Where does a government's money come from: income tax, VAT or corporation tax?

Most of a government's money comes from taxes, which are mandatory charges used to pay for public spending. Three kinds do most of the work in many rich countries: income tax on what people earn, VAT or sales tax on what they buy, and corporation tax on company profits.

Income tax is charged on the income or profits that individuals and others earn. In Britain it was introduced in 1798 to pay for war with France, and the US brought in its first income tax during the Civil War. In both cases a war created the need, and a new tax answered it.

VAT works differently. It is a consumption tax charged on the value added at each stage of making and selling a product. You do not send it to the government yourself: shops and suppliers collect it from customers at the till and pass it on, which is why it is called an indirect tax. Worldwide, VAT raises about a fifth of all tax revenue, and as of January 2025, 175 of the 193 UN member countries had one. The United States is the notable OECD exception, relying instead on sales taxes set by states and local governments.

Corporation tax is charged on the profits of companies. Who ends up bearing it, shareholders, workers or customers, is still debated by economists.

The mix is different everywhere. For the UK, one summary says that central government revenue comes mainly from income tax, National Insurance contributions, VAT, corporation tax and fuel duty. In the 2023-24 financial year, government revenue was forecast at 1,139.1 billion pounds, which was 40.9 per cent of GDP, and income tax plus National Insurance was around 470 billion pounds of it.