different types of taxes essay

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What Is Taxation?

Understanding taxation, taxation in the united states.

• Purposes of Taxation
• Fiscal Policy

Taxation Defined, With Justifications and Types of Taxes

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Taxation is a term for when a taxing authority, usually a government, levies or imposes a financial obligation on its citizens or residents. Paying taxes to governments or officials has been a mainstay of civilization since ancient times.

The term "taxation" applies to all types of mandatory levies, from income to capital gains to estate taxes . Though taxation can be a noun or verb, it is usually referred to as an act; the resulting revenue is usually called "taxes."

Key Takeaways

• Taxation occurs when a government or other authority requires that a fee be paid by citizens and corporations, to that authority.
• The fee is involuntary, and as opposed to other payments, not linked to any specific services that have been or will be provided.
• Tax occurs on physical assets, including property and transactions, such as a sale of stock, or a home. 
• Types of taxes include income, corporate, capital gains, property, inheritance, and sales.

Investopedia / Julie Bang

Taxation is differentiated from other forms of payment, such as market exchanges, in that taxation does not require consent and is not directly tied to any services rendered. The government compels taxation through an implicit or explicit threat of force. Taxation is legally different than extortion or a protection racket because the imposing institution is a government, not private actors.

Tax systems have varied considerably across jurisdictions and time. In most modern systems, taxation occurs on both physical assets , such as property and specific events, such as a sales transaction. The formulation of tax policies is one of the most critical and contentious issues in modern politics.

The U.S. government was originally funded on very little direct taxation. Instead, federal agencies assessed user fees for ports and other government property. In times of need, the government would decide to sell government assets and bonds or issue an assessment to the states for services rendered. In fact, Thomas Jefferson abolished direct taxation in 1802 after winning the presidency; only excise taxes remained, which Congress repealed in 1817. Between 1817 and 1861, the federal government collected no internal revenue.

An income tax of 3% was levied on high-income earners during the Civil War. It was not until the Sixteenth Amendment was ratified in 1913 that the federal government assessed taxes on income as a regular revenue item. As of 2024, U.S. taxation applies to a wide range of items or activities, from income to cigarette and gasoline purchases to inheritances and when winning at a casino or even Nobel Prize.

Purposes and Justifications for Taxation

The most basic function of taxation is to fund government expenditures. Varying justifications and explanations for taxes have been offered throughout history. Early taxes were used to support the ruling classes, raise armies, and build defenses. Often, the authority to tax stemmed from divine or supranational rights.

Later justifications have been offered across utilitarian, economic, or moral considerations. Proponents of progressive levels of taxation on high-income earners argue that taxes encourage a more equitable society. Higher taxes on specific products and services, such as tobacco or gasoline, have been justified as a deterrent to consumption. Advocates of public goods theory argue taxes may be necessary in cases in which the private provision of public goods is considered sub-optimal, such as with lighthouses or national defense.

Different Types of Taxation

As mentioned above, taxation applies to all different types of levies. These can include (but are not limited to):

• Income tax : Governments impose income taxes on financial income generated by all entities within their jurisdiction, including individuals and businesses.
• Corporate tax : This type of tax is imposed on the profit of a business.
• Capital gains : A tax on capital gains is imposed on any capital gains or profits made by people or businesses from the sale of certain assets including stocks, bonds, or real estate. 
• Property tax :   A property tax is asses by a local government and paid for by the owner of a property. This tax is calculated based on property and land values. 
• Inheritance : A type of tax levied on individuals who inherit the estate of a deceased person. 
• Sales tax : A consumption tax imposed by a government on the sale of goods and services. This can take the form of a value-added tax (VAT), a goods and services tax (GST), a state or provincial sales tax, or an excise tax. 

Why Do We Need to Pay Taxes?

There is an old saying that goes "the only sure things in life are death and taxes." Taxation has been a feature of society going back to ancient times. The role of taxes is to help governments fund various undertakings such as public works, infrastructure, and wars. Today, taxpayer dollars are still used for a variety of similar purposes.

Which Country Has the Highest Income Taxes?

As of 2024, the top 10 countries with the highest marginal income taxes are:

• Belgium- 79.5%
• Finland - 66.75%
• Portugal - 64%
• United Kingdom - 63.25%
• Switzerland - 59.7%
• Aruba - 58.95%
• Estonia - 58.4%
• Denmark - 57.11%
• Japan - 55% (tie)
• Austria - 55% (tie)

Which Countries Have Zero Income Tax?

Only a handful of countries have 0% income tax. These include Saudi Arabia, United Arab Emirates, Oman, Kuwait, Qatar, Bahrain, the Bahamas, Bermuda, and the Cayman Islands. Many of these are Arab oil-producing nations that subsidize their budgets with exports rather than taxes. These nations also feature relatively high sales taxes and/or corporate tax rates.

National Archives. " Records of the Internal Revenue Service [IRS] ."

Internal Revenue Service. " Historical Highlights of the IRS ."

Tax Foundation. " How High are Gas Taxes in Your State? "

Tax Foundation. " Compare Tobacco Tax Data in Your State ."

Internal Revenue Service. " Publication 525, Taxable and Nontaxable Income ." Pages 3, 34-36.

Tax Foundation. " The Three Basic Tax Types ."

World Population Review. " Highest Taxed Countries 2024 ."

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Types of tax

A tax is a charge levied by a government to raise revenue. The main types of taxes include

• Income tax – a percentage of income.
• Corporation tax – a percentage of a firm’s profit.
• Sales tax/VAT – an indirect tax on the sale of goods.
• Excise duties – taxes on alcohol, tobacco, petrol.
• Production taxes – taxes on particular goods/services, e.g. gambling tax, airlines, insurance.
• Environmental taxes – taxes on carbon, airports e.t.c.
• Stamp duty – tax on buying a house or shares.
• Tariff – this is a charge levied on the import of particular goods.
• Inheritance tax – a tax levied on the estate of a deceased person.
• Wealth tax – a tax levied on wealth, rather than income.
• Capital gains tax – a tax levied on an increase in the value of assets/wealth.
• Poll Tax – a tax on individuals. Introduced in UK as the “Community Charge”
• Windfall taxes – These are a type of corporation tax levied on companies making ‘excess’ profit. The UK introduced windfall tax on privatised industries. Also levelled on particular industries like north sea oil
• Council taxes – taxes collected by local government, could be a tax on property or local sales/income tax

Direct and indirect taxes

• A direct tax is a tax that a person or company pays directly. For example, income tax is taken out of your salary.
• An indirect tax is paid by a third party. For example, when you buy a TV, there is a VAT charge which is included in the price, the consumer does not pay, but the firm who sells the good is responsible for paying the tax to the government on your behalf.

Progressive, proportional and regressive taxes

• A progressive tax takes a higher percentage of tax from people with higher incomes.
• A proportional tax means different income levels pay the same % of income in tax.
• A regressive tax takes a higher percentage of tax from people with low income.

Advalorem vs specific tax

• An ad valorem tax is a certain percentage of the price of the good. VAT is levied at 20% so the more expensive the good is the more VAT that is paid.
• A specific tax is a fixed levy whatever the price of the good. For example, a £20 passenger levy on long-haul flights. This

Pigovian tax (or sin tax)

This is a tax that attempts to place a charge equal to the external cost of the tax. A Pigovian tax aims to make consumers pay the full social cost of the good. It was named after the economist Arthur Pigou, who contributed to the theory of externalities and social efficiency.

Diagram of Pigovian tax

• For example, if a flight costs £200, but the external cost of flying is estimated at £150, then the tax will also be £150. So the final price will be £350.
• Examples of Pigovian taxes include alcohol tax, tobacco tax and tax on sugar. For this reason, in popular terminology, they are often referred to as a ‘sin’ tax because they refer to goods that we often feel guilty for consuming. Though the principle of Pigovian taxes is not morality but social efficiency.

Income tax is a common form of tax which takes a percentage of income. Income tax makes use of the concept of marginal tax rates

For example, if the income tax threshold is £5,000 – this means you don’t pay any income tax on the first £5,000. If the basic rate of income tax is 20%. It means someone earning £6,000 only pays tax on the £1,000 above the threshold. They will pay £200 or 3.3% of their income in tax

• Income tax rates explained.

Different Types of Tax

• Carbon Tax – taxing the emission of carbon
• Cigarette Tax – tax on tobacco
• Death Tax – tax on the deceased.
• Fat Tax – tax on unhealthy food
• Petrol tax – tax on petrol
• Plastic bag – tax on plastic bags
• Poll Tax – tax on individuals
• Rubbish tax – tax on rubbish
• Tobin Tax – a specific tax placed on currency transactions.

Examples of taxes in the UK

NICs is national insurance contributions. This is effectively a form of income tax.

How tax revenue can change

Tax on production in UK

The UK publishes data on particular production taxes. Some of the tax revenue raised is very small.

• Aggregates levy
• Air passenger duty
• Apprenticeship Levy
• Air Travel Organisers Licence (ATOL)
• Betting, gaming & lottery
• British Transport Police
• Climate change levy
• Camelot payments to National Lottery Distribution Fund (NLDF)
• Driver and Vehicle Licensing Agency (DVLA) new car registration fees
• Environmental levies
• EU Emissions Trading Scheme (ETS) auction receipts
• Immigration skills charge
• Insurance premium tax
• Landfill tax
• Levy funded bodies receipts
• Lighthouse dues (tax on ships in UK waters to pay for lighthouses)
• Rail franchise premia
• Companies House – Registration Tax
• Land Registry – Registration of Title tax
• Pension Protection Fund Levy
• Soft drinks industry levy
• From: UK Public sector accounts Dec 2019

(I never knew there was a tax on ships to pay for lighthouses)

Proposed taxes

• Progressive consumption taxes – making VAT more progressive by setting higher rates on big, expensive luxury items
• Tobin tax is the name given to a specific tax placed on currency transactions.
• Turnover tax – tax on multinational companies who have high turnover but profit is kept in tax havens.

Obscure taxes through history

• Beard tax In 1705, Russian Emperor Peter the Great placed a tax on beards. He hoped Russian men to become clean-shaven like western Europe.
• Scutage – a tax that allowed English knights to avoid fighting – just pay a tax to the king.
• Playing card tax – In the UK there was specific tax on playing cards from 1710 until 1960.
• Window tax. In the UK, a tax was imposed in 1696 on the number of windows in a house. It led to houses being built without windows – which led to health problems.
• Tax on the aromatic powders put on wigs.  In 1795 this tax was imposed and it led to a decline in use of wigs. They fell out of fashion.

Concepts related to tax

• Tax avoidance and tax evasion
• Tax cuts – essay on pros and cons of tax cuts
• Deadweight weflare loss of tax
• Tax tolerance
• Tax rates by country
• Tax and wealth
• Fiscal drag
• Hidden taxes

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Home — Essay Samples — Economics — Taxation — Review of Taxes: Definition, History and Different Kinds

Review of Taxes: Definition, History and Different Kinds

• Categories: Tax Taxation

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Words: 507 |

Published: Jan 29, 2019

Words: 507 | Page: 1 | 3 min read

• Taxes that are based on how much money a company earns are called corporate taxes
• Taxes that are based on how much money a person earns are called income taxes.
• Taxes that are based on how much a person buys are called sales taxes.
• Taxes that are based on how much a person owns are called a property taxes. Things like houses have a property tax on them.
• Taxes that are paid when official document are approved are called stamp duties (because in the past the document would have a stamp put on it). Changing who owns a house will often need a document approving.
• Taxes that are paid when somebody dies are called inheritance or estate taxes.
• Flat taxes: Everybody pays the same percentage. Russia has a flat income tax and everybody in Russia has to pay 13% of the income.
• Progressive taxes: The more money a person makes, the higher percentage of their income they have to pay. Most countries have progressive income taxes.
• Regressive taxes: The less money a person makes, the higher percentage of their income they have to pay. Sales taxes are usually called regressive as poor people spend a higher percentage of their money, than rich people.

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Tax Structure: Tax Base, Tax Rate, Proportional, Regressive, and Progressive Taxation

The tax structure of an economy depends on its tax base, tax rate, and how the tax rate varies. The tax base is the amount to which a tax rate is applied. The tax rate is the percentage of the tax base that must be paid in taxes. To calculate most taxes, it is necessary to know the tax base and the tax rate. So if the tax base equals $100 and the tax rate is 9%, then the tax will be $9 (=100 × 0.09). Proportional taxes (aka flat-rate taxes ) apply the same tax rate to any income level, or for any size tax base. So if Bill earns $50,000 and Jane earns $100,000, and the tax rate is 10%, then Bill will owe $5,000 in taxes while Jane will owe $10,000. Many state income taxes and most sales taxes are proportional taxes. Social Security and Medicare taxes are also proportional since the same tax rate is applied to any earned income up to the Social Security wage base limit , which, for 2021, is $142,800. The Medicare tax is a proportional tax that applies to all earned income, = 2.9%. Flat taxes are a fixed amount and do not depend on income or transaction values, such as a $10 per capita tax.

A regressive tax is higher at lower incomes. The most prominent regressive tax is the Social Security tax, because the tax drops to 0, when earned income exceeds the Social Security wage base limit . Regressive taxes especially hurt the poor. The inequitable effects of regressive or proportional taxes are often mitigated by payments to the poor and by exempting essential products and services, such as food, from regressive and proportional taxes.

A tax can also be regressive if it places a greater burden on poorer people. Flat taxes, for instance, place a greater burden on poor people because, even though the tax is the same for everyone, the tax is a greater proportion of income for a poor person than for a rich person. Even proportional taxes can be regressive. For instance, if the tax rate was 10% for everyone, that 10% of income represents a greater burden for poor people because they need all their money to live. Taking 10% from a rich person probably would not lower their standard living at all because they have so much more than what they need to live well. The marginal utility of money declines with increasing wealth, so much so that taking 10% from someone who makes $10,000 annually is much more burdensome than taking 10% from someone who earns $1 million annually, even though the tax revenue from the wealthy person is $100,000 while the tax revenue from the poor person is only $1000. This is why some rich people pay many millions of dollars for a painting or other collectibles because they cannot use it to improve their quality of life, so they invest it.

A progressive tax applies a higher tax rate to higher incomes. So if the tax rate on $50,000 is 10% and 20% for $100,000, then, continuing the above example, Bill still owes $5,000 in taxes while Jane must pay $20,000 in taxes. However, most progressive taxes are structured as a marginal tax , meaning that the progressive tax rate only applies to that part of the income exceeding a certain amount. The portion of the tax base subject to a particular tax rate, known as a tax bracket , always has lower and upper limits, except for the top tax bracket, which has no upper limit. To see the current rates published by the IRS, scroll down to the bottom of the current tax table from the instructions for Form 1040 .

Continuing the above example, if the 20% tax rate is only applied to that portion of the income between $50,000 and $100,000, then Jane would owe $5000 on the first $50,000 of income and $10,000 on the 2 nd $50,000 of income, a total tax liability of $15,000.

Without marginal tax rates , a progressive tax would skew economic decisions and would be viewed as unfair. For instance, if the 20% tax rate was applied to all earned income and Jane only earned $60,000, then she must pay $12,000 in taxes, 2.4 times more than Bill's taxes, even though she only made 1.2 times more than Bill. A more extreme example, consider what happens if Jane makes $50,001. Then she must pay $10,000, $5000 more than what Bill must pay, even though he earned only $1 less. Hence, without marginal tax rates, a pay increase could decrease disposable income.

A progressive, marginal tax rate also makes economic sense, since money, like everything else, has a declining marginal utility . In other words, $1 is worth a lot more to someone who earns $10,000 per year than to someone who makes $10 million per year. Poor people need the money to buy essentials, whereas rich people spend their money for luxuries, so the wealthy can pay higher taxes without seriously lowering their standard of living .

The new Republican tax policy, passed at the end of 2017, known as the Tax Cuts and Jobs Act , has changed the tax brackets for 2018 and afterwards. Congruent to the Republicans' tax objective to benefit the wealthy, most of the benefits in the change to tax brackets go to those who earn more than $200,000. The marriage penalty has also been eliminated for all tax brackets, except the top 2.

Note that tax rates and tax brackets apply only to taxable income . In the United States, people can claim the standard deduction or itemized deductions and other deductions, which lowers taxable income. Therefore, marginal tax rates apply only to income exceeding that amount. Tax bracket limits also only apply to taxable income, not gross income . For instance, if a single taxpayer had $20,000 of deductions, then that $20,000 is not taxed at all. If this taxpayer earned a total $30,000 in 2022, then only $10,000 of that income is subject to the 10% bracket. Without the deductions, the 1 st $10,275 would be in the 10% bracket and the remaining income would in the 12% bracket, resulting in a much higher tax.

Some nontaxable income, such as the home sale exclusion and inheritances, are excluded from income , so not only do tax rates not apply to that income, but their exclusion could allow taxpayers to claim tax credits designed for low-income people, such as the earned income credit , that cannot be achieved with deductions, since many tax credits depend on modified adjusted gross income, which adds back some deductible items.

Because of marginal tax rates and nontaxable income, the tax rate that one actually pays is not knowable just from their tax bracket, so another rate, called the effective tax rate (aka average tax rate ), is calculated by dividing the actual taxes paid by the gross income of the taxpayer. If all income is taxable, then the total tax calculated by multiplying earned income times the effective tax rate will equal the same tax calculated by multiplying the amount of income in each tax bracket by the respective marginal tax rate and summing them all up. So in example 2, since Jane earned $100,000 and paid $15,000 in taxes, her effective tax rate is 15% (= $15,000 ÷ $100,000) .

The federal income tax and many state taxes are progressive. Although the federal income tax itself is progressive, the effective tax rate based on all taxes collected by the federal government is progressive only until the Social Security limit is reached. Thereafter, the effective tax rate either declines or levels off with increasing income, since people who make more than the Social Security limit do not have to pay the 12.4% tax on any income exceeding the limit, as can be seen from the following table for a single person who is not a head of the household (Note: For a self-employed person, the tax code allows the deduction of the employer's half of the payroll tax, which results in a net self-employment tax of 14.13% . The tax code also allows the deduction of the employer's portion of the tax, the value of which depends on the taxpayer's marginal tax bracket, but since this does not change the effective tax rate very much, it is ignored in the table below. The following table assumes that a single person with no dependents pays the entire payroll tax, which is true for the self-employed, but also applies to employees. Even though employees technically only pay ½ of the payroll tax, most economists agree that most employees pay the other half through lower wages or through higher unemployment. For more info, see Tax Incidence: How The Tax Burden Is Shared Between Buyers And Sellers ) :

The 2021 standard deduction of $12,550 for a single taxpayer was deducted from the earned income to calculate the income tax in the above table. However, payroll taxes applies to all earned income. As you can see from the chart below, the federal tax on earned income is not nearly as progressive as it might seem by just looking at marginal tax rates. It is also obvious that work is the most highly taxed form of income. Investment income subject only to the short-term capital gains rate is subject only to the marginal tax rate, which is also listed in 1 of the columns above; employment taxes do not apply. Investors receiving all their income as long-term capital gains or from qualified dividends pay a much lower tax rate. These rates also do not include the many deductions that higher income taxpayers can take advantage of, so these are the maximum rates that would apply, based on income.

The Wealthy Really Have It Better

The above table suggests that the wealthy pay a higher effective tax rate on their income than poorer people. However, because of favorable tax treatment for investment income and, especially for capital gains , and because large amounts of wealth can be transferred through gifts and inheritance (collectively, gratuitous transfers ) tax-free, the wealthy actually pay a far lower effective tax rate if the taxes that they paid is divided by all their income, including investment income and inherited wealth.

For instance, IRS statistics frequently show that the top 400 taxpayers of the United States pay about 18% of their income in taxes, including payroll taxes that they may have paid. If you look at the above table again, you will note that a self-employed person who makes a mere $20,000 per year pays an effective tax rate of almost 18% — even after subtracting the standard deduction ! Furthermore, hedge fund managers, some who make more than $1 billion per year, are exempted from paying any payroll taxes on their performance fee, which is usually most of their compensation if they are profitable, thanks to their Republican friends in Congress.

The largest single factor creating this inequity in taxation is the fact that earned income is the most highly taxed income, even though, for maximum economic growth, earned income should be the least taxed, because the higher price of wages due to these income taxes decreases the demand for labor while the lower amount received by the suppliers of this labor reduces supply — reducing economic growth through the deadweight loss of taxation . Indeed, only work increases the economic wealth of any society. Even investments cannot create true economic wealth unless it is used to put people to work, and transferred wealth actually reduces economic wealth because the recipients have a reduced incentive to work. Hence, the prudent economic policy of any government should be to tax work the least and gratuitous transfers the most.

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Types of Taxes: the US Tax System Explained

“The hardest thing in the world to understand is the income tax,”

…said Albert Einstein.

So, what are the chances of understanding for the rest of us mortals then?

With the right guide, a bit better!

So, stay with us and learn all you need to know about:

• what is taxation
• how do taxes work, and what are they used for
• the types of taxes in the United States

What Are Taxes — Tax Definition and Historical Facts

Tax is a compulsory financial contribution of any individual, association, or institution that supports government projects and public expenditures . These payments are imposed and supervised by the official authorities.

And so, any failure to fulfill this legal obligation, including tax evasion and resistance, leads to strict law punishments.

Although new types of tax seem to be appearing every day, taxes are, in fact, nothing new.

The first confirmed example of taxation dates all the way back to ancient Egypt , somewhere around 3000 BC . Although, the chances are some older civilizations probably had different forms of tax collection even before that. Claims exist that Mesopotamian people paid taxes in the form of livestock starting from 4500 BC.

In the US, Abraham Lincoln was the first to introduce the income tax within the Revenue Act of 1861 . The income tax collection was supposed to help the Civil War efforts . And so, as soon as the war ended in 1872, the practice became unjustified, and it got aborted.

Tax in independent America got overturned a couple of more times after that and was, in general, hard to establish. Mainly because the nation still suffered the consequences of heavy Great Britain tax demands from colonial times.

Finally, at the beginning of 1913 , the idea of tax system implementation received the needed support and became a part of the Sixteenth Amendment .

Since then, the system evolved dramatically, and different types of taxes emerged. The latest Federal tax reform happened in 2020.

How Do Taxes Work?

If you’d look at the world’s tax map or chart, you’d get to see a very colorful picture.

Tax collection works differently around the world. Also, tax rates differ significantly by country , from Aruba and Chad with close to 60% individual income tax rate to the Cayman Islands and Qatar with 0%.

The US stands somewhere in between with its seven different income tax brackets . The lowest being 10% and the highest 37% .

But before you pack your bags and start looking for your passport, let’s see how taxes work in the US and why they are necessary.

First of all, how are taxes paid?

There are three ways in which one can make their tax payment. These are:

• through tax expenditures

Direct taxes — as the name suggests, these are the taxes that a person or association pays directly to the government entity that levies it. Individual income tax, corporate taxes, and property taxes are all examples of direct tax.

Indirect taxes — are all taxes we pay on goods and services, including those of importing gas, alcohol, and tobacco. They are named indirect because you’re not directly paying them to the government or any of its entities. Instead, you give a set amount of tax money to a merchant who then settles tax with the government. Indirect taxes include sales taxes, value-added taxes, tariffs, and excise taxes .

Tax expenditures — Whenever you donate to charity or buy a house, you’re, sort of, helping your government. To repay you, the government then forgoes a chunk of your tax. These are tax expenditures in simplest terms. Or in other words, tax expenditures are the activities that you can perform to benefit the community. And, the government promotes these activities by offering tax deductions and tax credits in exchange.

How you pay your tax will define the tax rate.

• And so, for taxes paid directly, you will follow your tax bracket and pay the percentage of the whole taxable amount as defined by that tax bracket.
• Indirect taxes, on the other hand, are the same for everyone.
• With tax expenditures, you get to decide on the value and type of your contribution.

Who collects taxes in the States?

The United States collects taxes on three different levels.

The biggest chunk of the total tax amount goes to the federal government that collects income tax, excise taxes, custom duty taxes, tariffs, and similar. All these add to over two-thirds of the total tax deduction in the US.

Precisely, who collects income tax for the US government?

Governments typically hire different agencies or commissions to collect their income taxes. In the US, the Internal Revenue Service (IRS) is in charge of this formal duty .

State governments collect around 20% of all tax, mainly through sales and some excise taxes.

Local governments collect the rest. Most of the time, they impose taxes on property, land value taxes, and a part of taxes from sales.

Unfortunately, very often, tax collection jurisdictions are not clear-cut . Same property, income, or service can sometimes be taxed at a few different government levels without the taxes offsetting each other.

What Do Taxes Pay for?

So far, it seems like taxes are just a lot of expenses. But in reality, they are designed to support the society.

Various types of taxes exist to improve different segments of life. Those usually include healthcare, infrastructure, social security funds, and similar.

Also, by sparing a fragment of your salary, sales, or possession for tax purposes, you’re helping gross domestic product (GDP) rise. And this, in turn, promotes the economic growth of your country. Finally, new job opportunities appear, salaries increase, and an altogether better standard of life generates.

All in all, wisely used government taxes can create a ripple effect with numerous social and economic benefits.

All this being said, let’s now see how your tax money gets spent in the States.

What are taxes used for in the US?

You know that feeling of thrill when the salary arrives?

And then the disappointment when you realize that the government gets to spend over one-third of it…

Would it make you feel any better if you’d known that, at least, that money ends up well-spent?

Well, let’s see if that’s the case.

Leading health programs

Did you know that about 18% of your tax bill goes to funding leading national health programs?

Medicaid, Medicare, and the Children’s Health Insurance Program (CHIP) all receive support from different types of taxes and taxpayers around the country.

Not too bad, right?

Social security

Social security has been one of the principal motives for tax collection since the beginning of the practice. Retirements, survivors’ benefits, and disability support all make a return from the social security treasury.

You work and contribute to the national budget through different tax types while you are young and healthy so that you don’t have to work when you reach the greater age.

With almost 23% of federal budget investments , social security is a mandatory segment of tax expenditures.

National defense and security

National security presents one of the major concerns of the government.

Then, it doesn’t surprise that the government reserves almost 16% of the federal budget to support the Department of Defense and Homeland Security Agency.

And so you follow and respect the long list of taxes daily.

But at least you sleep peacefully at night.

Safety net programs

Why do we pay taxes if not to help those in need?

Not everyone is in a position to enjoy different health programs and social security benefits. Unemployed citizens, low-income and some mid-income families, as well as underprivileged kids, often need additional assistance.

This aid is ensured by the government, with:

• unemployment insurance
• housing assistance
• food stamps
• underprivileged children programs

Around 9% of all federal taxes reach those who need help the most, one way or another.

Other expenditures

But this is not all.

Taxing in America ultimately serves many other purposes.

It helps take care of the interest on the national debt, benefits for federal retirees and veterans, and similar.

Furthermore, most infrastructural, educational, and scientific projects wouldn’t be possible without the government’s financial support.

So what makes the USA the way it is — it’s all of us!

Types of Taxes in the USA

For a while in US history, the only taxes that the government collected were import taxes or tariffs.

Imagine living in those times!

Instead, we have a quite complex tax structure — that even the brightest among us can’t follow at times without professional advisors or tax software.

Still, the better our understanding of that structure and our obligations as US citizens, the lesser the chances of unintended tax breaches and evasions.

So let’s now see — what are the different types of tax currently in force in the USA?

1. Income tax

Income tax statistics show that over 70% of US citizens don’t pay taxes on, at least, a portion of their income.

Some taxpayers accidentally forget to file it. Others do intentional evasions or are not fully aware of how it works.

To lessen this confusion, let’s first dig into what income taxes are and how they are categorized.

As their name suggests, income taxes are taxes that each individual or corporation needs to pay on their earnings or income . Different rules and regulations apply to each type of income tax. However, the common thing for most of these taxes is that they are marginal and progressive.

Marginal — means that there are different tax brackets or categories based on one’s taxable income amount. They are expressed in percentages.

Progressive — means that as your income increases, your taxes will increase too.

The two main types of income tax are the following:

Personal income tax

This is a tax that each citizen pays on their individual or household income that comes from wages, salaries, or investments.

Currently there are seven tax brackets for personal income in the States. They are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Here’s an income tax example:

If your taxable annual income is between $0 and $9,950 and you are a single person filing individually, your tax bracket is the lowest one of 10%. The same goes for married couples filing individually. Married couples filing together will fall under the same bracket with a combined income of up to $19,900.

As your single earnings rise above $9,951 to up to $40,525 or combined ones exceed $19,901 but not $81,051, you will move to the next tax bracket (22%), and so on.

However, as we work on understanding tax brackets, you should remember the following:

Moving to the next tax bracket doesn’t mean that all your taxable income will undergo that bracket. Instead, for your first $9,950, you will still have to pay only 10% of tax. And then, for the remaining of your total income between $9,951 and $40,525, the tax will rise to 12%.

The trend will continue until some of your income, currently above $523,601, reaches the 37% tax bracket.

Corporate income tax

A corporate income tax is usually a federally or state-imposed tax on all corporate revenues , excluding the costs of managing and executing the business .

Currently, more and more countries around the globe are lowering their corporate income taxes to support their corporations.

In the US, the federal corporate tax rate got lowered to 21%. That is thanks to the Tax Cuts and Jobs Act of 2017.

However, in some US states, some additional corporate tax rates by state apply.

2. Payroll taxes

These are also types of taxes deducted from your salary. However, they have the specific purpose of covering your social security and medical insurance expenses .

In some cases, your employer will take care of your payroll taxation, and in others, you will have to do it yourself.

And then, we have payroll taxes under the Federal Insurance Contribution Act, or FICA taxes — shared between the employer and the employee.

In any case, the combined payroll taxes in the USA rarely exceed 15%.

3. Capital gains tax

Once your investments pay off, the earnings become taxable. These types of taxes we pay on profit from investments are known as capital gains taxes.

Capital gains taxes, therefore, apply to dividends and interests. Likewise, they’re imposed on stocks and bonds earnings but only once realized.

The rate of the tax you’ll have to pay will depend on several factors, but mostly on your tax bracket and the duration of your investment.

And so, in the US, short-term capital gains taxes match the regular income taxes. However, the long-term ones have much more favorable rates.

4. Property tax

To have a nice house in a good neighborhood is pretty much everyone’s dream.

Until they get the property taxes explained.

Basically, the more valuable your house and the better its area — the higher your taxes will be . And if you don’t have the adequate income or savings to support that, your unpaid property taxes could diminish your house value and sale chances.

Your property tax debt could turn into a tax lien and your dream into a nightmare.

But, how do you pay property taxes?

You pay property taxes to your local government. To calculate your tax rate, they multiply the fair market price of your property and the tax rate of your area. The results are the taxes that typically range from 0.50% to 4% of the property value.

As an owner, you have the right to declare the property value, which then a professional tax assessor may accept or alter.

5. Sales tax

In simplest terms, the sales tax is what you see at the bottom of your receipt every time you visit a store. It’s a tax on things you buy .

Sales tax falls under the category of consumption tax . Unlike income or capital gain tax, consumption tax is imposed on people’s spendings and not on their earnings.

It is also an indirect tax because the consumer pays for it, but the merchant is responsible for money reaching the government.

The two main types of sales taxes are:

General sales tax

Each of the US states applies the general sales taxes. To calculate them, one should multiply the purchase value with the effective tax rate in that state.

Usually, it’s the state government that imposes the official tax rates. Alaska, Delaware, Montana, New Hampshire, and Oregon are exemptions here since they entrust this responsibility to their local governments.

Sometimes the state and the city taxes both apply, leading to higher total sales tax.

Excise taxes or sin taxes

You must’ve heard of another type of compulsory taxation called sin taxes.

Sin or excise taxes are also consumption taxes which, most of the time, consumers settle indirectly.

The name itself suggests that these are the taxes that apply to specific, often harmful, goods. These include tobacco, alcohol, cigarettes, casino gains , and similar.

The taxes, usually, get levied on both federal and state levels. Besides, the rates of these taxes are among the highest, with the obvious intention of discouraging consumers. Sin taxes are either charged as:

• Ad valorem tax — expressed in percentages so they can vary.
• Fixed tax rates — flat fees added to the regular cost of an item.

6. Estate tax and inheritance tax

People often mix up and interchange these two different kinds of taxes. And although they share the settlement of taxes on assets inherited from a deceased person , this is how they differ:

Estate taxes — are covered by the estate itself before its assets even reach the heirs. Inheritance taxes — are left for heirs to settle upon the inheritance receipt.

Both of these types of taxation could be difficult to implement and complex to administer. On top of that, they often lead to unsatisfactory economic outcomes such as poor estate planning or altogether abandonment.

As a consequence, more and more states are dropping the estate and inheritance taxes.

7. Gift tax

Yes, you read it well.

You need to pay taxes on gifts too!

Or, to be precise, if you’re the donor of the gift, you will need to report it and settle the gift tax. The recipients usually don’t pay for these types of taxes in the USA.

Gift taxes have been created on a federal level to minimize income and capital gains tax avoidance . Namely, taxpayers realized, at some point, that by transferring some of their profit to their friends or relatives, they can steer clear of paying most of their income taxes.

By introducing gift taxes, the country got a better insight into its investors’ actions.

Gifts, in this case, are only the contributions of financial value that the receiver doesn’t cover in total. Partial payments are allowed for the contribution to remain a gift.

Although these types of federal tax can turn out to be quite high, 18% to 40%, they are usually still lower than capital gains taxes. Besides, there are a few tax gift exemptions that make gifting away some of your assets worth considering.

• One can give an unlimited asset amount tax-free to their US citizen spouse (or up to $159,000 if the spouse is not a citizen of the US).
• Gifts for educational and medical purposes to a person or institutions are tax-free.
• That applies to the gifts to charitable and political organizations too.
• Gifts that don’t exceed in value the annual gift-tax exclusion rate are free of tax.

8. Tariff taxes

Also known as import duty, custom duty, or import tax , these types of taxes in the US have the following aims:

• to raise funds for local governments
• to promote locally-grown food and locally-produced goods by giving them the tariff-free advantage
• at times, tariffs may even serve for restricting certain countries from importing their products (by applying high tariff rates on those products)

In the USA, Congress determines the tariff rates.

Most often, these rates are based on:

• the imported good’s value
• and the importing country’s relationship with the USA.

Special rates for underdeveloped countries apply. The same goes for the countries that are under the international trade program.

To sum everything up:

• Whether we like it or not, taxes are present in almost every sphere of our lives.
• Different types of federal taxes can take more than one-third of all your assets each year.
• The more you learn about tax, the lesser chances for potential fines and losses.
• The crucial purpose of taxation is funding major public programs and projects and, ultimately, a GDP rise.
• Besides, paying taxes is everyone’s legal obligation. And, failure to do so can lead to a lot of problems.

Federal taxes are the money that the government collects from individuals and companies to invest in healthcare, social security, infrastructure, education, and similar. Examples of federal taxes are income taxes, property taxes, and sale taxes.

Taxes in the US are collected on federal, state, and local levels. The government hires trusted professional agencies to do the tax collection. On a federal level, that is the IRS.

We pay different types of taxes on most of our earnings, our purchases, and our property. The list goes on, but these are the main segments of our tax obligations.

Yes, paying taxes is everyone’s law obligation. Failing to do so may lead to severe financial penalties or even jail time.

The main difference is that tax evasion is an illegal practice of concealing tax obligations and information from the authorities, while tax avoidance is completely legal. Tax avoidance merely represents one’s righteous methods for taxable income reduction.

A direct tax is every tax that you pay directly to a government body. And indirect taxes are those you pay to a merchant or service provider as a mediator between you and the government.

The main types of taxes are: income taxes, capital gains taxes, property taxes, sales taxes, estate taxes, gift taxes, payroll taxes, and tariff taxes.

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Canons of Taxation: Meaning, Types and Characteristics

Let us study about the Canons of Taxation. After reading this article you will learn about: 1. Meaning of Canons of Taxation 2. Types of Canons of Taxation 3. Characteristics.

Meaning of Canons of Taxation :

By canons of taxation we simply mean the characteristics or qualities which a good tax system should possess. In fact, canons of taxation are related to the administrative part of a tax. Adam Smith first devised the principles or canons of taxation in 1776.

Even in the 21st century, Smithian canons of taxation are applied by the modern governments while imposing and collecting taxes.

Types of Canons of Taxation:

In this sense, his canons of taxation are, indeed, ‘classic’. His four canons of taxation are:

ADVERTISEMENTS:

(i) Canon of equality or equity

(ii) Canon of certainty

(iii) Canon of economy

(iv) Canon of convenience.

Modern economists have added more in the list of canons of taxation.

(v) Canon of productivity

(vi) Canon of elasticity

(vii) Canon of simplicity

(viii) Canon of diversity.

Now we explain all these canons of taxation:

i. Canon of Equality:

Canon of equality states that the burden of taxation must be distributed equally or equitably among the taxpayers. However, this sort of equality robs of justice because not all taxpayers have the same ability to pay taxes. Rich people are capable of paying more taxes than poor people. Thus, justice demands that a person having greater ability to pay must pay large taxes.

If everyone is asked to pay taxes according to his ability, then sacrifices of all taxpayers become equal. This is the essence of canon of equality (of sacrifice). To establish equality in sacrifice, taxes are to be imposed in accordance with the principle of ability to pay. In view of this, canon of equality and canon of ability are the two sides of the same coin.

ii. Canon of Certainty:

The tax which an individual has to pay should be certain and not arbitrary. According to A. Smith, the time of payment, the manner of payment, the quantity to be paid, i.e., tax liability, ought all to be clear and plain to the contributor and to everyone. Thus, canon of certainty embraces a lot of things. It must be certain to the taxpayer as well as to the tax-levying authority.

Not only taxpayers should know when, where and how much taxes are to be paid. In other words, the certainty of liability must be known beforehand. Similarly, there must also be certainty of revenue that the government intends to collect over the given time period. Any amount of uncertainty in these respects may invite a lot of trouble.

iii. Canon of Economy:

This canon implies that the cost of collecting a tax should be as minimum as possible. Any tax that involves high administrative cost and unusual delay in assessment and high collection of taxes should be avoided altogether.

According to A. Smith: “Every tax ought to be contrived as both to take out and to keep out of the pockets of the people as little as possible, over and above what it brings into the public treasury of the State.”

iv. Canon of Convenience:

Taxes should be levied and collected in such a manner that it provides the greatest convenience not only to the taxpayer but also to the government.

Thus, it should be painless and trouble-free as far as practicable. “Every tax” , stresses A. Smith: “ought to be levied at time or the manner in which it is most likely to be convenient for the contributor to pay it.” That is why, after the harvest, agricultural income tax is collected. Salaried people are taxed at source at the time of receiving salaries.

These canons of taxation are observed, of course, not always faithfully, by modern governments. Hence these are basic and classic canons of taxation.

We now present other canons of taxation:

i. Canon of Productivity:

According to a well-known classical economist in the field of public finance, Charles F. Bastable, taxes must be productive or cost-effective. This implies that the revenue yield from any tax must be a sizable one. Further, this canon states that only those taxes should be imposed that do not hamper productive effort of the community. A tax is said to be a productive one only when it acts as an incentive to production.

ii. Canon of Elasticity:

Modern econo­mists attach great importance to the canon of elasticity. This canon implies that a tax should be flexible or elastic in yield.

It should be levied in such a way that the rate of taxes can be changed according to exigencies of the situation. Whenever the government needs money, it must be able to extract as much income as possible without generating any harmful consequences through raising tax rates. Income tax satisfies this canon.

iii. Canon of Simplicity:

Every tax must be simple and intelligible to the people so that the taxpayer is able to calculate it without taking the help of tax consultants. A complex as well as a complicated tax is bound to yield undesirable side-effects. It may encourage taxpayers to evade taxes if the tax system is found to be complicated.

A complicated tax system is expensive in the sense that even the most honest educated taxpayers will have to seek advice of the tax consultants. Ultimately, such a tax system has the potentiality of breeding corruption in the society.

iv. Canon of Diversity:

Taxation must be dynamic. This means that a country’s tax structure ought to be dynamic or diverse in nature rather than having a single or two taxes. Diversification in a tax structure will demand involvement of the majority of the sectors of the population.

If a single tax system is introduced, only a particular sector will be asked to pay to the national exchequer leaving a large number of population untouched. Obviously, incidence of such a tax system will be greatest on certain taxpayers. A dynamic or a diversified tax structure will result in the allocation of burden of taxes among the vast population resulting in a low degree of incidence of a tax in the aggregate.

The above canons of taxation are considered to be essential requirements of a good tax policy. Unfortunately, such an ideal tax system is rarely observed in the real world. But a tax authority must go on maintaining relentlessly the above canons of taxation so that a near- ideal tax structure can be built-up.

Characteristics of Canons of Taxation:

A good (may be a near-ideal) tax system has to fulfil the following characteristics:

i. The distribution of tax burden should be equitable such that every person is made to pay his ‘fair share’ .

This is known as the ‘fairness’ criterion which focuses on two principles:

Horizontal equity— equals should pay equal taxes; and vertical equity—un-equals should pay unequal taxes. That is to say, rich people should pay more taxes.

ii. But equity must not hamper productive efficiency such that burdens should be provided to correct inefficiencies. This ‘efficiency’ criterion says that it should raise revenue with the least costs to the taxpayers so that tax system can allocate resources without distortion.

iii. The two other criteria are: ‘flexibility’ and ‘transparency’.

A good tax system demands changes in tax rates whenever circumstances change the system. Further, a good tax must be transparent in the sense that taxpayers should know what they are paying for the services they are getting.

iv. A good tax system is expected to facilitate the use of fiscal policy to achieve the goals of

(a) stability

(b) economic growth.

For the attainment of these goals, there must be built-in-flexibility in the tax structure.

From the above discussion, it follows that taxation serves the following purposes:

(i) To raise revenue for the government

(ii) To redistribute income and wealth from the rich to the poor people

(iii) To protect domestic industries from foreign competition

(iv) To promote social welfare.

Related Articles:

• Canon of Taxation: 6 Canons | Economics
• Canons of Taxation Enunciated By Adam Smith – Discussed!
• Taxation by Government of India: Objectives and Canons
• Scope of Taxable Capacity: 5 Factors | Taxation

Tax - List of Essay Samples And Topic Ideas

Taxation refers to the mandatory financial charge or levy imposed upon a taxpayer by a governmental organization to fund public expenditures. Essays on tax could discuss various taxation systems, their impacts on economies, debates around tax policies, and the ethical considerations of taxation. The role of taxation in income redistribution and public services could also be explored. A substantial compilation of free essay instances related to Tax you can find in Papersowl database. You can use our samples for inspiration to write your own essay, research paper, or just to explore a new topic for yourself.

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• The four main types of essay | Quick guide with examples

The Four Main Types of Essay | Quick Guide with Examples

Published on September 4, 2020 by Jack Caulfield . Revised on July 23, 2023.

An essay is a focused piece of writing designed to inform or persuade. There are many different types of essay, but they are often defined in four categories: argumentative, expository, narrative, and descriptive essays.

Argumentative and expository essays are focused on conveying information and making clear points, while narrative and descriptive essays are about exercising creativity and writing in an interesting way. At university level, argumentative essays are the most common type. 

In high school and college, you will also often have to write textual analysis essays, which test your skills in close reading and interpretation.

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Table of contents

Argumentative essays, expository essays, narrative essays, descriptive essays, textual analysis essays, other interesting articles, frequently asked questions about types of essays.

An argumentative essay presents an extended, evidence-based argument. It requires a strong thesis statement —a clearly defined stance on your topic. Your aim is to convince the reader of your thesis using evidence (such as quotations ) and analysis.

Argumentative essays test your ability to research and present your own position on a topic. This is the most common type of essay at college level—most papers you write will involve some kind of argumentation.

The essay is divided into an introduction, body, and conclusion:

• The introduction provides your topic and thesis statement
• The body presents your evidence and arguments
• The conclusion summarizes your argument and emphasizes its importance

The example below is a paragraph from the body of an argumentative essay about the effects of the internet on education. Mouse over it to learn more.

A common frustration for teachers is students’ use of Wikipedia as a source in their writing. Its prevalence among students is not exaggerated; a survey found that the vast majority of the students surveyed used Wikipedia (Head & Eisenberg, 2010). An article in The Guardian stresses a common objection to its use: “a reliance on Wikipedia can discourage students from engaging with genuine academic writing” (Coomer, 2013). Teachers are clearly not mistaken in viewing Wikipedia usage as ubiquitous among their students; but the claim that it discourages engagement with academic sources requires further investigation. This point is treated as self-evident by many teachers, but Wikipedia itself explicitly encourages students to look into other sources. Its articles often provide references to academic publications and include warning notes where citations are missing; the site’s own guidelines for research make clear that it should be used as a starting point, emphasizing that users should always “read the references and check whether they really do support what the article says” (“Wikipedia:Researching with Wikipedia,” 2020). Indeed, for many students, Wikipedia is their first encounter with the concepts of citation and referencing. The use of Wikipedia therefore has a positive side that merits deeper consideration than it often receives.

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An expository essay provides a clear, focused explanation of a topic. It doesn’t require an original argument, just a balanced and well-organized view of the topic.

Expository essays test your familiarity with a topic and your ability to organize and convey information. They are commonly assigned at high school or in exam questions at college level.

The introduction of an expository essay states your topic and provides some general background, the body presents the details, and the conclusion summarizes the information presented.

A typical body paragraph from an expository essay about the invention of the printing press is shown below. Mouse over it to learn more.

The invention of the printing press in 1440 changed this situation dramatically. Johannes Gutenberg, who had worked as a goldsmith, used his knowledge of metals in the design of the press. He made his type from an alloy of lead, tin, and antimony, whose durability allowed for the reliable production of high-quality books. This new technology allowed texts to be reproduced and disseminated on a much larger scale than was previously possible. The Gutenberg Bible appeared in the 1450s, and a large number of printing presses sprang up across the continent in the following decades. Gutenberg’s invention rapidly transformed cultural production in Europe; among other things, it would lead to the Protestant Reformation.

A narrative essay is one that tells a story. This is usually a story about a personal experience you had, but it may also be an imaginative exploration of something you have not experienced.

Narrative essays test your ability to build up a narrative in an engaging, well-structured way. They are much more personal and creative than other kinds of academic writing . Writing a personal statement for an application requires the same skills as a narrative essay.

A narrative essay isn’t strictly divided into introduction, body, and conclusion, but it should still begin by setting up the narrative and finish by expressing the point of the story—what you learned from your experience, or why it made an impression on you.

Mouse over the example below, a short narrative essay responding to the prompt “Write about an experience where you learned something about yourself,” to explore its structure.

Since elementary school, I have always favored subjects like science and math over the humanities. My instinct was always to think of these subjects as more solid and serious than classes like English. If there was no right answer, I thought, why bother? But recently I had an experience that taught me my academic interests are more flexible than I had thought: I took my first philosophy class.

Before I entered the classroom, I was skeptical. I waited outside with the other students and wondered what exactly philosophy would involve—I really had no idea. I imagined something pretty abstract: long, stilted conversations pondering the meaning of life. But what I got was something quite different.

A young man in jeans, Mr. Jones—“but you can call me Rob”—was far from the white-haired, buttoned-up old man I had half-expected. And rather than pulling us into pedantic arguments about obscure philosophical points, Rob engaged us on our level. To talk free will, we looked at our own choices. To talk ethics, we looked at dilemmas we had faced ourselves. By the end of class, I’d discovered that questions with no right answer can turn out to be the most interesting ones.

The experience has taught me to look at things a little more “philosophically”—and not just because it was a philosophy class! I learned that if I let go of my preconceptions, I can actually get a lot out of subjects I was previously dismissive of. The class taught me—in more ways than one—to look at things with an open mind.

A descriptive essay provides a detailed sensory description of something. Like narrative essays, they allow you to be more creative than most academic writing, but they are more tightly focused than narrative essays. You might describe a specific place or object, rather than telling a whole story.

Descriptive essays test your ability to use language creatively, making striking word choices to convey a memorable picture of what you’re describing.

A descriptive essay can be quite loosely structured, though it should usually begin by introducing the object of your description and end by drawing an overall picture of it. The important thing is to use careful word choices and figurative language to create an original description of your object.

Mouse over the example below, a response to the prompt “Describe a place you love to spend time in,” to learn more about descriptive essays.

On Sunday afternoons I like to spend my time in the garden behind my house. The garden is narrow but long, a corridor of green extending from the back of the house, and I sit on a lawn chair at the far end to read and relax. I am in my small peaceful paradise: the shade of the tree, the feel of the grass on my feet, the gentle activity of the fish in the pond beside me.

My cat crosses the garden nimbly and leaps onto the fence to survey it from above. From his perch he can watch over his little kingdom and keep an eye on the neighbours. He does this until the barking of next door’s dog scares him from his post and he bolts for the cat flap to govern from the safety of the kitchen.

With that, I am left alone with the fish, whose whole world is the pond by my feet. The fish explore the pond every day as if for the first time, prodding and inspecting every stone. I sometimes feel the same about sitting here in the garden; I know the place better than anyone, but whenever I return I still feel compelled to pay attention to all its details and novelties—a new bird perched in the tree, the growth of the grass, and the movement of the insects it shelters…

Sitting out in the garden, I feel serene. I feel at home. And yet I always feel there is more to discover. The bounds of my garden may be small, but there is a whole world contained within it, and it is one I will never get tired of inhabiting.

Though every essay type tests your writing skills, some essays also test your ability to read carefully and critically. In a textual analysis essay, you don’t just present information on a topic, but closely analyze a text to explain how it achieves certain effects.

Rhetorical analysis

A rhetorical analysis looks at a persuasive text (e.g. a speech, an essay, a political cartoon) in terms of the rhetorical devices it uses, and evaluates their effectiveness.

The goal is not to state whether you agree with the author’s argument but to look at how they have constructed it.

The introduction of a rhetorical analysis presents the text, some background information, and your thesis statement; the body comprises the analysis itself; and the conclusion wraps up your analysis of the text, emphasizing its relevance to broader concerns.

The example below is from a rhetorical analysis of Martin Luther King Jr.’s “I Have a Dream” speech . Mouse over it to learn more.

King’s speech is infused with prophetic language throughout. Even before the famous “dream” part of the speech, King’s language consistently strikes a prophetic tone. He refers to the Lincoln Memorial as a “hallowed spot” and speaks of rising “from the dark and desolate valley of segregation” to “make justice a reality for all of God’s children.” The assumption of this prophetic voice constitutes the text’s strongest ethical appeal; after linking himself with political figures like Lincoln and the Founding Fathers, King’s ethos adopts a distinctly religious tone, recalling Biblical prophets and preachers of change from across history. This adds significant force to his words; standing before an audience of hundreds of thousands, he states not just what the future should be, but what it will be: “The whirlwinds of revolt will continue to shake the foundations of our nation until the bright day of justice emerges.” This warning is almost apocalyptic in tone, though it concludes with the positive image of the “bright day of justice.” The power of King’s rhetoric thus stems not only from the pathos of his vision of a brighter future, but from the ethos of the prophetic voice he adopts in expressing this vision.

Literary analysis

A literary analysis essay presents a close reading of a work of literature—e.g. a poem or novel—to explore the choices made by the author and how they help to convey the text’s theme. It is not simply a book report or a review, but an in-depth interpretation of the text.

Literary analysis looks at things like setting, characters, themes, and figurative language. The goal is to closely analyze what the author conveys and how.

The introduction of a literary analysis essay presents the text and background, and provides your thesis statement; the body consists of close readings of the text with quotations and analysis in support of your argument; and the conclusion emphasizes what your approach tells us about the text.

Mouse over the example below, the introduction to a literary analysis essay on Frankenstein , to learn more.

Mary Shelley’s Frankenstein is often read as a crude cautionary tale about the dangers of scientific advancement unrestrained by ethical considerations. In this reading, protagonist Victor Frankenstein is a stable representation of the callous ambition of modern science throughout the novel. This essay, however, argues that far from providing a stable image of the character, Shelley uses shifting narrative perspectives to portray Frankenstein in an increasingly negative light as the novel goes on. While he initially appears to be a naive but sympathetic idealist, after the creature’s narrative Frankenstein begins to resemble—even in his own telling—the thoughtlessly cruel figure the creature represents him as. This essay begins by exploring the positive portrayal of Frankenstein in the first volume, then moves on to the creature’s perception of him, and finally discusses the third volume’s narrative shift toward viewing Frankenstein as the creature views him.

If you want to know more about AI tools , college essays , or fallacies make sure to check out some of our other articles with explanations and examples or go directly to our tools!

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At high school and in composition classes at university, you’ll often be told to write a specific type of essay , but you might also just be given prompts.

Look for keywords in these prompts that suggest a certain approach: The word “explain” suggests you should write an expository essay , while the word “describe” implies a descriptive essay . An argumentative essay might be prompted with the word “assess” or “argue.”

The vast majority of essays written at university are some sort of argumentative essay . Almost all academic writing involves building up an argument, though other types of essay might be assigned in composition classes.

Essays can present arguments about all kinds of different topics. For example:

• In a literary analysis essay, you might make an argument for a specific interpretation of a text
• In a history essay, you might present an argument for the importance of a particular event
• In a politics essay, you might argue for the validity of a certain political theory

An argumentative essay tends to be a longer essay involving independent research, and aims to make an original argument about a topic. Its thesis statement makes a contentious claim that must be supported in an objective, evidence-based way.

An expository essay also aims to be objective, but it doesn’t have to make an original argument. Rather, it aims to explain something (e.g., a process or idea) in a clear, concise way. Expository essays are often shorter assignments and rely less on research.

The key difference is that a narrative essay is designed to tell a complete story, while a descriptive essay is meant to convey an intense description of a particular place, object, or concept.

Narrative and descriptive essays both allow you to write more personally and creatively than other kinds of essays , and similar writing skills can apply to both.

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The Importance of Tax in Our Life Essay (Critical Writing)

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Introduction

Importance of tax.

Bibliography

Tax is one of the ways for authorities in the public sector to raise revenue to run their projects. Public administrations are charged with the development of sufficient revenue to finance programs that benefit the society; hence, they have to either raise the money through investments or apply levies on various commodities to generate the funds. The government can also introduce taxes with the aim of aligning the behavior of various entities with a given policy.

For instance, carbon taxes are used to compel different entities to reduce the impact of their business processes on the environment 1 . In the case under analysis, authorities in Cook County, Chicago, introduced a controversial tax on sweetened beverages in the soft drink field. Taxes are meant to generate revenue or to regulate the behavior of different entities; hence, the actual purpose of a new tax should be communicated to the public.

Lawmakers in the county responded to the pressure from citizens and various lobbying groups that had reviewed the nature and effects of the proposed tax. It is apparent that the tax was meant to reduce the consumption of sweetened soft drinks with the hope that consumers would be discouraged by the increased prices of the products 2 . However, the tax was not effective in attaining the intended health promotion objective because consumers could easily drive to the nearby towns outside the county and shop for the drinks.

A critical view of the tax reveals that its intention was not to boost health outcomes for the citizens of Cook County, but to help the administration in raising about $1.8 billion annually to increase its budget 3 . The government has been facing challenges in raising the required funds for the budget, and it is apparent that the only option it has is the development of new taxes that help in raising the deficit. Economic principles reveal that whenever an administration is facing deficits in its annual budget, there are some options that it may pursue to raise the required money 4 .

Taxes directly involve citizens in contributing to public programs run by the government 5 . However, the government is always limited by various policies when it comes to the introduction of taxes 6 . The policies are meant to ensure that the administration does not introduce laws that exploit the public in an unfair manner. For instance, in Cook County, the local government observes laws that dictate against the development of additional sales taxes on commodities 7 . The associated lawmakers had to introduce the tax at the point of sale, which was quite a bad choice because it would exempt all consumers using food stamps as stipulated by the law.

This case reveals that while taxes are necessary for boosting the capabilities of the government in meeting its obligations and plans, they have to be introduced in a manner that shows legitimacy and appropriate reasoning on the part of the proponents 8 . The tax on sweetened fizzy drinks was banned because its legitimacy was questionable. First, the administration did not have a solid reason for introducing the tax. Secondly, the intentions of the tax were concealed through the claim that the tax was meant to enhance health outcomes for the citizens of Cook County.

The Cook County administration demonstrated that it is always necessary for the authorities to look into introducing legitimate taxes. By introducing the tax, the government intended to raise more money to boost its budget, rather than promote health outcomes as the leaders claimed. Taxes are normally applied to finance government projects by raising revenue or regulating certain behaviors on the part of various entities.

Auerbach, Alan, Raj Chetty, Martin Feldstein, and Emmanuel Saez, eds. Handbook of Public Economics . Vol. 5. Boston: Newnes, 2013.

“ Chicago’s Soda Tax Is Repealed. ” The Economist , 2017. Web.

Lawton, Amy. “Green Taxation Theory in Practice: The 2012 Reform of the Carbon Reduction Commitment.” Environmental Law Review 18, no. 2 (2016): 126-141.

Lu, Xiaobo, and Kenneth Scheve. “Self-Centered Inequity Aversion and the Mass Politics of Taxation.” Comparative Political Studies 49, no. 14 (2016): 1965-1997.

Rood, Deborah K. “The Importance of Tax Quality Control.” Journal of Accountancy 219, no. 4 (2015): 24.

Saad, Natrah. “Tax Knowledge, Tax Complexity and Tax Compliance: Taxpayers’ View.” Procedia-Social and Behavioral Sciences 109, no.1 (2014):1069-1075.

• Amy Lawton, “Green Taxation Theory in Practice: The 2012 Reform of the Carbon Reduction Commitment,” Environmental Law Review 18, no. 2 (2016): 126-141.
• “Chicago’s Soda Tax Is Repealed,” The Economist , 2017. Web.
• “Chicago’s Soda Tax Is Repealed.”
• Natrah Saad, “Tax Knowledge, Tax Complexity and Tax Compliance: Taxpayers’ View,” Procedia-Social and Behavioral Sciences 109, no.1 (2014):1069-1075.
• Alan J. Auerbach et al., eds., Handbook of Public Economics , Vol. 5 (Boston: Newnes, 2013), 4.
• Deborah K. Rood, “The Importance of Tax Quality Control,” Journal of Accountancy 219, no. 4 (2015): 24.
• Xiaobo Lu and Kenneth Scheve, “Self-Centered Inequity Aversion and the Mass Politics of Taxation,” Comparative Political Studies 49, no. 14 (2016): 1965-1997.
• Tax Reform in the United States
• E-Commerce Taxation Challenges: A Global Perspective
• Childhood Obesity Scientific Studies
• Obesity and Its Challenges Analysis
• Obesity: the Public Health Challenge of Our Time
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IvyPanda. (2020, October 31). The Importance of Tax in Our Life. https://ivypanda.com/essays/the-importance-of-tax-in-our-life/

"The Importance of Tax in Our Life." IvyPanda , 31 Oct. 2020, ivypanda.com/essays/the-importance-of-tax-in-our-life/.

IvyPanda . (2020) 'The Importance of Tax in Our Life'. 31 October.

IvyPanda . 2020. "The Importance of Tax in Our Life." October 31, 2020. https://ivypanda.com/essays/the-importance-of-tax-in-our-life/.

1. IvyPanda . "The Importance of Tax in Our Life." October 31, 2020. https://ivypanda.com/essays/the-importance-of-tax-in-our-life/.

IvyPanda . "The Importance of Tax in Our Life." October 31, 2020. https://ivypanda.com/essays/the-importance-of-tax-in-our-life/.

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Types of Taxes in India

Last updated on March 11, 2024 by ClearIAS Team

The Central Government and the State Governments each levy their different types of taxes in India under India’s system of taxation. Local governments like the Municipality and Local Governments also impose a few small levies.

Money is needed to handle a state’s business and administer its government. Therefore, the government levies taxes in many different ways on the revenues of people and businesses.

Let’s see what are the different types of taxes in India.

Table of Contents

What is Tax?

The cost of some transactions, goods, and services is increased by types of tax in India, which the Indian government imposes on corporate profits and worker income in addition to other costs.

To raise money for commercial endeavors that would boost the nation’s economy and elevate citizens’ quality of living, the government levies taxes on its constituents.

The Indian Constitution, which gives the State and Central governments equal authority to impose different types of taxes in India, is the source of our nation’s right to taxation. Every tax levied within the nation must be supported by a law established by the State Legislature or the Parliament.

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Different types of taxes in India are broadly classified into two types:

• Direct Taxes
• Indirect Taxes

A direct tax is imposed directly upon the taxpayer and is paid by individuals who are subject to it by the government. Levying and collecting direct taxes as well as developing other direct tax regulations fall within the purview of the Central Board of Direct Taxes.

A taxpayer may be required to pay a direct tax to the government for several different reasons, including real estate taxes, personal property taxes, income taxes, asset taxes, gift taxes, capital gains taxes, and others. One of the government’s two primary sources of income is direct taxation.

The other is indirect tax. Direct taxes generate around half of the government’s revenue each fiscal year. The government sets fiscal year-specific goals for direct tax collection to raise income.

Examples of Direct Tax

Examples of direct tax include Income tax, corporation tax, minimum alternate tax, capital gain tax, securities transaction tax, commodities transaction tax, alternate minimum tax, estate duty, wealth tax, gift tax, and fringe benefit tax.

• Income tax is levied on individuals, Hindu undivided families, unregistered firms, and other groups of people.
• In India, the income tax system is progressive.
• All forms of income are aggregated and taxed by the individual’s income tax brackets.
• Depending on the amount of net income, different rates of income tax are applied. For instance, if net taxable income is between Rs. 5 and 7.5 lakhs, an income tax of 10% is levied.
• There is a 10% surcharge on income tax in cases when the total income is greater than Rs 50 lakh but not greater than Rs 1 crore.

Note: Agricultural income is not subject to tax.

Corporation Tax

• It is a tax levied against the earnings of businesses and corporations. Additionally known as corporate tax .
• A company must pay a separate tax from its owner’s income tax since it is recognized as a separate entity for tax purposes.
• Both public and private companies that are registered in India under the Companies Act 1956 are required to pay corporation tax.
• All domestic enterprises must pay corporation tax at a rate of 22% as of January 2022.

Minimum Alternate Tax

• By utilizing the various incentives and exemptions made available by the Income-tax Act, businesses with high profits and sizable dividends to shareholders who were not paying corporate tax to the government were required to pay a set percentage of book profit as minimum alternate tax, according to the concept of Minimum Alternate Tax (MAT).
• As a result, the government levies an advance tax on these companies called the Minimum Alternate Tax, or MAT. Businesses must therefore pay at least a specified amount of tax.
• According to the Income Tax Act, a portion of a company’s booked earnings is automatically deemed taxable income, and tax is required if the company’s taxable income is less than a specific percentage of those profits.
• The rate of MAT is 15% as of January 2022.

Capital Gain Tax

• Any profit or gain realized from the sale of a capital asset is referred to as a capital gain.
• Taxation is imposed on capital sale profits.
• Capital assets include things like land, structures, homes, jewelry, patents, and copyrights.
• A capital asset held for less than 36 months is referred to as a short-term capital asset.
• Long-term capital asset – An asset that has been held for longer than 36 months is referred to be a long-term capital asset.
• The 36-month minimum for immovable property (land, buildings, and houses) has been lowered to 24 months as of FY 2017–18.
• For instance, if you sell a house after owning it for 24 months, any income you receive if you do so after March 31, 2017, will be regarded as a long-term capital gain.
• Transportable items are free from this adjustment, though, including jewelry and mutual funds that invest in debt.
• They will be categorized as long-term capital assets if held for some time greater than 36 months.
• Depending on the amount of income received, different capital gains taxes are applied to short- and long-term profits.

Securities Transaction Tax

• Gains on securities including shares, options, and futures traded on the domestic stock exchange are subject to a tax known as the securities transaction tax.
• It is a direct tax that the federal government imposes and collects.
• During his tenure as finance minister, P. Chidambaram introduced the Securities Transaction Tax (STT) first in 2004.

Commodities Transaction Tax

• In India, the exchange-traded non-agricultural commodity derivatives buyers and sellers are both subject to the commodity transaction tax.
• Based on the size of the contract, it is determined.
• Commodities covered by CTT include non-farm items including metals (gold, silver, and copper) and energy products (crude oil and natural gas).

Alternate Minimum Tax

• Alternate Minimum Tax (AMT) is to limited liability partnerships what Minimum Alternate Tax (MAT) is to corporations.
• Other commercial entities, such as sole proprietorships, partnerships, and associations of people, are exempt from this tax.

Estate Duty

• It was initially presented in 1953. When a person passes away, it is imposed on all of their possessions.
• The entire estate of the decedent is regarded as his wealth and is taxable.
• The tax hasn’t been in place since 1985.
• It was initially shown in 1957.
• Individuals, combined Hindu families, and companies with a surplus of net value were subject to it.
• Wef 2015, the tax was abolished.
• It was initially released in 1958.
• The only donations exempt from the gift tax were those made by public and private organizations that support charitable institutions.
• The tax hasn’t been collected since 1998.

Fringe Benefits Tax

• To reduce the profit on booked entries, many businesses provide their staff with various bonuses and maintain them below their input cost.
• As a result, there is less profit, which lowers government taxation.
• The Fringe Benefits Tax (FBT), which is effectively a tax that an employer must pay instead of the benefits granted to his or her employees, was enacted by the government as a response to this.
• It was an effort to tax all perks that were being used to avoid paying taxes.
• The fringe benefits tax was eliminated in India’s Union budget for 2009.

Advantages of Direct Tax

• Economic Balance: To achieve economic and social balance, the government establishes tax brackets based on an individual’s income and age. The tax rate is determined by the nation’s economic situation. People are given exceptions to balance out economic inequalities.
• Ensures equality: For the government to help the poor and vulnerable in society, higher taxes must be paid by people and enterprises with higher profits. This keeps the economy in balance.
• Gives Certainty: The direct tax gives both the government and the taxpayers confidence because both parties are aware of the exact amount of tax that must be paid and collected.
• Addresses inflation issues: In times of high inflation, the government boosts taxes to reduce demand for goods and services, which causes inflation to decline.
• Makes Government Accountable: People are aware that paying taxes is necessary. As a result, he or she is involved in the government’s use of taxes and is aware of his or her rights. By doing this, accountability for the government is ensured.

Disadvantages of Direct Tax

• Can be easily evaded: Not everybody wants to pay taxes. Some people are willing to file a false tax return to avoid paying taxes. These people can simply conceal their income since they are not subject to state law.
• Tax slabs are arbitrary: If taxes are progressive, they are set at the Finance Minister’s discretion. If it is proportional, it significantly burdens the underprivileged.
• Obstructs growth: High taxes discourage people from investing and saving, which hurts the nation’s economy. It harms enterprises and industries by impeding their expansion.
• Inconvenience: A direct tax’s major drawback is that it hurts the taxpayer. He senses that his hard-earned money has been stolen away when a large sum is taken from his pocket. Direct tax payment is therefore rather inconvenient.

Indirect Tax

• Indirect taxes are levied against the party who will ultimately bear the financial burden of the tax through the use of an intermediary.
• The taxpayer has the option to transfer it to another party.
• The middleman creates a tax return and sends the government’s tax revenue with it.
• In this regard, an indirect tax is distinct from a direct tax, which is paid by the government directly to the people (whether legal or natural) who are subject to it.
• Instead of using a person’s income, indirect taxes are calculated using their expenses.
• Suppliers of products and services are subject to indirect taxes, but consumers are ultimately responsible for paying them.

Examples of Indirect Tax

Examples of Indirect tax include customs duty, sales tax, excise duty, service tax, value-added tax, and dividend distribution tax.

Customs Duty

• Customs duties are imposed as a tariff or fee when goods are transported across international borders.
• Its objective is to protect the nation’s economy.
• Under customs regulations, several different types of duties are levied, including Basic Duty, Countervailing Duty, Protective Duty, Anti-Dumping Duty, and Export Duty.
• Import taxes are used to control business as well as to bring in money for the government.
• Ad valorem calculations are used in India to determine import taxes.
• A national indirect tax known as GST ( Goods and Services Tax ) is levied on the production, sale, and consumption of goods and services.
• All indirect taxes imposed on products and services by the federal and state governments have been replaced by it.
• A sales tax in India is a sort of tax that the government imposes on the sale or purchase of a certain good inside the nation.
• Both the federal government and the state governments impose a sales tax.
• IGST has since taken its place.

Excise Duty

• Excise duty is a commodities tax in the true sense of the word because it is levied on the production of goods rather than their sale in India.
• The federal government levies a clear excise duty on all goods except alcoholic beverages and illegal drugs.
• CGST has since taken its position.

Service Tax

• All rendered services in India are subject to a service tax.
• A service tax was introduced in 1994–1995 on three services: stockbroking, general insurance, and telephone services.
• Since then, the service net has been wider as new services are added every year. We now have an exclusion criterion known as a “negative list,” where certain services are not included in the tax net.
• Before being replaced by the Goods and Services Tax, the service tax rate in India was 15%.

Value Added Tax

• Because of the way it is designed, the VAT does away with distortions.
• As a result, VAT has been imposed in all of India’s states and union territories (except UTs of Andaman Nicobar and Lakshadweep).
• The state determines the amount of the tax, which is levied on a range of goods sold in the state.
• State Sales Tax had been replaced with State VAT, which was in effect until July 1, 2017.
• SGST has since taken its position.

Dividend Distribution Tax

• A dividend is a payment made from a company’s profits in a certain year to its stockholders. Dividends are income in the eyes of the shareholders, hence they ought should ideally be taxable.
• The amount of dividends given to shareholders is the basis for the tax that the Indian government imposes on Indian firms.
• When DDT was originally made available in 1997, it was governed under Section 115 O of the Income Tax Act.
• In Budget 2020, the Finance Minister got rid of the Dividend Distribution Tax.
• Now that corporations are no longer required to pay dividend taxes, individuals must.

Advantages of Indirect Tax

• Everyone can contribute: Indirect taxes are levied on everyone who purchases a product, unlike income taxes, which are paid by some income groups but not by others. Tourists and persons from lower socioeconomic backgrounds who are not employed in India must pay it because they will buy items in some capacity.
• Indirect Taxes are convenient: They are quite practical when it comes to collecting indirect taxes. Customers do not feel forced to spend such small amounts even though taxes may be extremely cheap. Additionally, they are an affordable fee that is included in the cost of the goods sold.
• They are unavoidable: Indirect taxes cannot be avoided because they are part of the product’s price. Anyone who buys the good will therefore be liable for the tax.
• They cover a wide range: The consumer will notice and suffer greatly if a service or product is heavily taxed on only one characteristic. Because they are applied to more products and are paid in smaller sums in this situation, indirect taxes may be favorable.

Disadvantages of Indirect Taxes

• Indirect taxes have the potential to be regressive: It can be argued that it is unfair to the poor because everyone pays the same indirect tax. Indirect tax is imposed on all purchases, and while the wealthy may be able to pay it, the poor will also be responsible for it. Indirect taxes may therefore be viewed as regressive.
• They are inflationary in effect: The precise percentage of tax that applies to every item that a seller sells might not always be possible to calculate and collect. To ensure that every customer pays the indirect tax, they purposely charge more than the tax amount. But over time, this drives up the cost of commodities.
• They do not raise civic consciousness: Because they are buried in the price, millions of people who pay indirect taxes aren’t even aware that they are doing it, which lowers civic consciousness.

Also read: Tax buoyancy

Difference Between Direct and Indirect Taxes

Cess and Surcharge

The Union Government imposes cess and surcharges as taxes to generate revenue for administrative costs. Even though cess and surcharge increase the government’s revenue, they differ in many ways.

• In its most basic form, a cess is a levy on tax.
• It is crucial to keep in mind that a cess may only be used for the intended purpose.
• For instance, the Indian government only utilizes money collected from an education cess for education.
• Furthermore, all taxpayers must pay this tax.
• To the Consolidated Fund of India, cess taxes are paid.
• In general, cess is anticipated to be levied up until the government has a strong enough reason to do so and to disappear after that reason has been achieved.
• Since a cess is imposed in addition to the present tax, it differs from other taxes like excise duty and income tax (tax on tax).
• For instance, adding a 5% education tax to a 20% income tax will increase the entire tax to 21%. (20% base tax + an additional 5% cess).
• The main cesses that are currently in effect are those for education, roads, infrastructure, clean energy, Krishi Kalyan, and Swachh Bharat .
• Individuals with net taxable salaries of more than Rs 1 crore are subject to a 10% surcharge on their tax obligations.
• If net income is between Rs 1 crore and Rs 10 crore, domestic corporations must pay a surcharge of 5%. 10% of the net revenue over Rs 10 crore is subject to a surcharge.
• If the net income is between Rs 1 crore and Rs 10 crore, a 2% surcharge is imposed on international firms.
• The surcharge is raised to 5% if the net income surpasses Rs 10 cr. If the net income surpasses Rs 1 crore and Rs 10 crore, both domestic and foreign enterprises receive a margin of relief.
• A tax surcharge on income is a significant source of funding for the state.
• The Union Government may use this money for any purpose it sees fit.
• It’s important to note that just the tax that must be paid, not the entire income, is covered.
• The Consolidated Fund of India receives this payment, which may be used for any purpose.

A 10 percent surcharge on a 30 percent income tax rate, for example, brings the tax burden to 33 percent.

Benefits of Taxes

Different types of taxes in India are intended to give the government money for expenditure while preventing inflation. Various types of income, including wages, business profits, rental income from real estate, and others, are subject to taxation.

Wealth taxes, sales taxes, property taxes, payroll taxes, value-added taxes, service taxes, and so on are additional taxes.

Types of taxes in India are used by the government for several things, including:

• Public sector investment for infrastructure
• projects for welfare and development
• Defense budget
• Using data from scientific studies, public insurance
• Government and state workers get a range of pay.
• the running of the public transportation network of the government
• Unemployment benefits
• pension schemes
• the application of the law

Examples of public utilities include systems for managing garbage, water, electricity, and public health.

Different types of taxes in India therefore have both benefits and drawbacks, but there is no denying that they are necessary to raise money. While the wealthy can pay direct taxes, the poor have the chance to make a small contribution through indirect taxes.

There is a lot of potential to change things by controlling these tax systems. These factors make a nation’s taxation system crucial to its economy.

Read:  Tax buoyancy

Article written by: Remya

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• Taxation India

Taxation in India

The taxation system in India is such that the taxes are levied by the Central Government and the State Governments. Some minor taxes are also levied by the local authorities such as the Municipality and the Local Governments.

To run the government and manage the affairs of a state, money is required. So the government imposes taxes in many forms on the incomes of individuals and companies.

Classification of Taxes

Broadly taxes are divided into two categories:

Direct Taxes

Indirect taxes.

This is an important topic for IAS Exam . In this article, relevant details related to taxation in India have been provided.

Taxation in India (UPSC Notes):- Download PDF Here

A direct tax can be defined as a tax that is paid directly by an individual or organization to the imposing entity (generally government). A direct tax cannot be shifted to another individual or entity. The individual or organization upon which the tax is levied is responsible for the fulfilment of the tax payment.

The Central Board of Direct Taxes deals with matters related to levying and collecting Direct Taxes and formulation of various policies related to direct taxes.

A taxpayer pays a direct tax to a government for different purposes, including real property tax, personal property tax, income tax or taxes on assets, FBT, Gift Tax, Capital Gains Tax, etc.

The term indirect tax has more than one meaning. In the colloquial sense, an indirect tax such as sales tax, a specific tax, a value-added tax (VAT), or goods and services tax (GST) is a tax collected by an intermediary (such as a retail store) from the person who bears the ultimate economic burden of the tax (such as the consumer).

The intermediary later files a tax return and forwards the tax proceeds to the government with the return. In this sense, the term indirect tax is contrasted with a direct tax which is collected directly by the government from the persons (legal or natural) on which it is imposed.

To know about goods and service tax in detail, check the linked article.

Some of the important Direct taxes:-

Fringe Benefit Tax

To reduce the profit on booked entry, many companies started providing various benefits to their employees and maintaining them under their input cost. Thus reducing the profit which in turn leads to less taxation by the government.

Therefore government-imposed Fringe Benefits Tax (FBT) which is fundamentally a tax that an employer has to pay instead of the benefits that are given to his/her employees. It was an attempt to comprehensively levy a tax on those benefits, which evaded the tax.

The list of benefits encompassed a wide range of privileges, services, facilities, or amenities which were directly or indirectly given by an employer to current or former employees, be it something simple like telephone reimbursements, free or concessional tickets, or even contributions by the employer to a superannuation fund.

FBT was introduced as a part of the Finance Bill of 2005 and was set at 30% of the cost of the benefits given by the company. This tax needed to be paid by the employer in addition to the income tax, irrespective of whether the company had an income-tax liability or not.

The fringe benefits tax was abolished in the 2009 Union budget of India.

Minimum Alternate Tax

The concept of Minimum Alternate Tax (MAT) was introduced in the direct tax system to make sure that companies having large profits and declaring substantial dividends to shareholders but who were not contributing to the Government by way of corporate tax, by taking advantage of the various incentives and exemptions provided in the Income-tax Act, pay a fixed percentage of book profit as minimum alternate tax.

As per the Income Tax Act, if a company’s taxable income is less than a certain percentage of the booked profits, then by default, that much of the book profits will be considered as taxable income and tax has to be paid on that.

It is called MAT and is a direct tax. It was introduced to deter some companies who managed their account in such a way that they end up paying zero or no tax to the government.

The current rate of MAT is 18.5%.

Alternate Minimum Tax

Under the existing provisions of the Income-tax Act, Minimum Alternate Tax (MAT) and Alternate Minimum Tax (AMT) are levied on companies and limited liability partnerships (LLPs) respectively.

That means what is MAT to the companies, AMT is to the LLPs. However, no such tax is levied on the other form of business organizations such as partnership firms, sole proprietorships, an association of persons, etc.

To widen the tax base vis-à-vis profit linked deductions, it is proposed to amend provisions regarding AMT contained in the Income-tax Act to provide that a person other than a company, who has claimed deduction under any section (other than section 80P), shall be liable to pay AMT.

Under the proposed amendments, where the regular income-tax payable for a previous year by a person (other than a company) is less than the alternate minimum tax payable for such previous year, the adjusted total income shall be deemed to be the total income of such person and he shall be liable to pay income-tax on such total income at the rate of eighteen and one-half percent.

Aspirants can also refer to the following links for UPSC exam preparation:

Indirect Taxes in India

Indirect taxes in India can be broadly classified into:

• Production of goods: Excise or CenVAT
• Distribution of goods: Sales Tax
• Production and Distribution of services (because they can’t be separated):
• Service Tax

In India, generally, taxes on production or manufacturing (Excise) is levied by the centre, and taxes on sales (Sales Tax) is levied by the states.

Excise duties

Excise duty (Central VAT) is a tax on the manufacture of goods within the country. Excise duties are levied under the Central Excise and Salt Act, 1944, the Excise Tariff Act, 1985, and the Modified Value Added Tax (MODVAT) scheme or CENVAT.

The rates of excise duty levied vary depending inter alia on the nature of the item manufactured, the nature of the manufacturing concern, and the place of ultimate sale.

The duty rates are either ad valorem (i.e. a fixed percentage of the cost of production), specified (a fixed rate depending on the nature of the manufactured item, for example, length of product or count of product), or a combination of both.

The MODVAT scheme, introduced in 1986, on the recommendation of the L K Jha Committee, applies to certain specific items.

The objective of this scheme is to limit the cascading effect of duty incidence on several goods subject to excise which are further used as inputs for other excisable goods.

Under the scheme, MODVAT credit can be claimed on the purchase of raw materials on which excise has been paid.

This MODVAT credit can be used to set off excise duty payable on subsequent manufacture of goods.

Sales tax is levied on the sale of a commodity that is produced or imported and sold for the first time.

If the product is sold subsequently without being processed further, it is exempt from sales tax. Sales tax is levied by either the Central or the State Government, Central Sales tax, or 4% is generally levied on all inter-State sales.

State sales taxes that apply to sales made within a State have rates that range from 4 to 15%. However, exports and services are exempt from sales tax.

Service tax

Service tax is a part of Central Excise in India. It is a tax levied on services provided in India, except the State of Jammu and Kashmir.

The responsibility of collecting the tax lies with the Central Board of Excise and Customs (CBEC).

Frequently Asked Questions on Taxation in India

Q 1. what are the major state taxes in india, q 2. what is the goods and services tax, q 3. which are the major central taxes in india.

Ans. There are four major Central Taxes in India:

• Central Goods & Services Tax (CGST)
• Customs Duty
• Integrated Goods & Services Tax (IGST)

Q 4. What is the difference between Direct and Indirect Tax?

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Essay Writing Guide

Types Of Essay

Common Types of Essays - Sub-types and Examples

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Ever felt overwhelmed by the sheer number of "essays" out there? Essays are fundamental tools in education and communication, designed to inform, persuade, and narrate experiences. 

Understanding the different types of essays is important in academics. There are four primary categories: argumentative, expository, narrative, and descriptive and each type serves a distinct purpose. 

This guide will explore each type and its subtypes with examples providing clear examples to improve your writing skills.

Let’s get started!

• 1. 4 Main Types of Essays In Academic Writing
• 2. Argumentative Essay
• 3. Descriptive Essay
• 4. Expository Essay
• 5. Narrative Essay
• 6. Other Common Essay Types

4 Main Types of Essays In Academic Writing

In academic years, essay writing develops essential skills. At the university level, argumentative essays are most common, honing critical thinking and persuasive writing.           

In high school and college, textual analysis essays test close reading and interpretation, enhancing analytical thinking and clear articulation. Let's explore these essay types along with their descriptions and example prompts in the table below:

Please note that the length of these essays depends on academic level, assignment requirements, and topic complexity. University essays are usually longer due to deeper analysis, while high school essays are shorter and more focused on foundational skills. Argumentative essays often require more length than narrative or descriptive essays to support thorough argumentation. 

Let’s take a look at these types of essays in detail, along with examples to further your understanding.

Argumentative Essay

An argumentative essay is an essay type that presents a well-structured argument supported by evidence and reasoning. The primary goal is to engage the reader in a discussion, provide evidence, and logically demonstrate why a particular viewpoint is more valid.

In simple terms, the writer must provide evidence and stay consistent with their viewpoint, focusing on a specific type of argument . While argumentative essays discuss both sides of an issue, they clearly advocate for one perspective.

Characteristics of Argumentative Essay

• Clear Thesis: It should have a clear thesis statement to state the writer's position.
• Balanced Presentation: An argumentative essay addresses opposing views.
• Evidence: It relies on credible and relevant evidence.
• Logical Reasoning: The essay presents arguments coherently and logically.

The argumentative essay outline follows the same basic structure as other essays but includes an additional section for the counterargument.

• Introduction: The introduction introduces the topic and thesis, engaging the reader's interest.
• Body: The body paragraphs present arguments with supporting evidence.
• Counterargument: It addresses opposing viewpoints and refutes them.
• Conclusion: The conclusion summarizes key points and reinforces the thesis, leaving a strong impression.

Argumentative Essay Example

Before beginning the writing process, it is better to go through some expertly crafted argumentative essay examples . 

Here is a sample argumentative essay example for you to get an idea. 

Descriptive Essay

A descriptive essay is a form of writing that aims to immerse readers in a sensory-rich experience. Unlike informational or persuasive essays, its primary goal is to vividly depict a person, place, object, event, or experience.

The descriptive essay must stimulate the senses and emotions of the reader. To put it simply, the reader should see what you saw and feel what you felt. To make it better, you can use several literary devices like;

• Alliteration

All of them help in making the experience and your essay better.

Key Characteristics 

• Sensory Detail: Descriptive essays appeal to the five senses to create a multisensory experience.
• Vivid Imagery: They use figurative language and descriptive adjectives to bring the narrative to life.
• Emotional Connection: These essays often aim to establish an emotional bond between the reader and the subject.
• Structured Approach: They typically follow an introduction-body-conclusion structure.

A descriptive essay outline typically follows a 5-paragraph essay format, consisting of the following basic components:

• Introduction: Introduces the subject and purpose sometimes with a thesis statement.
• Body Paragraphs: Focus on specific aspects or details using sensory language and vivid descriptions.
• Conclusion: Summarizes the central theme and leaves a lasting impression.

Descriptive Essay Example

Writing a perfect descriptive essay for an assignment is not difficult if you go through some expert descriptive essay examples first. 

Here, we have provided a well-written descriptive essay for you to get inspired from and start the writing process confidently. 

Expository Essay

An expository essay is a type of writing that provides clear and objective explanations of a topic without expressing personal opinions. It aims to inform and educate by presenting factual information and analysis.

There are various types of expository writing :

• Cause and effect essays
• Process essays
• Analytical essays
• Compare and contrast essays

Key Characteristics

• Objective Presentation: Expository writing maintains an impartial tone, avoiding personal biases.
• Informativeness: They focus on explaining complex ideas or processes in a straightforward manner.
• Structured: These essays follow a clear structure with an introduction, body paragraphs, and a conclusion.
• Use of Evidence: They rely on credible evidence, facts, and examples to support the topic.

Like other types of essays, an expository essay outline also follows the standard essay format :

• Introduction: Introduces the topic and often includes a thesis statement.
• Body Paragraphs: Each paragraph focuses on a specific aspect and provides explanations and evidence.
• Conclusion: Restates the main idea and summarizes key points.

Expository Essay Example

Here is an expository essay example from one of our expert writers to understand the basics. For more samples visit our dedicated blog on Expository Essay Examples !

Narrative Essay

A narrative essay is a type of academic writing that tells a story or recounts a personal experience. Unlike other essays, its primary purpose is to engage and entertain the reader through storytelling.

• Narrative Structure: Follows a chronological sequence with an introduction, body, climax, and conclusion.
• First-Person Perspective: Typically written from the first-person point of view (e.g., "I" and "we") , sharing personal experiences and emotions.
• Vivid Description: Relies on descriptive language and imagery to create a clear picture of events, characters, and settings.
• Emotional Connection: Aims to establish an emotional bond with the reader by conveying the writer's thoughts and feelings.
• Introduction: Sets the stage and introduces the central theme or problem.
• Body: Presents events or experiences in chronological order with sensory details.
• Climax: Often includes a central event or turning point.
• Conclusion: Reflects on the narrative, offering insights, lessons, or resolution.

Narrative Essay Example

Wondering how to get your story into an interesting narrative? Learn the best way to write a perfect narrative essay with the help of narrative essay examples . 

Other Common Essay Types

Besides the main types of essays, there are other specialized types for specific audiences. These essays offer various ways for writers to communicate their ideas.

We will go through these essay types here.

Persuasive Essay

A persuasive essay is another type of academic essay. In this essay type, the writer utilizes logic and reasoning to show one’s idea is more convincing than another idea. 

In writing a persuasive essay, the main aim is to persuade the reader to accept a certain point of view. The presented argument or claim must use solid evidence and sound reasoning by stating facts, examples, and quotes.  It uses persuasive techniques like ethos, pathos, and logos to persuade the audience.

Persuasive Essay Example

Since persuasive essays are the most common type of essay, it is essential to get familiar with their writing style. For that, make sure to read the persuasive essay examples for better understanding. 

Here is a sample in PDF format: 

Analytical Essay

An analytical essay is a type of academic essay in which the writer analyzes a topic bit by bit. Writing an analytical essay is not about convincing readers of your point of view. But wanting readers to agree with what you have written. 

So, there is no need to use strong persuasive language in an analytical essay. Rather you should aim to provide enough analysis to make sure your argument is clear to the readers. 

Analytical Essay Example

Let’s take a look at a sample analytical essay: 

Read our analytical essay examples blog if you are looking for more sample essays!

Reflective Essay

A reflective essay requires you to examine your personal experiences through self-reflection. In the process of writing a reflective essay, you provide insight into what you have gained from those experiences. 

What makes reflective essays different from other essay types is the fact that they examine the past experience from the present. Reflective essays take the reader through a journey of self-growth. 

Reflective Essay Example

The following reflective essay example will help you get a clear idea of how to structure your analytical essay. 

Rhetorical Analysis Essay

It is a form of a textual analysis essay in which the student examines and analyzes a persuasive text. It is like an essay, speech, or visual art and analyzes the rhetorical devices used in it. Writing a rhetorical analysis essay is different from writing other essays because it will be more than adding facts only.

Rhetorical Analysis Essay Example

Here is a rhetorical analysis essay example that will help you learn better. For more examples check out our rhetorical analysis essay examples blog for more samples!

Literary Analysis Essay

A literary analysis essay is based on close reading and analysis of a work of literature like poetry and novel. It identifies different literary factors like themes, setting,  characters, setting, and the kind of language used in it. A literary analysis essay has the same 5 paragraphs as any other essay but the main subject and topic are different.

Literary Analysis Essay Example

Need help with your literary analysis essay? Below is a sample essay to help you understand better.

Summing it Up! Now you know what are the different types of essays in academic writing that you are most likely to get assigned. However, if you still find it difficult to compose your essay, leave your piece of writing to our experts. 

Whether you need an argumentative essay, narrative essay,  descriptive essay, or expository essay we are here to help. Our expertise extends to all types of essays, ensuring that your academic writing needs are met with precision and excellence.

Request essay help today and let our experts assist you in writing A+ grade essays within your specified timeline! 

Frequently Asked Questions

What is the most important element in any essay.

The most important element in any essay is its thesis statement. The thesis statement presents the main idea or argument of the essay and sets the direction for the entire piece. It provides a clear, concise summary of what the essay will cover, helping to guide the reader and ensure that the content remains focused and coherent.

What type of essay is most common at university?

The most common type of essay at university is the argumentative essay Other common types include:

• Expository essay
• Persuasive essay
• Narrative essay
• Descriptive essay
• Cause and effect essay
• Compare and contrast essay
• Process essay
• Definition essay
• Classification essay
• Critical essay
• Analytical essay
• Argumentative essay
• Reflective essay
• Research paper
• Literature review

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