The literature in the area of tax administration system
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The purpose of this chapter is to review the literature in the area of tax administration system and taxpayers’ satisfaction behavior. The review has three major sections. Section 2.1 presents a review of the theoretical aspects related to the study. This is followed by Section2.2 the empirical literature review of regional contexts.
This chapter is used to establish the conceptual framework of Business Income Tax Administration practice. Each of the major aspect of tax administration theories and practices are fully addressed in subsequent chapters.
The purpose of this chapter is to highlight features tax administration that deserve special emphasis on the concept and practice of business income tax administration operating environment which includes a country’s economic and technological development, the business environment, the complexity of the universe of taxpayers that a tax administration needs to control and the tax administration’s relationships between tax officials and tax payers and their coordination with other government institutions, business stake holders and private sector groups that are engaged in various activities related to tax administration in the region and regional revenue authority.
This section generally reviews the basic theories which related to business income tax administration and taxpayer satisfaction behavior. Hence, in this section the researcher presents the general overview of Ethiopian tax administration systems, business income taxes and taxpayer, Factors that affecting taxpayer satisfaction and present taxpayers’ attitudes towards tax administration in Ethiopian and current tax administration proclamations practices in Gambella Region.
Tax administration refers to the identification of tax liability based on the existing tax law, the assessment of this liability, and the collection, prosecution and penalties imposed on recalcitrant taxpayers. Tax administration, therefore, covers a wide area of study, encompassing aspects such as registration of taxpayers, assessments, returns processing, collection, and audits (Kangave, 2005).
Taxation is fundamental to sustainable development, as it supports the basic functions of an effective state and sets the context for economic growth. More often overlooked is the role of taxation as a catalyst for the development of responsive and accountable government, and for the expansion of state capacity. (Prichard, 2010) Revenue generation at optimum level is always desired and various measures have been taken to satisfy and encourage taxpayers for voluntary compliance. It is expected that the tax compliance rate increases based on various factors including the satisfaction which mainly reflected by the positive attitude of tax payers about tax authorities the tax policies, their implementation, fairness of tax assessment and the like.
Tax administration basically consists of sets of rules and regulation consists of sets of guiding the tax authority to discharge its responsibilities in the implementation the tax policy. The activities involved in the business tax administration include: Identifying and registering the tax payer, Administrative assessment, monitoring and control, control of filling and payments, refunding, audit and penalties. Failing to carry out these administration responsibility by the tax administrator as well as existence of weakness in the design of these administration activities will definitely adversely impact on the administration efficiency which this intern affects the achievement of the tax objectives and implementation of the policy (Misrak Tesfaye ,2014).
Generally, governments levy taxes for multiple of purposes, but mainly to raise funds in order to cover public expenditures and properly allocate resources. Whatever its function and essence, tax is fundamentally important for the existence of a government and a nation. Hence, the taxes that governments levy have to be governed by certain principles.
In recent years, the shift away from these taxes corporate income and progressive individual income tax toward tax systems that rely more on broad based consumption taxes such as the value-added tax, flatter rate structures, and the adoption of “dual income taxes,” in which a progressive tax on labor income is accompanied with a low flat rate tax on capital income, as adopted in certain Scandinavian countries, can be explained in large by the forces of globalization and developments in financial innovation and inability of tax administrators to develop technologies to cope with these forces and developments (Asian Development Bank, 2001).
In tax reforms there is a close correlation between successful tax policy and efficient tax administration. In other words, there is no good tax policy without efficient tax administration (Jenkins, 1994). Over the past century, changes in the size of governments themselves and differences in the relative size of governments around the world can be explained by changes and differences in the environment, resources and technologies available to the country’s tax administrators (Asian Development Bank, 2001).
In recent years, there has been a considerable amount of study on the steps that should be taken to improve tax administration and reform. The fundamental importance to all reform efforts to improve the effectiveness of tax administration significantly is that government must be politically committed to the reform and major obstacles to an effective tax administration have to be identified and there has to be well designed strategies for addressing them (Asian Development Bank, 2001).
As a preliminary step to developing a successful strategy for the reform of a revenue agency, the “Tax Policy and Administration Thematic Group” of the World Bank has developed a useful diagnostic framework for revenue administration. It includes a description of quantitative indicators and indicators of effectiveness and efficiency that might be used to get a general idea of the physical dimensions of the revenue administration and how effectively and efficiently it is currently performing its functions and where performance problems might be acute. It also provides a framework and checklist of questions relating to all aspects of revenue departments operations, environment, resources, history, organization and management functions and informal culture that can be used to assess its operations and diagnose its failings (Asian Development Bank, 2001).