Taxation

Taxation is the mechanism by which governments raise revenue to fund public goods and services, such as education, health care, infrastructure, and security. It also serves redistributive and stabilization aims by shaping incentives and income distribution. Taxes are compulsory contributions collected by public authorities under law and imposed on individuals, households, and businesses.

Tax systems include direct taxes, such as personal and corporate income taxes, wealth and property taxes, and payroll taxes, and indirect taxes, such as sales and value-added taxes, excise duties, and tariffs. Personal income tax is commonly progressive, with higher rates applying to higher incomes, while corporate tax regimes vary in structure. Consumption taxes are broadly applied to goods and services, and may be designed to be broadly neutral or to affect behavior.

Tax administration is typically carried out by a national or subnational revenue agency. Collection methods include withholding at source, self-assessment, and periodic audits. Core tax policy principles commonly cited by governments include equity (horizontal and vertical), efficiency, simplicity, certainty, and transparency. The economic incidence of taxes—who ultimately bears the burden—may differ from the statutory incidence and can influence spending and investment decisions.

Historically, taxation has evolved from tolls and tithes to modern, often complex, systems used by states to fund public responsibilities. Globalization and digitalization have challenged traditional bases, prompting reforms aimed at reducing avoidance, broadening bases, and coordinating international rules, such as value-added tax standardization and anti-base erosion measures. Public debate commonly centers on tax rates, distributional impact, and the balance between revenue generation and economic growth.