Taxes and Subsidies

A tax is an amount of money that you have to pay to the government so that it can pay for public services. The main purpose of taxation is to accumulate funds for the functioning of the government machineries.

Other purposes of taxation:     -   Improvement in services of the government.

-       Improve employment at all industry verticals.

-       Induction of modern technology in to the system.

-       Rationalization of terms and condition of the economic system.

-       Rationalization of employment terms and conditions.

The advantages of tax

-People are taxed based on total income, thus people who make less theoretically pay less tax on earnings.

-Not all people consume at the same rate, therefore tax on earnings is a more equitable way of assessing tax than with a consumption tax.

-People with lower incomes would be the most impacted by a straight tax on consumption, since even necessary items like cars would be significantly more expensive.

-Income is an easier way to levy taxes and decide deductions. While people may deal with a few pay stubs they have to save, in consumption tax, people might have to save receipts for every purchase they made during a year in order to qualify for tax breaks.

The disadvantages of tax

-Discourage Business: people have to pay more of their income to the government.

-Penalize hard work: high taxes can stifle the motivation of individual workers. Also the macroeconomic problems that high taxes can precipitate, an onerous tax scheme can have the effect of penalizing hard work.

-Increase government control: When a government collects more in tax revenues, it accumulates more money to spend. This increase in discretionary income, compared with the money available to the citizens and businesses of the country, causes a shift in power away from the people towards the government

A subsidy is money that is paid by a government in order to help an industry, business and company.

The advantages of subsidy

-Supply more

-Decrease the price

-Increase employments

-Control the rate of inflation

-Increase the revenue

The disadvantages of subsidy

-Higher taxes

-Encourage inefficiency among producers

-Decrease the price (not good for free markets)