Pros and Cons of Taxation

Taxation is the process by which the government imposes a tax on goods and services or individuals in a country. Tax Is a compulsory financial charge imposed on the taxpayer by the governmental organization in order to fund various public expenditures.

The tax can either be a proportional, progressive or regressive tax. The proportional tax imposes the same percentage on everyone. A good tax system should be fair to everyone, transparency, adequacy, simplicity and administrative ease.

Pros and Cons of Taxation

Pros of Taxation

  1. Allow the government to spend money on basic operations

When people are taxed, the money will be used by the government to develop basic operations that are to be enjoyed by all the public. It is a source of revenue to the government whereby the government is able to get money from its public.

  1. It increases the control on inflation

The government will be able to control inflation especially the demand-pull inflation where there is a high demand for goods and services than the production. The government will impose a high tax on the goods and that will reduce the demand which will result in low purchasing power.

  1. Allows a good credit rating

The right amount of business tax will allow good credit rating to financial institutions and the company or business may use it to obtain a loan in order to expand the business.

  1. The poor are able to contribute to the economic growth of the country

Tax allows everyone to contribute to the growth of the country as they will all pay the tax. They will be reached by putting a tax on the essential commodities that they will buy hence they will pay the tax indirectly.

  1. It allows everyone to invest in their own country

Members of the public are able to invest in their own country as the taxed amount will be used in various areas of economic growth hence the country will be able to develop economically.

Cons of Taxation

  1. Reduces purchasing power

When the government puts a lot of tax on the commodities, then people will not buy the commodity often and this will reduce inflation which will be advantageous to the country.

  1. Increases the expenses on businesses

Taxation can increase the expenses on businesses making them not to earn profit from the stock they sell. This makes it difficult for the owner of the business to expand his or her business hence it stagnates the growth of an individual.

  1. Regression

Taxation makes the poor not to progress in life as the amount of tax that is placed on the goods is the same for both the poor and the rich and this serves as a burden to the poor.

  1. Discourages citizens to work

When the government imposes a high tax on the income of the workers they get discouraged to work as the amount they earn is paid to the government hence it really discourages them.

Summary

Taxation is a way of government obtaining finances from its public in order to be used in other sectors of the economy. This makes the government reduce its borrowing from other countries as they make use of their own finances. Many countries embrace taxation as they use the money to improve their economy.

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