As you might be aware, the process of formulation of tax laws, implementation of the laws, and the actual collection of taxes has a cost implication. And although many people know that the principle of economy infers that the total cost of taxation should not be high, many of them do not know what these costs are. This article seeks to bring out the various costs that are associated with taxation, and how to cut them down if possible.
The first cost that we shall look at is the cost of collecting the taxes. One of the main feature of the principle of economy is that the cost of collecting the taxes should be negligible compared to the taxes that will be collected. These costs include the administrations costs such as the salaries of the tax agents, the cost of transporting the agents, telephones costs and so on. To ensure that these costs are kept at a minimum, the tax agency should make sure that the process of collecting the taxes is as simple as possible. This way, tax payers will be able to fill their forms in the right way the first time, and they won’t have to spend so much money on hiring tax agents and tax consultants.
Costs of International Backlash
Unfortunately, the tax system does not operate in a vacuum. This means that it has to take into consideration several factors, including the political factors when formulating and implementing its policies. Sometimes, the tax agency may formulate a policy which may not augur well with other countries that trade with the country in question. This might cause the other countries to retaliate with quotas, tariffs, and sanctions.
One of the most active departments in any tax office is the department that deals with legal issues. There are so many people who do not like the idea of paying taxes, and who would really want not to pay if they could afford not to. For this reason, many economies are riddled with tax evaders who must first be chased around before they agree to pay taxes. This means that the tax agencies must hire lawyers whose job is to threaten to sue, and to sue those individuals who are not complying with the existing tax laws. This is what is referred to as the cost of enforcement. To reduce this cost, it is advisable that people be educated on the need to pay their tax without having to be prosecuted. Penalties should also be very high so as to deter people from attempting to evade taxes.
Real Costs to the Economy
Other costs that the economy incurs in relation to taxation are the real costs that relate to production and consumption. The money that is given to the government could have been used by poor families to consume necessities instead of paying the money to the government to use for non-essential commodities.
Generally, all these costs that are related to taxation are costs that we have to bear with. Unless something drastic happens, the best we can do it to help manage them so that they do not become too high.