The primary objective of the tax system was to generate TAX revenue.
Tax revenue is vital for a developing country to meet its needs and provide essential public services.
Therefore, how a country's tax system is to be set up should first and foremost take into account its own needs, both in terms of helping the economy grow and helping the people of the country, but also in terms of being able to respond to what is happening in the world.
When evaluating the effectiveness of a tax system, it is necessary to look at the system as a whole.
The government needs to attract more tax revenue while at the same time satisfying its resident taxpayers.
As a result, it is important to know that a good tax system does not have to be a perfect tax system that collects taxes according to the rules of the tax system, brings in enough money, and does not hurt taxpayers in any way.
A good tax system is one that, on average, collects fair taxes and adheres to most tax rules. The following are some qualities that should be included in an effective tax system:
equity or fairness;
suitability for achieving macro-level objectives.
One of the most fundamental elements of a good tax system for a developing country is that it should provide the government with sufficient money to carry out its expanding welfare and development operations.
Suppose the current method of collecting taxes cannot provide an adequate amount of money. In that case, the government will be obliged to rely on deficit financing.
Effects of deficit financing:
It causes a decrease in the purchasing power of people;
It causes inflation:
It causes the depreciation of the currency.
Equity or Fairness
According to Adam Smith, fairness, or equality, is one of the qualities that make for an effective tax system.
It indicates that everyone should pay their proportionately fair part of the taxes.
Equity and Fairness are synonymous with this concept.
For a tax system to be considered good, it needs to include most of the taxes that help bring in money and wealth for the country and ensure everyone gets the same treatment.
One of the most significant aspects of efficiency is the minimisation of administrative and compliance expenses.
Therefore, collecting taxes should not be designed so that the cost of collecting taxes constitutes a relatively significant fraction of the total taxes collected.
The collection process needs to be as cost-effective as is practicable.
In addition, the expenditures the taxpayer is responsible for to satisfy his obligation should be kept to a minimum.
Adam Smith identifies simplicity of administration as one of the essential qualities of an effective tax system.
If the process is made easier, taxpayers won't have to deal with a mess of rules, forms, and fees.
Taxpayers will better grasp the system, which will, in turn, minimise the costs of compliance with the system.
The costs of compliance for a taxpayer might be monetary (such as fees paid to professional advisers for advice or help), time costs (incurred when keeping records or filing returns), or psychological (incurred when dealing with the stress of having to comply) (e.g. anxiety caused by the inability to understand complex laws).
This certainty principle says that the taxpayer should know the following:
How much tax he has to pay;
When it has to be paid, and
How it should be paid.
They should be easy for taxpayers to understand.
The tax laws should make this information clear and make sure it is correct.
So, tax officials shouldn't be able to decide on their own how much to charge and when to charge it.
Another feature of a good tax system that developing countries should be flexibility.
Under taxation flexibility, the government revenues from taxes should also increase with increased national revenues due to economic expansion.
The tax system becomes more flexible when higher indirect taxes are levied on luxury goods with increased demand.
As a result, excise duty, customs duties, and sales and service tax tend to be flexible forms of taxation.
This is because changes in the rates can be readily made, and these changes then have a relatively immediate impact on the behaviour of taxpayers (for example, an increase in customs duty rates typically leads to price increases almost immediately).
Suitability for achieving Macro-Level Objectives
Taxation should be a tool for economic growth in a developing economy like ours.
The primary purpose of economic growth is the pace of capital formation.
If the public sector is given a prominent place in the development plan, capital formation must take place at a somewhat higher rate in the public sector.
Hence, the structure of taxes should make it easier to use fiscal policy to meet the macro-level economic management goals that a government might want to achieve.
These goals might include the maximisation of economic stability and growth, the redistribution of income or wealth, the raising of employment levels, and the reduction of inflation.
The tax structure should also make it easier to raise employment levels.
This suggests that the government should not rely on a single tax or a small number of levies to bring in a considerable amount of tax revenue.
If a government wants to generate significant income from a single tax or a few taxes, the tax rates on those taxes will need to be excessively high.
This will harm the incentives for jobs, savings, and investments and encourage tax fraud.
Consequently, the tax system needs to be a multi-tax system that includes a wide variety of taxes, and it ought to mandate that everyone in a position to contribute to the public coffers do so.
Because of this, it will be necessary to impose both direct and indirect taxes.
Also, because of the variety of tax structures, fiscal sufficiency and equality ideals will be more satisfactory.
According to the findings of the above study, we can conclude that many socioeconomic goals in modern society are being pursued with the assistance of taxes.
Not only may money be raised for the restricted tasks of the government through this method, but it also serves other purposes.
The neutrality concept of taxation, sometimes known as the "leave things as they are" approach, is no longer widely supported by contemporary economists.
In practice, neutrality is difficult to achieve because governments frequently believe it is acceptable to purposefully interfere in the transactions of free markets through the imposition of taxes to either encourage the production or consumption of certain goods or services that they want to see more of or discourage the production or consumption of products that they consider to be undesirable.
In addition, applying higher tax rates to income would result in a disincentive effect under a progressive tax rate structure.
This would mean that taxpayers could conclude that it is simply not worth working as hard as they are and could opt to spend their time relaxing instead.
Therefore, the current method of levying taxes needs to fulfil a more practical function. Its aims include creating rapid economic growth, eliminating income disparity, fostering stability, attaining other socio-economic goals, and several other objectives.
税收的中立性概念，有时被称为 "保持现状 "的方法，已不再得到当代经济学家的广泛支持。
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