Unit 1: Principles of Taxation

Question 1

Define taxation. What are its three main definitions?

Answer 1

Taxation is the inherent power by which the sovereign, through its law-making body, raises revenue to defray the government’s necessary expenses.

· As a power - refers to the inherent power of the state to demand enforced contribution for public purposes to support the gov’t.
· As a process - the legislative act of laying a tax to raise income for the gov’t to defray necessary expenses.
· As a mode of allocation - taxation acts as a means of allocating government burden to the people.

Question 2

What are the purposes as to why taxation is exercised?

Answer 2

Primary: to raise revenues, support the existence of the State and enable them to promote the general welfare.

Secondary: Non-revenue or sumptuary;
a. Regulatory
- regulate conduct of businesses
- achieve economic and social stability
- protect local industries
b. Compensatory
- provide incentives
- reduce inequity in wealth distribution
- manage local inflation