- 5 Marks
Question
Some political analysts have often made the claim that governments over the world should create enabling environments for private businesses to flourish, including granting tax incentives as a way of creating jobs for the unemployed youth, and that governments should not directly engage in business. They sum this up often with the statement that “Government has no business doing business.” Others, however, hold a contrary view on this matter, making this an endless debate.
Required:
Under what circumstance would you encourage the running of state enterprises as business entities by the government to increase revenue as against the imposition of new taxes for the same purpose?
(5 marks)
Answer
- Economic Performance: Taxes are a function of economic performance. When an economy is not doing well, the imposition of taxes may not generate significant income. In such situations, the government may need to run state enterprises to create employment and generate revenue directly.
- Provision of Goods and Services: The government can run key institutions to provide essential goods and services at subsidized rates, benefiting the lower-income brackets while generating revenue for state projects.
- Support Government Projects: Profits generated by state-run enterprises can be used to fund government projects, reducing the reliance on taxes as the sole source of revenue.
- Employment Creation: By managing state enterprises, the government can create jobs, helping to alleviate unemployment and its associated social challenges.
- Avoiding Over-Taxation: Relying solely on taxes to fund government operations can lead to over-taxation, which may have negative economic and political consequences. State enterprises provide an alternative revenue source.
- Tags: Government Policy, Public Sector, Revenue Generation, State Enterprises, Taxation
- Level: Level 3
- Topic: Tax planning
- Series: MAY 2019
- Uploader: Cheoli