January 26, 2022

SB-Accounting

Accounting + Finance Blog

Taxation Meaning and Explanation

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Tax is an important aspect of every business entity. The government of a country ensures that individual adults, business and properties owned by persons and entities pay taxes. The government set out structures to endure the monitoring, collection, and enforcement of taxes in the state. To begin with this course, the definition and explanation of taxation are discussed below:

Meaning of taxation

Generally, taxation can be defined as a compulsory payment imposed by the government of a country on its citizens and properties in the state to provide social goods and services.

Explanation of the meaning of taxation

There are three points that can be deduced from the above definition.

Point One: Taxation is a compulsory payment. Every business organization that is created to earn profits pays taxes to the government of the land to which it operates. Individuals who are adults also pay taxes. The payment of such taxes is not negotiable.

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Failure to pay tax by either corporate or real persons is disobedience to the law and legal action might be taken against such persons. It has been held of tax authorities charging huge penalties on companies for not paying tax. Many business ban account has been frozen as a result of this businesses fail to pay tax to the government. For example, in 2018, MTN NG, a South Africa telecommunication company operating in Nigeria was fined 2 billion Naira for not paying taxes.

Point two: The tax rate is paid by citizens, business entities and properties. All adult citizens pay tax. In Nigeria, an adult is a person above 17 years. Business entities, also called legal or corporate persons pays taxes. However, just as none adult individuals do not lay taxes, the finance act of 2019, specified that certain small businesses should not pay taxes a well.

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Taxes are also imposed on properties. Individuals and entities’ properties are usually taxed. Vat and capita gain taxes are charged on properties. Properties include land, buildings, vehicles, among others.

Point three: The tax paid is used by the government to provide public or social goods and services. These goods and services include infrastructural facilities like roads and hospitals, payment of salaries and pensions to civil and public servants, cost of administering government functions like the legislatures and, the security of life and properties, among other things.

The payment of tax is not made to benefit the payers of such taxes. However, such income is for the benefit of the nation at large.

Taxation is a system of paying taxes to the government. Such taxes are used for the administration of government. In the next lesson, the purpose of paying taxes will be harness.

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