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Tax refers to the monetary value that is paid by the citizens of a country which is added to the state revenue. Taxes are levied by the government of a nation on its people. It is charged on income earned by workers, profit earned by various businesses, etc. The taxes are majorly classified into three domains, which are explained below.
It is found that people who earn less income pay larger taxes in comparison to people who earn more. This is found when regressive that the system is applicable. Under this, the tax is charged as a percentage of the total value assets citizen on or purchase during the taxable period. The level of earning does not influence the tax paid by the citizens. Property taxes, taxes on the sale of goods, excise duty taxes, Airfares, and many more are charged under regressive tax systems.
It is also known as a flat tax system under which everyone has to pay the same amount of tax and Taxes are not dependent on the income earned by the individual or the possession of wealth. This is done to create equality between the taxpayers and the average and marginal tax rates charged by the government. There is no chance of tax increment if the citizens start earning more. Therefore it acts as a personal motivator to the people of a country to work more and more as the tax amount that is to be paid to the government would remain constant. The people of a country consume more and the system which leads to more and more flow of money within the economy.
When the taxes are charged on individual income based on the amount on them then it is considered as a progressive tax. Under this system when a citizen will earn more he has to pay more tax and the people who are on less will pay accordingly. It is followed in various Nations such as the US and India such tax policies ensure that equality is maintained. The wealth that is collected through tax is redistributed in the form of development and transformation of the nation.
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