Question

In the Government of a country's budget for the year 2013-14, the Finance Minister proposed to raise the tax on cigarettes. He also proposed to increase income tax on individuals earning more than rupees one crore per annum. Is the objective only to earn revenue for the government? What possible welfare objective can you think of from these proposals? Explain.

Answer 1

Besides the objective of raising more revenue, the proposals also serve some welfare objectives.
$\bullet$ Firstly, raising tax on cigarettes willthake cigarettes costlier and discourage smoking. Less smoking will have positive influence on health and raise welfare of the people.
$\bullet$ Secondly, raising income tax on incomes above rupees one crore will help in reducing inequalities in income.
$\bullet$ Thirdly, the extra revenue raised from these proposals, if spent on health and education of the poor will also raise welfare of the poor.