provide two keys different between the taxation system in developing and developed countries. provide a rationale...

provide two keys different between the taxation system in developing and developed countries. provide a rationale for each different.

Expert Solution

Tax system of a country defines how taxes will be charged from the people of the country by the government on a product, income or activity. Tax is basically a kind of fee charged by the government from its citizens. Taxes are the main source of public revenue. Taxes contributes towards the economic growth & development of the country. Taxation system in developing countries is different from taxation system in developed countries. The difference between the two is mentioned below:

1) Tax system in developed countries are progressive while in developing countries tax system is regressive. Progressive taxes implies that higher the income, higher will be the taxes. Regressive tax system is the one in which poor & middle income people pay a larger share of their income as taxes than the rich. In developed countries, about two-thirds of the tax revenue is collected through direct taxes which comprises of mostly personal income tax & social security contributions; domestic sales tax contributes to the remaining one third portion of tax revenue. While in case of developing countries, about two-thirds of tax revenue comes from indirect taxes such as sales tax, VAT, etc. & corporate income tax contributes to the remaining one-third of the tax revenue.

2) Developed countries use more taxes on consumption & revenues while developing countries rely more on international trade taxes to increase their revenue. Also, property & land taxes contributes to bigger portion of tax revenue in developed countries than in developing countries.

These differences in the taxation system in the developed & developing country can be attributed to factors such as variations in industry type (in developing countries the share of agricultural sector & small businesses is high), level of corruption, political constraints, the relative size of informal economy, level of monetization in the economy, etc. The major differences between developed & developing countries results in differences in their respective tax systems.

Rahul Sunny answered 2 years ago

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