The tax system should be so framed as to ensure that the productive resources of the economy are optimally allocated and utilized.

          The tax system should be economically naturally, that is, interference with customer use of factors of production is minimal. The price mechanism should be allowed to operate freely so that there will be optimum output of goods. It can be seen that the imposition of a tax leads to diversion of resources from the tax sector to non-taxed sector. This reallocation of resources could be a departure from the optimum utilization or resources, hence the nature of the taxes and the rate taxes should be such as to ensure optimum utilization of resources.

          A very important characteristic of a good tax is that it should be an instrument for the reduction of economic inequalities. It should ensure economic stability by making it necessary that the system must be progressive in relation to charges in the national income. This will help to keep the price rise in check and that the purchasing power of the people does not fall as fast as their pretax income.

          To developing countries, the role of taxation is very important. It is very essential to have an appropriate taxation policy, of economic growth is to be accelerated.

          The absence of this will make the rate of economic growth very slow. As said earlier, in modern times, the aim of public finance is not merely to raise sufficient financial resources for meeting administrative expenses for maintenance of law and order and to protect the country form external aggression but the scope of public finance has been very much extended. It is not considered as a powerful instrument in the hands of the state for the achievement of important economic and social objective. The most important is the acceleration of economic growth.

          Since the under developed countries like Nigeria are caught up with the various circle of poverty, such countries are not able to save much whether we consider individual savings.

          Their annual savings are only a small fraction of their national income. This means that a greater tax effort is called for to raise our growth rate to a reasonable level. Since private savings and capital formation are small in Nigeria the responsibility of mobilization for economic growth falls on the state.

          The advantage of increasing savings and investment through taxes includes:

(a)              Reduction of inequalities income and wealth through taxation

(b)              Mobilizing surplus wealth form unproductive sectors to productive section

Taxation as the only effective weapon by which private consumption can be curbed and this resource transferred to the state.