Why Do Govt Impose Tax

One of the reasons the government levies the tax is that the taxes are used to carry out many projects for the ultimate benefit of the economy. Without the tax, economic growth will in most cases be static and there will be little or no development. When a particular segment of the economy provides products essential to national defense, a government can impose tariffs on international competition to support and secure domestic production. This can happen in times of peace as well as in times of conflict. A customs duty is a tax levied by one country on goods and services imported from another. The aim is to encourage domestic purchases by increasing the prices of goods and services imported from other countries. A tariff is a tax levied by a government agency on goods or services entering or leaving the country. Tariffs are usually focused on a particular industry or product and are introduced in a controlled effort to change the trade balance between the tariff-collecting country and its international trading partners. For example, if a government imposes an import duty, it increases the cost of importing the specified goods or services.

These additional marginal costs will theoretically discourage imports and thus affect the trade balance. Tax audits play an important role in ensuring tax compliance. Nevertheless, tax audit is one of the most sensitive interactions between a taxpayer and a tax administration. It charges the taxpayer more or less, depending on the number and type of interactions (auditor site visit or taxpayer office visit) and the volume of documents requested by the auditor. Therefore, it is important that the right legal framework is in place to ensure the integrity of how tax authorities conduct audits.20 There are so many reasons why the government or its agencies impose taxes on individuals, goods and services or corporations. In this article, we will look at some of the reasons why there are tax increases in our countries. The Confederation`s tax law is enshrined in the Constitution. Section 8, paragraph 1, of Article 1 states: “Congress shall have the power to levy and collect taxes, levies, levies and excise duties for the purpose of paying the debt and for the common defense and general welfare of the United States. However, people are probably more familiar with the specific tax provision established by the 16th Amendment, ratified in 1913, which states: “Congress shall have the power to levy and levy taxes on income, from any source, without division among the different states and without regard to a census or census.” There are also more federal taxes.

For example, corporate income tax is levied on corporate profits. Inheritance tax is a tax on your right to transfer property upon your death. Excise duties are levied on various goods, services and activities and may be imposed on the producer, retailer or consumer, depending on the tax. Cigarettes, alcoholic beverages and petrol are among the products subject to excise duty. Consumption taxes also account for a relatively small and volatile share of state and local tax revenues, according to the Tax Foundation, a nonprofit organization. Tariffs have potential drawbacks, namely that they can trigger an increase in the price of domestic products, which can reduce the purchasing power of consumers in the country imposing the tariffs. Governments may choose to impose tariffs for a variety of reasons, including the following: This is done through indirect taxes and usually leads to higher prices, which ultimately prevent the consumption of certain harmful goods in the country. In Canada, Denmark, Italy and Norway, a VAT refund application is likely to trigger a correspondence check that requires less interaction with the auditor and less paperwork. In contrast, in most sub-Saharan African economies where an audit is likely to take place, taxpayers are subject to a field audit where the auditor visits a taxpayer`s premises. Data from Doing Business also shows a positive correlation between the time it takes to comply with a VAT refund process and the time it takes to file the standard VAT return and pay the VAT debt. This relationship suggests that tax systems, which are more difficult to comply with when filing tax returns, are a greater challenge throughout the process. The efficiency with which tax revenues are converted into public goods and services varies from country to country.

Recent data from the World Development Indicators and the Human Development Index show that economies such as Ireland and Malaysia – all of which have relatively low overall tax rates – efficiently generate tax revenues and convert profits into high-quality public goods and services (Figure 2). For Angola and Afghanistan, the data show the opposite. Economic development often increases the need for new tax revenues to finance increased public spending.