Tax-Cut Brightens Economy Prospects in Under-Developing Countries (UDCs)

Abstract

The Business cycle of a country Expects jump in sales after reducing General Sales Tax (GST). If a government is increasing the General Sales Tax (GST) that will play havoc with sales. Tax-Cut would not damage the prosperity of an economy because decline in GST rate would not hit government’s revenue collection as higher sales volume would improve sales tax collection. The production and services corporations certainly gear up and this would be beneficial for economy in aggregate of Under-Developing countries (UDCs). The shortage of capital in an economy of UDCs can be reduced, if the savings of a nation be increased. This problem occurs when low income of individuals being observed. Low income leads to low savings therefore low savings leads to low investment and low investment leads to low purchasing power finally in result low purchasing power leads to low income again. Usually it has been noticed in UDCs. The saving ratio in the UDCs is not more than 14% to 15% of GNP, while it is 20% to 25% of GNP in case of Developed Countries (DCs). Thus in order to promote the work effort, savings and investment in most of the Developing countries the general sales tax (GST) is imposed with great care. If the GST on the business cycle of UDCs is decreased they work more. Therefore, for the sake of long run effects on output and supply, the Tax-Cuts are must be implemented in a slow run economy.