Different Types of Taxes


Taxes refer to the compulsory contributions that individuals and corporates are required to pay to the government on a regular basis. It is usually levied on people’s income, cost of specific goods, and on profits that companies make. An individual or a business might be liable for various taxes based on the physical location and the economic activity that they are engaged in.

The amount of tax that a business pays will affect the amount of investment and its profitability. Governments, therefore, take a proactive approach to encourage investments. Let us now look at the different types of taxes.

Categories of taxes

categories Taxes are broadly categorized into two: that is the direct taxes and the indirect taxes. Direct taxes refer to taxes that are direct to the governments from people’s income and profits that companies make.

The value added tax which is levied on some of the goods that we purchase as an example of an indirect tax whereas the income tax is an example of the direct tax.

Income tax

The income tax is one of the most popular forms or methods of tax. It is also referred to as Pay As You Earn (PAYE) in some jurisdictions. This tax is usually charged on a monthly basis to individuals are salaried and employed.

The employer usually deducts the PAYE from the gross earnings of an employer and remits it to the tax authority. This is one way that employees relieve themselves of paying taxes to governments as their employees do it for them.

Corporation tax

Corporation tax is another popular type of tax. This type of tax is levied to companies that operate in a given jurisdiction. Different governments typically have different rates for the resident and the non-resident companies.

The non-resident companies usually pay much more than the resident companies. The corporate tax is generally paid after every financial year.

Value-added tax

value-addedAs stated earlier, the value-added tax is an example of an indirect tax. Everyone who buys specific goods pay this type of tax. Most countries do not charge this kind of tax on basic foodstuffs like sugar, flour, and milk.

However, for other goods like detergents that you frequently buy when you visit your favorite local store usually attract this type of tax. The video below looks at some of the types of taxes that we pay: