Taxation is a cost or levy imposed on individuals and businesses to finance the services and policies provided by governments. Taxation can be one of the most controversial aspects of government policy – in how tax money is collected and spent and whether various groups of taxpayers are treated fairly.
Although taxation systems across countries and zones vary, they typically use a direct tax – levied on individuals and businesses that generate income – or indirect taxes, such as sales and value added taxes that are mostly collected for government by business.
Governments can and do use taxation to direct activity, for example with tobacco taxes designed to discourage smoking by making it more expensive, or with rebates to companies who train employees, to improve the skills of the workforce. The major uses for taxation revenues in developed countries tend to be for defence, health and education.
Nations vary widely in attitudes to taxation, with some seeking to encourage commerce by promoting themselves as low-tax regimes, while others see taxation as a means to enable a more equitable society by redistribution of taxes. This redistribution can provide opportunities for low socioeconomic groups to access universal education, health care or other government run programs such as subsidizing public universities.
When starting a new business in a foreign market it is important to understand not only the laws of taxation in that economy but also how taxation works within the culture, how it is collected and what rebates and deductions are available.