COM4: GOVERNMENT INVOLVEMENT IN COMMERCE AND CONSUMER PROTECTION

This unit is about government ownership in businesses and the taxes they levy to companies.

 

For the purpose of development and creating good conditions for commercial activities, the government finds itself involved in commercial activities. It does this to protect both producers and consumers therefore the citizens.

Role of the government involving in commerce in Uganda

  • The government makes various laws governing commercial activities in order to protect consumers against exploitation by laws. Such laws include price eg price legislation, inspection of weighing scales.
  • The government protects the rights and interests of producers by controlling p the use of business names, protecting trademarks, protect rights, copy rights etc.
  • The manufacturing and scale of dangerous articles eg explosives, guns, drugs etc is strictly controlled by the government in protect the citizens.
  • The governments through police and security personnel ensures that there is law and order to safe guard the security of the citizen e both property and lives
  • The government also provides administration eg the police enforces laws to settle commercial disputes to ensure a favorable atmosphere for commercial activities.
  • To ensure the safety of funds, the government has made laws to provide rules for procedure and control of commercial activities eg antimonopoly legislation to offset monopolies and their activities.
  • The government gets involved in propaganda functions and activities eg arranging trade force, exhibitions provision of commercial information through research departments of ministries.
  • The government gives financial assistance informs of loans and grants directly or indirectly through agencies to infant industries to allow growing fast and competing favorably.
  • It also provides essential services through state enterprises eg control of disease, irrigation, construction of roads, education, bore holes drilling, giving advice to farmers and provision of farm inputs like sprays, seeds equipment, fertilizers etc.
  • The control of business names, patent rights and copy rights by government protects the consumer from consuming fake goods which are imitations of real ones.
  • The government may participate in commercial activities in order to create employment opportunities for its citizens through public enterprises.
  • Government enterprises give a bargaining position to acquire foreign loans from World Bank-IMF and other financial institutions
  • To facilitate the marketing of esp.. agricultural products which is done by marketing boards
  • Produce marketing boards help in regulating supply to ensure a steady supply and stable prices which protects the former one the one hand and the consumer on the other hand.
  • The governments through state enterprises avoid unnecessary water through duplication eg UEB, N.W.S.C.

Sources of government revenue

  1. Taxation

This is when the government levels either import or export duty on goods. The income of citizens can also be taxed directly to raise revenue.

  1. Borrowing

The government can raise funds through borrowing short, medium and long term loans both at home and abroad from financial institutions.

  • Government receipts from income of state enterprises eg UEB etc
  1. The profits earned by state enterprises constitute a revenue source for the government

 

  1. Licenses

This is money collected from people wishing to undertake business. They pay a free to get the license authorizing them to go into the business

  1. Fines

These are imposes on those who found guilty of crime before the court of law.

  • Government may get involved in gambling eg through national lottery
  • Fees

These are payable on services provided by the government to an individual eg weighing of vehicles, school fees etc

  1. Interest on rent is paid to government property by the public on capital goods, land or buildings.
  2. Market dues

Charges on these who sell goods in market, imposed on the stall where goods are sold or on the goods sold.

  1. Rates

These are charges that are imposed on urban private property such as houses

TAX

A tax is a compulsory contribution to the government by the citizens to enable it to provide certain essential services enjoyed collectively by all members of the community.

Differences between direct and indirect tax

  • Direct taxes

These are taxes imposed on incomes and property of individuals examples include personal income tax, estates tax, capital  gain, pay as you earn, corporation tax etc.

  • Indirect tax

This is tax imposed on goods and can be shifted by produced to consumers who then pay them indirectly as part of the price for the goods consumed. Examples include import duties, export duties, excise duties, sales tax, when an indirect tax is imposed according to the volume of goods, it is called specific tax and when it’s the price value of the goods then it is ad valorem tax.

Present the case for the need of government protection of consumers in Uganda today

  • Where producers fix prices too high eg under monopolies consumers should be protected against such prices charged by producers.
  • Producers sometimes use incorrect measures and weights which result into unfair deal by the sellers to consumers.
  • Sellers may use misleading adverts for goods which do not suit the purpose for which they are needed eg ‘cow boy never dies’ because he smokers Marlboro.
  • Sellers may sell poor quality unhygienic food stuff, drink and dangerous goods to consumers at high prices. This could affect their health eg unclean or half cooked food etc.
  • Producers may use dangerous and inferior components in the producers of goods to minimize costs and sell to consumers at high prices eg manufactures and sellers of drugs.
  • Where monopolies exist, they are sometimes undesirable because they consumers. They could restrict production in order to change the price there consumers. They could restrict production in order to change the price therefore need to protect consumers.
  • Although the government has enacted laws to protect consumers, they may still face the problem of making choice between goods whose merits they do not know, therefore consumer association should be formed to protect consumers’ rights and interests.
  • Expired foods and drugs; some sellers supply expired foods and drugs to consumers. This is common where ignorance and illiteracy prevails esp. in rural areas.

Methods used to protect consumers

  • Ministry of health sends out trained personnel to different places to inspect the standard of hygiene in restaurants, hotels, clinics etc. in case they are found undesirable, they are closed down.
  • The ministry concerned with veterinary services checks on the animals to be slaughtered to verify their health standards. Sometimes a guarantee is imposes so that it is difficult to slaughter or more animal products from one region to another.
  • Ministry of commerce department concerned with checking on weighing scale and measurements. Manufactures by law are required to indicate the correct weight of goods labeled on the packaging materials.
  • The government intervenes by instituting price control to prevent over charging by business men. Prices of essential commodities like sugar, paraffin, scrap etc are fixed by the government to safe guard consumers. One is not permitted to sell above such fixed prices.
  • Formation of consumer associations charged with the responsibility of safe guarding consumer interests. Consumers carry out investigations about the products regarding quality, price, standards etc. the information is later disseminated to the consumers thru published booklets.
  • The government sets up streamlined and sufficient distribution channels to eradication many profit minded business men. This reduces on the price like.
  • The government can take it appoint shoulders to provide essential services like water, electricity, education, sanitation, etc in order to protect the needs of consumers.

Ways the government of Uganda controls the private sector

The business sector is profit motivated and left alone could do anything to maximize their profits. The government has the responsibility to protect and ensure the well being of all its citizens. This is done through;

  • Price controls

The government institutes prices control on esp. essential goods and services. The prices of those items are gazette by the government so that it becomes illegal to sell above such a price. The prices are only adjusted with permission from the price control committee.

  • Consumer protection

This is constituted by various laws enforced by government to make sure that the consumers’ interests are protected. These laws are sales of goods act, food and drug act, trade description act and weights and measures act. This ensures standards as far as the quality description righting redirects and right weights respectively are concerned.

  • Trading license

In order to allow a business to operate, one must obtain a trading license. The government therefore ensures that only the right type of people get license to operate. The undesirable ones are not granted license.

  • Exchange control

This is a measure taken by the government to restrict the out flow of money (hard cash like dollars) to other countries. This is done by the central bank through several measures. It difficult in Uganda to implement this is because of the emergency of forex bureaus due to the liberalization policy.

  • Financial control measure

This is done by the government to ensure that a country maintain the values of its currency. Its levying taxes, devaluation etc. this will ensure that goods sold to the consumer are at affair price.

  • Bureau of standards

The sole purpose of these is to set up desirable standards of the quality of various products manufactured at home or imported from abroad. Specification in terms of quantity, weight, mix, packages set are set. These must be met subject to approval by the Bureau of standards. A manufacturer failing to fulfill these is barred from producing likewise any importer not meeting these standards is bored from importation.

NB

In controlling the private sector, the government will be protecting the consumers.

Stages enterprises and multinational enterprises

State enterprises are set by the government in the interest of the community to provide goods and services collectively enjoyed by all the people. Sometimes they are to undertake specific functions which are essential to the community. They include parietal bodies, public corporations and local or municipal authorities.

  • Public co-operation

It’s a joint stock company in which the government holds either all the shares capital or majority of it. It is created by an act of parliament stating the objectives which normally include the provision of services and goods to the public at reduced costs. They reduce the exploitation of the public by the private sector eg U.P.T.C, UEB, UR, Uganda fresh goods and beverages.

  • Parietal bodies

They are organizations set by government statute to perform certain function eg development, provision of employment. They may not aim at making profits. They do not have a share capital. Examples include marketing boards, Uganda revenue authority, Uganda investment authority etc.

  • Local or municipal council

These are departments of the local government which provide public utilities enjoyed by citizens and yet the private sector is reluctant to venture and invest in them. They provide law and order, sanitation, health centers, security, lightening services, recreation halls, games facilities etc.  Examples of such are the local councils; the city council ( KCC) the municipal council ( town councils) and the local authorities at county and sub- county levels.

Why the government operates public enterprises

  • They offer essentials services to the community which cannot be offered by the private enterprise eg security, health services etc
  • Certain ventures are risky to be left in the hands of the private sector eg atomic energy, production of arms and ammunition explosions drugs etc
  • They operate large projects which require a lot initial which cannot easily be raised by private investors but cannot easily be raised by government through borrowing.
  • Certain services are unprofitable and cannot be offered by the private sector but are important to the community eg Railway co-operation.
  • Since government is not profit motivated it offers services such as water, electricity, health at fair that is affordable to the majority.
  • They act as government agents through which the government can channel investment capital into this economy for development
  • They undertake vital projects which cannot be left in the hands of private owners but should be controlled by government for purpose of development eg mining
  • They offer advice and provide a conducive atmosphere to investors eg the Uganda Investment Authority attracts both local and foreign investors.
  • They under take research in various areas for purpose of development eg government institutions like University Research Center (Makerere Institute of Social Research, Kawanda Research Centre).
  • State enterprises provider of arum and bargaining positions to obtain loans from lending institutions like IMF, World Bank which may not be obtained by the private sector.
  • In developing countries where most investments are owned by foreigners the government stands a public enterprise.
  • The government may do not order to enjoy large scale economic arising from their monopolist situation eg marketing, transport and financial.
  • Sometimes government set up state enterprises with a political consideration eg provisions of employment, nationalization etc
  • State enterprises eliminate the duplication of services which turns out to be expensive. The provision of specific services is harmonized under one management eg telephone, water, electricity and railway services.

Short comings and limitations of state enterprise

  • There is too much government influence in their activities esp. administratively and on management levels. It is the government that determines what should be done.
  • Decision is slow because the government must be consulted on every fire details before resolutions are passed. They are bureaucratic in nature.
  • The management of such enterprises changes with changes in government. This is because they are normally formed on political grounds.
  • State enterprise lack motivation for the workers as compared to private enterprises eg they offer poor social services, low salaries and wages etc.
  • When they operate as monopolies their services, turn out to be too expensive, unreliable and substandard compared to where there is competition.
  • State enterprises are usually inefficient and they end up having high or rational costs while providing poor quality services compared to private enterprises. The impact is felt by the tax payer who must continue funding them eg Uganda railways.
  • Because they operate on a large scale, they tend to suffer diseconomies of scale eg market, labour and financial diseconomies
  • They also employ dishonest and corrupt officials who are merely government appointees. This leads to miss appropriation of embezzlement of public funds
  • Since they belong to ‘none and to everybody’ there is lack of initiatives incentive and vision for expansion and development as compared to private enterprises. The employees do not have personal interest in them.
  • They depend heavily on foreign experts therefore they create jobs for foreigners other than local labours force. This could be because they are financed by foreign loans with strings attached.
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