Difference between Levy, Tax, Duty and Cess

Key Difference: A tax is a financial charge that is imposed on a person or an entity by the state. Levy is not exactly a word, but rather a verb that denotes the act of charging a tax. Duty is actually just a type of tax that is levied on a certain type of goods. Cess refers to a tax that is levied for a particular reason to collect money to fund particular project for the betterment of the country.

The terms levy, tax, duty and cess are often heard in finance and economics. The terms describe the various different types of taxes and the way they are going to charged to the general public. The terms can become a bit confusing for someone who is just entering the world of corporate companies and working. Let’s take each word separately.

It is important to understand what a tax is before we can cover the other words. Understand this word will help in understanding other words as well.

Tax:

 A tax is a financial charge that is imposed on a person or an entity by the state. If a person lives and works in a particular government, he is entitled to pay the government some form of money. Taxes are collected by the government as a means to pay for public facilities, infrastructures, etc. This income goes into benefiting the individual in general and is the most common form of earning for the government. Failure to pay taxes or not paying taxes is punishable by law.  

There are two types of taxes: Direct and Indirect. Direct taxes are the ones that the public directly collects from the individual such as income tax, property tax, livestock taxes, etc. Indirect taxes are taxes that are charged indirectly or through another entity. The individual pays someone, who then pays taxes. Indirect taxes include Value Added Tax (VAT), Service tax, sales tax, etc.

Levy:

This is not exactly a word, but rather a verb that denotes the act of charging a tax. If the government charges or puts a tax on something or someone, the act of putting that charge or collecting the amount is known as levying.

Example: The government levies taxes on fastfood chains.

Duty:

Duty is actually just a type of tax that is levied on a certain type of goods or goods purchased in a particular place. Duty is most commonly associated with customs, or goods that are purchased abroad. Custom duty is a type of duty that deals with taxes on purchasing objects abroad and bringing them into the country. It is usually a percentage of the price of the product. Duties are also levied on specific commodities, financial transactions, estates, etc. rather than on individuals.

Cess:

The term cess is confusing because it means different things to different people, depending on where a person lives. In Ireland, Cess is nothing but a tax, while in Scotland it means a property tax. In Thailand, the term is used to refer to Rubber Export Tax. However in modern India, cess refers to a tax that is levied for a particular reason to collect money to fund particular project for the betterment of the country. For example, education cess is collected in order to provide education in rural countries.

Image Courtesy: theindianeconomist.com

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