Ensuring a strong foundation for quick economic growth relies heavily on effectively mobilizing resources. To achieve this, it becomes essential to boost the proportion of savings in relation to the national income. Taxation emerges as a valuable tool in this pursuit, serving a dual purpose of augmenting collective savings for public investments and concurrently fostering private investment. A thoughtfully designed taxation system plays a pivotal role in elevating the savings-to-national-income ratio, a critical factor influencing the pace of economic growth.

India has organized tax structure with clearly defined authority between Central and State Governments and local bodies.

• Central Government levies taxes on income (except tax on agricultural income, which the State Governments can levy), customs duties, central excise and service tax.
• Value Added Tax (VAT), stamp duty, state excise, land revenue and profession tax are imposed by the State Governments.
• Local bodies are empowered to levy tax on properties and for utilities like water supply, drainage.

Direct Taxes:

• Direct taxes are the ones we pay directly to the government, such as income tax, payroll tax (which includes health insurance contributions), and corporate or profit tax.
• These taxes come from the earnings of individuals and companies.

Indirect Taxes:

• Indirect taxes are paid through a middleman, like a retailer or supplier. This includes value-added tax (VAT), sales tax, excise tax on alcohol and tobacco, and import duties.
• Many of these indirect taxes have now been consolidated into a single tax known as the Goods and Services Tax (GST), which is a significant source of government revenue.

Non-tax Revenues:

• State-owned companies, particularly those involved in natural resources like oil and gas, contribute to government revenue.

External Financing:

• Money coming from foreign sources is considered public funds when it flows through the recipient government.

Savings and Investments:

• Savings and investments are crucial for understanding how resources are mobilized. Individuals and businesses saving and investing contribute to the overall economic pool.

Progressive Income Tax:

• Progressive income tax is suggested as an effective way to mobilize resources and reduce income inequalities.
• It involves higher tax rates for higher incomes, applying to both individuals and corporate profits.

Challenges with Progressive Income Tax:

• High marginal tax rates in a progressive system can impact private saving and investment negatively.
• It may also lead to increased tax evasion.

Proposals for Improvement:

• To make income tax effective for resource mobilization and encourage saving and investment, two proposals have been suggested.
• These proposals aim to strike a balance between revenue generation and providing incentives for economic activities.

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