11 Reasons For Imposition of Taxes by the Government are listed and explained in this article. We hope you find it informative.
Reasons Why We Pay Tax
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There exist so many reasons why the government or its agencies impose taxes on individuals, goods, and services or corporate bodies. In this article, we will take a look at some of the reasons why there is tax imposition in our countries.
The primary aim of the collection of tax is known to be for the improvement of the economy of the country where it is collected, there are some other reasons for the imposition or collection of tax.
Below are the Reasons Why Government Impose Taxes:
1. To raise revenue
Taxes are used to raise income for the government of the country. Through the collection of tax, the finances that are needed for the provision of basic services, general administrative purposes, and finance capital projects within the country are made available to the government.
2. To redistribute income
Through the Pay As You Earn (P.A.Y.E) system, the government can narrow or almost bridge the gap between the rich and the poor by introducing a system of progressive taxation.
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3. Discouragement of production and consumption of harmful goods
It is through the collection of taxes that the fervent discouragement of the production, as well as consumption of harmful goods and services, are discouraged.
This is done through Indirect taxes imposed and usually leads to higher prices which ultimately discourages the consumption of some harmful goods within the country.
4. To control inflation
Without taxation in some cases, inflation will be quite impossible to control. Taxes are sometimes used as a tool to stop inflation and this is done by the increase in direct tax by the government so that expenditures are not increased.
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5. To protect new industries
Sometimes, the government takes advantage of taxation to protect the newly established industries from competition with firms in foreign countries.
6. For the correction of adverse balance of payment
Taxes are used to correct an unfavorable balance of payment. When there is so much importation of foreign goods, the government can decide to increase the tax rate on these goods so that the importation rate will be reduced to the minimum.
This is because when there is a high rate of importation into the country, the currency of the country usually declines in value and the effects will usually be seen on the balance of payment.
7. Prevention of dumping
Some companies love to export their goods to other countries where they sell at cheaper prices compared to how much they sell these goods in the countries where the goods were originally produced.
This has a detrimental effect on the economy as such, the government introduces taxes to further curb the situation so that when goods are produced, they can be sold at an affordable rate even in the countries where they are produced because ‘dumping’ as it is called, ruins the local industries.
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8. Promotion of economic growth
One of the reasons why the government imposes the tax is that it is with tax that a lot of projects are done for the ultimate benefit of the economy. Without the tax, the growth of the economy will be static most times with little or no development seen around.
The profits made from the tax are sometimes reinvested into the economy through the empowerment of small and medium scale enterprises for adequate productivity in order to foster stability and expansion.
9. Retaliatory measure
Taxation can also be used as a measure of retaliation in the international trading market.
10. Employment purposes
When there is an increase in the tax rate, the government can then do they can to achieve the desired employment level.
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11. Savings
Taxation can be used in many countries to instill the rate of savings and investments.
