A tax is a compulsory payment made by an individual, household or a firm to the government without expecting to anything in return. The taxpayer cannot expect any service or benefit from the government in return. If a person fails to pay tax, then he is liable to face penal action.
Taxes are broadly classified as under :
(1) Progressive and regressive taxes.
(2) Value added and specific taxes.
(3) Direct and indirect taxes.
(1) Progressive and regressive taxes: Taxes are classified as progressive and regressive depending on the varying burden of taxation.
1. Progressive tax: A tax is said to be progressive when the rate of tax increases along with an increase in income.
2. Regressive tax : A tax is said to be regressive when it causes a greater real burden on the poor than the rich.
(2) Value-added tax and specific taxes: Taxes are classified as value-added tax or specific tax depending upon tax base.
1. Value-added tax : Value added tax is an indirect tax which is imposed on ‘value addition’ at the various stages of production. Value addition refers to the difference between value of output and value of intermediate consumption.
2. Specific tax: When taxes are levied on a commodity on the basis of its units, size or weight, it is called specific tax.
(3) Direct and Indirect Taxes: These taxes are classified into direct and indirect, depending on their final burden.
1. Direct tax : A direct tax is one, the final burden of which is borne by the person on whom it is imposed.
Example – Income Tax.
2. Indirect tax: An indirect tax is one, the final burden of which can be shifted to other persons. Goods and service tax, excise duty, custom duty are examples of indirect tax.
