May 2019 Q1 d.
Some political analysts have often made the claim that governments over the world should create enabling environment for private businesses to flourish including granting tax incentives as a way of creating jobs for the unemployed youth and that governments should not directly engage in business. They sum this up often with the statement that “Government has no business doing business”. Others, however, hold contrary view on this matter making this an endless debate.
Required:
Under what circumstance would you encourage the running of state enterprises as business entities by Government to increase revenue as against imposition of new taxes for the same purpose? (5 marks)
View Solution
Government raises revenue from taxes and non-tax sources. Taxes may be direct or indirect. There is a limit to how much government can raise from taxes. Imposition of new taxes can raise needed revenue for government to support government projects but a dangerous tool in creating some challenges for government and make the government unpopular.
Government could consider running state enterprises on business lines on the following grounds:
- Taxes are the function of economic performance. When an economy is not doing well, imposition of taxes cannot generate any income for projects.
- It is in view of this that others suggest that government could take up the running of some key institutions to create employment for the citizenry and to support government projects.
- Also the running of enterprises by the State will help provide goods for the common good of society and charge subsidized rates to help the lower income brackets and raise money to support government projects.
- The profits the institutions will make can be used to support government projects.
- In conclusion, government can run state institutions as a way of supporting governments rather than relying on taxes as the only source of funding with its terrible consequences.