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Taxation is more than applying and interpreting legislation. Societies require taxation in order to reallocate capital, to provide for expenditure on public services and goods. Taxation is a core area in which the broader fields of law and accounting, drawing together concepts from disciplines, along with concepts from economics. Knowledge and theories in a number of other disciplines, like sociology and psychology, have been used to support with a greater understanding of the impact of taxation on culture.

What is the most important significance of taxation?

The most important purpose of taxation is to produce funds/revenues used to settle expenses incurred by the government in promoting the common welfare of its citizenry. In mainly nations, specially our country, taxes are the major source of government's earnings. Others come from sale and borrowing of public lands and other government properties, interests on savings.


Tax is enduring instrument for collecting revenues. It is a most important source of income in the developed world and has been appearing as an important source of returns in the developing world. The main objectives of tax are as follows:

1. Increase More Revenue

The fundamental objective of taxation is to finance government outgoings. The government requires a range of development and welfare activities in the nation. It needs a vast amount of funds. The government collects funds by striking taxes. Raising more and more revenues has been an significant objective of tax.

2. Prevent Concentration Of Wealth In A Few Hands

Tax is imposed on individuals according to their revenue level. High earners are imposed on high tax through progressive tax scheme. This prevents wealth being concentrated in a few hands of the rich. Thus narrowing the gap among rich and poor is another objective of tax.

3. Redistribute Wealth for Common Good

 The tax collected by government is expended for carrying out a range of welfare actions. From this way, the wealth of the rich is redistributed to the whole society.

4. Boost up the Economy

Tax serves as an instrument for promoting economic stability, efficiency and growth. The government controls the economic activities of the state by providing diverse concessions, rebates and other services. An effective tax scheme can boost up the economy.

5. Reduce Unemployment

The government can decrease the unemployment problem in the state by promoting a range of employment generating activities. Industries recognized in distant parts or industries providing more employment are set more services.

What is the Basic Purpose of Taxation Accounting

The most important purpose of taxation is to build up funds for the functioning of the government machineries. There is no government in the world can run its administrative workplace without funds. The government can run its administrative set up through community funding which is collected in the type of tax. Thus, it can be well understood that the principle of taxation is very obvious and simple for proper functioning of a country. Taxes are charges levied beside a people's personal income or on property or for some specified movement.

Type of Tax Structures

Taxes can be discussed on a progressive basis, a regressive basis or proportional basis. These are discussed below-

Regressive Tax Structure:

A regressive tax structure grades in low-income persons paying a higher percentage of their earnings on taxes than high-income persons. This type of tax structure tends to shift the burden of taxation to the poor.

How a government defines income subject to an exacting tax schedule or rate is also essential. For example, the United States government treats earned income another way than investment income, and provides investment income a preferential tax rate. The government imposes a higher rate of tax on income earned through salary and wages than on income earned on investments.

Proportional Tax Structure

In a proportional tax structure, tax rate does not depend upon the relative income level of taxpayer. You can also think of a proportional tax rate as a 'flat tax.' The example of a flat tax in the United States is a sales tax. The poorest member of the society pays the equal sales tax on a television as richest. A proportional tax system theoretically should create an equal tax burden for all the taxpayers, but some dispute it doesn't.

Progressive Tax Structure

A progressive tax structure is just opposite of a regressive tax structure. In this type of progressive tax system, the taxpayers making more capital pay higher tax rates than those making less capital. The United States uses a progressive income tax structure. A progressive tax structure tends to shift the burden of taxation to the wealthy.

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