Purpose of Taxation
Taxes are mainly used to finance the expenses incurred by government to manage an economy. These expenses include: health care, education, garbage collection and operating government business entities. Taxation is also used by government for several other purposes.
a. To reduce pollution by taxing offending firms
b. To discourage unhealthy lifestyle e.g. a tax on cigarettes
c. To protect local and infant industries by taxing imports
d. To achieve greater equality of wealth and income. Revenue from taxation is used to help the very poor e.g. providing food stamps.
e. To improve the balance of payments (BOP) by increasing the duties charged on imported goods.
f. To control spending in an economy thus reduce inflation