Taxes are one of the most important sources of income for the government. Hence they have to frame a system that ensures most of the transactions has taxation applied to it. One way to ensure taxation is applied is to enforce collection from the party which doesn’t have the incentive to steal taxes.

Hence, when a purchase is being made, a supplier will be booking an income, and pay taxes on that earning. What government does is, it asks us, as a customer, buying that item, to deduct the income tax amount from the payment to our supplier. This works better, as it allows us to take input credit later when it’s our turn to pay taxes. And the chances of our supplier stealing taxes is minimized by the government.