Meaning of term Principles of levy under GST

Principles of levy under GST


This post explains about Principles of levy under GST

Principles of levy

1. Raising money for government spending.

The most obvious reason is to raise money for all the expenditure that is required. Hospitals, schools, the defense system, the welfare state; these things do not come cheaply. You will soon see that not all taxes are imposed centrally (by the Westminster Parliament). Local taxes also have to be levied to help pay for libraries, cleaning the roads, local parks and the local council administration to name just a few items. See the Learn-It called 'Government spending in the UK' for more detail.

2. Redistributing income.

This is a bit of an old fashioned objective of taxation nowadays. If the system used is progressive (see later in this Learn-It), then the tax system will be helping the relatively less well off at the expense of the better off. Socialist governments of the past were very keen on this. Certainly the Conservative governments of the 80s and 90s were less bothered. Although there is a lot of press about the increase in the tax burden under the new Labour government, they have actually been redistributing income to the poorer households in the UK, through such measures as the National Minimum Wage, the New Deal and the Working Families Tax Credit.

3. Demand management.

In the topic called 'Aggregate demand and aggregate supply', the Keynesian economist’s policy of demand management was outlined. Basically, Keynesians believe that in times of recession or depression, the markets will not 'clear', or sort themselves out at the right price, so it is the government's responsibility to create the necessary demand to resurrect the economy. This can be done by increasing government spending and/or reducing taxes.

4. Correcting market failure.

In the topic called 'Market failure', there is much discussion about the problems of externalities, like pollution from congestion. The markets, left to themselves, will not produce the socially optimal level of output. Governments can use taxes to force the firms to produce the socially optimal level of output. We all know about the tax on petrol. Some items that are thought of as 'good' may be exempt from taxes that most other goods attract. A few goods are 'zero-rated', meaning they attract no Value Added Tax (VAT). Books are a good example.

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