Meaning Of Public Finance And Elementary Treatment Of Fiscal Policy Taxation

WHAT IS PUBLIC FINANCE?

 

 

PUBLIC FINANCE central around the study of how the government raises and spend it's budgeted revenue and expenditure and other economic activities engaged by the government. 

 

 

OBJECTIVES OF PUBLIC FINANCE

 1. To achieve equitable allocation of resources.

 2. To achieve and maintain equitable distribution of income (Welfare).

 3. To achieve and maintain economic stability. 

4. To achieve balance of payment equilibrium. 

5. To achieve economic growth and sustain economic growth and development

 

 

 SOURCE OF GOVERNMENT REVENUE 

1. Taxation on individuals, institution and to operate bodies 

2. Money Creation : This includes the govt buying the central bank and the central bank would create money by printing more notes. 

3. Changes: Specific changes such as lisence fee, road tools, water rates, court files etc.

 4. Rent and Royalities: These are paid in government properties, mineral deposits like Gold deposits, tin, Iron ore, Crude oil etc. 

5. Borrowing: The government may borrow either from external sources ( Such as foreign government institution and individuals or both).

 

 

ELEMENTARY TREATMENT OF FISCAL POLICY TAXATION 

Taxation is the sun total of the assessments of tax, the imposition of compulsory sum of money by the government or it's agencies on individuals and firm, the collections of the accounting for the levied amounts and the keeping and acting of tax records. The sum of money levied could be form of direct taxes or indirect taxes. 

 

 

The essence of taxation is to raise revenue for meeting part of government expenditure or for providing economic and social benefits to the pose of controlling the economy. 

 

 

A tax is a compulsory sum levied by the government or it's agency on individual and firms or on goods and services for the purpose of meeting the cost of expenditure or the providing economic and social benefits for the public, Such taxes could be direct or indirect. 

 

 

A tax has two elements a tax base and a tax rate. The tax refers to the item or the object which is taxed. This will include personal income, import company profits, properties, goods for sale etc . 

 

 

The tax rate refers to the percentage proportion of tax or tax object which is to be paid as tax, the rate of tax could be expressed as percentage ( E.g 5% ) of income , 5% of value of goods. A tax could be expressed as percentage on the other hand. It could be a flat rate( E.g 110.00pe) adult male. 

 

 

CLASSIFICATION OF TAXES

 DIRECT TAXES: They are taxes levied on the income of individuals and firm on the property, Such income would include wages, salaries and profits. The boarder ( Indence ) of direct tax include personal income tax, company tax, gains tax and expenditure tax. 

 

 

SYSTEM OF DIRECT TAXES

1. Progressive Taxes: This is a form of tax in which or values of tax increase as the income Stock of wealth, or Values of property to be taxed increases. In other words, the tax is so graduated that it's rates rises according to level of income wealth of the tax payers. Those with a higher income pay a higher proportion or percentage of their name or the value of their assets as tax then those with a lower income, For example, IF Mr X earns 500.00 a month and pays 18% of his income as tax. While Mr Y earns 2000.00 a month and pays 20% as tax. This is progressive taxation is usually the system adopted with the taxation of personal income, Pay As You Earn (PAYE) is a good example.

 

 

2. Regressive Tax: As regressive form of taxation taxes a smaller percentage (or proportion) of income as stock of wealth of the payers increases. As the income or stock of wealth of the payers increases, the rate of tax decreases. This implies that the burden of taxation falls more heavily on lower income groups than on the higher income groups. This is because the rate of taxe is higher for the low income groups than for the high income group. IF Mr A earns #100.00 and pay #5.00 as tax, while Mr B earns #1,000.00 and pay #2.00  As tax,  this is regressive because Mr A pays as tax of 5% while Mr B pays tax rate of 2%.

 

 

3. Proportional Tax: In this system of taxation, the payers pay the same percentage of proportion of their income (or Wealth) as tax. In other words, the rate is the same irrespective of the level of income or wealth. For example, Tax rate of  -10% could be fixed at through the pay, the same rate if tax with those higher income pay more absolute terms. If the tax rate is 10%. Mr X earns #500.00  month will pay  #500.00 as tax while Mr Z earns #200.00 will pay #200.00 as tax.

 

Usually company taxes are proportional. They may be required to pay a certain percentage of the profiias tax. During the 1887 Fiscal Year, Company profit tax was fixed at 40% Previously it was 45%.

 

 

INDIRECT TAXES: Indirect taxes levied on goods or services. The incidence of taxation on commodities does not fall directly on the final consumers. Indirect taxes can be avoided by not purchasing the commodities taxed. However the consumer who purchase the commodities does not usually know the amount he is paying as tax.

 

 

EXAMPLE OF INDIRECT TAXES

1. Custom duties ( import/export)

2. Excise duties: They are amount of taxe levied on certain goods produced within the country that is locally made foods.

3. Scale taxes: This is the levied on the sale of commodity 

4. Purchase taxes: This is tax imposed on certain consumer items such as cars, radio, television sets, cosmetic etc. They are usually collected at the whole sale stage. It is based on the value of commodity on question of Luxury goods attracts a higher rate of purchase tax, then essential items.

 

    

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