Ethics and Taxation - Research Paper Example

Ethics and Taxation Introduction It is the responsibility of the government of a country to look after the basic needs of the citizens. For the proper growth and development of a society, it is necessary that the essential elements like transport, medicine, education and many other public services be efficiently available and affordable to the citizens of a nation. It is the government’s prerogative to look after the fundamental rights of its people. In order to achieve this goal of building a stable society by providing the basic infrastructure, the government needs money in its coffer. This is the reason why governments make schemes to organize the only medium through which money can be received for the purpose meeting the set objective which fulfilling its social obligations towards the society. These social obligations include among other things infrastructure and social services (Fagbemi, et al, 2010, pp.360-361). The services provided by the government are assumed to be equally accessible to all sectors of the society irrespective of caste and religion. In order to provide efficient service to the people, government requires money and that money is acquired from the taxes that the citizens pay to the government. This money is utilized by the government in order to provide services like firehouses, post offices, public schools and other important requirements of a society (Harper, 2012, p.5). It is the government’s duty to arrange for mediums through which funds will be available to provide these basic amenities to the society, and one of such medium is taxation. Therefore, it is the fundamental duty of all citizens to pay the required taxes on timely basis to perform their civic duties and to enable the government to administer and develop the society at large. Tax can be defined as a compulsory payment imposed upon the citizens by public work departments and the government for purpose of serving the public. It is however possible that the citizens may not receive any concrete or distinguishable services in return from the government or the public services. Moreover, in most countries especially in the developing countries the infrastructure, health and other basic amenities are in a deplorable condition, and the education system is in a mess. All these factors add to the woes of the citizens and they begin to ponder upon the fact that whether it is viable to pay a part of their laboriously earned money to the government. The leaders on the other hand blame the myriad ways of tax evasion adopted by the citizens for this inefficiency of the government’s performance (Fagbemi, et al, 2010, p.361). The ethical angle of tax evasion has been discussed in various theological and philosophical literature for centuries, but this discussion has mostly been avoided by the business ethics literature mostly because in the economic perspective tax evasion can never be ethical. Based on the IMF statistics, avoiding the payment of taxes, although being illegal, seems to be acceptable behavior. This paper attempts to find an acceptable explanation for this behavior. Principles of taxation and social responsibility The principles of taxation include many political, economic, social and administrative elements. Payment of taxes and their honest utilization is undoubtedly a subject of both debate and controversy in ethical and political terms. The most important reason behind taxation is that it is the principle mode of revenue for the government. There is however another purpose of taxation which is “redistribution of wealth and income.” (Basu, 2007, p.81) The economic structure of a country gets affected by any changes made in the tax structure, although economic control is put into effect by adjusting the credit system and the supply source of money. A discussion on strategies applied for a tax structure and a discourse on the reasons behind taxation are complicated issues, and is further complicated by e-commerce i.e. the type of industry where business activities like buying and selling of goods and services are conducted via the internet. Taxation is the most popular topic of discussion in economic literatures. There are many different views and opinions on the definitions of a prudent form of taxation and of an undesirable policy of taxation. Perspectives on these matters have changed according to historical circumstances and current economical situation of a nation. The issue that is of main concern is whether there are universally agreed principles of taxation. According to Ronald Dworkin, a principle is a custom that must be abided by because it is essential for the upkeep of justice or fairness or any other aspect of morality. It is a commonly accepted notion that taxation should maintain principles of “neutrality, efficiency, certainty, simplicity, effectiveness, fairness and flexibility.” (Basu, 2007, p.82) Taxation is indispensable element of any government since a government cannot function without finance and taxation is the most important source of finance. Proper taxation can contribute towards a stable and growing economy. In this modern economy, there are two basic objectives of a government which though controversial are widely accepted. Firstly, it must provide goods and services to the public as and when required, and it must efficiently channel the distribution of income as born from the forces of the market. These two objectives can be fulfilled only by taxation, and because taxation encroaches upon every aspect of the economy, it is necessary that an effective and equitable structure of taxation is designed, and this is not a simple task (Basu, 2007, 82). Since every citizen of a country is obliged to pay taxes irrespective of their level of income, it is essential that a government has social responsibilities while fulfilling the basic needs of the society. The common issue that is arguable is whether there is relevancy in what a citizen is imposed upon to pay and what he receives in return. In reality, a person does not receive the same level of service as the amount of tax he pays to the government. This is because money received through taxation is also used for the administrative works of the government. This trend is termed as deadweight loss by the economists. This deadweight loss is directly proportional to the distance between the agency that collects taxes and the citizens who are the taxpayers. For example, taxes that are paid to the local municipal corporations are returned in the form of services that constitute 80% to 90% of the taxes, and only about 70% of taxes that are paid to the local government are returned in the form of services. Then the federal governments pay back in service only 30% to 40% of taxes paid to them. It has been seen that in some welfare programs conducted by federal governments, the cost of administration far exceeds the amount spent on the actual target recipients. Also, some states get less efficient service from federal governments than others. In such cases where the services received from the government do not level the amount of taxes paid, the question arises whether it is still moral obligation of the citizens to pay the amount of taxes imposed on them. There also remains the fact that wealth distribution is not done evenly, for instance it is not always that wealth is transferred from the rich to the poor. Rather it often happens that wealth transfer happens from poor to the rich or between middle class people. There are many services like state funded college education are run by taxes paid by the poor or the lower middle class who cannot afford higher education while the rich and the upper middle class enjoy these services. In short, “the poor are subsidizing the rich.” (McGee, 2004, pp.23-24) References 1. Basu, S. (2007) Global Perspectives on E-Commerce Taxation Law, Ashgate Publishing Ltd. 2. Fagbemi, T.O., Uadiale, O.M. & A.O. Noah (2010) The Ethics of Tax Evasion: Perceptual Evidence from Nigeria, European Journal of Social Sciences, 17(3), 360-371 3. Harper, L. (2012) Why do we pay taxes? Rosen Publishing Group 4. McGee, R.W. (2004) The Philosophy of Taxation and Public Finance, Kluwer Academic Publishers Read More