Taxes Today

A tax is a financial charge or other levy imposed upon a taxpayer by a state or the functional equivalent of a state to fund various public expenditures. A failure to pay, or evasion of or resistance to taxation, is usually punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. Some countries impose almost no taxation at all, or a very low tax rate for a certain area of taxation.

Source and use of tax:

1. Taxis the most important source of public revenue. The imposition of tax leads to diversion of resources from the taxed to the non-taxed sector. The revenue is allocated on various productive sectors in the country with a view to increasing the overall growth of the country. Tax revenues may be used to encourage development activities in the less developments areas of the country where normal investors are not willing to invest.

2. Raising government revenue:

The aim of public finance is not merely to raise sufficient financial resources for meeting administrative expense, for maintenance of low and order and to protect the country from foreign aggression. Now the main object is to ensure the social welfare. The increase in the collection of tax increases the government revenue. It is safer for the government to avoid borrowings by increasing tax revenue.

3. Encouraging savings and investment:

Since developing countries has mixed economy, care has also to be taken to promote capital formation and investment both in the private and public sectors. Taxation policy is to be directed to raising the ratio of savings to national income.

4. Reduction of inequalities in income and wealth:

Through reducing inequalities in income and wealth by using an efficient tax system, government can encourage people to save and invest in productive sectors.

5. Acceleration of Economic Growth:

Tax policy may be used to handle critical economic situation like depression and inflation. In depression, tax is set to increase the consumption and reduce the savings to increase the aggregate demand and vice verse. Thus the tax policy may be used to strengthen incentives to savings and investment.

6. Price Stability:

In underdeveloped countries, there is another role to maintain price stability to ensure growth with stability.

7. Control mechanism:

Tax policy is also used as a control mechanism to check inflation, consumption of liquor and luxury goods and to protect the local poor industries from the uneven competition. Taxation is the only effective weapon by which private consumption can be curbed and thus resources transferred to the state. Thus the economy can ensure sustainable development. To know more click this link - 

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