Tax

Tax is money or other value that a government or legal authority compels individuals and corporations to pay, without receiving a specific service in direct return. It differs from a fee (qarash-adeeg), which is tied to a particular service, whereas tax is general revenue entering the treasury.

Tax is the largest source of funding for modern governments to support education, healthcare, security, infrastructure, and administration. It is also used as a policy instrument: raising tax on certain goods (such as cigarettes) aims to reduce consumption, while lowering tax can be used to encourage investment.

Types of tax

Major tax types include: income tax, levied on wages and interest; corporate tax; sales tax or value-added tax (VAT), added to the price of goods; property and wealth tax; and customs duty (tariff), levied on imported goods. Some jurisdictions also collect special taxes such as zakat (alms-tax) on a structured basis.

Methods of measuring tax burden

Tax described as progressive increases in rate as income rises. Proportional (or flat) tax takes the same percentage from all income levels. Regressive tax places a proportionally heavier burden on lower-income people; consumption taxes such as VAT typically function this way unless essentials are exempted.

Administration and collection

Tax collection depends on registration of taxpayers, verifiable accounting, and an effective collection agency. In countries with largely informal economies, the tax base is narrow, so reliance falls often on customs duties collected at borders. Tax evasion (unlawful non-payment) is illegal, whereas tax avoidance (structuring within legal constraints) is often contested through policy.

Disputed issues

The main debate centres on the balance between providing government revenue and reducing burdens on work and investment. Those favouring larger government argue that higher taxes reduce income inequality, while those favouring market economies argue higher taxes discourage production. There is also significant debate over how to tax multinational corporations whose profits are shifted to low-tax jurisdictions.