Although taxes have their benefits, there are certain disadvantages you should know about. That’s what we will discuss in this article. One necessary disadvantage of paying tax is that it takes away cash that should be used to meet other needs.
Reduce the amount available for spending
The disposable income available to taxpayers after paying taxes is usually lower than their gross income. The amount paid as taxes should be used to meet personal expenses. Thereby leading to an increase in the individual standard of living. But this is not the case. The compulsory fee is collected at sources. So there isn’t enough cash left by the taxpayer to meet their needs.
Causes inflation
This is true with indirect taxes like value-added tax charged on goods and services. Most companies find a way to shift the burden of this tax to the consumers. The result is higher prices for those goods and services. This will lead to inflation which is bad for an economy.
Read: What is Taxation in accounting?
Reduces funds available for investment
Especially with companies, taxes reduce the availability of profits for shareholders and owners alike. A company may have paid more dividends if taxes were not deducted from the profit earned. And more dividends mean that investors will be willing to provide more investment funds to the company.
Affect the supply of goods and services
Paying taxes can affect the supply of goods and services. The surcharge reduces the number of funds available to businesses to produce more goods and services. It also reduces the fund available to restock a company’s inventory.
Read: Commitment basis of government accounting
Corruption
Taxes lead to corruption. Most people in government are there to have a share of the national cake. And that includes money derived by the government from taxes. This money is used for personal gains instead of building structures that work.
Final words
To conclude, paying taxes has its disadvantages. That doesn’t mean that there are no benefits to paying them. Although, it reduced income we know that many people use their income for an extravagant lifestyle.
