(a) What is a tax? (b) Distinguish between tax evasion and tax avoidance. (c) Identify any four benefits of tariffs.
Question 1 Report
(a) What is a tax?
(b) Distinguish between tax evasion and tax avoidance.
(c) Identify any four benefits of tariffs.
Answer Details
(a) A tax is a compulsory payment imposed by government on individuals, firms or goods, for which the payer receives no direct return, used to finance public spending.
(b) Tax evasion versus tax avoidance:
- Tax evasion is the illegal refusal or failure to pay tax that is lawfully due, for example by understating income or falsifying records. It is an offence punishable by law.
- Tax avoidance is the use of legal means to reduce one's tax liability, for example by claiming all allowances and reliefs or arranging affairs to fall in a lower tax band. It is lawful, though sometimes considered unethical.
(c) Four benefits of tariffs (taxes on imports):
- Revenue: tariffs are a source of income for the government.
- Protection of infant industries: they make imports dearer, allowing young domestic industries to grow.
- Correcting balance-of-payments deficit: by discouraging imports they help improve the trade balance.
- Protecting local employment and guarding against dumping of cheap foreign goods.
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