Question

In: Economics

Explain how the tax system contribute to the development

Explain how the tax system contribute to the development

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Expert Solution

Ans-

Tax is an important source of revenue for the Government. Government imposes direct and indirect taxes too. Direct tax includes income tax, property tax that is charged on an individual person, whereas indirect taxes are levied on goods and services like GST.

From the collection of tax revenue, Government creates various public welfare activities like education, hospitals, highways ,roads which creates infrastructure for people for better living. Through these Government projects, various job opportunities will be created which increases income of the people which helps them to improves their living standard.
Through the taxation Government also controls inflation and stabilizes the economy. When there is increase in prices of goods and services, Government levies heavy taxes than before and excess income of the people collected by Government in form of tax revenue and same will be utilised for additional welfare activities. It is the one side view, on another side - consumers are stopped for purchasing of goods at higher prices which will increase the saving habits of the people and savings
increases investments in the country.This thing is also important for development of the country.
Whenever Government finds shortages of funds for managing routine activities, a source of fund is tax for the Government. Government increases tax revenue rather than borrowings and settles a shortage of funds within taxation.
It reduces the liabilities of Government. If there is a surplus in economy, the rate of economic growth will also rise and overall development of the country will rise.


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