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Public Finance - Essay Example

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Government is the regulatory authority that monitors the tax system. It is responsible for developing a framework for collection of taxes. It is a revenue stream for the government. It uses the tax revenue for…
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Download file to see previous pages Effective tax system aims at complementing government’s budget plans. Any shortfall in tax collection will lead to budget deficit that will lead to fiscal deficit. High government debt is detrimental for economic prospects of a country. It signifies weak federal structure which will affect foreign investment. Foreign investors look out for stable economies to invest their money which will yield higher returns. Governments of different nations aim at promoting its export sector to boost its foreign exchange earnings. Thus, an effective tax system would look to compensate for the high subsidy bill that is given for promoting underdeveloped and export oriented sectors.
Tax system across the world are categorised in three ways i.e. regressive, proportional and progressive. In general taxes are levied on individuals and businesses. Government usually impose a certain percentage or slabs to determine the taxability of individuals and companies. There is another classification for taxes which is based on the impact and incident of taxation. It is direct and indirect. Direct taxes imply where the impact and incident is on the same individual and which cannot be shifted. Income tax, corporation tax are examples of direct taxes. Whereas consumption tax, excise duty, customs are indirect taxes. Such taxes have different points of impact and incident i.e. the burden of the tax can be shifted from the producers to consumers. In certain countries an amount is deducted from the income of individuals towards insurance contributions like NIC in UK (James, 2009).
There are certain features that are attributed to the tax system to ensure equity at all levels. Governments across the world usually follow either of the three tax systems i.e. regressive, proportional and progressive. Fiscal authorities design the tax structure in a way that ensures a balance between savings and expenditure. It is a major trade off for the ...Download file to see next pagesRead More
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