Taxation is a system by which a government levies or imposes charges on citizens and corporate entities to finance it’s expenses such as defense,welfare (Education,Health Care,Infrastructure) etc.Tax is a compulsory payment to government under any law.It can be charged by government on goods,income or any activity.The legislature(law maker) is vested with the responsibility and power to make laws.The judiciary interprets the Law and Administration implements the law.

There are two types of taxes namely Direct Tax and Indirect Tax.In Direct tax the person who bears the burden of tax himself deposits it with the Government.The Income Tax is an example of Direct Tax.In Indirect Tax the person who bears the burden of tax does not himself deposits it with the Government.The Value Added Tax is an example of Indirect Tax.Tax is imposed by the government at different rates so as to distribute the burden of taxation among different sections of society involved in taxable activities.The burden of tax or tax incidence is distributed among sections such as consumers,producers,employers,professionals etc.The incidence of tax varies by systems and systems may be Income based,Consumption based,Progressive,Regressive and Proportional.The various systems are defined briefly as under:

• Income Based:The system in which the tax is imposed on income earned by the Individual or Entity.Example-Income Tax.
• Consumption Based:The system in which the tax is imposed on spending on goods and services.It is also known as Expenditure Tax,Cash-Flow Tax and Consumed-Income Tax. Example-Value Added Tax
• Progressive:The system in which tax rate increases as the taxable base amount increases.It is based on the concept of ability to pay.Therefore burden of tax increases for those who have higher ability to pay.Example-Income tax based on slab rates.
• Regressive:This system is opposite of Progressive system and is applied uniformly.Therefore it imposes greater tax burden on poor as compared to rich.Example:Tax levied on essentials.
• Proportional:The system in which a fixed tax rate is applied regardless of income bracket.It is also called a flat tax.Example:Sales Tax.

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