A tax is a mandatory financial charge or another type of levy imposed on the taxpayer (natural or legal entity) by a government organization for the purpose of financing government expenditures and various public expenditures (regional, local or national) and tax compliance refers to policy measures and individual behaviour designed to ensure that taxpayers pay the right amount of tax at the right time and to provide the right tax breaks and credits. The first known taxation took place in ancient Egypt around 3000–2800 BC. Failure to pay on time (non-compliance) along with tax evasion or tax resistance is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent.
Most countries have a tax system in place to pay for public, common or agreed on national needs and government functions. Some impose a flat percentage tax rate on personal annual income, but most range taxes are progressive based on brackets of annual income amounts. Most countries levy taxes on both personal and corporate income. Countries or subunits often also impose estate taxes, inheritance taxes, estate taxes, gift taxes, property taxes, sales taxes, use taxes, payroll taxes, customs duties, and/or tariffs.
In economic terms, taxation transfers wealth from households or businesses to the government. This has effects that can both increase and decrease economic growth and economic well-being. As a result, taxation is a hotly debated topic, and some, such as libertarians, classify it as theft or extortion.
The legal definition and the economic definition of taxes differ in some ways, so economists do not consider many transfers to governments to be taxed. For example, some transfers to the public sector are comparable to prices. Examples include tuition fees at public universities and fees for public services provided by local governments. Governments also raise resources by “creating” money and coins (such as printing banknotes and minting coins), voluntary donations (such as contributions to public universities and museums), imposing fines (such as traffic tickets), lending, and confiscating the proceeds of crime. From the point of view of economists, a tax is a non-punitive, but the mandatory transfer of resources from the private to the public sector levied on the basis of predetermined criteria and regardless of the specific benefits obtained.
In modern tax systems, governments collect taxes in money; but taxation in kind and labour is characteristic of traditional or pre-capitalist states and their functional equivalents. The method of taxation and government spending of increased taxes is often highly debated in politics and economics. Tax collection is done by a government agency such as the Internal Revenue Service (IRS) in the United States, HM Revenue and Customs (HMRC) in the United Kingdom, the Canada Revenue Agency or the Australian Taxation Office. When taxes are not fully paid, the state may impose civil penalties (such as fines or forfeiture) or criminal penalties (such as imprisonment) on the non-paying entity or individual.