Tax rate meaning with main difference

On many occasions we have heard the terms “rate” and “tax”, but little do we know exactly how they differ. And although they are different, they do share several similarities in practice. Tax rate meaning with main difference

Today we will explain in a simple way how both work and their main differences. Being two types of regulation quite important in the framework of the economy and politics.

Rate vs Tax: main differences

The rate is the amount that is paid in exchange for a good or service, while the tax is a law.
  • The rate is a subscription that a person pays in exchange for receiving a certain service. The tax is a universal law where a percentage amount is paid based on annual earnings.
  • The tax is purely legal and state, instead the rate can be executed by a mixed body (private and public) as well as by a public institution.
  • The fee is optional, as it is only paid if the person decides to use the service. The tax for its part is universal and is applied in all social strata.

Here is an explanatory video of the main differences between these two types of tributes    Tax rate meaning with main difference

What are the fees?

A fee is a payment that a person makes for a service, that is, it is only paid if it is used. In this regard, the rate differs markedly from the tax, which is universal and mandatory in all cases.

The rate is executed as a regulatory measure in personal and direct transactions, so that there is a bilateral obligation in the use or exploitation of an asset. They are usually imposed by private or mixed entities.

Cooperatives of transport, tourism or industries are responsible for setting rates for their respective services. There are also fees for public services that the person requests voluntarily.

An example of this can be the garbage collection service, the households would be responsible for paying a fee for the service provided. The amount in question should not exceed the amount of the service, in other words, the payment is not to enrich the city council.

What are taxes?

The tax is a universal amount that all citizens must pay to the state, and it varies depending on their economic activities and income. Arguably, the tax is the state’s way of raising funds.

Being a mandatory law in all countries and that is the way by which the state is capable (or should be) of solving all public cats and projects of a social nature. The tax as opposed to the rate is part of the citizen’s duty.

And those who evade taxes can incur a serious penalty, which includes penalties with interest and even jail. Taxes vary according to the social status of the citizen or company, this is another difference that it has with respect to the rate.

On the other hand, the tax is part of the policy of the government of the day, in this way it is not surprising that the percentage amount of it is always the same. This may vary according to campaign promises, emergency economic measures, among others.

In addition to the fact that taxes have always been ideological material since time immemorial. It is worth mentioning that taxes, as opposed to rates, are essential for the maintenance of the state and its administrative activities.

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