Taxation
basically refers to the means by which the taxation authorities or governments fund
their expenditure through putting financial charges on its citizens and
corporate forms. Taxation usually implies an act and any revenue collected is
usually referred to as taxes. It is enforced by a legislative authority and
therefore refers to any contribution imposed by a government whether under the
title of duty, subsidy, impost, aid, toll, custom, supply, tribute, or other
title. Taxation thus forms one of the principal powers of any government over
its citizens (Gibbon, 2008).
Classical
economists were of the viewpoint that taxation’s main objective was to raise
revenue for the government. However, with changes in terms of ideologies and situations,
the objectives of taxes have changed. As such, other than the objective of
raising government revenue, taxes are imposed to influence production,
distribution and consumption with an intention of guaranteeing social welfare
through the economic growth of a nation. Therefore, for economic growth of a
nation, tax can be employed as a crucial tool in as far as achieving various
government functions are concerned; one of the functions is raising revenue (Nightingale,
2002). In this contemporary time, the objective of the public finance is not
just to raise enough financial resources to enable it meet its administrative
expense, for economic infrastructures, expenses on war, law enforcement and
order, property protection, subsidies and other government operations, but the
principle objective is to guarantee social welfare (Dennis-Escoffier &
Fortin, 2007).
Another
significant role of taxation to various governments is that taxation acts as a
means of encouraging or discouraging particular economic decisions. For instance,
a cut in the taxable personal or household income on the amount payable as
interest on mortgage loans leads to an increase in terms of construction
activities, as a result, generating more job opportunities. Taxation is also
employed by governments as a control mechanism. Tax policy is employed as a
regulatory mechanism to check on inflation, liquor consumption and luxury goods
as well as to protect local industries from uneven competition. In addition taxation
forms the only effective weapon through which unnecessary consumptions can be
controlled and therefore resources shifted to the state. This ensures
sustainable development. Funding public and welfare services forms another
significant function of taxation by governments (Razin & Slemrod, 2008) .Part
of the collected taxes are used to clear the debt owned by a given state in
addition to the interest accumulated by the debt. These services may include
public transportation, waste management, health care, education, energy,
unemployment benefits and a retirement fund for the aged (Gibbon, 2008).
In
order to achieve the above goals, various forms of taxations are applied
including tax on personal incomes , company profits, consumption through VAT,
local land and property rates, and levies on products. Many jurisdictions often
rely majorly on the tax from individual incomes (pay-as-you-earn) and taxes on incomes
from business entities. Income tax is generally imposed on the individual’s
income and business’s net profits, net gains, as well as other incomes using
calculations based on the alterable accounting principles or tax-laws. In as
much as the income tax may vary or remain constant according to the income
level, taxation incidences vary according to the system, whereby systems may be
perceived as progressive or even regressive. Contrary to this, however, is the corporate
tax where a corporation’s tax rate and taxable base is quite distinct from that
of taxable individuals. The tax on
company profits or corporate tax is imposed on the company’s net worth, income,
or capital (Gibbon, 2008). On the other hand, the tax on goods and services (the
value added tax) is basically a sales tax imposed on every operation creating
value. To administer this, companies fill the VAT return form, fully detailed
with the VAT charged on them (input tax), and the VAT the company has charged
its clients and partners (output tax). The local tax authority as such receives
the difference in the tax between the output and the input tax, where the
company may still claim some money back in case the input tax becomes higher
than the output tax. Apart from VAT, other taxes under this category include
excises, sales taxes, and pigovian taxes. The tax on land/ property, however,
can be summarized as taxes imposed on the immobile properties and to some
extent particular mobile properties, including the estate tax and the gift tax.
Currently however, there is a continuing search for alternative taxation
globally as governments world-wide demand further financing while also
intending to limit over-reliance on the conventional taxation sources (Legum,
2013). From the analysis, taxation has been and is still a major source of
financing government projects. The paper also highlights the fact that the
objectives of taxation has changed from the classical viewpoint of its main
objective being a source of revenue to applying a number of other functions.
References
country.
"Tax - Wikipedia, the free encyclopedia." Wikipedia, the free
encyclopedia. N.p., n.d. Web. 28 May 2013.
<http://en.wikipedia.org/wiki/Tax>.
country.
"Value added tax - Wikipedia, the free encyclopedia." Wikipedia,
the free encyclopedia. N.p., n.d. Web. 28 May 2013.
<http://en.wikipedia.org/wiki/Value_added_tax>.
Dennis-Escoffier, S
& Fortin, K.A. (2007). Taxation for Decision Makers, Cengage Learning
Gibbon, A.
(2008).Taxation: Its Nature and Properties, Colburn
Legum, M. (2013).
Alternative Forms of Taxation. Occasional Paper No. 1, Retrieved on 12th
May, 2013 from <http://www.sane.org.za/pubs/alternative.html>
Nightingale, K. (2002).Taxation:
Theory and Practice, Financial Times/Prentice Hall
Razin,A &
Slemrod,J.(2008).Taxation in the Global Economy,NBER-Project Report, University
of Chicago Press
