BOOK KEEPING FORM FOUR

TAXATION

Is the Compulsory Contributions from different Source of Income to the government for the purpose of finance Its activities.

WHY TAXATION OR WHY DO THE GOVERNMENT TAX/PURPOSE OF TAXATION/REASON OF TAXATION
  1. To cover the cost of general administration. Government charge taxation purposely to cover such as defense and social services provided by the state
  2. Control harmful goods like alcohol etc. To check the consumption of goods which can be harmful to human being. To control the consumption of harmful goods such as spirits and tobacco by increasing its taxation.
  3. To reduce  income inequalities. The government adopt a system of taxation which reduce the gap between the lower income earner and higher earner through (PAYE)
  4. for furtherance of economic activities. The revenue is needed by the government in order to establish or improve economic activities such as road constructions,  industries etc.
  5. To control inflation. Government charges taxes to control inflation by reducing the amount of money in circulation and hence the purchasing power of the public increase

  6. To reduce a deficit in the balance of payment. Tariffs are imposed on imports in order to reduce deficit in the balance of payment.
  7. Protect local industries. The government imposes heavy tax on imported goods, on the other hand the government reduces tax on locally produced goods to promote localindustries. 
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