Consider the following Assertion (A) and Reason (R) and choose the correct code:

Assertion (A) :

Tax reforms directed towards a simple tax system will result in positive productivity gains.

Reason (R) :

They boost GDP growth and employment growth by removing deadweight costs and reduce distortions in resource allocation.

Key Points

• Tax reforms aimed at simplifying the tax system are designed to reduce complexities and compliance costs for taxpayers.
• Such reforms can lead to increased productivity and economic efficiency by minimizing the administrative burden on individuals and businesses.
• By removing deadweight costs and reducing distortions in resource allocation, these reforms contribute to higher GDP growth.
• A simpler tax system can also encourage greater compliance and reduce tax evasion, leading to better revenue collection for the government.

Additional Information

• Tax Reforms:
  • Tax reforms refer to changes made to the tax system to improve tax administration and enhance the efficiency and fairness of the tax system.
  • The objectives of tax reforms include reducing tax rates, broadening the tax base, and simplifying tax laws.
• Productivity Gains:
  • Productivity gains refer to the increase in the output of goods and services per unit of input.
  • Tax reforms that reduce compliance costs and administrative burdens can lead to productivity gains by allowing businesses to allocate resources more efficiently.
• GDP Growth:
  • Gross Domestic Product (GDP) is the total value of goods and services produced within a country in a given period.
  • Tax reforms that enhance economic efficiency can contribute to higher GDP growth by fostering a more conducive environment for investment and economic activity.
• Employment Growth:
  • Employment growth refers to the increase in the number of jobs available in the economy.
  • By reducing distortions in resource allocation, tax reforms can lead to more job creation and employment opportunities.