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DECENTRALIZED TAX SYSTEM AND PUBLIC EXPENDITURES IN

RWANDA

HABIMANA THEOGENE

2015

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CHAPTER ONE: INTRODUCTION

1.0 Introduction

This chapter begins with the background of the study, the problem statement, research

objectives, and research questions, significance of the study, limitation and the scope of the

study as subtitles suggest and then organization of the study.

1.1 Background of the Study

All around the world in matters of governance, tax decentralization is the rage. Even apart

from the widely debated issues of subsidiarity and devolution in the European Union and

states’ rights in the United States, tax decentralization has been at the center stage of policy

experiments in the last two decades in a large number of developing and transition economies

in Latin America, Africa and Asia (Bardhan, 2002). Take also the examples of the two

largest countries of the world, China and India. Decentralization has been regarded as the

major institutional framework for the phenomenal industrial growth in the last two decades in

China. India ushered in a landmark constitutional reform in favor of tax decentralization

around the same time it launched a major program of economic reform in the early 1990s

(World Bank, 2000). On account of its many failures, the tax centralized state everywhere

has lost a great deal of legitimacy, and tax decentralization is widely believed to promise a

range of benefits.

Fiscal decentralization has become a major trend worldwide. Much of the recent movement

towards devolution has been driven by the belief that fiscal decentralization has a positive

effect on government efficiency and service delivery. It is generally assumed that the transfer

of powers and resources to lower tiers of government allows for a better matching of public

policies to local needs and thus promotes allocation of resources. All these are expected to

lead to an improvement in regional and overall economic performance, particularly if sub-

national authorities shift resources from current to capital expenditures in search of a better

response to local need (Akpan, 2011).

In 2001 fiscal decentralization was launched in Indonesia as a policy reform to support

regional development, boost economic growth and alleviate poverty. In Vietnam, because of

the decentralization scheme in 1998, 43% of total national expenditures shifted to the local

governments(Salim, 2009). Bolivian economy decentralized in 1994 where 20% of tax

revenue and 40% of expenditure responsibilities have been devolved to local and municipal

governments (Faguet, 2004). Brazil also embraced fiscal decentralization in 1988 through a

constitutional mandate and consequently augmented sub-national fiscal autonomy to 22.5%

of total revenue collection (Shah, 1990). Among other Latin American countries, Argentina

is believed to be the most decentralized economy in the region with about half of the total

public expending are carried out at the subnational government level (Inter-American

Development Bank, 1997)

Similarly, to improve the essential services delivery and generate employment opportunities

to uplift the poor in Colombia, a Law of local governments ‘functions was promulgated in

1993 to bring together the decentralization and poverty alleviation programmes (Iregui,

2005). India, though constitutionally a federal structure since the inception (1947) with clear

demarcation of financial resources between union and state governments, has initiated more

decentralization reforms in 1992 through the 73rd and 74th constitutional amendments and in

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1994 through Panchayati Raj Act to revitalise the decades old local government system

(Chaudhry I , Malik S and Hassan A, 2009). Mexico implemented decentralization reforms

during 1995-1998 in which 20.5% of tax income (previously collected by the federal

government) are now being distributed amongst the states under the regulation of National

System of Fiscal Coordination. (Fausto & Brenda, 2008).

Fiscal decentralization as a system of political organization has a long history in Nigeria. It

predates political independence in 1960 and was used during the colonial era as a means of

coping with the cultural diversity that existed in the country in the early 1900s, Nigeria had

adopted a decentralized system of governance before independence; however, the component

units were further decentralized in 1967 as a check to the power wielded by the Eastern

Region in May 1967 (Adolphus & Deborah, 2014). The former four regions were broken into

a twelve state Federal Structure in 1967. Before 1967, the regions were less dependent on the

Federal government. The revenue allocation formula at that time allowed regions to collect

petroleum profit tax, airport and produce sale/purchase taxes, and custom and excise taxes

(Abuzeid, 2009).

Similarly, fiscal decentralization has initiated in Tanzania under the Local Government Act

of 1982, wherein sub-national governments ‘sources have been increased significantly that

eventually led to improve the efficiency and enhance the responsiveness of local

governments in services delivery (Slater, 1989). The wave of fiscal decentralization was not

confined to above mentioned countries, but ensued in many other countries across all

continents, for instances in Ghana in 1988 (Crawford, 2008), Uganda in 1997 (Azfar &

Jeffrey , 2002).

In Rwanda the National Tax Decentralization Policy was approved in 2001 as mechanism to

achieve good governance principles (through improved participation, promotion of

transparency and accountability, and setting up responsive decentralized structures), enhance

local economic development (through efficiency and effectiveness in implementation of

development programs) and bringing quality and accessible services closer to the citizens.

Since the first Fiscal and Financial Decentralization Policy were adopted, Rwanda has

implemented the National Tax Decentralization Policy in a forthright manner. The

administrative reform process lays out the responsibilities devolved to the Local

Governments and they have been accorded a greater role for service delivery across all

sectors. Sectors (and in the future cells) are mandated as the nodes of service delivery. Local

Governments co-ordinate and assist Sectors to deliver better services to the population by

determining, co-ordinating and implementing development plans and programmes. (Ministry

of Finance and Economic Planning [MINECOFIN], 2011). Huye District is one of the eight

districts that make up Rwanda’s Southern Province. It has a total surface area of 581.5 square

Kilometers. It has fourteen sectors and 77 sub-sectors with a total of 509 cells in total (Huye

District, 2014).

The district has a population of 314,022 inhabitants with an average of 540 inhabitants per

square kilometer

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1.2 Problem Statement

Fiscal and tax decentralization is a mechanism for constraining the expansionary tendencies

of governments. Under this approach, all-over the world central governments do not

maximize social welfare and operate like monopolists in order to increase their control over

the economy’s resources (Crawford, 2008). Therefore, tax decentralization means fiscal

empowerment of the local governments. More specifically, it means devolution of taxing and

spending powers to lower levels of government. A key argument supporting fiscal

decentralization reform is that it can improve the public sector services and help reducing

poverty (Ahmed, 2013) Some authors like Crawford, 2008 and Ahmed, 2013 argued that the

benefits of tax decentralization are not as obvious as proponents of decentralization suggest,

and there could be serious shortcomings that policymakers should be aware of in designing

decentralization policies. Local Government accountability and resource allocation efficiency

may not be achieved with decentralization when the scarcity of public sector administrative,

financial and managerial capacity is more problematic at the lower levels of government

(Collier, 2008). Conflicts between central and local governments as to what should be done

are inevitable even if government tries faithfully to serve the interests of its (different)

constituents. A choice of perspective is thus essential in approaching issues of tax

decentralization. In addition, decentralization may impose constraints to the implementation

of national policies and the creation of coordination channels across regions. Therefore, from

the above problem, the researcher analyzed the contribution of decentralized tax system and

public expenditures.

1.3 Objectives of the Study

1.3.1 General Objective

The general objective of the study was to analyze the contribution of decentralized tax

system to the public expenditures in Rwanda.

1.3.2 Specific Objectives

i. To analyze the effect of decentralized fixed asset tax revenue to the current

expenditures ;

ii. To identify the main problems faced by taxpayers in relation to trading license tax in

Rwanda;

iii. To analyze the benefits brought by rental income tax decentralization in development

expenditures ;

iv. To establish the relationship between decentralized tax system and effectiveness of

public expenditures.

1.4 Research Questions

i. Is there any effect of decentralized fixed asset tax revenue to the current

expenditures?

ii. What are the main problems faced by taxpayers in relation to trading license tax in

Rwanda?

iii. What are the benefits brought by rental income tax decentralization in development

expenditures?

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iv. To what extend decentralized tax system related to effectiveness of public

expenditures?

1.5 Significance of the Study

Based on the objective of this study, the researcher is of the strong opinion that, the study

should be significant to the community and taxpayers, to the tax authorities and to the district

authorities. For the taxpayers, it could provide information to them about their contribution in

supporting the district expenses consequently their awareness to respond to their obligation

increased. For the district authority, it should reveal concrete information about the role of

existing taxpayers, the weight of tax systems generated and how far self-reliance is possible.

For the researcher, it should give him an opportunity to know much about existing tax

systems types, the functioning of fiscal and financing decentralization. For the community, it

should provide them with education and sensitization and provide first-hand information

about the role of tax systems in contributing to the public services. For the academic purpose

it should serve as a reference tool for further research related to the tax to be carried out by

students.

1.6. Limitations of the Study

This study faced some limitations, secondary data required from the district level were not

available, hence the study relied on primary data only. Some authorities do not respond very

well to the appointment due to the heavy tasks assigned to them, for this researcher required

to manage the time, being precisely and concisely as much as possible during information

collection.

1.7. Scope of the Study

The researcher studied the contribution of decentralized tax systems to the effectiveness of

public expenditures in Rwanda. The study was carried out in southern province, in Huye

district which collect more taxes in that province. To analyze the amount of tax systems

collected and their trend along the years, the study considered the five years, 2010 till 2014.

1.8 Organization of the Study

The first chapter is composed by introduction to the study, background to the study, problem

statement, objectives of the study, research questions, significance of the study, limitations of

the study, scope of the study and then organization of the study. The second chapter is

composed by introduction to literature review, theoretical literature, empirical literature,

critical review and research gap identification, conceptual framework and then summary of

literature review. The third chapter is composed by introduction to the research methodology,

research design, target population, sample design, sample size, sampling techniques, data

collection methods, data analysis procedures and then ethical consideration. Chapter four

presents research findings and interpretations, initially discusses socio-demographic

characteristics, then based on objectives of the study results are presented. Chapter five offers

some of the critical reflections on the research findings and recommendations and general

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conclusion that cover a summary of responses to the research questions and objectives of this

study.

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CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 Introduction

A literature review is a description of the literature relevant to a particular field or topic. Our

research study should fill in the gaps left by what has been done before, but before that

happens; we have to have a firm grasp of what has been done before. This means reading and

understanding other people’s research studies. It is in this regard that this chapter was

focused on the previous research made on the concept of taxation and expenditures of local

entities. The research has further looked at the empirical review, critical review, summary

and knowledge gap and conceptual framework.

2.1 Theoretical Literature

This part reviews the literature that brought forward by different authors. It attempts to define

and explain the issues related to the topic of research and relate it with findings for

interpretation later on. In this regards, the chapter focuses on the tax decentralized and

effectiveness of public expenditures.

2.1.1 Overview of Decentralized Tax and Tax Compliance

According to Richard (2015) issues of fiscal decentralization, broadly conceived, are thus in

the air everywhere and, indeed, are already on the ground in many different guises in

different parts of the world. Economic theorists are theorizing about fiscal decentralization,

applied economists are attempting to pin it down in numbers, and policy economists are

busily flying around the world dispensing advice about it. It has long been held that, in

theory, fiscal decentralization may be conducive to economic growth. If few public goods

entail nationwide externalities, sub-national governments are likely to be more efficient in

the production and delivery of public goods. It is also asserted that decision-making on

expenditures at lower levels of government is more responsive to diversified local

preferences and needs and, therefore, more conducive to allocate efficiency (Jing, & Heng,

2005).

According to Suwandi and Warokka (2013), regional autonomy without fiscal

decentralization results less support to the achievement of the governance and public

services’effectiveness. Therefore, autonomy requires financial decentralization policy. Fiscal

decentralization policy aimed at enabling local government budgetary in improving service

to the community, particularly in achieving minimum service standards.

According to Kaplow (1990) taxation refers to the act of a taxing authority actually levying

tax. Taxation as a term applies to all types of taxes, from income to gift to estate taxes. A

means by which governments finance their expenditure by imposing charges on citizens and

corporate entities, Governments use taxation to encourage or discourage certain economic

decisions. For example, reduction in taxable personal (or household) income by the amount

paid as interest on home mortgage loans results in greater construction activity, and generates

more jobs. See also taxation principles means by which governments finance their

expenditure by imposing charges on citizens and entities. Governments use taxation to

encourage or discourage certain economic decisions. For example, reduction in taxable

personal (or household) income by the amount paid as interest on home loans results in

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greater construction activity, and generates more jobs. See also taxation principles (Slemrod,

1995).

Taxation can be defined as the government’s practice of collecting money from its citizens

and business concerns to support its functions. It applies to various types of taxes ranging

from income tax to gift tax, house tax to sales tax etc. In short taxation can be defined as the

one of the primary powers of the government over its citizens. Tax can also be defined as a

pecuniary burden imposed on individuals or property owners in order to support the

government. It is generally a payment exacted by legislative authority (Braithwaite, 2003).

All governments require payments of money taxes from people. Governments use tax

systems to pay soldiers and police, to build dams and roads, to operate schools and hospitals,

to provide food to the poor and medical care to the elderly, and for hundreds of other

purposes. Without taxes to fund its activities, government could not exist. An individual

income tax, also called a personal income tax, is a tax on a person’s income. Income includes

wages, salaries, and other earnings from one’s occupation; interest earned by savings

accounts and certain types of bonds; rents (earnings from rented properties); royalties earned

on sales of patented or copyrighted items, such as inventions and books; and dividends from

stock. Income also includes capital gains, which are profits from the sale of stock, real estate,

or other investments whose value has increased over time (Chang & Lai, 2004).

2.1.2 Overview of Taxation

A tax may be defined as any leakage from the circular flow of income into the public sector,

excepting loan transactions and direct payments for publicly produced goods and services up

to the cost of producing them. It is in effect a contribution designed to reduce private

expenditure in favor public expenditure to enable the government to obtain funds in order to

provide social and merit goods and services, redistribute income, clear market imperfections

and stabilize the economy (Nicholas, 2003).

Tax is generally referred to as a compulsory levy by the government upon assessment of

various categories. It is a compulsory levy payable by an economic unit to the government

without any corresponding entitlement to receive a definite and direct quid pro quo from the

government (Bhatia, 2009). A tax is a compulsory contribution imposed by a public

authority; irrespective of the extant to the service rendered to the taxpayer in return. The

author also defined tax as a compulsory levy imposed on the nationals and residents to meet

expenses which are incurred by a government for the common cause (Saleemi, 1981). A tax

is a compulsory contribution imposed by a public authority, irrespective of the exact amount

of service rendered to the taxpayer in return, and not imposed as penalty for any legal

offence."

Chris and Elizabeth (2001) also defined taxes as a forced proportional contribution from

persons and property levied by the state by virtue of its sovereignty for the support of

government and for all public needs. Therefore, according to the author, tax has three basic

features namely; a compulsory levy imposed by government, or local authority, for public

purpose and to encourage social justice.

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A tax is not a voluntary payment but a compulsory pecuniary burden placed on taxpayers for

the benefit of the society. Adebayo (2004) defined taxation as the legal demand made by the

Federal Government or State government for its citizens to pay money on income, goods and

services. In a less complex society in which the government has few duties and

responsibilities, the financial need of the government are minimal. However, as society

becomes complex the need of the people becomes greater and the government assures greater

responsibility the financial needs of the government becomes great. Consequently, taxes

increase and their effect on the economy becomes more important (Adebayo, 2004). Tax is a

pecuniary burden laid upon individuals or property owns to support the government, a tax is

not voluntary payment or donation but an enforced contribution, exacted pursuant to

legislative authority and is any contribution imposed by government.

Several authors points out or encompasses three main characteristics of the tax and the

following deserves mention; Tax is not levied for a return for a specific service rendered by

government to taxpayers. An individual cannot ask for any special benefit from the

government in return for the tax paid. It is referred to as a non-quid-proquo payment. It is a

compulsory contribution imposed by the government on people or companies. Because of its

compulsory nature, those who do not pay it are reliable to being punished but it is to be paid

by those who come under its jurisdiction (Cooper, Krever and Vann's 2005). It is a payment

by taxpayers which is used to benefit all the citizens whereby the government uses the

collected revenues to establish infrastructures such as hospitals, schools as well as other

public utility services (Chinyere, 2000).

2.1.3 Problems Faced by Tax Collection

According to Ariwodola (2000) a large sum of money by way of revenue that supposed to

have been generated from group of tax payers (self-employed) by different governments

remain uncollected year in year out due to the following factors: Lack of Taxpayers

Data/Information: There is no detailed information on or database for the self-employed, thus

bringing them into the tax net is different. This is a very serious problem in personal taxation

as it often difficult most a times to determine the residence of individuals which is vital for

the purpose of identifying the relevant tax authority of a tax payer. A lot of time is often

spent in residence determination especially where there is dispute between two or more tax

authorities leading to loss of revenue that would have accrued (Azfar, & Jeffrey, 2002).

Inefficient utilization of tax revenue: There is a general apathy to voluntary compliance with

the provisions of the tax laws because of the level of decay in basic infrastructure such as

light, water and good roads. This problem has always called to question the need for

continued payment of tax. Lack of experienced and qualified personnel: Most tax officers

lack the requisite experience and knowledge of the tax laws required to appropriately assess

the self-employed to tax (Chinyere, 2000).

Inadequate penalties/absence of enforcement: the penalties for non-compliance with relevant

tax provisions are too lenient to compel the self-employed to pay tax. There is also a general

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lack of enforcement of existing penalties. Most self-employed persons do not maintain

adequate records of their income and expenditure. In most cases, they mix their business

activities with their private affairs thus making it difficult to determine the income taxable

(Fausto & Brenda, 2008). Most of the self-employed tax payers do not know what tax to

pay, when to pay, who to pay to, where to pay and what relief and allowance they are entitled

to. Governments are faulted here because a good tax system should be certain and easy to

administer. It is the responsibility of government at all levels to educate the public on their

responsibility with respect to tax at all times (Collier, 2008). Some tax officials collude with

would be tax payers to defraud the government of her taxes. A large chunk of revenue that is

supposed to come into government coffers ended up in private pockets compounding

problems of government’s inability to provide the basic infrastructure needed for the orderly

development of the society (Akpan, 2011). This is directly linked to the problem highlighted

above. Several self-employed persons are struggling to survive due to the non-conducive

operating environment.

The society according to Ariwodola (2000) has been impoverished by the elite so much that

paying tax will further deepen the level of poverty among the low income earners. Revenue

authority should embark on aggressive public enlightenment and education of tax payers on

the various taxes payable by all self-employed individuals in the society (Wales, 2008). The

tax laws should be regularly up-dated and provision should be such that are reasonable and

easy to comply with.

2.1.4 Benefits of Decentralized Tax Related to Public Expenditures

Most of developing countries are facing severe dysfunctionality and decline in their

economies; therefore, many of them focused on increasing investment in public productive

expenditures. Such expenditures may invest in human capital and in physical infrastructure

which may, in turn, stimulate investment in the private sector and encourage foreign direct

investment (Sultan, & Mairna, 2011).

The development of different sections of the economy is not possible without the state help.

The government should develop irrigation, transport and communication, industrial and

agricultural systems of the country for the rapid increase in the rate of economic growth

(Tayebwa, 1991). Tax decentralization is necessary because it is not possible or desirable to

obtain all resources needed for the government programs from prices, licenses, and fees.

Certain services, such as national defense and general public administration, cannot easily be

sold to individuals. This is because if these services are provided, the benefits are generally

available to all individuals, irrespective of whether or not they pay, and one person's

enjoyment of them does not diminish the benefits available to others. Similarly, it would not

be socially acceptable to provide certain services, such as education and police protection

only to those who are able to pay full costs because, then, only the `rich' would be able to

enjoy these services (Nicholas, 2003).

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Tax decentralization according to Nightingale (2000) under any jurisdiction is discriminatory

in the sense that it is assessed on persons or property based on profits/incomes or gain, the

benefit derived by citizens from tax payment is without reference to the contribution of

individual tax payers. In line with this, according to Ariwodola (2000) it is accurate to say

that the primary objective and purpose of taxation in most nations of the world is essentially

to generate revenue for government expenditure on social welfare such as provision of

defense, law and order, health services and education. Revenue from taxation can also be

spent on capital projects otherwise called consumer expenditure, creating social and

economic infrastructure which will improve the social life of the people. (Ariwodola, 2000)

Taxation can be extensively used in regulating the consumption pattern resulting in economic

stabilization. Anti-social behavior such as drinking of alcohol, smoking and pool betting can

be controlled by imposition of higher taxes on production of such goods. Firstly taxes are

imposed to maintain economic stability in the country (Akpan, 2011). When it is a period of

inflation, the state imposes more taxes so as to discourage the useless expenditures of the

individuals and the same applies to deflation where taxes are reduced to enable the citizens

spend more money. It is from here that indirect taxes may automatically stabilize the

economy as much as goods having high income elasticity of demand are taxed more heavily

(Braithwaite, 2003).

The main reason of imposing taxes is to raise revenue for financing public activities such as

building schools, roads, and hospitals, maintain security of nationals, and safeguard territorial

integrity thus playing a pivotal role in maintaining a political, social and economic

environmental stability. When the revenue collected is used into developmental affairs,

individuals get employed due to more employment opportunities created (Adebayo, 2004).

There is also another reason which is fair distribution of income (Reduction of income

inequality). Here the government imposes taxes to achieve equality in the distribution of

national income where by the rich are taxed highly that will improve the welfare of the poor

and taxing the poor less or giving subsides. This has already been done in the Rwanda

context such as is PAYE system.

The policy of the government must be protected by enhancing local industries through

imposing high taxes on imported commodities from other countries but of the same type

(Braithwaite, 2003). The government can also subsidize home industries so that the cost of

production is low. This will enable these industries to compete with other regional ones

especially now that regional integration may not allow imposition of taxes on goods from

neighboring countries. Protecting home industries also solves a social problem of

unemployment as local gain capacity they absorb unemployed skilled manpower (Bhatia,

2009).

Taxes may bring about a balanced national development. This means that out of revenues

collected, government may decide to allocate resources to areas or sectors where

development is highly needed so as to have balanced productive results. The government

imposes taxes for the element of social welfare by imposing high taxes on harmful goods to

human health and these include alcoholic drinks, cigarettes and other harmful chemicals.

Taxes are used to check on inflation by reducing the purchasing power of the people. This

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can be done by increasing taxes on their incomes so that there is a reduction on disposable

income (Richard, 2010).

According to Tanzi & Pellechio, (1995) the main tasks of tax administration involve:

(1)information and instruction to taxpayers, (2) registration, organizing and processing tax

returns (input of data, processing declarations and payments), (3) coercive collection (closely

connected with registration, accounting and return processing), (4) control and supervision

(discovering lacking and insufficient tax returns and controls of books and papers in tax

administration offices or business activities and books of taxpayers, while routine check-ups

had already been done in the registration, accounting and return processing department), (5)

legal services and complaints (taking cases to court, defending tax administration in court,

explaining procedures which are or are not in accordance with the law).

2.2 Empirical Literature

Richard ( 2015) analyzed tax and Fiscal decentralization in Canada. The general objective of

the study was to discuss aspects of taxation subject that have turned out to be important in

policy work on the issue in Canada. First, they discussed briefly the meaning and rationale of

fiscal decentralization. Using documentary analysis, they found that there was much that has

to be disentangled before one can approach the issue in a particular policy setting, including

distinguishing between the problems of federal finance and fiscal federalism. Second, they

reviewed the issue of the choice of local revenue sources from the perspective of establishing

efficient local governments, including the roles of user charges, property taxes, and income

taxes. Finally, they sketched some considerations with respect to the design of

intergovernmental transfers from the same perspective, with particular emphasis on the

desirability in many settings of transfers that were both conditional and equalizing. The study

found that tax and fiscal decentralization contributed positively to the management and

utilization of resources in local Government.

Jing and Heng (2005) assessed the fiscal decentralization, revenue and expenditure

assignments and growth in China. The study found that, there was contradiction between the

theory and evidence in the China case is reconciled by taking into account the institutional

arrangements that prevailed during the two phases of fiscal decentralization, in particular the

inconsistency between the assumptions of the theory of fiscal decentralization and the

institutional reality of China.

Suwandi and Warokka (2013) analyzed Fiscal Decentralization and Special Local

Autonomym in Indonesia. The study aimed to examine the effects of fiscal decentralization

and specific local autonomy on economic growth, employment, poverty, and welfare in the

special province Papua (Indonesia). The study exploited the main data of the decentralization

fund by using a panel data of eight regencies and municipals, particularly the regional

autonomy fund, direct and indirect government expenditure, and economic growth. The

paper used the path analysis to explore the relationships of the observed variables. The

results revealed that the decentralization fund influenced significantly on government’s direct

expenditure and economic growth. The special local autonomy's fund has influenced

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considerably on government’s indirect expenditure. Its effect has increased, through

economic growth as the intermediating variable, meaningfully on employment, poverty, and

welfare. The results are in line with the prior studies, which explore the consequences of

decentralization and specific autonomy to spur the economic growth in certain regions. It

found that the economic development strategies in Indonesia’s less-developed regions should

be started with a bigger autonomy transfer program to those regions and simultaneously

enhanced it by special budget allocation to trigger and support the development.

Gediminas, Kęstutis and Neringa ( 2013) analyzed development of local municipality taxes

and principles of fiscal policy in Lithuania. The analysis found, that non-tax income, which

can be mostly influenced by local governments and local taxes comprises but an insignificant

share of all local governments income and they significance were not great.

Okafor (2012) analyzed tax revenue generation and nigerian economic development. The

objective of this study was to explore the impact of income tax revenue on the economic

growth of Nigeria as peroxided by the Gross Domestic Product (GDP). The Ordinary Least

Square (OLS) regression analysis was adopted to explore the relationship between the GDP

(the dependent variable) and a set of federal government income tax revenue heads over the

period 1981-2007. A simple hypothesis was formulated in the null form which states that

there is no significant relationship between federally collected tax revenue and the GDP in

Nigeria. The regression result indicated a very positive and significant relationship. However

actual tax revenue generated in most years fell below the level expected. The anomaly was

attributed to dysfunctional ties in the income tax system, loopholes in tax laws and inefficient

tax administration.

Sanni (2012) analyzed multiplicity of taxes in Nigeria: issues, problems and solutions. The

objective of the study was to examine, among other things, the meaning of multiplicity of

taxes, its causes, impact on tax compliance and revenue yield. The study also discussed the

growing debate on the need to streamline the number of taxes in Nigeria in view of the low

yields of many of the taxes. The study considered the extent to which multiplicity of taxes

really exist in Nigeria, why the problems persist, it used documentary analysis and found that

Multiplicity of taxes infringes the cardinal principles of taxation. The study also found that

problem has lingered on also because all the tiers of government have failed to adequately

fund their department and agencies and this development has compelled them to embark on

aggressive revenue drive some of which verge on illegality in the name of increasing the

internally generated revenue.

Aigbepue and Ainabor (2011) analyzed issues and challenges of Nigerian fiscal federalism.

The objective of the study was to look at these issues within the purview of Nigerian federal

structure involving sharing of revenue from the federation account by the federating units,

fiscal decentralization and the allocation of expenditure and tax-raising power among the

federal, state and local government. The study found that there is a prospect of a stable

federation if anchored on arrangement rooted in equity, fairness and justice. That is the

evolution of an equitable revenue formula that would be in the best long-term interest of a

stable Nigerian federation.

Zhou and Chilunjika (2013) analyzed the challenges of Self-Financing in Local Authorities

in Zimbabwe. The objective of the study was to examine self-financing efforts in local

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government authorities in Zimbabwe against the background of perceived declines in

transfers from central government. The study used documentary analysis and findings

indicated that while local authorities in Zimbabwe exercise varying taxing and expenditure

powers under the rubric of fiscal decentralization, creating a buoyant self-financing base was

compromised by interlocking factors that include continued central government grip, limited

revenue base, failure to devise long range revenue optimizing strategies, political

interference, and an institutionalized culture of rent seeking.

Mukabi, Barasa and Viola (2015) analyzed devolved governance in Kenya; is it a False Start

in Democratic Decentralization for Development? The purpose of the study was to measure

the extent to which these challenges have been addressed after the decentralized devolved

system of governance was introduced. The study adopted a diagnostic approach based on

desk research to investigate these Kenyan challenges, draws from expert opinion and does

comparative analysis based on lessons from other devolved political systems in Africa and

the world. The study explored and discussed these challenges with a view of informing other

world democracies that have or are on the verge of adopting this strategy of decentralization

for development to be conscious of these pitfalls and design appropriate structures and a roll

out framework for circumventing them. It also informs constitutional development of

devolved government structures. The study found that the County Governments in Kenya

have indeed made significant progress in involvement of stakeholders on development at

County level, a realization of devolvement of funds, creation of employment opportunities, a

more accountable political system and devolvement of certain key functions to the local

level.

Waswa, Sudi, George, Juma, and Kituyi (2013) made an analysis of fiscal decentralization as

a strategy for improving revenue performance in Ugandan local governments. This study was

conducted to examine the impact of fiscal decentralization on revenue performance in

Ugandan local governments. A cross-sectional survey research design involving both

quantitative qualitative research methods were used in the study. A questionnaire was

employed to collect and analyze quantitative data, while an interview guide was used to

collect qualitative data. The study population included council members and technical

members of staff in three local government districts of Mbale, Manafwa and Kampala. Both

random and purposive sampling techniques were used to select a total sample of 600

respondents. Results indicated that fiscal decentralization helps to reduce corruption, leads to

improved revenue performance, enables better planning for revenue collection, reduces on

tax evasion, enables the local unit to get more sources of revenue, makes it easy to handle

taxation disputes and also that Fiscal decentralization reduces on taxation bureaucracies

hence better revenue performance.

Frederick, Benjamin and Mukasharangabo (2013) assessed challenges faced by tax collectors

and tax payers in rural areas in Rwanda, Nyaruguru District. Their study aimed at assessing

the problems facing tax collectors and tax payers in Nyaruguru District. The research used

descriptive and comparative research design. The target population included taxpayers and

tax collectors of Nyaruguru District among whom questionnaires were administered to a

selected sample. The statistical treatment of data was done using the frequencies and

percentages through SPSS software. The research found rental tax, property tax, and trading

license tax being the types of tax collected in Nyaruguru District. The identified challenges

facing tax collectors of Nyaruguru District included mainly poor tax payers’ perception on

15

the relevance of tax payment, taxpayers’ delay in tax declaration, starting business activity

without trading license and traditional mode of tax collection. The major causes of tax

collection problems included lack of tax taxpayers’ education about tax relevance, and

insufficient District means to equip tax collectors with means of transport.

2.3 Critical Review and Research Gap Identification

Richard ( 2015) analyzed tax and Fiscal decentralization in Canada. The general objective of

the study was to discuss aspects of taxation subject that have turned out to be important in

policy work on the issue in Canada. Even if they discussed the meaning and rationale of

fiscal decentralization and found that there was much that has to be disentangled before one

can approach the issue in a particular policy setting, they focused on secondary data only.

Gediminas, Kęstutis and Neringa ( 2013) analyzed development of local municipality taxes

and principles of fiscal policy in Lithuania. Even if they analyzed the possibility of

developing fiscal decentralization and its main part and found, that non-tax income, which

can be mostly influenced by local governments and local taxes comprises but an insignificant

share of all local governments income and they significance were not great, they did not

analyzed report of tax collectors in the case under study using statistical approaches.

Jing and Heng (2005) assessed the fiscal decentralization, revenue and expenditure

assignments and growth in China. The objective of this study was to show divergence rather

than convergence, in revenue and expenditures. Even if they examined the relationship

between fiscal decentralization and economic growth over two phases of fiscal

decentralization in China and found that, there was contradiction between the theory and

evidence in the China, they did not analyze both primary and secondary data. Suwandi and

Warokka (2013) analyzed Fiscal Decentralization and Special Local Autonomym in

Indonesia. Although the study examined the effects of fiscal decentralization and specific

local autonomy on economic growth, employment, poverty, and welfare in the special

province Papua and found that the economic development strategies in Indonesia’s less-

developed regions should be started with a bigger autonomy transfer program to those

regions and simultaneously enhanced it by special budget allocation to trigger and support

the development, the study did not focus on both decentralized tax and public expenditures in

the country.

Okafor (2012) analyzed tax revenue generation and nigerian economic development. Even if

the objective of the study was to explore the impact of income tax revenue on the economic

growth of Nigeria as peroxided by the gross domestic product (GDP) and found that there is

no significant relationship between federally collected tax revenue and the GDP in Nigeria,

they did not show the level of relationship of variables under study. Waswa,Sudi,

George,Juma, and Kituyi (2013) made an analysis of fiscal decentralization as a strategy for

improving revenue performance in Ugandan local governments and found that fiscal

decentralization helps to reduce corruption, leads to improved revenue performance, enables

better planning for revenue collection, reduces on tax evasion, enables the local unit to get

more sources of revenue, makes it easy to handle taxation disputes and also that Fiscal

decentralization reduces on taxation bureaucracies hence better revenue performance, they

16

did not analyze the relationship between variables under study using Pearson correlation

coefficient to establish the level and direction of relationship.

Frederick, Benjamin and Mukasharangabo (2013) assessed challenges faced by tax collectors

and tax payers in rural areas and found rental tax, property tax, and trading license tax being

the types of tax collected in Nyaruguru District. The identified challenges facing tax

collectors of Nyaruguru District included mainly poor tax payers’ perception on the

relevance of tax payment, taxpayers’ delay in tax declaration, starting business activity

without trading license and traditional mode of tax collection, but they did not analyze the

contribution of decentralized tax to public expenditures. Therefore, the study found a gap,

whereby other studies did not analyzed the contribution of decentralized tax system on public

expenditures using, qualitative and quantitative approaches through statistical methods.

2.4 Theoretical Framework

This study guided by both wisdom in the fiscal federalism theory and canons of taxation

theory, the study chose these two theories because are related to taxation and public

expenditures.

2.4.1 Wisdom in the fiscal federalism theory

According to Bardhan (2002) the conventional wisdom in the fiscal federalism theory

developed by Oates in 1972, it is stated that decentralization is to be preferred when tastes

are heterogeneous and there are no spillovers across jurisdictions. With spillovers and no

heterogeneity, a central government providing a common level of public goods and services

for all localities is more efficient; with spillovers, decentralization leads to under-provision of

local public goods, as local decision makers do not take into account benefit going to other

districts.

2.4.2 Canons of Taxation Theory

According to Wales (2008) canons of taxation theory developed by Adam Smith in 1776,

what constitutes a “fair tax” has been the subject of debate since Adam Smith proposed his

four canons of taxation in The Wealth of Nations in 1776. Canons of Taxation are the main

basic principles set to build a 'Good Tax System'. They were first originally laid down by

economist Adam Smith in his famous book "The Wealth of Nations". In this book, Adam

smith regarded as the "Godfather" of economics only gave four canons of taxation. These

original four canons are now known as the "Original or Main Canons of Taxation". As the

time changed, governance expanded and became much more complex than what it was at the

Adam Smith's time. Soon a need was felt by modern economists to expand Smith's principles

of taxation and as a response they put forward some additional modern canons of taxation

(Richard, 2010).

The theory aims at providing economic and social justice to the people. According to this

principle, every person should pay to the government depending upon his ability to pay. The

rich class people should pay higher taxes to the government, because without the protection

of the government authorities (Police, Defense, etc.) they could not have earned and enjoyed

their income. Adam Smith argued that the taxes should be proportional to income, i.e.,

citizens should pay the taxes in proportion to the revenue which they respectively enjoy

under the protection of the state.

17

According to Adam Smith (1776), the tax which an individual has to pay should be certain,

not arbitrary. The tax payer should know in advance how much tax he has to pay, at what

time he has to pay the tax, and in what form the tax is to be paid to the government. In other

words, every tax should satisfy the canon of certainty. At the same time a good tax system

also ensures that the government is also certain about the amount that will be collected by

way of tax. The mode and timing of tax payment should be as far as possible, convenient to

the tax payers. For example, land revenue is collected at time of harvest; income tax is

deducted at source. Convenient tax system will encourage people to pay tax and will increase

tax revenue. This principle states that there should be economy in tax administration. The

cost of tax collection should be lower than the amount of tax collected. It may not serve any

purpose, if the taxes imposed are widespread but are difficult to administer. Therefore, it

would make no sense to impose certain taxes, if it is difficult to administer.

18

2.5 Conceptual Framework

This study considers a conceptual framework as a theoretical structure of assumptions,

principles, and rules that holds together the ideas comprising a broad concept of the research.

Figure 2.1: Conceptual Framework

Independent Variable Dependent Variable

Source: Researcher developed

Figure 2.1 indicates relationship between the variables under study; decentralized tax revenue

where the determinants under study were fixed asset tax, trading license tax and rental

income tax; the study also conceptualized transparency, responsiveness to clients’ needs and

budget financing.

2.6 Summary

The literature review as presented in this chapter provides an understanding of theory

concerning taxation its benefits in raising revenue and contributing to government expenses

implicating economic growth which can lead so far to self-financing. Many studies did

studies on the contribution of tax systems in financing local government, most of them

stressed on the decentralized tax revenues. This leaves a gap to know how much tax

decentralization could contribute to effectiveness of public expenditures in Rwanda. The

researcher needs to focus the study in local government taking Huye district as a case study.

Decentralized Tax

System

Fixed asset tax

Trading license tax

Rental income tax

Public Expenditures

Transparency

Responsiveness to clients’ needs

Budget financing

Intervening Variables

Tax policies

Canons of Taxation

19

CHAPTER THREE: RESEARCH METHODOLOGY

3.0. Introduction

This chapter presents the methodology to be used to collect data from the field. It explains in

detail the methodological aspects that will be used to complete this analytical research work

in Huye District. It describes such elements as the research design, target population, sample

design, data collection methods, data analysis procedure and ethical consideration.

3.1. Research Design

A research design can be technically defined as a pre-arranged program for collecting and

analyzing the information needed. Satisfy study objectives at the lowest cost (Kothari, 1985).

This study will use descriptive research design as it will involve use of written questionnaires

administered to respondents. Kothari (1985) recommends descriptive and analytical design as

it allows the researcher to describe, record, analyze and report conditions. The study adopted

both quantitative and qualitative approaches. As regards quantitative data, it includes

statistical expressions, percentages and frequencies. Quantitative approach was used to

establish the relationship between variables. Therefore, the research design was descriptive-

analytical design.

3.2 Target Population

According to Lim and Ting (2009), a population is any complete group that shares a common

set of characteristics. In this research, the total population comprised two strata, such as 18

District staff (four District planning staffs, 14 sector accountant officers) 11,114 taxpayers in

Huye District (832 in Tumba, 281 in Huye, 4914 in Ngoma, 482 in Ruhashya, 120 in Simbi,

402 in Maraba, 444 In Gishamvu, 731 in Mukura, 59 in Rwaniro, 834 in Rusatira, 297 in

Karama, 483 in Kigoma, 615 in Mbazi and 620 in Kinazi) (Huye District, 2014). Hence, the

total target population will be 11,132 people.

20

3.3 Sample Design

According to Ross (2005) sampling in research is generally conducted in order to permit the

detailed study of part, rather than the whole, of a population. The information derived from

the resulting sample is customarily employed to develop useful generalizations about the

population. These generalizations may be in the form of estimates of one or more

characteristics associated with the population, or they may be concerned with estimates of the

strength of relationships between characteristics within the population.

3.3.1 Sample Size

A sample as defined by Bailey (1978), “is a subset or a portion of the total population. The

ever increasing need for a representative statistical sample in empirical research has created

the demand for an effective method of determining sample size. To address the existing gap,

Yamane (1973) came up with a formula for determining sample size for a given population

for easy reference.

Where, n = 99: sample size, N = 11,132: Target population, e = 10%: Error of precision

3.3.2 Sampling Technique

To get the sample population, stratification was based on being District staff and taxpayers in

Huye District. Then, the researcher proceeded with a purposive sampling technique to make

sure that the data concerning the purpose of the study was obtained. Therefore, in relation to

the information needed in this study, the researcher needed all 18 District staff and 81

taxpayers which were selected from 11, 114 taxpayers using systematic random sampling

method. This means that every 137th taxpayer on the list from Huye District taxpayer was

chosen.

Table 3.1: Population Under Study

Population category Target Population Sample size

District staff 18 18

Taxpayers 11114 81

Total 11132 99

Source: Huye District annual report, 2014

3.4. Data Collection Methods

Primary data was collected by the use of a questionnaire. The design of the questionnaire

was based on the research objectives. The research questionnaire assessed the perceptions

of respondents on the various factors to be identified by the researcher and the relative

importance of the factors.

3.4.1 Data Collection Instruments

In this study, the main instrument that was used to generate data and opinions were the

questionnaires. The questionnaire generated primary data; but were also be administered to a

group of respondents,

21

3.4.2 Administration of Data Collection Instruments

Questionnaire is an effective method to seek a large sample size for quantitative data

analysis. The questionnaire tried to achieve several keys features of research objectives.

Again, the questionnaire was distributed exclusively to the respondents with reading and

writing abilities. The questionnaires were distributed to 18 District staff and 81 taxpayers

and returned after five days.

3.4.3 Reliability and Validity

The reliability and validity are very important because it may affect the findings and

recommendations of the study. During the research process, the researcher was conscious

about these two features and these were given special attention. While setting the

questionnaire, researcher was highly concentrated on the issue that the questionnaire would

be simple and easily understandable by the respondents so that it provides relevant

information.

Validity refers to the degree to which a study is based on truth or reason; validity is therefore

concerned with the study success at measuring what the researcher set out to measure

(Campbell, Shadish& Cook, 2002). In the present study, the validity was ensured by

submitting the research instruments to the supervisor and other lecturers to check them

before being administered. Then their contributions and adjustments were of utmost

importance to ensure that questionnaires are consistent, concise, intelligible, and clear so that

the instruments can really measure adequately what they intend to measure in accordance

with the objectives and the questions of the study.

According to George & Miller (2003), reliability is concerned with the accuracy of the actual

measuring instrument or procedure. Thus, to ensure the reliability, the researcher pretested

the research instruments before they are used. Therefore the study was conducted in two

phases. In the first phase the researcher surveyed a small number of people (10) with the

same characteristics. In the second phase, the researcher considered necessary adjustments,

before administering the instruments to the intended study respondents. After, this the study

tested Croanbach Alpha which and was 89.9% for taxpayers questionaire and 90.1% for

staff questionnaire.

3.5 Data Analysis Procedures

The data were collected and coded into Statistical Package for Social Sciences (SPSS). This

computer software was used to analyse the data to produce the results for interpretation. The

analysis was done in a way that it reflects the objectives as developed in the study and

verified how findings meet each of them. To analyze the data, descriptive statistics and

inferential statistics were generated in percentages and frequencies, and used in the

interpretation of the findings of the objectives.

3.6 Ethical Consideration

Kvale (1996) contends that ethical concerns are very important in research as they protect

participant’s privacy and anonymity with regard to their personal information. This is further

supported by this study why researcher should behave ethically. In this study, the purpose of

the study was clearly explained to the respondents that it was purely academic so as not to

ignite false expectations. Respondents were informed that they are free to withdraw in the

22

course of the study if they wished to. On the other hand, anonymity or confidentiality refers

to the protection of respondents’ privacy by changing their names and identifying features or

simply publishing personal data behind a shield anonymity. However the problem with

confidentiality is that insiders still recognize the disguised locations or persons. In such

situations, publication of information should be done only when the research subject has

agreed to that and that it should be explicitly stated on the consequences this may have

(Kvale, 1996). In this study, the Huye District staff were guaranteed that their data will be

treated confidentially and permission was given by the informants to publish the results once

the findings is ready. In this way, this study took ethical consideration into account and this

made it professional and at the same time protecting the rights to privacy of the institutions

studied as well as the research subjects involved in the study. To meet ethical guidelines,

respondents were asked to authorize the use of their information for the sake of this study.

23

CHAPTER FOUR: RESEARCH FINDINGS AND DISCUSSION

4.0 Introduction

This chapter presented, analyzed and interpreted the findings of the study in relation to the

objectives. The researcher presented the collected data using tables and figures from which

percentages and frequencies were ascertained to provide a basis for analysis and

interpretations.

4.1 Demographic Characteristics of Respondents

In this section, the researcher presents the findings of the research extracted from the data

collection instruments that included questionnaires. The researcher presents the respondents’

profile in relation to age, gender, education and experience. This was done in order to form a

basis of making conclusions on the views that respondents gave on the decentralized tax

system and effectiveness of public expenditures in Rwanda.

Table 4.2: Distribution of Respondents by Age

Frequency Percent

Between 20 and 30 years 10 12.3

Between 30 and 40 years 44 54.3

Between 40 and 50 14 17.3

Above 50 years 13 16.0

Total 81 100.0

Source: Field Data

Table 4.1 indicates proceeds from respondents on Age among the demographic of

respondents out of 81 respondents 12.3% have between 20 and 30 years, 54.3% have

between 30 and 40 years, 17.3% have between 40 and 50 while 16% have above 50 years.

The researcher realized that the contacted respondents were of reasonable age and in position

to give careful and well analyzed information that could facilitate making of necessary and

relevant conclusions.

Table 4.3: Distribution of Respondents by Gender

Frequency Percent

Male 36 44.4

Female 45 55.6

Total 81 100.0

Source: Field Data

Table 4.2 presents proceeds from respondents on Gender among the demographic of

respondents out of 81 respondents, 44.4% are male while 55.6% are female. Based on the

findings indicates out of 81 respondents that female are more than male.

24

Table 4.4: Distribution of Respondents by Level of education

Frequency Percent

Primary school 32 39.5

Bachelor’s degree 28 34.6

Secondary 21 25.9

Total 81 100.0

Source: Field Data

Table 4.3 shows proceeds from respondent on Level of education among the demographic of

respondents out of 81 respondents 39.5% hold primary school, 34.6% hold Bachelor’s

degree, 25.9% finished secondary. The level of education indicates that the respondents were

able to deal with tax system and public expenditures in Rwanda.

25

Table 4.5: Distribution of Respondents by Occupation

Frequency Percent

Agriculture 40 49.4

Commerce 36 44.4

Government employee and

commerce 5 6.2

Total 81 100.0

Source: Field Data

Table 4.4 designates proceeds from respondent on occupation among the demographic of

respondents out of 81 respondents 49.4% doing agriculture, 44.4% doing commerce while

6.2% are government employees and doing commerce. This indicates that out of 81

respondents 40(i.e. 49.4) respondents are occupied in agriculture sector. Hence, the

agricultural sector remains the economic backbone of Rwanda, employing about 87 % of the

working population, producing around 46% of GDP and generating about 80% of the total

export revenues.

Table 4.6: Distribution of staff by Age

Frequency Percent

Between 20 and 30 years 2 11.1

Between 30 and 40 years 9 50.0

Between 40 and 50 7 38.9

Total 18 100.0

Source: Field Data

Table 4.5 indicates proceeds from respondent on age among the demographic of respondents

out of 18 respondents 11.1% have Between 20 and 30 years; 50% have Between 30 and 40

years while 38.9% have between 40 and 50. The researcher realized that the contacted

respondents were of reasonable age and in position to give careful and well analyzed

information that could facilitate making of necessary and relevant conclusions.

Table 4.7: Distribution of staff by Gender

Frequency Percent

Male 11 61.1

Female 7 38.9

Total 18 100.0

Source: Field Data

Table 4.6 shows proceeds from respondents on gender among the demographic of

respondents out of 18 respondents 61.1% are male while 38.9% are female. Based on the

findings, it is indicated that male are more than female among the staff of Huye district.

Table 4.8: level of education

26

Frequency Percent

Master’s degree 7 38.9

Bachelor’s degree 11 61.1

Total 18 100.0

Source: Field Data

Table 4.7 designate proceeds from respondents on level of education among the demographic

of respondents out of 18 respondents 61.1% hold Bachelor’s degree while 38.9% hold

Master’s degree.

The level of education indicates that the respondents were able to deal with decentralized tax

revenue and effective public expenditures, whereby they gave accurate information regarding

research questions and objectives.

Table 4. 9: Distribution of staff by Occupation

Frequency Percent

District planning staffs 4 22.2

Sector accountant officers 14 77.8

Total 18 100.0

Source: Field Data

Table 4.8 shows proceeds from respondents on occupation out of 18 respondents, 22.6%

were District planning staffs while 77.8% are sector accountants. The researcher focused on

the above staff because they make linkage between Tax system and Public expenditures.

Thus, they are enough informed about decentralized tax revenue and effective public

expenditure from this background, it implies that the researcher got accurate information

concerning the tax decentralization revenue and public expenditures.

4.2 Research Findings

This section presents the results in terms of both analysis and interpretation in relation to

research objectives, such as the effect of decentralized fixed asset tax systems to the

effectiveness of current expenditures; the main problems faced by taxpayers in relation to

trading license tax in Rwanda; the benefits brought by rental income tax decentralization in

development expenditures; the relationship between decentralized tax system and

effectiveness of public expenditures.

27

4.2.1 The effect of Decentralized Fixed Asset Tax system to the Effectiveness of Current

Expenditures

Table 4. 10: Tax capacity

Frequency Percent

strongly agree 4 22.2

Agree 5 27.8

Disagree 9 50.0

Total 18 100.0

Source: Field Data

Table 4.9 presents proceeds from respondents on tax capacity out of 18 respondents, 4(i.e.

22.2%) respondents chose strongly agree, 5(i.e. 27.8%) respondents chose agree while 9( i.e

50%) respondents chose disagree. Hence, tax capacity refers to the predicted tax-to-gross

domestic product ratio that can be estimated empirically, taking into account a country's

specific macroeconomic, demographic, and institutional features, which all change through

time.

Table 4. 11: Tax regulations

Frequency Percent

strongly agree 6 33.3

Agree 7 38.9

Disagree 5 27.8

Total 18 100.0

Source: Field Data

Table 4.10 indicates proceeds from respondents on tax regulation out of 33.3% select

strongly agree, 38.9% select agree while 27.8% select disagree. Hence, tax regulation play

important role to RRA to control everything concerning tax and this can play important role

to avoid errors and fraud and also helps taxpayer to pay tax based on the low.

Table 4.12: Improved fairness

Frequency Percent

strongly agree 9 50.0

Agree 4 22.2

Undecided 5 27.8

Total 18 100.0

Source: Field Data

Table 4.11 shows proceeds from respondents on improved fairness 50% tick strongly agree,

22.2% tick agree while 27.8% tick undecided. Hence, the vast majority of Rwandan do the

right thing, and our systems are built on trust and voluntary compliance, Around 95 per cent

of our tax revenue comes from taxpayers who pay voluntarily. Our high level of willing

28

participation is the result of many factors such as support in paying taxes, trust in the fairness

of our system, strength of our laws and effectiveness of the RRA.

Table 4.13: Level of tax burden

Frequency Percent

strongly agree 9 50.0

Agree 5 27.8

Disagree 4 22.2

Total 18 100.0

Source: Field Data

Table 4.12 indicate proceeds from respondents on level of tax burden out of 18 respondents

50% chose strongly agree, 27.8% chose agree while 22.2% disagreed. In most advanced

economies the fiscal responsibility assigned to sub-national government levels has recently

been increased with the aim of improving the efficiency in the allocation of public resources

and possibly boosting economic growth so, tax burden is one of the determinants that affect

decentralized fixed asset tax revenue to the effectiveness of current expenditures as analysis

of the effect of a particular tax on the distribution of economic welfare.

Table 4.14: Types of tax paid

Frequency Percent

strongly agree 6 33.3

Agree 10 55.6

Disagree 2 11.1

Total 18 100.0

Source: Field Data

Table 4.13 shows proceeds from respondents on types of tax paid 33.3% tick strongly agree,

55.6% tick agree while 11.1% tick undecided. The majority of respondents perceived that

types of tax paid affect effectiveness of current expenditures in Huye District, this implies

that effectiveness of current expenditures strongly depend on the most type of tax paid in the

District.

Table 4.15: Monitoring and evaluation

Frequency Percent

strongly agree 7 38.9

Agree 6 33.3

Disagree 5 27.8

Total 18 100.0

Source: Field Data

29

Table 4.14 presents proceeds from respondents on monitoring and evaluation 38.9% chose

strongly agree, 33.3% chose agree while 27.8% chose disagree. Hence, Monitoring and

evaluation is output of the decentralized fixed asset tax revenue to the effectiveness of

current expenditures and play important role to improve performance and achievement of

objectives and whether the actions were implemented as planned.

Table 4.16: Accountability

Frequency Percent

strongly agree 7 38.9

Agree 7 38.9

Disagree 4 22.2

Total 18 100.0

Source: Field Data

Table 4.15 presents proceeds from respondents on accountability 38.9% chose strongly

agree, 38.9% chose agree while 22.2% chose disagree. Based on the data in Table 4.15 the

majorities of respondents accept the Accountability Hence, Accountability accelerates

performance and measure success develop as sure-fire winning strategy and execute with

confidence.

Table 4.17: Transparency

Frequency Percent

strongly agree 7 38.9

Agree 8 44.4

Disagree 3 16.7

Total 18 100.0

Source: Field Data

Table 4.16 indicates proceeds from respondents on transparency 38.9% select strongly agree,

44.4% select agree while 16.7% select disagree. The majority of respondents confirmed that,

there is transparency in Huye taxation system.

30

Table 4.18: Responsiveness to clients’ needs

Frequency Percent

strongly agree 4 22.2

Agree 9 50.0

Disagree 5 27.8

Total 18 100.0

Source: Field Data

Table 4.17 shows proceeds from respondents on responsiveness to clients ‘needs 22.2%

tick strongly agree, 50% tick agree while 27.8% tick disagree. Hence, the objective of

developing a tax plan in the District is to organize tasks and allocate the resources

accordingly, so that the District could achieve its specified goals related to tax within desired

time frame.

Table 4.19: Budget financing

Frequency Percent

Strongly Agree 4 22.2

Agree 8 44.4

Disagree 6 33.3

Total 18 100.0

Source: Field Data

Table 4.18 indicates proceeds from respondents on Budget financing 22.2% select strongly

agree, 44.4% select agree while 33.3% select disagree. Hence, budget financing is prediction

of future cash receipts and expenditures for a particular time period. It usually covers a

period in the short-term future. The cash flow budget helps the Huye district determine when

tax collected will be sufficient to cover expenses.

Table 4.20: Target achievement

Frequency Percent

strongly agree 4 22.2

Agree 6 33.3

Disagree 8 44.4

Total 18 100.0

Source: Field Data

Table 4.19 presents proceeds from respondents on target achievement 22.2% chose strongly

agree, 33.3% chose agree while 44.4% chose disagree. Hence, target achievement for Huye

district is done after developing a plan through to the organize of tasks and allocate resources

accordingly so that Huye District can achieve its specified goals within it desired time frame.

31

Table 4.21: Citizen’s welfare

Frequency Percent

strongly agree 7 38.9

Agree 6 33.3

Disagree 5 27.8

Total 18 100.0

Source: Field Data

Table 4.20 indicates proceeds from respondents on citizen’s welfare 38.9% chose strongly

agree, 33.3% tick agree while 27.8% tick disagree. Hence, Good governance is the best way

to improve the welfare of senior citizens so funds intended for them will not be stolen and If

our taxes were collected equitably and spent wisely, we’d have more government hospitals

and social services. Let’s pray that our officials see the light and there are other benefits that

the government can extend to the elderly to make their remaining lives blissful. We all know

that most of these senior citizens are retirees and their only source of income is their monthly

pension. More often than not, their pensions are based on their salaries from years and years

ago. The amount has been eroded by inflation and most of them cannot cope with the present

prices of medicines and other basic necessities.

Table 4.22: Infrastructures

Frequency Percent

strongly agree 10 55.6

Agree 8 44.4

Total 18 100.0

Source: Field Data

Table 4.21 indicates proceeds from respondents on infrastructure 55.6% chose strongly agree

while 44.4% chose agree. From this finding, the study revealed that decentralized fixed asset

tax system affected the availability of infrastructure in Huye District, through the

effectiveness of current expenditures in the District.

4.2.2 The Main Problems Faced by Taxpayers in Relation to Trading License Tax in

Rwanda

This section focuses on the main problems faced by taxpayers in relation to trading license

tax in Rwanda, such as lack of information, lack of training, failure to file penalty, making

errors on their tax return, tax audit, data processing errors and unclear written communication

32

Figure 4.2: Responses of taxpayers on the main problems related to trading license tax

in Rwanda

Source: Field Data

Figure 4.2 indicates proceeds from respondents on lack of information out of 81 respondents

9.9% select strongly agree, 54.3% select agree while 35.8% select disagree. Lack information

for taxpayers is still the problem and discourages the payment of tax because they don’t be

aware for any change about tax and can leads to them to get some punishment through to the

lack of information and affect their profitability. Figure 4.2 shows proceeds from respondents

on lack of training out of 81 respondents 13.6% chose strongly agree, 71.6% chose agree

while 14.8% chose disagree. Hence, lack of training can leads to taxpayers themselves don’t

be able to have sufficiently understand taxpayer rights and still understand that tax is there to

decrease their profit.

Figure 4.2 presents proceeds from respondents on failure to file penalty out of 81 respondents

22.2% tick strongly agree, 70.4% tick agree while 7.4% chose disagree. Hence, taxpayers

will not have to pay a failure-to-file if they can show that they failed to file because of

reasonable cause and not because of willful neglect.

Figure 4.2 designate proceeds from respondents on making errors on their tax return out of

81 respondents 9.9% select strongly agree, 77.8% select agree while 12.3% select disagree.

Figure 4.2 specify proceeds from respondents on tax audit out of 81 respondents 18.5% chose

strongly agree, 42% chose agree while 39.5% chose disagree. Hence, RRA decides to

examine your tax return a little more closely and verify that your income and deductions are

accurate and this can be done in different way like RRA agent will conduct the audit at your

home or place of business or by asking questionnaire related to return. Typically, your tax

return is chosen for audit when something you have entered on your return is out of the

ordinary.

33

Figure 4.2 indicates proceeds from respondents on communication out of 81 respondents

7.4% specify strongly agree, 55.6% specify agree while 25.9% specify disagree.

Communication is playing important role to improve collaboration between RRA and

taxpayers because taxpayers can communicate their ideas and their challenges while RRA

communicate to taxpayer about any change happen about tax and this can improve the

understanding of taxpayers about tax.

Figure 4.2 designate proceeds from respondents on methods of tax collection out of 81

respondents 3.7% chose strongly agree, 19.8% chose agree while 76.5% chose disagree.

Based on the data in Figure 4.2, it is found that methods of tax collection is good and this

can increase the tax collection and reduce fraud because taxpayer understand the role of tax

in the District development.

Table 4.23: The way of tax Payment

Frequency Percent

Yes 81 100.0

Source: Field Data

Table 4.22 indicate proceeds from respondents on payment of tax out of 81 respondents

100% all of them they met problem related to tax payment. This shows that 81(i.e. 100%) of

respondents have the problem related to payment of tax. Hence, the challenges facing tax

payers which included lack of taxpayers’ education on tax payment and procedures, failure to

understand the relevance of paying taxes and higher tax rate imposed compared with

taxpayer’s business capacity and leads to the lack of tax morality and low tax payment

capacity.

Table 4.24: Availability of some information about local government finances

Frequency Percent

Any time 10 12.3

Some times 63 77.8

Many times 8 9.9

Total 81 100.0

Source: Field Data

Table 4.23 shows proceeds from respondents on availability of some information about local

government finances out of 81 respondents 12.3% chose any time, 77.8% chose some times

while 9.9% chose many times. Based on the data in table 4.23 indicates that information

about local government finances are available sometimes. Hence, tax-payers are responsible

to know information about local government finances about local government income and

expenditure, covering revenue and capital spending, council tax and non-domestic rates this

play important role to help tax payer to understand their contribution in development of

country.

Table 4.25: Ways to get information about tax

34

Frequency Percent

Radio 40 49.4

Television 9 11.1

Newspaper/Magazine 8 9.9

From district website 8 9.9

From district officials 7 8.6

From Rwanda Revenue Authority

officials 9 11.1

Total 81 100.0

Source: Field Data

Table 4.24 presents proceeds from respondents on ways to get information about Tax out of

81 respondents 49.1% select Radio, 11.1% select Television, 9.9% select

Newspaper/Magazine, 9.9% select From district website, 8.6% select From district officials

while 11.1% select Authority officials. Since above of 75% of population Rwanda listening

radio, Radio can the best way for taxpayer to get information and according to the data in

Table 4.24 indicates that most taxpayer get information through to the radio.

Table 4.26: Information about the amount of tax collected annually

Frequency Percent

Yes 12 14.8

No 69 85.2

Total 81 100.0

Source: Field Data

Table 4.25 indicates proceeds from respondents if they have information about the amount of

tax collected annually in their district or their sector out of 81 respondents 14.8% tick Yes

while 85.2% tick No. According to the findings, it is indicated that most of tax payers they

didn’t get information about the amount of tax collected annually in their district or their

sector this can discourage the tax payers because they didn’t recognize their contribution for

development of their district through to the lack of information.

Table 4.27: Information about the activities carried out and covered by the amount of

tax collected

Frequency Percent

Yes 6 7.4

Some 48 59.3

No 27 33.3

Total 81 100.0

Source: Field Data

35

Table 4.26 shows proceeds from respondents if they have information about the activities

carried out and covered by the amount of tax collected in their district or sector out of 81

respondents 7.4 % select Yes, 59.3% select Some while 33.3% select No. Based on the data

in table 4.26 it seems like they have information about the activities carried out and covered

by the amount of tax collected in their district or sector because most of time the activities

done through to the amount of tax collected is infrastructure like construction of road,

hospital.

Table 4.28: If they have information about the amount disbursed for those activities

Frequency Percent

Yes 31 38.3

No 50 61.7

Total 81 100.0

Source: Field Data

Table 4.27 designate proceeds from respondents if they have information about the amount

disbursed for those activities out of 81 respondents 38.3% confirm that they have information

about the amount disbursed for those activities while 61.7% did not confirm that they have

information about the amount disbursed for those activities, this can help the taxpayer to

improve they understanding about the use of tax collected and this can encourage them to

pay tax.

Table 4. 29: Consideration of the return on tax their pay

Frequency Percent

Little 34 42.0

Enough 29 35.8

More 18 22.2

Total 81 100.0

Source: Field Data

Table 4.28 shows proceeds from respondents on consideration of the return on tax out of 81

respondents 42% tick on little, 35.8% tick on enough while 22% tick on more. Based on the

findings, the study revealed that, they consider return on the tax paid. This implies that, Huye

District used effectively the tax paid by taxpayers.

Table 4.30: consideration of the relations between the local revenue administrators and

citizens

36

Frequency Percent

Closely in relations 27 33.3

A bit closely in relations 54 66.7

Total 81 100.0

Source: Field Data

Table 4.29 indicates proceeds from respondents on consideration of the relations between the

local revenue administrators and citizens out of 81 respondents 33.3% said there is closely in

relations while 66.7% said that there a bit closely in relations. Based on the data in Table

4.29 indicates there is bit closely in relations between local revenue administration and

citizens. Hence, the basic behavioral assumption is that no one will voluntarily contribute to

the government unless the threat of punishment for non-payment makes it sensible to pay.

However, an increasing amount of evidence shows that the rate of contribution to public

services is affected by factors such as citizen’s trust in others and the trustworthiness of the

government.

Table 4.31: If they attain a training concerning taxation

Frequency Percent

Yes 30 37.0

No 51 63.0

Total 81 100.0

Source: Field Data

Table 4.30 presents proceeds from respondents if they attain a training concerning taxation

out of 81 respondents 37% chose confirm that they attain a training concerning taxation.

While 63% did not confirm that they attain a training concerning taxation. Based on data in

Table 4.30 indicates that mores respondents didn’t attain a training concerning taxation

Hence, Training concerning taxation can improve understanding of taxpayers about tax low,

utilization of tax, their contribution for development of country and this can play important

role for encouraging taxpayer to pay tax.

37

Table 4. 32: satisfaction with the method used in collecting taxes

Frequency Percent

Transparent 72 88.9

Non transparent 9 11.1

Total 81 100.0

Source: Field Data

Table 4.31 presents perception of respondents if they satisfied with the method used in

collecting taxes out of 81 respondents 72(i.e. 88.9%) respondents select transparent while

9(i.e. 11.1%) respondents select non transparent. Hence, Taxes are the life-blood of

Government, and their prompt and certain availability an imperious need Tax collection is

necessary to ensure revenues are collected to fund governmental services, so the method used

collecting tax must be Claire where the taxpayer understand that payment of tax is not

punishment .

Table 4. 33: Problems they realize in tax administration and Collection

Frequency Percent

taxes collected are not all spent

on public services 41 50.6

too high taxes/fees 32 39.5

dishonest collectors 8 9.9

Total 81 100.0

Source: Field Data

Table 4.32 shows proceeds from respondents on problems they realize in tax administration

and collection out of 81 respondents said that problems they realize in tax administration and

collection is that taxes collected are not all spent on public services while 39.5% said that

problems they realize in tax administration and collection is too high taxes/fees while 9.9%

said that problems they realize in tax administration and collection is dishonest collectors.

Hence, most people think that they are paying too much tax at some time or other! At the

same time, we all want to know that roads are going to be built and maintained and that we

have sufficient police to keep us safe so the taxes you pay are used to pay for: transport,

education, health, law and order, housing, culture, media and sport, trade and industry,

environment, food and rural affairs, overseas development and defense. However When the

Government increases taxes it is because it needs more money to finance the services we

have said we want. Sometimes tax needs to be increased to help deal with economic

problems, for example, if the Government has borrowed too much.

Figure 4.3: Responses of staff on the main problems related to trading license tax in

Rwanda

38

Source: Field Data

Figure 4.3 presents proceeds from respondents on lack of information 44.4% chose strongly

agree, 22.2% chose agree while 33.3% chose disagree. Figure 4.3 indicate proceeds from

respondents on lack of training 22.2% chose strongly agree, 33.3% chose agree while 44.4%

chose disagree. Figure 4.3 chose proceeds from respondents on failure to file penalty 27.8%

select strongly agree, 50% select agree while 22.2% select disagree. Figure 4.3 presents

proceeds from respondents on making errors on their tax return 27.8% chose strongly agree,

33.3% chose agree while 38.9% chose disagree.

Figure 4.3 shows proceeds from respondents on tax audit 33.3% chose strongly agree, 33.3%

chose agree while 33.3% chose disagree. Figure 4.3 presents proceeds from respondents on

data processing unclear written communication 22.2% tick strongly agree, 38.9% tick agree

while 38.9% tick disagrees. From respondents on methods of tax collection 27.8% select

strongly agree, 50% select agree while 22.2% select disagree.

4.2.3 The Benefits Brought by Rental Income Tax Decentralization in Development

Expenditures

This subsection focuses on benefits brought by rental income tax decentralization in

development expenditures as indicated in Table 4.33.

Table 4.34: The benefits brought by rental income tax decentralization in development

expenditures

Frequency Percent

Ability to raise revenue 8 44.4

Low levels of expenditure 2 11.1

Time management 2 11.1

39

Easy to handle tax issues 6 33.3

Total 18 100.0

Source: Field Data

Table 4.33 presents proceeds from respondents on the benefits brought by rental income tax

decentralization in development expenditures 44.4% selected that the benefit brought by

rental income tax decentralization in development expenditures is ability to raise revenue,

11.1% selected that the benefit brought by rental income tax decentralization in development

expenditures is low levels of expenditure and 11.1% also selected that the benefit brought by

rental income tax decentralization in development expenditures is time management while

6% selected that the benefit brought by rental income tax decentralization in development

expenditures is easy to handle tax issues.

4.2.4 Relationship Between Decentralized Tax systems and Public Expenditures.

This section focuses on relationship between decentralized tax systems and public

expenditures. The study analyzed this relationship using both staff of the District and

taxpayers.

Table 4.35: Relationship according to staff

Decentralized Tax

Revenues Public Expenditures

Decentralized Tax

Revenues

Pearson Correlation 1 .977**

Sig. (2-tailed) .000

N 18 18

Public Expenditures Pearson Correlation .977** 1

Sig. (2-tailed) .000

N 18 18

**. Correlation is significant at the 0.01 level (2-tailed).

Source: Field Data

Table 4.34 shows relationship between decentralized tax systems and effectiveness of public

expenditures. The researcher used SPSS and found that the Pearson correlation coefficient (r)

equals to .977, this implies that correlation coefficient r = .977 As well as P- value equals to

0.00, correlation is significant at the 0.01 level and r is positive, this is confirming that there

is a significant and positive relationship between decentralized tax systems and effectiveness

of Public expenditures. Therefore, from the above information, the researcher found that as

long as decentralized tax systems done well, it lead to effectiveness of public expenditures on

the rate of 97.7%

Table 4.36: Relationship according to taxpayers

40

Decentralized Tax

revenue Public Expenditures

Decentralized Tax revenue Pearson Correlation 1 .885**

Sig. (2-tailed) .000

N 81 81

Public Expenditures Pearson Correlation .885** 1

Sig. (2-tailed) .000

N 81 81 **. Correlation is significant at the 0.01 level (2-tailed).

Source: Field Data

Table 4.35 indicates relationship between decentralized tax systems and Public Expenditures.

The researcher used SPSS and found that the Pearson correlation coefficient (r) equals to

.885, this implies that correlation coefficient r = .885 As well as P- value equals to 0.00,

correlation is significant at the 0.01 level and r is positive, this is confirming that there is a

significant and positive relationship between decentralized tax systems and effectiveness of

public expenditures in Rwanda. Therefore, from the above information, the researcher found

that as long as decentralized tax systems done well, and it will lead to Public Expenditures on

the rate of 88.5%.

Other researchers found that tax and fiscal decentralization contributed positively to the

management and utilization of resources in local Government. The results revealed that the

decentralization fund influenced significantly on government’s direct expenditure and

economic growth. The special local autonomy's fund has influenced considerably on

government’s indirect expenditure. Its effect has increased, through economic growth as the

intermediating variable, meaningfully on employment, poverty, and welfare. The results are

in line with the prior studies, which explore the consequences of decentralization and specific

autonomy to spur the economic growth in certain regions. Other study found that the

economic development strategies in Indonesia’s less-developed regions should be started

with a bigger autonomy transfer program to those regions and simultaneously enhanced it by

special budget allocation to trigger and support the development. The analysis found, that

non-tax income, which can be mostly influenced by local governments and local taxes

comprises but an insignificant share of all local governments income and they significance

were not great. Furthermore, as indicated in empirical studies of this study indicated local

authorities in Zimbabwe exercise varying taxing and expenditure powers under the rubric of

fiscal decentralization, creating a buoyant self-financing base was compromised by

interlocking factors that include continued central government grip, limited revenue base,

failure to devise long range revenue optimizing strategies, political interference, and an

institutionalized culture of rent seeking. The studies also found that the County Governments

in Kenya have indeed made significant progress in involvement of stakeholders on

41

development at County level, a realization of devolvement of funds, creation of employment

opportunities, a more accountable political system and devolvement of certain key functions

to the local level.

The research on Rwandan tax system found the major causes of tax collection problems

included lack of tax taxpayers’ education about tax relevance, and insufficient District means

to equip tax collectors with means of transport. From the above findings of other researchers,

this study also discussed the effect of decentralized fixed asset tax revenue to the

effectiveness of current expenditures; the main problems faced by taxpayers in relation to

trading license tax in Rwanda; the benefits brought by rental income tax decentralization in

development expenditures; the relationship between decentralized tax systems and Public

Expenditures and found that decentralized tax system contribute to the public expenditures.

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND

RECOMMENDATIONS

5.0 Introduction

In this chapter, the researcher summarized the findings based on respondents’ opinions and

perception on decentralized tax system and effectiveness of public expenditures. The

summary of the findings is presented in line with the objectives of the research. The

researcher also presents the conclusion of the study, gives the recommendations and suggests

the possible areas for the future researchers.

5.1 Summary of Findings

This subsection is summarizing the research findings according to the research objectives. It

analyze the effect of decentralized fixed asset tax revenue to the effectiveness of current

expenditures, identify the main problems faced by taxpayers in relation to trading license tax

in Rwanda; analyze the benefits brought by rental income tax decentralization in

development expenditures, establish the relationship between decentralized tax systems and

effectiveness of public expenditures.

42

5.1.1 The Effect of Decentralized Fixed Asset Tax Revenue to the Effectiveness of

Current Expenditures

In relation to the first research objective on tax capacity out of 18 respondents 4(i.e. 22.2%)

respondents strongly agree while 9(i.e. 50%) respondents chose disagree, on tax regulations

27.8% select disagree while 38.9% select agree. On improved fairness, 22.2% tick agrees

while 50% tick strongly agree. But on level of tax burden out of 18 respondents 50% chose

strongly agree while 27.8% chose agree. Although on improved fairness, 27.8% tick strongly

agree while 50% tick undecided. Finally on monitoring and evaluation 27.8% chose

undecided while 38.9% chose strongly agree.

5.1.2 The Main Problems Faced by Taxpayers in Relation to Trading License Tax in

Rwanda

Concerning the second research objective, main problems faced by taxpayers in relation to

trading license tax in Rwanda on lack of information out of 18 respondents 22.2% chose

agree while 44.4% chose strongly agree. However on Lack of training 22.2% chose strongly

agree while 44.4% chose disagree. And on failure to file penalty 50% selected agree while

22.2% selected disagree. Although on making errors on their tax return 27.8% chose strongly

agree, while 38.9% chose disagree. But on data processing unclear written communication

22.2% ticked strongly agree while 38.9% ticked disagree. Finally on methods of tax

collection 22.2% selected disagree while 50% selected agree.

5.1.3 The benefits brought by rental income tax decentralization in development

expenditures

Concerning the third research objective on the benefits brought by rental income tax

decentralization in development expenditures out of 81 respondents 44.4% selected that the

benefit brought by rental income tax decentralization in development expenditures is ability

to raise revenue, 11.1% selected that the benefit brought by rental income tax

decentralization in development expenditures is low levels of expenditure and 11.1% also

selected that the benefit brought by rental income tax decentralization in development

expenditures is time management while 33.3% selected that the benefit brought by rental

income tax decentralization in development expenditures is easy to handle tax issues.

5.1.4 The relationship between decentralized tax systems and effectiveness of public

expenditures.

Concerning the fourth research objectives, using views and opinions of Taxpayers this study

used correlation coefficient through SPSS program and found that decentralized tax systems

correlate to effectiveness of public expenditures on the rate of 88.5%. Hence, there is a

positive and very high correlation between decentralized tax systems and effectiveness of

public expenditures

While by using Huye District staff this study used correlation coefficient through SPSS

program and found that decentralized tax systems correlate to effectiveness of public

expenditures on the rate of 97.7%. Hence, there is also a positive and very high correlation

between decentralized tax systems and effectiveness of public expenditures.

5.2 Conclusions

If citizens accept the existence of Government, paying taxes is obligation for every citizen.

43

As taxes is blood of government. However there is some challenge facing tax payers which

included lack of taxpayers’ education on tax payment and procedures, failure to understand

the relevance of paying taxes and higher tax rate imposed compared with taxpayer’s business

capacity and leads to the lack of tax morality and low tax payment capacity. Although

government uses decentralization tax systems for purpose of raising revenue ability for low -

levels of expenditure, for time management and also easy to handle tax issues. This system of

decentralization tax systems leads to accountability, transparency, respondents client need,

target achievement and also improve citizen’s welfare.

According to the staff there is a significant and positive relationship between decentralized

tax systems and effectiveness of Public expenditures. Therefore, from the above information,

the researcher found that as long as decentralized tax systems done well, it lead to

effectiveness of public expenditures on the rate of 97.7%. According to the taxpayers, the

researcher found that as long as decentralized tax systems done well, and it will lead to

Public Expenditures on the rate of 88.5%.

5.3 Recommendations

Local public functions should be financed by user charges and local taxes, especially by

property taxes and consumption taxes, leaving income taxes to the central government;

however, this division of revenues implies that lower levels of government are likely to end

up with greater expenditure responsibilities than can be financed from their own revenues.

However the merits of fiscal decentralization have to be measured relative to the existing

revenue and expenditure assignments and the stage of economic development. The central

government may be in a much better position to undertake public investment with nation-

wide externalities in the early stages of economic development. More importantly, if local

shares in total fiscal revenue and expenditure are already high, further decentralization may

result in slower overall economic growth.

5.4 Suggestions for Further Study

From the study limitations and related conclusions, the researcher recommends further

research in the area of decentralized tax systems to effectiveness of public expenditures to

continue to do a research in other districts. Future researchers should use secondary data to

analyze the contribution of decentralized tax systems to the effectiveness of public

expenditures.

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