Purpose of Taxation

All taxpayers need to understand the purpose of taxation. The purpose of taxation can be broadly categorized in three parts – reduce inequality, reduce the de merit goods consumption and financing the government consumption.

According to various economists, there are four major purposes of taxation that are – redistribution, revenue, representation and re-pricing.

Taxes are important sources of government earning. The money that is earned by the government in the form of income tax, sales tax, property tax and other taxes is mainly spent for the development of the country. Thus the prime purpose of taxation is believed to be revenue. The money that is raised from various taxes is spent by the government for the construction of schools, roads, hospitals and also for other development causes. The national government also spends the earned revenue for the justice system and regulation.

Every country tries to minimize the economic discrimination that is prevailing in the society. The countries use progressive taxation in order to levy higher tax rates to the higher income group and lower tax rates or some time no tax to the lower income groups. This purpose of the taxation is also known as the redistribution of taxation. This means that the government earns wealth from the richer class of the society and then distributes it to the economically less privileged section of the society.

In order to discourage the consumption of faulty goods in the society, governments use the re-pricing concept of taxation. Re-pricing is believed to be the third major purpose of the taxation. Goods like tobacco and alcohol are such products the consumption of which affects both the society and the consumer. Excise duty and cigarette tax are the examples of such taxation.

The governments generally apply various kinds of taxes. The tax rates to be imposed on the society are also variable under various grounds. The major purpose of the tax distribution is to disperse the burden of tax among the different classes and individuals of the society. The social security system of the modern world says that the taxes are imposed on the society in order to support the poor and tax those who are working.

More Information Related to Finance Theory
Finance Concepts Debt Interest Rate
Public Finance Mortgage Loan Discount
Long Terms Financing Yield Curve Arbitrage
Finance Services Company Arbitrage Pricing Credit Derivative
Binomial Options Pricing Model Capital Asset Pricing Model Cox Ingersoll Ross Model
Black Model Black Scholes Model Chen Model
Liquidity Risk Commodity Risk Consumer Credit Risk
Systemic Risk Currency Risk Market Risk
Interest Rate Risk Settlement Risk Equity Risk
Gordon Model Monte Carlo Option Model Ho Lee Model
Rendleman Bartter Model Vasicek Model Hull White Model
Rational Choice Theory Modern Portfolio Theory Cumulative Prospect Theory
Efficient Market Hypothesis Arrow Debreu Model International Fisher Effect
Floating Currency Financial Risk Management Hyperbolic Discounting
Personal Budget Floating Exchange Rate Discount Rate

Last Updated on : 1st July 2013

This website is up for sale at $20,000.00. Please contact 9811053538 for further details.