Importance of Tax

Questions: Explanation of income tax using supporting academic references Exploration of the purposes of income tax using supporting academic references Discussion of the fairness and equity of any tax system, using supporting references Balanced discussion of the advantages and disadvantages of increasing income tax rates, using supporting academic references Answers: 1. Income tax refers to the tax levied on the earned or unearned income. The earned income in this case refers to commission, wages and salaries whereas the unearned income refers to the dividend income etc. The income tax is levied by the government on the income that has been generated by the entities and individuals. The tax fund that has been raised by the government is used by them for funding its activities that is further being used to serve the general public. In most of the countries, the government used the progressive income tax system to tax the higher income group people with higher tax rates. Every country has their own income tax act which governs the income tax rules and provisions in the country. The government in most of the countries provides relief to the small business houses. The entities including the individuals are required to file their income tax return every year in order to determine the tax liability or tax refund for the year. The income tax return subm itted by the entities and individuals is tested on random basis by the tax authorities test the viability of the numbers in the returns. Income tax is regarded as the major source of revenue for the central government, which is being further used by them to fund the local and state government needs. 2. The collection of Income tax is important for the growth of the economy. It is the major revenue source of the government which is being further used by them to fund the core basis activities for the betterment of the society. It majorly includes civil services like roads, bridges etc, security, welfare etc. Form the economic standpoint the income tax is important to ensure the economic equalities within the country. This is being by imposing the progressive income tax system to tax the higher income group people with higher tax rates. Further, the income tax imposition is used to maintain the economic stability through equitable distribution of wealth by way of imposing tax to the income earners and improving the economic condition of the general people. Further, through the use of income tax exemption, the government helps in reducing the regional economic disparity by providing tax benefits to the industries to establish their branches in remote locations. The government uses the amount so collected for the welfare and development programme in the country. From the political perspective, the adequate allocation of the income for the various government activities is important. In simpler terms the government arouses the taxes from the productive sectors like industries and uses the same for the growth and betterment of the non productive areas. The income tax is indirectly being used by the government to encourage the need of investment and savings in the economy. The income tax authorities provide the tax benefits to the general public, if they make investment in some specifies areas as provided by the authorities. 3. The fairness and equity in the tax system may mean different for different person. The tax system which has been considered fair in 21st century may not be the same in 18th century. On the other hand, the equity in the tax system focuses on the ability of the person to pay taxes. The tax payer in this case is required to understand how much tax they are liable to pay and further, they should not be in a position to evade the tax. In case of United Kingdom, the concept of fairness is tends to be very complex. People are of the nature that the tax that they are paying shall not be used for financing services which are of no use to them. This thinking by the tax payers may arouse discomfort and as result the feeling of tax evasion and avoidance will into focus. It has been concluded that the loss of legitimacy can be caused from the perception of unfairness. There were authors who supported simple flat rate for tax calculations. They believe that the same can be used to avoid tax evasion but later on authors changed their views and concluded that in order to avoid inequality, the progressivity in tax rates are required. This concept was uniform in the entire world and not only in United Kingdom. There are certain tax laws that contribute to both the fundamental principles of growth and fairness. A tax system which is regarded as fundamentally unfair will soon lose the political support. Further, it has been prov ided that the use of taxation which is of indiscriminate in nature, available to achieve the policy goals tends to increase the complexity of the system. 4. The income tax rates all across the world has been increasing at the considerable rates. The advantages for the same are as follows: The slab rate for the individuals has increased, making the income taxable at a higher rate for the people falling under the higher tax bracket. This basis has increased the basic slab rate making the income of the people falling under the lower tax bracket as exempt. The government will have more money to spend for the welfare of the society. It will provide a stable income stream for the central government of the country. Disadvantages of increase in income tax rates are as follows: The increase in income tax rates will increase the tax burden on the general people. This increase in tax rates will arose a feeling of discomfort as the general people feel that the tax amount so collected from them is used for unproductive areas. This may let to tax evasion and avoidance by the general public. References Hubpages.com, Role of Tax in the Economic Development of a Country, Viewed on 23rd Jan 2016, https://hubpages.com/education/Role-of-Tax-in-the-Economic-Development-of-a-Country Chirmoriya B, 2014, Importance of Tax, Types and Objectives of Tax. Viewed on 23rd Jan 2016, https://www.wisenepali.com/2014/12/importance-of-tax-types-and-objectives.html House of Commons, Principles of tax policy, viewed on 23rd Jan 2016, https://www.publications.parliament.uk/pa/cm201011/cmselect/cmtreasy/753/753.pdf