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Taxation as a Mechanism of Public Welfare

Taxation as a Mechanism of Public Welfare

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Published by Ravi kumar
to understand what is tax why it is charged...
to understand what is tax why it is charged...

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Published by: Ravi kumar on Aug 03, 2010
Copyright:Attribution Non-commercial


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Corporate LegalEnvironment
Submitted To! Submitted By!
Mr. Somun Ghosh Ravi Kumar 
Asian Business School
The aggregate of all sums collected by government is called its Revenue;the system by which it is collected is called Taxation. In ancient times,taxation was often imposed by the arbitrary fiat of the ruler, with little or noreference to equity, or its effect on the prosperity and happiness of thepeople; but, in modern civilization, it has come to be regarded as altogether the most difficult and delicate task government is called upon to perform.Funds provided by taxation have been used by states and their functionalequivalents throughout history to carry out many functions. Some of theseinclude expenditures on war, the enforcement of law and public order,protection of property, economic infrastructure (roads, legal tender,enforcement of contracts, etc.), public works, social engineering, and theoperation of government itself. Governments also use taxes tofund welfare and public services. These services can include educationsystems, health care systems, and pensions for the elderly, unemploymentbenefits, and public transportation. Energy, water and wastemanagement systems are also common public utilities. Colonial andmodernizing states have also used cash taxes to draw or force reluctantsubsistence producers into cash economies.
Governments use different kinds of taxes and vary the tax rates. This isdone to distribute the tax burden among individuals or classes of thepopulation involved in taxable activities, such as business, or to redistributeresources between individuals or classes in the population. Historically,the nobility were supported by taxes on the poor; modern socialsecurity systems are intended to support the poor, the disabled, or theretired by taxes on those who are still working. In addition, taxes areapplied to fund foreign aid and military ventures, to influence themacroeconomic performance of the economy (the government's strategyfor doing this is called its fiscal policy - see also tax exemption), or tomodify patterns of consumption or employment within an economy, bymaking some classes of transaction more or less attractive.Taxation has four main purposes or effects: Revenue, Redistribution,Repricing, and Representation.The main purpose is revenue: taxes raise money to spend on armies,roads, schools and hospitals, and on more indirect government functionslike market regulation or legal systems. This is the most widely knownfunction.A second is redistribution. Normally, this means transferring wealth fromthe richer sections of society to poorer sections.A third purpose of taxation is repricing. Taxes are levied to addressexternalities: tobacco is taxed, for example, to discourage smoking, andmany people
advocate policies such as implementing a carbon tax.A fourth, consequential effect of taxation in its historical setting hasbeen representation.
The American revolutionary slogan "no taxationwithout representation" implied this: rulers tax citizens, and citizensdemand accountability from their rulers as the other part of this bargain.Several studies have shown that direct taxation (such as income taxes)generates the greatest degree ofaccountability and better governance,while indirect taxation tends to have smaller effects.

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