Taxation

What is Taxation?

Cooley defines taxation as the process or means 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 method of apportioning the cost of government among those who in some measure are privileged to enjoy its benefits and therefore, bear its burden.

Malcolm explains, 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 Four “R”s

Taxation has 4 main specifically purposes which includes Revenue, Redistribution, Repricing and Representation.

Nature

The nature of the 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 affair 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 is to be paid, who pays the tax to whom and when it should be paid.

Functions

The primary function of taxation is, of course, to raise revenue to finance government expenditure, but taxes can also have other purposes.

Government financial operations are definitely impossible without taxation. Apart from these primary goals, taxation can be a powerful means of achieving goals of social progress and the objectives of economic development. It serves as a device to encourage the growth of 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.

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. Therefore based on the foreign 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.

Forms of taxation

Other obsolete forms of taxation include Scutage, Tallage, Tithe, Feudal aids, Carucage and Tax farming.

Today one of the most complicated taxation systems worldwide is in Germany with three quarters of the world’s taxation literature refers to the German system.

Questions:

• What is Taxation?
• What are the functions of taxation?