What is tax? In simple words

Q: Who is a taxpayer?

A taxpayer is a person or an enterprise on whom the law places the obligation to pay tax. In the neighbourhood, every family was a payer. On the scale of a state, too, the payer can be an ordinary person, an entrepreneur or an enterprise. Who pays, under what conditions and how much is set by law. In this lesson we do not study the exact rules: first we understand the idea, and we will turn to the rules in later sections.

In Hilola's neighbourhood the road had worn out and turned to mud when it rained. Everyone complained, but nobody could repair it alone. Then the neighbours got together and agreed: "If we all chip in, the road will be fixed."

The whole idea of tax is in this simple event.

The main idea of tax

Some things are needed by everyone, but one person cannot build them: a road, a school, a hospital, security. The state collects money for these. Part of the money collected is tax.

Tax is a payment that the state, on the basis of law, collects compulsorily from people and enterprises and that is not returned. It is not a debt: there is no promise "we will pay it back later", as with a bank loan. Tax is a contribution to a common cause.

In the neighbourhood example

There are 40 families in the neighbourhood. Each pays 30,000 soums once (the figures are hypothetical):

40 × 30,000 = 1,200,000 soums.

The neighbourhood council spent the money like this:

On what	Amount (soums)
Repairing the road	700,000
Street lamps	300,000
Reserve for unforeseen work	200,000
Total	1,200,000

Let us check: 700,000 + 300,000 + 200,000 = 1,200,000. Everything matched.

For one family, 30,000 soums is a small amount. But gathered together, it accomplished something that nobody could have done alone. It is the same with the state, except that it works with more people and more needs.

Who is a taxpayer?

A taxpayer is a person or an enterprise on whom the law places the obligation to pay tax. In the neighbourhood, every family was a payer. On the scale of a state, too, the payer can be an ordinary person, an entrepreneur or an enterprise.

Who pays, under what conditions and how much is set by law. In this lesson we do not study the exact rules: first we understand the idea, and we will turn to the rules in later sections.

Why must everyone pay?

Imagine that 10 of the neighbourhood's 40 families did not pay, saying "I do not use the road". Then the money collected would be 30 × 30,000 = 900,000 soums and would not be enough to repair the road. And everyone uses the road all the same.

That is why tax is not a voluntary gift but an obligation set by law: otherwise common work would come to a halt.

How tax relates to accounting

To calculate tax correctly, what was sold, what was bought and how much was earned must be recorded. That is why in lesson 12 we studied the document and the receipt. Without records an entrepreneur does not even know what the tax is to be calculated from.

Tax and the ordinary person

Tax is not a subject only for large enterprises: every person and enterprise that the law names as a payer takes part in it. As in the neighbourhood example, the money paid goes to things everyone uses, such as the road and lighting. When thinking about tax, it is useful to remember not only the thought "this is money out of my pocket" but also "this is a common purse collected for common work".

Remember

Tax is a compulsory payment collected for the common needs of the state.
It is not a debt and is not returned.
Who the payer is and how much they pay is determined by law.
The exact rules should always be checked in the official document.

In the next lesson

In the fifteenth lesson we will get acquainted with the Income and Expense Book: how an entrepreneur can keep the daily movement of money in a simple notebook.