Dissention Over Heavy Taxation

Taxation is a source of generating revenue for government. It is charged on citizens of that nation for generating revenue for the government so that the government could meet its expenditures. Government have some basic responsibilities towards its citizens. Just like providing basic infrastructure, maintain law and order situation, provide medical and educational facilities e.t.c. To meet these expenditures government impose some charges on its citizens. These charges are called Taxes. Now, taxes are charged on different rates in different countries. In, some countries taxes are charged on higher rates, in some countries lower tax rates are imposed. Heavy Taxation is the form of taxation in which higher tax rates are imposed. Heavy Taxation generally falls under the head of Progressive Taxation. In general higher tax rates are not encouraged and supported by experts, especially in under developing countries like Pakistan, India, Bangladesh e.t.c. In under developing countries the poverty condition, the economic condition are already not in a good and stable condition. Now, if in these type of situations we impose higher tax rates then it could have an adverse affect on the economic condition of that country. There are many reasons on the basis of which we can disagree over heavy taxation system but some of the main and most common reasons which have many disadvantages and adverse affects are as follows:

1. Tax Evasion:
The basic and main problem and the most adverse affect of heavy taxation is Tax Evasion. The term tax evasion summarizes any action taken to evade taxes by illegal means. Tax evasion could be done by many ways but suppressing information means failing to declare taxable income to tax authorities or manipulation in accounts and submitting false information means claiming expenses that have not been incurred are two main ways of tax evasion which are generally used by tax payers. Tax Evasion always arises in a heavy taxation system because under higher tax rates the percentage of tax charged on an individuals income or on an corporations profit is soo high that a tax payer is forced to do tax evasion in order to retain his profit. For e.g. if an individuals income is Rs. 50,000 per month and if he has to pay his 50% share of income to tax authorities then its almost impossible for him to do soo because he also have to survive in society, he also have to meet his household daily expenses. So, in order to do soo he suppresses information and submit false information about his income to tax authorities which is a clear case of tax evasion. So, in Pakistan where already tax evasion is on its peek higher tax rates are not suitable.

2. Loss Of Revenue:
Due to Heavy Taxation, tax evasion arises which ultimately results in loss of revenue for the government. Because when people will conceive their income and will do tax evasion then government will not receive the exact proportion of tax which it should receive. As a result of this there will be shortage of funds for the government because of which the government will face difficulties in covering budget deficit, in budget making, in allocation of funds and in starting new development projects. In order to overcome that shortage the government would be forced to print new currency notes which will increase inflation or the government would take loans from international banks or markets for which it also have to pay interest to them which will ultimately disturb the balance of payments. So, in Pakistan where there is already shortage of funds, balance of payments is seriously disturbed because of loans taken from World Bank and IMF and inflation is also more than 20% higher tax rates should not be applied.

3. Discourages Investors:
Whenever a new investor thinks to invest somewhere the first thing which he would always expect from the government is relaxation in tax. So, that he could easily invest and start its business activities. If there is heavy taxation system it would definitely discourages new investors because in starting years of any business the profit is not too high and on the other hand the expenditures are more as compared to profit. Now, if a new investor has to pay higher taxes on its profit then it is sure that his business will suffer losses just from the beginning which will result in loss of its investment. No investor would prefer this at all. A new investor would always like to prefer that country where his investment would be safe so if there is heavy taxation system in a country a new investor will never invest in that country. Now in Pakistan, where there is already lack of investment, investors are not ready to invest because of the poor economic condition, poor law and order situation and political instability if there would be high tax rates then no investor would invest in the country.

4. Reduces Saving Capacity:
Higher Taxation reduces saving capacity of the people. Because a major part of their income which they earn goes to the tax authorities. So, they don’t have much left to save because of the daily household expenses and specially higher prices. This also affects the daily life of a common man because he always spend his life hand to mouth. Higher tax rates will discourage people from saving and investing their income. This will also effect the saving schemes run by the government to generate revenue. . Specially in Pakistan where poverty ratio is extremely high and the ratio of lower middle class and middle class is also high the tax rates should be lower.

5. Bad Impact On Economy:
Higher Tax rates also have an adverse affect and bad impact on economy of a country. Loss of revenue, tax evasion, increase in inflation and increase in prices of daily use commodities, disturbance in balance of payments, shortage of funds all these factors which are a result of higher taxation system badly effects the economic condition of a country. Specially in an under developing country like Pakistan where economic condition is already unstable, inflation is increasing day by day and budget deficit is also increasing high tax rates could seriously damage the economic condition and could push the country’s economy towards depression.

6. Increase In Inflation:
Higher tax rates are directly responsible and are directly linked with increase in inflation. The more and higher the tax rates are they will increase inflation also. Because of higher tax rates shortage of funds occur. To overcome this issue the government have to print new currency notes or would take loans from somewhere to compensate its budget deficit which will increase inflation. Higher tax rates also increases the prices of commodities. Sales tax is an example of this. If the sales tax ratio is higher on commodities then the

manufacturer of that product will increase the price of that commodity in order to bear its cost. If he does not increases the price of commodity then he will have to suffer loss which of course nobody will like to suffer. So, in order to avoid this loss he increases the price of commodity and receives it from general consumer which directly effects the purchasing power of general consumer. So, in Pakistan where inflation is already above 20% tax rates should be lower so that everybody could pay the taxes properly.

7. Increase In Corruption:
Higher tax rates are also a cause of increasing corruption in society. Tax evasion is an example of this. Every tax authority has tax collectors or inspectors which keep an eye and check of the tax collecting procedure. Whenever a tax payer does tax evasion or submit false information to the tax authorities or manipulate the figures he also gives some bribe to different people who helps him in doing so and also protects him from legal implications. For example a person who does not pay tax and also wanted to keep himself safe and avoid legal issues sometimes gives bribe to a tax collector. The tax collector in return verifies the false information provided by the tax payer. Sometimes a tax payer who have a commercial property declares his property noncommercial in order to avoid tax. In all this he must have the support of a tax official who verifies that the property is non-commercial. So, these are the ways by which corruption increases by heavy taxation. Now in Pakistan where tax evasion and corruption is on its peek higher tax rates would encourage and could increase more corruption which would have a very bad impact on the economic condition of the country.

8. Increase In Poverty:
Higher tax rates also increases poverty because it increases inflation and directly effects the purchasing power of a common man. Because of increasing prices a common man is unable to spend a normal life and could not properly fulfill the basic needs of his family. Now if a low level income person have to pay high tax on his low level income and if he has his own property then he would also be liable to pay property tax on his property and if he is a tenant then he will have to pay rent. In this case he would not be left with much money to fulfill its daily needs and provide good quality education to his children. Which will eventually throw him under dark shadows of poverty. So, in a country like Pakistan where there is also no system of a personal allowance like U.K and where a large number of population is already living below the line of poverty higher tax rates are not suitable because they will increase poverty which will have a very bad impact on the economy of the country and daily life of a common man.

9. Discourages Achievement and Hard Work:
One of the major disadvantages of higher taxation is that it inherently discourages people from working harder and becoming more successful. With a higher tax band, at some point people may come to the decision that making more money is not worthwhile because a high tax rate would give citizens a disincentive to work. People will start to wonder if its worth putting so much effort into a job only to later realize that a large amount of what they earn will be taken from them and given to the government. This can

turn some people off and strip them of their motivation to work or look for a job. So, in a country like Pakistan where already the rate of unemployment is very high and poverty level is also very high tax rates should never be high otherwise the economic condition would be more worsened and the poverty rate and unemployment rate would also increase.

10. Withdrawal Of Investment:
As we have already discussed that heavy tax rates discourages new investors, another major disadvantage of heavy taxation is that it also encourages withdrawal of investment because if someone who have invested his funds in a business or if someone is running a business in a country gradually suffers losses because of bad economic condition he would definitely expect from the authorities for an incentive and relaxation in taxation because he couldn’t pay high tax in days of recession. But under heavy taxation system he would not be given any incentive. So, in this case he would be forced to withdraw all its investment from that country and transfer it to another country where there is low taxation system in order to save himself from insolvency. So, in a country like Pakistan where there is already recession and investors are thinking to withdraw their investments tax rates should be lower and investors should be given incentives and relaxation in taxation rates so that they would not be forced to withdraw their investments. Because experts and intellectuals say that something is better than nothing.

11. Political Instability:
Higher Taxation also leads to political instability. Because of higher taxation shortage of funds occur because of tax evasion which forces the government to make tough and difficult economic policies and take tough and unpopular financial decisions which includes withdrawal of subsidies, increase in prices, more increase in tax rates e.t.c makes the government unpopular among people and creates political instability in the country. Because of political instability law and order situation, economic condition goes under depression because then the government focuses only to save itself from going home instead of controlling other factors. So, a country like Pakistan where there is already political instability since its creation higher tax rates are extremely harmful both for the economic stability as well as for the political stability.

12. Encourages Social Evil:
Higher tax rates also encourages social evil. Bribery, corruption and lying are most common examples of it. In order to safe himself from legal issues a tax payer who submits false information to the tax authorities gives bribe to different people which is a crime because it encourages corruption and its also a social evil. Similarly he also lies when he submits false information to the authorities. This would not only spread corruption and social evil but will also destabilize the economy of a country. So, higher tax rates are just like a poison for any under developing country and it should be avoided.

Above were some of the main reasons on the basis of which we can dissent and disagree over heavy taxation system. Heavy taxation system is never a good option specially in a country where there is recession. Even in an developed country higher taxation system is not encouraged by experts because it could de-motivate investors, it could increase inflation, it spreads corruption and illegal means of avoiding tax. Instead of higher taxation system we should keep our tax rates normal and lower and should increase our tax net. A tax payer will happily give 10% tax on its income instead of 25%. We should increase sources of tax instead of tax rates. We should increase our tax net so that the shortage of funds could be easily overcome. For example Pakistan is an agricultural country so we should include agricultural sector in our tax net instead of imposing heavy taxes on industrial sector which is already not in a good condition. This will also overcome shortage of revenue and would also not impose burden on a particular sector. So, in the light of above arguments and reasons we could easily disagree with heavy taxation system and say that higher taxation system is not a good option and it should be avoided.

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