Many lay persons and even professionals see taxation as an unavoidable obligation. Regardless of your country of residence, you cannot escape taxes. You may also wonder why is taxation necessary to literally live on this planet?
Tax is the foundation that molds stable economies and functional societies. L&Y Tax Advisors further elaborates why is taxation necessary with clarity on its purpose both for governments and citizens. We have also highlighted the implications when tax mechanisms are weak or absent.
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What is Taxation?
Taxation refers to the mandatory levies that a government imposes on its individuals and businesses. These monetary levies are totally different from fees or fines. They serve to raise revenue to fund public services.
In today’s modern economies, tax is the most important source of a country’s revenue
Why is Taxation Necessary for Government?
Governments need stable and significant funds to deliver basic public goods and services. Without taxation, it becomes challenging to finance:
- Education
- Healthcare
- Infrastructure
- Defence and public safety
Taxation is the only practical way of increasing the revenue to fund the government expenditure on basic and highly demanded goods and services. Furthermore, it allows governments to manage:
- Economic stability
- Social equity
- Societal development
Therefore, collecting revenue in a justified and administratively efficient way is compulsory.
Read: What is a VAT number in the US?
Why is Taxation Necessary for the Public?
For the public, taxes enable access to services that no individual could easily provide alone. All such services rely only on collective funding through taxes, such as:
- Schools
- Roads
- Emergency services
- Public libraries
- Parks
- Social welfare systems
The government collects taxes from you. If these funds are spent transparently and responsibly, it will:
- Support social mobility
- Reduce inequalities
- Promote shared prosperity
Taxation also embodies a social contract. Taxpayers fund services. In return, they receive:
- Protection
- Infrastructure
- Institutional stability
Read: What is tax yield?
What Would Happen If There Was No Tax?
If taxation were absent or wholly ineffective:
- Governments would lack the resources to fulfil core responsibilities.
- Public services would deteriorate.
- Infrastructure would suffer.
- Social safety nets would collapse.
- Economic development would stall
- Inequality would likely intensify.
In addition, without tax revenue, governments may resort to:
- Excessive borrowing
- Inflationary financing
- Cuts to basic services
All of this harms the long-term growth and societal stability. In a nutshell, a society without taxation is vulnerable to inequity, stagnation, and instability.
The Bottom Line
Taxation is much more than the payment the government takes from you. It is a compulsory mechanism that sustains government operations. It enables the public to gain from collective investment in infrastructure and social well-being.
Read more to learn about Tax Allocation District (TAD) is a special zone where increased property tax revenues are reinvested to fund local improvements and development projects. These districts play a key role in boosting community growth and revitalizing underdeveloped areas.
