Why Pay Tax at all to our Govt

Nobody likes paying tax but there are reasons as to why we pay taxes to the government.

These reasons are:

  1. Provision of public goods and services. This includes our hospitals, roads, schools etc.
  2. To redistribute wealth. For example our social welfare system.
  3. To manipulate the economy.

There are alternative ways that the government could achieve the above noted reasons including creating more money, borrowing the money or through user charges. Taxation is the one method that is more equitable and has less disruption to the economy – however, the government does use a mixture of taxation and other methods (e.g. user pays) with taxation being the main source of government revenue.

There are four principles that underlie any taxation system which are based on the standards set by Adam Smith in his book Wealth of Nations written in 1776.

These standards are:

  1. Equity.
    This means that the tax that is levied should be fair in that people who earn the same amount are taxed the same amount and that people who are in similar situations are ‘hurt’ by the tax the same.

  2. Certainty.
    This means that the amount of tax paid as well as collection and time of payment must be clear to all parties – it must not be ambiguous.

  3. Convenience in assessment and collection.
    Taxes levied should be as easy as possible to work out and payment by the taxpayer should be as straight forward as possible.

  4. Economy in operation.
    This means that the maximum amount of revenue is collected for the minimum cost. The cost should never outweigh the benefits.

Even though these qualities are specified as being the ideal in reality it is hard to implement and there are trade offs that are needed.

© 2005 StartRunGrow

Article Vault

Back to Menu