In order to be able to fund public services like the provision of healthcare, payment of civil servants and the development of infrastructure, governments in developing and developed countries must collect taxes from its citizens. According to Wallace (2015) taxation has is a common approach adopted by governments on individual citizens, business organizations, goods, and services with an aim of raising revenue for its operations and social equity promotion through redistribution of the income realized after taxation. As a backup to Wallace’s observation, Barnett and Grown (2004) pointed out that taxation was the only practical approach to collect resources for the purposes of financing public expenditure for goods and services consumed by any citizens. There are different types of taxes which are levied indirectly on the citizens. These are the central sales tax, value-added tax (VAT), service tax, excise duty, and customs duty (Omwansa, 2014). Value added tax (VAT) which is the main focus of this research is basically a consumption kind of tax which is placed on products whenever the value increases at each stage of their supply chain, right from production to their point of sale. The VAT paid by the consumers reflect the cost of the product less al the costs of production materials that have already been taxed.
Although VAT has proved to be the best approach through which governments raise funds to support economic growth, very few economies have been able to make it in implementing the system to the latter. This is because of many mysterious which have been associated with the system. For instance, the system has been associated with regressive effects. This is because of its nature as a consumption tax and because it is calculated at a fixed rate on the taxable commodities, the burden becomes greater on the low-income citizens than the other groups (Kato and Tanaka, 2018, p.430). In addition to that, the VAT system has been anticipated to increase commodity prices. Although most of the times it is treated as criticism against VAT, the experiences of the few countries which have implemented this system already has justified the point (Mittal and Mahajan, 2017). This is because prices of commodities in countries operating under this system have always been slightly above the countries without it. What most of the economies which have proved reluctant to adopt VAT system don’t realize is that the VAT system has more positive impacts on the economy compared to the two negative effects which have been highlighted above. This research proposes the adoption of a VAT system of taxation as a better approach to ensuring economic growth.
The main arguments against the VAT system of taxation have always followed the two disadvantages of this system highlighted above: first is the regressive effects of this system of taxation (Seelkop, Lierse, and Schmitt, 2016, p.210); its nature as a consumption tax and because it is calculated at fixed rate on the taxable commodities, the burden has always been greater on the low-income citizens than the other groups. In addition to that, the VAT system has been anticipated to increase commodity prices (Chege et al, 2015, p.130). This has been based on the experiences of the few countries which have implemented this system already because their commodity prices are always slightly above the countries without it. However, what most countries which seem reluctant to adopt this system have considered is the positive side of this system of taxation and its ability to take care of the two main shortcomings associated with its adoption. For instance, this income has proved to be an effective income generation approach because tax evasion is highly minimized as compared to some other forms of taxation (Freund, and Gagnon, 2017). This implies that the government gets enough revenue to cater for its expenses like payments of civil servants, provision of healthcare and improvement of infrastructure. In addition to meeting its expenses, the government is left with surplus income which can be used for investment purposes. Government investment will lead to the creation of employment opportunities for the unemployed population and that takes care of the regressive impacts of the system since the low-class citizens will get employed (Findlay and Garnaut, 2017). Also, because of the minimized tax evasions, the government will have enough revenue to compensate its workers handsomely and hence the slight price increments will not be felt greatly.
The main objectives of this research will be to:
Research Design (quantitative/qualitative/mixed)
This research will borrow from both the Quantitative and Qualitative research designs. Quantitative research design in its basic definition is a design which uses quantitative research methods to obtain the necessary data required in the research process. The most common quantitative research methods are telephone interviews, online surveys, face to face interviews, text message surveys among others (Chen, 2018, p.734). Mainly, this research will utilize face to face interviews. Qualitative research design, on the other hand, is defined as the research method which is extensively used by the researchers to study behaviors, opinions, and themes from an already existing phenomenon. Under this design, the main approaches used are ethnography, narrative, phenomenological, Grounded theory, and case study. This research will utilize a case study of several countries which have adopted the VAT system recently in its attempt to depict its impacts on the economy.
This research will utilize different data collection methods like interviews, questionnaires & surveys, case studies and then the existing literature in order to extend its coverability and minimize biases.
Interviews for instance which entails presenting or asking open-ended questions to the respondents either face to face or over the telephone will be targeted on the economists from the countries which have already adopted the VAT system as well as those which have not adopted the system. The main aim of these interviews will be to collect opinions from the two groups in order to gain insight into the challenges being faced under the VAT system as well as its strengths. On the other end, the reason behind the reluctance in the adoption of this system by different countries will be understood.
Questionnaires& Surveys which are mainly administered in a written form so that the respondents can respond and give their views on issues will target citizens from countries which have adopted VAT system as well as those which have not yet adopted the system. In the countries which have adopted the system, the respondents will be expected to express their views based on the experience they have gotten under VAT system of taxation while in the countries where the system has not been adopted; the citizens will be expected to air out their fears and views regarding VAT system of taxation.
Case Study method which mainly entails examining the already existing phenomenon and which uses a combination of techniques such as observations, surveys and interviews will mainly target both the countries which have adopted VAT system of taxation recently as well as those which adopted the system some long time ago. The approach will aim at revealing the short-term challenges and strengths of this system as well as its long-term challenges and strengths.
Existing literature which entails examining the existing data in form of databases, reports and economic theories will then be put into use as a backup for these three methods which have been outlined above.
From a statistic point of view, a sampling frame is the source materials from which samples are drawn. It is also seen as the list of those within the population to be sampled and may include institutions, countries or even individuals. The sample size on the, on the other hand, is the subpopulation which is studied in order to make an inference to a reference population. In this research, the sampling frame will consist of: countries which have adopted VAT system, countries which have not adopted the VAT system, economists from countries which have adopted the VAT system, economists from countries which have not adopted the VAT system, citizens from countries which have adopted VAT system and then citizens from countries which have not adopted the VAT system.
The research will utilize a sample size of 20 countries which have adopted VAT system and 20 countries which have not adopted the VAT system, 100 economists from the 20 countries which have adopted the VAT system and 100 economists from the 20 countries which have not adopted the VAT system, 100 citizens from the 20 countries which have adopted VAT system and 100 citizens from the 20 countries which have not adopted the VAT system.
Several techniques will be used to analyze data collected from the different sampling frames outlined above. For instance, a Content analysis which is a common method of analyzing qualitative data will be used to analyze the data which will have been documented in form of texts and the responses which will have been received from the interviewees. The narrative analysis will be used as a backup to content analysis as far as qualitative data is concerned to analyze content from different sources such as interviews and surveys.
To make predictions on the effects of the VAT system of taxation, Regression Analysis will be used. This is because of its effectiveness when predictions and forecast future trends are concerned. As a backup to regression analysis, Hypothesis testing will be used to analyze the quantitative data collected. Through this technique, the data obtained will be compared against hypotheses and the assumptions made about operations. It will also play a major role in forecasting the decisions made regarding the VAT system and how they could affect the country’s economy.
The opinions of the selected economists which may affect their reputation and which they may require their identity not to be disclosed will be kept confidential to avoid ruining their reputation. Just like in the case of economists, any government information collected in this research and may ruin its reputation when disclosed will be kept confidential
The research is expected to be biased to some extent because the sample size which has been chosen does not meet the minimum requirements for such kind of research. This is because of the limited resources. It also expected that some countries will be reluctant to disclose information on the VAT system and that is likely to deny the researchers some crucial information which may be highly valuable in the research.
Chapter One will give the outline of the research. It will include some brief explanation of VAT system background and provide the rationale for the selection of this area. Moreover, this chapter will give the research aims and objectives.
Chapter Two will constitute of VAT literature review and analysis of both models and theoretical frameworks which will have been introduced previously.
Chapter Three will address the research methodology. Research processes will be explained as well as the research philosophy. Moreover, this chapter will explain the research design and the implementation of different data collection methods. The sampling aspect of the research, as well as the ethical considerations, will also be incorporated in this chapter.
Chapter Four will entail the presentation of primary data which will have been collected through questionnaires, interviews and case studies. The Presentation of the findings will be facilitated through charts and graphs.
Chapter Five will entail discussions and analyses. Findings obtained from literature review will be compared with primary data. Also, in-depth discussions will be provided in relation to research objectives.
Chapter Six will conclude the work and summarize the extent to which research aims and objectives have been met. The chapter will also acknowledge the limitations of the study and highlight the scope for future studies.
References
Chen, K., 2018. Research on the Insurance Industry’s Tax Burden in China under the Background of Change from Business Tax to VAT. Modern Economy, 9(04), p.734.
Chege, A., Kiragu, N., Lagat, C. and Muthoni, G., 2015. Effect of electronic fiscal devices on VAT collection in Tanzania: A case of Tanzania revenue authority. European Journal of Business and Management, 7(33), pp.125-133.
Freund, C. and Gagnon, J., 2017. Effects of Consumption Taxes on Real Exchange Rates and Trade Balances.
Findlay, C. and Garnaut, R., 2017. The political economy of manufacturing protection: Experiences of ASEAN and Australia. Routledge.
Kato, J. and Tanaka, S., 2017. Does Regressive Taxation without Democratic Accountability Contribute to Human Development? The Effect of Recent Trends in State Revenue Production in Developing Countries.
Kato, J. and Tanaka, S., 2018. Human development without democratic accountability: how regressive taxation contributes to human development through state capacity. Japanese Journal of Political Science, 19(3), pp.429-443.
Mittal, S. and Mahajan, A., 2017. The VAT in Emerging Economies: Does Third Party Verification Matter?.
Omwansa, T., 2014. Re-introduction of VAT on ICT Equipment in Kenya Special focus on Mobile Phones.
Seelkopf, L., Lierse, H. and Schmitt, C., 2016. Trade liberalization and the global expansion of modern taxes. Review of International Political Economy, 23(2), pp.208-231.
Wallace, S.L., 2015. Taxation in Egypt from Augustus to Diocletian. Princeton University Press.
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