Question

The new president of Malawi is looking for ways of increasing the revenue his government collects. At the moment, he is undecided between imposing a specific tariff on imports or a quota whereby the quota licenses will be auctioned in a competitive market.

i) Given the two options, what choice should he make? Give any two reasons.

ii) Are the two options the president is considering optimal avenues for collecting government revenue?

Answer 1

Two options which the President taken to increase the government revenue is enacting new tax rates and strengthen the enforcement. Applying the new tax rates on personal income, corporate income, payrolls, estates and specific products like gasoline and cigarettes. Higher rates over these aspects will increase the level of revenue. Strengthening of the enforcement will increase the revenue also. Imposition of high penalties over certain goods and services will increase the government revenue. Better way of enforcement will reduce the gap between tax owners and the people who paid the tax. Increasing the tax rate will reduce the production of harmful diseases and this will reduce the consumption of this type of goods also. So adopting this measure will hinder the consumption and production of this type of goods and also increase the government revenue. Taxes over imports will also improve the growth of domestic countries.
These two methods are optimal to collect government revenue. Imposing optimal tax rate can be used as an important measure for collecting revenue. Optimal tax rates can achieve desired revenue level and proper income distribution. On the other hand, the enforcement strengthening will retards the people from doing harmful activities and other serious measures. So these two methods are optimal to collect the government revenue efficiently.