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income tax definition

The definition of income tax is called those expenses that are recognized by organizations to the government and that relate to the profit of the organizations subject to tax during a specified period of time, there is a discrepancy between the expense of income tax and the percentage of the standard income tax that is applied to the total income of the organizations because there is a discrepancy in the amount taxable according to different generally accepted accounting standards or international standards upon which various financial reports are prepared.

An example of this is the difference in the method of calculating depreciation, which affects the value of profits subject to income tax, which leads to a difference in the value of the income tax due, and many organizations try to avoid paying taxes due on them towards governments through some means through which the special income tax expense is interpreted to zero despite achieving significant profits in a specific financial period.

Income tax is defined as a tax that is imposed directly on persons, companies and institutions who practice various professions and work activities such as the service sector, trade, information technology and other persons whose general income exceeds a certain amount of money per year, where the government deducts part of the profits, whether for companies and institutions Or individuals and persons if these profits exceed a certain amount to be determined by them, and the income tax is a financial and material obligation that the taxpayer performs to distribute public burdens annually, whether for individuals or companies, and each according to his net income as this is done through criteria set by legally specialized bodies, and These authorities are keen to develop a tax law that is completely free of complications in order to avoid the emergence of any tax loopholes, and an annual income tax return is submitted by taxpayers to determine and pay their tax obligations.
income tax definition
income tax definition

Individual Income and Tax

The ancient man used barter operations in order to obtain the goods and services he needed, and then other means appeared through which goods were purchased or services were obtained, such as gold, silver and some types of jewelry, but these means were used to involve many risks because of their high material value until they were The use of coins in buying and selling operations, and with the development of human peoples and the emergence of countries, the ability to control the income of individuals increased, and some fees were imposed on individuals who live in specific countries from the amounts they receive, and this paved the way for the emergence of the concept of income tax, and in this article the concept of the concept will be addressed Income tax.

Income tax and local economy

The income tax for many financial and economic analysts is one of the fairest types of tax, as they consider it an indicator of the ability of individuals who live in a particular country to contribute to the economic support of the governments in these countries, and the income tax directly affects the economic performance of the countries that benefit from the revenues Taxes payable by individuals in it, and the concept of income tax overlaps with the concept of investment, where investments are negatively affected by the progressive income tax, especially in projects that involve a high degree of risk, in addition to tax laws that may allow investors to write off losses when they are realized.

income tax determinants

The income tax of individuals is affected by the general state of their economic situation, as it undergoes a sharp increase in periods of economic prosperity, while it decreases significantly in periods of economic stagnation, due to the association of the income of individuals with general economic activities. On the other hand, the low level of individuals’ income reduces the amount of income tax and makes some of those who are included in the personal exemption from the income tax. This type of tax is also related to the amount of individuals’ income, as the value of the income tax increases with the increase in the rate of individuals’ income due to the generation of additional material income. It is subject to tax at a higher rate, in addition to some circumstances related to these individuals such as marital status and the number of individuals who fall within their dependents, where their taxation is affected by all these factors according to legal provisions for income tax in the country.

Tax avoidance and tax evasion

Organizations are trying to mitigate the expenses through which their net profits are reduced, and the income tax is one of those expenses that organizations seek to avoid incurring, and here a distinction must be made between the concept of tax evasion and the concept of avoiding the tax resulting from income in accordance with generally accepted accounting principles. This applies to the different types of tax, and this can be highlighted through the following:

tax avoidance

It is a legal concept that is not punishable by law and the organization does not violate the applicable tax law. Rather, the person responsible for the organization that avoids paying tax seeks to find legal loopholes in the tax law that help reduce the value of taxable income, and tax avoidance is a form of intelligence Financial, which contributes to reducing the tax bill and reducing expenses resulting from the presence of high amounts of money subject to tax through proper tax planning, and one of the most prominent ways that organizations resort to in reducing the tax burden is the presence of deductions in income that lead to a reduction in the tax bill in addition to the use of what is known as shields Taxes that protect beneficiaries from high tax burdens.

Tax evasion

It is an illegal concept punishable by law, through which the reporting of correct income or correct expenses is withheld, in a way that affects the amount of income tax due, or it may be done by not paying the tax due on income even though there is no wrong reporting of the correct values ​​and financial statements of an organization during a specific period of time, such as the value of sales or the value of salary expenses. Falling into tax evasion entails a set of penalties that are imposed by law and that differ from one country to another according to the current laws and regulations. Examples of these penalties are the imposition of financial fines, imprisonment for different periods of time, or the seizure of property belonging to the tax evader, so organizations take preventive measures from In order to avoid falling into tax evasion because it may result from ignorance of the law or intentionally or unintentionally providing false information when financially reporting the organization's revenues and expenses during a specified period of time.

Taxes and the general budget

For its economic and material development, the state depends on a set of important main elements, as the state’s general budget is considered one of the most important of these elements that will lead to the economic and financial development of the state. And for individuals and companies on the other hand, and one of the most important of these resources is tax, so governments in countries legally resort to imposing a set of taxes on sales, individuals and companies in order to improve and develop the general budget that will also advance the state’s economy, and in this article the definition of income tax will be addressed.

Income tax for individuals and companies

Income tax is divided in terms of those charged with paying the tax into two main parts, the first is individuals and individuals, and the second is companies and institutions. The following is a detail for each part:
  • Income tax for individuals: The income tax for individuals is defined as a set of financial deductions that are imposed by the Income and Sales Tax Department, where this tax is imposed against a group of services that are provided to individuals and in various service sectors such as the health, education and investment sectors, as these deductions contribute In reducing the income of taxable individuals, tax credits are used to reduce the tax liability of individuals who are obligated to pay taxes. For example, if the percentage of taxes owed on an individual is estimated at $ 20,000, but he qualifies for credits in the amount of $4,500, the value of his taxes is reduced to $ 15,500.
  • Corporate Income Tax: Corporate income tax is defined as the tax imposed on the net profits of the company. These taxes are considered fixed and non-graded, as they depend on the amount of the company’s annual profits. Both companies and shareholders are taxed on the basis of the legal principle which states that shareholders are part It is an integral part of the company's entities affected by profit and loss, and some companies reduce the tax burden by raising prices on some of their products and sales.
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