Objectives of Taxes

The main objective of tax are as follows:

1.       Raising public revenue: Normally, there is only one objective for the imposition of taxes, that is, to collect revenue for the government. Today the government has assumed responsibilities of providing social services, promoting economic development, meeting war expenditure and also showing itself “up” in the eyes of foreign countries. All these expansions in the scope of economic activities have created necessity of greater funds to be spent by the government. The greater the need of funds, the greater is the resort to taxation.

2.       Regulation and control: The other objective of taxation is the regulation and control. The government not only raises public revenue through taxation but also imposes restrictions on the uses of certain goods and services in a way desirable and respectable for a healthy state of society. To restrict the consumption of these harmful goods.

3.       Reduction of inequalities in income and wealth: Taxation reduces the inequality of income and wealth. One of the chief characteristics of backward countries is that there is a vast gap between the income of persons in the highest income group and of those in the lowest income group. That is why one of the objectives of taxation is to redistribute income and wealth in such a way as to ensure more just and equitable distribution.

4.       Bringing business stability and maintaining full employment conditions: Taxation helps in bringing about business stability and maintains full employment conditions. Low rate of taxation during a business depression shall accelerate more income to the people and help in raising demand and, thus, revive business activity. On the other hand, high rates of taxes and help in raising demand and, thus, revive business activity. On the other hand, high rates of taxes and additional taxes and additional taxes may be useful to check inflationary pressure on prices.

5.       Promoting capital formation: Another objective of taxation is the promotion of capital formation. With particular reference to underdeveloped and developing countries, one of the main objectives of taxation is to make savings more dynamic and promote capital formation. In underdeveloped countries, the savings can be easily directed towards production and capital formation through the assistance of taxation.

6.       Political objectives: Particularly in democratic countries taxation is used as a weapon for attaining political objectives. For examples, lower and middle-class voters may be attracted by imposing high taxes on rich people and luxury goods and nominal or no taxes on goods consumed by poor and middle-class people.

7.       Increase in national income: Another objective of taxation is to increase the national income. Tax is the main source of the government income. This income is used for productive purposes and thereby overall production is increased. This increase in production leads to increase in production leads to increase in national income of the country along with increase in per capita income. In underdeveloped countries , major part of the income is spent on economic development programmes which too increase national income as well as per capita income.

8.       Restrict unnecessary consumption: Another objective of taxation is to restrict the unnecessary consumption particularly of harmful commodities, such as wine, cigarettes, biris etc. when heavy tax is imposed on such commodities, the consumption is automatically reduced.

9.       Maintenance of proper standard: Another objective of taxation is the maintenance of proper standard.   

Also read
Classification of tax
What is Tax ?