Measure ad performance. Select basic ads. Create a personalised ads profile. Select personalised ads. Apply market research to generate audience insights. Measure content performance. Develop and improve products. List of Partners vendors. Taxes are mandatory contributions levied on individuals or corporations by a government entity—whether local, regional or national.
Tax revenues finance government activities, including public works and services such as roads and schools, or programs such as Social Security and Medicare. From an accounting perspective, there are various taxes to consider, including payroll taxes, federal and state income taxes, and sales taxes. To help fund public works and services—and to build and maintain the infrastructure used in a country—a government usually taxes its individual and corporate residents.
The tax collected is used for the betterment of the economy and all who are living in it. In the United States and many other countries in the world, income taxes are applied to some form of money received by a taxpayer. The money could be income earned from salary, capital gains from investment appreciation, dividends or interest received as additional income, payment made for goods and services, etc.
Tax revenues are used for public services and the operation of the government, as well as for Social Security and Medicare. As baby boomer populations have aged, Social Security and Medicare have claimed increasingly high proportions of the total federal expenditure of tax revenue.
Throughout U. On the other hand, tax avoidance —actions taken to lessen your tax liability and maximize after-tax income—is perfectly legal. Most governments use an agency or department to collect taxes. There are several very common types of taxes:.
Below, we will take a look at various tax situations in the United States. Generally speaking, the federal government levies income, corporate, and payroll taxes; the state levies income and sales taxes; and municipalities or other local governments mainly levy property taxes.
Like many nations, the United States has a progressive income tax system, through which a higher percentage of tax revenues are collected from high-income individuals or corporations than from low-income individual earners.
Taxes are applied through marginal tax rates. A variety of factors affect the marginal tax rate that a taxpayer will pay, including their filing status— married filing jointly , married filing separately , single , or head of household.
Which status a person files can make a significant difference in how much they are taxed. Capital gains taxes are of particular relevance for investors. Levied and enforced at the federal level, these are taxes on income from the sale of assets in which the sale price was higher than the purchasing price.
These are taxed at both short- and long-term rates. In many transition economies in the s, the failure to improve tax administration when new tax systems were introduced resulted in the uneven imposition of taxes, widespread tax evasion and lower-than-expected tax revenue. Compliance with tax laws is important to keep the system working for all and supporting the programs and services that improve lives. One way to encourage compliance is to keep the rules as clear and simple as possible.
Overly complicated tax systems are associated with high tax evasion. High tax compliance costs are associated with larger informal sectors, more corruption and less investment. Economies with simple, well-designed tax systems are able to boost businesses activity and, ultimately, investment and employment. Tax administration is changing as the ecosystem in which it operates becomes broader and deeper, mostly owing to the vast increase in digital information flows. Tax administrations are responding to these challenges through the introduction of new technology and analytical tools.
They must rethink how they operate, offering the prospect of lower costs, increased compliance and incentives for compliant taxpayers. In , Tajikistan launched the Tax Administration Reform Project and, as a result, the country built a more efficient, transparent and service-oriented tax system.
The modernization of IT infrastructure and the introduction of a unified tax management system increased efficiency and reduced physical interactions between tax officials and taxpayers. Following the improvement of taxpayer services, the number of active firms and individual taxpayers filing taxes has doubled and revenue collections have risen strongly.
A taxpayer in Tajikistan spent 28 days in complying with all tax-related regulations, compared with 37 days in A low cost of tax compliance and efficient procedures can make a significant difference for firms. In Hong Kong SAR, China, and Saudi Arabia for example, the standard case study firm would have to make only three payments a year, the lowest number of payments globally.
In Qatar, it would have to make four payments, still among the lowest in the world. In Liechtenstein and Estonia, complying with profit tax, value added tax VAT and labor taxes and contributions takes only 49 and 50 hours a year respectively, around 6 working days. Research finds that it takes a Doing Business case study company longer on average to comply with VAT than to comply with corporate income tax. However, the time it takes a company to comply with VAT requirements varies widely.
Research shows that this is explained by variations in administrative practices and in how VAT is implemented. Compliance tends to take less time in economies where the same tax authority administers VAT and corporate income tax. The use of online filing and payment also greatly reduces compliance time. Frequency and length of VAT returns also matter; requirements to submit invoices or other documentation with the returns add to compliance time.
Streamlining the compliance process and reducing the time needed to comply with the requirements is important for VAT systems to work efficiently. Filing the tax return with the tax authority does not imply agreement on the final tax liability. Often, the ordeal of taxation starts after the tax return has been filed. Postfiling processes — such as claiming a VAT refund or complying with a tax audit — can be the most challenging interaction that a business has with a tax authority.
Businesses might have to invest more time and effort into the processes occurring after filing of tax returns than into the regular tax compliance procedures. The absence of an efficient VAT refund system for businesses with an excess input VAT in a given tax period will undermine this goal. VAT could have a distortionary effect on market prices and competition and consequently constrain economic growth.
Refund processes can be a major weakness of VAT systems. Some of the money is also channeled to fund projects such as pensions, unemployment benefits, childcare, etc. Without taxes it would be impossible for governments to raise money to fund these types of projects. Furthermore, taxes can affect the state of economic growth of a country. Taxes generally contribute to the gross domestic product GDP of a country. Governments also use taxes as a deterrent for undesirable activities such as the consumption of liquor, tobacco smoking, etc.
To achieve this, governments impose high excise levies on these products and as a result, raise the cost of these products to discourage people from buying or selling them. For business to flourish in the country, there has to be good infrastructure such as roads, telephones, electricity, etc. This infrastructure is developed by governments or through close involvement of the government. When governments collect money from taxes, it ploughs this money into development of this infrastructure and in turn promotes economic activity throughout the country.
The concept of taxation is also important to businesses because governments can fund this money back into the economy in the form of loans or other funding forms. The World Bank Group works with governments to create fair and equitable tax systems by reducing the adverse impact of the tax system on the poor, which may include helping to: Increase taxes on wealthy households through taxation of properties and capital gains.
Use the tax system to provide incentives for better social outcomes, for example through tobacco and carbon taxation and smart earmarking of taxes to support social programs in education and health. Institute minimum thresholds for paying taxes and progressive personal income tax regimes which contribute to reducing income inequality.
Philippines : With World Bank support, the government raised tobacco and alcohol taxes over the period The additional resources were used to triple the number of families receiving free health insurance, from 5. The ongoing engagement has already produced tangible results.
Return to main topic. Achieving the Sustainable Development Goals requires massive investment in physical and human capital. Focus is needed on the quality, fairness, and equity of domestic tax collection. Increasing tax revenue in developing countries What role can civil society play in tax administration? How tax systems impose psychological burdens on taxpayers. See all blogs on taxation. Related Trust Funds.
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