StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Excessive Rates of Income Tax Destroy Enterprise - Essay Example

Cite this document
Summary
Taxation By Your Name Class Name University Name Due Date Excessive rates of income tax destroy enterprise, encourage avoidance and drive talent to more hospitable shores overseas. As a result, far from raising additional revenue they actually raise less…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER91.5% of users find it useful
Excessive Rates of Income Tax Destroy Enterprise
Read Text Preview

Extract of sample "Excessive Rates of Income Tax Destroy Enterprise"

Taxation By Due Excessive rates of income tax destroy enterprise, encourage avoidance and drive talent to more hospitable shores overseas. As a result, far from raising additional revenue they actually raise less. Taxes have a great influence on consumer behavior. The objectives of taxation are to raise revenue for Government expenditure and boost the economic development of the country. The taxation authorities look into the methods of taxation every now and then so that sufficient revenue is raised without imposing unreasonable burden on the taxpayers.

However, sometimes, the Government is forced to make radical changes in taxation and there seems to be a trade-off between the objectives of taxation. Especially, a problem can occur when rates of taxation are increased. Progressive taxation is a tool that taxes lower income groups less and higher income groups more. In this system, the marginal rate of tax is different from the average rate of tax. When marginal rate of tax is increased, the substitution effect comes into play. The substitution, here, relates to substitution between work and leisure.

Normally, the taxpayers are expected to work more when the rates of taxes are increased. However, in UK, an industrialized country, it has been observed that higher marginal rates give a disincentive to work because the workers start to obtain less benefit from every extra hour that they work. Therefore, they prefer to use those hours as their leisure time and it gives them more pleasure. The given statement highlights the disadvantages of the progressive tax system and strongly opposes it. Progressive tax violates the principle of equity under the law because every income group is taxed differently.

It causes resentment on the part of higher income groups as they are taxed at a higher rate. A powerful and adverse effect of progressive taxation is on savings. High rates of tax cause the higher income groups to save less than before. If they save less, lesser money would be available for the investment sector. It is because, generally, the higher income groups can easily pay for the necessities and their excessive income is used for capital goods. Progressive taxation, therefore, leaves less revenue for capital goods i.e. investment.

This is detrimental to the country’s progress and economy. When we talk about taxation, one of the major problems is that of evasion. Progressive taxation tends to enhance this problem because when high income means more tax, the people with high income would look for ways to show that their income is lesser than it actually is. Progressive tax encourages this behavior and precious revenue is lost. This is unlawful and harmful to the economy. Also, increase in tax avoidance means increase in the workload of accountants and lawyers.

So, the collection of tax becomes costly. Another major problem is of “Brain Drain” which means that precious talent can be lost due to high taxes. When talented entrepreneurs, who earn at higher level of income, are taxed at higher rates, they look for places where their income would be taxed at a lower rate. In search of “tax havens”, they move to other countries and precious talent is lost. The emigration of such talent is directly proportional to the rates of tax. The higher is the rate of tax, the more talent relocates.

It is more enhanced by the fact that taxes are not internationally harmonized and there are different rules in different countries. UK might lose most of its talent to the US as a result. Other problems related to progressive taxation are increases in tax loopholes. For instance, the technique of income splitting increases. Businesses with high level of income split their businesses into smaller groups so that their income falls into a lower tax bracket. Also, progressive tax system can prove to be a very complex system.

Not only for the taxpayers, but also for the tax collecting authorities, it can cause some serious problems in its implementation as a fair tax system. It has been commonly argued that those people must pay more tax who obtain the most benefit from it. In the case of progressive taxation, it cannot be suggested that the higher income groups obtain the most benefit from this taxation. All of the problems discussed above culminate in the collection of lesser than projected tax revenue. Therefore, progressive taxation is tantamount to inefficiency.

Progressive taxation has also been opposed politically at times. It is demanded mostly by the lower income groups which want a limit on high earning of income. In the US, the implementation of progressive taxation was regarded as “politics of envy”. This sheds some more light on the fact that progressive taxation is a system based on inequality. It prevents the people who fall in higher income groups from working hard and earning more. This system retards the economy and there is no boost in innovation and economic development.

The statement by Nigel Lawson is absolutely true. In order to evade these problems, such a tax system should be devised that does not put unreasonable burdens on the taxpayers. The tax system must be fair, simple and justifiable. Taxation is a tool that is used to increase the economic development of the country. A tax system that retards the economic development is a failure on all grounds. References James, Simon and Christopher Nobes. The Economics of Taxation. Financial Times/ Prentice Hall, 1999. Print.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Excessive Rates of Income Tax Destroy Enterprise Essay”, n.d.)
Excessive Rates of Income Tax Destroy Enterprise Essay. Retrieved from https://studentshare.org/law/1447052-ychexcessive-rates-of-income-tax-destroy
(Excessive Rates of Income Tax Destroy Enterprise Essay)
Excessive Rates of Income Tax Destroy Enterprise Essay. https://studentshare.org/law/1447052-ychexcessive-rates-of-income-tax-destroy.
“Excessive Rates of Income Tax Destroy Enterprise Essay”, n.d. https://studentshare.org/law/1447052-ychexcessive-rates-of-income-tax-destroy.
  • Cited: 0 times

CHECK THESE SAMPLES OF Excessive Rates of Income Tax Destroy Enterprise

International entrepreneurship 2

hellip; Governments all over the world are very keen on promoting the culture of entrepreneurship in their home countries and do so by giving small businesses incentives such as subsidies, tax-breaks, protective tariffs and security.... Governments and Small Businesses Name: Course: Instructor: Date: An entrepreneur is a person who takes on financial risk by operating a business or businesses in order to realize profit as they satisfy wants in the community or the world....
11 Pages (2750 words) Essay

Audit Framework

Auditors routinely perform audits of quantifiable information, including companies' financial statements and individuals' federal income tax returns.... Auditors routinely perform audits of quantifiable information, including companies' financial statements and individuals' federal income tax returns....
22 Pages (5500 words) Case Study

Strategic Marketing Planningfor SMEs in Zimbabwe

The reason is that the inflation and interest rates are changing sometimes on a quarterly basis.... The SMEs are finding tough to get funds in the form of loans as the lending rates are higher.... These higher lending rates can come down when the inflation comes down and government decreases internal borrowings....
51 Pages (12750 words) Dissertation

Financial Statement Audits, Operational Audits, and Compliance Audits

Auditors routinely perform audits of quantifiable information, including companies' financial statements and individuals' federal income tax returns.... Auditing is the accumulation and evaluation of evidence about information to determine and report on the degree of correspondence between the information and established criteria....
17 Pages (4250 words) Essay

The Greatest Future Threats of Israel

This work claims that Israel has been confronted with many internal problems, and that the future of Israel would be threatened by these issues and not by any external enemy.... The following discussion substantiates this contention. In this regard, I have examined the internal… eats, such as high costs of living, health care concerns, deterioration of academic performance, water security problems, the imposition of high levels of taxation, the high cost of maintaining the army, threats from the Arab population of the West Bank and Gaza to Israel and Finally conclusions were arrived at based on the findings of the work....
39 Pages (9750 words) Essay

Issues in Entrepreneurship and Unemployment

The income choice theory, on one side, suggests that unemployment leads to an increase entrepreneurship due to a decline in opportunity costs of not setting up… However, unemployed people are more likely to possess less endowment of entrepreneurial talent and human capital for the set-up and sustenance of a new business, which suggests an association between high rates of unemployment and low Low entrepreneurship levels could also result from low levels of economic growth that are also symptomatic of high unemployment levels....
12 Pages (3000 words) Essay

Multinational Enterprise

In 2012, developing countries accounted for the greatest percentage of FDI flows that estimated at 52%.... This growth was due to 32% decline in FDI inflows in the… In fact, the global rankings of the biggest FDI recipients reflected the spontaneous changing patterns of global investments, as 9 out of 20 ranked recipients were the developing states....
15 Pages (3750 words) Essay

Hoxton Square Still a Creative Cluster or Not

This paper ''Hoxton Square Still a Creative Cluster or Not'' tells that Hoxton square is situated in the London Borough of Hackney in London's east end.... It was invented in 1993, before that it was known as 'Oxton.... Oxton was laid down in 1683.... It was a scruffy no man's land of pie and mash and cheap market stall clothing....
15 Pages (3750 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us