Home | Goldstreet Business
Wednesday, February 1, 2023
  • Home
  • General News
    • Extractives
    • Auto
  • Business
    • Banking and Finance
    • AgriBusiness
    • Insurance
    • Mining
    • Oil and Gas
    • Real Estate/Housing
  • News
    • Top Stories
    • Agriculture
    • Maritime/Aviation
    • Energy
    • Education
    • Construction
  • Technology
    • ICT
    • Telecom
  • World
    • Africa
    • International
  • Editorial/Features
  • GSB Data Services
No Result
View All Result
  • Home
  • General News
    • Extractives
    • Auto
  • Business
    • Banking and Finance
    • AgriBusiness
    • Insurance
    • Mining
    • Oil and Gas
    • Real Estate/Housing
  • News
    • Top Stories
    • Agriculture
    • Maritime/Aviation
    • Energy
    • Education
    • Construction
  • Technology
    • ICT
    • Telecom
  • World
    • Africa
    • International
  • Editorial/Features
  • GSB Data Services
No Result
View All Result
Gold Business Logo
No Result
View All Result
Home Business Macroeconomic Bulletin

Taxation vs. Free Market

January 31, 2022
in Macroeconomic Bulletin, Top Stories
0
Taxation vs. Free Market
Share on FacebookShare on Twitter

The human was born free and has been free to do business to make a living. However, during this process, society expects compliance with certain standards and regulations to ensure the smooth flow of usual activities and socio-economic norms. The society also expects a certain kickback from the people because of their existence and usage of social space.

Taxation is one of the most prominent examples of these kickbacks.

RELATED POSTS

IMF projects 3.8% growth rate for Sub-Saharan Africa, 2.8% for Ghana

Debt Exchange: NIC to suspend minimum capital requirements, CAR of insurance firms for 2 years

Understanding Tax Basics

Taxation is one of the social and legal obligations on people executing a profit-making process. However, the money raised through taxes is aimed to be used for public utility services and has been an effective tool to manage the cultural and socio-economic aspects of our community.

Taxes are compulsory. Usually, when money leaves your pocket, you are exchanging it for a specific good or service. However, taxes are unrequited. This means that they are not paid in exchange for a specific public service or sale or purchase of public property. Nonetheless, sometimes there is some kind of connection between the taxes you pay and a particular service you enjoy from the government. For instance, paying road toll levies to help maintain the road network or paying taxes on motor fuel to help finance the construction of new roads or maintenance of old roads.

The Government aims to collect taxes to enhance the socio-cultural and economic environment. This revenue is used to finance public welfare works like schools, colleges, hospitals, construction & infrastructure works, security & defence, and other projects to support life in our region.

Countries around the globe have developed different regulations to collect taxes from individuals and corporations. Applicable Rules and regulations change with the change of country. For instance, tax-related laws in Ghana are different from applicable tax laws in the United States in terms of compliance and practical application.

However, tax is generally calculated on profit, salary, capital gain, interest, dividend, etc. The taxpayer is required to take out a certain percentage from their earnings and submit it to the Government. The amount of tax one pays generally increases with an increase in earnings.

There are different types of taxes: income tax, payroll tax, corporate tax, sales tax, property tax, tariff, estate tax, etc. These taxes can largely be described as being either direct or indirect.

Direct taxes are charged on incomes and profits and paid by an individual or organisation directly to the Government. Its payment can’t be shifted to another person and must be borne by the individual or organisation, e.g. income tax and corporate tax. It’s difficult for the government to collect this unless it’s at the source.

Indirect taxes are levied on products and services and can be transferred to the end-user or consumer. The Government charges these on manufacturers and suppliers for the import, sale and purchase of goods who in turn pass on this cost to the final consumer. An example of this is the Value Added Tax (VAT) and tariffs.

The taxation system varies from nation to nation, and individuals/corporations need to thoroughly understand the taxation system and ensure they comply. From an African perspective, tax is progressive, which means that your tax liability increases with your increase of income.

African Tax History

The roots of taxation in Africa can be traced back to the Colonial days. Time has witnessed different rulers taking the power of tribes and introducing their own governance and tax collection system.

One of the interesting instances from the pages of history is the introduction of the “Hut Tax” that Britain introduced in Africa, derived from its payment on a “per hut basis”. The hut tax was payable in the form of labour, grains, money or stock, and the tax collected was used to manage operational and strategic matters of an empire.

Similarly, a poll tax was introduced by Britain in Africa somewhere in the 19th century where a fixed sum per head was charged from each citizen; it was also called “Head Tax”. This was charged usually on able-bodied men without recourse to their income levels. The purpose of this tax collection kept changing from time to time and included combinations of the following.

  1. To force people to work hard and lead to higher exports.
  2. Making financial contributions to support British Army during World War II.
  3. To support the welfare of colonies and contribute to the process of self-financing.
  4. To meet public administration costs and finance Government departments.

The poll tax was effective in its conceptual simplicity. However, the problem with this system was the ignorance around the collection and that everyone was required to pay an equal amount irrespective of their earnings level. So there were improvements in the overall system of collection and rules from time to time that has resulted in modern-day taxation.

Advantages of the taxation system

Following are some of the advantages associated with taxation.

  1. Control of inflation – Higher product demands lead to product shortage and higher price, referred to as demand-pull inflation. Tax implementation can be an effective way to control such a type of inflation. It’s due to the fact that adding tax increases product price and discourages people from purchasing by decreasing their purchasing power. Hence, demand is decreased leading to stable pricing.
  2. Circulate money in the economic system – The government uses the taxes collected to meet public expenses, which boosts money flow in the economic system. 
  3. Income redistribution – The progressive nature of direct taxes aims to charge higher from people who earn more and lower from those who earn less. In this way, it can effectively reduce the gap between the rich and poor classes.
  4. Collection of Government revenue – The Government needs money to finance the national welfare projects. This is only feasible if the country’s people ensure timely payment of taxes.
  5. Protection for local manufacturers – Usually and ideally, Governments impose higher taxes on the products imported into the country. It gives a competitive edge to the local manufacturers.

Disadvantages of the Taxation System

Following are some of the disadvantages associated with taxation.

  1. Purchasing power decreases – Implementation of tax leads to higher product prices and lower purchasing power, which might result in low quality of people’s lives. This is especially so with indirect taxes which are paid by the rich and poor alike to the same extent.
  2. Discourages investment – International investors might not be attracted to a regime with higher taxes on income as their main aim for the business is profit-making and higher taxes mean lower profits for them.
  3. Different people and indifferent taxes – Indirect taxes (taxes collected on the purchase of products) are uniform for everyone, irrespective of their income level. Hence, an increase in indirect taxes might lead to widening the gap between the rich and poor classes of the country. The rich will be able to afford quality products that will simply be out of the reach of the poor.
  4. Cost of tax collection – Governments have to develop a system and infrastructure to collect taxes, which sometimes incurs higher costs. The fact is that people tend to evade taxes and that can be challenging to control. Tax collection and monitoring is an expensive activity in itself and when it’s inefficient, the government has to spend these same taxes collected to collect more taxes.

Understanding Free Market

A free market is when traders are free to conduct economic activities without the Government’s intervention. The price of goods is merely based on supply and demand because of no Government’s stake in taxes, subsidies, and price regulations. Although, no market in the world is completely free. That is why economists have studied the degree of market freedom and economic well-being and the conclusion was a positive correlation between these concepts.

Still, there is a need to analyse if the free market always brings economic well-being and if a country can survive without a tax collection system. To the extent of well-being, it can be considered to add certain value in the economic system by efficient allocation of resources, setting competitive prices, invention, innovation, better quality product, higher economies of scale, and help reduce domestic monopoly.

Nonetheless, the problem falls in the area of Government interest to finance social projects and ensure the well-being of the society overall; this is not possible without a robust system of tax collection. On the other hand, the supporters of the free-market claim taxes to have a negative impact on economic activities by reducing the individual incentive to work hard and produce more and that the overall national output is expected to decrease with implementing higher taxes in the national economy.

Advantages of free market

Following are some of the advantages of a free market.

  1. The free market is the market of consumers. It’s because market producers have an incentive to produce goods in line with the interest of consumers. Further, consumers have more choices to select the product due to various national and foreign competitors.
  2. The motivational influence of the free market is strong. A successful entrepreneur is awarded higher profit. So, people are expected to enhance their efforts and achieve profitability.
  3. The free market is expected to optimize resource allocation; there is constant pressure on producers to control the cost of production and achieve higher profits.

Disadvantages of Free Market

Following are some of the disadvantages of the free market.

  1. Producers may not meet quality standards on account of pressure to control the cost. Hence, they might compromise on ethical instances of product and quality management. So, Government might need to intervene and control the situation.
  2. The free market only favours skilled people who can work and generate income. It does not consider certain members of society like children, elders, and unemployed people. On the other hand, the taxation system allocates certain benefits for them.
  3. Large players can dominate the market and exploit stakeholders in a free market. For instance, they might charge unfairly higher prices from customers and squeeze suppliers because they are free.

Effects of the increased free market on taxation and vice versa

Taxation and free markets are two opposite concepts. The free market is about limited regulation and the will of the market players to direct economic activities. There is no intervention from Government in a free market, which means there is no subsidy/tax. Hence, profit is the only motivational force for the market players to operate.

Free markets separate the Government from the economic activities of a country and lead to limited or no collection of taxes. So, it’s expected to reduce the social influence of the Government in leading and managing its people.

Conclusion

Taxation is about regulation from the Government to collect taxes and ensure the welfare of citizens. This system is designed to financially support society as a whole. The Government collects taxes and finances the projects of social welfare with the money of taxpayers. This system supports all members of society uniformly.

On the other hand, the operational and strategic philosophy of the free market is based on the competence and business acumen of a market player with minimal or no Government interruption at all. So, taxation and a free market are two opposite concepts and the implementation of the free-market approach is expected to let the Government lose grip on socio-economic factors.

Best to have a healthy mix of both? What that means, is an article for another day.

I hope you enjoyed the read. Hit me up and let’s keep the conversation going! I read all the feedback you send me. Also, feel free to throw at me topics you’d like to read or hear my thoughts on. You can always head to my Calendly to schedule a quick chat by going to calendly.com/maxwellampong. Or connect with me your way through my Linktree: https://linktr.ee/themax.

These are all facts. And this has been an opinion piece.

Have a blessed week!

♕ —- ♕ —- ♕ —- ♕ —- ♕ —- ♕ —- ♕ —- ♕ —- ♕

Dr. Maxwell Ampong is the CEO of Maxwell Investments Group, a leading supplier of impact products & services and ICT worldwide. He is also the Co-Founder of The RIO Corporation, connectors between impoverished communities and impact solutions worldwide. He writes about trending and relevant economic topics, and general perspective pieces.
facebookShare on Facebook
TwitterTweet
Source: Goldstreetbusiness
Via: Maxwell Ampong
Tags: Taxation vs. Free Market
ShareTweetShare

Related Posts

IMF projects growth rate of 4.2% for Ghana in 2021

IMF projects 3.8% growth rate for Sub-Saharan Africa, 2.8% for Ghana

January 31, 2023
Debt Exchange: NIC to suspend minimum capital requirements, CAR of insurance firms for 2 years

Debt Exchange: NIC to suspend minimum capital requirements, CAR of insurance firms for 2 years

January 31, 2023
Fuel prices to increase by 7%-13% from February 1, 2023 – IES

Fuel prices to increase by 7%-13% from February 1, 2023 – IES

January 31, 2023
Economy Picks Up

Policy rate increases to 28%; cost of loans to surge

January 30, 2023
Gulf Technology Systems, Ghana To Collaborate On Agricultural and Industrial Projects

Gulf Technology Systems, Ghana To Collaborate On Agricultural and Industrial Projects

January 30, 2023
Next Post
$90 Oil is only the beginning

$90 Oil is only the beginning

Gov’t to open six new STEM schools this Year – Minister

Gov’t to open six new STEM schools this Year – Minister

Discussion about this post

Archives

<
January 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • May 2021
  • April 2021
  • March 2021
  • February 2021
  • January 2021
  • December 2020
  • November 2020
  • October 2020
  • September 2020
  • August 2020
  • July 2020
  • June 2020
  • May 2020
  • April 2020
  • March 2020
  • February 2020
  • January 2020
  • December 2019
  • November 2019
  • October 2019
  • September 2019
  • August 2019
  • July 2019
  • June 2019
  • May 2019
  • April 2019
  • March 2019
  • February 2019
  • January 2019
  • December 2018
  • November 2018
  • October 2018
  • September 2018
  • August 2018
  • July 2018
  • June 2018
  • May 2018
  • April 2018
  • March 2018
▼
>
MonTueWedThuFriSatSun
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
   1234
567891011
12131415161718
19202122232425
262728293031 
       
 123456
78910111213
14151617181920
21222324252627
282930    
       
     12
3456789
10111213141516
17181920212223
24252627282930
31      
   1234
567891011
12131415161718
19202122232425
2627282930  
       
1234567
891011121314
15161718192021
22232425262728
293031    
       
    123
45678910
11121314151617
18192021222324
25262728293031
       
  12345
6789101112
13141516171819
20212223242526
27282930   
       
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
    123
45678910
11121314151617
18192021222324
252627282930 
       
 123456
78910111213
14151617181920
21222324252627
28293031   
       
 123456
78910111213
14151617181920
21222324252627
28      
       
     12
3456789
10111213141516
17181920212223
24252627282930
31      
  12345
6789101112
13141516171819
20212223242526
2728293031  
       
1234567
891011121314
15161718192021
22232425262728
2930     
       
    123
45678910
11121314151617
18192021222324
25262728293031
       
  12345
6789101112
13141516171819
20212223242526
27282930   
       
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
   1234
567891011
12131415161718
19202122232425
262728293031 
       
 123456
78910111213
14151617181920
21222324252627
282930    
       
     12
3456789
10111213141516
17181920212223
24252627282930
31      
   1234
567891011
12131415161718
19202122232425
2627282930  
       
1234567
891011121314
15161718192021
22232425262728
293031    
       
1234567
891011121314
15161718192021
22232425262728
       
       
    123
45678910
11121314151617
18192021222324
25262728293031
       
 123456
78910111213
14151617181920
21222324252627
28293031   
       
      1
2345678
9101112131415
16171819202122
23242526272829
30      
   1234
567891011
12131415161718
19202122232425
262728293031 
       
 123456
78910111213
14151617181920
21222324252627
282930    
       
     12
3456789
10111213141516
17181920212223
24252627282930
31      
  12345
6789101112
13141516171819
20212223242526
2728293031  
       
1234567
891011121314
15161718192021
22232425262728
2930     
       
    123
45678910
11121314151617
18192021222324
25262728293031
       
  12345
6789101112
13141516171819
20212223242526
27282930   
       
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
     12
3456789
10111213141516
17181920212223
242526272829 
       
  12345
6789101112
13141516171819
20212223242526
2728293031  
       
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
    123
45678910
11121314151617
18192021222324
252627282930 
       
 123456
78910111213
14151617181920
21222324252627
28293031   
       
      1
2345678
9101112131415
16171819202122
23242526272829
30      
   1234
567891011
12131415161718
19202122232425
262728293031 
       
1234567
891011121314
15161718192021
22232425262728
293031    
       
     12
3456789
10111213141516
17181920212223
24252627282930
       
  12345
6789101112
13141516171819
20212223242526
2728293031  
       
1234567
891011121314
15161718192021
22232425262728
2930     
       
    123
45678910
11121314151617
18192021222324
25262728293031
       
    123
45678910
11121314151617
18192021222324
25262728   
       
 123456
78910111213
14151617181920
21222324252627
28293031   
       
     12
3456789
10111213141516
17181920212223
24252627282930
31      
   1234
567891011
12131415161718
19202122232425
2627282930  
       
1234567
891011121314
15161718192021
22232425262728
293031    
       
     12
3456789
10111213141516
17181920212223
24252627282930
       
  12345
6789101112
13141516171819
20212223242526
2728293031  
       
      1
2345678
9101112131415
16171819202122
23242526272829
3031     
    123
45678910
11121314151617
18192021222324
252627282930 
       
 123456
78910111213
14151617181920
21222324252627
28293031   
       
      1
2345678
9101112131415
16171819202122
23242526272829
30      
   1234
567891011
12131415161718
19202122232425
262728293031 
       

RECOMMENDED

IMF projects growth rate of 4.2% for Ghana in 2021

IMF projects 3.8% growth rate for Sub-Saharan Africa, 2.8% for Ghana

January 31, 2023
Debt Exchange: NIC to suspend minimum capital requirements, CAR of insurance firms for 2 years

Debt Exchange: NIC to suspend minimum capital requirements, CAR of insurance firms for 2 years

January 31, 2023

MOST VIEWED

Plugin Install : Popular Post Widget need JNews - View Counter to be installed
  • Energy
  • Health
  • Auto
  • International
  • Subscription Form
  • Staff Webmail
  • About Us
  • Contact Us
Call us: +233 24 432 0902 | info@goldstreetbusiness.com

© Copyright © 2020 goldstreetbusiness.com. All Rights Reserved.

No Result
View All Result
  • Homepages
    • Homepage Layout 1
    • Homepage Layout 2
  • World
  • Business
  • Technology
  • Health

© Copyright © 2020 goldstreetbusiness.com. All Rights Reserved.

Login to your account below

Forgotten Password?

Fill the forms bellow to register

All fields are required. Log In

Retrieve your password

Please enter your username or email address to reset your password.

Log In
This website uses cookies. By continuing to use this website you are giving consent to cookies being used. Visit our Privacy and Cookie Policy.