INTRODUCTION

FUNCTIONS OF A GOVERNMENT
2 functions: economic & social The economic functions: 1. To overcome the inefficiencies of the market system in the allocation of economic resources, 2. To redistribute income and wealth in order to move towards the distribution that society considers to just and equitable, 3. To smooth out cyclical fluctuations in the economy and ensuring a high level of employment and price stability

Existence of public goods

the government has the duty of erecting and maintaining certain public works and certain public institutions, which it can never be for the interest of any individual or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society. (Adam Smith, 1776)

Methods to increase government revenue

Create more money? 2. Charge goods and services provided? 3. Borrow money? 4. Built a proper tax system?
1.

What is a tax?
a compulsory exaction of money by a public authority for public purposes enforceable by law
(Matthews v The Chicory Marketing Board [(1938) 60 CLR 263])

the process of raising money for the purpose of government by means of contributions from individual persons
(R v Barger[(1908) 6 CLR 41])

Usual characteristics of tax:

Compulsory payment; Raised for the government purposes; Do not constitute payment for services rendered; Not penalties; Exactions are not arbitrary; Should not be incontestable.
(MacCormick v FC of T (84 ATC 4230))

taxes, after all, are the due that we pay for the privileges of membership in an organised society
(Franklin D. Roosevelt, 1936)

the art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing
(Jean Baptiste Colbert, 1665)

a tax is a compulsory levy made by public authorities for which nothings is received directly in return
(James & Nobes, 1992)

Islam dan cukai (zakat):

Ambillah (sebahagian) dari harta mereka menjadi sedekah (zakat) supaya dengannya engkau membersihkan mereka (dari dosa) dan mensucikan mereka (dari aklak yang buruk)
(Al-Taubat: 103)

Sesungguhnya Allah s.w.t telah menfardhukan ke atas mereka sedekah (zakat) pada harta mereka, diambil dari kalangan orang kaya di kalangan mereka.
(Rasullulah s.a.w: Ibn Abbas)

Burden of taxation

1.

Administrative cost - direct cost of running the tax systems - to change is expensive Compliance cost - cost to comply with the requirement to pay tax. - hidden cost of taxation

2.

Burden of taxation (cont.)

Excess burden of taxation - taxes transfer spending power from taxpayer to government, - impose additional burden on taxpaying community (distort consumers choices between goods, etc.)

Tax incidence
who bears the economic burden of a tax. the impact of taxes on the distribution of welfare within a

society. the person who has the legal obligation to make a tax payment may not be the person whose welfare is reduced by the presence of the tax. the shifting of a tax refers to the passing of its incidence from the person who initially pays it to someone else. Economic incidence changes in behavior and consequent changes in equilibrium prices. Consumers buy less of a taxed product, so firms produce less and buy fewer inputs which change the net price of each input.

The function of tax

(As observed by Isaacs J in R v Barger)

It is one of the empirical certainties of history that no structural society has ever arisen without taxation. The power of taxation is one of which is particularly liable to abuse, either in the hands of an individual autocrat or of a sectional oligarchy such as may be wield the sceptre of authority even under the forms of a modern parliamentary system; but without that power, no Government, as we understand the term, is possible.

The function of tax (cont.)

The power to tax is the one great power upon which the whole national fabric is based. It is as necessary to the existence and prosperity of a nation as is the air he breathes to a natural man.

It is not only the power to destroy, but the power to keep alive.

Conclusion
Taxation is an instrument used by the government to

control the economy. Two main objectives of taxation are :

To finance the administration and development To promote economic growth

Taxation contributed to about 80% of the government

revenue during the last 10 years. Hence a good tax administration is necessary to ensure efficient tax collection and management.

Thank you