Colonial Taxes will provide cities that aren't on the same continent as your original Capital with a sizable Gold bonus (and a smaller Production bonus in Rise and Fall and Gathering Storm). Victoria, the Spanish, and the Phoenicians will reap the greatest benefits from it, since their unique components and abilities give them incentives to expand their empires all over the map. Also, it has very good synergy with the Casa de Contratación, for a total of +40% Gold, +25% Production, and +10% Faith in cities with Governors.
Mercantilism held that great powers needed colonies to serve as a “cash cow” to maintain a healthy home economy; what better way to squeeze cash out than through taxes on all and sundry, taxes that their citizens at home often didn’t have to pay. Whereas most of the colonial powers – Portugal, Spain, France (to a small extent) and others – levied taxes overseas, it was the British who faced the wrath of their ungrateful colonists over the practice. The Sugar Act, the Stamp Act, the Townshend Revenue Act, and finally the Tea Act contributed to the subsequent revolution … so perhaps colonial taxes weren’t the best policy after all.