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1. Functions of taxes.
The primary purpose of taxation is fiscal in nature, serving as a crucial mechanism
in the formulation of the state budget essential for implementing national and
comprehensive state programs. Through its fiscal function, taxes are instrumental
in generating the financial resources required to fulfill various state roles such as
defense, social services, and environmental protection.
Taxation also serves an allocation function, acting as a centralized instrument for
redistributing social income among different citizen groups. This ensures a
balance, transferring wealth from the affluent to the less fortunate and ultimately
contributing to the social stability of the population.
The regulatory function of taxation emerged with the active involvement of the
state in shaping the economic structure of society. This function aims to achieve
specific goals of taxation policy through various mechanisms. Taxation regulation
encompasses stimulating sub-functions, encouraging specific socio-economic
processes through allowances, exemptions, and preferential arrangements for
certain taxpayer categories, such as small enterprises, agricultural producers,
capital investors, and charities.
Conversely, the de-stimulating sub-function seeks to impede certain socio-
economic processes by deliberately increasing the tax burden, often achieved
through imposing excessive tax rates. This can include protectionist measures like
prohibitive import custom duties aimed at supporting local producers. However, it
is crucial to maintain a balance, ensuring that the de-stimulating sub-function does
not undermine the taxation base, leading to its weakening, suppression, or even
elimination.
The replication (regeneration) function of taxation involves utilizing the proceeds
from taxing natural resources, roads, minerals, and primary resources to replenish
and regenerate the exploited resources, ensuring sustainable use.
Taxation also serves a controlling function, allowing the state to oversee the
financial-economic activities of both legal entities and individuals. This control
extends to monitoring income sources and expenditure directions.
Lastly, the incentive function of taxation introduces special arrangements for
specific groups of citizens, such as those who have made significant social
contributions (war participants). This facet of taxation is driven by a social
perspective, aiming to recognize and reward certain achievements within the
community.
 2. Taxation on proportional rates.
Taxation on proportional rates, commonly referred to as a flat tax system, involves
a consistent tax rate applied to all individuals or entities, regardless of their income
levels. This system is recognized for its simplicity, as it maintains a uniform tax
rate for all taxpayers, making calculations straightforward. Advocates argue that it
promotes fairness, ensuring an equal contribution from everyone based on their
income. However, critics contend that it may be regressive, placing a relatively
heavier burden on lower-income individuals, as basic necessities consume a larger
proportion of their earnings. The impact on high-income earners is often
highlighted as they may experience a lower overall tax burden compared to
progressive tax systems. Despite its simplicity and stability in government revenue,
proportional taxation is debated in terms of its ability to address income inequality,
with some advocating for more progressive tax structures to achieve wealth
redistribution. Ultimately, the choice of a tax system involves policy
considerations and reflects a government's priorities and values.
3. The necessity and role of tax reform.
Tax reform plays a multifaceted role in the realms of economic adaptability, social
equity, and sustainable growth. Beyond its primary function of revenue generation,
tax reform is imperative for addressing income inequalities, stimulating economic
expansion, and ensuring fiscal sustainability. By incentivizing investments and
fostering entrepreneurship through strategic adjustments in tax structures, it
becomes a catalyst for economic growth.
Moreover, tax reform contributes to the creation of a fairer society by introducing
measures like progressive tax structures and closing loopholes that may
disproportionately benefit specific groups. This commitment to social equity
extends to environmental considerations, where tax policies can be leveraged to
encourage eco-friendly practices and contribute to sustainable development.
Encouraging both domestic and foreign investment is a central objective of tax
reform, as it not only promotes economic development but also creates job
opportunities. Simultaneously, aligning tax policies with global standards enhances
a country's competitiveness on the international stage, attracting multinational
corporations and fostering a favorable business environment.
In addition to these economic and social aspects, tax reform simplifies compliance
procedures, making the system more accessible and user-friendly. This not only
reduces administrative burdens but also encourages voluntary compliance among
individuals and businesses.
In essence, tax reform serves as a dynamic tool that adapts to economic shifts,
addresses social imbalances, promotes sustainable practices, and creates an
environment conducive to economic development. Regular reviews and
adjustments to tax policies are vital to ensure their continued effectiveness and
alignment with evolving societal goals.