SS2 ECONS LESSON 4
PUBLIC FINANCE
Public finance
is an aspect of Economics which deals with government revenue and expenditure.
An economy is the state of a country
in terms of the production and consumption of goods and services and the supply
of money.
Government
intervenes in an economy basically through:
1.
Fiscal policy(Public Finance)
2.
Monetary policy(Banking system, Central Bank
and Specialized Institutions)
3.
Direct control
(This topic is only focusing on fiscal
policy)
FISCAL POLICY
This is government’s deliberate attempt to use
tax and expenditure to control economic activities.
Objectives of Fiscal Policy
1.
To achieve full employment
2.
General price stability
3.
Optimal growth rate.
4.
Income re-distribution.
5.
Effective and efficient allocation of resources.
GOVERNMENT
REVENUE
This refers to the total cash receipts of
government from all sources over a period of time.
It can be from tax sources ex. Direct tax, excise duties etc.
or non-tax sources ex. Sale
INSTRUMENTS
OF FISCAL POLICY
1.
Taxation
2.
Expenditure
3.
Borrowing
4.
National budget
1. TAXATION
This involves the compulsory assessment,
imposition, payment, collection of taxes, accounting and auditing of tax
records.
TAX: This is a compulsory contribution imposed on
individuals, goods, services, corporate body etc. by the government, not as
penalty for an offence, but to generate revenue for the government which in
turn must ensure security and public welfare.
SYSTEMS OF TAX
1. Proportional
Tax:
This
is a tax system whereby tax-payers are charged equal rates irrespective of
their income level.
2. Progressive
System:
This
is a system whereby tax-payers are charged according to their income level.
Increase in income increases tax rate.
3. Regressive
System:
This system
charges low rates to high income earners and high rates to low income earners.
PRINCIPLES OF TAXATION
1. Equality:
All
tax payers should be taxed equal amount proportional to their income.
2. Economy:
Wastage
should be avoided in collecting tax.
3. Convenience:
Tax
should be collected at a time payers receive their income.
4. Certainty:
Tax
object not be estimated or guessed. It should be assessed for certainty.
5. Neutrality:
Tax
should not undermine merits in economic decisions.
REASONS WHY NIGERIANS ARE TAXED
To generate money for:
1.
General
administration of government.
2.
Defense
3.
Maintenance
of law and order
4.
Provision
of social amenities
5.
To
ensure equitable redistribution of income.
DIFFICULTIES ENCOUNTERED BY TAX
COLLECTORS IN NIGERIA
1. Tax
evasion: when many citizens
avoid paying tax.
2. Improper record keeping
3. Ignorance on the importance of paying
tax
4. Mismanagement of public funds.
5. False declaration of income.
TYPES OF TAX
1.
Direct tax:
These
are taxes paid directly by individuals to the government with personal income
or wealth being the object.
2.
Indirect Taxes:
These
are taxes imposed on goods and services and are paid as these products are
bought.
Advantages of Direct Tax
1.
They
are more equitable
2.
Leads
to more equitable income redistribution.
3.
They
are easy to collect. Ex. PAYE
Advantages of Indirect Tax
1.
It
yields more revenue to the government
2.
It
is used to discourage the consumption of harmful goods.
3.
Used
to prevent dumping
4.
It
has a wider coverage than direct tax.
5.
It
is not easy to evade since consumers pay a they purchase goods and services.
Specific Tax
These are
taxes levied at fixed rate per unit of output.
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