Voluntary taxation theory suggests that taxation which is more off a compelling act should actually be a voluntary act. The theory of voluntary taxation states that the government should not force the people to pay tax or decide how much tax the individual should pay.
The populace should be provided with the option of paying tax and the people should be given the authority to decide how much tax they are going to pay and where they would spend the collected funds. The voluntary taxation theory is based on the libertarian ideologies.
However, the tax system most commonly followed in the world is controlled by the government authorities. The government makes the laws pertaining to the system of taxation. The system of taxation follows several parameters mentioned in the laws that administer the economics of taxation. In India, the same system of taxation is followed. 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, property tax, etc. The tax considers 5 different types of income for the purpose of taxation such as salary head of income, house property head of income, earnings from 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. India went through a lot of alterations pertaining to the reforms on tax policies.
The advantages of
voluntary taxation:
- The voluntary taxation theory allows more freedom.
- The voluntary taxation theory executes the function of the collecting the tax for the government and at the same time the providing the populace with the authority to decide where the funds are to be spent.
- The voluntary taxation theory helps the government to track the demands of the voters and the entire country quite easily.
- The voluntary taxation theory helps the development of a facility which is urgently required such as health care, transportation facility as the voters can the direct the contributions towards the particular area.
The disadvantages of voluntary taxation:
- The Central and the State governments would not be able to function properly due to lack of funds.
- The authority of the people to decide whether to pay or not would lead to lawlessness in the country as no one would pay taxes.
- The populace with more money power would run the government and the people without a strong financial backup would suffer.
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