Taxation is a mechanism through which a state collects revenue for its expenditure from the people of the country. Taxation is not only applied to people but a state can also collect taxes in the process of trade as well. The state applies tariffs of the imports coming into the economy. Taxation has a great impact on the economy because it is the biggest source of revenue from which a state can spend on people by providing the services.
Mostly, taxes are applied to the commodities that people buy from the market. In this way the prices go slightly higher than usual or heavy taxes can also raise inflation rates in the market which makes people upset. Not only this, big institutions and companies have to pay taxes in order to operate in the economy. Multi-national companies also have to pay the taxes that impact the operation of foreign companies in the country. These tax revenues are used to service everyday expenditures, foreign debts, financial institutions, etc.
Today there are many problems associated with the taxation policy. Due to illegal activities, tax evasion is taking place. This causes great harm to the people who are not involved in such activities because they have to bear the burden of taxes.