Taxation can be defined as a means through which the government finances its expenditure by the imposition of charges on the citizens and the corporate entities. As asserted by Becker, Reimer & Rust, (2015), taxes are a source of government revenue. The government uses taxation to either encourage or discourage particular individual and organizational, economic decisions. Therefore, the information and data acquired from taxation is crucial sustaining any government and economic system. For example, reducing personal or household income tax by the amount that is paid as home mortgage loans’ interest may result in greater construction activities and hence, generate a lot of jobs. Therefore, taxation is a critical construct of the development and maintenance of an economic system and it is critical towards making of certain decisions.
Similarly, over taxation may be used to hinder the consumption of commonly abused drugs. This is applicable since most drug users would not be able to afford them because over taxation goes hand in hand with overpricing (Becker, Reimer & Rust, 2015). In designation and implementation of an equitable tax administration, the government is guided by various underlying concepts. These concepts include (1) Adequacy: the taxes must be just enough in order to generate government revenue required in providing adequate public services. (2) Compatibility: the taxes should be synchronized to enhance tax neutrality. (3) Broad Basing: the taxes must be distributed over a widely possible section of the population, or economic sectors, to reduce the individual tax yoke. (4) Convenience: taxation should be convenient enough.
Taxation can be differentiated from the other methods of payment, which include market exchanges, by the fact that taxation does not require approval and it is not directly attached to any rendered services. According to Chin & Lai, (2009), double taxation is a tax law, which proposes subjection of similar earnings twice. This means that a manufacturer is taxed and the retailers are still taxed on the same product being distributed. This law is argued by many premises to be unfair taxation method in most jurisdictions and countries. It can also occur in a situation where a company operates overseas. Taxation is thus, used in maintaining a conducive business environment for the business people and the consumers through improvement of infrastructure. Taxation is the major way through which governments generate sufficient revenue that assists in running its operations.
- Becker, J., Reimer, E., & Rust, A. (2015). Klaus Vogel on Double Taxation Conventions. Kluwer Law International.
- Chin, C. T., & Lai, C. C. (2009). Physical capital taxation and labor income taxation in an endogenous growth model with new generations. Journal of Population Economics, 22(1), 1-21.
