Purpose of Taxations
- Taxation is necessary to enable the government raise revenue for its expenditure especially on public services like health, education etc.
- Taxation at times is meant to curtail the consumption of certain goods and services which may be harmful to society. It is for this reason that spirits and tobacco products are highly taxed.
- Taxation is necessary to control inflation in an economy by reducing people's purchasing power.
- Taxation is useful in reducing and minimizing income inequalities.
- Through heavy import duties the government may protect infant industries from foreign competition.
- Taxation may be adopted by the government with the purpose of protecting certain resources from over exploitation e.g. forests, minerals etc.
- Through variation in taxes the government may aim at controlling certain economic variables like employment, savings, investments etc.
- Taxes may also be levied to curtail the demand both by consumers and producers in the private sector in order e to force factors of production which are limited in supply, for government, requirements in the public sector. E.g. land and labour.
- It is through taxation that the government encourages allocation of resources in key sectors. E.g if the government wanted to encourage labour intensive industries, it could change lower taxes compared to capital intensive industries.
- Taxation is one way of reducing a country's B.O.P problem by discouraging imports and encouraging exports.
- If a country raises enough revenue from taxation, it reduces a country's dependence on foreign aid and other foreign resources which normally have string attached.