What is meant by “sales tax”?
The concept of “sales tax” means that it is an amount of money that is calculated as a percentage added to the cost of a product or service. Sales tax is also defined as the consumption tax imposed by governments on the sale of goods and services. Sales tax is imposed through traditional points of sale, and when buying and selling operations are completed with customers, it is collected.
Taxes by the retailer and then transferred to the governments so that the first responsible for the sales tax is the consumer or the final customer, and the person responsible for paying the sales tax is determined because the majority of goods in economies go through many stages of manufacturing through which many entities deal or parties with these commodities, and accordingly it requires the existence of many documents proving that the final consumer is responsible for paying this tax, and this may exempt some governments from specific commodities from sales tax such as some products sold in groceries, bread and other products that individuals may need on a daily basis, so that it is difficult to tax the poor among them and those who suffer from a low standard of living.
What are the types of sales tax?
There are many sub-types of taxes that fall under the concept of sales tax, and these types can be summarized as follows:
Retail tax
This type of sales tax is the most common in most countries, as it is the tax from which local governments can generate revenue, and the percentage of this tax can range from a few percentage points to more than ten percent of the cost of goods. the purchase of clothes, tissues, and toothpaste, and thus it is included as a percentage of the price of the product in the end.
Franchise tax
This type of tax can be considered a license tax to operate the company, as it is a tax imposed on merchants in exchange for the privilege of doing business. The franchise tax differs from the retail sales tax in that it is imposed on the seller and not the consumer, but companies have the option of paying this tax directly to governments or passing it on to the final consumer to pay.
Selective taxes
These taxes are imposed on some types of goods that may be considered harmful to health or that governments aim to reduce their use in society, as is the case with alcohol and cigarettes, which are items that are not considered necessary for survival and are not essential. These taxes are paid by the people who produced the goods or by wholesalers, and of course, this tax raises the price you pay for the product.
Use or consumption tax
Consumers bear this type of tax, and it is transferred from merchants to them when retail sales taxes are not imposed on them while the goods or services they provide must impose this type of tax.
Value Added Tax, Gross Receipts, and Wholesale Tax
All of them are additional ways that enable the authorities and governments in countries to increase revenues based on sales, the production of services and products, and their provision to customers and society.
What is the significance of imposing a sales tax?
The sales tax plays an important role in supporting the revenues of governments and their economies, and the following is an explanation of the most important aspects that the sales tax contributes to supporting:
Communities development
The imposition of a sales tax contributes to the development of societies in the country, and this can include road maintenance, building reconstruction, and other infrastructure improvements. By imposing this type of tax, individuals can contribute to the fees required for these operations through the amounts they pay for the tax, which may reduce the burden on governments.
Public services
Public services often include schools, parks, hospitals, libraries, etc., and governments allocate a large part of the tax for this type of service, as individuals use this type of place and service almost daily and often expect it to be available in times of need, which means that a special budget is required to do so. With these works that are required by individuals in their communities, this matter may affect the welfare of the communities in some way.
Protection services
Governments allocate part of the money they collect to go to protection units in the country, which include firefighting, police, ambulances, etc. For example, governments may have to allocate a specific part of the tax revenues to cover the price of utilities for firefighting vehicles, and so on, at certain periods of the year.
Read also: What is the difference between income tax and sales…
