Definition:

Businesses are generally required to pay a certain percentage of their profits to the Government.

Many Governments also raise money through a tax on the import or export of goods (known as duties), and the sale of products and services (known as Sales Tax or Value Added Tax).

Companies will also be liable for payroll or income taxes on the salaries earned by employees.

Example:

If you sell an electronic gadget worth $500, that is liable to 20% sales tax, the customer must pay $600 for the gadget, and the company pays the extra $100 to the government.

Why it matters:

Tax liabilities are complicated, and vary by country and even state-to-state. Companies are responsible for collecting and paying many different kinds of taxes, with fines and prosecution facing companies and individuals who break the rules.