What is Tax Revenue?

Published by Thomas Herold in Economics, Laws & Regulations

'Tax Revenue' is explained in detail and with examples in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Tax Revenue refers to money that a government collects. They do this by levying taxes on their own citizens living within their jurisdictions (and living overseas as well in the case of the U.S.). There are many different kinds of taxes collected in the present day and age. Among the most frequently levied taxes are income taxes, property taxes, and sales or VAT taxes.

The revenues from taxes finance government spending. They also go towards maintaining and developing new public works projects. Taxes pay for a variety of other important programs. Some of these are for education, defense, and social welfare expenditures. Practically all governments have laws in effect that provide them with the authority to tax their citizens legally.

Income taxes come from many sources of income which people earn. This might be comprised of commissions, wages, or royalties. There are governments around the world which also tax money earned on speculation, investments, and gambling proceeds (as with the U.S.). The United States and a number of other nations permit their citizens to legally reduce the amount of money they pay in taxes by providing sometimes detailed information on permissible deductions against income. In the majority of cases, tax revenue which comes from income earned becomes payable to both the national and state governments.

Property taxes provide revenue derived from ownership of real property or real estate. These funds are commonly levied and utilized by local governments including provinces, states, counties, and parishes. Such taxes come from possession of land and houses. They typically become due every year. Interestingly, cars and other vehicles also become taxed on an annual basis in most jurisdictions. This tax is levied through the purchase of license plates and vehicle registration which has to be updated annually. These taxes which local governments collect they commonly spend on maintaining state, country, or provincial schools, roads, and other types of public facilities (such as parks). Sometimes these monies are deployed to build up members of the community, as with needy families’ support programs.

Sales tax is another way that governments collect a tax revenue every single day of the year. They levy these sales or VAT taxes on practically all purchases. Sometimes exceptions will be made for medicines and some necessary foodstuffs. The rate of taxes which they collect occasionally depends on the kind of item which a person or business purchases. Luxury items often quality for steeper tax rates. There are always higher revenues generated by so-called sin taxes. These are activities which governments attempt to discourage participation in and consumption of for their citizens. On gasoline, this is called carbon tax, while on alcohol and tobacco it is excise taxes.

In many countries of the world (the United States being a notable exception), governments collect a considerable national tax revenue from Value Added Tax. The difference between sales tax and VAT is simple. Sales tax is levied on the final point of sale only. VAT is collected on every stage of production where any value is added to the goods (or service). This is why VAT generates far more income for governments.

For example, in a VAT collecting regime a sweater is a good item to consider. Farmers are VAT taxed on the sales of their wool to factories. Factories which produce a yarn from the wool are also taxed when they go to sell their yarn to producers. Other production facilities that knit the yarn into sweaters also pay VAT when they sell the sweater to the outlet store or shop. Finally, the store which sells the sweater itself will eventually collect a VAT tax from the customer who ultimately purchases the item. VAT taxes are generally included in the sticker price of the item, while sales taxes are not usually included in shelf pricing.

Governments cannot function without tax revenues as the are the most critical types of income for modern age governing. Without such tax revenues, the overwhelming majority of governments would not be able to provide the necessary level of support which businesses and individuals require to live decently and to succeed. This is why in the majority of nations of the world today, when businesses or individuals do not pay their taxes, they are severely penalized. Such penalties start with fines and can occasionally lead to jail time, in extreme cases of tax avoidance.

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The term 'Tax Revenue' is included in the Economics edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.