Importance and role of taxation

Taxation is the process by which the government imposes charges on citizens

and corporate businesses. The charges collected by the government are used to
fund different government projects that would in the end benefit the citizens of
the country as a whole. The taxation process can benefit both the society and
business as a whole

Society
Taxation is important to society because the government use the tax collected to
fund projects related to health care systems, education systems, and public
transports. Also, the money collected can also be used to give unemployment
benefits, pensions, and other matters that can benefit the society as a whole.
Without tax, the government would not be able to fund the essential projects and
services that people need.
The government allocates the money collected from the taxpayers to different
areas of the country. The areas picked are rural areas. Some rural areas may
have resources that might be beneficial for both the country and its economy.
Therefore, the government would allocate part of the tax money to provide the
essential services required and to improve the standards of such places.

Other important role taxation has is it can affect the rate of economic growth of a
country. Although taxation may discourage investors from investing in a country
with a strict tax rules, however, a recent study made by Prof. Myles, suggests
both the positive and negatives affects of tax would be offset, and thus, only a
very small result would be noticed. In his study, he discovered in developing
countries, tax contributes to almost 10% of the gross domestic product of the
economy. Thus, resulting in an economic growth.

Moreover, another tax benefit on society is it discourages certain undesirable

activities such as; liquor, tobacco and gambling. On such activities the
government imposes excise tax, discouraging individuals from selling such
commodities. Other important role tax provides to the society other than funding
of government expenditure is information about the total price for the government
projects.

Businesses
The concept of taxation is vital to businesses in the economy, as the amount of
tax taken from each business is accumulated, one of the ways that tax is used to
help business is through the government funding the money back into the
economy as long term loans and/or funding. The money could also be pumped
back into the economy by the government in the event of an economic recession
or turmoil.
Another benefit of taxation to the society, Is that it helps develop the country as a
whole, and the more developed the country is; would therefore mean better
prospects for the business's as it increases the well being of the country's
society.

For the worldwide operation of firms, taxation plays a vital role. Taxation
has become the core of various financing decisions which includes
internationalinvestment decisions, international working capital decisions,
fund raising decisions and the decisions related to dividend and other
payments. The tax decision is also relevant in domestic firms also.

What is taxation? Why is taxation 1 800 new loan so important in a particular nation or
state? What makes it a very significant aspect of governance?

Cooley defines taxation as the process or means 02116 cash advance by which the
sovereign, through its law-making body, raises income to defray the necessary expenses
of government. Expressed in another way, it is a 1 800 numbers for payday
loans method of apportioning the cost of government among those who in some
measure are privileged to enjoy its benefits and must, therefore, bear its burdens.
Malcolm explains that taxation is the power vested in the legislature to impose burdens
or charges upon persons and property for the purpose of raising revenue for public
purposes.
The nature of the states power to tax is two-fold. It is both an inherent power and a
legislative power. It is inherent in nature being an attribute of sovereignty. It has been
argued that it is literally impossible for the state to run its affairs without taxes. Its
existence and operations are dependent primarily from the revenues and charges
imposed from various sources. It is a legislative power because it involves promulgation
and implementation of rules. Taxation is a set of rules, how much is the tax to be paid,
who pays the tax to whom and when it should be paid.
Government financial operations are well-nigh impossible without taxation. Apart from
this, taxation can be a powerful means in order to achieve the golas of social progress
and the objectives of economic development. It serves as a device to encourage the
growth certain activities by way of giving exemptions, discourage use of certain products
by way of imposing heavier charges like those sin taxes which are imposed upon tobacco
products, or strengthen anaemic enterprises, also by way of tax exemptions. Local
industries may be protected through taxation by imposing high customs duties to
foreign goods. Moreover, taxation can also be used to reduce inequities or inequalities in
wealth and income by progressively higher taxes as in the case of estate and income tax.
So based on the foregoing premises, it is clear that taxation is indeed the lifeblood of the
state, without which the existence of the state will be put to jeopardy.

What are the Importance of Tax

Tax is a major source of government revenue and its contributes for the
overall development and prosperity of a country.
Raising government revenue in terms of income tax, custom duty,
excise duty, entertainment tax, VAT, land revenue tax etc. from
various sectors in order to initiate development and welfare
programmes.
Maintaining economic stability by reducing economic inequalities by
means of equitable distribution of wealth by way of imposing tax to
the income earners and improving the economic condition of the
general people.
Regulating the economic sectors into right direction by encouraging
the production and distribution of useful goods and discouraging the
harmful products by imposing high tax rate on them.
Building and strengthening the national economy by encouraging and
protecting national industries and promoting export trade.
Reducing

regional

economic

disparity

by

encouraging

the

entrepreneurs to establish industries in remote and backward regions

by giving tax exemptions, rebates and concessions etc.

Taxes are mainly used to finance the expenses incurred by government to manage
an economy. These expenses include: health care, education, garbage collection
and operating government business entities. Taxation is also used by government
for several other purposes.
a. To reduce pollution by taxing offending firms
b. To discourage unhealthy lifestyle e.g. a tax on cigarettes
c. To protect local and infant industries by taxing imports
d. To achieve greater equality of wealth and income. Revenue from taxation is
used to help the very poor e.g. providing food stamps.
e. To improve the balance of payments (BOP) by increasing the duties charged on
imported goods.
f. To control spending in an economy thus reduce inflation

For economic development of a country, tax can be used as an important tool

in the following manner:
1. Optimum allocation of available resources:
Taxis the most important source of public revenue. The imposition of tax leads to
diversion of resources from the taxed to the non-taxed sector. The revenue is
allocated on various productive sectors in the country with a view to increasing
the overall growth of the country. Tax revenues may be used to encourage

development activities in the less developments areas of the country where

normal investors are not willing to invest.
2. Raising government revenue:
In modern times, the aim of public finance is not merely to raise sufficient
financial resources for meeting administrative expense, for maintenance of low
and order and to protect the country from foreign aggression. Now the main
object is to ensure the social welfare. The increase in the collection of tax
increases the government revenue. It is safer for the government to avoid
borrowings by increasing tax revenue.
3. Encouraging savings and investment:
Since developing countries has mixed economy, care has also to be taken to
promote capital formation and investment both in the private and public sectors.
Taxation policy is to be directed to raising the ratio of savings to national income.
4. Reduction of inequalities in income and wealth:
Through reducing inequalities in income and wealth by using a efficient tax
system, government can encourage people to save and invest in productive
sectors.
5. Acceleration of Economic Growth:
Tax policy may be used to handle critical economic situation like depression and
inflation. In depression, tax is set to increase the consumption and reduce the
savings to increase the aggregate demand and vice verse. Thus the tax policy
may be used to strengthen incentives to savings and investment.
6. Price Stability:
In under developed countries, there is another role to maintain price stability to
ensure growth with stability.

7. Control mechanism:
Tax policy is also used as a control mechanism to check inflation, consumption of
liquor and luxury goods and to protect the local poor industries from the uneven
competition. Taxation is the only effective weapon by which private consumption
can be curbed and thus resources transferred to the state. Thus the economy
can ensure sustainable development.
Thus it can be said that the economic development of a country depends various
reasons one of them are on the presence of an effective and efficient taxation
policy.