Chapter 03

• Competency 3.0


  Confirms the necessity of maintaining businesses having relationship with the government
• Competency level 3.1


  Investigates how the government intervenes in businesses
• Learning Outcomes


  1. Shows that the intervention of the government in business is implemented through the central government, provincial councils and local authorities

  2. Explains separately how intervention is done by the central government, provincial councils and local authorities, using a selected business organization as an example

  3. Shows various government interventions on businesses

  4. Gives examples of each intervention on businesses

  5. Explains the importance of government assistance and guidance received by the businesses
• Businesses


  • A farm that grows paddy
  • An institute that exports garments
  • An institute that provides transport service
• Ways the government's influence occurs on businesses in Sri Lanka

  • Central government
  • Provincial council
  • Local authorities (Urban councils, Town councils, Municipal councils)
• How government interferes in businesses

  • By providing infrastructure
  • By being a competitor
  • By being a customer
  • By forming policies
  • By being a tax collector
• By providing infrastructure


  Central government – Providing electricity<|>Provincial councils – Maintenance of roads<|>Local authorities -: removing of waste
• By being a competitor

  Central government – Implementing government sector t.v channels competing with private sector t.v channels<|>Provincial councils – Conducting businesses competitively with private sector in each provincial council<|>Local authorities – Building up markets and renting them equally as the private sector
• By being a customer

  Central government - Buying paddy, buying various office equipment, selling through Lak Sathosa<|>Provincial councils - Providing and receiving defence service<|>Local authorities - Maintaining cemetries
• By forming policies


  Central government – Implementing monetary and fiscal policy<|>Provincial councils – Implementing business names charter<|>Local authorities – Implementing environmental policies
• By forming policies


  • Central government – Consumer affairs authority act, standards act
  • Provincial councils – Imposing rules and regulations for private buses
  • Local authorities – Passing the plans for buildings and imposing rules and regulations
• By being a tax collector

  Central government – Collecting tax through Inland revenue department<|>Provincial councils – Collecting tax through provincial revenue department<|>Local authorities – Collecting rates

  
• Importance of assistance and guidance that businesses receive from the government

  Being forward to register businesses<|>The goodwill of the business is being improved<|>Contributing to the development of the country<|>Receiving the acceptance of the government and public
• Competency 3.2


  Shows how businesses contribute to the achievement of economic aims of the government
• Economic goals of a government

  • Economic growth and development
  • Full employment and fair income distribution
  • International trade and economic stability
• Economic growth and development


  While economic development takes place through the continuous growth of the production process, in addition to that the long term growth of human and social indices is known as development
• Full employment


  Not only everyone who wishes to, provide their labour has been occupied in a service, but also a situation where all the resources have been occupied in effective production activities in an economy
• Fair income distribution


  Distributing of total production of a country equally among all the people in that country
• Economic Stability


  The ability of an economy to endure nationally an internationally without a crisis is known as economic stability<|>Internal price stability - Controlling inflation, stabilizing price level, controlling the interest rate<|>External price stability - Stability of foreign exchange rate
• Favourable international trade


  Protecting the state of balance of payment through conducting foreign trade activities satisfactorily
• Ways businesses contribute to achieve government economic goals

  • Payment of taxes
  • Use of indigenous resources
  • Following policies that the government implements
  • Following the rules and regulations
  • Contribution to the employment
  • Minimize damage to the environment
• Competency 3.3


  Evaluates the importance of conducting businesses according to the fiscal policy of the government
• Fiscal policy


  The functions done by the government related to its revenue and expenditure

  
• Government revenue


  The revenue of an economy received from tax and non-tax within a financial year

  
• Government expenditure


  The total expenditure done within a year for recurrent and capital expenditure to fulfil the economic goals of a government

  
• Budget proposal


  Reflects the government's Fiscal policy
• Government tax revenue


  • Income tax - Corporation tax, Payee Tax
  • Value added tax - Tax on added value

  
• Tax is a must payment imposed on a person or an institute by a government or an authorized institute of a government
• Fiscal policy


  The government's policy relating to its revenue and expenditure

  
• Goals of Fiscal policy

  • To protect macroeconomic stability
• Government revenue


  The revenue received from tax and non-tax within a financial year

  
• The budget proposal of a government reflects its Fiscal policy
• Types of government revenue

  • Tax revenue
  • Non-tax revenue

  
• Types of tax revenue

  • Income tax
  • Value added tax
  • Excise duties
  • Customs duties
  • Other taxes

  
• Direct tax


  Tax charged on income or assets of businesses and has to be paid by the relevant party itself
• Indirect tax


  Tax charged on goods and services and can be transferred to another party
• Types of government expenditure

  • Recurrent expenditure
  • Capital expenditure

  
• Recurrent expenditure


  Expenditures incurred again and again within a year to maintain continuous government services
• Capital expenditure


  Expenditure incurred for long term investment by the government
• The composition of government income and expenditure may change based on budget proposals