Taxpayers

Last Updated :

21 Aug, 2024

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Taxpayer Definition

A taxpayer is a person or a corporation who must pay taxes to the government based on their income. In the technical sense, they are liable for, subject to, or obligated to pay tax to the government based on the country's tax laws.

They possess an identification number given by the government. They are obliged to make this payment, which the government then uses for infrastructural developments and other useful purposes which will support the betterment of the economy. This fund aids in government spending and meets the needs of citizens. The payers of tax may do so based on property ownership, income from various sources or any purchased or heavy gains from the financial market.

Taxpayer Definition

Taxpayer Explained

The term taxpayer refers to the one who is liable to pay tax to the government on the basis of the income they earn, the investments they make and return on them, the ownership of property, and so on. The government of the country will then spend this money earned from the taxpayers for the overall development of the economy through the betterment of infrastructure, like setting up educational institutes, public utility services, industrial development, boosting trade and commerce and so on.

In this regard, it is necessary to understand a few details about the process of taxation and taxpayers portal some important terms relevant to it. Let us study the same, as given below;

In taxation, a taxpayer is usually termed as an Assessee, who is liable to pay the tax directly or indirectly to the government based on the nature and quantum of income earned during the previous year.
The Taxpayer is further required to pay tax to the government in specified routes/methods. I.e., thorough assessment of his income and direct deposit of tax in case of direct tax and during the purchase of a product or service in case of indirect tax.
Taxpayers are identified based on the identity card issued by tax authorities in their respective countries. Such as in India, PAN cards are used as identity cards issued by the tax department to identify and assess a taxpayer.

Here, it is worth mentioning that when consumers or individual taxpayers buy goods and services from the sellers, they pay tax, which are included in the prices charged for the same. All the above amount add up to accumulate fund for the government which is meant for public spending.

Classification

Taxpayers are primarily classified into two types as per the taxpayers portal that are individuals and corporations:

Individuals - These taxpayers are people who are liable to pay tax for their income. Such people are called citizens of the country and they may possess a resident status or a non-resident status. However, even individuals who are not citizens of the country may pay tax. Such individual taxpayers reside inside the borders of the nation but do not have the status of being called a national of that country.
Corporations - These taxpayers are liable to pay tax on the profits earned during the previous year from their business activities. The corporations or companies operating within the physical territory of the nation can be further classified as domestic, partnership or a foreign company. The foreign companies may possess a residential status and may directly operate within the country or may be a non-resident and derive an income from some source in the country by operating from somewhere else. In case of domestic company, they are liable to pay tax on their income as per the tax laws applicable within the country. However, in case of a partnership firm, since the partners and the firm are not treated as a separate entity, the firm will not pay any tax, but the partners will do so based on the income that they earn from the business.

The money that is collected by the government helps in creating the budget for the entire year. However, if the money earned from the tax is less than the money that a nation borrows from international sources, or the spending made by the government for the infrastructural and social development, then it creates a deficit or a national debt.

All government spending programs are aimed at reducing inequality in income and financial status, providing equal opportunity to all, supporting elderly and unemployed individuals, the disabled and financially or socially backward community.

Rights

Let us study the rights that the individuals have regarding tax payment and taxpayers registration.

They have a right to be informed about the tax laws and their transactions with the tax department.
The right to question tax authorities in case of breach of their duties and the right to be answered for such queries;
The right to submit their tax returns and other related applications;
The right to appoint an authorized representative to perform their duties related to tax;
Also, they have the right to be redressed for default committed by tax authorities.

Is necessary for every payer of tax to check the taxpayers registration and verify the threshold of tax payment according to the federal laws, to determine how much tax they are supposed to file every year. In this context, the marital status also plays a role. The tax payment status of married and single individual will not be the same. In case of married individuals, they can select whether they wat to file the tax separately or jointly.

Responsibilities

Given below are some important responsibilities of a taxpayer. Let us learn the same in details.

They have a responsibility to be cooperative, well-mannered, fair, and honest and further maintain integrity during assessment and payment of tax;
They must provide reasonable facilities and assistance to enable the audit officers to perform their duties.
They should respond aptly to the queries of tax authorities and respect their duties.
They should not falsely declare incorrect income or seek relief while submitting their tax returns.
Taxpayers are also required to keep safe their tax records for a certain period based on the regulatory requirement from the end of the assessment year in which the income tax return was filed.

In this regard, it should be noted that sometimes they may try to evade the system of paying tax to save funds. This is violation of the legal system since it is mandatory for everyone to pay tax as per their income source and amount. In such cases, it is definitely considered a crime, because it falls under illegal approach when tax payment is the duty of each citizen. The legal system is liable to take strict action against those individuals who do so. Criminal charges and a substantial amount of penalty is supposed to be paid if tax evasion is detected.

There is tax evasion if the payer has knowingly not paid the correct tax amount or has hidden the actual income value in order to pay less tax. Sometimes, tax evasion occurs if they provide incorrect information about their type of expense or type of business so as to understate the tax amount. Regarding the above, it is necessary to understand the difference between tax evasion and tax avoidance. The process of tax avoidance may be described as a legal process adopted to avoid paying taxes to the government, which is usually done by modifying the income amount of financial position of the individual or corporate. But in case of tax evasion, information is portrayed in a false manner or hidden in order to give a false impression of lower income, which cannot be taxed.

However, even if an individual is not having any source of income or does not fall under the taxation slabs, they will still find themselves paying some amount of tax to the government to the taxpayers office through the different purchases that they make in their day-to-day life. They are required to pay the sales tax of the products and services, or property tax on any real estate ownership. So, directly or indirectly, all of us end up as taxpayers in a country.

Taxpayers Vs Non-Taxpayers

Taxpayers are liable to or subject to tax payments to the government. Whereas non-taxpayers are those who are not paying tax to the government from the income earned, there are several reasons for the non-payment of the tax, such as.

They may be exempted from tax payment due to the nation having double taxation avoidance agreements with the other nation in which they are earning or situated.
Maybe the income earned in the previous year is not taxable as per tax laws, usually referred to as an exempt income.
The taxpayers may even violate the law by not paying taxes, which can be termed tax evasion. Tax evasion is entirely different from tax avoidance (which involves using legal methods to lower the amount of tax payable to the government) and tax management (which involves following correct procedures for ensuring timely tax payment).

Based on the information provided in this article, we can conclude that almost all individuals and corporations are directly or indirectly involved in the payment of taxes and are termed taxpayers in the economy due to the nature of the collection of tax by the government.

Also, the classification of the types of taxpayers discussed in this article is only a summary. However, in reality, the classification is further divided depending on the different tax laws. In India, an individual's residential status is divided further into Resident and Ordinary Resident, Resident but not Ordinary Resident for determining the tax payable. In a few tax haven countries, tax is collected by taxpayers office only from the corporation or individuals depending on their revenue structures and regulations, such as Dubai, where individuals are not liable to pay tax on the salary earned in the previous year. In contrast, only companies engaged in the banking and oil industries are required to pay tax.