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3.Methods of taxation used A tax system that is modernized to include ICT and electronic equipment would increase taxable capacity. However, a tax system with complex laws and administrative difficulties for the government would reduce taxable capacity of the country. 4.Purpose of taxation Incase public revenue is utilized to promote the welfare of citizens through provision of goods and services, taxable capacity is increased. However if public revenue is used to pay a huge wage bill for the civil servants and Members of Parliament including other factors such as loss of revenue through corruption, taxable capacity is reduced. 5.Psychology of the tax payers This refers to the citizen’s perception of the government. Incase citizens feel patriotic towards the country and they identify positively with the government activities, taxable capacity is improved. 6.Economic stability Incase of a stable economy and increased employment opportunities taxable capacity is increased. During economic depression which causes unemployment due to reduced economic activities, taxable capacity is reduced. 7.Inflation This is a situation of increasing price levels caused by increased demand. It reduces the purchasing power of money and also the taxable capacity of the country. BUDGETARY OBJECTIVES AND FISCAL POLICIES Budgetary and fiscal policy measures are adopted by the government to maintain economic stability in the country and to increase the rate of economic growth. The main aspects of budgetary and fiscal policy include: THE BUDGET A budget is a statement, which contains the government revenue and expenditure estimates for one particular year. If the government expenditure is greater than the revenue then it is known as a deficit budget.
127 Contact: 0707 737 890If the government revenue is greater than the government expenditure, it is known as a surplus budget. Where the government expenditure is equal to the government revenue it is known as a balanced budget. Budgets may be of two kinds; 1.A revenue budget 2.A capital budget A revenue budget relates to normal income and expenditure items. In a revenue budget the main sources of public revenue are: 1.Custom duty 2.Excise duty 3.Income tax 4.Corporation tax 5.Income from sale of state property or assets 6.Income from fees and court fines The main expenditure heads of a revenue budget are: 1.Internal and External Defence 2.Administration 3.Education 4.Health 5.Collection of taxes A capital budget relates o development projects. The main sources of income for a capital budget are loans and grants obtained by the government. The main expenditure heads of a capital budget are: 1.Development projects. 2.Establishment of new industrial and agricultural projects.