Importance Of Taxes
                     IMPORTANCE OF TAXES
INTRODUCTION
The Government of every country requires funding to aid it 
in carrying out its necessary functions and duties. These 
include operating public institutions, developing the 
country’s infrastructure and financing public welfare 
initiatives and schemes. 
In exchange for providing these amenities, a government 
generates the revenue required for them by taxing its 
citizens.
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Tax System in India
India has a structured tax system and the importance of 
taxes are defined by two attributes - progressive and 
proportional. It is progressive in that the tax is levied at 
increasing rates to increasing brackets of income and 
revenue.
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Types of Taxes in India
Direct Taxes: These forms of taxes are levied directly on the 
taxable income generated by individuals and corporations. 
Indirect Taxes: The other form of taxes are not levied 
directly on a taxpayer’s income but rather indirectly when 
they avail or purchase goods and services. 
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Importance 
of Taxes
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Importance of Direct 
Taxes
Direct taxes display the importance of taxes by reducing 
income equalities with its progressive tax structure. Citizens 
are taxed in proportion to their economic circumstances, 
thereby encouraging social and economical equality.
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Importance of Direct 
Taxes cont.
Moreover, with direct taxes, taxpayers remain aware of how 
much tax they can be expected to pay in a financial year 
and prepare well in advance. 
Direct taxes are also useful in controlling inflation as any 
change in their rates can help in regulating demand and 
supply in the economy.
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Importance of Direct 
Taxes cont.
Luxury goods and services are the most affected by this 
regulation and so, the tax rates have to strike a balance 
between providing administrative funds, limiting inflation 
and leaving enough disposable income to encourage 
consumption.
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Importance of Indirect 
Taxes
The importance of taxes for the government when it comes 
to indirect taxation is that they are an automatic function 
that accompany the buying and selling of goods and 
services across the country. 
They are therefore easy to collect and convenient for both 
taxpayers and the tax collection authorities.
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Importance of Indirect 
Taxes cont.
They also help broaden the country’s net of tax liabilities, 
gathering contributions from those sections of society that 
are otherwise exempted from direct tax.
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Importance of Indirect 
Taxes cont.
The burden of taxation falls on the consumers in the end, as 
most retailers, manufacturers and service providers will 
attempt to recover taxes on initial expenses in the sales 
price itself.
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