Although the actual definitions vary between jurisdictions, in general, a direct tax is a tax imposed upon a person or property as distinct from a tax imposed upon a transaction, which is described as an indirect tax. There is a distinction between direct and indirect taxes depending on whether the tax payer is the actual taxpayer or if the amount of tax is supported by a third party, usually a client. The term may be used in economic and political analyses, and may have legal implications in some jurisdictions. In the United States of America, the term has special constitutional significance because of two provisions in the U.S. Constitution that any direct taxes imposed by the national government be apportioned among the states on the basis of population. It is also significant in the European Union, where direct taxation remains the sole responsibility of member states.
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👉 Direct tax in the context of Corporate tax
A corporate tax, also called corporation tax or company tax or corporate income tax, is a type of direct tax levied on the income or capital of corporations and other similar legal entities. The tax is usually imposed at the national level, but it may also be imposed at state or local levels in some countries. Corporate taxes may be referred to as income tax or capital tax, depending on the nature of the tax.
The purpose of corporate tax is to generate revenue for the government by taxing the profits earned by corporations. The tax rate varies from country to country and is usually calculated as a percentage of the corporation's net income or capital. Corporate tax rates may also differ for domestic and foreign corporations.
Direct tax in the context of Taxation
A tax is a mandatory financial charge or levy imposed on an individual or legal entity by a governmental organization to support government spending and public expenditures collectively or to regulate and reduce negative externalities. Tax compliance refers to policy actions and individual behavior aimed at ensuring that taxpayers are paying the right amount of tax at the right time and securing the correct tax allowances and tax relief. The first known taxation occurred in Ancient Egypt around 3000–2800 BC. Taxes consist of direct or indirect taxes and may be paid in money or as labor equivalent.
All countries have a tax system in place to pay for public, common societal, or agreed national needs and for the functions of government. Some countries levy a flat percentage rate of taxation on personal annual income, but most scale taxes are progressive based on brackets of yearly income amounts. Most countries charge a tax on an individual's income and corporate income. Countries or sub-units often also impose wealth taxes, inheritance taxes, gift taxes, property taxes, sales taxes, use taxes, environmental taxes, payroll taxes, duties, or tariffs. It is also possible to levy a tax on tax, as with a gross receipts tax.
Direct tax in the context of Indirect tax
An indirect tax (such as a sales tax, per unit tax, value-added tax (VAT), excise tax, consumption tax, or tariff) is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of market price of the good or service purchased. Alternatively, if the entity who pays taxes to the tax collecting authority does not suffer a corresponding reduction in income, i.e., the effect and tax incidence are not on the same entity meaning that tax can be shifted or passed on, then the tax is indirect.
An indirect tax is collected by an intermediary (such as a retail store) from the person (such as the consumer) who pays the tax included in the price of a purchased good. The intermediary later files a tax return and forwards the tax proceeds to government with the return. In this sense, the term indirect tax is contrasted with a direct tax, which is collected directly by government from the persons (legal or natural) on whom it is imposed. Some commentators have argued that "a direct tax is one that cannot be charged by the taxpayer to someone else, whereas an indirect tax can be."
Direct tax in the context of Stamp Act 1765
The Stamp Act 1765, also known as the Duties in American Colonies Act 1765 (5 Geo. 3. c. 12), was an act of the Parliament of Great Britain which imposed a direct tax on the British colonies in America and required that many printed materials in the colonies be produced on stamped paper from London which included an embossed revenue stamp. Printed materials included legal documents, magazines, playing cards, newspapers, and many other types of paper used throughout the colonies, and it had to be paid in British currency, not in colonial paper money.
The purpose of the tax was to pay for British military troops stationed in the American colonies after the French and Indian War, but the colonists had never feared a French invasion to begin with, and they contended that they had already paid their share of the war expenses. Colonists suggested that it was actually a matter of British patronage to surplus British officers and career soldiers who should be paid by London.
Direct tax in the context of Inland Revenue
The Inland Revenue was, until April 2005, a department of the British Government responsible for the collection of direct taxation, including income tax, national insurance contributions, capital gains tax, inheritance tax, corporation tax, petroleum revenue tax and stamp duty. More recently, the Inland Revenue also administered the Tax Credits schemes, whereby monies, such as Working Tax Credit (WTC) and Child Tax Credit (CTC), are paid by the government into a recipient's bank account or as part of their wages. The Inland Revenue was also responsible for the payment of child benefit (from 1999).
The Inland Revenue was merged with HM Customs and Excise to form HM Revenue and Customs which came into existence on 18 April 2005. The current name was promoted by the use of the expression "from Revenue and Customs" in a series of annual radio, and to a lesser extent, television public information broadcasts in the 2000s and 2010s.
Direct tax in the context of Local government in Israel
The local governments of Israel (Hebrew: רשות מקומית; also known as local authorities), are the set of bodies charged with providing services such as urban planning, zoning, and the provision of drinking water and emergency services, as well as education and culture, as per guidelines of the Interior Ministry for communities of all sizes in the country. Almost all local governments take one of three forms: city councils, which governs a large municipality, local councils, which governs a small municipality, and regional councils, which governs a group of communities, often but not necessarily of a rural nature.
All Israeli local governments are operated under a strong Mayor–council system. They appoint a head, or mayor, who is selected through a process of democratic elections along with their fellow council members. If a council's operation is impeded by a severe financial crisis, the Interior Minister may dissolve it, fire the council head, and appoint a special commission to operate the council until normalisation. Councils may enact bylaws for improvement of the residents' quality of life, and in addition to the levy of direct taxes, are allocated funds from the national government via the Interior Ministry. City and local councils are united in the framework of the "Centre for Local Government in Israel", founded in 1938, while regional councils are organised in a separate body.