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Note on Taxation

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Tax is the most important source of income or revenue for the government. Tax is a liability of a person or an organization towards the state or government. The certain percent of the income earned by the people or organization is paid to the government. It is a compulsory payment done to the government directly or indirectly without getting any benefit. The collected amount is spent on the administrative and developmental activities of the country.

According to Seligman, “Taxation is the compulsory payment made by a person or organization to the government to meet the expenses incurred in the common interest of the people and nation without getting any special benefit.”

From the above definition, it is clear that taxation is the compulsory contribution made by the individuals and organizations to the government out of their incomes to meet the various expenses of the country.

Objectives

The following are the objectives of taxation:

  1. For increasing the revenue for the welfare of the country.
  2. For maintaining the quality in income and property.
  3. For increasing the production level of various goods.
  4. For increasing the employment opportunities, savings and investments of the country.
  5. For minimizing the regional disparity.
  6. For implementing the government policy.
  7. For controlling the production of specific goods or services.

Types of taxes

Some of the major types of taxes are listed below:

  1. Direct tax:
    Direct tax is the tax imposed by the government directly on the income and the services used by the individuals or organization. The tax of one person cannot be transferred to another person by any means. It cannot be evaded as well. Income tax, salary tax, property tax, etc. are the examples of direct tax.

  2. Indirect tax:
    Indirect tax is the tax which is imposed on one person by is divided into a number of people partially or wholly. It is imposed on the production, distribution and consumption of any goods and services. It can be transferred from one person to another, so the tax is transferred by the manufacturer to wholesaler; from wholesaler to the retailer; and ultimately from retailer to the final user or consumer. Customduty, excise duty, value added tax (VAT), etc. are the examples of indirect tax.

  3. Custom duty:
    The tax which is collected by the government during the time of importing and exporting various goods at the boundary of the country is known as custom duty. It is levied during the international trade. It is imposed to collect the revenue and regulate the international trade. It can further be divided into two parts:
    Import duty: The custom duty imposed on goods imported from different countries is called import duty.
    Export duty: The customs imposed on goods exported to various other countries is called export duty.

  4. Value Added Tax (VAT):
    The advanced form of sales tax is Value Added tax, which is imposed on the value addition in each stage of production or sales. It is imposed by the government to the producer, wholesaler, retailer as well as consumers. It is imposed during the production of goods, distribution of goods and rendering the services. It is introduced in Nepal since 1997. Currently, the value added tax is imposed in Nepal at 13%.

  5. Excise duty:
    The tax which is levied during the manufacturing or selling or consuming the goods and services is known as excise duty. It is generally levied on the goods which are either injurious to health or luxurious goods in order to control its consumption. It is imposed for collecting revenues from the consumption of injurious and luxurious goods.

  6. Local tax:
    The tax which is imposed by the local government like Village Development Committee, Municipality, Metropolitan City and District Development Committee is known as a local tax. Property tax, vehicle tax, business tax etc are some of the forms of local tax.

  7. Income tax:
    It is a tax imposed on the income of a person or organization. It can be further divided into two types:
    Individual income tax: The tax levied on the income of an individual or couple or sole trading concern or partnership firm is called individual income tax.
    Corporate income tax: The tax paid by the joint stock company, public enterprises and co-operative society on their incomes as a whole is called corporate income tax.

  8. Land revenue tax:
    It is a tax which is collected from the landlord on a regular basis that is levied on the basic area of land and the nature of the land of the landlord. The landlords who have given a greater area of land in the urban areas have to pay a higher amount of land revenue tax as compared to the landlords having smaller areas of land in rural areas.

  • Tax is the most important source of income or revenue for the government.
  • Tax is a liability of a person or an organization to the state or government. 
  • Direct tax is a tax which is collected directly from the individuals and organizations on the basis of their incomes and properties. 
  • Indirect tax  is a tax which is imposed upon one person but paid partially or wholly by another person. It is levied for the production, distribution and consumption of goods and services. 
  • The tax which is collected by the government at the boundary of the country at a time of importing and exporting the goods is known as custom duty.
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Very Short Questions

The following are the objectives of taxation:

  1. To increase the revenue for the welfare of the state
  2. To maintain equitable distribution of income and property
  3. To increase the production of particular goods
  4. To increase the employment, saving and investment of the country
  5. To minimize regional disparity
  6. To implement government policy
  7. To control the production of specific goods

Tax is the most important source of income or revenue for the government. Tax is a liability of a person or an organization to the state or government. It is paid by persons or organizations out of the incomes earned by them. It is a compulsory levy which is paid for the government without getting direct benefit from it. Tax is collected from the people and spent on administrative and developmental activities of the country.

According to Seligman, “Taxation is the compulsory payment made by a person or organization to the government to meet the expenses incurred in the common interest of the people and nation without getting any special benefit.”

From the above definition, it is clear that taxation is the compulsory contribution made by the individuals and organizations to the government out of their incomes to meet the expenses of the country.

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  • Tax is a ______ of a person or an organization to the state or government.

    liability


    expense


    income


    asset


  • “Taxation is the compulsory payment made by a person or organization to the government to meet the expenses incurred in the common interest of the people and nation without getting any special benefit.” Who gave this definition?

    Taylor Shirley


    Giilspie and Lewis


    M.N. Mishra


    Seligman


  • Which one of them is the objective of taxation?

    To minimize regional disparity


    To increase the employment, saving and investment of the country


    To control the production of specific goods


    All the options are correct


  • A tax which is collected directly from the individuals and organizations on the basis of their incomes and properties is known as ______.

    indirect tax


    direct tax


    export duty


    import duty


  • A tax which is levied while manufacturing or selling or consuming goods and services is known as ______.

    excise duty


    import duty


    value added tax


    custom duty


  • The tax which is imposed by the local government like Village Development Committee, Municipality, Metropolitan City and District Development Committee is known as ______.

    custom duty


    value added tax


    excise duty


    local tax


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