WOMEN`S UNIVERSITY IN AFRICA

Addressing gender disparity and fostering equity in University Education

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FACULTY OF MANAGEMENT AND ENTREPRENURIAL STUDIES AND
INFORMATION TECHNOLOGY

PROGARMME : BS HONS DEGREE IN BANKING AND FINANACE

INTAKE : 24

COURSE NAME : Taxation

STUDENT NAME : ` SUSAN MASENDEKE

STUDENT ID NO: W180998

ASSIGNMENT NO : 01

QUESTION : Define tax planning. Discuss it’s impact on tax revenue of a

country. [25]

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INTRODUCTION
“Taxation is the imposition of compulsory levies on individuals or entities by governments. Taxes
are levied in almost every country of the world, primarily to raise revenue for government
expenditures, although they serve other purposes.”[ CITATION Cha21 \l 1033 ].It is very
important to practice tax planning as it affects the economy .The definition of “tax planning is the
analysis of one’s financial situation from the tax efficiency point- of -view. Tax planning is a focal
part of financial planning, it ensures savings on taxes while simultaneously conforming to the legal
obligations and requirements of the Income Tax Act, 1961.The primary concept of tax planning is
to save money and mitigate one’s tax burden although it is not the only sole objective. There are
several types of tax planning which include amongst others , short-range tax planning, long-term
tax planning, permissive ad purposive tax planning. [ CITATION Fra99 \l 1033 ].Tax planning has
got a great impact on tax revenue of a country. “Tax revenue is the income gained by the
government through taxation which is in .turn is part of the Union Budget. Tax revenue can be
regarded as one measure of the degree to which government controls the economy’s
resources.”[ CITATION Bus21 \l 1033 ].As once noted that tax planning has a great impact on tax
revenue which will be discussed on this essay hence the government of a country should take it
into consideration when planning tax as it affects the tax revenue of a country.
Taxes are one of the major revenue for a country in where taxes are collected from citizens,
companies, investors amongst others to generate in the economy. There have several impacts
whether it is negative or positive impacts. “According to Bofar (2003) the theory of tax
competition, the government will reduce the taxes on mobile asset through the occurrence of
globalization due to rise in economic growth in a country, change in tax rate also gives the
different impact to an open economy.
However, according to Bretshger, he found negative impacts of corporate taxes on openness and
total tax revenue to the economic growth in 12 Organisation for Economic Co-operation and
Development (OECD) countries. He mentioned on the tax competition theory that argued that,
when tax rate of capital is reduced it causes capital inflow to a country, this is because the tax rate
is one of the cost for a capital holder.
Bucovetsky and Wilson (1991) these two researchers found that private return on investment is
influenced by the changes of capital taxes. In all of the studies it was concluded that reduction of
all marginal rates leads to an increase of long-term growth.
Christina and David (2007) conducted study of changes in the level of taxation on economic
growth in which they invested the effects of tax on Gross Domestic Product in United States in the
post –World war 11 period, it was found that a tax increase led to a decrease in GDP.

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According to Uhliga and Yanagwa (1999) increased capital income taxes will generate the
economy.
This is because, the income accrues for the old, in which increase on the capital income taxes will
burden tax for the young and increase their savings if the elasticity of saving is low.
Another study by Glowmm and Ravikumar in 1998 found that when the government reduces the
capital income, it reduces the spending on education and the long run growth.
Moreover, Goer and Burns in 1997 have done a study about the relationship between the tax
structure and economic indicators for OECD countries. From their finding total tax revenue has
negative relationship with two economic indicators that are savings and investment.
However, according to them, personal income tax, corporate income tax, sales tax and other taxes
are highly significant, in which there is a positive relationship with economic growth.
Another impact of tax planning on tax revenue from the study involves another variable which is
inflation rate. Usually, if the country faces the economic crisis the government will try to recover
the problem using monetary or fiscal policy. In the fiscal policy the government will use either
taxes or government spending based on the problem. High inflation rate in a country will force the
government to increase the tax of goods and services due to increased price and stability the
consumption also aggregate expenditure. With that excise tax on some products may be affected
with the change in inflation rate according to Tanzi (1989).For example in Zimbabwe where there
is hyper-inflation the government charges high tax rates in-order to stabilize price by controlling
the amount of money circulating in the country.”[ CITATION Tau11 \l 1033 ]
Tax planning has failed in most countries due to unknown unexpected economic factors such as
wars ,drought and mostly the worst “pandemic Covid-19 in poor countries in Africa has a negative
impact on revenues is mostly pronounced on countries that are most dependent on international
trade, tourism and petroleum exports. Tax collectors have been collecting more and an increase in
domestic revenue mobilization.”[ CITATION Odd20 \l 1033 ]
[ CITATION Wol13 \l 1033 ]”An important consideration in tax planning of treatment of marital
bequests. Before 2011, taxpayers with a surviving spouse had an incentive to limit the bequest to
the surviving spouse in-order to take advantage of the exemption.
CONCLUSION
In a nutshell , there is a conclusion that there is either a positive or negative impact of tax planning
on tax revenue of a country.

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References
Bujang, T. A. H., 2011. The impavt and consequences of Tax Revenue. Open access peer-
reviewed.
Business Standard, 2021. wap.business -standard.com. [Online].
Franklin Templeton Investments, 1999. Franklin Templeton Asset Management. In: Money
Simplifieed - Tax Planning. Mumbai: s.n.
Kopczuk, W., 2013. Handbook o Public Economics. 5 ed. s.l.:s.n.
McLure, C. E., 2021. Taxation.
Odd-Hedge Fjeldstad and Ole Therkidsen, 2020. Implictions of covid 19 pandemicfor revenue
generation in poor Africn countries, s.l.: Danish Institute for international Studies.

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