BO6MA Module 5

The triangle of tax revenue, borrowings and expenditures mean that governments have three mechanisms with which to fund a deficit. These are:

• increasing borrowings

• raising taxes

• spending less

• all of the above

It is generally defined as the policy to use government revenue (taxes) and government expenditure to influence the market (the economy).

• Tax Policy

• Fiscal Policy

• Monetary Policy

• Tax Law

This is a subset of fiscal policy examining the revenue side of fiscal policy

• Tax Policy

• Fiscal Policy

• Monetary Policy

• Tax Law

For a government charge to be considered a tax, there are some common traits observable in all taxes:

• a tax is to be used for a limited purpose

• a tax is not a compulsory charge

• a tax is imposed by legislation

• tax is usually not tied to a specific service to be provided to the individual paying the tax

In assessing whether tax is justified, numerous theories have evolved over the years including:

• the social contract

• the sacrifice theory

• the benefit theory

• an emergency levy

individuals and corporate entities play a role in the economy, being the _________________________ that generates income and wealth

• providers of goods and services

• generators of the productive goods and services

• generators of the economic productive activity

• all of the above

The purposes for which taxes may be levied can be grouped into various categories. The most commonly used categories include

• state building

• guiding behavior in society 

• creating lesser equality through redistributive functions

• providing other private goods and services

The influence of the global economy and global society can also be perceived as a need for taxation which has been termed

• internal management

• negotiated expansion

• additional taxation

• none of the above

The fact that taxes are raised by the state in terms of the enacted law implies that there should be some limitation to tax as well. Three key principles emerge, namely the following:

• taxes should not exceed that which is needed to fund the public needs

• taxes should not erode capital

• if tax costs more than what the levied tax would collect, it should not be levied

• tax should not be compulsory

These form the three points of the budgetary triangle of government funding.

• Individual, state, and economy

• Taxes, government and expenditures

• Taxes, borrowings and expenditures

• None of the abovew