Income Tax

## Income Tax

Income tax is the primary source of government revenue in most developed countries. It is levied on taxable income — gross income minus allowable deductions and exemptions.

### Global Systems

| System | Description | Examples |
|--------|-------------|----------|
| Progressive | Higher rates on higher income | US, UK, Germany, Japan |
| Flat | Single rate for all income | Russia (13%), Estonia (20%), Hungary (15%) |
| Territorial | Tax only domestic-source income | Hong Kong, Singapore (partial) |
| No income tax | Zero personal income tax | UAE, Saudi Arabia, Bahamas |

### How It Works

In a progressive system, income is divided into brackets. Each bracket is taxed at a specific rate, and the effective tax rate is always lower than the marginal rate applied to the highest bracket.

### Filing

Most countries require annual tax returns. Some (UK PAYE, Germany Lohnsteuer) withhold tax at source so precisely that many employees don't need to file. Others (US) require all taxpayers to file regardless of withholding accuracy.