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Understanding the types of taxes that we pay as responsible citizens is crucial. Taxes are a vital source of income for every country's government, and they are levied in various forms such as salaries, restaurant bills, toll fees, and grocery purchases. It is important for eligible individuals and businesses to pay the taxes they owe according to the tax laws of their country. Direct taxes are paid directly by individuals or businesses to the government, while indirect taxes are levied on goods and services and are paid by the consumer. In this blog, we will go through the differences between direct and indirect taxes.
Direct taxes are a specific type of tax that individuals or entities pay directly to the governing tax authority. These taxes cannot be transferred to another individual or entity, and the tax authority in each country has the responsibility of managing tax-related activities.
Direct taxes are typically based on the taxpayer's income or wealth, and the tax amount owed is calculated using a progressive tax system. This system ensures that those with higher incomes pay a greater percentage of their income in taxes.
The common direct taxes levied on different countries are Wealth Tax, Income Tax, Interest Tax, Corporate Tax, Toll Tax, Dividend Tax, Property Tax, Professional Tax, Medicare Tax, Capital Gains Tax, Road Tax, Self-Employment Tax, Estate and Inheritance Tax, Education Tax, and Franchise Tax.
Indirect taxes are charges imposed on goods and services purchased by the consumer. Unlike direct taxes, they are not directly based on an individual's income. Instead, the taxpayer pays the tax along with the cost of the goods or services bought from the seller.
An example of an indirect tax is a sales tax, which is added to the price of a product when purchased from a store. The store collects the tax from the buyer and remits it to the government. This system allows the government to generate revenue from the consumption of goods and services without directly taxing an individual's income.
The common indirect taxes levied on different countries are Transfer Tax, Carbon Tax, Sales Tax, Value Added Tax, Hotel Tax, Fuel Tax, Entertainment Tax, Toll Tax, Excise Tax, Road Tax, Luxury Tax, Customs Duty, Environmental Tax, and Stamp Duty.
Corporate Income Tax: Corporations will be subjected to a 9% tax from June 1, 2023.
Value-Added Tax (VAT): As of January 1, 2018, a 5% VAT was implemented in the UAE for the majority of goods and services.
Excise Tax: Tobacco and energy drinks are subjected to a 50% excise tax, while carbonated beverages and alcohol are subjected to a 100% excise tax.
Customs Duties: Certain goods imported into the UAE are subject to customs duties, but some products are exempted.
Taxation can be a complex matter, with different types of indirect and direct taxes in Dubai, UAE. To ensure that individuals and businesses are following the regulations set forth by the government, tax consultants offer guidance and advice. Reyson Badger is a leading firm with a team of highly skilled tax consultants in UAE. With our corporate tax service specialists, you can trust that you're receiving the best possible guidance when it comes to tax compliance.