The tax structure in India can be classified into two main categories

Taxation is a system where individuals and businesses pay money to the government to fund its operations and services. The financial fuel keeps public infrastructure running, from schools and hospitals to roads and defense systems. Consider the progressive income tax system in the United States. In this system, an individual's income is divided into brackets, each with its own tax rate. For example, in 2021, a single filer's income up to $9,950 was taxed at 10%, the income between $9,951 and $40,525 was taxed at 12%, and so forth up to a top rate of 37% for incomes over $518,401. This ensures that those with higher incomes pay more tax relative to their income, funding crucial services like defense, healthcare, and education that benefit all citizens, rich or poor. This illustration embodies the mechanism and purpose of taxation. Despite the progressive nature of the U.S. tax system, the current tax rates are relatively low when viewed in the context of U.S. history. The top tax rate reached its peak at 94% during World War II and remained above 70% until the 1980s. Today's top rate of 37% is comparatively modest. Over the years, this shift in tax policy has sparked debates about wealth inequality and capital accumulation, as lower tax rates, particularly for the wealthiest, can contribute to a greater concentration of wealth in the hands of a few, further exacerbating economic disparities Taxes can be classified or categorized based on various factors such as the method of collection, the impact on income distribution, or the type of goods or income they apply to. Here are some of the most common ways to classify taxes: Direct taxes are levied on individuals or organizations and must be paid directly to the government. They include income tax, wealth tax, corporate tax, etc. Indirect taxes are levied on goods and services and are collected by an intermediary from the person who bears the ultimate economic burden of the tax. Examples include sales tax, VAT, and excise tax. A progressive tax increases as the taxable amount increases, meaning those with higher incomes pay a higher percentage of their income in tax. In contrast, a regressive tax takes a larger percentage of income from low-income earners than from high-income earners. A proportional tax, also known as a flat tax, levies the same percentage rate of taxation on everyone, regardless of income. Navigating the world of taxation can be complex, as each country employs its own unique system to collect revenue and fund public services. From progressive to regressive taxes, and from consumption to income taxes, the landscape of tax systems varies widely. In this section, we'll journey across the globe, exploring the taxation systems of three diverse countries: the United Kingdom, Sweden, and the United Arab Emirates. Each example shows how different nations balance the need for revenue generation with economic growth and societal welfare. In the United Kingdom, a progressive income tax system is employed, where individuals pay a progressively higher rate of tax as their income increases. For the tax year 2021-2022, the rates range from 0% (for income up to £12,570 known as the personal allowance) to 45% (for income over £150,000). The UK also imposes a standard 20% Value-Added Tax (VAT) on most goods and services, with reduced rates for certain items and exemptions for others. In addition to these, the UK levies corporate taxes, council taxes, and inheritance taxes among others.¹ France also operates a progressive tax system similar to the UK. Income tax rates range from 0% to 45%, depending on income levels. France also imposes a corporate tax rate, currently ranging from 15% to 31%, depending on the company's revenue. In addition, a Value Added Tax (VAT) is imposed on most goods and services, the standard rate being 20%. France's tax system is overseen by the Public Finances General Directorate (DGFiP).³ In contrast to the previous examples, the United Arab Emirates has a minimal direct taxation system. There is no federal income tax on individuals, and corporate taxes are largely limited to foreign banks and oil companies. The UAE introduced a value-added tax (VAT) of 5% in 2018, a relatively low rate on a global scale. This tax is levied on Figure 1 shows that a large percentage of people's income is paid in taxes. Income tax is one of the main sources of government revenue in the UK, making up almost half of the public sector receipts in the year 2021/2022. This is a form of direct taxation.
Taxes on spending such as the VAT and fuel duty also make up a large percentage (18.3%) of government revenue, but it is significantly smaller than the tax revenue earned on income. These are both examples of indirect taxes.
By calculating the average tax rate we can see the overall burden of the tax on the taxpayer, whereas the marginal rate can be used as an indicator for decision making.
The marginal tax rate is a significant factor when it comes to making decisions about work and leisure, which influences the supply of labour. Suppose the marginal tax rate increases significantly, leading to a highly progressive tax system. In that case, people (especially high-income earners) will choose to work less as being taxed more heavily disincentivises them from working more. This decreases the supply of labour in the economy.
Additionally, high marginal tax rates also reduce saving, which has a negative impact on investment in the economy. A lower supply of labour and investment can result in reduced growth rates in the economy.