Meaning of tax refers to the definition of tax. There are different types of taxes and they can be defined in many ways. In general, tax can be defined as a levy or any other type of a financial charge or fee, which is imposed by different state or central governments on legal entities or individuals.
Local authorities like local governments, provincial governments, counties and municipal corporations also have the right to impose taxes. The rates, rules and regulations of taxation differ from one country to another and they are complex in character. The tax is a principal source of revenue for the government of a country. Tax is collected in money or cash.
The Internal Revenue Services or IRS functions as a government agency of the United States and it is primarily responsible for collection of taxes in the country.
The taxation laws prevalent in a country determine who should bear the tax burden or who should pay tax. The tax rate is imposed as a certain percentage of the income earned. Taxation policies play an important role in the financial and economic development of a country.
If there is a default in the payment of taxes or there is a partial payment of tax, it would attract penalties. The penalty can be a civil penalty or a criminal penalty.
Tax can be broadly classified into two types, such as direct tax and indirect tax.
Direct tax:
A direct tax is a form of tax, which is directly collected by the government from the persons who bear the tax burden or who are supposed to pay tax. Here the taxable individuals file the tax returns directly to the government.
Examples of direct taxes are corporate taxes, income taxes and transfer taxes.
Indirect tax:
An indirect tax is a form of tax, the collection of which is performed by mediators who deposit the taxes to the government and also perform functions associated with filing tax returns. In this case, the customers bear the final tax burden.
Examples of indirect taxes are sales tax and value added tax or VAT.
There are other types of taxes, which might either be a direct tax or an indirect tax and these include capital gains tax, corporation tax, consumption tax, inheritance tax, property tax, excise duty, retirement tax, tariffs, wealth tax or net worth tax, toll tax and poll tax.