Accueil > Why Does the Government Impose Specific Taxes

Why Does the Government Impose Specific Taxes

by admin_lg

Why do we have taxes? The simple answer is that until someone has a better idea, taxation is the only practical way to increase revenues, to finance government spending on goods and services that most of us are asking for. However, creating an efficient and fair tax system is far from easy, especially for developing countries wishing to integrate into the international economy. The ideal tax system in these countries should generate substantial revenues without excessive public debt, without discouraging economic activity and without deviating too much from the tax systems of other countries. The provision of tax incentives in the form of accelerated depreciation has the least disadvantages associated with tax exemptions and all the benefits of tax credits and investment deductions – overcoming the weakness of the latter. Since simply accelerating the depreciation of an asset does not increase the depreciation of the asset beyond its initial cost, little distortion is created in favour of current assets. In addition, accelerated depreciation has two other advantages. First, it is usually the most profitable because the loss of income (compared to no acceleration) in the first few years is recovered, at least in part, in the subsequent years of the asset`s life. Second, if the acceleration is made available only temporarily, it could lead to a significant increase in short-term investment. What level of public expenditure is desirable for a developing country at a given level of national income? Should the government spend one-tenth of national income? A third? Half? Only after answering this question can the following question be answered, where the ideal level of tax revenue must be determined; Determining the optimal level of taxation is conceptually equivalent to determining the optimal level of public spending.

Unfortunately, the abundant literature on optimal taxation theory offers little practical advice on how to integrate the optimal level of tax revenues with the optimal level of public spending. While investment grants (providing public funds for private investment) have the advantage of being mere targeting, they are usually quite problematic. They include the government`s initial expenditures and benefit unprofitable investments as well as profitable investments. Therefore, the use of investment subsidies is rarely advised. Indirect taxes can be used to correct for negative externalities of production and consumption. The cigarette tax in the United Kingdom is an example of this. Cigarettes have negative externalities of consumption: when someone smokes, it has a harmful effect on those around them and on themselves. When a tax is collected, the price of cigarettes increases, as does the opportunity cost of buying them.

This means that a smaller amount of cigarettes is purchased and, as a result, the associated negative externalities decrease. A particular uniform tax shifts the supply curve upwards from the total amount of the tax, so that the new curve is parallel to the original curve, as shown. Taxation is the imposition of compulsory levies on individuals or organizations by the governments of almost every country in the world. Taxation is mainly used to increase revenue for public expenditure, although it can also be used for other purposes. Indirect taxes are those levied by a government on goods and services, as opposed to direct taxes such as income tax and corporate income tax, which are levied on household and corporate income. Indirect taxes are also called expenditure taxes. Data from both developed and developing countries show that the ratio of income taxes to consumption taxes is consistently more than twice as high in developed countries as in developing countries. (In other words, compared to developing countries, developed countries earn proportionately twice as much income tax revenue as from consumption tax.) The data also show a remarkable difference in the ratio of corporate income tax to income tax. Developed countries levy about four times more income tax than corporate tax.

The differences between the two groups of countries in terms of wage income, sophistication of tax administration and political power of the richest segment of the population are the main factors behind this inequality. On the other hand, corporate tax revenues are significantly higher in developing countries than in industrialized countries. The mechanism by which tax incentives can be triggered may be automatic or discretionary. An automatic trigger mechanism allows the investment to automatically receive incentives as soon as it meets clearly defined objective qualification criteria, such as a minimum amount of investment in certain sectors.