The Impact of Taxation on Somaliland Economic Growth

ADMAS UNIVERSITY

Faculty of business administration

Department of accounting and finance

Naima Mohamed Abdi

Siham Mohamed Abdi

A thesis submitted in partial fulfillment of the requirements for the

Bachelor Degree of Accounting in the Department of Accounting and

Finance, Faculty of Business Administration, Admas University

Supervisor: Mr. Faisal Mohamed

August 2019

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 Table of Contents
Approval ………………………………………………………………..………………………………………………………………Ix

Declaration ………..………………………………………………………………………………………………………………….vii
Dedication……………………………………………………………………………………………………………………….…...viii
Acknowledgement………………………………………………………………………………………………………………..x

Abstract ………………………………………………………………………………………………………………………………xi

Table of Contents

List of Tables

List of Figures

CHAPTER ONE

INTRODUCTION

1.0 introduction

1.1 Background of the Study

1.2 Statement of the Problem

1.3 Objectives of the Study

1.3.1 General Objective

1.3.2 Specific Objectives

1.4 Research Questions

1.5 Significance of the Study

1.6 Scope of the

Study…………………………………………………………………………………………………………………………….3

1.7 Definition of
keywords……………………………………………………………………………………………………………………..3

CHAPTER TWO

LITERATURE REVIEW

2.1 Meaning and Definition of Taxation

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 2.2 Characteristics of Taxation

2.3 Classification of taxes

2.4 Theoretical Literature Review

2.4.1 Theories of Taxation

2.4.2 Theories of Economic Growth

2.5 Empirical Literature Review

2.6 Principles of Taxation

2.7 Economic Growth Concepts

2.8 The importance of economic growth

2.9 How does economic growth affect the average citizen?

2.10 Causes of Economic Growth

2.11 The benefits of economic growth

2.12 Evaluation of economic growth

2.13 Taxation and Growth

CHAPTER THREE

RESEACH METHODOLOGY

3.0 Introduction

3.1 Research design

3.2 Research Population

3.3 Sample Size

3.4 Sampling Procedure

3.5 Research Instruments

3.6 Validity of the Research

3.7 Ethical Consideration

CHAPTER FOUR

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Data analysis and interpretation

4.0 Introduction

4.1 Demographic Characteristic

4.2 The relationship between taxation and economic growth

4.3 The influence taxation has on economic growth

4.4 Government’s tax needs

CHAPTER FIVE

CONCLUSION AND RECOMMENDATION

5.0 Introduction

5.1 Summary Major Findings

5.2 Conclusion

5.3 Recommendation

References

Appendix

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 List of Tables
Table 4. 1 Demographic Characteristics of the Respondents........................................................23
Table 4. 2 Do you agree that the tax you pay increases to the national income?..........................27
Table 4. 3 If the government lowered taxes, lower tax rates promotes economic growth?
.......................................................................................................................................................29
Table 4. 4 The Kind of tax policy needed.....................................................................................30

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 List of Figures
Figure 4. 1 The relationship between taxation and economic growth...........................................25
Figure 4. 2 taxation effect economic growth.................................................................................26
Figure 4. 3 How knowledgeable are you with tax matter?............................................................27
Figure 4. 4 Does tax increase helps the economy?........................................................................28
Figure 4. 5 Can good tax system contribute to economic growth?...............................................29

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 Declaration

This dissertation is our original work and has not been presented for a
Degree or any other academic award in any University or institution of
learning.

Naima Mohamed Abdi

Signature…………………… Date
……………………

Sihaam Mohamed Abdi

Signature………………………… Date
…………………...

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 Dedication
We dedicated to this thesis to our

Moms

And

Dads

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Approval Sheet
This Research Paper entitled; The Impact of Taxation on Somaliland Economic Growth,
Hargeisa, Somaliland was
Submitted by Naima Mohamed Abdi and Siham Mohamed Abdi

_____________________________ Signature____________( Supervisor) Date

________

______________________________Signature________ (Dean of the Dept.) Date

_______

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 Acknowledgements

All praises and thanks are due to ALLAH, the most merciful, the most
compassionate who gave us the courage, endurance, willingness and ability to
complete this study successfully.

Secondly, we are grateful to our dear parents, especially our mom Ayan Ahmed
Hashi who helped us everything we needed about writing this thesis.

Special appreciation and thanks go to our supervisor Mr. Faisal Mohamed, who
had the patience and energy to guide us throughout this work. We really appreciate
his constructive suggestions.

We would like to thank the entire Admas family- administration, Dean of

Accounting department Mr. Yimam Damtie Ali, and all our respectful teachers
whom cannot be forgotten.

Finally, we would like to thank to our colleague students and classmates, who had
supported us, friends and family members who are too many to be individually
named here. We owe to them a debt of gratitude.

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 ABSTRACT

The purpose of this study was to clarify and analyze the impact of taxation on Somaliland
economic growth. The aim of the research project was to gain better understanding of the
role in which tax plays in the development of economic growth.

This research study of the impact of taxation on Somaliland’s economy growth consists
of five sections. In part one there is the background of research, and also it introduces to
the title. This section shall brief the statement of the research problem, its objectives, and
significance of the study and the structure of the paper.

In section two, this part gives more about what have been said about the topic said by
earlier researchers, including different findings from multiple authors and researchers on
this topic. Even though part three deals with the design of the research conducting, the
study, and its methods of data collection, and the subjects studied and reasons for
description of the selecting sample technique and finally limitations of the study. The 4th
part is the final and core of the research paper its finding and results of the respondents
being studied it will be discussed in detail and the reader will get more knowledge of this
topic after reading this part. And the final section concludes the finding of the study and
final conclusions and recommendations.

Finally, we learned the capacity of the economic situations and it’s characteristics, our
findings pointed out the problems and constraints that they cannot grow up or developed
a new system to improve their education and economic conditions in order to improve the
role of Somaliland economy growth.

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 CHAPTER ONE

THE IMPACT OF TAXATION ON SOMALILAND

ECONOMIC GROWTH
1.0 Introduction

This chapter aims to give an introduction to the subject of the impact of taxation on
economic growth in Somaliland and the entire proposal by discussing the background of
the study followed by the problem statement, objectives of the study, research questions,
significance and scope of the study as well.

1.1 Background of the Study

Many scholars defined the term economic growth but the context of the various
definitions are one and the same. Therefore, Economic growth can be defined as the
annual rate increase in total production or income in the economy. Taxes on the other
hand are a proportion of income or consumption of a country’s population. This led to
many studies aiming to determine whether there is a long run relationship between
economic growth and taxation. Most of the studies evidenced a negative relationship
between economic growth and taxation. This is on account that income tax affect
incentive to work and as a result will affect productivity negatively. (Paulson, 2008)

“Taxes can increase the cost of capital and reduce incentives to invest, to the point that
high tax rates discourage investments thereby adversely affecting economic growth”
(Ferede & Dahlby, 2012, p. 563-594). Taxes also affect the decisions of households to
save, supply labour and invest in human. According to Ferede (2012) taxes discourages
investment thus negatively affects the economic wellbeing of a country’s capital.
( poulson & Kaplan, 2008, p. 53-71) agrees that

“High tax rates lead individuals to reduce working hours, engage in less productive
economic activity or exit the labor market which would then result in lower rates of

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economic growth. Moverover, poulson and Kaplan (2008) the increase in taxes reduces
the consumption of capacity, which reduces the volume of consumption in the economy,
the effect of taxes on consumption is inversely proportional to the size of income.

In Somaliland, tax was introduced not a long ago and Somaliland tax system is still
suffering from a number of challenges. (Yusuf, 2015) states “Somaliland tax system was
originally introduced by the British Protectorate management in the early 20th century,
the people of Somaliland protectorate considered taxation as an unjust imposition by the
colonizing or Protectorate power and thus it is unclean and profane”

In addition to the protest against taxation in Somaliland protectorate, the business and
trade activities were very limited hence at that time the british Protectorate administration
faced a restriction in taxing, and its budget was required subsidies from the British
government.

Taxes are essential for the financing of government activities, but at the same time they ,
should be set and administered to be as growth enabling as possible. As would be
expected, no formal tax policy exists in the absence of a normal government apparatus
such as treasury and central bank (Yusuf, 2015).

However, Somaliland’s do adhere to an informal patchwork of duty and tax collection.

The duty and tax provide a large portion of the income enjoyed by Somaliland
government.“The formulation and administration of tax structure is duty of the ministry
of finance in Collaboration with central bank which only acts as treasury for the
government usually, the ministry officials visit the businesses in quest for collecting the
taxes” (Yusuf, 2015).

1.2 Problem of the Statement

Economic growth is the basis of increased prosperity. Growth comes from the
accumulation of capital (both human and physical) and from innovations which lead to
technical progress. The main objective of this research is to find out broad information
and clear picture about the impact of taxation in economic growth in Somaliland. This

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research papers indicates how tax affects businesses and the key role which taxation
plays for the growth of Somaliland economy.

1.3 Research objectives

1.3.1 General objectives

To examine the impact of taxation on Somaliland economic growth

1.3.2 Specific objectives

1. To determine the relationship between taxation and economic growth of

Somaliland.
2. To examine the influences taxation has on economic growth in Somaliland.

3. To explain the government’s tax needs.

1.4 Research questions

1. What kind of relationship between taxation and economic growth of
Somaliland?
2. How taxation influences Somaliland economic growth?
3. Why government needs tax?
1.5 Scope of the Study

This study was focused on the impact of taxation in Somaliland economic growth. This
study was conducted in Hargeisa as time and financial resources would be very limited to
carry out throughout Somaliland regions.

1.6 Significance of the Study

This research was immensely help out to many essential parties particularly to those
interested in to know deeply about the facts in which this vital topic is all about. It will
help out solving some problems which desperately need a solution. The main core
benefits this research might include that

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People will understand more about the problems of taxation within their country.
Understanding those problems will result in people trying to think of solutions and way to
overcome them. It will also result in understanding the impact that taxes have on
Somaliland’s economic growth. positive or negative. This research will so be a good
reference for potential researchers who could interested in to research related topics.
Furthermore, this research will be a learning material where both citizens and civil
servants could gain insights about the importance of taxation in the country,
Somaliland.Furthermore, this research will be a learning material where both citizens and
civil servants could gain insights about the importance of taxation in the country,
Somaliland.

1.7 Definitions of keywords

Taxation: is the system by which a government takes money from people and spends it
on things such as education, health and defense.

Economic: is the social science that studies the production, distribution and consumption
of goods and services.

Economic growth: is the increase in the inflation adjusted market value of the goods and
services produced by an economy over time.

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 Chapter Two
Literature Review

Concepts, Opinion, Ideas from Authors

2.1 Meaning and Definition of Taxation

The word tax is based on the Latin world tax which means to estimate the tax means
imposing a financial charge or other levy upon a taxpayer can individual or legal entity
by a state or the functional equivalent of a state such that failure to pay is punishable by
law. First of all we have to settle the meaning of the word 'tax.' This term, so clear and
simple to the ordinary citizen, has been defined, sometimes at astonishing length, and
often unconscious, design of aiding a particular theory as to the character of the facts
denoted by it. The following definition is, we believe, correct and quite in accordance
with the realities of finance and politics: it has further advantage of not implying unfairly
any special view respecting the nature or justice of taxation. A tax is a compulsory
payment of money to pay to the Government by an Individuals or Organizations as the
Government covers it’s expenses on various public functions, and is interference in
political, economic and society life without direct return of benefit to be derived by the
taxpayer. In other words, there is no direct return to the taxpayer for what he pays, though
public in general derives a common benefit. Thus, tax is a mandatory distribution
collected by the Government to meet the expenses of various public functions. The
principle of taxation should be to impose the least sacrifice on the people as a whole,
even if it means imposing more sacrifice on some people and less on other.

It is not a price paid by taxpayer for any definite service by Government. Modern
Government, being welfare Government, should try to minimize the sacrifice of the
community. The aggregate sacrifice of the community is minimum when the marginal
sacrifice of individual taxpayers is equal or as nearly equal as 23 possible. Many

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economists like Adams, Bastable, Seligman, Taussing, Dalton etc, hold the unanimous
opinion that “the tax is a compulsory payment to the Government by taxpayer without
any expectation of some specified return. (shodhganga, 2011).

According to SHodhganga, the following Experts have defined the term ‘taxes’:

1. Adams: “A tax is a contribution from citizens for the support of the state.”

2. P. E. Taylor: ‘A compulsory payment to Government without expectation of direct

return in benefit to the taxpayer is known as tax’.

3. Prof. Bastable: ‘A tax is compulsory contribution of the wealth of a person or body of

persons for the services of public powers.

4. According to Seligman: “A tax is compulsory contribution from the person to the

Government to defray the expenses incurred in the common interest of all, without
reference to special benefits conferred “a

5. Plehn.” Taxes are in general, compulsory of wealth levied upon persons, nature or
corporate, to defray the expenses incurred in conferring common benefit upon the
resident of the State.

6. Dalton. “A tax is a compulsory contribution imposed by a public authority irrespective

of the exact amount of service rendered to the taxpayer in return.”

7. The dictionary of Modern Economic: Taxation means “Compulsory levies on

private individuals and organs tons made by government to raise revenue to finance
expenses on public goods and services and to control the volume private expenditure in
the economy.

2.2 Characteristics of Taxation

1. Tax is compulsory payment: payment of taxes is compulsory if the taxpayer has

attained the conditions, which are given in the relevant law as the sufficient
conditions for the imposition of a tax.

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 2. Tax is a payment to the Government by the people: if people among themselves or
from government make payments to the people, they are not taxes.
3. Element of sacrifice: Element of sacrifice is there in the payment of a tax in
addition to the legal compulsion.
4. The aim of tax collection is public welfare: it is for the benefit of the general
public and for the maximum welfare of the entire community that the taxes are
levied and collected.
The benefit received is not directly the return of tax: Although a person may
receive benefits accruing from the expenditure of the funds of which his
contribution in the form of taxes constitutes a part, yet it is not intended or
guaranteed by the State to give these benefits to a particular person in return of
and in proportion to the payment he has made in the form of taxes.

2.3 Classification of taxes

According to Manasseh (2002) taxes are classified as direct versus either indirect or
proportional versus progressive tax.

Direct taxes: Direct taxes are those that affect the individual’s firms directly through a
deduction from earnings. Examples include individual income tax, corporation tax, taxes
on property and others.

Indirect taxes: Indirect taxes are those taxes that are paid to government by an
intermediary and then passed on to the final user by including the tax in the final price.
Examples include export and import duties, excise and local production, value added tax
(VAT) and others.

Proportional versus progressive tax: Based on equity, taxes are classified as

proportional, progressive. A tax is said to be progressive when with increasing income
the tax liability not only increases in absolute terms but also proportionate to income.

Income Taxes: Income tax is a tax that governments impose on income generated by

businesses and individuals within their jurisdiction. By law, taxpayers must file
an income tax return annually to determine their tax obligations.

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Consumption Tax: A consumption tax is a tax on the money people spend, not the
money people earn. Sales tax which state and local governments use to raise revenue, are
a type of consumption tax. An excise tax on a specific good, such as alcohol or gasoline,
is another example of a consumption tax.

Progressive Tax: This is a tax that is higher for taxpayers with more money. In a
progressive tax system like the U.S. federal income tax, wealthy individuals pay tax at a
higher rate than less wealthy individuals.

Regressive Tax

A regressive tax is a tax that takes a greater percentage of income from those who earn
less, than from those with a higher income. In other words, low income people pay more,
relative to their earnings, than wealthy people.

Proportional Tax

Proportional tax is the taxing mechanism in which the taxing authority charges the same
rate of tax from each taxpayer, irrespective of income. This means that lower class, or
middle class, or upper-class people pay the same amount of tax. 

VAT Tax: A value added tax (VAT) is a consumption tax added to a product's
sales price. It represents a tax on the "value added" to the product throughout its
production process

Property Tax: Property taxes are taxes you pay on homes, land or commercial real
estate.

Payroll Taxes: Payroll taxes are imposed on employers or employees, and are usually
calculated as a percentage of the salaries that employers pay their staff.

2.4 Theoretical Literature Review

2.4.1 Theories of Taxation

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Taxation is the earliest and most prevalent form of government interference with the
economic life of individuals and business enterprises. The right of the chief authority to
collect taxes, and the general policy which determines who is to be taxed, how much the
tax shall be, and for what purposes it shall be levied has always been a controversial
issue. The tremendous increases in public spending accompanying recent depressions and
war periods have brought the question of taxation to the mind of each and every citizen.
Moreover, the extension of the powers of governments and the creation of modern greater
states has necessitated larger revenue for the administration of states. As such, the
development of general taxation was inevitable. ( MESFIN & BOGALE, 2013).

According Kendrick (1939) The economists have put forward many theories of

taxation at different times to guide the state as to how justice or equity in taxation can be
achieved. The main theories in brief, are:

 (i) Benefit Theory:

 
According to this theory, the state should levy taxes on individuals according to
the benefit conferred on them. The more benefits a person derives from the
activities of the state, the more he should pay to the government. This principle
has been subjected to severe criticism on the following grounds:
 Firstly, If the state maintains a certain connection between the benefits conferred
and the benefits derived. It will be against the basic principle of the tax. A tax, as
we know, is compulsory contribution made to the public authorities to meet the
expenses of the government and the provisions of general benefit. There is no
direct quid pro quo in the case of a tax.
Secondly, most of the expenditure incurred by the slate is for the general benefit
of its citizens, It is not possible to estimate the benefit enjoyed by a particular
individual every year.
 Thirdly, if we apply this principle in practice, then the poor will have to pay the
heaviest taxes, because they benefit more from the services of the state. If we get
more from the poor by way of taxes, it is against the principle of justice?
 (ii) The Cost of Service Theory:

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 Some economists were of the opinion that if the state charges actual cost of the
service rendered from the people, it will satisfy the idea of equity or justice in
taxation. The cost of service principle can no doubt be applied to some extent in
those cases where the services are rendered out of prices and are a bit easy to
determine, e.g., postal, railway services, supply of electricity, etc., etc. But most
of the expenditure incurred by the state cannot be fixed for each individual
because it cannot be exactly determined. For instance, how can we measure the
cost of service of the police, armed forces, judiciary, etc., to different individuals?
Dalton has also rejected this theory on the ground that there s no quid pro qua in a
tax.
 (iii) Ability to Pay Theory:
 The most popular and commonly accepted principle of equity or justice in
taxation is that citizens of a country should pay taxes to the government in
accordance with their ability to pay. It appears very reasonable and just that taxes
should be levied on the basis of the taxable capacity of an individual. For
instance, if the taxable capacity of a person A is greater than the person B, the
former should be asked to pay more taxes than the latter.
 It seems that if the taxes are levied on this principle as stated above, then justice
can be achieved. But our difficulties do not end here. The fact is that when we put
this theory in practice, our difficulties actually begin. The trouble arises with the
definition of ability to pay. The economists are not unanimous as to what should
be the exact measure of a person's ability or faculty to pay. The main view points
advanced in this connection are as follows:
 (a) Ownership of Property: Some economists are of the opinion that ownership
of the property is a very good basis of measuring one's ability to pay. This idea is
out rightly rejected on the ground that if a persons earns a large income but does
not spend on buying any property, he will then escape taxation. On the other
hand, another person earning income buys property, he will be subjected to
taxation. Is this not absurd and unjustifiable that a person, earning large income is
exempted from taxes and another person with small income is taxed?

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  (b) Tax on the Basis of Expenditure: It is also asserted by some economists that
the ability or faculty to pay tax should be judged by the expenditure which a
person incurs. The greater the expenditure, the higher should be the tax
and vice versa. The viewpoint is unsound and unfair in every respect. A person
having a large family to support has to spend more than a person having a small
family. If we make expenditure. as the test of one's ability to pay, the former
person who is already burdened with many dependents will have to' pay more
taxes than the latter who has a small family. So this is unjustifiable.
 (c) Income as the Basics: Most of the economists are of the opinion that income
should be the basis of measuring a man's ability to pay. It appears very just and
fair that if the income of a person is greater than that of another, the former should
be asked to pay more towards the support of the government than the latter. That
is why in the modern tax system of the countries of the world, income has been
accepted as the best test for measuring the ability to pay of a person.

2.4.2 Theories of Economic Growth

Under the theories of economic growth, economists have explained economic factors and
their impact on economic growth.

The evolution of economic growth theories can be drawn back from Adam Smith’s book,
Wealth of Nation. In his book, he emphasized a view that the growth of an economy
depends on division of labor.

“The most necessary condition for the growth of an economy is that the demand created
due to newly generated income should be sufficient enough, so that the output produced
by the new investment (increase in capital) should be fully absorbed”-Harrod-Domar
theory.

After that, the view presented by Smith was further succeeded by classical economists,
such as Ricardo, Malthus, and Mill. The theory developed by these economists is known
as classical theory of economic growth.

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2.5 Empirical Literature Review

Babatundel, Ibukun & Oveyemi (2017) conducted a study to examine the relationship of
taxation and economic growth in Africa from the periods 2004 to 2013. The pre-
estimation test carried out was descriptive statistics and unit root tests, which showed that
the variables GDP and tax were normal and stationary. However, the findings however
for this study indicated that tax revenue is positively related to GDP and promotes
economic growth in Africa. The study concluded that tax revenue has a significant
positive relationship with GDP. Skinner (1988) used data from African countries to
conclude that income, corporate, and import taxation led to greater reductions in output
growth than average export and sales taxation.

Zellner and Ngoie (2015) also conducted a study of the impact of tax on economic
growth using the Marshallian macroeconomic model in the United States between the
period 1987 to 2008. The findings were that corporate taxes are harmful to economic
growth. Seward (2008) conducted a study of the effects of taxes on economic growth in
industrialised countries for the period 1965 to 1995. The findings were that taxes are
negatively correlated with economic growth.

Lee and Gordo (2005) examined the relationship between the tax structure and economic
growth using cross-country data during 1970 to 1997. The findings suggested that
statutory corporate tax rates are significantly negatively correlated with cross-sectional
differences in average economic growth rate and that increases in corporate tax rates lead
to lower future growth rates within countries.

Atems (2015) explored the study of the effects of taxation on economic growth both in
the long-and short-run in 48 states in the United States over the period 1967 to 2008
using the partial durbin model. The results show the evidence of short- and long-run
relationship between taxation and economic growth and indicates that a 1% increase in
tax will reduce economic growth by 0.33%. Another study in the United States by Ojede
and Yamarik (2012) carried out the research of the long- and short-run relationship
between tax policies and economic growth in 48 states from the period 1967 to 2004

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using error correction model. The findings were that personal income has a significant
effect on economic growth while taxes on corporate have a negative impact.

Stoilova (2017) carried out the research of exploring the relationship between tax
structure and economic growth focusing on the 28 European Union countries from 1996
to 2013. The author used Barro’s endogenous model and found that total revenue has an
effect on the economy. The researcher found that personal income tax have positive
impact on economic growth, while corporate taxes have a negative impact on growth.

Tosun and Abizahed (2005) studied the relationship between tax policies and economic
growth in 21 member nations of the Organisation for Economic Cooperation and
Developmet (OECD) over the period 1980 to 1999 using the random effect model
(REM). The result reveals the evidence of the relationship between taxes and economic
growth, with positive and significant results on personal income tax and corporate tax.

Finally, some studies evidenced no relationship between taxation and economic growth
(Myles 2000; Xing 2012; and Ojong, Anthony and Arikpo 2016). Myles (2000)
examined the effect of taxes on economic growth in the United Kingdom from the period
1950 to 1998 using exogenous growth model and endogenous growth model. The finds
show that the relationship between tax and economic growth is very weak and in practise
taxation does not affect the rate of growth. A similar study was embarked upon by Xing
(2012) to examine the link between taxes and economic growth in 21 OECD countries
over the period 1970 to 2004 using the error correction model. The study however, show
corporate and personal tax to be insignificant

2.6. Principles of Taxation

A good tax system should be efficient in that it should be able to waste as little money
and resources as possible. Efficiency can be measured against three standpoints:
administrative costs, compliance costs and excess costs. These three relate to the cost of
operation of the tax system, to its flexibility and certainty. Administrative costs are the
costs to the government (and ultimately to the taxpayer) of collecting tax revenue. In
order to collect taxes, the government must hire collectors to collect the revenue; data

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entry clerks to process the tax returns; auditors to inspect questionable returns; lawyers to
deal with disputes; and accountants to track the flow of money. All these costs are those
that are incurred by the government to administer the tax system. Compliance costs, on
the other hand, are the costs (other than the taxes themselves) of making tax payments to
the government. In order to comply with their obligation to pay taxes, citizens are bound
to incur certain costs. These compliance costs include not only the money that people
spend on accountants, tax preparers and/or tax lawyers, but also the time spent in filing
tax returns and keeping records. The third aspect of efficiency, excess burden, relates to
tax-induced change in behavior displayed by tax payers. When the government levies
taxes on goods, it distorts consumer behavior as people are bound to buy less of taxed
goods and more of other goods. Thus the intrinsic value of goods is shadowed by the
taxes which are imposed on the goods. In general the larger any of these costs get, the
worse it is for efficiency. (MESFIN & BOGALE, 2013).

Advantages and Disadvantages of taxation

According to Nefta Baptiste (2017)

Advantages (Direct)

- Fair and equitable because they are usually progressive/proportional

- Can be levied according to ability to pay
- Tend to stabilize economy because of progressive nature
- They are difficult to pass on
- They tend to be less inflationary than direct taxes
- Tax payers know what their liability is

Disadvantages (Direct)

- Acts as a disincentive to work

- Can reduce ability to save and invest especially if high
- Can discourage geographical and occupational mobility of labour
- May encourage tax avoidance and tax evasion
- Can discourage foreign investment and encourage investment abroad

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 - It reduces the incentive to trade especially if tax is progressive

Advantages (Indirect)

- Are generally more difficult to evade

- Does not have a distinctive effect on effort
- Indirect taxes leave an individual with a choice of not paying tax
- Hidden in a sense that the taxpayer is usually unaware of the tax he has paid
- Can be used to encourage or discourage the production and consumption of
particular goods and services.
- It is a flexible instrument of economic policy as they can be changed quickly and
easily

Disadvantages (Indirect)

- Can be inflationary
- Tend to be more regressive hence make distribution of income more unequal
- As people are unaware of how much they are paying it goes against the principle
of transparency
- Can reduce the demand for goods and services
- They are not impartial in their implication

2.7 Economic Growth Concepts

According to Lanahan (2003, p xi) states that “Economic growth is an increase in the
capacity of an economy to produce goods and services, compared from one period of
time to another. It can be measured in nominal or real terms, the latter of which is
adjusted for inflation. Traditionally, aggregate economic growth is measured in terms of
gross national product (GNP) or gross domestic product (GDP), although alternative
metrics are sometimes used“.

According to James steuart (1967, p 1036) also states that economics is “an art of
providing for all the wants of a family, [so the science of political economy] seeks to
secure a certain fund of subsistence for all the inhabitants, to obviate every circumstance

15 | P a g e
which may render it precarious, to provide everything necessary for supplying the wants
of the society, and to employ the inhabitants. In such manner as naturally to create
reciprocal relations and dependencies between them, so as to supply one another with
reciprocal wants”.

2.8 The importance of economic growth

- Increase the value of income, which improves the level of income of individuals.

-Provide all basic needs, especially food items at reasonable prices, and fit the economic
capacity of all people.

-Help provide a range of jobs

- Ensure the improvement of the health, educational and social levels of the community.

- Reducing the fiscal deficit in the financial budget.

-Support and support the balance of payments through the development of economic
plans that contribute to its improvement.

- Achieving economic stability of the state.

- Contribution to the growth of domestic income.

2.9 How does economic growth affect the average citizen?

According to Saudi Arabian financial news Argaam(2017)

- During periods of economic growth of a country, unemployment rates are low, wages
rise, and companies increase employment to keep up with the growth of the economy.

-However, if economic growth accelerates, some central banks will raise interest rates to
curb any rise in inflation - that is, to counter any rising prices for goods and services - and
thus increase borrowing costs for households and businesses.

- If the growth of the economy slows down or turns into negative territory, this raises the
fears of recession in governments, which means layoffs, high unemployment, falling

16 | P a g e
corporate revenues and low consumer spending - the latter being the backbone of the US
economy - Revives demand for goods and services, drives companies to increase
production and hire more workers.

- GDP data released periodically represents an opportunity for those interested to know
which industrial and service sectors have experienced growth and which have seen a
decline, so that job seekers can train themselves in the growing sectors that are expected
to increase employment.

2.10 Causes of Economic Growth

Economic Growth doesn’t have a set recipe. It is evident that different countries grow at
differentrates and for different reasons. Every country’s economy is built differently

The Possible Causes:

1. Increase in Total Demand

- Can come from a number of sources ,However this is a short term cause as once
an economy is at full capacity no more can be produced Improvements to the
Labor Force
- Improvements to Quality and Quantity will allow for long term economic growth
through a rise in productivity
-
2. Progression in Technology

- As technology gets better, it can lead to an economy being more productive which
will fuel economic growth• Investment
- This would fuel economic growth but the actual source of the growth would be
from new Capital Goods e.g. Machines

2.11 The benefits of economic growth

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1. Higher average incomes. This enables consumers to enjoy more goods and services
and enjoy better standards of living. Economic growth during the Twentieth Century was
a major factor in reducing absolute levels of poverty and enabling a rise in life
expectancy.

2. Lowe unemployment. With higher output and positive economic growth, firms tend
to employ more workers creating more employment.

3. Lower government borrowing. Economic growth creates higher tax revenues, and
there is less need to spend money on benefits such as unemployment benefit. Therefore
economic growth helps to reduce government borrowing. Economic growth also plays a
role in reducing debt to GDP ratios.

4. Improved public services. With increased tax revenues the government can spend
more on public services, such as the NHS and education e.t.c.

5. Money can be spent on protecting the environment. With higher real GDP a society
can devote more resources to promoting recycling and the use of renewable resources.

6. Investment. Economic growth encourages firms to invest, in order to meet future

demand. Higher investment increases the scope for future economic growth – creating a
virtuous cycle of economic growth/investment.

7. Increased research and development. High economic growth leads to increased

profitability for firms, enabling more spending on research and development. Also,
sustained economic growth increases confidence and encourages firms to take risks and
innovate.

2.12 Evaluation of economic growth

For developing economies in Sub-Saharan Africa, economic growth enables countries to

escape the worst levels of poverty. Even a small level of economic growth can facilitate
higher living standards and an improvement in life expectancy. In the developed world,
economic growth is less essential.

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It depends on the nature of economic growth. For example, if economic growth leads to
more pollution and congestion, then living standards may not seem to hit. It also depends
on the distribution of economic growth – who benefits from the economic growth. If
growth benefits primarily the richest in society, growth may do little to overcome poverty

Advantages and Disadvantages of Economic Growth

Advantages

- Higher average incomes (which, ideally, results in a higher standard of living)

- Improved public services and infrastructure (more people are able tp pay taxes,
which gives the government more money to spend on infrastructure and public
services)
- Lower unemployment rates
- Lower government spending (less people are on unemployment benefits)

Disadvantages

- Demand-pull inflation (if demand increases faster than supply, more people are
able to buy more things)
- Recession usually follows after inflation
- Negative externalities (e.g. increase in environmental degradation)
- An increase in wealth inequality

2.13 Taxation and Growth

According Halpern (1997) Economic growth is the basis of increased prosperity. Growth
comes from the accumulation of capital (both human and physical) and from innovations
which lead to technical progress.

Accumulation and innovation raise the productivity of inputs into production and
increase the potential level of output. The rate of growth can be affected by policy
through the effect that taxation has upon economic decisions. An increase in taxation
reduces the returns to investment (in both physical and human capital) and Research and

19 | P a g e
Development (R&D). Lower returns mean less accumulation and innovation and hence a
lower rate of growth. This is the negative aspect of taxation.

Taxation also has a positive aspect. Some public expenditure can enhance productivity,
such as the provision of infrastructure, public education, and health care. Taxation
provides the means to finance these expenditures and indirectly can contribute to an
increase in the growth rate.

In most developed countries the level of taxes rose steadily over the course of the
twentieth century: an increase from about 5%-10% of gross domestic product (GDP) at
the turn of the century to 30% - 40% at the end is typical. Such significant increases raise
serious questions about the effect taxation has upon economic growth.

This does not imply that it is straightforward to infer the effects of taxation from
aggregate economic data. The positive and negative effects of taxation will be mutually
offsetting and only the net effect (which may be very small) will be observed.

Until recently, economic models that could offer insight into how to proceed beyond
aggregate data were lacking. Much of the literature on economic growth focused on the
long-run equilibrium where output per head was constant or modeled growth through
exogenous technical progress. By definition, when technical progress is exogenous it
cannot be affected by policy. The development of endogenous growth theory has
overcome these limitations by explicitly modeling the process through which growth is
generated. This allows the effects of taxation to be traced through the economy and
predictions made about its effects on growth. This report describes these models and the
recent empirical evidence on the size of the tax effect.

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21 | P a g e
 Chapter three

Research methodology
3.0 Introduction

This chapter discusses the different aspects of methodology applied in this

study. These include: research design, area of study, study population,
sampling method, data collection methods and instruments, data quality
control, data analysis and presentation, ethical issues and limitations of the
study.
3.1 Research Design

Descriptive correlational design: The level of influence and effect of one

variable on the other, the researcher evaluates the relationship between two
variables. We apply descriptive correlational design to investigate the
relationship between Taxation and Economic growth in ministry of finance
Hargeisa, Somaliland. Both quantitative and qualitative methods were used
to make sure that all the important and relevant data for the study is collected
and utilized. According to Lisle (2011), mixed method research strengthens
the validity of the research findings. It also improves instrumentation for the
data collection approaches. Research design also deals with the source of
data, sampling techniques, data collection and analysis methods in the study
reaching to the point of knowing the impact of taxation on Somaliland
economic growth in Ministry of Finance Development Hargeisa (Kothari,
2004)
3.2 Research Population
Target population is a population as the total collection of elements about
which we wish to make inferences. The target population of this study was
the employees of Somaliland Ministry of Finance Development where
particularly was target to Inland Revenue Department. This department is

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 targeted because it is related to the required data in which this research wants
to analyze, interpret and conclude results.
3.3 Sample Size
The researcher use Slovene’s formula to come up with the sample size.

The sample for this study was determine by using this formula,

N
n=
1+ N ( α)2
Where n=samplesize ; N =targetpopulation ; andα =0.05 levelofsignificance

380
n= 2
1+380 (0.05)

380
n=
1+380 (0.0025)
380
¿
1+ 0.95

380
n=
1.95
n=194
The sample size for this research was 194 employees in Ministry of Finance
Development.

3.4 Sampling Procedure

Purposive and Simple random sampling was used in this study. Each of the target
population will be inclusive and get equal chance. The entire process of sampling is
done in a single step with each subject selected independently of the other members
of the population. One of the best things about simple random sampling is the ease of
assembling the sample.

It also considers as a fair way of selecting a sample from a given population

since every member is given equal opportunities of being selected. Another

23 | P a g e
 key feature of simple random sampling is its representativeness of the
population. Theoretically, the only thing that can compromise its
representativeness is luck.
3.5 Research Instruments
Primary data was collected using a questionnaire and interview developing in line
with the research questions. The questionnaires and interview was consist of both
open-ended and closed questions covering the specific objectives of study. Open-
ended questions will permit
free responses from the respondents, without providing or suggesting any structure
for the replies. The closed ended questions enabled responses of the respondents to be
limited to stated alternatives.
The use of closed ended questions method was employed because it enables isolation
of the responses from external influence. Unlike the open ended questions which
gave the respondents total freedom to express their views and attitudes in
unconstrained manner.

3.6 Validity & Reliability

Reliability is all about test and retest method. If the researcher distributes his
questionnaire to the same number of people twice and finds out that there is a
big difference in their responses, then there is something wrong with his method
of data collection.
The validity of the instrument will be assessed through expert judgment and the
researcher will make sure the coefficient validity to be at least 75% the
researcher will consult his supervisor for expert knowledge for the construction
of the questionnaire.

3.7 Ethical Consideration

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Ethics is an important aspect in any research. There has to be some basic ethics to be
adopted in any research. In this study, ethics is handled by the researcher by keeping the
answers acquired strictly confidential. Besides, a prior permission will be taken by the
researcher from the target respondents before conducting the research.

Chapter Four

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 Data analysis ad interpretation
4.0 Introduction
This chapter analyses the data collected through questionnaires and interviews for the
impact of taxation on Somaliland economic growth. This part of the study deals with the
results and discussions of the data gathered from the respondents through
questionnaire and interview with their interpretation.

4.1 Section One: Demographic Characteristics of the Respondents

This section presents the demographic information of this research questionnaire and
interview participants. The section covers the age, gender, educational level, marital and
employment statuses of the study participants.

Table 4. 1 Demographic Characteristics of the Respondents

Descriptions Frequency Percent

Age
20-30 96 64.0
31-45 44 29.3
46-60 10 6.7
61 Above 0 0
Gender
Male 99 66.0
Female 51 34.0
Marital status
Single Married 78 52.0
Widowed 62 41.3
10 6.7
Educational level
Secondary Diploma 4 2.7
Degree 12 8.0

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 Master 94 64.7
Any other 35 23.3
2 1.3
Employment Time 97 64.7

Full time 53 35.3

Part time

As the above table shows the age range of 20-30 is the highest of the staff as they are 64%
of the total respondents. This implies that the people in this age range are mostly likely
the ones who work in this organization. 31 -45 are the second most age who works in
the Somaliland Inland Revenue Department as they are 29% of the of the total
respondents. The age range of 46-60 constitutes in the third place of 6.7%.

Similarly, the table above shows that 66% of the respondents were males and 34% were

females. This indicates that staffs working for the government institutions are
dominated by the male. Government employees were mostly men.

The table also indicates that 52% of respondent were single and 41% of the respondent
were married while 6% of the respondent were widowed.

Likewise, the table 4.1 above shows the frequency of the personal information of 150
respondents in terms of education background. It was found that 2.7% hold secondary
certificates while 64.7% of them have bachelor degrees, 23.3% have master’s degrees,
8% of respondents have Diplomas and the rest 1.3% were PhD holders and PhD
candidates. This information can be understood that majority of respondents were
qualified employees. The findings also imply that that majority of the participant is
bachelor degree holders

27 | P a g e
The table illustrates that 64.7% was regular employees while 35.3% was part time. This
means that most of our respondents were full time employees.

4.2. Section Two: The relationship between taxation and economic

growth

This section displays the responses of the research participants if there is a relationship
between taxation and economic growth. The figure 4.1 below indicates the data
collected from the respondents of this research questionnaire.

Figure 4. 1 The relationship between taxation and economic growth

As the figure 4.1 above indicates 80% of respondents responded that Taxation is one of
the major factors that contribute to the Economic Growth while the rest of them, 20%
of the research participants don’t agree that taxation have stake on economic growth.

The following figure 4.2 presents the effects of taxation on economic growth as the
majority of the respondents agreed that taxation has an effect on economic growth.

Figure 4. 2 taxation effect economic growth

28 | P a g e
The figure 4.2 shows that 54% of the research participants responded if the government
has good tax system and collects tax revenue effectively, efficiently and adequately,
they believe that the revenue collected would create employment and investment
opportunities which in turn would positively contribute to the economic growth. The
respondents also believe that taxation is tool of adjusting fiscal policy. The rest, 46% of
the respondents persist that taxation doesn’t any effect on economic growth.

Figure 4. 3 How knowledgeable are you with tax matter?

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Figure 3 indicates that 37.3% of the responders have good knowledge about tax while
48.7% have some knowledge and the rest 14% of the respondents have no knowledge
about tax.

Table 4. 2 Do you agree that the tax you pay increases to the national income?
do you agree that the tax you pay increase to the national income

Frequency Percent

yes 130 86.7

no 20 13.3

Total 150 100.0

In this table, 86.7% of the respondents supported that tax they pay increases the
national income, but 13% were against this group and supported that tax they pay does
not increase the national income. Whatever, as the majority of the respondents believes
tax if not corrupted and misused increases the national income or makes economic
growth better.

Figure 4. 4 Does tax increase helps the economy?

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As the figure shows 48.7% of the respondents agreed that the tax increase helps the
economy while 51.3% of the responders stated that tax increases do not help the
economy.

4.3 Section Three: The influence taxation has on economic growth?

This section presents the responses of this study participants on the kind of influence
taxation has on the economic growth. This section touches if a good tax system and
lower tax rates have an influence on the economic growth.

Figure 4. 5 Can good tax system contribute to economic growth?

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This figure shows that 47.3% of the responders said yes, which means good tax system
can’t contribute to economic growth while 52.7% of them respond no. However, the
fact is that the more tax is paid the more public services are provided if there is no mega
corruption where all revenue collected is looted.

Table 4. 3 If the government lowered taxes, a lower tax rate promotes economic
growth?

Frequency Percent

strongly agree 43 28.7

agree 47 31.3

disagree 47 31.3

strongly disagree 13 8.7

Total 150 100.0

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This table shows that 28.7% and 31.3% of the respondents either strongly agreed or
agreed respectively that lower tax rates could promote economic growth where 8.7%
and 31.3 of the respondents either strongly disagreed or disagreed respectively that
lower tax rates would promote economic growth.

4.4 Section Four: Government’s tax needs

Table 4. 4 The Kind of tax policy needed

Frequency Percent

agree 54 36.0

disagree 55 36.7

strongly disagree 41 27.3

Total 150 100.0

This study participants were asked if they agree that the tax policy of the government is
to make a regressive tax system as the country collects less than 7% of its GDP in tax
revenue?. As table 4.4 above shows 36% of the respondents agreed regressive tax policy
is needed to encourage people work harder while 36.7% and 27.3% of them either
disagreed or strongly disagreed that regressive tax policy is needed.

4.5 Interview Analysis

As per the design and data collection tools in this study, includes to collect primary data
with semi structured interview, therefore, we interviewed 10 employers of Inland
revenue in the Ministry of Finance Development, Somaliland. With long and informative
interview the data collected interpreted in the following paragraphs.

33 | P a g e
First of all, interviewees were asked their expectations in the near future about the
taxation in Somaliland. Majority of the interviewees agreed that according to the inland
revenue department contributions to the national budget of Somaliland which is
growing from year to year, the trust and tax knowledge would increase and in turn
promote economic growth.

Interviewees were also asked the major causes of tax corruption in the tax system.
Interviewees indicated that there is no tax corruption but misunderstanding of
taxpayers about the tax system. They also highlighted that lack of sound tax
administration system or poor tax system may somehow cause tax corruption but they
also emphasised that lack of actual number of taxpayers, tax evasion and unwillingness
of taxpayers to pay tax liabilities are among the major challenges in Somaliland tax
system.

In terms of the third question, we asked the interviewees whether the tax laws are
simple & fair. Most of the interviewees responded that tax laws are simple and fair
because tax laws shows the exactly tax due to for every year or month. But one of the
interviewees responded that tax laws in Somaliland are simple but not fair, because tax
are imposed only poor people by the government.

Lastly, interviewees were asked what the government does on taxes it collects from the
taxpayers. The participants agreed that government spends mostly on security, social
services and infrastructure particularly, public offices. The interviewees added that
Somaliland government does not get alternative source of revenue rather domestic
revenue to run the country yet can be seen that the Somaliland budget increases year
after year hence would contribute to the economic growth of Somaliland.

34 | P a g e
 Chapter five

Summary, Conclusion and Recommendation

5.0 Introduction

This chapter provides and discusses the findings of the research after made questionnaire
to the Ministry of Finance and Development of Somaliland to know the Impact of
taxation on Somaliland economic growth and how they are related to each other, and also
this chapter offers recommendations that the researcher absorbs the view of the

35 | P a g e
respondents as well as the literature review during the research time, this chapter will
make summary the over all of the study.

5.1 Summary of major findings

The researcher has found that the taxation has positive effect to the Somaliland economic
growth, which means this result is widely effect the overall economy growth of the
country. The researcher has proved that most of respondents believed that the rate of tax
is high and could have and adverse effect on the Economic growth of Somaliland.

Research participants have different view when it comes how knowledgeable they are.
The findings show that 37.3% of the responders are knowledgeable about the tax matters,
48.7% of the responders are Somehow Knowledgeable, while 14% are not
knowledgeable with the tax matter.

This simply clarifies that the highest number of responders are knowledgeable in tax
matter, and that shows whenever much people are familiar to tax theme, it means the
growth of economic would be positive.

The findings also indicated that there is no tax corruption but misunderstanding of
taxpayers about the tax system, lack of sound tax administration system or poor tax
system, lack of actual number of taxpayers, tax evasion and unwillingness of taxpayers to
pay tax liabilities are among the major challenges in Somaliland tax system.

5.2 Conclusion

This paper examines the role of the relative wealth-induced status motive in affecting the
neutrality of consumption taxation in an optimizing growth model. It is found that a key
factor determining the validity of the neutrality of consumption taxation in both the level
sense and the growth rate sense is the desire for relative wealth, a rise in consumption tax
enhances the steady-state level of capital stock and consumption. Furthermore, if the
production function takes a linear technology form as the engine of sustained growth,
then increases in consumption taxation raise the economy’s long run growth rate. In

36 | P a g e
addition, an optimal consumption tax policy provides full subsidies to consumption so as
to induce the economy to achieve the social optimum and the optimal growth rate

5.3 Recommendation

 Reformation and development of effective taxation system in the INLAND

REVENUE DEPARTMENT, particularly on INCOME TAXES.
 To reach economic growth, there should be stable prices and reducing tax for the
daily necessary goods whereas tax of luxury goods can be increased.
 The government allocation of the revenue should be prioritized to the productive
places which can contribute to increase the national income and results a better
performance of the tax and tax payers.
 The tax authorities should be responsive to the people or the primary tax payers,
whenever there are changes and even alongside the process, from the beginning to
the end.
 The government must have strong finance policy by improving tax system to
achieve self
sufficiency and income security.
 Tax collection system of the country should be review and updated.
 Government must increase its efficiency; corruption must be eliminated through
upgrading tax
employee’s knowledge and providing them enough salary.
 Government must obtain public confidence through making maximum tax return
and efficiently
allocating income.
 The government gives priority training programs the collectors of taxation.

 The government makes a correct system that involves rate of taxation.

 Finally the research recommends that more researches concerning tax evasion
should
conducted since it is serious problem because in the needs attitudinal change
which is not easy.

37 | P a g e
Reference List

Atems B. 2015. Another look at tax policy and state economic growth: the long and short
run of it, economic letters, 127(1), 64-67.

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Babatunde A., Ibukun, O. & Oyeyemi, G. 2017. Taxation revenue and economic growth
in Africa, journal of accounting and taxation, 9(2), 11-22.

Dalamagas B. and Kotsios S. 2008, Personal income tax: incentive or disincentive to

work effort, Revue Economique, 59(4), 777-811

Ferede E. & Dahlby B. 2012. The impact of tax cuts on economic growth: Evidence from
the Canadian provinces, National tax journal, 65(3), 563-594.

Kendrick, M. S. (1939). The ability-to-pay theory of taxation. The American Economic

Review, 92-101.

Lee Y. & Gordon R. 2005, Tax structure and economic growth, Journal of Public
Economics, 89(1), 1027-1043.

Maneselli tumuhimbise (2002) introduction of taxation in Uganda.

MESFIN & BOGALE (2013, JULY 15). General Theories And Principles Of Taxation,
From Abyssinia Law Official Website:
Https://Www.Abyssinialaw.Com/About-Us/Item/1066-General-Theories-And-Principles-
Of-Taxation

Myles D. 2000. Taxation and economic growth, fiscal studies, 21(1), 141-168

Ojede A. & Yamarik S. 2012. Tax policy and state economic growth: short and long run
of it, Economics Letter, 116(2), 161-165

Ojong M., Anthony O. & Arikpo F. 2016, The impact of tax revenue on economic
growth: Evidence from Nigeria, IOSR Journal of economics and finance, 7(1), 32-38

Poulson W. & Kaplan G. 2008, State income taxes and economic growth, Cato journal,
28(1), 53-71.

Seward T. 2008, The Impact of Taxes on Employment and Economic Growth: Evidence
from the Industrialized countries, MPRA working paper series, No: 16574

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Skinner J. 1987, Taxation and Output Growth: Evidence from African Countries. NBER
Working Paper Series, No:2335

Stoilova D. 2017, Tax structure and economic growth: Evidence from the European
Union, Contaduriay Administracion, 62(3), 1041-1057.

Tosun S. & Abizadeh S. 2005, Economic growth and tax components: An analysis of tax
changes in OECD, Applied economics, 35(19), 2251-2263

Xing J. 2012, Tax structure and growth: How robust is the empirical evidence,
Economics Letters, 117(1), 379-382

Yusuf Soraan, 2015 ,Somaliland: Historical overview of taxation and recent tax policy
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tax rates on growth rates of the U.S economy, Econometric Reviews, 34(1), 56-81.

Appendix

ADMAS UNIVERSITY

DEPARTMENT OF ACCOUNTING

QUESTIONNAIRE

Dear Respondents:

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Our names are Sihaam Mahmed Abdi and Naima Mahamed Abdi pursuing Bachelor of
Degree in Accounting & Finance at Admas University. We are conducting a research on
“The Impact of taxation on Somaliland economic growth at Ministry of Finance
Development in Hargeisa, Somaliland”. You have been selected to take part in this study
by faithfully completing the attached questionnaire. Please note that you responses will
be kept confidential.

Section A: Personal Data

Please circle / answer most appropriate response

A) Age:
20-30 31-45 46-60 61-Above
2) Gender

A) Male B) Female

3) Marital status

Single Married Widowed

4) Educational Background of the respondent

A) secondary

B) Diploma
C) Degree
D) Master
E) Any other please mention__________________

5) What type of tax you pay?

A) Personal income B)Tax company income C) sales Tax D)
payroll tax
6) Employment Time

41 | P a g e
A) Full time B) part time

Section B: The relationship between taxation and economic growth

7) Does taxation take part in the economic growth?

4) Yes
5) No

8) Does taxation effects economic growth?

A) Yes
B) No

If yes How
________________________________________________________________________
________________________________________________________________________
_____________________________________________

9) How knowledgeable are you with tax matter?

A) Knowledgeable B) Some knowledgeable C) Not knowledgeable

10) Do you agree that the tax you pay increases to the national income?

A) Yes
B) No

11) Does tax increases help the economy?

A) Yes

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B) No

If yes please comment

________________________________________________________________________
________________________________________________________________________
_____________________________________________

Section C: The influence taxation has on economic growth

12) Can good tax system contribute to economic growth?

A. Yes
B. No
If yes please comment
_______________________________________________________________
_______________________________________________________________
_______________________________________________________________

13) What would happen if the government lowered taxes?

________________________________________________________________________
________________________________________________________________________
_____________________________________________

Section D: Government’s Tax Needs

14) Do you agree that the tax policy of the government is a regressive tax system, and
one that needs improving since the country collects less than 7% of its GDP in tax
revenues?

A) Strongly Agree
B) Disagree
C) Strongly Disagree

43 | P a g e
15) Do you agree that the tax you pay increase to the national income?

A) Yes
B) No

Interview Questions

1. What are the expectations in the near future of the taxation in Somaliland?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
2. What may cause tax corruption In Somaliland?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

3. Do you think that the tax laws are simple and fair?
__________________________________________________________________
__________
__________________________________________________________________
____________

If yes or no please comment why?

__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

44 | P a g e
4. What the government invest the tax they collect?
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________

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