Answer to Question #91715 in Microeconomics for Edwin

Question

How is possible for a government to have taxes for much higher value than money in circulation in economy.?kenya collects taxes worth 1.3trillion yet the money in circulation is 300 billion

Answer 1

It is possible, when government protects domestic manufacturers and imposes higher tax rates for foreign companies. For example, in Kenya barriers against foreign suppliers exist in construction, engineering, architecture, insurance, and shipping. While the corporate tax rate for home industrial enterprise is 35%, the tax on the income of branches of foreign firms is 42.5%. Taking into account a big number of foreign suppliers, insurance companies, banks and investors, they can transfer their incomes abroad, but all money from taxes remain inside the country.