Public Finance

Taxable Capacity means the maximum capacity of the people of a country to bear the burden of taxation  without much hardship. It is nothing but the maximum limit that a government can tax the people. If the government exceeds this red signal, namely the maximum limit, it will result in over-taxation. The purpose of finding out the taxable capacity of any country or people is to know the limit of taxation to which it could be subjected for raising public revenue. This has to be done without creating higher adverse conditions in the economy which might defeat the very object of taxation. Taxable capacity has assumed importance in these days and this concept has become a controversial issue. The term taxable capacity is used in two senses: In the absolute sense and In the relative sense. What is Absolute Taxable Capacity? The term absolute refers to the maximum amount of tax that a community can pay without experiencing any unpleasantness. It represents the maximum number of taxes tha...

 The term impact is used to express the immediate result of or original imposition of the tax. The impact of a tax is on the person on whom it is imposed first. Thus, the person who is paying the tax to the government bears its impact. The impact of a tax, as such, denotes the act of impinging.  The term incidence refers to the location of the ultimate or the direct money burden of the tax as such. It signifies the settlement of the tax burden on the ultimate tax payer. Incidence emerges when the tax finally settles or comes to rest on the person who bears it. It, in fact, is the ultimate result of shifting. Hence, the incidence of a tax is upon that person who cannot shift the burden any further, so he has to himself bear the direct money burden of the tax.  It is, thus, easy to distinguish between the impact and incidence of taxation:  1. Impact refers to the initial burden of the tax, while incidence refers to the ultimate burden of the tax.  2. Impact is at ...

To judge the merits of a tax system, it must be looked at as a whole. For a tax system to be a good one just cannot have all good taxes but none bad at all. The state cannot raise sufficient revenue and, at the same time, please the tax payers. A good tax system should possess the following characteristics: 1. It should ensure maximum social advantage. Taxation should be used to finance public services. 2. It should cause minimum aggregate sacrifice. In a good tax system, the allocation of taxes among tax payers is made according to the ability to pay. It falls more heavily on the rich and less on the poor. It should be reasonably progressive so as to minimise the gap of inequality of income and wealth in the community, thereby ensuring their better distribution. 3. In a good tax system, taxes are universally applicable in the sense that persons with same ability to pay are treated in the same way without any discrimination whatsoever. In the Indian tax system, however, this attribute ...

  The most important objective of taxation is to raise required revenues to meet expendi­tures. Apart from raising revenue, taxes are considered as instruments of control and regulation with the aim of influencing the pattern of consumption, production and distribution. Taxes thus affect an economy in various ways, although the effects of taxes may not necessarily be good. There are same bad effects of taxes too. Economic effects of taxation can be studied under the following headings: 1. Effects of Taxation on Production: Taxation can influence production and growth. Such effects on production are analysed under three heads: (i) effects on the ability to work, save and invest (ii) effects on the will to work, save and invest (iii) effects on the allocation of resources. i. Effects on the Ability to Work Save: Imposition of taxes results in the reduction of disposable income of the taxpayers. This will reduce their expenditure on necessaries which are required to be consumed for th...