What are taxes? And why are they important for the economy?

I wouldn’t be wrong in saying that two things in life are for sure … death and taxes. Unfortunately, taxes are not easy to understand very few people can truly understand what taxes are, the different types of taxes, how they are used, and how to pay them.

Since the government of any country cannot operate without revenue. So, they impose mandatory levies on individuals and corporates in the name of taxes. The primary use of this revenue is for government expenditure, although they also serve other purposes.

What are taxes?

Taxes are obligatory fees imposed by the country’s government on the increase in income or property or added to the cost of goods or services. Money collected from taxes is often used to provide public goods and services that help society to maintain its living standard.

Why we need to learn about taxes

Most people pay taxes without understanding why or how it benefits them. However, understanding taxes can make paying your share much easier for you. Understanding the tax will make you an empowered citizen by making you aware of how the government uses your tax money. Secondly, understanding of tax will also make you aware of the deductions and credits available to you that can reduce your tax liability. So it is very important to understand tax-related matters as ignorance is no excuse, and taxes are a fact of life, so by understanding them, you will be able to make them work in your favor.

The Taxation system of Pakistan

Federal taxes in Pakistan is like any other tax system in the world. They are broadly categorized into two categories, 1) Direct Taxes and 2) Indirect Taxes.  Direct taxes are the tax imposed directly on a taxpayer and must be paid to the government. Direct taxes include taxes directly collected from Salaries, interest on securities, property income, and business income. In contrast, indirect taxes are levied not on the income, profit, and revenue but the goods and services. Indirect tax is collected by one entity in the supply chain, and they pay it to the government, but it is passed on to the consumer as part of the purchase price of goods and services. Ultimately, the consumer pays the tax by paying more for the product.

Importance of Taxes for Economy

Without taxes, the government would not be able to meet society’s demands. Governments impose taxes on citizens and businesses to raise revenue. Which is then used to meet budgetary demands. Taxes are considered to be very crucial for the economy of any country to finance its social projects.

Without taxes, it would not be possible for the government to contribute to the health and education sectors. Taxes go to fund health services such as health care and medical research. Education is also one of the most deserving recipients of tax money. The government of any country focuses on human development, and education plays a vital role in human development.

The government also uses tax money collected to fund sectors that are very important for the well-being of its citizens, such as security, research, and the protection of the environment.

The collection of taxes helps to raise the standard of living in a country. With a higher standard of living, businesses would be assured of higher domestic consumption, eventually resulting in the country’s economic growth.