Friday, 17 February 2023 13:35

Government and Global Influence in Business - Grade 7 Business Studies Revision Notes

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Government And Business

  • Government involvement in business activities is one of the commercial duties it owes its citizens. It is the one that provides the necessary environment for investments to be undertaken by itself, or by the local and foreign investors. This, the government may do in various ways, these include;
    1. Producing goods and services
    2. Distributing goods and services
    3. Advising producers and traders
    4. Promoting trade and economic development
    5. Protecting consumers against exploitation by producers and traders
    6. As a consumer of goods and services

Reasons For Government Involvement In Business

The following are the major reasons for the government’s involvement and participation in business activities;

  1. To prevent exploitation of the public by private businesspersons especially in the provision of essential goods and services such as sugar, transport, communication etc. the Kenya Bureau of standards (KEBS) regulates the quality of goods consumed in Kenya.
  2. To provide essential goods and services in areas where private individuals and organizations are unwilling to venture because of low profits/ high risks involved.
  3. To provide essential goods and services which private organizations and individuals are unable to provide due to the large amount of initial capital required b e.g. generation of electricity, establishment of airlines etc.
  4. To attract foreign investment by initiating major business projects
  5. To stimulate economic development in the country e.g. by providing social services
  6. To provide goods and services which are too sensitive to be left in the hands of the private sector e.g. provision of firearms.
  7. To create employment opportunities by initiating projects such as generation of electricity.
  8. To prevent foreign dominance of the economy by investing in areas where the locals are not able to
  9. To redistribute wealth where returns are very high
  10. To prevent establishment of monopolies.

Roles/methods Of Government Involvement In Business

The government gets involved in business activities through the following methods:

  1. Regulation
    This refers to Rules and restrictions the government requires business units to follow in their business activities. Through this method, the government ensures high quality goods and services and puts in control measures to protect consumers from exploitation. The government regulation measures include;
    1. Licensing
      A license is a document that shows that a business has been permitted by the government to operate. It is usually issued upon payment of a small fee. Licensing is the process of issuing licenses to businesses. Some of the reasons why the government issues licenses include;
      • Regulating the number of businesses in a given place at any given time to avoid unhealthy competition.
      • To control the type of goods entering and leaving the country.
      • To ensure there are no illegal businesses.
      • To ensure that traders engage only in trade activities that they have been licensed for.
      • To ensure that those who engage in professional activities meet the requirements of the profession.
      • To raise revenue for the government.
    2. Ensuring standards/ enforcing standards; The government regulates business activities by setting standards that businesses should and ensuring that the standards are adhered to. To achieve this purpose, the government has established bodies such as;
      • Kenya bureau of standards (KEBS) whose main responsibility is to set standards especially for the manufactured goods and see to it that the set standards are adhered to/ met. Goods that meet such standards are given a diamond mark of quality, to show that they are of good quality.
      • The ministry of public health to ensure that businesses meet certain standards as concerning facilities before such businesses can be allowed to operate. Such standards may include clean toilets, clean water and well aerated buildings.
    3. Legislation; The Government may come up with rules and regulations (laws) that regulate business activities e.g. banning hawking in certain areas, matatus required to carry certain number of passengers e.t.c.
  2. Training
    The government takes keen interest in training and advising people in business about business management strategies and better ways of producing goods and services. The government offers these services through seminars and courses. This is mainly done by the Kenya Business Training Institute (K.B.T.I).
  3. Trade promotion
    This is a government initiated and supported policy to encourage local business people to enter into business. This is aimed at increasing the volume and variety of goods and services traded in. Trade promotion is classified as either external trade promotion or internal trade promotion.

Legal Requirements for Starting and operating a simple business in Kenya

  • Business Permit
    A business permit indicates that you are licensed to operate by the local county government.
  • KRA PIN
    A Kenya Revenue Authority PIN is among the legal requirements that you need to start a business in Kenya. It is used to facilitate tax compliance with all Kenyans and businesses required to file their tax returns yearly.


Taxation In Kenya

Tax: is a compulsory payment by either individuals or organizations to the government without any direct benefit to the payer.
Taxation-refers to the process through which the government raises revenue by collecting taxes.

Purposes/reasons For Taxation

  1. Raising revenue for government expenditure. This is the main reason for taxation.
  2. Discouraging /controlling consumption of certain commodities e.g. alcohol and cigarattes which are considered to be harmful.
  3. Discouraging importation of certain commodities in order to protect local industries. This is done by imposing heavy taxes on such commodities.
  4. Controlling inflation. Taxation reduces money supply by reducing peoples ‘disposable’ income thereby controlling inflation.
  5. 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.
  6. 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.
  7. 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.
  8. To protect the key selectors of the economy such as the agricultural sector, by stimulating their growth.

Factors that determine the amount of money raised through taxation

  1. Distribution of incomes
  2. Social and political factors
  3. Honesty and efficiency of tax authorities
  4. Citizens level of real income
  5. Economic structure of the country i.e. relative size of the country’s commercial and subsistence sectors.

Principles Of Taxation

These are the characteristics that a good tax system should have. They are also referred to as the cannons of taxation.

A good tax system should be;

  • Equitable/principle of equity-Every subject of the state should pay tax in proportion to their income.
  • Certain/principle of certainty-The tax that an individual should pay should be clear in terms of the amount, time and manner in which it should be paid. The government should also be fairly certain of the amount of tax expected so that planning can be easier.
  • Convenient/principle of convenience-Tax levied ought to be convenient to both the contributor and collector, it should be levied at a time when the payer has money and mode of payment should be convenient to both the payer and the payee
  • Economical/principle of economy-The cost of collecting and administering the tax should be lower than the tax so collected.
  • Flexible/principle of flexibility-It should be readily adaptable to changing economic times i.e. when the economic conditions of the people improve it should give raised revenue e.g. VAT
  • Ability to pay/non-oppressive-A tax system should be designed in a way that the amount charged is not too high to the extent that the contributors are unable to pay or is discouraged from working hard.
  • Diversified/principle of diversity-There should be different types of taxes so that the tax burden is on different groups in the society. This also ensures that the government has money at all times.
  • Simplicity-A good tax system should be simple enough to be understood by each tax payer. This will motivate them to pay tax.
  • Elastic/principle of elasticity-The tax system should be able to generate more revenue for the government by targeting items of mass consumption.
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