Read the following passage carefully and answer, in your own words as far as possible, the questions that follow.
Governments argue that taxes are a necessary evil – the price we pay for a civilized society. Whether you agree with that sentiment or not, it is undeniable that the price is usually a high one.
Taxes can be divided into two categories: direct and indirect. Income tax, corporate tax and property tax are examples of direct tax. Of these, income tax is probably the most resented. This is especially so in countries where income tax is progressive – the more you earn, the more you pay. Critics have an aversion for progressive taxes, for as they usually assert, these taxes are used as punitive and oppressive measures particularly aimed at those who have worked hard to build up their business.
Indirect taxes include sales tax, taxes on liquor and cigarettes, and customs duties. These are less visible than direct taxes but can still deal an economic blow, especially among the poor. According to one writer, “indirect taxes amount to more than 95% of total tax collections in some countries”. Regrettably, workers who are normally affected by prices of commodities already made high by customs duties have a huge chunk of their income consumed by ever-mounting taxes. High taxes on items of mass consumption, such as soap and liquor evidently create this unfortunate situation.
The question is; just what do governments do with all the money they collect? In the first place, the provision of basic and essential public utilities, such as facilities for schools and equipment for hospitals and infrastructure take vast sums of money from government coffers. The government imposes taxes in order to meet these obligations. In some countries, for example, one person in four works in the public sector. This includes teachers, postal workers, hospital personnel, the police, and other government workers. Taxes are needed to pay their salaries and also provide roads, schools and hospitals.
In many European countries, the governments also channel money derived from tax imposition to the promotion of certain vital social amenities including clean water and electricity while generally ensuring a congenial atmosphere for healthy living. As one magazine reports, “Western European countries have introduced environmental tax mostly as a means of reducing air pollution”. In some areas, progressive taxes are used to bridge the gap between the rich and the poor.
It has also been noted that in South Africa, for instance, taxes make up about 50% of the cost of alcohol and cigarettes to curb drinking and smoking. On the other hand, some governments spend tax payers’ money to ensure peace and order in the society by rewarding those who conform to acceptable societal norms and punishing those who kick against the law. Thus taxes may serve as a tool to encourage or discourage certain forms of behaviour.
Indeed, few people will acknowledge the benefits that taxes bring to their communities, but nobody would seriously argue that we will be better off without them.
a) In two sentences, one for each, state for each type of tax, why people resent paying taxes.
b) In three sentences, one for each, state what governments use taxes for.
Source: The West African Examinations Council
Recommended Summary Answers
a) i) Direct taxes take more from hardworking people.
ii) Indirect taxes make goods consumed by the poor expensive.
b) i) Governments use tax revenue to provide social amenities.
ii) Tax revenue is also used to pay workers’ salaries.
iii) They use taxes as a tool for checking deviant behavior.