Taxation

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Financial Terms and Glossary

Taxation

Taxation is the process by which governments collect money from individuals, businesses, and other entities to fund public services, infrastructure, and social programs. Taxes can be levied on income, profits, property, sales, and other economic activities. Governments use taxation as a primary means of raising revenue to support their operations and redistribute wealth. Tax rates and structures vary widely by jurisdiction.

Example

An individual is taxed on their annual income through income tax, which helps fund government services such as education, healthcare, and infrastructure.

Key points

• The process of collecting money from individuals and businesses to fund public services.

• Can be applied to income, profits, property, sales, and other activities.

• A key revenue source for governments and a tool for economic policy.

Quick Answers to Curious Questions

What are the main types of taxes that governments collect?

Governments collect taxes on income, corporate profits, property, sales, capital gains, and inheritances, among others.

How does taxation support public services and infrastructure?

Tax revenues are used to fund essential services like education, healthcare, law enforcement, and public infrastructure projects.

How do progressive and regressive tax systems differ?

In a progressive tax system, higher earners pay a larger percentage of their income, while in a regressive system, lower earners pay a higher proportion relative to their income.