Effects Of Fairness In Taxation

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Register to read the introduction… Moreover, goods are treated differently when it comes to taxation. For instance, the tax rates for basic goods such as foodstuffs, medicine and essential educational materials are relatively low compared to the high rate of taxation that is imposed on luxury goods such as Rolls-Royce Motors. Taxation modifies the market equilibrium by increasing the prices of goods and services, and thereby reducing the demand for such goods and services. Hence, increased taxation reduces the extent of purchasing. The converse also applies. However, the demand and supply of such goods and services will also depend on the rate of taxation on complementary and substitute goods and services. Increased rate of taxation on complementary goods and services will definitely reduce the ability of the people to purchase the original goods and services, and hence the market equilibrium will be disrupted. Reduced rate of taxation on substitute goods and services will lead to an increase in demand, and hence more of these substitutes will be purchased in comparison to the original goods and services, and hence the market equilibrium of the original goods and services will be distorted. Increased taxation on income leads to reduction in the amount of disposable income, and hence, the purchasing power of the individual is reduced, and this affects opportunity …show more content…
Tax allowances as a subject still remains to a great extent relatively terra incognita. However, its effects can be inferred from its impact on the taxpayers and non-taxpayers. Tax allowance refers to the amount of income that a person can earn tax free. The limit placed on tax allowance ensures that people who earn low incomes are not taxed, and that people who earn high incomes are taxed. Tax allowance aims to guarantee a fair tax system. It creates non-taxpayers (who are usually members of the lower class who still require government amenities that are supported by taxes). Thus, the shortfall in the tax income is filled by increasing the taxes imposed on the wealthier component of the society. Hence, tax allowance has the effect of making certain that the wealthy members of the society bear a large proportion of the tax burden. The rich individuals are therefore made to pay an amount of tax that is relatively proportionate to their income levels, and this has prompted some of these individuals to search for tax havens. Tax allowance is relatively controversial, since some economists argue that it is a form of punishment imposed on people for being wealthy, and that this promotes market dormancy. However, this argument is countered by the fact that since tax allowance creates non-taxpayers, the tax revenue will therefore have to be raised from the individuals with taxable income.

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