A tax is a mandatory income or a financial charge levied on an individual, business or corporate entity. People residing in the country will have to make this compulsory contribution. Individuals who fail to pay their taxes may be liable for punishment or penalties. The primary objective of taxation has been to raise revenue for the country so that it can be used for public expenditure. Government can utilise the amount in different ways to finance activities for the welfare of society. One can say that taxation policies may also have certain non-revenue objectives. While going for tax consultation, you should be aware of certain basics. Here we will talk about the objectives of taxation that every individual must know to ensure they are paying for the right liability.
- Economic Development
One of the basic objectives of taxation is to raise money so that it can be utilised for public initiatives. The growth of capital formation can be utilised to enhance the market and economic development of the country. The government of any country can leverage these benefits and even raise the existing tax rates, whenever required. Tax policies should be employed in ways that lead to the productivity of different sectors. Consider speaking to tax consultants in Abu Dhabi to know more about the laws and regulations in the country. Being aware of the laws will even help in staying compliant with the tax laws and prevent making any mistakes in the procedure.
2. Price Stability
Although it is a short-term benefit, taxes are regarded to help in controlling inflation. They can be used to achieve price stability. This can be done by raising the range of direct taxes and controlling the amount of personal spending. It may certainly help reduce the pressure on the commodity markets. It is a common conception that high commodity prices may help in reducing consumption and help encourage savings. Although there is a need to understand that the opposite can occur if taxes are lowered during deflation. It is critical for the government and financial experts to analyse all the aspects before coming to this decision.
3. Employment
The level of employment opportunities depends on effective demand which can be achieved by cutting down the rate of taxes. With this initiative, the demand for goods and services will rise. It may lead to an increase in disposable income. The increase in demand may also help increase stimulate investment opportunities which will ideally contribute towards more employment opportunities via the multiplier mechanism.
4. Income Redistribution
It is an old saying that the rich get rich and the poor get more poorer. The statement may turn true if the tax laws are not implemented correctly. With the implementation of taxation, the government can collect taxes from wealthy individuals. They have the tendency to pay the government and the amount can further be redistributed for various concerns. It can be used for any public initiative or for a social pattern of society. The government can make this decision and impose more taxes on luxury items to squeeze money from that category. It can be then used for economic uplift meant for the poor. Though it sounds easy, it can be difficult to follow. The government will have to make strict laws and regulations to ensure the money is being utilised in the right way possible.
5. Regulate Production
While raising revenue and redistribution are the main objectives of taxation, one also needs to focus on the need for regulating production. Government can choose to levy heavy taxes on harmful substances to regulate or reduce the production of that product. Again, all the aspects must be measured before coming to this decision.
6. Control Monopoly Powers
Although the competition is rising and the market is flooded with competitive brands, there can still be areas which may have a monopoly of a few players. Having a monopoly may also provide them with negative nuances so that they can make their own decisions. Certain taxes are levied to limit this approach and ensure the monopoly powers are not being used excessively. Excess profit tax could be one such example that may help curb monopoly powers. If you are one of the only players, you should consider consulting VAT consultants to understand what tax laws may be applicable to your industry. You can even take guidance from them to take the right steps to reduce the overall taxes.
7. To Protect Domestic Industries
Locally produced goods have more significance than imports and are beneficial for a country from a monetary standpoint. Government can impose a high-import duty to limit the consumption of foreign goods. This particular step can be used to discourage importation which may help in protecting domestic industries. Before entering the professional world, one must even take steps to understand corporate income tax to improve their understanding of this aspect.
8. Regulate Business Activities
Taxation is applicable to all businesses, irrespective of their size and industry. The taxation authorities have certain principles that businesses may have to follow. These set of rules and regulations encourages a more productive process. A high rate of taxation will discourage them to take up negative routes. Therefore, taxation can be used to regulate how businesses are performing and whether they are abusing common laws or regulations.
9. Increase the Habit of Saving and Strategic Investment
When we have more money in our hands, we tend to spend more. The phenomenon is also known as lifestyle inflation which may occur when the income capacity of an individual rises. Taxation is one of the strategies that may help promote the habit of savings and productive investment among people. If government levies taxes on certain aspects, there may even be areas where they provide exemptions. It could be an excellent way to deal with the funding in the right way and encourage more business professionals to take more strategic decisions.
Taxation can have the objective of raising money, and may also have non-revenue objectives such as reducing inequalities. Every citizen who is working or running a business may have to abide by the basic laws. Pay the taxes on time to reduce the number of fines and penalties.
