Posted in Finance, Accounting and Economics Terms, Total Reads: 594
Definition: Induced Taxes
In our country, a tax is any financial charge levied on either an individual or any corporation by the government of India. Like the name suggests, induced tax is that which is invoked in special situations, to stabilise the money flow in the economy. This is usually done in relation with the Gross domestic Product (GDP) of the country. GDP is considered to be an indicator of economic growth. Induced taxes move in direct relation with GDP of the country.
In case of good economic growth, people spend more in the country and hence the tax paid by them is also more. This becomes the revenue for the government and this in turn leads to the development of the country and the cycle continues. Now in times of negative economic growth, that is, in times of recession, people tend to spend less because they don’t have money. Then government reduces the tax levied and this increases the spending in the economy.
This can be applied in times of very good economic growth also. If the government increases the tax rate, its revenue increases. Hence, it can save some money for the future or can spend it now for the public. Either way it helps the public.