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Economics explained


microeconomic policies

Types of tax

Types of tax

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Types of tax

Direct taxes

Direct taxes are paid directly to the government by taxpayers, either as individuals or companies, from their incomes.


income tax

corporation tax on the profits of businesses

national insurance contributions paid by employers and employees.

Governments can use direct taxes (imposed on income, wealth or profits) to reduce income inequalities in the economy.

Indirect taxes

Indirect taxes are collected for the government by retailers and local government bodies.


value-added tax (VAT) on the retail sales of many goods and services

excise duties on fuel, alcohol and tobacco products

council tax

business rates charged locally on the ownership of houses, apartments and business premises

Governments can use indirect taxation (imposed on spending) to affect consumer expenditure.

Governments can also impose tariffs (import taxes) to discourage the purchase of foreign goods and services in order to protect domestic businesses and jobs.

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