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WHAT IS TAX?

What is tax was the question posed to me by my kid brother after being beaten by his teacher for not being able to answer the question ‘what is tax’. The sober looks on his face made me to write this post to explain the meaning of taxation to the ordinary in an ordinary and simple language.

Tax as a word is a now used to represent the money that is collected by the government of a state in order to have enough fund to smoothly run the affairs of the state. Taxation is a compulsory levy imposed on the citizens of a country that are up to the age of paying tax. The laws that govern the; rates, procedures and qualifying items for taxation is called the ‘tax laws’ or Finance Act for those living in the UK.

We have both the direct and the indirect tax. Direct taxes are those taxes that are directly charged to taxable income of taxable persons while indirect tax are those taxes that are levied on middle men that will eventually be borne by the end user of a particular taxable product a good example is the Vat (value added tax). A value added tax is the compulsory levy imposed on the extra value added to a product by the manufacturer which will ultimately be borne by the consumer of the product.

Tax laws are complex and varied from country to country. The Nigerian tax laws, the UK tax laws and the American tax laws are not the same for instance. It takes the service of tax attorney / tax lawyer to be well guided in relevant tax matters. A tax specialist is called a tax consultant in most cases and can either a tax accountant or a tax lawyer.

The filing of tax has been made easier these days as one can easily go online and file for his or her tax returns. The only problem however is that tax laws can be complex and changes constantly. This makes it difficult for a person without good background in taxation to keep up with. Outside these difficulties, anyone can file for his or her tax returns.

Government use monetary or fiscal tools to control money supply in a country and taxation which is the process of fashioning out efficient ways of administering tax happens to be one of the fiscal tools that the government can use to control things like inflation and unemployment in a country.