30 Sep All you need to know about Taxation?
Taxation is how the taxing authority or government levies or imposes a tax on its business entities and citizens. It’s money that is owed to the government. Taxes are an important part of every society, as they allow governments to provide public services and encourage positive behaviour among citizens.
The UAE has one of the highest sales tax rates in the world at 44 percent combined federal, provincial and municipal sales taxes (Dubai).
What is taxation?
There are many different types of tax imposed on different individuals, companies, property and even commodities. Some are direct taxes imposed on an individual or business. Others are indirect taxes that are paid to the government on behalf of the person or company that uses them. Indirect taxes include personal income tax, VAT on goods and services, import duty, property transfer tax and property tax.
Direct Taxes include personal income tax, property transfer tax, property tax, VAT on goods and services, import duty, excise duties (Duties for consumer protection). Each of these has its own set of rules for filing, deductions etc. The most common of all direct taxes are personal income taxes imposed on individuals by their governments.
Some tax matters can be delegated to a third party by the taxpayer, for example, employer tax deducted from the payroll could be paid by an employer to the Inland Revenue Department on behalf of employees. Some other taxes are imposed as a fixed amount per unit or as a percentage of the value-added. This is done using excise duties and sales taxes e.g. UAE VAT on goods and services is fixed at 5% for all goods.
Elected officials periodically change their tax rates to respond to changes in the economy or public needs, raising or lowering income tax rates, adjusting VAT or raising excise duties. This means that companies have to file tax returns regularly if they want to comply with local taxation requirements.
Due to the nature of indirect taxes, they usually fall under the personal income tax bracket. The rate varies in each country but usually is between 20% and 40%. The rate is applied to the respective business profits by deducting which in turn are taxed on individual income tax returns.
Why are taxes levied on you?
Taxation can be imposed for a variety of reasons. Most taxes are levied on businesses or individuals because they make use of public services or are required to pay for them. Taxation can also be imposed for other reasons such as raising money for government programs, improving public services, providing job opportunities and promoting economic development.
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