Conclusion/Analysis:
Taxes
affect price of goods and services. To a consumer tax is bad because one need
to pay higher than his or her estimated consumer surplus. It will equally
hamper the amount of production in the market but to a better cause what if
that product has negative externalities? What if that externality adversely
affects a group of people who are not responsible for it? Here tax should be
answer to both the questions. It should internalize the externalities and it
should serve as a mechanism to reduce the production so that spillover is
reduced. When people are taxed, large part of their incomes are lost. After
lots of their hard work when part of their share of income is irrationally
lost, people get de-incentivized to work hard.
BIT and CIT taxes in Bhutan are at flat rate of 30%. This is irrespective of
the business size. In a way, this seems to be an unfair treatment to the small
businesses earning a meager income while big businesses are at an advantage
over the smaller ones. Further, we cannot determine who is rich and who is poor
because there is an exclusion of irregular incomes like income from the sale of
cordeceps by PIT system of Bhutan. Income through rents is hardly declared by
many house owners in the country. The tax slap for exemption is relatively
lower compared to increasing living cost and people’s disposable income. People
with salary as low as Nu.8000 are liable for Personal Income Tax. This makes
people of low income struggle to survive. People have just a part of their
income after tax. As a result of which tax to citizen is a burden.
On the other hand, as mandated by
the constitution of kingdom of Bhutan the government should ensure to meet the
cost of recurrent expenditure from internal resources of the country. Tax forms
a major part of contribution to the internal tax revenue. And paying tax as
enshrined in constitution is also one of the fundamental duties of every
citizen under state’s protection. Government while discharging their public
goods and services to the citizen, they needs lots of budgets to finance it.
Without tax they cannot discharge half of their duties to the citizens. When we
say public goods and services it means those goods which are invaluable to the
public but market do not produce it. Wide range of Pure or quasi public goods
and services like social security through defense, health, education, roads,
bridges, public infrastructure and etc should be financed by the government.
This is because no ordinary citizen or business firms voluntarily finance it
because they have no incentive to do it. Without imposing tax on citizen the
benefits and social welfare from public goods and service cannot be given to
the citizen.
There are special group of people
in the society who need the special attention from the state. This special
group of people includes elderly, monks, disabled, vulnerable citizens and
unemployed ones. To them tax should serve as redistribution mechanism so that
wealth and income is redistributed to all the people. And tax through
progressive means and through ability to pay theory can bring about social
equality. Tax is also used to intervene
in the situation like market failure. When a market economy fails; not
considering spillover effects, government through taxation should
de-incentivize the market to produce more products that has negative bearings.
Our economy is confronted with much instability and fluctuations, tax should
serve as cyclical mechanism to counter act the fluctuations of market economy.
Taxes are also imposed to some
products that have negative impact to the society. The sales of alcohol, drugs
and some environmentally sensitive products must be imposed very high tax. This
is because it will firstly help government to generate quite a lot of tax
revenue and secondly it will help people change their behavior. In a meanwhile,
the use of these products which are morally questionable will be soon reduced
and people will come up with some sensible alternatives. Typical example in
which Bhutanese government failed to tax high was on tobacco in recent years.
They opted for a total ban which led to several people going to jail due to
black marketing. People in the jail thus become social burden which need to be
fed from governments revenue. In other countries this products are always taxed
hundred percent and because of which there is no problem such as black
marketing.
Even with all things said and done,
it is never easy to say whether tax is good or bad. Tax is both a moral issue
and an economic issue. All moral issues are not economical and all economical
issues are not morally right. Therefore, the fate of deciding whether tax is
good or bad is always left to the mercy of people’s decision.
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