Tax vs levy differences you should know

You should never compare the term tax to levy. Why? They are different in many respects. While taxes are compulsory charges on the income of individuals and organizations, levies are not compulsory and arise when a service is done by a government agency on your behalf. Let’s discuss five of these differences.

Similarities between tax and levy

• Both are paid to the government
• Failure to pay tax will lead to a fine. And a fine is regarded as a levy.
• In each case, the government performs a service to citizens whether directly or indirectly.

Read: FIRS releases new standards for tax practitioners

Differences between tax and levy

Definition

By definition, a tax is a compulsory payment by citizens to the government. While a levy is a charge by a government agency to carry out a service.

Reason for payment

Another difference between taxes and levies is the reason or motive of payment. Citizens pay taxes because it shows that they are obedient to the law of the country. Levies are paid for different reasons and don’t show obedience but to enjoy some services from a government agency.

Level of compulsion

Taxes are compulsory and all eligible citizens must pay taxes or risk being thrown into prison or pay a fine or both. However, for levies, it is done willingly. It is the individual or citizen that will enjoy the services.

Read: Tax vs levy differences you should know

Expectations

After paying taxes citizens don’t expect anything in return on a personal basis. The government uses the money for a variety of purposes. But as a country, citizens may benefit from paying taxes. In corrupt countries, the expectation is very low. But that’s different in levies. The citizens expect to receive a service from the government.

Examples

Examples of taxes include income and company taxes. For levy, the amount paid to a court of jurisdiction to authorize an affidavit is a level.