A nation requires sufficient funds to carry out development plans, handle day to day administration, maintain peace and security and launch other public welfare activities. The funds required by the government are normally collected from two sources: debt and revenues. The debt can be collected either from internal sources or external sources. The debt collected within the country is know as internal debt while the debt collected from outside the country is called external debt. The debt financing of government is also known as deficit financing. The revenues of the government come basically from two sources: tax and non-tax. Non-tax sources include different revenues like gifts, grants, revenues from public enterprises, administrative revenues such as registration fees, fines and penalties. Tax sources include customers, excise duty, VAT and income tax.
Tax is any compulsory levy from individuals, households and firms to central or local government. It is simply a liability to pay an amount to the government. It is a compulsory contribution from the taxpayers. Tax is computed and paid as prescribed in the law.
It can be concluded that:
* Tax is a compulsory levy imposed by the government
* Tax is levied on persons as per the prevailing laws.
* Those who pay tax do not get corresponding benefits from the government.
* Tax is spent for common interest of the people.
* Tax is collected from haves and spent for the interest of have-not in the society.
Therefore, we can define tax as a compulsory contribution made by taxpayer to the government without having any direct personal benefits.
