To citizens, taxation may seem like an exploit of their income earned. To make things worse, those in the custodian of governance are corrupt and use tax income for their personal gains. However, if the revenue from taxes is used judiciously, it will be of great value to the citizens of that country. Below are five major objectives of why the government charges taxes. The first one is the primary objective.
Objectives or purpose of taxation
Generate revenue for the government: This happens to be the most important or primary objective of taxation to a country. Taxes collected from individuals, companies, and goods provide a lump sum of money required by the government to meet its purposes.
Government representatives are not elected for fancy purposes. People expect them to perform some roles. One such role is to provide social infrastructures. These infrastructures include building schools for education purposes, hospitals to provide good health to citizens, constructing roads and bridges to help connect people with businesses within the country aside from other things.
Ensures Economic development Taxation is a useful instrument to drive economic development in a country. The government can give tax concessions to infant companies or startups from paying tax until they scale and start making reasonable amounts of profit.
For example, in the finance act of 2019 in Nigeria. The government makes a concession for the benefits of businesses that their revenue is below 25 million. Such business is exempted from paying taxes. In such a case, the business will be able to use that extra income for growth and expansion. Thereby, driving economic development within the country.
Redistribution of income: Tax professionals see this in two ways. It makes citizens work harder and ensures that the tax burden is on the wealthy class and not the poor people.
In the first angle, as mentioned above, taxes on income of individuals may compel them to work harder so as to earn more money to meet their needs and wants.
The second angle, taxes are charged progressively so that the wealthy class pays more while the poor class pays less. This is true with the personal income tax rate in Nigeria. The tax charges people with lower income fewer tax liabilities compared with individuals with high income.
Aids bilateral trade agreements within countries: Tax system can aid bilateral agreements between two countries. The recent trade agreements between Nigeria and China had helped reduce the price of certain goods like smartphones and computers. This agreement may also include tax reduction and concession to encourage trade between both countries.
Use to manage a country’s economy: Taxation remains one of the most powerful instruments to manage a country’s economy. It has proved better than fighting wars between the two countries. The current trade war between the United States and China is living proof.
In Nigeria, taxation has been used to avoid the dumping of dangerous goods to the countries. It has been used to prevent the consumption of goods that the government wants to prevent its citizens from consuming. In doing so, the government is managing its economy for the betterment of the people.
In the next article, we will consider the general type or methods of taxes.