TAX

Role and Structure of Tax

Role and Structure of Tax

Introduction

This paper discusses the tax system of an economy. It examines that how tax plays a key role in the development and growth of a nation. Further, it discusses the tax structure and design in UK. Various informative web links have been used to retrieve the information regarding the tax framework in Britain.

Discussion

"In this world nothing is certain, except death and taxes" - said in 1789, Benjamin Franklin. There is little economic issues that arouse as much controversy as the taxes. While most people would agree that no government (or modern society) could survive without them, they would often criticize taxes than praise. However, as already noted by Benjamin Franklin, it is inevitable and certain.

The primary objective of collecting taxes is to ensure the finance government expenditures. It is the function of the fiscal department. Sometimes taxes are imposed to discourage activities that the government considers to be harmful. For example, excise taxes including a special high tax on cigarettes and alcohol, which are sometimes called "sin tax" that was imposed both, to raise money and discourage people from drinking and smoking.

Taxes are also used to encourage certain activities, for example, unleaded gasoline for environmental reasons, which is a clad with a lower tax. Taxes also play a redistributive function, influencing the reduction of inequality of income distribution. State taxes can also be used to regulate the level of economic activity. State is affected by the circular flow of money, resources and products that are shown. Economic activity is directly related to the size of consumer spending and business spending. By increasing or decreasing taxes, the government can directly influence the amount of money spent on expenses.

The Basic Classification of Taxes

Taxes can be divided into direct and indirect. These names come from the fact that some taxes (direct) are paid directly by the person to which they are applied, and one cannot pass these taxes on other people, while it is not applied directly to the person, but however when the transactions take place, then taxes are paid by other people indirectly. Direct taxes are levied directly on the taxpayer. This allows the differentiation of rates depending on the characteristics (location) of the payer, such as people on low incomes pay their taxes with lower rates of direct taxes, etc. Examples are: personal income tax, corporate income tax, inheritance tax and gift tax, etc.

Indirect taxes are those which are not directly imposed on the person, but on the transactions they make. A characteristic feature is that their height does not usually depend on the characteristics of the payer. The taxes of this type include mainly value added tax (VAT) and excise duties.

Characteristics of a Good Tax System

Taxes have a very large impact on the functioning of the economy. Limit the individual consumption, influence decisions on consumption and investment, and provide government revenue. The importance of taxation in a modern economy is very high and it is ...