Disadvantages/demerits of imposing taxes
- Discourages saving;
- Encourages malpractices for example smuggling corruption, etc.
- Discourages effort and initiatives.
- It is inflationary – (the case with indirect taxes).
- Causes resentment of government that may erode her popularity/ leads to unrest by tax payers / traders.
- Limit the volume and benefit of trade / leads lo retaliation in trade.
- Leads to diversification of resources from highly taxed to at times nonproductive activities that are les taxed leads to misallocation or resources.
- Reduces consumer welfare due to reduced consumption/Reduces consumption hence reduced welfare
- Leads to inefficiency of domestic (infant) firms which are shielded from external competition.
- Increases production costs leading to closure of some firms; reduced producer profits / unemployment due to closure of loss making firms·
- Discourages investment
- Leads to income inequality
CATEGORIES Economics
TAGS Dr. Bbosa Science
