Advantages and Disadvantages of increasing Income Tax Rate

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Requirement

Write the advantages and disadvantages of the increasing income tax rate. Also write the ethical considerations of raising the income tax.

Solution

Advantages and Disadvantages of increasing Income Tax Rate

Advantages of increasing income tax rates

• The first advantage of increasing income tax rate is increase in the revenue of the government. 

• The increased rates of taxes would allow the government to distribute the wealth effectively among people.

• Inflation can be controlled with increase in the income tax rates. Increase in tax rates would reduce the purchasing power of people and would control the inflation accordingly.

Disadvantages of increasing income tax rates

• Increase in tax rates would not get proper approach from the citizens.

• The increase in income tax rates would reduce the investment in higher tax bracket sectors and the investment would divert to low tax sectors.

• The increase in income tax rates would reduce the savings of people and the lower savings would stop them from doing other economic activities which were adding revenue to the growth of the economy.

Ethical Considerations

The first ethical issue that would arise for increasing the rate of income tax would be tax evasion. People would try to show lower income and hence would pay lower tax to the government. This issue is being faced by many countries as people avoid and evade tax by not paying it to government. Illegal activities may be started by people to earn income which may not be shown legally to the government. The issues that arise because of increase in income tax rates may change the picture of the economy and can affect the economy negatively.The tax is paid based on the tax slab specified by the tax authority . However it is to be noted that the the taxapayer tries to bend down their income by suppressing the revenue of increasing the expense just to fall in lower tax bracket .Such action either can be said tax avoidance which is not ethical..One another fact that promotes for tax avoidence and unethical action is vegue provisions of the tax system ,that does not assure same tax liability for same income .For an example the energy firm Centrica had paid 40% tax on its income in UK for 2011, on other hand Google had generated revenue of 2.6b pound in UK in the year 2012, still paid tax of 6 M pound only which is below .30%. The government should ensure such difference in tax and need to remove the same to establish fair and equal tax liability system .When the taxa rate are such high that wipe out the majority of the profit in such case it force individuals and corporates to start unethical and deceptive practice just to survive in the market. It is to be noted that some of the UK company has clear policy to pay tax as an ethical responsibility but same is not in all case. Many multinational coplmpanies operating in the UK either paying very less tax or nothing by using tax differences between different countries. To sum up I can say that it is very difficult to say that what taxa rate should prevail, but it is very easy to understand that the tax law can not be perfect and the and the lacking in the tax law surley push taxapayer to use as tax avoidence or tax planning . In such case taxapyer should underatand that paying fair tax is the moral and ethical responsibility of the citizen .The taxa rate of corporate entity should be high in compare to the individual businessman's income. The target of the tax authority should be to collect more taxes from corporate giants who are playing in billion of profit .The tax planning areas should be curb down and the benefit of the same should be passed to the annindividua busiessman.

References

• Tanzaniataxationportal.blogspot.in, n.d., Advantages and Disadvantages of Taxation, [Online], Available at: http://tanzaniataxationportal.blogspot.in/2012/09/advantage-and-disadvantage-of-taxation.html [Accessed date: 6th February, 2016]

• Brookings.edu, William G. Gale, Andrew A. Samwick, 2014., Effects of Income Tax Changes on Economic Growth, [Online], Available at: http://www.brookings.edu/research/papers/2014/09/09-effects-income-tax-changes-economic-growth-gale-samwick [Accessed date: 6th February, 2016]

• Ukessays.com, n.d., Advantages and Disadvantages of A Income Tax Economic Essay, [Online], Available at: http://www.ukessays.com/essays/economics/advantages-and-disadvantages-of-a-income-tax-economics-essay.php [Accessed date: 6th February, 2016]

• Ukeassays.com, n.d., Concept of Fairness in Current UK Policy, [Online], Available at: http://www.ukessays.com/essays/economics/concept-of-fairness-in-the-current-uk-policy-economics-essay.php [Accessed date: 6th February, 2016]

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• Academicjournals.org, Bonu N. S., Pedro Motau P.2009, The impact of income tax rates on the economic development, [Online], Available at: http://www.academicjournals.org/journal/JAT/article-full-text-pdf/EFB0C77667 [Accessed date: 6th February, 2016]

• Academia.edu, Abreha Mesele.2014., Income Tax Research, [Online], Available at: https://www.academia.edu/7887956/Income_Tax_Research [Accessed date: 6th February, 2016]