Tax is a mandatory fee or financial charge levied by governments for various purposes, such as paying for national debt and funding public services. It is typically collected by businesses or organizations for distribution to the government, and individuals may be required to pay if they are deemed to owe it. In general, all countries impose some form of tax. Depending on the jurisdiction, these taxes can be classified as direct and indirect. A direct tax is one that cannot be shifted to other individuals, while an indirect tax can. Examples of direct taxes include sales, income, property, and payroll taxes.
An example of an indirect tax is a user fee, such as the gas tax or the cost of a license to operate a business. These are imposed to offset externalities, which are consequences of the consumption of a good that do not fully factor into its price, such as pollution (namely carbon tax), traffic congestion, or wear and tear on public goods (such as highways). These taxes can also be employed as “sin” taxes to modify consumption patterns (for example, cigarette taxes).
An important feature of any tax is its transparency, which allows citizens and businesses to see how their money is being spent. Other important features of a tax are its fairness, consistency, and simplicity. In addition to the direct and indirect taxes mentioned above, many jurisdictions levy wealth taxes, inheritance taxes, gift taxes, payroll taxes, excise taxes, value-added taxes, and tariffs.