Disadvantages Of Taxation

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A tax (from the Latin taxo) is an important financial charge or some other type of levy imposed after a taxpayer (an individual or other legal entity) by a governmental organization as a way to fund various open public expenditures. A failure to pay, or evasion of or amount of resistance to taxation, is punishable by law.

Reasons for tax
1. Raise earnings for government spending.
2. To promote redistribution of income and wealth.
3. Decrease consumption/production of goods with negative externalities or demerit goods

Disadvantages of Taxation

1. Decrease tendency to Spending
• Indirect taxes (eg VAT, Excise Duties) make goods more expensive, reducing demand

2. Decrease tendency to Saving
• Tax on savings reduces the incentive to save

3. Decrease tendency to Investment
• Investors (both domestic and foreign) will invest elsewhere, or not at all
• Less investment means less production, and – perhaps more importantly – less jobs

4. High Inflation Rate
• Indirect taxes make goods more expensive – thereby adding to the inflation rate

5. Wage increase requests go up
• The increased inflation and reduced after-tax incomes can create a lot of wage demands

6. Increases government involvement/interference in the economy
• Politically and practically, many consider this to be very undesirable

Type of Tax
1. Consumption Tax
A consumption tax is a tax on the money people spend, not the money people earn. Sales taxes, which state and local governments use to raise

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