Uses of Taxation:

The various ways by which taxation can be used to further the growth and development processes, especially in a developing economy are outlined below:

(i) To finance government expenditure: The primary purpose of imposing taxes is to generate revenue for the financing of government activities including maintenance of administrative machinery of government and financing socio- economic infrastructures.

(ii) To manage the economy: Government can grant tax concessions to local industries to stimulate production activities in the domestic economy during economic depression or raise personal income tax to lower aggregate demand during the period of inflation.

(iii) To redistribute income and wealth: Under a progressive tax system more money is taken from the rich than from the poor. Such money used to provide public goods that are equally beneficial to both the rich and the poor.

(iii) To protect infant industries: Import duties on imported goods that have local substitutes are raised to protect import substituting industries.

(iv) To correct balance of payments deficit: A tax on imports especially on non- essential items will also serve to reduce import volume and consequently reduce the deficits in the current account component of the country's overall balance of payments account.

(v) To discourage the consumption of certain goods: High import duties on harmful goods will raise the price at which they are available and serve to discourage their consumption.