Briefly outline the principles of taxation and give reasons why Nigerians are taxed.

Answer Details

Principles (canons) of taxation are the qualities a good tax system should possess. The classic canons are:

• Equity: taxes should be fair; people should pay according to their ability, so higher incomes bear a heavier burden.
• Certainty: the amount, time and manner of payment should be clear and known in advance to the taxpayer.
• Convenience: tax should be levied at a time and in a manner convenient to the payer, for example deducting income tax when wages are paid.
• Economy: the cost of collecting the tax should be small relative to the revenue raised.
• Productivity: a tax should yield sufficient revenue for the government.
• Flexibility: it should be easy to adjust rates to changing economic conditions.
• Neutrality/simplicity: it should not distort economic choices unduly and should be easy to understand.

Reasons why Nigerians are taxed:

• To raise revenue to finance government spending on defence, roads, schools and hospitals.
• To redistribute income and reduce inequality, using progressive taxes to transfer resources to the poor.
• To control inflation by reducing excess purchasing power in the economy.
• To discourage the consumption of harmful goods (for example heavy duties on tobacco and alcohol).
• To protect local industries through import duties.
• To correct a balance of payments deficit by taxing imports.
• To achieve social and economic objectives such as directing resources to priority sectors.