taxes
It is not possible to run the government without collecting taxes. There are plenty of demands in any country that has to be fulfilled by the government. Here are ways through which taxes are collected.
1. Income tax/ direct tax
Income tax is one of the most common types of tax. This is a direct tax collected from each earning citizen. The income taxpayers come under the bracket of annual income which is set by every country. Citizens earning less than this amount are exempted from taxes.
2. Indirect tax
Indirect taxes include service tax and sales tax. When an organisation or company imposes a tax for the services or goods it's an indirect tax. The company pays this amount to the government. This is applicable for precious metals like gold for which it is called value-added tax.
These are the two broad categories of tax collected in countries. Under this, there are subdivisions like property tax, advanced tax and many more.
Why are taxes collected?
The tax and revenue from people is the fund that helps in the functioning of the government. The different services are channelled with this amount. The services run by taxes are given here.
Healthcare and medical requirements are essential for people. The taxes are distributed for research, expensive medical equipment and public healthcare. The free healthcare camps, government-aided hospitals are all funded in this manner.
● Public education
The future of a country is based on the present generation. In that way, it becomes vital to aid their education to nurture human capital in a country. The government takes taxes and utilises them to fund these schools and colleges. Furniture, washrooms, books and uniforms are all provided at a low cost to people in the lower economic division. This is why it becomes important to collect taxes. Development of the lower sections of the society happens with proper tax execution.
● Government projects
For society, the government has to complete projects like infrastructure, housing, roads, dams etc. Funding for various government schemes is also fulfilled through taxes. This eventually benefits society in a big way.
● Military forces
A part of the taxes collected from people is used to fund the military and army forces. This is important for social security and goodwill.
● The government
The complete government depends upon the taxes. The yearly budget is devised with the taxes collected in that particular year. It is also used to pay the civil service people, government officials etc.
These are the ways in which taxes are used by the government.
Circulation of taxes
There is a consistent circulation of taxes in the country. This is a simple cycle that happens throughout. Every citizen is a taxpayer in the country. Even the economically lower class pays indirect taxes through the commodities they buy. The rich sections of the society pay wealth tax. Middle-class people pay income taxes. That makes every earning member a taxpayer. This money is collected by the government and is given back to society through services. All are dependent on each other. So the tax system in a country must be given great priority. It is directly proportional to the development of the country. Children must also be taught the importance of taxes. When this is emphasised right from the age of 16 or 17, they understand how it works. So when they become a part of the working population, they will know everything about tax.
Taxes in developing countries
In developing countries, the collection of taxes is even more important. The expenses in a developing country are plenty. They have to look into it as a multidimensional aspect. They face challenges like population growth, unemployment, social and political issues. This eventually leads to a lack of funds causing the government to increase the taxes. This becomes a burden upon the citizens. Moreover, rich people try to escape from paying the required tax amount. This puts both the people and the government into a struggle.
This is a major issue in developing nations. The best way to solve this issue is by putting stricter rules for the privileged people. All citizens must realise that the tax policy is eventually helping them. This way the tax in the country is regulated.
Successful tax model
To achieve a successful tax collection model in a country, a few qualities are important. The first and foremost being transparency. The government has to let the people know about the tax policy completely. This must not be non-transparent. Many large organisations get away without paying taxes. In such cases, civil organisations can be assigned to regulate the tax system. They must be independent of pressure and corruption. When companies and organisations are held accountable for not paying the taxes, it becomes easier to collect them in the right way. The tax rules and the tax system must be fair to all the citizens of the country. This way people develop trust in the government. Then the awareness given by the government will also be useful.
People will comprehend that the taxes are for their benefit when they trust the government. When people are held accountable for not paying taxes, the tax model is almost successful. This must be unbiased. Sometimes corruption arises even when people are held accountable. When this is achieved, people automatically realise the importance of tax in a large way.