The prime intention of every business unit is to make a profit from its operations. Various forms, types and categories of businesses exist, and as such carefully selecting the right one that suits your taste may play an important role in the final outcome.
This is because every business, be it sole proprietorship, partnership or company has distinct features, and its accordingly taxed to that criteria. It is a legal obligation for every business established for the purpose of making profit to pay taxes.
These taxes are used for various projects and programmes which are all designed to assist in the growth and developmental efforts of the nation.
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Tax obligations are important features of our everyday life, and they come in various forms so that each of us can honour our tax duties.
There are two main forms of taxes i.e. Direct and Indirect taxes. Direct taxes are taxes levied on the income on the earner. The payer knows exactly how much is to be paid each month and as such can easily calculate what is supposed to be set aside as tax each month.
Types of direct taxes include Income tax, Company tax, Capital gains tax and Basic rate. Income tax is the most popular form of direct tax.
It is commonly referred to as PAYE (Pay As You Earn). The employer is expected to calculate and file the tax returns of each employee each month. Company tax is imposed on the profits of a company.
This is quite easy to identify and collect when records are properly kept.
Such taxes are paid only when the company makes a profit, and it is for this reason that some companies who wish to avoid such taxes often understate their profits levels in a bid to avoid this form of tax.
Capital gains tax is the kind of tax calculated on the gains made from the sale of the property.
The basic rate is the tax charged by authorities for developmental efforts. It is usually imposed on residents in a clearly defined metropolitan or communal area.
Indirect taxes are the kind of taxes indirectly paid by consumers of various goods and services.
The seller adds the tax percentage to the selling price of the commodity before it is made available to the customer.
Indirect taxes are a popular form of government revenue. Several reasons exist for the importation of indirect taxes, and some of these are
• To protect import – substitution (infant) industries
• To make imported commodities more expensive than locally – produced ones, so as to protect local industries.
• To discourage the patronage of goods branded detrimental to one’s health e.g. alcoholic beverages.
Various kind of indirect exist, and some of these are Excise duties, Import duties, Export duties, Petroleum tax and Sales tax. Excise duties are imposed on locally– manufactured goods and services.
This is often reflected in increased prices. Import duties, also known as Custom duties, are the kind of taxed imposed on imported goods and services.
This kind of tax assists in the generation of revenue as well as the controlling of the volume of good that come in from other countries.
‘Export duties are imposed on goods and services exported to other countries. These kinds of taxes are selected imposed, as taxes on certain goods and services are waived so as to encourage the patronage in that sector. This is in anticipation of the generation of more foreign exchange.
Petroleum tax is the tax imposed on petroleum products such as petrol, kerosene, diesel oil, liquefied gas and engine oil. There is usually a guaranteed volume of revenue due to the inelastic demand for the product.
This particular kind of tax imposition usually triggers a general price hike as various goods and services utilize petroleum products. Sales tax is the kind of tax imposed on goods and services that are sold to the public.
Almost all of these forms of tax affect businesses, and as such, it becomes necessary to sufficiently educate oneself in such matters before the assumption of business responsibilities so that one is not caught or prosecuted by the designated tax agencies.
It then becomes a matter of priority to conduct an analysis of the kind of tax your business is supposed to pay so that your bit could add to that of several others for a synergized tax collection and utilization system.
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