What is Tax ? What are the types of Tax

 Tax is a compulsory payment to government by a taxpayer without any expectations of specified return.

According to Bastable : A tax is a compulsory contribution of wealth of a person or body of persons for the service of public owners.

Types of Tax 

Tax can be classified in two broad categories which are direct tax and indirect tax. This is the most common and popular classification of tax.

1. Direct tax 

Direct tax is that types of Tax which is paid to the government directly by a persons who earns income or profit.

The impact of direct tax is limited within the taxpayer who is liable to pay such tax. In other words, a person paying and bearing the tax is the same. Income tax, social tax, capital gain tax , casual gain tax etc are the example of direct tax. The government collects or realizes such taxes directly from the taxpayers.

Merits of Direct tax 

1. Equitable:

Equity is pursued when it comes to the ability to pay tax. The burden of tax Is distributed among different citizens proportionately.

2. Certainly:

The taxpayers are informed about the amount, time and procedures of the payment of direct taxes.

3. Progressive:

The huge amount of direct tax is collected from opulent people and less tax from poor people and less tax from poor people.

4. Economy:

Direct tax has a quality of economy because low cost is incurred in levying and collecting tax.

2. Indirect tax

Indirect tax is such a tax that is imposed on the consumption of goods or use of services. It is realized from the business person who collects the tax from customer.

This types of Tax is levied on one person who does not bear it. In this tax , the person paying the tax and person bearing tax are different.

Merits of indirect tax

1. Convenient to taxpayer:

Indirect tax is paid in small installment instead of lump-sum by the user of the service or goods. Indirect tax is added to the price of goods sold ir service provides to the customer.

2. Mass participation:

All the customer become taxpayers because indirect tax is added to the price of goods or services and collected along with the sales.

3. Elasticity:

The government can easily change the rate of indirect tax as per need. Noticeably, indirect tax has a quality of elasticity and flexibility.

4. Less chance of tax evasion:

Indirect tax is imposed on one person but the person collect it from the customer. So, the businessperson does not feel it is a economic burden and there will be less incidence of tax evasion.