TAXATION Is the Compulsory Contributions from different Source of Income to the government for the purpose of finance Its activities.WHY TAXATION OR WHY DO THE GOVERNMENT TAX/PURPOSE OF TAXATION/REASON OF TAXATION 1. To cover the cost of general administration Government charge taxation purposely to cover such as defense and social services provided by the state i.e. Army Police Hospital 2. Control harmful goods like alcohol etc To check the consumption of goods which can be harmful to human being. To control the consumption of harmful goods such as spirits and tobacco by increasing its taxation. 3. To reduce  income inequalities  The government adopt a system of taxation which reduce the gap between the lower income earner and higher earner through (PAYE) 'Pay as you earn' PAYE Is a progressive income tax system which imposed to  a person according to his or her Income. 4. for furtherance of economic activities The revenue is needed by the government in order to establish or improve economic activities such as road constructions, 

1. TAXATION
Is the CompulsoryContributionsfrom different Sourceof Income to the
government for the purpose of financeIts activities.
WHY TAXATION OR WHY DO THE GOVERNMENT
TAX/PURPOSE OF TAXATION/REASON OF TAXATION
1. To cover the cost of general administration
Government chargetaxationpurposelyto cover such as defense and social
services provided by the statei.e.
 Army
 Police
 Hospital
2. Control harmful goods like alcohol etc
To checkthe consumptionof goods which canbe harmfulto humanbeing.
To control the consumptionofharmfulgoods such as spiritsand tobaccoby
increasing itstaxation.
3. To reduce income inequalities
The government adopt a system of taxationwhich reducethegap between
the lower incomeearner and higher earner through (PAYE)
'Pay as you earn'
PAYE
Is a progressiveincometax system which imposed to a person according to
his or her Income.
4. for furtherance of economic activities
The revenue is needed by thegovernment in order to establish or improve
economic activitiessuch asroad constructions, industriesetc.

2. 5. To control inflation
Government chargestaxestocontrol inflationby reducing theamount of
money in circulationand hencethe purchasing power of thepublic
increase.
6. To reduce a deficit in the balance of payment
-Tariffsareimposed on importsinorder to reducedeficit inthe balanceof
payment.
7. Protect local industries
The government imposesheavy tax on imported goods, on theother hand
the government reducestax on locally produced goods to promotelocal
industries.
OBJECTIVESOF TAXATION
The following are the mainobjectivesoftaxation;
1. Financial or revenue objectives
It is the mainsource of the funds/income
2. Economic objectives
 Control and regulatepeople’s consumption.
 Encouragement ofinvestmentsby reducing tax tothe investors.
 Regulatethe pricelevel; This is done by the increaseor reductionof
taxeson other goods.
 Protectionofinflationof local industriesbydiscouragingthe
importationbyincreasing tax totheimported goods.
 Encouragement ofexports; Taxationused for motivationthe
exportationbyreducing thetaxationtothebusiness who exports
goods to abroad.
 3. Social objectives
 Impose high tax on harmfulgoods i.e. spirits, tobacco.
 Financing sportsand gamesas well as entertainment e.g. music.
 Protect thecountryagainst thedumping reduceinequality.

3. CHARACTERISTICSOF TAXATION
There arethree importantcharacteristicsof taxation.
1. A compulsorycontribution
It is the contributiontothe stateto cover itsexpenditurefailto pay you will
be permitted.
2. Not a payment for a specified personfor specific profit.
3. The benefitsof taxationisfor all citizensor people (not selective).
4. Encouragesocialsolidarityand commonobligationgoodstoprotect
the health for theeconomic progressive.
SYSTEM OF TAXATION
1. PROGRESSIVE TAX
Thisis a system of taxationinwhich the amount of tax depends on the level
of income(PAYE) i.e the amount of tax charged is proportionaltothe level
of income. Thissystem is very useful in reducing incomeinequalities
among incomeearners.
OR
The higher the incomethe higher thetax and the lower the incomethe
lower the tax will be paid.
Example.
INCOME PERCENTAGE TAX
20,000 10% 2,000
30,000 20% 6,000
40,000 30% 12,000
50,000 40% 20,000
GRAPHICALLY

4. 2. REGRESSIVE TAX SYSTEM
Meansthat the Lower the incomethe higher the tax and the higher the
incomethe lower the tax will be paid.
Example:
INCOME PERCENTAGE TAX
20,000 40% 8,000
30,000 30% 9,000
40,000 20% 8,000
50,000 10% 5,000

5. 3. PROPORTIONAL TAX SYSTEM
Thisis thesystem of taxationinwhich the percentageoftax is the same to
all level of incomes. For example:
When the person who earnsT.sh. 40,000 per month pay 10% of the
incomeas tax and a person who earns T.shs. 50,000 per month also pay
10% of the incomeas tax.
INCOME PERCENTAGE TAX
20,000 10% 2,000
30,000 10% 3,000
40,000 10% 4,000
50,000 10% 5,000
Diagrammatically

6. CLASSIFICATION OF GROUPING TAXES
The following are the criteriaused in grouping taxes;
1. According to the taxable objective
 Income tax
Thisis thetax charged tothe employee (labour) salaries.
 Sales tax
Is the tax imposed tothe business men or women during thesales
processing ''VAT''.
 VAT
Value added tax isthe tax imposed for every stageof productionand
distributionofgoods and services.
 Capital gain tax ( industrial)

7. Is the tax imposed on the gainmadeby seller of a capitalasset during the
disposal(sale).
 Property tax
Is a tax imposed on the propertysuch as building (house).
2. According to the visibility
 Open tax (direct tax)
Is the tax charged directfrom the mainsourceof incomei.e. company.
 Hidden taxes ( indirect tax)
Is the tax charged during purchaseofgoods and services.
3. According to their effect on the tax buyer
 Progressivetax
 Regressive tax
 Proportionaltax
4. According to the way it is collected
 Assessed taxes (customtax)
Imposed when the person imported goodsfrom outsidethecountry.
Specific add value according tothe quantities.
 Deductivetaxes
Is imposed on the incomeof the employer salaries.
 Excise tax [ inside]
Tax for the goods produced withinthecountry.
5. According to the tax payer
 Sole proprietorships /sole traders
Is a person who owns business singly privately.

8.  Corporate taxes
Is the tax for the companyoperations.
6. According to the recipient
 Govern taxes
Taxesimposed by Tanzania revenue authority(TRA)asa whole.
 Municipal tax
 Village taxes
PRINCIPLES OF TAXATION (CANNONSOF TAXATION)
A good tax system should be based on thefollowing basic principles;
 Equity
The burdenshould be equal according totheincomei.e Pay as you
earn (PAYE).
 Certainty
The tax payer should know how much he/she pays to the state.
 Convenience
The timeand mannersof collect tax should be known to thetax payer
and tax collectorsi.e. labours during the harvest.
 Productivity
The tax should be used in economic development i.e. constructionof
roadsand industries.
 Economy
The amount collected should be higher than cost of collection.
 Elasticity

9. The tax should be charged accordingtothe economic changes
exampleinflation.
TYPES OF TAXATION
 Direct taxes
 Indirect taxes
DIRECT TAXES
Is the tax levy directlyfrom the mainsource of income.
 Income tax
 Corporatetax
Or
Is a type of tax where the impact falltoone person.
ADVANTAGES OF DIRECT TAXATION
 Low cost of collection
Low cost becausethe collectorsknow thesource of incomewhere to collect.
 Tax payer know how much to pay [certainty]
If you know how much to pay you can arrangeyour budget.
 It stimulates the taxpayer
It encouragesthe tax payer becausethey know how much he/she
contributestothestate.
 It is progressivein nature
It bringsequalitybecausehigh incomespayhigh tax whilelow incomepays
low taxes.
INDIRECT TAXES
Thisis thetax levy on priceof commodities and services.

10. ADVANTAGES OF INDIRECT TAXATION
 The tax payer does not feel theburden direct.
 The tax payer does not feel painbecausethetax charged during the
purchasesof goods and services.
 Easy method of collection.
Collection is simple becausethe tax is imposed during purchasing.
 Difficult of evasion /evading.
Escaping isdifficult thisis due to the fact that thetax is levied during
purchasing.
 It is convenient in nature.
Small amount ispaid at the timeof purchasing.
 Cost of collectionis low.
 Reached to even those with small income
The tax is charged toevery person hence largeincomeis control the
use of harmfulfoods by increaseinits price.
DISADVANTAGES OF INDIRECT TAXATION
 It increasesthe priceof goods and service.
 It can causeinflation.
 It is uncertainin nature.
 It is unequitable.
 It is not possible to determineitsfull effects.
Effects of the taxation
On the tax payer
 It increasethe priceof goods.
 Affectsthe investors.
 It affectsthe employee ( labour).
 Effects on saving is decreased.
 No money for precautionand health.

11.  It affectsthe entrepreneur.
IMPACT AND INCIDENCE OF TAXATION
-Incidenceis the burdenof paying tax.
-Impact effectsbased by the 2rd person who pays tax.