What is Income Tax?

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Income tax is a tax imposed on individuals and businesses by the government. The details of taxable income vary with the income and by jurisdiction.

Income tax on business entities is referred to as a corporate tax. When there are Partnerships in business, the Partnerships are not taxed, but the partners get taxed based on their share of the partnership. Most charitable organizations are exempted from tax. All entities and individuals get taxed by governments on their financial income and based on their jurisdiction. As per law, every businesses and individual must file income tax return every year.

Practices of making an offering have existed from ancient times and can be looked upon as a precursor of the income tax. In America, the first income tax was imposed during the War of 1812. And the purpose was to find a fund to repay the debt of $100 million debt incurred because of the war. Once the debt was repaid, the tax was repealed. However, it was during the early 20th century that income tax became s permanent feature. The concept of taxing income has evolved ever since. Looking back in history, taxes were based on other factors such as wealth and social position.

The income tax is computed as the product of the rate of tax and the taxable income. However, the tax rate may rise or decrease as taxable income increases. Moreover, it may vary according to the characteristics of the taxpayer. There are different tax rates for the Capital gains as compared to other income. Several jurisdictions levy the higher of an income tax, and credits of different kinds may be allowed so as to lower tax. One comes across a progressive income tax system in many countries employ where the higher income earners pay a higher tax rate as compared to those earning a lower income.


Today, most countries around the world make use of Income taxes and the rates, and jurisdictions may vary greatly. They can be progressive or regressive, depending on the kind of tax. It can be difficult to compare the tax rates around the world and in some of the country, the laws related to tax can be complex. Within the same country, there may be a different system of taxation for individuals and corporations. For example, France makes use of the territorial system for corporations and a residential system for individuals. In Brunei, corporates are taxed but not the personal.

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1 Comment
  1. Kenisha says

    That’s a craarekjcck answer to an interesting question

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