Question

Identify three ways that governments can alter their tax system to increase revenues.

Answer 1

Answer :

Taxation is the main source of revenue for government. following are three ways that government can alter their tax systems to increase its revenues.

1. Increasing the tax rate:

• the first way to increase revenue through alteration in tax system, is that the government should increase the tax rate on individual incomes , corporate business income etc.
• Tax on commodities and services can also be increased, such as increase in tax percentage of GST and VAT.
• indirect taxes on import, export such as excise and custom duties , etc can be increased .
• Tax rate can be increased on consumption of luxury goods .

2. Reducing or eliminating the allowed deductions from taxable income :

• there are various kind of deductions allowed from individual and business taxable income .
• such as standard deductions and deductions for various kind of investments in insurance policies such as life insurance, medical insurance etc .
• revenue through taxes can be increased by elimination of such allowed deductions.

3. Introducing and imposing new taxes :

• government can also boost revenues by introducing new taxes.
• for example : VAT or GST can be introduced on commodities where it has not been introduced.
• or these taxes can be made applicable for the commodities , which are presently outside from the scope of these taxes.
• Tax coverage can be enhanced to more goods and services.

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