Taxation negative, it depends on the role of

Taxation as an
essential economic tool for country to govern their economies, it is the key to
promote sustainable growth and poverty reduction. Every year, governments would
impose varies different charges of tax rates towards individual and companies.
Normally, it would govern by respective country’s tax laws to determine who
should bear the burden or pay the tax. Tax collection usually will perform by a
government agency, fund that collected from taxation by government will be
utilized to provide facilities for the development and population of its
nation.

In
addition, tax competition among worldwide countries force them to reform their
tax system more competitively. Besides the intensity of competition on tax, the
increases demand for public services made it become more important in terms of
raise taxes in efficient ways. Thus, in order to design desirable tax systems
information, the need to understand more on the knowledge about different of taxes’
harmfulness and how different types of taxes influence economic growth is
crucial. This is because various taxes and different approach creation of tax
system may have different effects towards the level of economic activity, and
indirectly influences of the economic growth of one’s countries.

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Policy
makers and researchers have long been significant concerned on how the tax
system affect the economic growth. Perhaps, recently, there are more studies conducted
to investigate the structure of taxation and economic growth. For example, few
researcher papers had been carried to determine the link between tax structure,
tax measures based on tax revenues, and economic growth (e.g., (Widmalm,
2001) (Arnold, 2008) (OECD, 2010)). However, it is
complicated to draw the implication of policy, as the result from these studies
are mixed.

          According to Ilyas and Siddiqi (2008),
the availability and mobilization of revenue is the fundamental factor to
manage and run an economy. Hence, tax revenue is a main instrument for
government to fund their expenditures and helps to acquire the target of
sustainability’s growth. For tax revenue, it includes both direct and indirect
taxes. Direct taxes are income tax that collected directly from individual,
companies and other persons; while, indirect taxes consist of import duties,
export duties, sales tax and service tax. The relationship between taxation and
economic growth can be positive, neutral or negative, it depends on the role of
tax revenue, as it is a resource for economic.

           (Johansson, 2008) had conclude that
the most damaging tax for the economic growth is the corporate tax followed by
income tax and consumption tax. Perhaps, there are number of arguments of why
high corporate marginal tax rates and personal-corporate rate differences
expected might be affect consequences to the entrepreneurial activity in
long-run growth  (Lee, 2005). There are several
reasons to show that both corporate and personal income taxation have impact on
economic growth. High corporate tax rates often assumed to be more harmful for
economic activities than taxation of property. When higher tax rate imposes in corporate
tax rates, it would lower the corporate’s income return from innovations and cut
costs on the amount spent on research and development which give negative impact
on growth. Hampers of economic growth due to impose corporate taxation, as it
will discourage investments both domestically and internationally by reducing
foreign direct investment. For personal income
taxes, it known as heterogeneous, because these taxes often group the income
from labour and capital together, and taxed at progressive rates. Hence, it
likely has different distortion effects on economics’ growth performance. When
personal income taxation reduces, it will stimulate individuals’ engagement in
economic activity.

This
paper focus on determine the impact of taxation and taxation revenue towards
economic growth, and examines the correlation relationship between statutory
tax rates on corporate and personal income and economic growth. Tax policies
can affect growth through various channel, growth-inducing tax policy involving
a large positive incentive effects that encourage investment, saving and work,
small positive or negative on income effects towards economic activity,
reduction of distortion across economic sectors, and different types of income
and consumption, and minimal increases in the budget deficit. Thus, appropriate
well-designed tax policies have potential to lead the optimal resources
allocation and to the increase of economic growth.