OBJECTIVES OF TAXATION
Tax is the major source of revenue for the government. The main objective of tax is to raise revenue to meet the expenditure, tax is used by the modern governments to achieve, at the same time, many other objectives too. Let us discuss below the main objectives of taxation.
1. To raise revenue to meet expenditure
Modern governments no more confine to the essential activities prescribed by the classical economists. Their activities are extended to the socio-economic sphere, as is the case in India. The government, therefore, through its budget attempts to raise as much revenue as possible to meet its expenditure.
2. Reduce inequality of income
As economic progress takes place, people benefit in terms of their living standard.Employment, income, consumption and other economic variables register a positive improvement. Benefits of progress, however, is not equally distributed. Thus, along with economic progress, inequality of income and wealth also increases, widening the gap between rich and poor. To reduce this inequality, rich are taxed more and the poor, less or not taxed at all. Luxury items are taxed heavily and the essential items are not. A progressive and discriminatory tax system is adopted to achieve the objective of reducing inequality in income and wealth.
3. Eliminate absolute poverty
Almost all the countries have some of their population living below poverty line. We in India have about 22 percent of our population, below poverty line, India has numerous programmes designed to help the poor. Huge amounts of money is required to be spent for the schemes.Accordingly, the government is required to have ways and means including taxation to collect money to meet these expenses.
4. Economic development and full employment
Market economy functions to maximise profit. It is not interested in promoting economic growth and development in a balanced manner. Providing employment to all those who desire to be employed is not the concern of the private sector. Supply of public goods is not the responsibility of the market. Supply of merit good like education and health is essential for the progress and development of the society.
5. Promoting saving and investment
The objective of development and full employment involves huge investment which depends on savings. Taxation policy through proper tax incentives should promote savings. Non-essential consumption including harmful consumption like tobacco and alcohol must be discouraged through high tax rate.
6. Price stability
Wide fluctuation in price level resulting in inflation and deflation must be regulated and controlled through tax policy. Inflation may require to have higher taxes specially non-essential and luxurious goods and services,Deflation which may run into recession and depression must be controlled by tax incentives on production and concession or withdrawal of tax on consumption.
7. Control of imbalance in balance of payments
Tax policy may be adjusted to promote exports by extending tax concession as an incentive. Imports could be restricted by imposing higher import duty, that is tariffs.
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