Economics of Taxation deals with the economic effects of taxation pertaining to a country. The effects pertaining to the economics of taxation is not singular in nature but it is a series of small and large effects which has significant impacts on the economy of the country. The stability of the system of taxation reflects the performance of the country's economy. The economics of taxation depends on the type of economic structure the government follows such as capitalist economy, socialist economy and mixed economy.
The system of taxation follows several parameters mentioned in the jurisprudences administrating the economics of taxation. The tax in India considers five different types of income for the purpose of taxation, such as salary head of income, house property head of income, profit in business or profession head of income, capital gains head of income, and other sources head of income. There is a list of rebates and exemptions which can be claimed under the laws governing the system of taxation. The income tax is levied on all kinds of income and collected by the Central government of India apart from the income on agriculture which is not taxable under the Central government. The State government of India collects the tax pertaining to income from agriculture, value Added Tax (VAT), sales tax, state excise duty, stamp duty, professional tax, land revenue, etc. Taxes imposed by the local bodies are pertaining to octroi tax, water supply utilities, drainage and sewage utilities, and property tax. Pertaining to the economics of taxation, India went through a lot of alterations related to the reforms on taxation.
Important aspects of tax under Economics of Taxation:
- Knowledge of tax burden
- Knowledge of the taxpayers both individual taxpayers and corporate taxpayers
- Knowledge of the system of taxation and its development
- Knowledge of the reforms required for the system of taxation
- Knowledge about avoiding double taxation
- Knowledge of establishing a direct connection between the taxes paid and the services received
Some important concepts of Economics of Taxation:
- Taxation is an unavoidable defrayments to the government authorities of a country
- Taxation is referred as transfers made by individuals or corporate sector units to the government authorities of a country and these transfers are compulsory in nature
- Of all the economic issues taxation is most delicate and controversial
- The resources reallocated to the government authorities is not directly connected to the services and goods supplied by the government
Objectives of the system of tax under Economics of Taxation:
- Maintenance of a very low burden of taxation
- Maintenance of a wider platform pertaining to taxation as the different rates of taxation help maintaining a low tax rate
- Ensuring that the system of taxation is fair and equal to everyone
- Shifting the weightage pertaining to taxation from tax imposed on income to tax imposed on expenditure
- Reduction of the rates pertaining to taxation on income of any kind to encourage the provision of more and more incentives and the creation of wealth within the economy
- Usage of the system of taxation to make the markets function in a better way, such as imposition of environmental taxes on both the producers of goods or services and the consumers to make them aware about the external costs.
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