Define tax and explain its characteristics.

Ans.

Meaning and Definition of Tax

Tax is a compulsory payment by the citizens to the government to meet the public expenditure. It is legally imposed by the government on the tax payer and in no case tax payer can deny to pay taxes to the government. The tax payer also cannot expect any service or benefit from the government in return of tax payment. Thus, there is no quid-pro-quo or give and take relationship in taxation. Tax can be direct or indirect. Income tax, wealth tax, gift tax, etc. are the example of direct tax and sales tax, excise duty, custom duty, etc. are the example of indirect tax.

According to Anatol Murad, “A tax is a compulsory payment made by a person or a firm to a government without reference to any benefit the payer may derive from the government.

In the words of Dalton, “A tax is a compulsory contribution imposed by public authority, irrespective of the exact amount of service rendered to the tax payer in return and not imposed as a penalty for any legal offence.” According to Seligman, “A tax is a compulsory contribution from a person to the government to defray the expenses incurred in the common interest of all without reference to special benefit conferred.”

Features or Characteristics of a Tax

Main features of a tax are as follows-

(1) Compulsory Payment : Tax is a compulsory payment. It has to be paid by every person in some way or the other. If the government imposes a tax upon a person, he has to pay it even against his wish. The public has to pay a tax whenever demanded by the government. Nobody can refuse to pay the tax nor can any one evade it. Non-payment of tax invites penal action against the defaulter by the government. We can avoid the taxes imposed on goods so long as we do not buy them. For example, sales tax is imposed on a radio set. If we do not buy a radio set, we will not have to pay this tax at all. But it is not applicable to direct taxes, such as income tax. It is the responsibility of the person to pay the direct tax under all circumstances and cannot escape from it.

(2) Public Welfare : Tax revenue is spent for the general and common benefit. It does not benefit any single individual in particular, rather, entire society is benefitted by it. As an individual finds himself helpless to meet all his needs especially those which involve heavy expenditure e.g., construction of a hospital and railway line, supply of water and electricity, etc. Here the government’ renders such services for the benefit of all people. hence taxes are imposed upon all those people, who are able to pay them, to share the common burden.

(3) No Direct Service : The tax payer does not get any direct service as a quid-pro-quo. In other words, the tax is not in any way related to the benefit received from the government expenditures and the tax payer cannot expect pay benefit from the government in proportion the tax paid by him. But this is not true for every tax, because there are certain taxes from whom the collected revenue is spent on those persons from whom these taxes have been collected. For example, the major portion of the revenue collected from road tax or petrol tax is spent on the repair and upkeep of roads.

(4) No Proportionate Relation between the Tax and the Benefit: It is also not necessary that a tax payer gets the benefits from the government proportionately to the amount paid by him as tax. In other words a tax is not imposed on an individual by the government, because it has rendered specific services to him. Nor an individual has paid a tax because he receives special benefit from the government. Thus, taxes are not paid because an individual receives a benefit from the government or are taken from him because the government has rendered any services to him. But there are certain qualifications to it, e.g., a land tax is paid only by those individuals who possess land or derive benefit from land. Similarly, only those individuals will pay an entertainment tax who receive the benefit of entertainment. It is here Prof. Antonid de Viti de Marco pointed out that the law of taxation in modern state is based on the assumption of an exchange relationship, that is, the exchange of payment to the state for the provision of public service by the state.

(5) Payment of Taxes is personal responsibility of an Individual: Payment of taxes is a personal responsibility of an individual. Tax has to be paid by a person even though the basis of its imposition may be goods. In other words a tax imposes a personal obligation on the tax payer. It means that it is the duty of the tax payer to pay the tax if he is liable to pay it and should in no case think to evade it. Suppose a tax is imposed on the incomes of the individuals, the sources of income may be many and the public authority may not be in the know of all these sources. Here, it is the duty of the tax payer to show all his income and take into account his total income while paying the tax.

(6) Legal Procedure : Another feature of a tax is that it is imposed legally. Takes are levied according to legal procedure.