The Definition of a Government Levy

by Brian Bass; Updated September 26, 2017

A government levy is a tax. A government taxes its citizens to cover the costs associated with conducting the business of running the city, state or country. Governments apply special levies through referendums or laws. Taxes on cigarettes, alcohol and certain industries discourage certain groups of the population from using these products. Most governments have ceilings on the levies charged. These ceilings help to protect citizens from excessive taxation.

Value

Before a government can initiate a levy on any product, property or service, the government must assess the value of the underlying item subject to the levy. This allows governments to assess a fair tax that will not overly burden those paying the tax or levy. Excessive taxation can limit economic growth and encourage businesses and individuals to leave the taxing municipality and go to a place that offers lower rates of taxation. Governments need to find a balance, beneficial to both parties, in order to maintain a steady stream of revenue from the levies.

Direct and Indirect Taxation

Direct taxation is a type of taxation where the government directly taxes property or wages. This kind of taxation is a tax on ownership or existence. Indirect taxation, on the other hand, is a type of tax applied indirectly on activities, privileges, events and choices. For example, you can choose to buy cigarettes. Thus, a cigarette tax is a type of indirect taxation. If you don’t want to pay the tax, do not buy the cigarettes.

Intention

Governments need money to run the government. Levies are a mechanism governments use to collect these funds. Levies fund the day-to-day operations of a municipality, and this type of taxation has existed for thousands of years. Citizens typically understand the need for taxation and accept the practice as part of a functioning society.

Distribution

Levies or taxes can also redistribute wealth from persons with higher incomes to the general population. The wealthy generally pay taxes at a proportionally higher rate than the general population. Placing higher levies on a select group can help the government collect additional revenue. However, governments must remain mindful that overly taxing wealthy individuals can result in an exodus of these tax payers to a municipality with lower taxation rates.

About the Author

Brian Bass has written about accountancy-related topics and accounting trends for "Account Today." He works as a senior auditor specializing in manufacturing and financial services companies for one of the Big 5 accounting firms. Bass hold a master's degree in accounting from the University of Utah.