It is not just a means of raising revenue for the limited functions of the State.
This implies that there should not be a single or a few taxes from which Government seeks to raise large revenue. For this purpose, tax system must have built-in-flexibility. We also can find out who (in broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits. Therefore, a tax system may do less economic damage if it raises moderate amounts from several bases rather than large amounts from one or two.” In a developing economy such as ours, taxation should serve as an instrument of economic growth. Similarly, another expert of public finance writes, “Excessive reliance on any one base may produce adverse economic effects because the rates may become too high. 2 days ago. With the diverse tax system, the principles of fiscal adequacy and …
This calls for mobilization of resources by the Government so as to finance capital formation in public sector. “The ideal tax system … is neutral to business activity. When I say a tax system could be optimal, I mean two things by that. Corporate income taxes often approach proportional because one rate applies to most corporate income. In an underdeveloped economy, there are particular economic sectors and classes of people where the economic surplus is generally found and which therefore should receive the special attention of tax authorities in such countries. If the tax system fails to yield enough resources, the Government will resort to deficit financing. Post was not sent - check your email addresses! means that taxpayers and leaders can easily find information about the tax system and how tax money is used. In developing countries, the share of tax revenue as a proportion of national income is low as compared to the developed countries. Property taxes often come closest since there is typically a close relationship between a household’s income and the value of the property in which they live. Goals and Objectives of an Ideal Tax System The primary objective of any tax system is to raise revenues to finance government operations and programs. By discouraging or restraining consumption, especially of non-essential or unproductive type, taxation can pay a useful role in controlling inflation in the developing countries.
With a transparent tax system, we know who is being taxed, how much they are paying, and what is being done with the money. This is because if a Government tries to get large revenue from a single tax or few taxes, it will have to raise the rates of taxation too high which will not only adversely affect the incentives to work, save and invest but also encourage evasion of taxes. There are two important concepts of equity: means that taxpayers in similar financial condition should pay similar amounts in taxes.
Therefore, a good tax system for a developing country will be such as will enable the Government to mobilise adequate resources for capital formation or economic growth.
Therefore, the tax system should be a multiple tax system with a large variety of taxes so that all those who can contribute to the public revenue should be made to do so. Thus taxation in a developing economy has not only to restrain current unproductive consumption but also to check the large increases in consumption when with the increase in national income, economic surplus goes up. This objective of reducing income inequalities will be better served if a good part of the tax revenue is used for poverty alleviation programmes. A tax system must also ensure economic stability. Vertical equity means that taxpayers who are better off should pay at least the same proportion of income in taxes as those who are less well off. The ideal of simplicity may lead us to advocate a single tax. Moreover, taxes should be progressive so that the revenue from them rises with the increase in income of the people. Impositions of higher indirect (axes on luxury goods having a high income elasticity of demand also makes the tax system elastic. Taxation system should also be such that it meets the requirements of increasing state activity and achieves the objectives the society has placed before it. Although opinions about what makes a good tax system will vary, there is general consensus that these five basic conditions should be… Progressive taxation of income and wealth provides this elasticity to the tax system. means that taxes must provide enough revenue to meet the basic needs of society. With the diverse tax system, the principles of fiscal adequacy and equity will also be better satisfied. Built-in-flexibility attained through progressive taxation ensures that when incomes are increasing during the period of boom or inflation, the relatively greater amount of tax revenue accruing to Government will moderate the increase in purchasing power with the people and aggregate demand and thus help in keeping prices under check. The purpose of a good tax system for a developing economy is not merely to raise revenue for the Government but also to ensure that burden of taxes falls more on the rich. The federal income tax is the best example of a progressive tax; the Internal While no system of taxes is perfect, it is important to seek horizontal equity because taxpayers must believe they are treated equally. Economic fluctuations have been a big problem in the developed countries and for reducing these fluctuations taxation can play a useful role. It should not be rigid like our land Revenue which is fixed for 30 or 40 years. An important principle for a developing country is that it should mobilise economic surplus found in the economy. From the foregoing analysis, we conclude that in the world today taxation is called upon to achieve several socio-economic objectives.
A tax system meets the test of adequacy if it provides enough revenue to meet the demand for public services, if revenue growth each year is enough to A self-balancing accounting structure with revenues, expenditures, assets and liabilities used to track monies flowing... means that taxpayers can avoid a maze of taxes, forms and filing requirements. Sorry, your blog cannot share posts by email. This requires that the rates of progressive direct taxes on income, wealth, expenditure, capital gains etc., must be sufficiently high. A good tax system should follow the principle of diversity.
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