Three different types of taxation policies

Most businesses are influenced to some extent by government regulation. The government’s taxation powers are enforced on all businesses.

Governments incur expenses by providing public services and promoting the general well-being. They pay these expenses by collecting taxes from individuals and organizations, including businesses, woofing their jurisdiction.

Establishing a tax structure that provides enough revenue and is fair to all taxpayers is a difficult and complex job. Three different types of taxation policies are often combined in tax program;

Types of taxation policies

  • Progressive taxation changes an increasing tax rate as the amount of income or property being taxed increases. A person with a small income may pay 15 percent in taxes, while someone with a higher income would pay a lower rate went someone with a smaller income.
  • Regressive taxation charges a lower percent rate as the amount being taxed increases. Under his scheme, a person with a higher income would pay a lower rate than someone with a smaller income.
  • Proportional taxation collects the same percent rate of taxes from every taxpayer. 10 percent proportional income tax would take 10 percent of everyone’s income, regardless of whether the individual made $ 5000 or USD 2 million per year. Real estate and personal property taxes are often proportional.

Designed to provide government support

three_different_types_of_taxation_policies

Governments gain revenue to support their operations through a variety of taxes. The most important source of revenue for the Government is tax on personal and corporate incomes.

The general sources of such tax revenue for a hypothetical year are shown in the figure. Many states and some cities also depend heavily on income taxes.

An income tax is a regular payment made to a government. The amount paid is based on how much money an individual earns from employment and investments. Corporate taxes are also an income tax based on profits remaining after all costs have been paid.

For most corporations, state taxes arc significant .expense stems, routinely taking up to 50 percent and more of pretax profits.

Since corporations in genera have no way to’ pay the taxes except from revenue generated by sales, the taxes are paid by raising the prices of goods. It is the people who buy these products and who actually pay corporate taxes.

Entrepreneurs’ Tax Obligations

Small business in the process of their operations may be asked to pay taxes to the central government, state government or to the local bodies. This may be seen from the figure presented:

Selected Tax Obligations Central Govt. Taxes
  • Income taxes
  • Social security taxes
  • Excise taxes Unemployment taxes

State Govt. Taxes

  • Income taxes
  • Sales taxes
  • Unemployment taxes

Local taxes

  • Income taxes
  • Property taxes
  • Licenses

Table above showing various types of tax obligations for small business

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