Taxes in every country are usually levied by the state. A tax refers to any kind of financial charge that is levied upon a taxpayer, and failure to pay invites prosecution through legal means. The taxpayer, in this context, can be an individual or a legal or business entity. Apart from the state, various administrative divisions may also impose taxes from time to time. Taxes are broadly categorised as direct and indirect taxes. Income tax is an example of a direct tax, whereas sales tax is an instance of an indirect tax. Most often, taxes are imposed as a percentage that is known as the tax rate. The tax rate can be further sub-classified into the marginal rate and the effective (average) rate. Governments use the money collected from taxation in various ways, such as for running the administrative machinery, war-related expenditure, enforcement of law and order and for infrastructure-building purposes. Hide this