Virtually any good, product or activity can be taxed. However, in developed countries of today, the main revenue-raising forms of taxation are income tax, corporation tax, and sales tax.

Income tax is levied as a percentage of a person’s earned income for the year. The existence of this tax makes necessary an elaborate system of reporting whereby citizens declare their income to the government each year so the government will know how much tax each should pay. Naturally enough, there is, to some degree, a disincentive for citizens to be truthful about their income levels, since declaring a higher income means losing more of it. Government sometimes therefore carry out investigations to investigate the veracity of their citizens’ tax declarations.

Corporation tax is one of the other major revenue-raisers. It is charged as a percentage rate on a company’s profits. This too requires an elaborate reporting and investigation system.

Sales tax is charged as a percentage rate on any product sold to consumers in the economy, although a number of goods are often declared exempt from it. This tax is largely transparent to consumers because it manifests itself simply in the form of higher prices for the products they buy. The companies responsible for the selling simply collect the money from each sale and forward it to the government periodically.