(a) What is a tax?
(b) Distinguish between tax evasion and tax avoidance.
(c) Identify any four benefits of tariffs.
Explanation
(a) A tax is a compulsory levy imposed by the government or its agency on incomes and properties of individuals and firms, and on goods and services.
(b) Difference between tax evasion and tax avoidance
- Tax evasion refers to any illegal means adopted by a tax payer not to pay tax at all or to pay less tax through false declaration of income or completely dodging tax payments. Tax evasion is illegal and is a criminal offense.
- Tax avoidance on the other hand is a method a taxpayer adopts by exploiting the loopholes or weaknesses in the tax laws in order not to pay tax or pay less tax.
Tax avoidance is legal.
(c) Benefits of tariff;
(i) Tariffs provide government with revenue through the imposition of import and export duties.
(ii) Tariffs can be used to reduce the importation and consumption of harmful, non-essential or luxurious goods.
(iii) Tariffs can be used to correct a deficit in the balance of payments account. Imposition of duties on imports may reduce payments on imports thereby, reducing the balance of payments deficit.
(iv) Tariffs are used to protect infant industries from competition from foreign companies.
(v) Tariffs are used to prevent dumping of goods in a local market. This will raise prices of goods sold cheaply below their cost of production in the local market by foreigners.
(vi) Tariffs are used to protect jobs or prevent unemployment which may arise from unrestricted importation.
(vii) Tariffs are also used to stimulate investment in the local economy. Protection of local firms will encourage foreigners to invest in the local economy.
(viii) Tariffs can be used as a retaliatory measure against unfriendly acts of other countries.