Question

Should the State of Illinois broaden the sales tax to cover services like auto repairs, accounting/legal services, haircuts and nail salon services, etc. What is the tax policy justification for such expansion? Please couch your answer based on tax policy principles.

Answer 1

Tax are the main source of income to any form of government but tax should be wisely imposed suppose if we impose tax on each and every small things then there will be no fairness as we are cutting everybody's income.

In the above example if we blindly impose a particular tax on all these professions then there will be no benefit at all even every single person will try to evade the tax and so there should be a particular strategy for such a tax imposition.

For this there should be slabs for income to which tax should be imposed like lower rates of taxes for those earning less as compared to those earning higher. For example for income upto 2.5 lacs annualy should give 5 % tax whereas on income above that there should be tax imposition of 10 % (more than 5 %).

also there should be further checking and audit for the services like auto repairs, accounting/legal services, haircuts saloon services so that there is no hiding of income and heavy penalty should be imposed on those who hides their income or evade tax or follow any unethical practice