Taxation can be effective in some circumstances such as regulating consumption of some commodities such as drug and alcoholic substances and also to regulate the market but can we also ignore of just how overtaxing can affect the economy???
Paying taxes is a civic responsibility by citizens since he government uses the tax money for development purposes but overtaxing citizens can actually affect the economy of a country.
Increasing taxation on car insurance automatically leads to increase in fare prices this is because car owners need to make profit and recover the insurance taxes. When fare prices increases, few people will use public means hence income earned will automatically decrease. Also when insurance taxes increases, people will be discouraged to buy cars since also private cars will also undergo the insurance policy tax thing.
Taxation on food products will lead to decrease in the demand. According to the law of demand and supply, when prices of commodities increases, the demand decreases and when people fail to buy the products, suppliers will be forced to lower their supply or reduce the prices of the products. On the producers side, when taxation on raw resources increases, the supply of the product will decrease hence leading to over demand a situation where the demand of a product increases but the supply is low.
When companies which manufactures medicines are overtaxed, the production of certain drugs will reduce which will in turn affect many patients since they require the medication for their survival. The hospitals in turn will experience few turn over rates hence reducing their income from treating sick people.
Overtaxing production of certain products such as wheelbarrow production can lead to reduction in the production of such products. Since farmers require wheelbarrows to carry farm products when the production of wheel barrows reduce then if they were using the wheelbarrows to carry more products it may reduce the amount of products they were carrying leading to low supply or may even lead to delays to transport the commodities to the market.
Increasing taxes on the tourism sector will discourage domestic and foreign tourists since people will be discouraged by the high prices. This will in turn reduce income generated by the tourism sector.
When prices of commodities increases the rich people may not be badly affected by it but the middle class people and the rich people will be badly affected by it hence the gap between the poor and the rich will widen even more.
Overtaxing can reduce the income of people hence lowering their salaries. When salaries reduces, the rate of spending will reduce also since not all people will be able to afford some of the commodities or even services hence the living standards of some people will reduce since they will have to cut on their spendings and even save less than they used to.
When the standards of living reduces, some people may not be able to take their kids to school due to financial problems or even buy the neccesities required for school work hence the kids from struggling families may be required to apply for government support or some are forced to drop out of school.
Taxation is crucial to ensure a country develops but the government should not overtax people as this could significantly lead to decrease in the economy.