Tax is what keeps a nation running and the GDP high. Taxes collected on products and by the country’s citizens are used to boost its economy and place it at a higher ranking compared to other nations. In a standard taxing system, tax rate is levied which is basically a percentage at which a person, product or business is taxed.
Some people are doubtful about why a tax system is important for a nation and should these taxes actually be applied. To help solve some doubts, here are a few reasons which specify why tax system is crucial for any nation:
One of the most important aspects of having a tax system in place is that it helps yield an adequate amount of resources for the Government. The Government in turn uses this money to increase welfare plans as well as development activities for its citizens.
Remember, the nation is as productive as its citizens and the tax system helps fulfill the promises by the government by the amount collected in revenue. The more the revenue collected rises, the more the nation progresses.
Ensures economic stability
Economic fluctuation is a big problem in developing countries and implementing a tax system will help in inducing stability in the system. With the taxation system having a progressive nature, any notable changes in national income can be used to positively affect the economy.
How you may ask? Well, with a rise in national income – the government can accrue the increased portion and store it for any adversities specially like recession or when the income is down.
This built in flexibility in the taxation system also allows the Government to keep prices of commodities in check by moderating the purchasing power during inflation. Similarly, during recession, tax revenue decreases lower than citizen’s income which ensures that their purchasing power isn’t lowered super quickly compared to their pre-tax salary.
Tax system is complicated and confusing. It varies from nation to nation and is incomprehensible for most layman people. But most tax systems ensure transparency to let the people know how much they are being taxed and how their money is being used.
With information available online these days, we can easily find out the different types of taxes being levied in each country and exceptions, benefits, deductions and credits for each tax system.
Promotes equality in the distribution of burden
A tax system ensures that people in similar circumstances are not treated differently. This means that people in the same income bracket are taxed similarly irrespective of their cast, creed, color or gender.
Another aspect of equality in the distribution of burden is the differentiation in the tax percentage in different pay brackets. It means people who are financially in a better position take the heavier burden of taxation compared to the people earning lower wage income.
These both aspects ensure that the tax system is fair to everyone and nobody suffers from the amount being drawn by the government.
Ensures administrative ease and simplicity
Simplicity and administrative ease ensure that the tax system is not over complicated for either the taxpayers or the tax collectors i.e. the Government in charge. If forms and rules are too complicated, it directly leads to an increase in cost of compliance for the Government which would eventually increase the burden on the taxpayers.
The simpler the rules, the easier it is for the government to conduct efficient and fair audits. The citizens also find it easier to fill out tax forms and save their precious time. Having simpler forms is directly correlated to easing the burden and better outcomes with less mistakes.
The above reasons explain in great detail why a tax system is crucial for the nations and helps it grow. A taxation system also helps in achieving several socio-economic objectives and is not only meant for raising national revenue for functions of a country, but also plays a more deeper role.
If implemented correctly, it can result in prompting national stability, reduce inequality of different income brackets and help bring about rapid economic growth. In the end, if the nation grows, it’s people grow along with it.