We would think that the higher the taxes the government levies on corporations and individuals, the richer the government gets. You would be surprised to know that the government gets poorer. Let us see how?
Take the example of India. India is a developing economy and a net importer i.e it imports more and exports less. Therefore, the treasury runs into a deficit. An efficient government has the capability to run the economy with minimum taxes. But the Indian government's pyramid structure makes it difficult for it to run the economy in the same way as a business man would run his enterprise. Moreover due to the absence of transparency and a proper revenue collecting system, a lot of people end up not paying taxes. Therefore, the government ends up taxing the corporations and individuals more.
Let us see with the help of a simple diagram, the effect high taxes have on an economy.
