ABSTRACT
Tax is an important aspect to the government as it’s a source of revenue. This fiscal capacity is important for the functioning of a state and also for the welfare of the citizens. e.g. through construction, equipping and renovation of hospitals schools and roads. This research proposal is inclined towards analysis and evaluation of tax on the Gross domestic product determinants such as employment rate, interest rates among others. I will be performing various.
The scholarly research on the activity of taxation indicates that enhanced revenue collection techniques will result into an increase in government expenditure. However, the use of the above techniques will pose some risks. This study evaluates the most effective od enhancing revenue collection by the tax man in the United states, parts of Asia, Europe and Africa. The review considered opinions of the wealthy sect and the poor. The statistical techniques used in the data resulted into data analysis before the presentation of the same using tables and charts.
Introduction.
Most of the revenue collectors in the world do not collect the projected tax during a financial year. Use of progressive taxation is recommended in this research proposal. Its is clear that the government cannot function without revenue. Therefore tax is the main source of income FOR ANY government. Most of the tax is in form of income tax or payroll. As attributed by the US federal tax body, during the fiscal year 2021, income taxes will account for the 50%, payroll taxes make up to 36% and corporate tax supply 7%.The rest is made up of estate taxes and excise or custom duty. The United States alone has a federal and local government just like Kenya. Taxes are imposed on the net income of individuals and corporations and are allowed a credit on foreign taxes. The income subject to tax id determined under tax tax accounting rules which may change depending on the economy. E.g. during the Corona pandemic, these rules have been changed in order to accommodate it’s impact on overall economy. Rapid migration, corruption, tying money in legal disputes and change of business name are some of causes leading to failure to acquire set tax revenue in a financial year. Business people are leading in tax evading in the world (Investopedia., 2019). Considering that tax is one of the government’s primary sources of revenue, recent National Treasury statistics revealed that tax evasion will increase the budget deficit by 6.2 per cent. This is up from 5.9 per cent in 2018. This deficit close to Sh500 billion a year (Daily nation., Thursday,14,2019).
Background
The average tax revenue to GDP in sub-Saharan Africa was around 20% of GDP in 2010, But many less developed countries contributed a GDP of less than 15% and it’s expected to raise by 2050 (Congressional budget Office, 2020).Kenya has reported a fiscal revenue of Ksh. 1.580 Trillion for the financial year 2018/2019 compared to 1.435 Trillion for the 2017/2018 financial year implying a percentage increase of 11.3%. In addition, tax man collected other duties including agency fee amounting to 103 Billion. This implies improved efficiency of the tax authority as the customs revenue exceeded KSH. 500 Billion and domestic taxes exceeded Kshs.1 Trillion for the first time.
To modernize and increase the tax base in the world, the tax authority has undergone revenue reforms and modernization program which embarked on 2004/2005 financial year with an objective of transforming the tax man into a modern fully efficient and client focused organization. The reform entered its second phase in 2008/2009 financial year entrenching reforms to operational levels in order to enhance service delivery and achieve efficiency through implementation of customs reforms and modernization project, domestic taxes department, infrastructure development reforms and modernization, investigation and enforcement reform and road transport reforms and modernization. These measures enhance efficiency, transparency, fairness and adequacy of tax.
The tax system should ensure every person pays tax to the extent which they can afford. This is the maximum amount which can be collected from a person without causing struggle or other undesirable effects. (Absolute tax capacity and relative taxable capacity). The tax system should be flexible which entail that there should be no rigidity in tax system and legislation, simple such there are no complexities or ambiguity in tax payment and that multiple taxes are streamlined, elastic, productive such that it yields substantial amount of revenue to the government and progressive in nature such that all persons contribute the same proportion of taxes. i.e. the rich should be taxed more than the poor.
Purpose, aims of the study and research questions
In this project, the research proposal aims at evaluating the effect of tax on the gross domestic product determinants. The study will also tackle on the most effective form of taxation. The objectives of this study are grouped in to two. i.e. Broad and specific objectives.
Broad objective
To assess the impact of tax on the overall economy of the named countries.
Specific objectives
The specific objectives were to:
Determine effects of taxation on individuals, Firms and Government organizations.
Determine various forms of taxes imposed.
Evaluate effect of tax on non-profit making organizations.
Determine effect of tax on technology.
Assess costs and benefits of taxation to the firms, individuals and government bodies on economy
Research questions.
This review will help to establish prevailing trends in tax collection e.g.
Ways of improving tax collection
Means used to evade tax
Are improved tax collection techniques sustainable
Significance of the research
This study is significant to the federal and local government in that the recommendations arrived at, guides the policy makers not to politicize revenue collection and instead appreciate the importance of putting mechanisms of enhancing revenue collection and minimizing leakages in order to encourage them to offer services effectively. The local government also benefits from the findings of the study in that the corrective measures suggested by the study , if and when implemented will go a long way in putting in policies positive in harnessing revenue collection. The advances in technology and its suitability will also feature in this study.
Hypothesis
The review of articles and studies on enhanced tax collection suggests that advances in technology is responsible for the development of a more effective, fast and secure tax collection. Innovation alone has led to increased tax collection by the tax man all over the world.
Literature review
This chapter presents a research of existing literature on the topic of study. It complies of findings of previous findings of related studies undertaken by other researchers. A theory is a systematic explanation about a phenomena and its relationship with other variables. A researcher should therefore be conversant with those theories applicable to his/her area of research (Kombo &Tromp, 2009). Theoretical framework guides research, determines what variables to measure and what statistical relationships to look for in the context of the problem under study (Trochim ,2006). The research adopted various theories which include; Benefit theory and Ability to pay theory.
Ability to pay theory was developed by R. Musgrave and P. Musgrave in 1989. This theory is the most popular and commonly accepted as it includes the principle of equity or justice in taxation is that citizens of a country should pay taxes to the government in accordance with their ability to pay. It is very reasonable and just that taxes should be levied on the basis of the taxable capacity of an individual. For instance, if the taxable capacity of a person Y is greater than that of person Z, the former should be asked to pay more taxes than the latter. However, the economists are unanimous as to what is the exact measure of persons’ ability to pay. They developed the following measures of person’s ability to pay which are subject to critic;
Ownership of the property. Its regarded as a good measure of person’s ability to pay tax. The problem arises when a person earns huge amount of money but does not spend on buying any property, he will therefore escape taxation.
Tax on the Basis of Expenditure. Some economists assert that, the ability to pay tax should be judged by the expenditure incurred by a person. The greater the expenditure the higher the income and thus the greater the tax. However, a person having a large family to support has more expenditure than a person having a small family. If we make spending as the test of one’s ability to pay, the former person who is already burdened with many dependents’ will have to pay more taxes than the latter who has a small family.
Benefit theory was developed by Erik Robert Lindahl in 1960.According to this theory, the state should levy tax to person according to the benefit accorded to them. The more benefit a person enjoys from the state the more tax he/she should pay. However, the theory has been subjected to severe critic in the following grounds;
Firstly, the state maintains a certain connection between the benefits conferred and the benefits derived which is against the basic principle of the tax. A tax, is compulsory contribution made to the revenue authorities for the government to meet its obligations and in the provisions of general benefit. Therefore, there is no direct quid pro quo in the case of a tax. i.e. benefit in payment of tax.
Secondly, most of the governments expenditure is for the general benefit of its citizens, It is therefore not possible to estimate the benefit enjoyed by a particular individual each and every year.
Thirdly, the theory is not practical. This is because if applied the poor will have to pay the tax burden more, because they benefit more from the services of the state. The theory will therefore not be progressive.
Methodology
In this chapter, procedures and strategies that were used in the study are described. i.e. the research philosophy, research design, population and sampling frame, sampling techniques and sample size, data collection instruments, pilot study, measurements of variables, data processing and analysis, data presentation as well as preliminary studies are discussed.
The philosophical method is based on one ‘s ability to make sound and reasoned arguments (Baronett, 2008). Ancient philosophers established two main types of reasoning to test the validity of their observations and to construct rational arguments, that is phenomenological philosophy or constructivism and positivism philosophy (Cooper &Schindler, 2008; Mertens, 2010). This type of reasoning provides framework for the kind of logical analysis that drives scientific research and discovery (Baronett, 2008).
Analysis
A research design is a plan, structure and strategy of investigation so conceived as to obtain answers to research questions or problems.. It is a logical and systematic plan prepared for directing a research study (Cooper and Schindler ,2008).
The study adopted slovin’ s formula to come up with sample size as shown in the equation 3.1 below
Slovin’s formula
n = N/ [1 + N e 2] . …………………………………………………………………………………..Equation 3.1
n =501+500.05 2 = 44
Where: n= Sample size N= Total population e= is the margin error of 0.05 based on 95% confidence level.
Therefore, out of the sample frame of 50, 44 respondents were selected from among the revenue collection staffs that were selected using stratified simple random sampling technique.
The nature of this study required that a questionnaire be used. The questionnaire was constructed using a Likert scale with close-ended questions. After receiving a research approval from the school the researcher sought permission from revenue authority and clearance from clerk’s office. The researcher then came up with a data collection schedule. This enabled the researcher to familiarize with the respondents. The researcher with the help of one research assistant administered the written questionnaires to the respondents. The researcher assured the respondents of thorough confidentiality in dealing with the responses
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A pilot test enables validity and reliability of research instruments which are to be determined. The pilot test was done before embarking on actual data collection activity (Eriksson and Kovalainen, 2008). describe a pilot test is a replica and rehearsal of the main survey (Kombo and Tromp 2009). A pilot test assists researchers to see if the questionnaire will obtain the required results (Dawson ,2002). A proportionate sample size of 5 respondents was used for the study. The study therefore 5 questionnaires were administered to revenue collectors, accounting/finance officers, and administrative staff to test the degree of accuracy of the instrument that were used to collect data. Those selected for the pilot test were not included in the main study.
Validity test measures the degree at which data collecting instruments measures what it was supposed to measure (Cooper &Schilder, 2011).Validity is the accuracy of data collecting instruments (Zikmund et al.,2010). It helps in determining whether the respondents understood the direction and the instruction on questionnaires (Cooper &Schilder, 2011).The study used content validity to test the accuracy of data collecting instruments.
Opinion of two experts was sought to review the accuracy of data collecting instruments. This helped to improve the questionnaires before proceeding to the field for final data collection. Results of their responses were analyzed to establish the percentage of representation. The formula for content validity was used (Amin, 2005).
Amin’s formula
Content validity (y) = Number of judges declaring item valid (a)/number of items (b)……(3.2
y=45x 100 = 80%
The results indicated that validity test yielded an average index score of 80% implying that the instruments were valid. The study found that, the revenue authority employed employees in regards to government policy. The employees were also trained incase new machines were purchased and brought into the organization.
