Taxation

When a Government has to resort to taxation to raise resources. welfare will be increased if the revenue is ought to be raised through direct taxation  income tax rather than indirect taxation sales tax  or excise duty If a person pays income tax instead of the same amount as a sales tax on the purchase  of a commodity he can still purchase the  combination of goods he prefers the most out of the  combinations available to him. The sales tax tends to  reduce his purchases. A sales tax or excise duty distorts prices   Rom their optimum levels and forces the  consumer to reallocate his expenditure among commodities in a less desirable fashion. On the other land the income tax only reduces his over all purchasing er but   us not directly affect the relative prices. It does Dot, therefore. force him to readjust his  expenditure.

There  no doubt that income tax also affects   he tax paler s behavior but it docs not distort his  consume on pattern it only distorts his income earning  plans. It may affect his will to work and save. However duties have their own merits. They are  anti inflationary and fallow those who have a large  propensity