The government imposes some compulsory levies on an individual or establishments which are known as taxes. Almost every country in the world imposes taxes to its citizens, primarily to raise revenue for government expenditure as well as other purposes. Taxes are a vital source of government earning, and all the taxpayers need to understand the purpose of taxation. While the taxes are without a doubt collected for the well-being of taxpayers as a whole, the single taxpayer's liability is autonomous of any particular advantage obtained.
The purpose of taxation is widely classified into three parts, i.e., reduce inequality, reduce the demerit goods consumption and financing the government consumption. Four significant purposes of taxation are listed here according to various economists- revenue, re-pricing, redistribution, and representation.
Purpose of Taxation
- Revenue- By imposing various kinds of taxes from the individuals such as income tax, property tax, sales tax and other taxes government earn money and this money is primarily spent on the development and improvement of the country. Therefore the prime purpose that is believed of taxation is to be revenue. The government spends the money that is raised from various taxes from individuals for the construction of roads, schools, hospitals and also for other development causes. The earned revenue is also spent on the justice system and regulation by the national government.
- Re-pricing- Governments use the re-pricing concept of taxation in order to discourage the consumption of faulty and defective goods in the society. Re-pricing is believed to be the authoritative purpose of the taxation. Goods like tobacco and alcohol are such products the consumption of which affects both the society and the consumer. Excise duty is the examples of such taxation.
- Redistribution- In every country, there is economic discrimination prevailing in the society, and every nation tries fully to minimize it. In order to impose higher tax rates on the higher income group, the countries use progressive taxation and lower tax rates or some time no tax to the lower income groups. This purpose of the taxation is also known as the redistribution of taxation. This means government earns wealth from the more affluent class of the society and then allocates it to the economically less furnished section of the community.
- Representation- The government applies various types of taxes. The tax rates to be inflicted on the society are also changeable on multiple grounds. The primary purpose of the tax distribution is to scatter the load of tax among the diverse classes and people of the society. Taxes are imposed on the community in order to support the poor and tax those who are working says the social security system of the modern world.
Various objectives of taxation
The different objectives of taxation are summarized as under:
- Regulatory objective- In different socio-financial factors, taxation works on an essential dominant part.
- The objective of improving revenue- The primary purpose of taxation is growing earnings. Modern government authorities need a tremendous amount of national defense, development of facilities and social upliftment techniques make regular and methodical source mobilization necessary.
- Regulating imports and exports- Imports of unwanted products can be controlled by magnificent excessively great transfer responsibilities. Exports can be motivated by cutting liabilities and taxation on exports.
- Economic development- Concerning the nationwide product the Economic growth is calculated, i.e., the result obtained in all the important segments of the economic system, i.e., farming, industry, and services. Taxation can be utilized as a catalyst to any one or all the three areas by careful changes in the tax prices.
- Increasing career opportunities- Method and small business usually have highest possible perspective for career, particular financial areas, commercial properties, trade-focused recreational areas, etc. have excellent career perspective.
- Reduction in local imbalances- Some areas may become well developed compared to others in the country. Tax rewards and privileges to start areas in the reverse regions can be a suitable method of working with the problem.
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