Why do we pay taxes and why it is beneficial for us?

The direct benefit of paying taxes for everyone is that the funds collected from the citizens of a country are used for economic development and to pay for services that governments provide to the community.

Regressive and Progressive Taxes

Taxes are classified under the head regressive if they affect poor people or economically weak class more than wealthy people and as progressive if they affect wealthy people or higher income groups more than poor people.

Progressive taxes have been popular since old days; probably because wealthy people were easier to tax and the taxes would help maintain equilibrium in the nation following the philosophy ‘poor don’t get poorer and the rich richer’.

Direct and Indirect Taxes

Taxes are defined and divided among two main categories, which are further sub-divided into other categories. The two major categories are direct tax and indirect tax.

Direct Tax

Direct taxes are taxes that are paid directly to the government by an individual or legal entity, such as Income Tax and cannot be transferred to any other individual or legal entity.

Indirect Tax

Taxes that are levied on services and products are known as indirect tax. Indirect taxes are collected by the seller of the service or product and tax is added to the price of the products or services on which they are levied and tend to increase their cost.

Types of Taxes (Major and Small Cess)

These are some of the common major and small cess taxes that are mostly levied by different countries on their citizens:

  • Property taxes
  • Income taxes
  • Estate taxes
  • Consumption taxes
  • Entertainment Tax
  • Registration Fees
  • Stamp Duty
  • Transfer Fee
  • Education Cess
  • Entry Tax
  • Road Tax and Toll Tax

Let’s quickly go through the benefits of paying various types of taxes and why should we pay them as a responsible citizen, if applicable.

Importance and Advantages of Paying Taxes

Taxes are levied by a government of a country on their people to generate income for undertaking projects to boost the economy and to raise the standard of living of its citizens.

The main purpose of imposing taxes by the government on its citizens is to provide the government with funds for spending without giving rise to inflation.

Funds collected through taxes are utilized by the government for a variety of purposes, and we as citizens get benefited directly or indirectly in many ways as the money is used for the welfare of the entire nation.

Here is how the funds are used and impact us in a positive way as a responsible citizen of a country:

  1. Funding of public infrastructure, development and welfare projects
  2. Law enforcement, Defense Scientific research expenditure
  3. Public insurance, health, education and Pension Schemes
  4. Salaries of State and Central government employees
  5. Operation of the government
  6. Public transportation and Unemployment benefits
  7. Public utilities such as water, energy, and waste management systems
  8. Improves Tax Payers Credit Score
  9. Business Expansion Loans for entrepreneurs basis good tax records and honored Eligibility for Government Tenders
  10. Faster Loan, Credit Card approvals for Individual applicant and easy processing of Visa Applications basis tax payment records of previous years

The Takeaway

Taxes are levied on a wide range of income, such as income from salary, profits from business, property rental, etc. and are solely used for the development of a nation and the welfare of its people.