DescriptionA tax is an annual monetary charge or any sort of levy levied on a taxpayer by a government agency in order to finance various public functions and government spending. A person who fails to pay, and/or evasion of or refusal to pay such tax, is liable to punishment under law. The punishment for tax evasion includes imprisonment, fines, and even stiff penalties. In the United States, there are currently two main tax systems: income tax and corporate tax.
Income Tax: This system is based on the ability of individuals to earn income. Income tax is often calculated on a per annum basis, whereby a certain amount of money is taken from the individual’s salary or wage on a regular basis, and then the excess is divided between the various government and private sources as taxes. Some countries also use a proportional tax system, whereby a portion of the excess is taken from the income of the person making it, and the rest goes to the government.
Progressive Tax Systems: Progressive tax systems, as their name implies, provide a progressive taxation of income. As you earn more money, your tax bill gradually decreases. This type of taxation is popular with many, because the rate applied to capital gains and dividends are higher than those applied to wages and salaried employees. However, this type of taxation also has a number of drawbacks. For one, progressive tax systems are notoriously inefficient and do not always reach the people who need them the most.
Senior Citizens: In the case of senior citizens, the Tax Free Insurance System (TFS) provides a special facility called the Disability Tax Credit. This tax credit allows the eligible senior citizens to lessen the amount of tax that they would otherwise have to pay on the lump sum of capital gains arising from the sale or distribution of an asset. The rate of this credit is determined by the Disability Tax Credit Alliances. This credit is subject to a number of restrictions, including the maximum amount that can be credited, the period of time for which it can be claimed, and the frequency with which the eligible senior citizen must claim the credit.
Direct Taxes: These taxes are levied directly against an asset or production. Examples include customs, import duties, and excise duties. Examples of indirect taxes include the Value-added Tax (VAT), Corporate Tax, Employment tax, and Sales tax. Examples of direct taxes include the inheritance tax, property rent, stamp duty, and fuel tax. All other direct taxes can either be incorporated into a voucher tax, or they can be levied individually.
The taxation system in Ireland is known as ‘residual system’ because a number of indirect taxes are levied on the production or ownership of wealth. This taxation is based on how much wealth is produced or owned and is therefore indirect in nature. As such, it is considered one of the few countries in Europe that has both a progressive and regressive tax system. Progressive taxes are considered as being less regressive than the regressive taxes, which in turn mean that some taxation is progressive and some is regressive. Ireland has one of the highest tax rates in the world.