Taxes in favor of the state are aimed at maintaining its functioning. They go to the maintenance of the state apparatus, the armed forces, health care, education. But is the monolithic tax as it seems? No, there are quite a few of its species. They are combined into two main ones - it is a regressive tax and a progressive tax. What they are and what is the difference between them - this will be discussed in the article.
What is tax?
Under the tax understand the mandatory individually gratuitous payment, which is charged by the state authorities with various individuals and organizations to ensure the activities of municipal and state entities. They can be official or hidden, and charging is governed by tax laws. The set of taxes, as well as the forms, methods and principles of their establishment, cancellation, change and control together form the fiscal system of the state. It is necessary to distinguish them from fees and duties, which are not gratuitous, but are necessary for payers to perform certain actions.
What types of taxes exist?
As stated above, all taxes are combined into two groups. They will be given, as well as some subtypes of one of them:
- Progressive tax (not all will be considered, since in reality their short description takes up several dozen book pages).
- Simple bitwise.
- Single Stage.
- Relative bitwise.
- Regressive tax. An example of implementation and its features will be discussed below.
What is called a progressive tax?
This taxation provides for an increase in the rate as incomes increase. Mainly used when working with individuals.
- Simple bitwise. The scale of total income is divided into separate categories. Each of them corresponds to a certain level: the highest and the lowest. Each category has a certain tax amount that must be paid. Such a scheme was used in those states of the new time, where only income tax was introduced. The disadvantage is a discontinuous change in the amounts that must be paid. It may be that the owner of a higher income after paying all taxes remains with less money than receiving less.
- Single Stage. It has only one bet. A non-taxable minimum is also introduced, from which income is not collected. About the tax rate itself it can be said that it is fixed. But in reality, the increase in efficiency grows with the income that objects receive. In addition, it shows how much tax is actually charged. Such a scheme is also often called a collection of taxes with a hidden progression.
- Relative bitwise. This kind of progression divides the amount of income into discharges. Each of them is determined by a certain rate, which is expressed in percentage form and is applied to the entire base. Within each category, proportional taxation is maintained, but in passing to the next one, there are jumps in the level of taxes. Here it is also possible that the recipient of a larger income remains with a smaller amount than the one who earns less.
- Multistage. In this case, the entire income is divided into several steps, each with its own fixed tax rate. It usually grows with each new part. The peculiarity of such a system is that it deals exclusively with the amounts that are above a certain minimum.
- Linear. In this case, the tax rate increases gradually without jumps. As a rule, the maximum value in percentage terms may be several times higher than the initial minimum.
- Combined. All income is divided into several parts. And each of them applies its own special type of taxation.
What is a regressive tax?
What is the case when the tax rate decreases with the increase in income? This is called regressive tax. This type can be applied not only to legal entities, but also to individuals. In such cases, the income is usually divided into parts, each of which is separately taxed. So, it is implemented as a VAT or direct fixed taxes. But do not confuse it with the charges. Remember: to say that a state duty is a regressive tax means to show a lack of knowledge.
At the end, you can make a summary. The fact is that an effective taxation system allows us to speak about the effectiveness of the functioning of the state in terms of ensuring its citizens freedom of action. By drawing certain parallels with reality, it can be concluded that a regressive tax is quite problematic for societies in which a significant number of people do not receive the incomes necessary for a quality life. And at the same time it is beneficial for a small group of the population that has concentrated industrial complexes. Progressive taxation, in turn, is more beneficial for a relatively even distribution of the burden of maintaining the state among all residents. Therefore, it includes direct taxes. Including income tax. The regressive type of taxation can also be used, but most countries cannot afford this luxury.
But in the end, each state goes its own way, with a choice of proportional, regressive tax and progressive tax. In this case, a situation may arise when there is a choice between different tax collection systems. Thus, individual entrepreneurs may be subject to a single tax, which is part of the proportional system. Whereas for large enterprises a progressive approach is used.