PUBLIC FINANCE
1 -Crowding effect
-Interfere with the ability of people to spend
-Strings attached/forced to meet conditionality
-Future incomes are committed hence inadequate funds for development
-High wastes are likely due to corrupt
2. i) Principle of equity
ii) Principle of diversity
iii) Principle of convenience
iv) Principle of economy
v) Principle of flexibility/elasticity
vi) Principle of certainity
vii) Principle of social benefit
viii) Principle of simplicity
3. - To raise government revenue
-To control consumption of harmful products
-To re-distribute income
-To control the level of imports
-To influence the allocation of resources/control business activities
-To control inflation by reducing disposal income/prices
4. - External borrowing e.g. from IMF and World Bank
- Solicit for foreign grants/donations/aids from donor countries
- Reduce government expenditure through cost-cutting measures
- Sale and lease back of public assets
- Introducing new taxation of selected goods
4. -Excise duty
- estate duty
- customs duty
- corporate tax
5. - Equitability
- Convenience
- Elasticity
- Flexibility
- Diversity
6. - Equitable
- Certain
- Convenient
- Elastic
- Flexible
- Economic
7. Progressive taxes Regressive taxes
Progressive taxes are those taxes whose -Regressive taxes are those
whose
Rate of tax increase with increase in rate of tax payable falls as the
tax
The tax base eg. The income tax as increase, base increases the binder of
the
The tax also increases eg. PAYE regressive tax falls more
heavily
On how income earns than
on high
income earners eg. VAT
8. o Economical in collection
o Tax revenue is certain
o Does not affect the price of goods
o Brings about redistribution of wealth
o Simple to understand
o It is elastic
o Society is conscious i.e. people are aware that they are paying tax
9. . Local a cess
Granted of donation by central government
Fees for services rendered to public
Income from properties of local authorities
Income from government properties e.g. parks
Rates on land
PUBLIC FINANCE
1. Principles of taxation ;
Evasion.-It should be difficult to avoid paying the tax other wise it might not
achieve
its objectives.
Simplicity-It should be easy to understand in terms of amount and methods of
payment
or else people will resist to pay.
Flexibility- The system should change with changes in economic situation or
else it might not
meet desired targets/revenue required.
Equality/fairness-The system should be fair to all otherwise it might over bur-
den some
members of the society.
Convenience -The time and mode of payment should be friendly to the tax
payer hence
avoiding complains/resistance to pay
Productivity- The system should generate greater revenue to the government
for it to be
justified and enable the government finance project.
2. Sources of non –tax public revenue;
(i) Impulses from public corporative/government businesses.
(ii) Fines & penalties imposed on peoples found breaking the law.
(iii) Fee from direct services.
(iv) Escheats
(v) Income from government properties e.g. parks/land e.t.c
(vi) Loan repayments /interest earned from government owned financial insti-
tutions.
3. Five principles of public expenditure:
- Optimum social benefits – majority of people are able to derive maximum
benefits
- Sanctions – should be approved by relevant authority
- Proper financial management
- Economical – incurred in the most economical way to avoid wastage
- Flexibility–certain degree of elasticity to enable it be increased /decreased as
need arises
4. Five reasons for imposition of tax by the government
i) Through tax the government is able to control input of goods/improve bal-
ance of payment deficit
ii) Through tax the government is able to underestimate income by taxing
those who earn high money and those earning less low
iii) Through tax the government is able to ensure even regional development
in a country
iv) The government taxes to earn revenue as a source of its income
v) It enables the government to maintain price stability by i.e. taxing less to in-
fluence aggregate demand in the country hence influencing the price level
5. Five characteristics of a good tax system ;
Equitable-tax burden should be distributed among tax payers according to
the ability to pay
Economy-collection and administrative costs should not exceed tax rev-
enue collected
Certainty-tax one is expected to pay should be clearly defined
Convenience-collection and payment should not be cumbersome
Flexibility-capable of being revised or change in line to changing eco-
nomic circumstances
Diversity-should be wide/variety of taxes to able to net a broad spectrum
of the society
Elasticity-able to respond appropriately to change in national income
Simplicity-simple to understand
6. - Revenue is raised through taxation which is used to cover general costs of
administration of
the government and provision of public goods and services to its citizens
- The government can use taxation to discourage consumption of certain prod-
ucts e.g. beer or
cigarettes by levying heavy tax
- It can be used as a way of protecting infant and strategic domestic industries
in the country
from cut throat competition by foreign industries – using high tax on foreign-
ers
- Reduce inequality in income distribution. This is done by taxing the rich and
using the
finances to benefit the poor by offering goods/ services
- Control inflation. Taxation reduces money supply through reduction of peo-
ple’s disposable
income thereby controlling inflation
- Correcting balance of payments. High taxation on imports may discourage
importation thus
Increase balance of payments
- Helping locate business e.g. high tax on business located in urban areas
would make
entrepreneurs locate their businesses in rural areas where tax is less
