The simplest form of taxation is a percentage surcharge on an item’s sale price. Tax can be charged at different rates for different products; for example, luxury items such as jewelry might be taxed higher than essential household goods like groceries. In some countries, this type of taxation is called value-added tax (VAT).
Taxation can also be imposed on companies, particularly those with activities in more than one country. It is a complex way of raising money. Tax authorities need international cooperation to ensure that taxation is fairly paid.
Some countries charge taxes on certain goods and services to raise revenue for various state purposes. The money collected from this source of taxation is called a tariff.
Some governments levy tariffs on the import of certain goods, for example, alcoholic drinks, tobacco products, and luxury goods. The revenue raised from these taxes is usually collected by government agencies such as the Customs and Excise department.
Taxes can be imposed on land, works of art, or even on air or noise pollution. Governments may introduce taxes on activities that people carry out within their countries, such as betting or gambling.
There may be a tax on importing goods from another country. In some instances, the government will offer a tax rebate to an individual who has paid tax. Some levy an income tax directly on all the workers in their country, no matter where they live.
The benefits of taxation are that governments can fund public services, including education, defense, healthcare, and transport systems. Taxation also helps to redistribute wealth in society. It can reduce social inequalities between rich and poor people. It is also used to help meet obligations for paying the debt incurred by the government.
Taxes are also used to discourage activities that governments consider to be harmful. For example, the government may wish to discourage the use of fuel that produces greenhouse gases by introducing a carbon tax on these fuels.