What are taxes?

What Does Taxes Mean

We explain what taxes are, the elements that compose them and the types that exist. Also, what is its function and various examples.

Taxes finance the activities of the state.

What are taxes?

Taxes, charges or tributes are a payment obligation that the State imposes on its citizens , without there being a direct consideration for goods or services . Its purpose is in principle to finance public sector activities that are of common benefit.

 

All citizens of a State must, in one way or another, comply with the payment of certain taxes. For this , the principle of contributory capacity is used , which establishes those who have the most resources, must provide a greater amount of resources than those less favored, in order to achieve a society with more social and economic equity .

Those who fail to pay taxes are sanctioned by the State itself, either through fines and new impositions or, eventually, jail terms, as established by the tax law of that nation . The specific regulation of a nation's taxes is known as the tributary system or fiscal system.

It can help you: Tax credit

What are taxes for?

Taxes, as we have said, in principle serve to financially support the State . Along with public companies and other types of income , collection is the quintessential mechanism for public financing, so that, among all citizens of a country, they support activities that are of common benefit and that do not have public ends. profit.

However, taxes can also serve other purposes, such as discouraging certain consumption dynamics , in what is often seen as internal protection mechanisms (or protectionist measures).

In these cases, the State places taxes on certain imported products to increase their cost and thus defend local producers, who otherwise could not compete commercially. Taxes can also be assigned to make more expensive certain types of products considered harmful to health or whose consumption is intended to be discouraged, such as cigarettes or alcohol .

Finally, income taxes and sudden gains are intended to assign to the State a portion of the money earned by the richest in society or by those who win bets or the lottery, in order to fight against the concentration of capital in a company. single social class or a small group of people .

Tax elements

All taxes consist of the following elements:

  • Taxable event. It is the motivation of the tax, that is, the reason why we must pay.
  • Passive subject. They are all persons (natural or legal ) who must face the obligation to pay taxes.
  • Tax base. The amount on which the taxes to be paid are calculated.
  • Tax type. The proportion or percentage that is calculated, depending on the case, by means of formulas that govern how and how much it corresponds to pay.
  • Tax rate. Finally, it is the amount to be paid for tax purposes.

Tax types

Indirect taxes such as VAT are added to the price.

There are different types of taxes and different ways of classifying them, for example:

According to your type of lien:

  • Proportional or flat taxes. Those that always impose a fixed rate or percentage, regardless of the context of the tax.
  • Progressive taxes. Those who increase the tax calculation percentage as the profit or income increases.
  • Regressive taxes. Those that decrease the tax calculation percentage as the profit or income is higher.

According to your taxable event :

  • Direct taxes. Those that tax sources of wealth, property or income, such as income taxes, or the possession of certain assets.
  • Indirect taxes. Those that tax consumption , without affecting the income of a taxpayer, but adding to the price of a good or service, as is the case of the value added tax, or the tax on tobacco and alcohol.

According to your considerations regarding the taxable person :

  • Objective taxes. Those who do not take into account the conditions of the taxpayer when calculating their tax share.
  • Subjective taxes. Those that allow the taxable person to demonstrate mitigating factors, obligations of another type and justify a decrease or a different calculation in their tax rate.

According to its temporality :

  • Instant taxes. Those that are charged at the moment of carrying out a commercial operation, generally because they are already incorporated into the final price of the product or service.
  • Periodic taxes. Those that must be paid within certain limits or periods established by the State and announced in advance, so that the taxpayer can receive discounts for payment on time or surcharges for payment late.

Examples of taxes

Some common examples of taxes are:

  • Value Added Tax (VAT). Also known as Value Added Tax or Reduced Value Tax, it is an indirect and regressive tax, which is usually imposed on goods and services that are not essential or are not part of the basket of protected products, if any.
  • Tax assets . Sometimes called the Wealth Tax or the Fortune Tax, it is an individual tax calculated on the personal assets of natural or physical persons, estimating a total value of absolutely all the assets you own.
  • Income tax. This tax is perhaps the most important of any tax system, and is imposed on the profits and profits of natural and legal persons, either in a flat, progressive or regressive way. It generally has a taxable minimum that prevents the lowest earning people in society from being charged.
  • Inheritance and gift tax. As its name indicates, this tax is levied on assets acquired through inheritances , gifts, bequests or donations, provided they meet certain legal requirements, such as a free reception or mortis causa (that is, after the death of another).

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