DECLARATION
I hereby declare that this research paper and its findings are my original work and my
efforts and that it has not been submitted anywhere for any award, every effort is made
to indicate this clearly, with due reference to the literature, and acknowledgement of
collaborative research and discussions.
Name: ……………………...……………......
FACULTY OF MANAGEMENT SCIENCE AND INFORMATION TECHNOLOGY
Certificate
This is to certify that the project titled “The impact of taxation on Somaliland Economic
Growth” is a bona fide work done by Mohamed Hassan Mohamed Ahmed
in partial fulfillment of the requirement for the Faculty of MS-IT
faculty of Management Science and Information Technology
during the period 2013-2014
Advisor Head of Department
Kooshin Jamaal
______________________ _____________________
DEDICATION
I am passionately dedicating this work to my parents who have been the source of my
strength to continue with my further studies, encouraged me to work hard without
tiredness to complete my study in a successful manner and for the support they did for
me to achieve this level of academic endeavor and the support and guidance throughout
my life. You really played a great role to enable me reach this far. May Allah, the Almighty
grant you more happiness.
Acknowledgement
All praises and thanks are due to Allah (SWT), the creator, exalted, sustainer, and the
most merciful, who gave me the power and ability to complete this paper successfully,
I have taken efforts in this study. However, it would not have been possible without the
kind support and help of many individuals.
First of all I would like to express my appreciation, thanks and extend my advisor, Mr.,
Mohamed Koshin. Without his valuable and constructive advice this paper would not
have succeed. He encourages the development of this paper from the begging to end.
I would like to express my gratitude towards my parents for their kind cooperation and
encouragement which help me the completion of this research. .
I am particularly gratifying to special thanks to my classmates and my best friends;
Ahmed Hassan, Ismail Hussein, Abdurrahman Arale and Fatima Abdullah, Many thanks
goes to Ibrahim Hared Abdullah, for helping me to get valuable source to write this
research paper and his advice to continue my education.
Thank you All
Abstract
The purpose of this study is to clarify and analyze the impact of taxation on Somaliland
economic growth. The study will use a
descriptive research design. Descriptive research is used to obtain information concerning the
current status of the phenomena to describe what exists. The aim of the research project, and its
major purpose was to gain better understanding of the role in which tax plays the development
of economic growth.
This research study of the impact of taxation on Somaliland’s economy growth consists of five
chapters. The historical overview of taxation described in chapter 1, which also endow with a
concise overview of the research study. Chapter 2 presents the conceptual frame work and
external information of the study, chapter 3 summarize the overall research methodology like,
research design, target population, sample size, research techniques, time schedule and budget
plan or the total cost of the research study. Chapter 4 involves analyzing and interpretation of
the research question. In addition, the most frequently cited references, conclusion and
recommendation.
After analysis some businesses in our country; this paper presented in a form of tabulation,
chart and text as well, and we learned the capacity of their economic situations and their
characteristics, our findings pointed out the problems and constraints that they cannot grow up
or developed a new systems to improve their education and economic conditions in order to
improve the role of Somaliland economy growth.
Contents:
1: INTRODUCTION
1.1 Background of the study ……………………………………………………………………………………………………...
1.2 Problem statement……………………………………………………………………………………………………………...
1.3 Research Questions……………………………………………………………………………………………………………...
1.4 Aims and Objectives ……………………………………………………………………………………………………………
1.5 Organization of the paper …………………………………………………………………………………………………….
1.6 Scope Of The study ………………………………………………………………………………………………………………
1.7 Limitations of the study ……………………………………………………………………………………………………….
2 LITERATURE REVIEW
2.1 Overview ……………………………………………………………………………………………………………………….
2.2 Purposes and effects ……………………………………………………………………………………………..............
2.3 Kinds of taxes ………………………………………………………………………………………………………………...
2.3.1 Taxes on income ………………………………………………………………………………………………………
2.3.2 Social Contribution …………………………………………………………………………………………………..
2.3.3 Taxes on property ……………………………………………………………………………………………….......
2.3.4 Taxes on goods and services …………………………………………………………………………………….
2.3.5 Other Taxes ……………………………………………………………………………………………………………..
2.3.6 Descriptive labels given some taxes ………………………………………………………………………….
2.3.7 Proportional, progressive, regressive, and lump-sum ………………………………………………..
2.3.8 Direct and Indirect tax …………………………………………………………………………………………......
2.3.9 Fees and effective tax ……………………………………………………………………………………………….
2.4 History ……………………………………………………………………………………………………………………………….
2.4.1 Taxation Levels ………………………………………………………………………………………………………..
2.4.2 Forms of Taxation ……………………………………………………………………………………………………
2.5 Economic Effects ………………………………………………………………………………………………………………...
2.5.1 Tax Incidence …………………………………………………………………………………………………………..
2.5.2 Increased Economic Welfare ……………………………………………………………………………………
2.5.3 Reduced Economic Welfare ……………………………………………………………………………………...
3. METHODOLOGY
3.1 Research Design ……………………………………………………………………………………………………......
3.2 Target Population ……………………………………………………………………………………………………...
3.3 Sample size ………………………………………………………………………………………………………………..
3.4 Research Instruments ………………………………………………………………………………………………..
3.5 Data Analysis ……………………………………………………………………………………………………………
4. Data Analysis and Presentation
4.1 Analysis …………………………………………………………………………………………………………………….
5. CONCLUSION AND RECOMMENDATION
5.1 Conclusion ………………………………………………………………………………………………………………...
5.2 Recommendation ………………………………………………………………………………………………………
References ………………………………………………………………………………………………………………...
1.1 Background of the study
Somaliland tax system was original introduced by the British Protectorate management in
the early 20th century, the people of Somaliland protectorate considered taxation as an unjust
imposition by the colonizing or Protectorate power and thus it is unclean and profane.
In addition to that the business and trade activities were very limited; at that time the British
Protectorate administration faced a restriction in taxing, and its budget was required subsidies
from the British government, because the amount of revenue collected was not appropriate to
cover the expenditures of the administration.
Taxes are essential for the financing of government activities, but at the same time they
should be set and administered to be as growth enabling as possible. As would be expected, no
formal tax policy exists in the absence of a normal government apparatus such as treasury and
central bank.
However, Somaliland’s do adhere to an informal patchwork of duty and tax collection. The
duty and tax provide a large portion of the income enjoyed by Somaliland government.
The formulation and administration of tax structure is work of the ministry of finance in
collaboration with central bank which only acts as treasury for the government usually, the
ministry officials visit the businesses in quest for collecting the taxes. The taxes are self
assessment and declaratory.
No rigorous record/book keeping is required for the purpose of ascertaining the taxes,
rather entrepreneurs are required to keep only sales records.
The information sector and micro and small enterprises account for the majority of businesses
in Somaliland, making the tax base small and unreliable. Majority of these businesses are not
captured into the tax net and the tax compliance cost for those in the net is high. Many
operators keep little or no information and data on their operations making it difficult to
correctly assess tax liabilities, implying there is unfair competition among the enterprises.
Economic growth is the basis of increased prosperity. Growth comes from the accumulation of
capital (both human and physical) and from innovations which lead to technical progress.
Accumulation and innovation raise the productivity of inputs into production and increase the
potential level of output.
The rate of growth can be affected by policy through the effect that taxation has upon
economic decisions. An increase in taxation reduces the returns to investment (in both physical
and human capital) and Research and Development (R&D).
Lower returns mean less accumulation and innovation and hence a lower rate of growth. This is
the negative aspect of taxation. Taxation also has a positive aspect. Some public expenditure can
enhance productivity, such as the provision of infrastructure, public education, and health care.
Taxation provides the means to finance these expenditures and indirectly can contribute to an
increase in the growth rate.
1.2 STATEMENT OF PROBLEM
Economic growth is the basis of increased prosperity. Growth comes from the accumulation
of capital (both human and physical) and from innovations which lead to technical progress.
The main problem of this research is to find out broad information and clear picture about the
impact of taxation in the economic growth of Somaliland. This research papers indicates how
tax affects businesses and the key role which taxation plays the growth of Somaliland economic.
To examine and categorize the main issue the problems of taxation, thus; we have to see and
answer the following questions.
A. How taxation influences Somaliland economic growth?
B. How taxation plays vital task for the economic development in Somaliland?
C. Which way the government amasses the tax from businesses?
D. In which way the administration encourages anyone who is avoiding paying tax?
1.3 Research Questions
1. What kind of relationship between taxation and the economic growth of Somaliland?
2. Why government needs tax?
3. How tax cover the expenditure of the government?
1.4 Purpose of the Study The purpose of this paper is to discuss briefly economic growth of the country, causes by
taxation and how the government collects and encourages the citizens who are avoiding paying
it and the way in which government gain confidentially from businesses.
1.5 SCOPE OF THE STUDY This study is deeply impounded the role in which taxation manipulate the economic growth
of Somaliland.
The sample data of this research will be collected the capital of Somaliland- Hargeisa, and the
reason I choose to gather data from Hargeisa is that the main offices of the ministry of finance
are located at Hargeisa, and it will be focused just the way in tax affects the growth of economic
in Somaliland
1.6 AIMS AND OBJECTIVES The general goal of this research is to explore the impact of taxation in Somaliland economic
growth.
While specific goals of this research are:
� check up the range of government revenue which tax produces for the government
� to analyze and look deeply the problems that face the businesses according to tax
payment
� to clarify the relationship between the government and businesses
1.7 Organization Of The Paper
This paper has been organized in such this logic manner: First chapter examines the
background of the study, problem statement, purpose of the study, scope of the study objectives
of the study and the organization of the paper. Second chapter is the up-to-date information in
detail, which is the literature Review. The third chapter is analysis, which is the result of
questionnaire. The final chapter draws conclusion and suggests recommendations based on
findings it also answers to our problem statement, the aim of the study and its purpose.
1.8 Limitation of the Study
1. Limited time: this was a major study which even if it was a one and more – this study would
require more time. The amount of information available was substantial but the limited time
meant that we could either I) not be able to obtain all necessary information and/or II) not be
able to adequately verify information received.
2. Limited funds: funding for the study was also a limitation as the cost of an in-depth study in
one region is significantly more than was available for this study.
CHAPTER 2
2.1 Overview:
A tax (from the Latin taxo"rate") is a financial charge or other levy imposed upon a
taxpayer (an individual or legal entity) by a state or the functional equivalent of a state such
that failure to pay, or evasion of or resistance to collection, is punishable by law. Taxes are also
imposed by many administrative divisions. Taxes consist of direct or indirect taxes and may be
paid in money or as its labor equivalent.
The legal definition and the economic definition of taxes differ in that economists do not
consider many transfers to governments to be taxes. For example, some transfers to the public
sector are comparable to prices. Examples include tuition at public universities and fees for
utilities provided by local governments. Governments also obtain resources by creating money
(e.g., printing bills and minting coins), through voluntary gifts (e.g., contributions to public
universities and museums), by imposing penalties (e.g., traffic fines), by borrowing, and by
confiscating wealth. From the view of economists, a tax is a non-penal, yet compulsory transfer
of resources from the private to the public sector levied on a basis of predetermined criteria
and without reference to specific benefit received.
In modern taxation systems, taxes are levied in money; but, in-kind and corvée taxation is
characteristic of traditional or pre-capitalist states and their functional equivalents. The method
of taxation and the government expenditure of taxes raised is often highly debated in politics
and economics. Tax collection is performed by a government agency such as the Canada
Revenue Agency, the Internal Revenue Service (IRS) in the United States, or Her Majesty's
Revenue and Customs (HMRC) in the United Kingdom. When taxes are not fully paid, civil
penalties (such as fines or forfeiture) or criminal penalties (such as incarceration) may be
imposed on the non-paying entity or individual.
2.2 Purpose and Effects:
Money provided by taxation has been used by states and their functional equivalents
throughout history to carry out many functions. Some of these include expenditures on war, the
enforcement of law and public order, protection of property, economic infrastructure (roads,
legal tender, enforcement of contracts, etc.), public works, social engineering, subsidies, and the
operation of government itself. A portion of taxes also go to pay off the state's debt and the
interest this debt accumulates. Governments also use taxes to fund welfare and public services.
These services can include education systems, health care systems, and pensions for the elderly,
unemployment benefits, and public transportation. Energy, water and waste management
systems are also common public utilities. Colonial and modernizing states have also used cash
taxes to draw or force reluctant subsistence producers into cash economies.
Governments use different kinds of taxes and vary the tax rates. This is done to distribute
the tax burden among individuals or classes of the population involved in taxable activities,
such as business, or to redistribute resources between individuals or classes in the population.
Historically, the nobility were supported by taxes on the poor; modern social security systems
are intended to support the poor, the disabled, or the retired by taxes on those who are still
working. In addition, taxes are applied to fund foreign aid and military ventures, to influence
the macroeconomic performance of the economy (the government's strategy for doing this is
called its fiscal policy; see also tax exemption), or to modify patterns of consumption or
employment within an economy, by making some classes of transaction more or less attractive.
A nation's tax system is often a reflection of its communal values and/or the values of
those in power. To create a system of taxation, a nation must make choices regarding the
distribution of the tax burden—who will pay taxes and how much they will pay—and how the
taxes collected will be spent. In democratic nations where the public elects those in charge of
establishing the tax system, these choices reflect the type of community that the public wishes
to create. In countries where the public does not have a significant amount of influence over the
system of taxation, that system may be more of a reflection on the values of those in power.
All large businesses incur administrative costs in the process of delivering revenue
collected from customers to the suppliers of the goods or services being purchased. Taxation is
no different; the resource collected from the public through taxation is always greater than the
amount which can be used by the government. The difference is called the compliance cost and
includes for example the labor cost and other expenses incurred in complying with tax laws and
rules. The collection of a tax in order to spend it on a specified purpose, for example collecting a
tax on alcohol to pay directly for alcoholism rehabilitation centers, is called hypothecation. This
practice is often disliked by finance ministers, since it reduces their freedom of action. Some
economic theorists consider the concept to be intellectually dishonest since, in reality, money is
fungible. Furthermore, it often happens that taxes or excises initially levied to fund some
specific government programs are then later diverted to the government general fund. In some
cases, such taxes are collected in fundamentally inefficient ways, for example highway tolls.
Some economists, especially neo-classical economists, argue that all taxation creates
market distortion and results in economic inefficiency. They have therefore sought to identify the
kind of tax system that would minimize this distortion.
Since governments also resolve commercial disputes, especially in countries with common law,
similar arguments are sometimes used to justify a sales tax or value added tax. Others (e.g.,
libertarians) argue that most or all forms of taxes are immoral due to their involuntary (and
therefore eventually coercive/violent) nature. The most extreme anti-tax view is anarcho-
capitalism, in which the provision of all social services should be voluntarily bought by the
person(s) using them.
2.3 Kinds of Tax:
The Organization for Economic Co-operation and Development (OECD) publishes an analysis of
tax systems of member countries. As part of such analysis, OECD developed a definition and
system of classification of internal taxes, generally followed below. In addition, many countries
impose taxes (tariffs) on the import of goods.
2.3.1 Taxes on Income:
A. Income Tax:
An income tax is a government levy (tax) imposed on individuals or entities (taxpayers) that
vary with the income or profits (taxable income) of the taxpayer. Details vary widely by
jurisdiction. Many jurisdictions refer to income tax on business entities as companies’ tax or
corporation tax. Partnerships generally are not taxed; rather, the partners are taxed on their
share of partnership items. Tax may be imposed by both a country and subdivisions thereof.
Most jurisdictions exempt locally organized charitable organizations from tax. Income tax
generally is computed as the product of a tax rate multiplied by taxable income. The tax rate may
increase as taxable income increases (referred to as graduated rates). Tax rates may vary by type
or characteristics of the taxpayer. Capital gains may be taxed at different rates than other income.
Credits of various sorts may be allowed that reduce tax. Some jurisdictions impose the higher of
an income tax or a tax on an alternative base or measure of income.
Taxable income of taxpayers resident in the jurisdiction is generally total income less income
producing expenses and other deductions. Generally, only net gain from sale of property,
including goods held for sale, is included in income. Income of a corporation's shareholders
usually includes distributions of profits from the corporation. Deductions typically include all
income producing or business expenses including an allowance for recovery of costs of business
assets. Many jurisdictions allow notional deductions for individuals, and may allow deduction of
some personal expenses. Most jurisdictions either do not tax income earned outside the
jurisdiction or allow a credit for taxes paid to other jurisdictions on such income. Nonresidents
are taxed only on certain types of income from sources within the jurisdictions, with few
exceptions.
Personal income tax is often collected on a pay-as-you-earn basis, with small corrections
made soon after the end of the tax year. These corrections take one of two forms: payments to
the government, for taxpayers who have not paid enough during the tax year; and tax refunds
from the government for those who have overpaid. Income tax systems will often have
deductions available that lessen the total tax liability by reducing total taxable income. They
may allow losses from one type of income to be counted against another. For example, a loss
on the stock market may be deducted against taxes paid on wages. Other tax systems may
isolate the loss, such that business losses can only be deducted against business tax by
carrying forward the loss to later tax years.
Most jurisdictions require self-assessment of the tax and require payers of some types of
income to withhold tax from those payments. Advance payments of tax by taxpayers may be
required. Taxpayers not timely paying tax owed are generally subject to significant penalties,
which may include jail for individuals or revocation of an entity's legal existence
2.3.2 Social security contributions:
Many countries provide publicly funded retirement or health care systems. In connection
with these systems, the country typically requires employers and/or employees to make
compulsory payments. These payments are often computed by reference to wages or
earnings from self-employment. Tax rates are generally fixed, but a different rate may be
imposed on employers than on employees. Some systems provide an upper limit on earnings
subject to the tax. A few systems provide that the tax is payable only on wages above a
particular amount. Such upper or lower limits may apply for retirement but not health care
components of the tax
A. Negative Income Tax:
In economics, a negative income tax (abbreviated NIT) is a progressive income tax system
where people earning below a certain amount receive supplemental pay from the government
instead of paying taxes to the government. Such a system has been discussed by economists but
never fully implemented. It was developed by British politician Juliet Rhys-Williams in the 1940s
and later by United State economist Milton Friedman.
Negative income taxes can implement a basic income or supplement a guaranteed minimum
income system.
In a negative income tax system, people earning a certain income level would owe no
taxes; those earning more than that would pay a proportion of their income above that level; and
those below that level would receive a payment of a proportion of their shortfall, which is the
amount their income falls below that level.
B. Capital Gain Tax:
A capital gains tax (CGT) is a tax on capital gains, the profit realized on the sale of a non-
inventory asset that was purchased at a cost amount that was lower than the amount realized on
the sale. The most common capital gains are realized from the sale of stocks, bonds, precious
metals and property. Not all countries implement a capital gains tax and most have different
rates of taxation for individuals and corporations.
Capital gain is generally a gain on sale of capital assets that is those assets not held for sale in the
ordinary course of business. Capital assets include personal assets in many jurisdictions. Some
jurisdictions provide preferential rates of tax or only partial taxation for capital gains. Some
jurisdictions impose different rates or levels of capital gains taxation based on the length of time
the asset was held.
For equities, an example of a popular and liquid asset, national and state legislation often has a
large array of fiscal obligations that must be respected regarding capital gains. Taxes are
charged by the state over the transactions, dividends and capital gains on the stock market.
However, these fiscal obligations may vary from jurisdiction to jurisdiction.
2.3.3 Taxes on property:
Recurrent property taxes may be imposed on immovable property (real property) and some
classes of movable property. In addition, recurrent taxes may be imposed on net wealth of
individuals or corporations. Many jurisdictions impose estate tax, gift tax or other inheritance
taxes on property at death or gift transfer. Some jurisdictions impose taxes on financial or capital
transactions
A. Property Tax:
A property tax (or millage tax) is a levy on property that the owner is required to pay. The tax is
levied by the governing authority of the jurisdiction in which the property is located; it may be
paid to a national government, a federated state, a county or geographical region, or a
municipality. Multiple jurisdictions may tax the same property. This is in contrast to a rent and
mortgage tax, which is based on a percentage of the rent or mortgage value.
There are four broad types of property: land, improvements to land (immovable man-made
objects, such as buildings), personal property (movable man-made objects), and intangible
property. Real property (also called real estate or realty) means the combination of land and
improvements. Under a property tax system, the government requires and/or performs an
appraisal of the monetary value of each property, and tax is assessed in proportion to that
value. Forms of property tax used vary among countries and jurisdictions. Real property is
often taxed based on its classification. Classification is the grouping of properties based on
similar use. Properties in different classes are taxed at different rates. Examples of different
classes of property are residential, commercial, industrial and vacant real property. In Israel, for
example, property tax rates are double for vacant apartments versus occupied apartments.
A special assessment tax is sometimes confused with property tax. These are two distinct forms
of taxation: one (ad valorem tax) relies upon the fair market value of the property being taxed
for justification, and the other (special assessment) relies upon a special enhancement called a
"benefit" for its justification.
The property tax rate is often given as a percentage. It may also be expressed as per mile
(amount of tax per thousand currency units of property value), which is also known as a millage
rate or mill (which is also one-thousandth of a currency unit). To calculate the property tax, the
authority will multiply the assessed value of the property by the mill rate and then divide by
1,000. For example, a property with an assessed value of $50,000 located in a municipality with
a mill rate of 20 mills would have a property tax bill of $1,000 per year.
B. Land tax:
A land value tax (or site valuation tax) is a levy on the unimproved value of land only. It is an ad
valorem tax on land that disregards the value of buildings, personal property and other
improvements. A land value tax (LVT) is different from other property taxes, which are taxes on
the whole value of real estate: the combination of land, buildings, and improvements to the site.
Although the economic efficiency of a land value tax has been established knowledge since
Adam Smith, it was perhaps most famously promoted by Henry George. In his best selling work
Progress and Poverty (1879), George argued that when the site or location value of land was
improved by public works, its economic rent was the most logical source of public revenue. A
land value tax is also a progressive tax, in that it would be paid primarily by the wealthy, and
would reduce economic inequality. The philosophy that land rents extracted from nature
should be captured by society and used to replace taxes is often now known as Georgism.
Land value taxation is currently implemented throughout Denmark, Estonia, Russia, Hong Kong,
Singapore, and Taiwan. The tax has been applied in sub regions of Australia (New South Wales),
Mexico (Mexicali), and the United States (Pennsylvania).
C. Inheritance Tax:
An inheritance tax or estate tax is a levy paid by a person who inherits money or property or a
tax on the estate (money and property) of a person who has died. In international tax law, there
is a distinction between an estate tax and an inheritance tax: an estate tax is assessed on the
assets of the deceased, while an inheritance tax is assessed on the legacies received by the
beneficiaries of the estate. However, this distinction is not always respected in the language of
tax laws. For example, the "inheritance tax" in the United Kingdom is a tax on the assets of the
deceased, and is therefore, strictly speaking, an estate tax. For historical reasons, the term death
duty is still used colloquially (though not legally) in the United Kingdom and some
Commonwealth nations to refer to the estate tax.
Inheritance tax, estate tax, and death tax or duty is the names given to various taxes which arise
on the death of an individual. In United States tax law, there is a distinction between an estate
tax and an inheritance tax: the former taxes the personal representatives of the deceased, while
the latter taxes the beneficiaries of the estate. However, this distinction does not apply in other
jurisdictions; for example, if using this terminology UK inheritance tax would be an estate tax.
D. Expatriation Tax:
An expatriation tax or emigration tax is a tax on persons who cease to be tax resident in a
country. This often takes the form of a capital gains tax against unrealized gain attributable to
the period in which the taxpayer was a tax resident of the country in question. In most cases,
expatriation tax is assessed upon change of domicile or habitual residence; in the United States,
which is one of the few countries to tax its overseas citizens, the tax is applied upon
renunciation of citizenship instead.
An Expatriation Tax is a tax on individuals who renounce their citizenship or residence. The tax
is often imposed based on a deemed disposition of the entire individual's property. One
example is the United States under the American Jobs Creation Act, where any individual who
has a net worth of $2 million or an average income-tax liability of $127,000 who renounces his
or her citizenship and leaves the country is automatically assumed to have done so for tax
avoidance reasons and is subject to a higher tax rate.
E. Transfer tax:
A transfer tax is a tax on the passing of title to property from one person (or entity) to another.
In a narrow legal sense, a transfer tax is essentially a transaction fee imposed on the transfer of
title to property. This kind of tax is typically imposed where there is a legal requirement for
registration of the transfer, such as transfers of real estate, shares, or bond. Examples of such
taxes include some forms of stamp duty, real estate transfer tax, and levies for the formal
registration of a transfer. In some jurisdictions, transfers of certain forms of property require
confirmation by a notary. While notaries fees may add to the cost of the transaction, they are not
a transfer tax in the strict sense of the term.
In the United States, the term transfer tax also refers to Estate tax and Gift tax. Both these taxes
levy a charge on the transfer of property from a person (or that person's estate) to another
without consideration. In 1900, the United States Supreme Court in the case of Knowlton v.
Moore, 178 U.S. 41 (1900), confirmed that the estate tax was a tax on the transfer of property as
a result of a death and not a tax on the property itself. The taxpayer argued that the estate tax
was a direct tax and that, since it had not been apportioned among the states according to
population, it was unconstitutional. The Court ruled that the estate tax, as a transfer tax (and
not a tax on property by reason of its ownership) was an indirect tax. In the wake of Knowlton
the Internal Revenue Code of the United States continues to refer to the Estate tax and the
related Gift tax as "Transfer taxes."
In this broader sense, estate tax, gift tax, capital gains tax, sales tax on goods (not services), and
certain use taxes are all transfer taxes because they involve a tax on the transfer of title
F. Wealth (net worth) tax:
A wealth tax is generally conceived of as a levy based on the aggregate value of all household
assets, including owner-occupied housing; cash, bank deposits, money funds, and savings in
insurance and pension plans; investment in real estate and unincorporated businesses; and
corporate stock, financial securities, and personal trusts. A wealth tax is a tax on the
accumulated stock of purchasing power, in contrast to income tax, which is a tax on the flow of
assets (a change in stock)
2.3.4 Taxes on goods and services
A. Value – Added Tax (VAT)
A value added tax (VAT), also known as Goods and Services Tax (G.S.T), Single Business Tax, or
Turnover Tax in some countries, applies the equivalent of a sales tax to every operation that
creates value. To give an example, sheet steel is imported by a machine manufacturer. That
manufacturer will pay the VAT on the purchase price, remitting that amount to the government.
The manufacturer will then transform the steel into a machine, selling the machine for a higher
price to a wholesale distributor. The manufacturer will collect the VAT on the higher price, but
will remit to the government only the excess related to the "value added" (the price over the cost
of the sheet steel). The wholesale distributor will then continue the process, charging the retail
distributor the VAT on the entire price to the retailer, but remitting only the amount related to
the distribution mark-up to the government. The last VAT amount is paid by the eventual retail
customer who cannot recover any of the previously paid VAT. For a VAT and sales tax of identical
rates, the total tax paid is the same, but it is paid at differing points in the process.
VAT is usually administrated by requiring the company to complete a VAT return, giving details
of VAT it has been charged (referred to as input tax) and VAT it has charged to others (referred
to as output tax). The difference between output tax and input tax is payable to the Local Tax
authority. If input tax is greater than output tax the company can claim back money from the
Local Tax Authority.
A value-added tax (VAT) is a form of consumption tax. From the perspective of the buyer, it is a
tax on the purchase price. From that of the seller, it is a tax only on the value added to a product,
material, or service, from an accounting point of view, by this stage of its manufacture or
distribution. The manufacturer remits to the government the difference between these two
amounts, and retains the rest for themselves to offset the taxes they had previously paid on the
inputs.
The purpose of VAT is to generate tax revenues to the government similar to the corporate
income tax or the personal income tax.
The value added to a product by or with a business is the sale price charged to its customer,
minus the cost of materials and other taxable inputs. A VAT is like a sales tax in that ultimately
only the end consumer is taxed. It differs from the sales tax in that, with the latter, the tax is
collected and remitted to the government only once, at the point of purchase by the end
consumer. With the VAT, collections, remittances to the government, and credits for taxes
already paid occur each time a business in the supply chain purchases products
B. Sales Tax:
A sales tax is a tax paid to a governing body for the sales of certain goods and services. Usually
laws allow (or require) the seller to collect funds for the tax from the consumer at the point of
purchase.
Sales taxes are levied when a commodity is sold to its final consumer. Retail organizations
contend that such taxes discourage retail sales. The question of whether they are generally
progressive or regressive is a subject of much current debate. People with higher incomes spend
a lower proportion of them, so a flat-rate sales tax will tend to be regressive. It is therefore
common to exempt food, utilities and other necessities from sales taxes, since poor people spend
a higher proportion of their incomes on these commodities, so such exemptions make the tax
more progressive. This is the classic "You pay for what you spend" tax, as only those who spend
money on non-exempt (i.e. luxury) items pay the tax.
A small number of U.S. states rely entirely on sales taxes for state revenue, as those states do
not levy a state income tax. Such states tend to have a moderate to large amount of tourism or
inter-state travel that occurs within their borders, allowing the state to benefit from taxes from
people the state would otherwise not tax. In this way, the state is able to reduce the tax burden
on its citizens. The U.S. states that do not levy a state income tax are Alaska, Tennessee, Florida,
Nevada, South Dakota, Texas, Washington state, and Wyoming. Additionally, New Hampshire
and Tennessee levy state income taxes only on dividends and interest income. Of the above
states, only Alaska and New Hampshire do not levy a state sales tax. Additional information can
be obtained at the Federation of Tax Administrators website.
In the United States, there is a growing movement for the replacement of all federal payroll and
income taxes (both corporate and personal) with a national retail sales tax and monthly tax
rebate to households of citizens and legal resident aliens. The tax proposal is named Fair Tax. In
Canada, the federal sales tax is called the Goods and Services tax (GST) and now stands at 5%.
The provinces of British Columbia, Saskatchewan, Manitoba, and Prince Edward Island also
have a provincial sales tax [PST]. The provinces of Nova Scotia, New Brunswick, Newfoundland
& Labrador, and Ontario have harmonized their provincial sales taxes with the GST—
Harmonized Sales Tax [HST], and thus is a full VAT. The province of Quebec collects the Quebec
Sales Tax [QST] which is based on the GST with certain differences. Most businesses can claim
back the GST, HST and QST they pay, and so effectively it is the final consumer who pays the tax
C. Excise Tax:
An excise or excise tax (sometimes called a duty of excise special tax) is an inland tax on the sale,
or production for sale, of specific goods or a tax on a good produced for sale, or sold, within a
country or licenses for specific activities. Excises are distinguished from customs duties, which
are taxes on importation. Excises are inland taxes, whereas customs duties are border taxes.
An excise is considered an indirect tax, meaning that the producer or seller who pays the tax to
the government is expected to try to recover or shift the tax by raising the price paid by the
buyer. Excises are typically imposed in addition to another indirect tax such as a sales tax or
value added tax (VAT). In common terminology (but not necessarily in law)
Unlike an ad valorem, an excise is not a function of the value of the product being taxed. Excise
taxes are based on the quantity, not the value, of product purchased. For example, in the United
States, the Federal government imposes an excise tax of 18.4 cents per U.S. gallon (4.86¢/L) of
gasoline, while state governments levy an additional 8 to 28 cents per U.S. gallon. Excises on
particular commodities are frequently hypothecated. For example, a fuel excise (use tax) is
often used to pay for public transportation, especially roads and bridges and for the protection
of the environment. A special form of hypothecation arises where an excise is used to
compensate a party to a transaction for alleged uncontrollable abuse; for example, a blank
media tax is a tax on recordable media such as CD-Rs, whose proceeds are typically allocated to
copyright holders. Critics charge that such taxes blindly tax those who make legitimate and
illegitimate usages of the products; for instance, a person or corporation using CD-R's for data
archival should not have to subsidize the producers of popular music.
D. Tariff Tax:
A tariff is a tax on imports or exports (an international trade tariff). An import or export tariff
(also called customs duty or impost) is a charge for the movement of goods through a political
border. Tariffs discourage trade, and they may be used by governments to protect domestic
industries. A proportion of tariff revenues is often hypothecated to pay government to maintain a
navy or border police. The classic ways of cheating a tariff are smuggling or declaring a false
value of goods. Tax, tariff and trade rules in modern times are usually set together because of
their common impact on industrial policy, investment policy, and agricultural policy. A trade bloc
is a group of allied countries agreeing to minimize or eliminate tariffs against trade with each
other, and possibly to impose protective tariffs on imports from outside the bloc. A customs
union has a common external tariff, and the participating countries share the revenues from
tariffs on goods entering the customs union.
2.3.5 Other Taxes:
A. License Fees:
Occupational taxes or license fees may be imposed on businesses or individuals engaged in
certain businesses. Many jurisdictions impose a tax on vehicles
B. Poll Tax:
A poll tax, also called a per capita tax, or capitation tax, is a tax that levies a set amount per
individual. It is an example of the concept of fixed tax. Poll taxes are administratively cheap
because they are easy to compute and collect and difficult to cheat. Economists have considered
poll taxes economically efficient because people are presumed to be in fixed supply. However,
poll taxes are very unpopular because poorer people pay a higher proportion of their income
than richer people. In addition, the supply of people is in fact not fixed over time: on average,
couples will choose to have fewer children if a poll tax is imposed.
A poll tax (head tax or capitation tax, in U.S. English) is a tax of a portioned, fixed amount
applied to an individual in accordance with the census (as opposed to a percentage of income).
Head taxes were important sources of revenue for many governments from ancient times until
the 19th century. There have been several famous (and infamous) cases of head taxes in
history, notably in parts of the United States with the intent of disenfranchising poor people,
including African Americans, Native Americans, and white people of foreign descent. The tax
was marginal and never collected in practice, but payment of the tax would be a prerequisite for
minority voting. In the United Kingdom, poll taxes were levied by the governments of John of
Gaunt in the 14th century, Charles II in the 17th and Margaret Thatcher in the 20th century.
The word poll is an English word that once meant "head" - and still does, in some specialized
contexts - hence the name poll tax for a per-person tax. In the United States, however, the term
has come to be used almost exclusively for a fixed tax applied to voting. Since "going to the
polls" is today a common idiom for voting in many countries (deriving from the fact that early
voting involved head-counts), a new folk etymology has supplanted common knowledge of the
phrase's true origins.
2.3.6 Descriptive labels given some taxes
A. Ad Valorem Tax:
An ad valorem tax (Latin for "according to value") is a tax based on the value of real estate or
personal property. It is typically imposed at the time of a transaction, as in the case of a sales tax
or value-added tax (VAT). However, an ad valorem tax may also be imposed on an annual basis,
as in the case of a real or personal property tax, or in connection with another significant event.
An ad valorem tax is one where the tax base is the value of a good, service, or property. Sales
taxes, tariffs, property taxes, inheritance taxes, and value added taxes are different types of ad
valorem tax. An ad valorem tax is typically imposed at the time of a transaction (sales tax or
value added tax (VAT)) but it may be imposed on an annual basis (property tax) or in connection
with another significant event (inheritance tax or tariffs). An alternative to ad valorem taxation is
an excise tax, where the tax base is the quantity of something, regardless of its price.
B. Consumption Tax:
Consumption tax refers to any tax on non-investment spending, and can be implemented by
means of a sales tax, consumer value added tax, or by modifying an income tax to allow for
unlimited deductions for investment or savings.
A consumption tax is a tax on spending on goods and services. The tax base of such a tax is the
money spent on consumption. Consumption taxes are usually indirect, such as a sales tax or a
value added tax. However, a consumption tax can also be structured as a form of direct, personal
taxation, such as the Hall–Rabushka flat tax.
C. Environmental Tax:
This includes natural resources consumption tax, greenhouse gas tax (Carbon tax), "sulfuric tax",
and others. The stated purpose is to reduce the environmental impact by reprising.
2.3.7 Proportional, progressive, regressive, and lump-sum
An important feature of tax systems is the percentage of the tax burden as it relates to income or
consumption. The terms progressive, regressive, and proportional are used to describe the way
the rate progresses from low to high, from high to low, or proportionally. The terms describe a
distribution effect, which can be applied to any type of tax system (income or consumption) that
meets the definition.
A. A Progressive Tax:
progressive tax is a tax imposed so that the effective tax rate increases as the amount to
which the rate is applied increases
B. A Regressive Tax:
is the opposite of a progressive tax where the effective tax rate decreases as the amount to
which the rate is applied increases. This effect is commonly produced where means testing is
used to withdraw tax allowances or state benefits.
C. A Proportional Tax:
in between progressive and regressive tax is a proportional tax, where the effective tax rate is
fixed, while the amount to which the rate is applied increases.
D. A Lump-Sum:
A lump-sum tax is a tax that is a fixed amount, no matter the change in circumstance of the taxed
entity. This in actuality is a regressive tax as those with lower income must use higher
percentage of their income than those with higher income and therefore the effect of the tax
reduces as a function of income
The terms can also be used to apply meaning to the taxation of select consumption, such as a tax
on luxury goods and the exemption of basic necessities may be described as having progressive
effects as it increases a tax burden on high end consumption and decreases a tax burden on low
end consumption
2.3.8 Direct and Indirect Tax:
Taxes are sometimes referred to as "direct taxes" or "indirect taxes". The meaning of these
terms can vary in different contexts, which can sometimes lead to confusion. An economic
definition, by Atkinson, states that "...direct taxes may be adjusted to the individual
characteristics of the taxpayer, whereas indirect taxes are levied on transactions irrespective of
the circumstances of buyer or seller.
A. Direct Tax:
A direct tax is generally a tax paid directly to the government by the person on whom it is
imposed.
In a general sense, a direct tax is one imposed upon an individual person (juristic or natural) or
property (i.e. real and personal property, rental profits, livestock, crops, wages, etc.) as distinct
from a tax imposed upon a transaction. In this sense, indirect taxes such as a sales tax or a value
added tax (VAT) are imposed only if and when a taxable transaction occurs. People have the
freedom to engage in or refrain from such transactions; whereas a direct tax (in the general
sense) is imposed upon a person, typically in an unconditional manner, such as a poll-tax or
head-tax, which is imposed on the basis of the person's very life or existence, or a property tax
which is imposed upon the owner by virtue of ownership, rather than commercial use. Some
commentators have argued that "a direct tax is one that cannot be shifted by the taxpayer to
someone else, whereas an indirect tax can be.
The unconditional, inexorable aspect of the direct tax was a paramount concern of people in the
18th century seeking to escape tyrannical forms of government and to safeguard individual
liberty
B. Indirect Tax:
An indirect tax (such as sales tax, a specific tax, value added tax (VAT), or goods and services tax
(GST)) is a tax collected by an intermediary (such as a retail store) from the person who bears
the ultimate economic burden of the tax (such as the consumer). The intermediary later files a
tax return and forwards the tax proceeds to government with the return. In this sense, the term
indirect tax is contrasted with a direct tax which is collected directly by government from the
persons (legal or natural) on which it is imposed. Some commentators have argued that "a
direct tax is one that cannot be shifted by the taxpayer to someone else, whereas an indirect tax
can be.
An indirect tax may increase the price of a good so that consumers are actually paying the tax
by paying more for the products. Examples would be fuel, liquor, and cigarette taxes. An excise
duty on motor cars is paid in the first instance by the manufacturer of the cars; ultimately the
manufacturer transfers the burden of this duty to the buyer of the car in form of a higher price.
Thus, an indirect tax is such which can be shifted or passed on. The degree to which the burden
of a tax is shifted determines whether a tax is primarily direct or primarily indirect. This is a
function of the relative elasticity of the supply and demand of the goods or services being taxed.
Under this definition, even income taxes may be indirect
2.3.9 Fees and effective tax:
Governments may charge user fees, tolls, or other types of assessments in exchange of particular
goods, services, or use of property. These are generally not considered taxes, as long as they are
levied as payment for a direct benefit to the individual paying. Such fees include:
� Tolls: a fee charged to travel via a road, bridge, tunnel, canal, waterway or other transportation
facilities. Historically tolls have been used to pay for public bridge, road and tunnel projects. They have
also been used in privately constructed transport links. The toll is likely to be a fixed charge, possibly
graduated for vehicle type, or for distance on long routes.
� User fees, such as those charged for use of parks or other government owned facilities.
� Ruling fees charged by governmental agencies to make determinations in particular situations.
Some scholars refer to certain economic effects as taxes, though they are not levies imposed by
governments. These include:
� Inflation tax: the economic disadvantage suffered by holders of cash and cash equivalents in one
denomination of currency due to the effects of expansionary monetary policy
� Financial repression: Government policies such as interest rate caps on government debt,
financial regulations such as reserve requirements and capital controls, and barriers to entry in markets
where the government owns or controls businesses
2.4 History
The first known system of taxation was in Ancient Egypt around 3000–2800 BC in the first
dynasty of the Old Kingdom. The earliest and most widespread form of taxation was the corvée
and tithe. The corvée was forced labor provided to the state by peasants too poor to pay other
forms of taxation (labor in ancient Egyptian is a synonym for taxes). Records from the time
document that the pharaoh would conduct a biennial tour of the kingdom, collecting tithes from
the people. Other records are granary receipts on limestone flakes and papyrus.
In the Persian Empire, a regulated and sustainable tax system was introduced by Darius I the
Great in 500 BC; the Persian system of taxation was tailored to each Satrapy (the area ruled by a
Satrap or provincial governor). At differing times, there were between 20 and 30 Satrapies in
the Empire and each was assessed according to its supposed productivity. It was the
responsibility of the Satrap to collect the due amount and to send it to the emperor, after
deducting his expenses (the expenses and the power of deciding precisely how and from whom
to raise the money in the province, offer maximum opportunity for rich pickings). The
quantities demanded from the various provinces gave a vivid picture of their economic
potential. For instance, Babylon was assessed for the highest amount and for a startling mixture
of commodities; 1,000 silver talents and four months supply of food for the army. India, a
province fabled for its gold, was to supply gold dust equal in value to the very large amount of
4,680 silver talents. Egypt was known for the wealth of its crops; it was to be the granary of the
Persian Empire (and, later, of the Roman Empire) and was required to provide 120,000
measures of grain in addition to 700 talents of silver. This tax was exclusively levied on
Satrapies based on their lands, productive capacity and tribute levels.
The Rosetta Stone, a tax concession issued by Ptolemy V in 196 BC and written in three
languages "led to the most famous decipherment in history—the cracking of hieroglyphics"
In India, Islamic rulers imposed jizya (a poll tax on non-Muslims) starting in the 11th century
2.4.1 Taxation levels
Numerous records of government tax collection in Europe since at least the 17th century are still
available today. But taxation levels are hard to compare to the size and flow of the economy since
production numbers are not as readily available. Government expenditures and revenue in
France during the 17th century went from about 24.30 million livres in 1600–10 to about 126.86
million livres in 1650–59 to about 117.99 million livres in 1700–10 when government debt had
reached 1.6 billion livres. In 1780–89, it reached 421.50 million livres. Taxation as a percentage of
production of final goods may have reached 15%–20% during the 17th century in places such as
France, the Netherlands, and Scandinavia. During the war-filled years of the eighteenth and early
nineteenth century, tax rates in Europe increased dramatically as war became more expensive
and governments became more centralized and adept at gathering taxes. This increase was
greatest in England, Peter Mathias and Patrick O'Brien found that the tax burden increased by
85% over this period. Another study confirmed this number, finding that per capita tax revenues
had grown almost six fold over the eighteenth century, but that steady economic growth had
made the real burden on each individual only double over this period before the industrial
revolution. Average tax rates were higher in Britain than France the years before the French
Revolution, twice in per capita income comparison, but they were mostly placed on international
trade. In France, taxes were lower but the burden was mainly on landowners, individuals, and
internal trade and thus created far more resentment.
Taxation as a percentage of GDP in 2003 was 56.1% in Denmark, 54.5% in France, 49.0% in the
Euro area, 42.6% in the United Kingdom, 35.7% in the United States, 35.2% in Ireland, and
among all OECD members an average of 40.7%
2.4.2 Forms of Taxation
In monetary economies prior to fiat banking, a critical form of taxation were seigniorage, the tax
on the creation of money.
Other obsolete forms of taxation include:
• Scutage, which is paid in lieu of military service; strictly speaking, it is a commutation of a
non-tax obligation rather than a tax as such but functioning as a tax in practice.
• Tallage, a tax on feudal dependents.
• Tithe, a tax-like payment (one tenth of one's earnings or agricultural produce), paid to the
Church (and thus too specific to be a tax in strict technical terms). This should not be confused
with the modern practice of the same name which is normally voluntary.
• (Feudal) aids, a type of tax or due that was paid by a vassal to his lord during feudal times.
• Dane- geld, a medieval land tax originally raised to pay off raiding Danes and later used to
fund military expenditures.
• Carucage, a tax which replaced the dangled in England.
• Tax farming, the principle of assigning the responsibility for tax revenue collection to
private citizens or groups.
• So -cage, a feudal tax system based on land rent.
• Burg- age, a feudal tax system based on land rent.
Some principalities taxed windows, doors, or cabinets to reduce consumption of imported glass
and hardware. Armoires, hutches, and wardrobes were employed to evade taxes on doors and
cabinets. In some circumstances, taxes are also used to enforce public policy like congestion
charge (to cut road traffic and encourage public transport) in London. In Tsarist Russia, taxes
were clamped on beards. Today, one of the most-complicated taxation systems worldwide is in
Germany. Three quarters of the world's taxation literature refers to the German system.[citation
needed] Under the German system, there are 118 laws, 185 forms, and 96,000 regulations,
spending €3.7 billion to collect the income tax.[citation needed] In the United States, the IRS has
about 1,177 forms and instructions,28.4111 megabytes of Internal Revenue Code[35] which
contained 3.8 million words as of 1 February 2010, numerous tax regulations in the Code of
Federal Regulations, and supmentary material in the Internal Revenue Bulletin .Today,
governments in more advanced economies (i.e. Europe and North America) tend to rely more
on direct taxes, while developing economies (i.e. India and several African countries) rely more
on indirect taxes.
2.4.3 Economic Effects:
In economic terms, taxation transfers wealth from households or businesses to the government
of a nation. The side-effects of taxation and theories about how best to tax are an important
subject in microeconomics. Taxation is almost never a simple transfer of wealth. Economic
theories of taxation approach the question of how to maximize economic welfare through
taxation
2.4.4 Tax Incidence:
n economics, tax incidence is the analysis of the effect of a particular tax on the distribution of
economic welfare. Tax incidence is said to "fall" upon the group that ultimately bears the burden
of, or ultimately has to pay, the tax. The key concept is that the tax incidence or tax burden does
not depend on where the revenue is collected, but on the price elasticity of demand and price
elasticity of supply. The concept was brought to attention by the French Physiocrats and in
particular François Quesnay who argued that the incidence of all taxation falls ultimately on
landowners and is at the expense of land rent. For this reason they advocated the replacement of
the multiplicity of contemporary taxes by the Single Tax, or Impôt Unique. A leading advocate of
this tax was Turgot. In the first instance, however, the incidence of the tax falls elsewhere. For
example, a tax on apple farmers might actually be paid by owners of agricultural land but the
incidence may initially fall on consumers of apples.
Initially, the incidence of all labor related taxes such as income tax and mandatory pension
contributions falls on employers. This must be so at the margin since the employee must receive
more net of tax i.e. take-home than they can receive from the alternative, such as welfare benefit
payments. The tax surcharge may be as high as 80%.
The theory of tax incidence has a number of practical results. For example, United States Social
Security payroll taxes are paid half by the employee and half by the employer. However, some
economists think that the worker is bearing almost the entire burden of the tax because the
employer passes the tax on in the form of lower wages. The tax incidence is thus said to fall on
the employee
2.4.5 Increased Economic Welfare
Most taxes have side effects that reduce economic welfare, either by mandating unproductive
labor (compliance costs) or by creating distortions to economic incentives (deadweight loss
and perverse incentives).
Chapter 3: Methodology
3.1 Introduction
This chapter presents the research methodology of the study. It defines and justifies the
methods and process that was be used in order to collect data that are used in answering the
research questions.
This Chapter contains the following sections which are; research design, target population,
sample size and sampling technique, research instrument that is used in data collection,
research procedure, and data analysis.
3.2 Research design
This study will descriptive through survey research design. Survey research is An oriented
methodology used to investigate populations by selecting samples to analyze and discover
situations.
For conducting my research I will be using a questionnaire. This type of research
administered in interview style. I feel the respondent can respond more honesty and reliability
if they are assured of anonymous. I have tried to include some items in the questionnaire that
should provide some internal measures for the reliability. Since I will administer the
questionnaire only one timeMy survey questionnaire will consist of close-ended questions for
one thing fixed choice items make sense because I feel I can reasonably predict what people are
going to say. I also chose close ended questions because the data will be easier to enter into the
computer close ended questions will allow for greater uniformity of response.
The order of the items in this instrument will be the first part is company details. Second parts
will the variables that I am going to diagnose. I feel the instrument will measure this fairly
accurately because I asked about in several different ways this will allow for a test of the
reliability of the instrument.
3.3 Target population
My target population will be businesses existing in Hargiesa, Somaliland. And chosen by some
of them which will give me clear information how they influence the economic growth of the
country.
3.4 Sample size
In this area I will symbolize the number of respondents that will be selected from the
population to comprise or contain a sample, since stratified random sampling will be applied, the
sample size will be consists of 15 respondents who will be issued with the questionnaire.
3.5 Research Instruments
This study will focus on using questionnaires instead of other research instruments, and the
reason we choose this research instrument is that; questionnaire is very important tool when it
comes for collecting data and it allows the researcher to get close or almost found the fact. A
questionnaire is used since the study concerned with variables that cannot be direct observed.
The target population also almost well mentioned and is not likely to have very difficulties to
replying or answering the questionnaire items.
The questionnaire contains two types which are structured and unstructured questionnaires.
Structured questionnaires list close-end questions, which offer the respondents the ability to
answer whether “Yes” or “No”, while unstructured questionnaires are open questions, which
permits the respondents could answer in their own words.
As we already mentioned, this study will be used both the types of questionnaires; structured
and unstructured questionnaires.
3.6 Data Analysis
The data collected through the use of the questionnaires will be coded and analyzed with the
help of computer. The statistical packed for social science will be used specifically for the
purpose of analyzing the data obtained; this was helped to generate graphs and figures that will
be used to portray the results graphically.
Chapter 4: Data Analysis and Presentation
This chapter consists about the sample of business that indicates the population, through which
this sample is maintained or measured under
Table number 1: Responders by Gender
Description
Female
Male
Table number 1:- shows that 20% of the responders are female, in the other hand 80% of the
responders are male
Figure Number 1:
20%
Responders by Gender
Chapter 4: Data Analysis and Presentation
This chapter consists about the sample of business that indicates the population, through which
this sample is maintained or measured under several question in the system of questionnaire:
Table number 1: Responders by Gender:
Responders Percentage
4 20%
16 80%
shows that 20% of the responders are female, in the other hand 80% of the
80%
20%
Responders by Gender
This chapter consists about the sample of business that indicates the population, through which
several question in the system of questionnaire:-
Percentage
20%
80%
shows that 20% of the responders are female, in the other hand 80% of the
Male
Female
Table Number 2:
Description
Married
Single
Widow
Widower
Table Number 2:- shows that 70% of the responders are married, 20% of the
are in single status, instead 5% are widow and widower.
Figure Number 2:
20%
5%
5%
0% 10% 20%
Married
Single
Widow
Widower
Responders by the Marital status
Table Number 2:- Responders by the marital status.
Responders Percentage
14 70%
4 20%
1
1
shows that 70% of the responders are married, 20% of the
are in single status, instead 5% are widow and widower.
70%
30% 40% 50% 60% 70%
Responders by the Marital status
Responders by the marital status.
Percentage
70%
20%
5%
5%
shows that 70% of the responders are married, 20% of the responders they
80%
Married
Single
Widow
Widower
Table Number
Description
University level
Secondary level
Intermediate level
Primary level
Other
Table number 3:- shows that 35% of the responders are in university level, 30% of the
responders are in secondary level, 15% of the responders are in intermediate level, And 10% of
the responders are both in primary &
Figure Number 3:
0%
5%
10%
15%
20%
25%
30%
35%
40%
university level secaodary level
Responders by the Educational level
3:- Responders by the Educational level.
Responders Percentage
7 35%
6 30%
3 15%
2 10%
2 10%
shows that 35% of the responders are in university level, 30% of the
responders are in secondary level, 15% of the responders are in intermediate level, And 10% of
the responders are both in primary & Other level.
secaodary level internediate
level
primary level Other
Responders by the Educational level
Responders by the Educational level.
Percentage
35%
30%
15%
10%
10%
shows that 35% of the responders are in university level, 30% of the
responders are in secondary level, 15% of the responders are in intermediate level, And 10% of
university level
secaodary level
internediate level
primary level
Other
Table Number 4:
Description
Below 5
Between 5 – 10
Above 10
Table Number 4:- shows that 65% of the responders are below experience 5, although 20% of
the responders are between experiences 5
Figure Number 4
0% 10% 20%
Below 5
Between 5 - 10
Above 10
Responders by Experience
Table Number 4:- Responders by the Experience.
Responders Percentage
13
4
3
shows that 65% of the responders are below experience 5, although 20% of
the responders are between experiences 5 – 10. And 15% of the responders are above then a 10.
20% 30% 40% 50% 60% 70%
Responders by Experience
Responders by the Experience.
Percentage
65%
20%
15%
shows that 65% of the responders are below experience 5, although 20% of
10. And 15% of the responders are above then a 10.
Below 5
Between 5 - 10
Above 10
Table Number 5:
Description
Merchandising
Manufacturing
Service
Table Number 5:- shows that 45% of the responders are in sole Merchandising form, although
45% of the responders provide Service, And 10% for manufacturing level.
Figure Number 5:
45%
10%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Merchandising Manufacturing
Responders by Business type
Table Number 5:- Responders by the services they provide.
Responders Percentage
9
2
9
shows that 45% of the responders are in sole Merchandising form, although
45% of the responders provide Service, And 10% for manufacturing level.
10%
45%
Manufacturing Service
Responders by Business type
Responders by the services they provide.
Percentage
45%
10%
45%
shows that 45% of the responders are in sole Merchandising form, although
Merchandising
Manufacturing
Service
Table Number 6:- Responders by tax registration.
Description Responders Percentage
Yes 13 65%
No 7 35%
Table Number 6:- shows that 65% of the responders are registered in tax, while 35% of the
responders said no, which means they are not registered in tax.
Figure Number 6:
Registration of Tax
Yes
No
Table Number 7:
Description
Personal Income
Company Income Tax
Sales Tax
Payroll Tax
Table number 7:- shows that 5% of the r
responders said Tax company income while, 20
the responders pay payroll tax.
Figure Number 7:
0%
5%
10%
15%
20%
25%
Personal Tax Tax Company
Income
Responders by the type of tax they pay
Table Number 7:- Responders by the type of tax they pay.
Responders Percentage
1 5
3 15
4 20
12 60
% of the responders pay personal income, 1
aid Tax company income while, 20% of the responders choose sales tax and 6
Sales Tax Payrol Tax
Responders by the type of tax they pay
Personal Tax
Tax Company Income
Sales Tax
Payrol Tax
Responders by the type of tax they pay.
Percentage
5%
15%
20%
60%
esponders pay personal income, 15% of the
esponders choose sales tax and 60% of
Personal Tax
Tax Company Income
Sales Tax
Payrol Tax
Table Number 8:
Description
Yes
NO
Table Number 8:- shows that 90% of the responders are definitely aware of the importance of
tax, while 10% of my responders said no.
Figure Number 8:
10%
0% 20%
Yes
NO
Responders by the importance of tax
Table Number 8:- awareness the important of paying tax.
Responders Percentage
18 9
2 1
shows that 90% of the responders are definitely aware of the importance of
tax, while 10% of my responders said no.
90%
40% 60% 80%
Responders by the importance of tax
of paying tax.
Percentage
90%
10%
shows that 90% of the responders are definitely aware of the importance of
90%
100%
Yes
NO
Table Number 9:- Responders by the knowledgeable with tax matter
Description
Knowledgeable
Some Knowledgeable
Not Knowledgeable
Table Number 9:- shows that 70% of the responders are knowledgeable when it says tax
matter, 25% of the responders are Somehow Knowledgeable, while 5% are not knowledgeable
with tax matter.
Figure Number 9:
70%
20%
0%
20%
40%
60%
80%
Knowledgeable Some Knowledgeable
Responders by the knowledgeable with tax matter
Responders by the knowledgeable with tax matter
Responders Percentage
14 70%
5 25
1
shows that 70% of the responders are knowledgeable when it says tax
matter, 25% of the responders are Somehow Knowledgeable, while 5% are not knowledgeable
20%
5%
Some KnowledgeableNot Knowledgeable
Responders by the knowledgeable with tax matter
Knowledgeable
Some Knowledgeable
Not Knowledgeable
Responders by the knowledgeable with tax matter.
Percentage
70%
25%
5%
shows that 70% of the responders are knowledgeable when it says tax
matter, 25% of the responders are Somehow Knowledgeable, while 5% are not knowledgeable
Responders by the knowledgeable with tax matter
Knowledgeable
Some Knowledgeable
Not Knowledgeable
Table Number 10:- Responders by the View of current
Description
High
Fair
Low
Table number 10:- shows that 50% of the responders views are high, 15% of the responders
said that the current income tax rate is fair, while 35% choose that the
low.
Figure Number 10:
0%
10%
20%
30%
40%
50%
60%
High Fair
Responders view by the current Tax rate
Responders by the View of current income tax rates.
Responders Percentage
10 50
3 15
7 3
shows that 50% of the responders views are high, 15% of the responders
said that the current income tax rate is fair, while 35% choose that the rate of the current tax is
Low
Responders view by the current Tax rate
income tax rates.
Percentage
50%
15%
35%
shows that 50% of the responders views are high, 15% of the responders
rate of the current tax is
High
Fair
Low
Table number 11: Responders by paying tax on time:
Description
Yes
No
Table number 11:- shows that 75% of the responders pay tax on time, while 25% of
responders said no which means they don’t pay tax on time.
Figure Number 11:
25%
Responders by paying tax on time
Table number 11: Responders by paying tax on time:
Responders Percentage
15 75
5 25
shows that 75% of the responders pay tax on time, while 25% of
responders said no which means they don’t pay tax on time.
75%
25%
Responders by paying tax on time
Table number 11: Responders by paying tax on time:
Percentage
75%
25%
shows that 75% of the responders pay tax on time, while 25% of
Yes
No
Table Number 12:- Responders view regarding Somaliland authority’s to tax payer?
Description
Friendly
Unfriendly
Table Number 12:- shows that 80% of the responders are friendly regarding Somaliland
authority’s to tax payer, while 20% of my responders choose unfriendly regarding Somaliland
authority’s to tax payer.
Figure Number 12:
20%
0% 10% 20% 30%
Friendly
Unfrien…
Responders views regarding Somaliland authority’s to tax payer?
Responders view regarding Somaliland authority’s to tax payer?
Responders Percentage
16 8
4 2
shows that 80% of the responders are friendly regarding Somaliland
authority’s to tax payer, while 20% of my responders choose unfriendly regarding Somaliland
80%
30% 40% 50% 60% 70% 80%
Responders views regarding Somaliland authority’s to tax payer?
Responders view regarding Somaliland authority’s to tax payer?
Percentage
80%
20%
shows that 80% of the responders are friendly regarding Somaliland
authority’s to tax payer, while 20% of my responders choose unfriendly regarding Somaliland
80%
90%
Responders views regarding Somaliland authority’s to tax payer?
Friendly
Unfriendly
Table Number 13:
Description
More satisfied
Satisfied
Not satisfied
Table Number 13:- shows that 5% of the responders are more satisfied for paying tax, 70% of
responders choose satisfied, while 25% of
Figure Number 13:
5%0%
10%
20%
30%
40%
50%
60%
70%
80%
More Satisfied
Responders satisfaction of paying tax
Table Number 13:- Responders satisfaction for paying tax.
Responders Percentage
1
14
5
shows that 5% of the responders are more satisfied for paying tax, 70% of
responders choose satisfied, while 25% of responders said not satisfied for paying tax.
70%
25%
Satisfied Not satisfied
Responders satisfaction of paying tax
or paying tax.
Percentage
5%
70%
25%
shows that 5% of the responders are more satisfied for paying tax, 70% of
responders said not satisfied for paying tax.
0
Table Number 14:
Description
Direct Tax
Indirect Tax
Table number 14:- shows that 80% of the responders pays
responders choose to say Direct tax.
Figure Number 14:
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
Inndirect Tax
Responders by the type of Taxation
Table Number 14:- type of taxation.
Responders Percentage
4 8
16 20
shows that 80% of the responders pays Indirect tax while 20% o
irect tax.
Direct Tax
Responders by the type of Taxation
Percentage
80%
20%
while 20% of my
Inndirect Tax
Direct Tax
Table Number 15:
Description
Up-to-date
The Pit Fall
Not Bad
Table number 15:- shows that 10% of the responders say tax collection system is up
35% of responders choose the pit fall for tax collection system, while 55% of responders say Not
bad for collection of tax.
Figure Number 15:
0%
20%
40%
60%
Up-to-dateThe Pit Fall
Responders by Tax collection System
Table Number 15:- Tax Collection System.
Responders Percentage
2 1
7 3
11 55%
shows that 10% of the responders say tax collection system is up
35% of responders choose the pit fall for tax collection system, while 55% of responders say Not
The Pit FallNot Bad
Responders by Tax collection System
Percentage
10%
35%
55%
shows that 10% of the responders say tax collection system is up-to-date,
35% of responders choose the pit fall for tax collection system, while 55% of responders say Not
Table Number 16
Description
Employed
Business
Table number 16:- shows that 45
% of responders are in business status.
Figure Number 16:
Responders by the the Nature of Tax Payer Status
Table Number 16:- Nature f Taxpayer status
Responders Percentage
9 45
11 55
shows that 45% of the responders are in the status of Employed, while 55
% of responders are in business status.
Responders by the the Nature of Tax Payer Status
Percentage
45%
55%
esponders are in the status of Employed, while 55
Responders by the the Nature of Tax Payer Status
Employed
Business
17. The respondents asked what may or cause tax corruption in Somaliland and then
respondents has several option t tick and they were:
o People are unaware the importance of tax to the society
o Tax officers are corruption
o Tax rates are high
o Levels of punishment of
o Government tax policies are not good enojgh to tackle the problem
o All the Above
50% of respondents choose that people are unaware the importance of tax to the society,
20% of respondents choose that tax rates are high, while 30% of re
levels of punishment of tax evader are low
0%
10%
20%
30%
40%
50%
60%
Unawareness High Tax Rate
respondents asked what may or cause tax corruption in Somaliland and then
respondents has several option t tick and they were:-
People are unaware the importance of tax to the society
Tax officers are corruption
Levels of punishment of tax evaders are low
Government tax policies are not good enojgh to tackle the problem
50% of respondents choose that people are unaware the importance of tax to the society,
20% of respondents choose that tax rates are high, while 30% of responders choose
levels of punishment of tax evader are low
High Tax Rate Low Punishment
respondents asked what may or cause tax corruption in Somaliland and then
Government tax policies are not good enojgh to tackle the problem
50% of respondents choose that people are unaware the importance of tax to the society,
sponders choose the
Unaware
ness
High Tax
Rate
Chapter five: Conclusion and Recommendation
5.1 Conclusion
This chapter provides and discusses the findings of the research after made questionnaire to the
Businesses of Somaliland to know the Impact of taxation on Somaliland economic growth and
how they are related to each other, and also this chapter offers recommendations that the
researcher absorbs the view of the respondents as well as the literature review during the
research time, this chapter will make summary the over all of the study.
The researcher has found that the taxation has positive effect to the Somaliland economic
growth, which means this result is widely effect the overall economy growth of the country. The
researcher has proved that most of respondents believed that the rate of tax degree is high
according to the effect of Economic growth of Somaliland.
In Figure Number 1 shows that 50% of the responders’ views according tax rate are high, 15% of
the responders said that the current income tax rate is fair, while 35% choose that the rate of the
current tax is low.
According the tax, responders has different view when it comes how knowledgeable they are,
shows that 70% of the responders are knowledgeable when it says tax matter, 25% of the
responders are Somehow Knowledgeable, while 5% are not knowledgeable with tax matter.
This simply clarifies or elucidates that the highest number of responders are knowledgeable in
tax matter, and that shows when ever much people are familiar to tax theme, it means the
growth of economic will be positive.
Finally, the respondents, that study was interviewed mostly they see that the taxation has
positive impact the economic growth, and they are really aware of how tax is important and
what advantage it has to the government revenue, because if there is no tax there will be no
revenue, and if there is no revenue; no public will offer to the society.
�
5.2 Recommendation
� The government must have strong finance policy by improving tax system to achieve self
sufficiency and income security
� Tax collection system of the country should be review and updated
� Reformation and development of effective taxation system in Inland Revenue department
particularly on income taxes
� Establishment of strong and sound legal and institution frame work reform in tax
administration
� Reform in tax administration
� Reform of tax audit system through transparency and predictability of the selection process of
subject for tax audit using a computerized method.
� Elimination corruption by making tax administration
� Huge public awareness must be made to informal the public how important is to the society
� Government must increase its efficiency; corruption must be eliminated through upgrading tax
employee’s knowledge and providing them enough salary
� Business should be forced to have financial system or at least they must have bookkeeping
system as
� Government must obtain public confidence through making maximum tax return and efficiently
allocating income
� Tax assessment must be fair and transparent
� Existed tax laws charters must be fully implement
� Finally the research recommends that more researches concerning tax evasion should
conducted since it is serious problem because in the needs attitudinal change which is not easy
Reference:
1. Abdirahman Adan Mohamoud Hargeisa, April 2012 (Local Governments in Somaliland: Challenges and Opportunities)
2. Yusuph Soraan Email: [email protected] Phone: 063 – 4486470 Somaliland: Historical overview of taxation and recent tax policy challenges
3. Taxation Wikipedia – free encyclopedia
4. Ismail Ali Hargeisa, June 2011 Somaliland taxation
5. Google.com
6. Tax Investopedia
Gollis University
Management Science and information technology
Accounting stream
Questionnaire
1. Gender
Female Male
2. Marital status
Married Single Widow Widower
3. Education Level
Primary Secondary University Others
4. Experience
Below 5 Between 5 – 10 above 10
5. What service does your company provide?
Merchandising Manufacturer Service
6. Are you registered for tax?
Yes No
7. What type of tax you pay?
Personal income Tax company income sales Tax payroll tax
8. Are you aware of the importance of paying taxes?
Yes No
9. How knowledgeable are you with tax matter?
Knowledgeable Some knowledgeable Not knowledgeable
10. What is your views regarding current income tax rates?
High Fair Low
11. Do you always pay tax on time?
Yes No
12. What is your view regarding Somaliland authority’s to tax payer?
Friendly Unfriendly
13. How you satisfy when you pay tax?
More Satisfied satisfied Not satisfied
14. Type of taxation
Direct Tax Indirect Tax
15. How do you see the tax collection system in Somaliland?
Up to date The pit fall Not bad
16. Nature of your tax payer status?
Employed Business
16. What are the expectations in the near future of the taxation in Somaliland?
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_____________________________________________________________
17. What may cause tax corruption In Somaliland?
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________
16. Do you think that the tax laws are simple and fair?
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________
17. If yes or no please comment why?
_________________________________________________________________________________________________
_________________________________________________________________________________________________
_________________________________________________________________________________________________