- Raising revenue for government expenditure. This is the main reason for taxation.
- Discouraging /controlling consumption of certain commodities e.g. alcohol and cigarattes which are considered to be harmful.
- Discouraging importation of certain commodities in order to protect local industries. This is done by imposing heavy taxes on such commodities.
- Controlling inflation. Taxation reduces money supply by reducing peoples ‘disposable’ income thereby controlling inflation.
- Reducing inequality in income distribution; this is done by taxing the rich heavily and using the finances raised in provision of goods and services that benefit the poor.
- Influencing locations of businesses. This is done by taxing businesses located in urban areas heavily and those in rural areas lightly hence businesses moving to rural areas.
- Correcting unfavorable balance of payments. High taxes are imposed on imported commodities thereby discouraging their importation leading to an improvement in the balance of payments.
- To protect the key selectors of the economy such as the agricultural sector, by stimulating their growth.