Tax is a mandatory financial charge levied by the government for funding various functions of governing. The money raised through taxes may be used for public infrastructure (roads, water supply systems, sanitation, legal and education systems, police forces), the military, scientific research & development, culture and the arts, social welfare programs, and more. Many jurisdictions have different systems of taxation, ranging from progressive to regressive. Individuals can claim personal allowances and reductions from their taxable income in order to minimize their tax burden.
A person’s or company’s tax liability is the sum total of all the taxes they pay in a year, including income, sales and property taxes. This figure is calculated by determining the taxable income and subtracting allowances, credits, deductions and prepayments. Keeping up with the latest changes to tax law can help ensure that you are paying the correct amount of taxes and avoiding penalties.
The purpose of taxes is mainly to fund public expenditures and to serve as a source of revenue for national budgets, although they have also been used for other purposes like behavioral change (high excise taxes on alcohol can encourage people not to drink) and regulation of negative economic spillovers (taxing carbon). In addition, taxation can act as a form of redistribution of wealth and income. Tax law establishes the source from which a tax must be collected, but economists suggest that the marketplace determines who pays the tax burden. This is because taxes are embedded in the cost of production, and therefore ultimately impact the consumer more than the producer.