How effective is the tax regime implementation in developing nations? Do the above tax only benefit capitalism people and business? Which of the above tax most effective in sharing economy for household income between the line of the poverty level? Which of the above tax regime effective in combating corrupt government? To what extent, the tax regime has genuinely prospered the nation's economy and reducing poverty by zero per cent in a developed or in the developing nation? Is there any government in this world survive without enforcing the tax regime. Last but not least, what kind of questions most used by the researchers to conduct a study on the economic impact on household income, spending, quality of life due to tax regime enforcement by the government?
Every government as a group of bureaucrats would like to raise taxes, unless they are subordinated by a political party that knows how dangerous for the upcoming elections is to tease people. That is happening in democratic countries - governments somehow depend on people, that is there is a real working feedback. In less democratic countries, such a feedback is either not efficient, or doesn't exist at all. Hence, the poverty is becoming a fact of life for large layers of a society.
Your questions focus on the relationship between public finance and sustainable economic development, in return the impacts are not only economic but above all social economic.
The principle of public finance is the redistribution of income, taking rich people and giving to the poor, through non-paying public services or at nominal prices.
In my opinion there is no penalizing tax and fair tax, however there is a penalizing (lump sum) and a fair (gradual) regime.
In my view, the problem does not lie in the scheme itself, but rather in the design and implementation of the scheme, which is the responsibility of the tax administration. Thus the source of corruption in the world is the bureaucracy of the administration that generates an environment conducive to this corruption.
We can evaluate the effectiveness of a tax system by two indices:
Economically speaking, when the tax does not penalize the producer / trader or the consumer;
Socially speaking, when tax revenues allow the financing of public services and the necessities of life, making them accessible to vulnerable segments of society, I mean accessibility: geographical, financial and organizational.
Finally, to ask your question, in my view, you need to rotate between the economic and social components.
It is always a challenge to design a tax system for a country that is fair. Consumption taxes such as VAT and Sales tax are part of such a system. Consumption taxes have proven to be quite successful in raising revenue but are not appropriate vehicles for redistribution policies. In developing countries government corruption but also the large informal economy are serious problems and these cannot be solved through any tax system. However, some type of taxes are successful in terms of revenue generation more so than others. For example, in the Russian Federation tax collection was unsuccessful and people were able and inclined to dodge their tax obligations. The introduction of VAT in combination with a flat tax (proportional flat rate income tax) as a replacement of a graduated income tax, solved that problem to a large extent.
I am not a supporter of the use of the tax system as a means of income and wealth redistribution as this makes the tax system very complicated. I think it is better and more transparent to give income subsidies to the poor and provide for free education for them, so they can escape the poverty trap.
All the above taxes are same, and only tax rate really matters. It depends on the government, if the government wants economy going a bit faster, it will throw less sand on the road, vice versa. Importantly the responsible government tries to make balance between this two situations, and meanwile thinks a lot about economic efficiency and social equity issues. (If you are quite interested in this issue, talk later. Thanks)
I have four observations on this:
Jaroslav Dvorak
that value added tax and sales tax are the same. They are not. Sales tax is a cumulative tax on sales from manufacture through to distribution and retail. Value added tax is a non-cumulative tax on the value added at each stage in the chain, so tax refunds are obtained up until the final retail sale.
Ok, all right. However, you have not truely understood my view about all the taxes are same. My point is if the tax rate is not suitable, any of above tax can't be functional or is ineffective. Only tax rate matters, whatever which kind of tax in place. Christopher C Kelly
The question does not specify what is meant with sales tax. Technically, VAT is a form of sales tax as well. You are referring to the gross receipt tax or turnover tax which, indeed, causes tax accumulation, vertical integration, etc. However, a retail sales ax is economically equivalent to the VAT.
Thank you very much for the generous help and answers from fellow researchers and academicians Robert van Brederode Xiuming Yuan Christopher C Kelly Len Leonid Mizrah Jaroslav Dvorak
Aissaoui Nasreddine