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Why does the government need taxes? Answer: The government needs tax because it needs money to pay for hospitals,schools,and community service. In order for the people to have those services, they contribute to â¦ the fund. tax goes towards government spending on public services such as: healthcare, education, public transport etc...
In countries where the shadow economy is large in proportion to total GDP, government revenue is low. This means that either public services are poor, or those in the formal economy are taxed at a higher rate. The problem is that high taxation rates encourage people to stay âbelow the radarâ.