Table of Contents
Before we start writing on our topic why is income subject to taxation, we should first understand what is taxation and why tax system is required why government levy taxes on individuals’ income. First, we understand what is government? In simple terms government means the system which created by group of people to manage particular country or state. So, to run the country this institution requires a fund that we can called is a tax which we are paying to the government.
Direct taxes
An immediate duty is an expense that an individual or association pays straightforwardly to the government. Models incorporate personal expense, genuine local charge, individual local charge, and assessments on resources, which are all paid by a singular citizen straightforwardly to the public authority. Direct taxes are depended on income of the individuals.
Direct taxes are charges that are forced straightforwardly on people or elements and are paid straightforwardly to the public authority. Not at all like backhanded charges, which are collected on services and products, direct taxes are normally founded on pay, benefits, or abundance. These taxes are for the most part moderate, implying that the expense rate increments as the citizen’s pay or abundance increments. Direct taxes are much of the time used to reallocate abundance, advance social value, and asset taxpayer supported organizations and projects.
Indirect Taxes
Indirect taxes are charged on goods and services as opposed to straightforwardly on people or organizations. These duties are commonly gathered by mediators, for example, retailers or specialist co-ops, who then, at that point, give the taxation rate to customers as more exorbitant costs. Roundabout charges are frequently viewed as backward on the grounds that they will generally greatly affect lower-pay people as they address a bigger piece of their discretionary cashflow.
Indirect taxes are critical part in government income age and can likewise be utilized to impact customer conduct, like putting the utilization of specific products or empowering harmless to the ecosystem rehearses down.
Importance of tax system
So, the government collect taxes from individuals and use that money to development of different sectors like infrastructure, education, Agriculture etc. This will help to keep Equality in the and benefit to be reached on poor people as one type of direct income tax mainly collects from the higher income group people.
Below are some important factors
- Revenue Generation
- Redistribution of wealth
- Economic stability
- Resources Allocation
- Social Policy Objectives.
why is income subject to taxation
After understanding above points in taxation we can say that income is subject to taxation is because of below mention reason.
Revenue Generation: To generate the revenue by government to run the government and to use in development projects.
Fairness and equity: Usually higher income group of people pay higher taxes (direct taxes) and lower income group will pay less direct taxes or no direct taxes this will help the government to keep equality in the society. Taking income from the higher earning group and use that to benefit the society is fair way to distribute the government finance burden.
Ability to contribute: Higher income people has more capacity to contribute to the cost of government. Taxes on the income allows government to collect taxes on proportion of their earning capacity this will promote social justice as well.
Equally distribute wealth: Taxation revenue helps government to distribute the wealth within the society. Progressive tax system enables government to transfer wealth from higher income group to lower income group through government expenditure on social welfare programmes, education healthcare and other services.
Economic stability: Income tax is important component of social fiscal policy, which government use to regulate economic stability and growth.
By and large, taxation income fills numerous needs, including income age, reasonableness, abundance reallocation, monetary soundness, social union, and regulatory plausibility. It reflects essential standards of tax collection and is a foundation of present day financial strategy and administration.
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