WHY TAXES AND ECONOMY???

 

Effectiveness of taxes in economic development

There is no doubt that taxes play an important role in economic development. In fact, taxes can be seen as one of the most important tools that governments have at their disposal to spur economic growth and development in their countries. Governments use taxes in a number of ways to promote development and economic growth. Some of the ways that governments can use taxes to support economic development include through the promotion of investment, the provision of infrastructure, the regulation of capital markets and the encouragement of the adoption and use of new technologies. (OECD) Raising revenue by imposing taxes on individuals and businesses and using the revenues to invest in public infrastructure and programmes that are designed to stimulate economic activity and promote growth is referred to as direct taxation. Using taxes on imports or exports in order to promote exports and encourage domestic production is known as indirect taxation. For example, the government may use tariffs or quotas to impose a tax on imported goods and raise revenue from the import tax. Similarly, export taxes can be used to discourage consumption of domestically produced goods and to promote the consumption of foreign goods in order to increase exports. Tax incentives are widely used to encourage businesses to create jobs and increase investment in their operations. These tax incentives may include exemptions from taxes, rebates on taxes and deductions for the costs of investing in new equipment and facilities. Such tax incentives can be a powerful tool in promoting investment and economic growth because they can reduce the tax burden on businesses and encourage them to invest more and expand their operations in the local economy.

The impact of taxation on the economic development of a country depends on several factors, including the level of development and the structure of the tax system in the country. Most developing countries rely heavily on direct taxation to fund their expenditure on education and health. However, wealthier countries such as the US tend to rely more on indirect taxation to fund their investment in education and health and other public services such as defence and law and order. In the increasingly globalized economy of today, many countries have entered into a mutually beneficial system of trade known as international trade. Countries enter into international trade agreements with other countries in order to reduce their dependence on one country for their imports and to increase their access to other markets around the world. As a result, many developing countries that have traditionally relied on foreign aid have now developed profitable trade relationships with developed countries and no longer need to rely on foreign aid to meet their needs. Countries that have strong trade relationships often receive aid from other countries in the form of grants and loans for the development of key infrastructure projects such as roads, airports and ports. This aid not only helps in the development of the country, but also creates jobs for locals and provides greater economic opportunities for the people of the country. In conclusion, taxes are a necessary tool for economic development but must be regulated and formulated in a meticulous to avoid risk of other economic problems that may hinder the potential growth warranted.