3 Major types of taxes and their uses
Taxation in the United Kingdom is a source of government funds required to run a government. Tax proceeds are often collected from the private individuals, businesses, and organizations. Policies under which taxes are levied and collected are legalized by the parliament legislation. Each year a budget is introduced and various changed in the fiscal policies are made to meet the government requirements. Budget is a detailed document exhibiting the government policies. It also states about the subsidies being provided to various sectors depending on the government policies.
Types of taxation:
There is various type of taxation which is used by the government depending on the economic circumstances and nature of transactions. Certain taxations types are better at dealing with certain specific issues because they are precise in targeting the taxed class.
Progressive taxation is a tax which increases the income of the individual being taxed increases. The best example of progressive taxation is income tax rates with slabs applicable in the United Kingdom. As one can easily observe that a high tax percentage is applied to calculate the tax payable when income exceeds a certain level. Because this ensures that people with the most income are taxed the most and this is considered as the fairest taxation policy around the globe.
Regressive taxation is a tax which increases the income of the individual being taxed falls. The lower the income, higher the tax rate will be applied to calculate the tax liability. Value added tax is one of the best examples of this taxation. There is a lot of opposition against this type of taxation because it is unfair and creates more income disparity in the economy.
Flat Rate Taxation:
Flat rate taxation is a constant rate of tax applied to the individual regardless of their income. These taxes are less cruel than regressive tax but less fair as compared to progressive taxation.
Use of taxation:
One of the most often asked questions about where taxation where will the tax being collected be used. Generally, tax collected by the government is used for running the government.
Governing a country can cost a huge load of money. Including hiring the expertise and assets required to smoothing govern a county. A significant portion of the tax collected is spent on the necessary expense of the fueling the governance structure.
A significant portion of the income tax collected from the taxpayers is invested in the infrastructure of the country. Depending on the areas of the country which needs it the most, the government allocates funds to start development projects across the country.
One of the primary functions of the state is the provide welfare to the people of the country. Welfare often includes educations, hospitals, housing etc. Because these benefits are provided to the people of the country and are funded by the tax collected by the government and this helps the country to transfer the benefit from the people who were fortunate to the lesser fortunate ones.
Law and order:
Security within the state to the people of the country is one of the most important functions of the government. Law and order comprise of many departments including law and enforcement and justice departments. These departments ensure that law of the land is in power. Tax is spent on this department to properly run in order to provide security to the citizens.
Trade and business:
Taxation and subsidies can be a tool of the government to promote or demote a business industry. Various industries which are at a competitive disadvantage against the other but are beneficial for overall economic interests are promoted by the government using tax payer’s tax. Various subsidies and tax exemptions are provided in order to generate growth in certain industries at a certain time of the year to generate growth.
These tactics are also used to promote export and demote imports in the form of customs duties and various other import-export taxes. Because often countries who are promoting their internally made products against the dumping policies of other countries tend to apply high import duties to artificially increase the prices of imported products. Consumers are more included towards the locally made products because they are relatively more affordable.
Similarly, various tax exemptions are made in IT and export industry to strengthen the growth in both sectors of the economy.