The marginal tax rate of 15 percent is greater than the average tax rate of 12. Truly speaking, in the modern world, taxation is used as an instrument of economic policy. Basic concepts by which a government is meant to be guided in designing and implementing an equitable taxation regime. The proportion of tax paid is always the same, though in absolute terms it goes up the higher your income. The report is based on research conducted between november 2008 and april 2009 by attiya waris, matti kohonen, alvin mosioma, and jack ranguma. Why avoidance, evasion and administration are central, not peripheral, concepts in public finance 1426 1. General principles of taxation linkedin slideshare. Principles of international taxation kuala lumpur, 16 20 november 2015 overview and learning objectives this course is designed to provide participants with the essentials of international taxation. The concept of tax gaps report on vat gap estimations. The result is low revenue yields, vertical and horizontal inequities and economic inefficiencies.
Factors influencing compliance with tax laws in kenya. A construction of the fundamental principles of taxation. The missing link 35 the role of tax advocacy 45 key lessons and recommendations 47 conclusion and further reading 48 bibliography 53 appendix 58 glossary. Principles of taxation semester 2 2009 business school. Chapter 1 general principles and concepts of taxation. Taxation is a means whereby the state collects funds to pay for public services. Domestic taxes department deals with income tax, value added. The economists have put forward many theories or principles of taxation at different times to guide the state as to how justice or equity in taxation can be achieved. Pages in category taxation in kenya the following 3 pages are in this category, out of 3 total.
A citizens handbook on 6 taxation in kenya executive summary this handbook attempts to break down kenya s complex tax system into a user friendly form for consumption by the average person. Taxes are levied in almost every country of the world, primarily to raise. Several ancient civilizations, including the greeks and romans, levied taxes on their citizens to pay for military expenses and other public services. Taxation problems also constitute an important element of the neokeynesian theory. Moreover, a tax is progressive, if it is graduated in such a way that the rate of tax rises, more sharply than the increase in income or capital. These principles are still considered to be the starting point of sound public finance.
Introduction to taxation government plays an important role in most modern economies. Such payments would include royalties, software and licensing fees, management fees, service fees, commissions, technical fees, and the like. Fundamental principles of taxation this chapter discusses the overarching principles of tax policy that have traditionally guided the development of tax systems. Collection of tax from persons leaving or having left kenya 146 99.
Innovative approaches to improve the efficiency and effectiveness of indirect income measurement methods october 2006. Kenya revenue authority kratax administration aspect and has various departments. In order to provide for these program and services, the government needs revenues. To find our way around them, some sort of classification is necessary. A citizens handbook on 8 taxation in kenya governments in both developed and developing countries collect taxes to fund public services. Introduction a significant role of a double tax agreement dta between two or more countries is toremove the double taxation discussed in chapter 2, which is an impediment to crossborder trade in goods and services, and the movement of capital and people between countries. April 2018 income taxes will still use old rates according to bir duration. The proportion of tax paid is always the same, though in absolute terms it goes up the higher your income progressive taxation. All tax laws should conform to the maxims of taxation equity 1. Canonsprinciples of taxation by adam smith economics concepts. The first three days are dedicated to the fundamental concepts relevant to the interpretation and. Police powerpower to protect citizens and provide safety and welfare of. On the general principles of taxation, as illustrating the advantages of a perfect income tax.
Chapter 8 examines how income tax liability is calculated. Printed in kenya content 5 foreword 7 introduction tax system in kenya 21 the political economy of taxation 27 tax and inequalities. Characteristics of an effective tax system oklahoma policy institute. Ca23 public finance and taxation pdf notes kasneb notes. I am glad to introduce to you the second edition of the taxation handbook. The focus of the unit is on accounting for external users and after. Although they need to be reinterpreted from time to time, these principles retain remarkable relevance. The 18thcentury economist and philosopher adam smith attempted to systematize the rules that should govern a rational system of taxation. Demystifying the key taxation concepts to improve compliance by small and medium enterprises in kenya peninah jepkogei tanui catholic university of eastern africa, kenya. Eam uy slideshare uses cookies to improve functionality and performance, and to provide you with relevant advertising.
Guiding principles of good tax policy the guiding principles, listed below, are commonly cited and used as indicators of good tax policy. In kenya, there exist small, medium smes and large enterprises but smes have been always regarded as the engines due to their immense contribution to the economy. Taxation may be referred to as the revenue raising activity of the government. According to this theory, the state should levy taxes on individuals according to the benefit conferred on them. Intoduction to public finance and taxation theory public finance is the term, which has traditionally been used or applied to the packages of those policy problems, which involve the use of tax.
Exchange control income tax leaving or having left kenya repealed 148 100. Introduction to taxation taxes are the price we pay for a civilized society. Taxation evolved significantly as empires expanded and civilizations become more structured. Kenyan double taxation agreements an example in point is kenya where the domestic rate of withholding tax is 20% on many payments made from kenya. In other words, taxation policy has some nonrevenue objectives. In this article we will discuss about the principles of taxation.
According to john stuart mill, the four principles of taxation are that the system be efficient, understandable and equitable and those who benefit from publiclyprovided services should sponsor and pay for those services through taxes. International business taxation astudy in theinternationalization of businessregulation solpicciotto emeritusprofessor,university of lancaster. According to this theory, the state should levy taxes on individuals according to the. Progressive taxation means that mrt art with mrt and art 0. Public finance is the study of the spending and revenue raising activities of the government. Tax policy concept statement 1 guiding principles of good tax. This report on tax justice in kenya was written by the tax justice network africa tjna and the tax justice network international secretariat tjnis. It is through fiscality that taxes play their role in the formation of the state budget necessary for the. For example, in the uk there are three rates of income. Taxation should produce the right amount of tax at the right time, while avoiding both double taxation and unintentional non taxation. Tax paid outside kenya by a kenyan citizen on employment income or income in respect of artists, instructors, entertainers and sportsmen is. Taxes are levied in almost every country of the world, primarily to raise revenue for government expenditures, although they serve other purposes as well. The basic principles of taxation are nearly as old as human societythe history of taxes stretches thousands of years into the past. Fisher and caldor considered necessary the division of taxation objects in accordance with consumption, by taxing the final cost of the consumed product and by taxing savings only as a % of the deposit.
The hypothetical table and graph given below explain the concept more clearly. Adam smith, the father of modem political economy, has laid down four principles or cannons of taxation in his famous book wealth of nations. General principles and concepts of taxation inherent powers of the stateindispensable powers necessary for the survival of the statenaturally exist as essential force for the government to command, maintain peace and survive irrespective of any constitutional provisions 1. The amount of tax payable is calculated by multiplying the tax base, with the tax rate. It then provides an overview of the principles underlying corporate income tax, focusing primarily on the taxation of crossborder income both under domestic laws and in the context of. Taxation simplified taxationprinciples and concepts n t t. General principles and concepts of taxation youtube. Sep 09, 2009 concepts of taxation chapter 16 economics. Principles of economicstaxation wikibooks, open books. The term taxation applies to all types of involuntary levies, from income to capital.
Willy muturi school of business, jomo kenyatta university of agriculture and technology abstract this study was meant to analyse the factors influencing tax compliance among the smes in kenya. Taxation, imposition of compulsory levies on individuals or entities by governments. In addition, the potential for evasion and avoidance should be minimised. In the united states, the role of the government extends from providing for national defense to providing social security and medicare to the elderly. Taxation is the inherent power of the sovereign, exercised through the legislature, to impose burdens upon subjects and objects within its jurisdiction for the purpose of raising revenues to carry out the legitimate objects of government. Taxation should produce the right amount of tax at the right time, while avoiding both double taxation and unintentional nontaxation. Fundamental principles of taxation 31 effectiveness and fairness. Tax avoidance, evasion, and administration joel slemrod the university of michigan shlomo yitzhaki the hebrew university of jerusalem contents abstract 1425 keywords 1425 1. Dividends from a foreign company are not taxable in kenya. Taxation simplified taxationprinciples and concepts n t. Additional documents published in october 2004 concerning tax audit activities may also be of interest to readers. General principles of taxation tax 111 income taxation ferdinand c. It among other issues discusses design of various tax heads, their purposes and. It also discusses the temporary budget repair levy tbrl, the medicare levy ml, the medicare levy surcharge mls and the higher education loans program.
Notice from the table that the marginal tax of the highincome household is 33 percent, compared with the 15 percent marginal tax of the low. Fairness, or equity, means that everybody should pay a fair share of taxes. International businesstaxation astudyintheinternationalization ofbusinessregulation solpicciotto emeritusprofessor,universityoflancaster. The primary purpose of taxation is to raise revenue to meet huge public expenditure. Chapter 2, legal framework for taxation 3 taxation rests on the combination of two other constitutional provisions. Jan 14, 2011 attempts to provide a theoretical grounding to the practice of taxation are reflected in various theories of taxation, the evolution of which took place together with the development of various directions in economic thought. A historical analysis of the kenyan taxation system 273 secondly, there has been much discussion internationally about simplifying and elaborating upon the tax law. There is a difference between the tax you pay on average and the tax rate charged on the last dollar of income. Taxation refers to compulsory or coercive money collection by a levying authority, usually a government. Managing and improving tax compliance october 2004. International businesstaxation tax justice network. This paper proposes to identify and expound on challenges faced in property taxation in kenya that.
The unit is structured to provide an understanding of accounting concepts, issues and problems. The average tax rate can also be given a graphical interpretation. For a long time, the classical taxation theory was of most importance. Taxes, taxation and the tax system taxes,taxation and the tax system prof. In the wealth of nations book v, chapter 2 he set down four general canons. Principles of economicstaxation wikibooks, open books for. For example, it violates the principle of horizontal equity if one person buys an item in a local store and must pay sales tax, while another person buys the same item over the internet, and does not pay sales tax. The agreements may also have details about how the tax paid in one country will be set off against due in the other country. This report was prepared by the participants of the tax. Since dtas are used as tax incentives for investments, kenya has not been left behind. View notes taxation simplified from bcom 202 at university of nairobi. Kenya adopted a taxation system whose principles and fundamentals were inherited from the british model. Tax gap project group directorategeneral taxation and customs union the concept of tax gaps report on vat gap estimations by fiscalis tax gap project group fpg041 brussels, march 2016. Strengthening tax audit capabilities general principles a.
This article is concerned with taxation in general, its principles, its objectives, and its effects specifically, the article discusses the nature and. The most important source of government revenue is tax. The first four principles are the maxims of taxation laid out by economist adam smith in his 1776 work, the wealth of nations. The final section of each country summary sets out the double tax treaty and nontreaty rates of tax withholding relating to the payment of dividends, interest, royalties and other related payments. Gentlementhe duties of a government, as enumerated by adam smith, are four in number. Proportional taxation means that mrt art, so if a low income earner is taxed at 20%, so is a higher income earner.
The use of a tax treaty by a person who is not resident in either of the treaty countries, usually through the use of a conduit entity resident in one of the countries. This paper is intended to equip the candidate with knowledge, skills and attitudes that will enable himher to comply with and implement public financial management regulations and compute taxes for various entities. Most governmental activities must be financed by taxation. Objectives at the end of this lecture, the students shall be able to. Tax sparing concept this is a provision in tax treaties that seeks to protect the tax incentives which the. Taxation principles and concepts n t t simiyu university of nairobi 2015 1 contents acknowledgment. Principles of taxation are those formal guidelines which are widely accepted andor discussed and should be considered whenever specific laws are proposed, discussed and implemented.
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