What Are The Different Kind of Taxes?
Following are the main kinds of taxes:
■ Income taxes are taxes specifically levied on the basis of income.
■ Employment taxes are also based on income, but specifically on wage and salary income. In the United States, employment taxes are paid by the employee and the employer, and they are designated specifically for social insurance programs (i.e., retirement and unemployment).
■ Excise taxes are taxes on certain commodities, such as alcoholic beverages, tobacco products, telephone service, and gasoline. Excise taxes provide an easy way of raising revenue, and they can be imposed to discourage the use of specific products, such as tobacco.
■ Import and export taxes (or tariffs) are taxes based on trade with other countries and are imposed to achieve specific economic goals in world trade.
In assessing a company’s current and future cash flows, the financial analyst requires information concerning a company’s tax obligations.
Unfortunately, the company’s tax return is not publicly available, requiring the analyst to understand the basics of corporate taxation and to work with information disclosed in the financial statements.
The tax laws are changed almost constantly and are likely being changed as you read this. Hence, no purpose would be served by covering all the details of present tax laws; they might be outdated as soon as you learn them.
Instead, we discuss some of the principles behind the tax laws and in doing so provide an opportunity for you to learn some terminology, do some basic taxation calculations, and see how taxes affect a company’s cash flows.
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