CHAPTER 1

INTRODUCTION TO TAXATION
 COURSE OBJECTIVES
• To equip students with the knowledge and understanding of
taxation and tax management in Somaliland
• To identify and discuss the major taxes administration in Somaliland
• To identify the various challenges of tax administration in
Somaliland and remedies for these challenges.
• To introduce taxation as a business concept and it affects business
decisions
• To enable the students learn of multilateral cooperation and
agreements in the world economies
 Introduction to Taxation
• Taxation is subject with a distinction of an intimate interaction
between its theory and government practice.
• The theoretical concepts and policy application in this subject are
interrelated. Making taxation is very interesting but complex as well.
The major case study of this subject will be Somaliland revenue
authority ,its statutes and the income tax act
 Definition of taxation
Nature of taxes
Tax is defined as:
• An exaction for the support of the government
• The price you pay for the government service
• Source of revenue
 General definition
• Tax is compulsory and non-refundable contribution executed
by the government for public purposes
• Tax is a leakage form the circular flow of income in to the
public sector with the exception of loan transactions and
payments for publicly produced goods services
• Tax is the process of imposing and collecting taxes that is
taxation involves enumeration, assessments, tax collection
,tax services and control .
 Functions of Government
• Protective Function
The government is responsible to maintain peace and security in the
country and to defend the country against external aggression for this
purpose the government maintains the police and armed forces.
Administrative Functions
The government provides social administration for all the sectors in the
country such as ensuring effective administration of districts and
different government departments
 Conti..
• Social function: The government provides social service like
education health and housing .These service are vital for the
welfare of the society
• Development Function: The development of different
sector of economy is not possible without states help the
government should develop irrigation ,transport and
communication, industry and agricultural systems of the
country for the rapid increase in the rate of economic growth.
Conti..
• In order to perform these functions effectively and adequately
the government needs funds, the taxation is an important
source of the government income
• The income of the government from taxes and other source is
known as public revenue
The main source of public revenue are as follows :

1. Tax : this is the important source of public revenue

Taxes may be difference kinds

A. Income tax: tax imposed on income of individuals
B. Corporation tax: this imposed on profit of limited companies
C. Sales tax : imposed on the sale of companies
D. Customs duty: imposed import and export of commodities
E. Exercise tax: this tax is imposed on the production of commodities
Conti…
2. Fees: a fee is the amount which is received by the government for
commercial service ,for example railway fares, postage and telephone
charges etc.
3. Special assessment : Special assessment are those amounts which
are charged for specified purpose for example if the government
charges as specific amount from resident of particular area for the
establishment of secondary school in that area then it will be as special
assessment
4. Fines : If the individual do not obey the laws of the country
then fines are imposed on such individual these fines are also
the income of government.
5. State property : the forest mines and natural parks are
considered as the government on the people the income from
such department is also one source of public reneue
 Characteristic/features of taxation
• It’s compulsory contribution imposed by the government on
the people residing in the country
• Tax paid to the government is used for the benefit of all
citizens
• Fairness
• Clarity and certainty
• Convenience
• Efficiency
 Purposes of taxes
The government levies taxes so that it can be meet its functions as outlines below
 Raising revenue:
For economic stability
To ensure fair distribution of income
Ensure optimum allocation of resource
The Protection policy
Social welfare
Ensure higher employment level
Tax powers and right to revenue