The national governments finance their expenditures by imposing tax on the income of individuals, business corporations and legal entities of the country. There are various forms of income tax like - progressive, regressive or proportional.
The governments of each country implement different forms of taxation in the country and a large part of the country's revenue is earned from the income taxes. The governments charge the income tax as a percentage of the income earned.
Individual Tax and Corporate Tax
The income tax levied on the income of the individuals is referred to as the individual income tax while that levied on the income of the companies are termed as corporate tax. In case of the individual income tax, the tax is imposed on the total income of the person after making some deductions.
In case of the corporate tax system, the tax is levied on the net income that comes after calculating the difference between the gross receipts and expenses of the company in a particular financial year.
Types of Income Taxes
The system of taxation is different from one country to another and hence the exemptions and deductions made are also of different types. In some countries the tax system may be progressive in nature, where the rate of tax increases with the increase in income level.
On the other hand, a country may impose a flat tax rate where the same rate of tax is imposed on all income levels. Flat taxes generally exempt the household income under the statutorily level and are more applied to the consumption than on the income.
Regressive income tax is another type of income tax where the rate of tax decreases as the income level increases.