Taxes are levied by the government to cover the expenses of public administration. Through taxation the revenue for public purposes are generated. It is an inherent power upon the sovereignty which is legislative in nature. The funds collected through taxation are used for the general purposes for protection and welfare of citizens of the country. The main advantage of taxation on economy is the reduction of gap between rich and poor. There are many social as well as economic objectives of taxation. Some of them are briefly explained below:
- No concentration of assets: the progressive method of taxation is very productive in which the tax is levied according to the earning capacity of individuals. Those who earn more have to pay more tax. Thus, subsidies are given to poor and weak sections of society. The goods of mass consumption are also subjected to certain exemptions. For example rice, water etc…
- Economic stability is secured: the economic fluctuations are removed by taxation. This is done through many ways like reduction in taxation in case of involuntary employment or inflation. The situation in which full employment or stability of price is there, no changes in taxation is brought by the government. The taxation methods are flexible enough to adjust with the varying economical situations.
- Acceleration of economic growth: the resources are transferred for the purpose of investment rather than consumption. The other objective of taxation includes the increase of incentives and public investments. The resources are transferred from the ownership of people to government for public investment.
- Resources allocation adjustment: the internal disorders in a nation has to be properly managed in such a way that regulation of trade and commerce is made. Other services like defense, justice, railways and roads are also functioned using the public revenue.