Taxation serves other purposes as well such as it helps in equal distribution of wealth   by charging high tax from rich and less tax from poor. Since it is a compulsory tax, it helps in maintaining discipline in the economy as defaulters in paying the amount of tax are awarded with punishment. It also helps in balancing the economy socially and it brings forth social justice and over all development of the economy. Tax may be imposed directly or indirectly for fulfilling social goals.

In the United States, the system of progressive taxation is popular in which higher rates of taxes are charged from individuals, business firms and families earning high level of income. Progressive taxation has been able to harmonize the ideals of republic nation with that of the capitalist economy involving heavy concentration of funds.

Whenever the nation is under any crises, political leaders provide the necessary support. Therefore the taxation schemes connected with the crises of nation always have an upcoming dimension favorable for the economy.

Tax is imposed on individuals, group of persons and businesses by the government Taxes are generally compelled by the government and It does not lead to any benefit in exchange. Taxes are being levied since historical times. During the Rome period two type of taxes were imposed. One was property tax and the other was sales tax. For the purpose of revenue in spite of the internal system of taxation prevalent today, tariffs were preferred. This system of internal taxation proves to be the major source of revenue to the government. There are three major advantages of taxation to the government which includes providing required funds to the government enabling it to meet its expenses which in turn leads to stabilized development of the economy.

It also helps in establishing equality in the level of income and wealth. It also involves other non monetary benefits like it helps to encourage and even discourage activities relating to smoking. Taxation covers a wide range of activities. It provides financial assistance for development of parks, health care centre, libraries and many more. These are funded directly or indirectly by the tax payer. When new policy is brought up in the market, one can decide for himself whether the money is worth coming out of the payment. You have the option to voice or not to voice this decision.

Direct and Indirect Taxes

Taxes are of two types one it known as direct tax and the other is known as indirect tax. Such taxes may have different meanings. However, in economics direct tax may be in the form of Income tax, wealth tax and estate duty. In case of direct taxes formal as well as effective incidence of tax falls on the same person, which means the burden of tax cannot be transferred by one person to another. The amount of tax to be paid is based on the earning potential of an individual. On the other hand indirect tax is a tax in which formal incidence of tax is on one person (dealer)  where as effective incidence (burden) is on the other person (consumer).Such indirect tax can be transferred by one person to another. Indirect tax may be in the form of sales tax, custom duty, service tax, excise duty and value added tax (vat)

Income tax

An income tax is a tax which is imposed on the earning capacity of an individual, legal entities and body corporate. A variety of income taxes are being imposed by the government at distinct rate of taxes .Income tax may be in the nature of progressive, regressive and proportional. Corporate tax is a tax which is levied on the companies and it is also known as corporate income tax and corporation tax. Under individual income taxes, taxes are imposed on the entire income earned by an individual. However such taxes are entitled to certain deductions but under corporate income tax, taxes are charged on the net amount which is the amount left after deduction of expenses and other write offs from the total receipt of an individual.

Classification & Types of Taxes