Question

Explain the importance of Taxation in an economy and how it contributes to the overall well being of the society at large.

Answer 1

Taxation is very important in an economy because it is a major source of income for the government of any country or local government bodies. There are different ways to collect the taxes like direct taxes (example: income tax) and indirect taxes (example: goods and services tax). Some governments charges taxes with uniform tax rates while others charges it with progressive rates, where higher income groups have to pay higher taxes.

After collecting taxes; government spends it on many works like making infrastructure, schools, hospitals, security and other welfare work for the society. It is a kind of income redistribution where the poorer sections of society get more benefited from those services. Therefore we can say that the taxation contributes to the overall well-being of the society at large.