Introduction And Design Of The Tax System

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CHAPTER – 1
INTRODUCTION AND DESIGN OF THE STUDY

Introduction

The primary purpose of the tax system is to collect the revenue needed to fund the operations of the union government including its promises and commitments. Tax revenues may not fully match the government spending each year but over time, the union government needs to be able to raise sufficient revenue to cover its current and expected financial obligations. Decisions about spending and the role of government have a direct impact on the governments ultimate revenue needs (Walker 2005). Tax reform invariably forms a key component of structural adjustment programmes of developing countries and for good reasons. The most important reason is that when a country undertakes to reform its economic structure to overcome chronic macro economic imbalances and remove impediments to growth, it is imperative to bring the tax system too in line with the basic thrust of the structural reforms versus enhancing efficiency in the allocation and use of resources by promoting competition and avoiding needless interference with market forces (Amaresh Bagchi). A basic tenet that has guided our tax reforms, as those of many other countries in recent years has been ‘widens the base, reduce the rates’. The aims of equity, efficiency and simplicity are served best it is argued, when the base of the tax is comprehensive be it income or consumption. In a regressive tax system lower income tax payers pay larger percentage of income in

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