Requirement of a Good Tax Structure / System

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 Requirement of a Good Tax Structure / System

The tax structure is a part of economic organization of a society and therefore fit in its overall economic environment. No tax system that does not satisfy these basic condition can be termed a good one.
However, the state should pursue mainly following principles in structuring its tax system :-
1.The primary aim of the tax should be to raise revenue for public services.
2.People should be asked to pay taxes according to their ability to pay and assessment of their taxable capacity should be made primarily on the basis of income and property.
3.Tax should not be discriminatory in any aspect between individuals and also between various groups.
4.Tax system should be flexible and tax law should be clear and simple.
5.They should be comprehensive,it covers a wide tax base
6.They should be economical,should reduce the cost of tax administration
7.It should avoid double taxation.

TYPES OF TAX

1: DIRECT TAX.

Taxes which are imposed on incomes and personal property and whose burden is not shifted to another.

The direct tax includes (a) Pay as you earn(PAYE) (b) corporation tax (c) Capital gain tax (d) Agriculture revenue tax (e) Death/estate duty. (f) Property tax (g) Inheritance duty (h) Surtax. is the tax imposed on very rich person who earn much money.

ADVANTAGES OF DIRECT TAX.

  1. It is economical i.e. cost of collection is minimum.
  2. It is a source of revenue to the government
  3. Tax payers know in advance the amount to be paid as tax
  4. Most of direct taxes are progressive hence do not affect much the poor and hence reducing income gap.
  5. Direct taxes are simple to understand
  6. Helps to reduce demand pull inflation by reducing purchasing power of consumer.
  7. Easy to determine the incidence of taxation. 

DISADVANTAGES OF DIRECT TAX.

  1. Discourage savings
  2. Discourage people to work hard
  3. Easy to evade
  4. Discourage consumption as a result of decrease of disposable income
  5. It discourages investment when charged on profit
  6. It is not paid by all people i.e. unemployed are not paying
  7. The burden of tax is highly felt
  1. INDIRECT TAX.

Are taxes usually imposed on commodities. This tax can be passed from one person to another in terms of high prices.

This includes

  1. Excise duty,- charged on local produced goods
  2. Sales tax on locally produced goods on selling
  3. Custom duty this includes import and export duty
  4. Value added tax.

ADVANTAGES OF INDIRECT TAX.

  1. Not easy to evade.
  2. They results into higher level of revenue
  3. It is convenient to pay by tax payers.
  4. The effect of the tax is felt by consumers.
  5. They are used to control the consumption of harmful products.
  6. They are used to protect domestic industries.
  7. They are used to stabilize the economy through increase and decrease of custom duty.
  8. They encourage people to work hard i.e. the higher the price of commodities the harder people will work.
  9. They are useful in control of allocation of resources.

DISADVANTAGES OF INDIRECT TAX.

  1. Indirect tax are regressive or proportional ie the poor and rich pay the same amount hence affecting the poor.
  2. It leads to cost push inflation.
  3. They encourage black market, this occurs when indirect taxes are highly imposed.
  4. Indirect taxes are not easily to determine who bares the incidence of the tax.
  5. Discourages industrialization when tax imposed on goods produced hence high cost of production.
  6. Indirect tax save time and lead to misallocation of resources since investors may invest in low tax areas.
  7. It leads to inconvenience to businessmen because it requires a follow up.

ALso ReadPUBLIC FINANCE EXPLAINED