Sunday, 5 Dec 2021

Tax Basics

A tax is a mandatory administrative charge or any kind of levy levied on a citizen by a governmental body in order to fund various public expenses and government spending. The tax rate is decided by the government and it is generally fixed for the current year. A tax evader is liable to punishment under the law if found guilty. Evasion of or refusal to pay tax is also punishable by law. Tax evasion is a serious offence and can result in heavy penalties, fines and even jail time.

There are two main bodies in charge of ensuring that the tax regime is maintained and compliance is achieved. The first is the federal tax administration and the other is the Australian tax system commission (ATCS). Both these bodies cooperate closely to ensure fair-dealing for both the taxed and the non-taxed. The ATCS was established as an independent statutory body in 2021 and is mandated to uphold the principles of fairness in the taxation regime and the provision of services and opportunities for the taxation of income. It also works towards coordination of taxation by the states and the federal government. The ATCS is accountable to the Senate and House of Representatives and has a secretarial function.

Proportional taxes include income taxes and corporate taxes, which are typically paid on the basis of a percentage of income. Many progressive taxes including the petrol tax and car-registration tax are proportional in nature. Generally speaking, the higher you are able to pay in regard to income, the lower your gross receipts taxes will be. This means that the more you are able to save and defer paying your taxes, the better off you are likely to be.

Indirect taxes include customs duties, gasoline tax, cigarette tax, importation duty, gambling tax and Value Added Tax (VAT) on the purchase of certain goods. These taxes are levied directly onto the importer or retailer without a consumer’s ever seeing the bill. Some indirect taxes are imposed to help maintain the stability of the national budget. Examples are the petrol tax and car registration tax. While direct taxes are usually collected by the revenue department directly, they are exemptions are granted by the treasurer, cabinet secretary and finance minister and delivered directly to the taxpayer.

Rates of tax are determined by the government at different levels and the taxation system is designed to provide a broad spectrum of taxation. The indirect taxes are collected by state and local governments either directly or indirectly. Examples of these taxes are sales tax, fuel tax, property tax and tobacco tax. Sales tax collections amount to about 70 billion dollars per year while fuel tax accounts for another six billion. The property tax is levied on real estate and personal property.

Direct taxes are mainly levied on goods and services while indirect taxes are levied on actions. Goods are those items that can be physically possessed. Services on the other hand are those exempted from taxation such as government orders, custom duties, titles, patents, copyrights and so on. An example of a direct tax is the income tax.

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