2.4.2. Socio-Political Theory
This theory of tax revenue states that social and political
objectives should be the major factors in selecting taxes. The theory advocated
that a tax system should not be designed to serve individuals, but should be
used to cure the ills of society as a whole.
2.4.3. Benefit Received Theory
This theory is based on the assumption that there is basically
an exchange relationship between tax-payers and the state because the state
provides certain goods and services to the members of the society, therefore,
members of the society should contribute to the cost of these supplies in
proportion to the benefits received (Bhartia, 2009). Anyanfo (1996),supports
this postulation by saying that taxes should be allocated on the basis of
benefits received from government expenditure.
2.4.4 Faculty Theory
According to Anyanfo (1996), this theory states that one
should be taxed according to the ability to pay. It is simply an attempt to
maximize an explicit value judgment about the
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distributive effects of taxes. Bhartia (2009), shares this
same view by arguing that a citizen is to pay tax just because he can, and his
relative share in the total tax burden is to be determined by his relative
paying capacity.
2.4.5 Expediency Theory
This theory asserts that every tax proposal must pass the test
of practicality. It must be the only consideration weighted by the authorities
in choosing a tax proposal. Economic and social objectives of the state and the
effects of a tax system should be treated as irrelevant (Bhartia,2009). Anyafo
(1996) and Bhartia (2009) explained that the expediency theory is based on a
link between tax liability and state activities. It assumes that the state
should charge the members of the society for the services provided by it. This
reasoning justifies imposition of taxes for financing state activities by
inferences, which provides a basis, for apportioning the tax burden between
members of the society. This proposition has a reality embedded in it, since it
is useless to have a tax which cannot be levied and collected efficiently.
Pressures from economic, social and political groups abounds
in every economy. Every single group tries to protect and promote its own
interests and by extension, authorities are often forced to reshape tax
structure to accommodate these pressures. In totality, the administrative set
up may not be efficient enough to collect taxes at a reasonable cost of
collection. Tax revenue therefore, provides a powerful set of policy tools to
the authorities and should be effectively used for remedying economic and
social ills of the society such as income inequalities, regional disparities,
unemployment, and cyclical fluctuations and so on.
Adolph Wagner advocated that social and political objectives
should be the deciding factors in choosing taxes. Wagner did not believe in
individualist approach to a problem. He stated that each economic problem be
looked at in its social and political context and an appropriate solution found
thereof. Accordingly, a tax system should not be designed to serve individual
members of the society, but should be used to cure the ills of society as a
whole. This theory relates to a normal development process and represents a
benchmark against which,a country's specific empirical evidence may be
compared.
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This study therefore focuses on the expediency theory which
enables us to assess the extent to which the Rwanda tax system conforms to this
scenario where the link between tax liability and economic activities are
linked. Where applicable, such a characterization will enhance accurate tax
revenue projection and targeting of specific tax revenue sources given an
ascertained profile of economic development. It will also assist in estimating
a sustainable revenue profile thereby facilitating effective management of a
country`s fiscal policy, among others. This is because the expediency theory
focuses on the fact that taxes are collected to achieve economic objectives
which enhances the growth and development of a society in all its spheres. The
socio-political, benefit and faculty theory are relevant also but they lay more
emphasis on political relationship and ability to be objectives.
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