Economics of Taxation

Dr. Mahmoud M. Abdellatif Khalil

Director, Center for Entrepreneurship
Content
An overview Taxation and Economics

 An Overview of Tax Policy in Qatar

Taxation
According to Hugh 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, and not imposed as penalty for any legal
offence”.
Taxation and Economics- Cont.,

Economics

Taxation
Law Accounting
 Taxation and Economics
Taxation is a multidisciplinary science and professions
which includes Economics/ Economists, Law/ lawyers and
Accounting/ Accountants

Economics

Law

Accounting
Functions of Taxation:
There are four functions of taxation

- Revenue Collection function

- Economic Stabilization function

- Income Redistribution function

- Allocation function
Functions of Taxation:
1. Revenue Collection function:

In most countries around the world taxes are the main source for
government revenue which is necessary for the government to
provide public Goods .

2. Stabilisation Function:

Such an objective would consider the stabilisation of national income

and employment at high levels of more importance than annually
balanced budget.
Functions of Taxation:
3. Income Redistribution Function

Taxation aimed at reducing the unequal distribution of income and

wealth that results from the normal operation of a market-based
economy.

4. Allocation Function:

Taxation also has a regulatory component: It can be used to steer

private sector activity in the directions desired by governments. This
function is also controversial, as shown by the debate around tax
expenditures.
The Criteria for good Tax system

• Economic Efficiency

• Equality / Fairness

• Neutrality

• Revenue Adequacy

• Simplicity
Economic Efficiency
Economic efficiency refers to the capability of tax system to deal
with market failure issue ( positive and negative externalities)
- All taxes affect behavior ( reduce spending power), distortions
are associated with actions an individual takes to avoid taxes ,
for example by working less, one’s tax liability is reduced
- Corrective taxation, by imposing taxes on activities, such as
pollution, that generate negative externalities , simultaneously
raises revenues and improve economic efficiency and
improve economic efficiency.
Equality/Fairness
• There are two distinct concepts of fairness: horizontal equity
and vertical equity

• Horizontal equity: a tax system is said to be horizontally

equitable if individuals who are the same in all relevant
respects are treated the same

• Vertical equity: the principle of vertical equity says that some

individuals are in a position to pay higher taxes than others
and that these individuals should do so
Simplicity
The administrative costs of running a tax system depend on
a number of factors;
- What records would be kept in the absence of taxation
- The degree of complexity of tax code; much of the cost
of administrating the income tax system comes from
special provisions; for example: the deductibility of certain
categories of expenditures
- Taxing some categories of income may be more
expensive than taxing others.
Tax Incidence
• The incidence of a tax describes who actually bears the
tax. It does not depend on who writes the check to the
government.

• So, there is economic incidence

• Legal incidence
Tax Incidence: legal aspect
• Legal aspect of tax incidence is mainly concerned with

identifying who is going to pay the tax by law. Whether it

is an individual taxpayer, a corporation, or a consumer.

Tax Incidence: Economic Aspect

• The economists distinguish between those who bear the

burden of a tax and those on whom a tax is imposed or

levied. The tax burden is the true economic weight of a

tax. It is the difference between the individual’s real

income before and after the tax has been imposed.

Tax Incidence: Value Added Tax
 Fiscal Policy and Fiscal Frameworks
in Qatar
“Fiscal policy remains sustainable, but given the large drop in oil prices,

revenue-raising and expenditure-containing measures need to be

considered to ensure intergenerational equity. Measures aimed at

containing current spending, prioritizing capital expenditure, and raising

non-hydrogen revenues would help bring fiscal policy back to consistency

with intergenerational equity. Strengthening fiscal frameworks would help

achieve the desirable fiscal policies.” – IMF, November 2015

Fiscal Policy – Revenue &
Expenditure Path
• Total revenue and expenditure of central government have
increased substantially since 2000 in real terms

• Driven by increase in the oil prices and hydrocarbon

production, real total revenue grew by 20 percent on average
in FY2000-13.

• Such strong revenue allowed increasing total expenditure

substantially, by more than 15% on average in real
terms in the same period.
Fiscal Policy – Revenue & Expenditure Path
Government Revenues
1. Tax Revenue
• Corporate Tax
• Individual Income Tax
• VAT
• Customs

2- Non Tax Revenue

 Oil
 LNG
 Investment Income
 Other Revenues
Central Government Revenues
Qatar: Fiscal Balance and Tax
Structure
Qatar Fiscal Balance and Tax Structure as a percentage of GDP
In Percent of GDP

2012 2013 20142012-2014

Fiscal Balance 14.2 20.7 21 18.6
Total Government Revenue 40.4 46 45.1 43.8
Oil Revenue 36.5 42.1 40.1 39.6
Non- oil Revenue 3.90 3.90 5.00 4.20
Non- oil Tax Revenue 2.4 1.7 2 2
Thank you for your attention