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Top 10 effects of excessive taxation in a country

In this blog article we are focusing on the effects of excess taxation in a country. Compliance costs and excess taxation comprises what is called tax burden in a country. Levels of taxation varies from one country to another. 

When governments impose high taxes on their people, the following effects occur: 

  1. High crime and poverty rates 

When a government imposes high taxes on her people, the rates of poverty increases because people are not able to sustain their lives on dwindling incomes. When citizens are poor, they increasingly engage in crime. Hence, there will be increased crime rates in a country with high rates of taxation. 

2. Homelessness caused by evictions 

When there are high rates of taxation, people will not afford to pay their mortgages. Those who live in rental houses will default and both groups will face evictions. Even landlords who have built their rental units using loans will face evictions by banks who want to action their property to recover their money. Basically, there will be high levels of homelessness and cropping up of informal settlements which are inadequate 

3. Unemployment 

High rates of taxation is likely to lead to loss of jobs. The cost of production in many firms will rise and this may lead to bankruptcy. This means that banks will not afford to continue with operates due to excessive taxation. 

This forces companies to cut their costs and one of the ways to do that is to sack or force workers to take earlier retirement. 

4. Low wages

When taxation takes away most of the money made by businesses, they will have little left to take care of workers remuneration. 

5. Low quality products and services 

When there is excess taxation, businesses starting taking shortcuts hence reducing the quality of their products. 

Read More: Tobacco Taxation in Kenya

6. Inflation 
Businesses tend to increase prices of goods and services as a result of high rates of taxation a situation which leads to inflation. This is one of the effects of excess taxation in a country. 

7. Low tax revenues 

High inflation/recession and joblessness caused by excessive taxation finally leads to low revenue generation by government. This is due to reduced productivity. In this case, the government becomes a victim of its own greed. 

8. Chronic Recession 

High taxation mobs out a lot of money from the economy. This leads to permanent recession. 

However, if the government adopts increased government spending, this leads to stagflation. 

Image: definition of Stagflation

This is a case where there is high unemployment and inflation at the same time. 

9. Increased black market activities 

As a result of excessive taxation, firms are unable to provide adequate amount of resources considering that their cost of production is too high. Business and individuals will also start dealing with goods in the black market. 

10. Inadequate incomes 

This basically means that people will not be able to live on their incomes. 









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