Free Implementation of Progressive Income Tax System in Developing Countries: Case Study of Seychelles Dissertation Example
Implementation of Progressive Income Tax System in Developing Countries: Case Study of Seychelles
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As a tool, often the government uses taxation in a move to implement economic decisions whose outcome influences multiple economic aspects. The progressive taxing system seems to have acquired its popularity among many nations and dictates that taxes need to be increased as the levels of income increase. Tax experts and other scholars have been able to link the progressive income tax system to the social impacts. In this perspective, many developing countries implement progressive taxation in an effort to achieve the equal distribution of income in the countries. Thus, this study aims at examining the effects of the introduction of the progressive income taxing system in Seychelles and how these effects contribute to the social impacts of the population of Seychelles. This makes the study focus on the equal income distribution among the taxpayers in Seychelles. The findings of the study indicated that the implementation of the progressive income tax system in Seychelles has been able to achieve equal income distribution hence social equality. The study involved 200 participants from the Island of Mahe whose responses were significant in establishing the findings.
Keywords: Tax, progressivity, income, population, taxpayers
Chapter one: Introduction
There is an open difference between countries with developing economies and those with already developed economies. One common feature that will help define this relationship is the social treatment and the living of the people in these two types of countries. In the developing economies, the poor people continuously become poorer while the rich relatively become richer. Bird and Zolt (2004) noted that, “….Many developing countries have an unequal distribution of income, (Bird and Zolt, 2004, pg1627)”. On the other hand, the developed countries try to put measures in place to ensure there is a balancing off between those who are rich and the poor. All the efforts are meant to reduce the existing gap between the two groups. Additionally, there is a considerable linkage between wealth distribution and economic growth. Those countries with equal wealth distribution undergo tremendous growth unlike those with wealth inequality (Brunnermeier, Crockett, Goodhart, Persaud, and Shin, 2009, pg267). This then gives an appropriate reason why poor nations remain poor and rich continue to become richer. In this perspective, one lesson that can be drawn from the discussion by the tax experts, the developed countries use tax as a tool to control the distribution of wealth among the rich and the poor (Young, 1990, pg255). The tool is effective based on the fact that wealth is distributed through the income that workers earn in a particular country. Therefore, specifically, developed countries have adopted the progressive taxing system where those earning higher relatively pay higher as compared to the low earners (Roberts, Hite, and Bradley, 1994, pg170). The question that needs to be asked is whether the developing countries can successfully implement the progressive income tax system in their revenue collection practices.
In light of above question, the point of reference, therefore is taxation, specifically the progressive taxing system in developing countries. In economic terms, taxation can be defined as the source of revenue that the government acquires from the charges it imposes on the individuals and the companies to fund its expenditure. As a tool, often the government uses taxation in a move to implement some given economic decisions whose outcome serves as an influence on certain economic aspects (Roberts, Hite, and Bradley, 1994, pg174). Tax experts have been able to identify three types of taxing system that are considered as the direct taxing system that countries adopt. Among the direct taxing systems is the progressive taxing system which seems to have acquired its popularity among the many nations across the world. The progressive taxing system dictates that taxes need to be increased as the levels of income increase (Brunnermeier, Crockett, Goodhart, Persaud, and Shin, 2009, pg287). There are multiple kinds of literature in the field of business with documentation on progressive taxation. However, in most of the literature, the speculated reason for the tremendous embracing of this taxation system lies in the positive effects that progressive taxation is believed to have on the rate of revenue generation as well as the equality in the distribution of income.
The concept of achieving fairness through the system of taxing is not a new concept but rather an old one. However, this has been massively practiced in the developed economies than the developing countries, hence deemed most relevant to the developed countries (Griffith, 2003, pg1363). Going by the fact that most discussions on progressive taxation occur in developed countries, advanced research and studies have been carried on the system in these countries leading to the developed theoretical framework. Thus, there is minimal information on the performance of the progressive taxing system in developing economies and the effects it has. The same has also been followed by a notion that the developing countries in a way do not afford the progressivity (Young, 1990, pg255). Young notes that, “personal income tax has done little to reduce inequality in many developing countries………..many countries personal income taxes are neither comprehensive nor progressive, Young, 1990, pg255). This puts them in a situation of contentment with their current taxations systems which allow these countries to collect tax revenues that are just sufficient for them to operate. Researchers, however, present fundamental reasons why progressive taxation features more in the developed economies than the developing. The underlying reasoning mainly is based on the entire issue of implementation whose success greatly depends on the socio-economic and political stability of the country. Thus, the disparity of the socioeconomic and political situations between the two economies inhibits possible implementation (Di John, 2006, pg74). However, in the actual sense of this question, equity in tax should be a universal issue whose application should consider a broader society rather than selective nations. Despite these underlying factors, the progressive taxing system is as important in developing economies as it is in developed countries.
In addition to an increased gap in the wealth distribution in the developing economies, their domestic financial systems are dramatically poor. They have opened their borders to the global cash floor to facilitate their expenditure other than generating enough funds from within since the taxation system in the developing countries are not sufficient enough to facilitate the required funds. As the developing nations keep on depending on the international funding for spending, there is the likelihood that the economy of these countries will be volatile and face serious ramifications. Tax experts, however, note that for such countries to avert this dilemmatic economic situation, they have to look for ways on which they can enhance the domestic savings (Griffith, 2003, pg1363). Specifically, progressive taxing is noted as one best way to improve financial stability especially in countries that are marked with the poor distribution of income. This particular group of experts associates progressive taxation to developing countries with multiple benefits ranging from financial resources that are long-term and more stable to facilitate the policymakers to make sound financial policies. These benefits lead all the way to both financial and economic development and growth.
Like in any discussion, the suggestions by this section of experts tend to differ from the other group holding a different view on the implementation of progressive taxation to the developing countries. Researchers allege that if the progressive taxing system is introduced in developing countries, it will derail the rate of economic growth. This is because those who have already invested and those willing to invest will lack the incentives to do so leading to reduced human capital formation (Griffith, 2003, pg1363). As well the researchers argue that the greater revenue generation will crowd the available domestic capital for the productive investment.
To help in better understanding the effects of the progressive taxing system, defining constraints of implementing progressive taxation in these countries is essential. Researchers link most of these progressivity implementations inhibiting factors to the outside force. The main listed factor is the expenditure level by the government. It is should as well be noted that any tax policy needs to consider the context of the changing financial integration across the globe. The international financial integration allows capital to flow, but this flow is more attracted to the areas where the profile of best risk-return is offered. For the developing countries to influence the financial flow into their own, they tend to lower the corporate tax. The situation is likely to lead into the competition of the corporate taxes. Also, the capital account liberalization limits the policymakers’ ability to formulate the suitable tax system. It is this described situation that the developing countries find it suitable to implement a favorable tax system like VAT regarding improving the compliance with taxation issues.
Through the above issues, this study in its course considered Seychelles to facilitate defining the progressive taxing systems effects in developing countries. These effects were examined regarding the economic status of the country and the general society of Seychelles as a whole. Possible means of manifestation through which these effects were identified such as the defined components of demographics including sex, age, years of working were equally investigated. This was in light of the assertion that the case of Seychelles is a typical scenario depicting the condition in the developing countries as may be presented in multiple kinds of literature. In connection with the same, the findings on the progressive taxing implementation in Seychelles aim at establishing if it can facilitate the equal income distribution. The case of Seychelles represents the many developing countries that will need to implement the progressive taxing system.
Aims and purpose of the study
The study aimed at the following objectives:
To identify multiple impacts of progressive income taxing system on the economy of the country.
To explore the social impact of these effects on Seychelles’ general population
To determine if there are gender and demographic (age, sex, working years) dimensions associated with these effects, i.e., if any group in the society is more affected by this new system
Main research questions
What identifiable effects does the implementation of progressive income taxation seem to have on Seychelles’ economy?
What kind of the social impact do these effects have on Seychelles’ general population?
Are there gender and demographic (age, sex, working years) dimensions associated with these effects of this new system?
Chapter two: Literature review
Progressive income taxing system and the economy
According to the majority of the literature, their conclusion indicates that progressive taxation is more associated with the already established developed countries where they yield more for these countries’ economic development (Myles, 2000, pg145). A common ground by this literature indicates that the success of the incorporation of the progressive income taxing in developed countries to facilitate economy does not rely on the wealth of these countries. Instead, unlike the developing countries that do not have the right structures in place to implement this system, developed countries do have them (Arnold, 2008, pg66). It emerged that the typical focus of the policymakers in the developing countries often is on the capital account liberalization which they depend upon in raising capital. Through this process, the developing countries tend to raise revenues in the form of the capital inflows with the short-term portfolios (Myles, 2000, pg148). However, researchers have established that capital constraints can be reduced if these countries can achieve greater portfolio capital inflows. As a result, the developing countries are more likely to a great extent foster the development of their financial markets.
The stability of the economies in the developing countries is more supported by another form of taxes like corporate taxes and tariffs than the personal income taxes do. Evidenced in the literature, according to Arnold (2008), “The results of the analysis suggest that income taxes are generally associated with lower economic growth than taxes on consumption and property, (Arnold, 2008, pg18).” Further readings indicate that if the policymakers in the developing countries can implement more progressive taxation, then the chances are that the national savings will be increased thereby technically replacing the external capital inflows. However, this implementation in the developing countries has been hindered by the fact that trade liberalization has been increasing in most of these countries leaving them to look for other sources of getting revenues rather than exploring a stable tax policy (Arnold, 2008, pg78). Amidst the increase in the unequal distribution of income in the developing economies, the progressive income taxing system seems a wonderful strategy to be adopted by these countries to reduce this menace. According to Weller and Rao (2008), “Progressive income taxation may be especially appealing in industrializing economies that often have highly unequal income distribution, which seems to have increased in many countries, (Weller and Rao, 2008, pg2).” The unambiguous rise in the inequality in income distribution was more recorded in the 1980s and 1990s in numerous countries including East Asia, Latin America, Chen, Ravallion, Central Asia, and Eastern Europe and China despite the drop in the poverty rate.
Between 1991 and 2001, the personal income taxes in the developed countries contributed to more than 25 percent of all the taxes collected in these countries. However, the scenario was completely different in the developing countries where only 9.1 percent of the taxes collected were attributed to the personal income tax (Myles, 2000, pg149). From the data, we can then tell that the developing countries’ tax systems are less progressive when compared to those in the developed countries. It means that the more the progressiveness, the more the revenues collected as, the higher income earners will largely contribute to the taxes.
The country’s fiscal system automatic stabilizer function could be improved once the taxation becomes more progressive in a country. Researchers have been able to argue out this point claiming that progressive taxing system has the capacity of serving as an automatic stabilizer and that the largeness of these effects is more or same the traditional stabilizer mechanisms (Bankman, and Griffith, 1987, pg1905). A perfect example of this tax system playing a role as an automatic stabilizer is given about the taxation system in South Africa where it is indicated that the output gap, as well as the tax revenue, have a high correlation. Thus, the fluctuations in the output could directly be managed by the progressive taxing system.
Over time, the volatility could be impacted by the progressiveness in the taxation where the income inequality is reduced. This is possible since the progressive taxation can equalize the distribution of the income after tax. Evidenced in the literature are the Bulgarian income taxes which at the great extent are alleged to have reduced the income inequality. However, findings on the equality of income distribution by the progressiveness of tax do not uniformly apply. In some countries like Chile, income distribution effects were experienced in smaller amounts due to implementation. However, in an economy where income is equitably distributed, the domestic demand will be more equal thus both the volatility in economy and finance will be reduced (Ricardo, 1891, pg634). Thus, as the majority of the authors in literature present, tax progressiveness positively impacts on the economies if successfully implemented in the developing countries. However, successful implementation has been hindered by various factors. Among these factors is the wealth gap that exists between the developed and the developing countries. Other factors are the socio-economic and political factors. However what majorly undermines this implementation is the lack of proper structures by the developing countries to implement the progressive taxing system and economically reap like is the case in developed countries.
Implementation of progressive taxation in developing countries
George .S. Bernard once said that the rich people are not different from everyone else only that they have more money than others. The phrase can well suit the tax policy which is same universally and even in the developing country. The only difference is that the developing countries have less of these tax policies. The taxation system in the developing countries tend to be defined the similar issues that help define taxation in the developed countries. The difference in these issues comes in on the ground of ideological, political and the economic differences existing in these two types of countries. The administration resources incapability and the lack of sophistication on the part of the taxpayers are some factors that characterize the tax systems in
the developing economies. This is evidenced in the literature which states“…………for developing country tax policy is the relative lack of administrative resources and (what is closely related) the real or perceived lack of sophistication on the part of potential taxpayers.3 Because of these limitations many of the options available in wealthier nations are simply not feasible in
developing countries, (Bird, and Jantscher, 1992, pg109)”. Experts in the literature have linked
some of this limitation as the hindrances to avail the many options in the system to the developing countries as in the case of developed countries. A common feature highlighted that might limit the progressive taxation system is the lack of computerized mechanisms of enforcement. Also, the point of sophistication of the taxpayers in developing countries comes is considered. There has been a notion that the taxpayers in the developing countries lack the required ability to do the complex calculations of their tax. The issue is becoming worse because the income taxing system is itself complex and consumes a lot of time.
The mix of taxes as well contributes to the difficult for the developing economies to achieve progressive taxation (Bird, and Jantscher, 1992, pg110). Most of the developing countries do not prioritize income tax and instead limit it to a small economic segment. In most cases, it is treated as among a large number of levies. These countries sometimes even find it difficult to enforce and calculate the simple tax forms like Value added tax. Thus, they are only left with the option of the export or import duties and the excise taxes which are not progressive. The less economic power characterized in the developing countries is a significant factor which that contributes to these countries succumbing to the pressure from outside. Thus, the manifestation of the foreign control subjects the taxing system in these countries to certain powers. The problem affects even the larger developing countries making them keep their taxes at lower levels (Bird, and Zolt, 2004, pg1627). They do this to continue attracting both the foreign investment and financing.
To understand the homogeneity of the implementation of the progressive taxation in Seychelles as one of the developing countries, other developing countries need to be examined: Among the countries to be examined include; India and China.
Talking of India some decades ago is different from the India of today. Some twenty years ago, India was ranked among the poor countries. However, the situation is changing as India moves towards occupying the second or third place in the national economies. However, the Indian structure in terms of its economy and social perspective characterizes it as a developing country. Some of these qualifying features include the high level of economic inequality and low median incomes (Slemrod, J., 1990, pg161). Both the political and the bureaucratic structures of India are still undergoing changes thus experiencing transition.
After its independence in 1947, India undertook a broader economic policy which made taxation to be part of it. The India taxation majorly focused on achieving the equality as well as the economic independence (Bird, and Zolt, 2004, pg1627). The economic situation of India took a new twist in the 1990s where the economic policy started to feel changes. After the reports by the various tax experts, multiple tax reforms followed which involved the reduction of the rates of the income tax. The rates were reduced from 95 percent to 30 percent which is the current prevailing rate. In what seemed like an attempt towards the progressive taxation, an attempt was made to have more efficient taxes imposed on the smaller businesses and the service sector. I think this was the first attempt by the country to have small business pay less for the tax. This is
according to Livingston who states, “……reforms involved the reduction of marginal income tax rates from an astronomical 95 percent-plus in the 1970s to a current 30 percent maximum rate8, together with a significant increase in the exemption amount; attempts to expand the tax base byimposing more efficient taxes on the small business and service sectors, and increasinglyassertive efforts to improve tax administration and identify potential taxpayers, (Livingston, 2006, pg9).”
Today, the taxation system in India has the income tax ranging from 10, 20 to 30 percent. The 10 percent tax is levied against an income of $2,000 per year. The 20 and 30 percent rates are levied on the income of $3,000 and $5, 000 per year respectively (Bird, and Zolt, 2004, pg1667). From this surface statistics about the Indian income tax, the system seems progressive. However, despite this appearance, the system is only successfully implemented on the small portion of the urban wage earners. Thus, even in fair and comprehensive imposition, it can only achieve a small level of the economic redistribution. The particular situation has been designed by the triple levy imposed on the income beyond the median income. Thus, the returns’ numbers relatively remain at the lower level.
Another challenge that hinders the attempt by India to implement its progressive taxation successfully is the tax culture and administration. One important feature that the country needs to possess for successful implementation of this progressive taxation is that it should have the ability to compel tax payment (Slemrod, J., 1990, pg163). The country needs to invest a large number of resources as well as the creativity in the administration of tax in having people respond to tax payment. However, this becomes a challenge in the developing countries where people have already established a different tax culture. In such old culture, unless the developing country like India has the right resources and creativity to push for a new progressive taxation culture, it can be a big challenge. And any effort towards that direction may take a little while before the goal is fully achieved.
Additionally, India has been characterized by the endless political activities whose impacts have directly influenced the effectiveness in the implementation of the chosen tax system. Even in cases where the country tries to achieve the consensus over the tax reforms, the situation changes suddenly when radical proposals come in place. Some of these radical proposals involve the exemption of some entities from the income tax payment. Thus, the radical political situations in India make it hard for the country to achieve progressivity or the income redistribution. However, there is still hope that India can achieve progressivity though this is only possible if the country can decide to engage in programs that are non-tax in nature. Such programs may include offering energy and water to the farmers at subsidized prices, having affirmative action for the low-income citizens. Otherwise, as much as the progressive tax system may play an essential symbolic role, the country is incapable of any achievement of redistribution of income in large scale. Thus, for tax progressivity to be achieved in India in future, scholars propose publicity and improved enforcement. The situation in India is an indicator of the importance of the progressivity in the developing countries. However, in such attempt, these countries face numerous challenges in achieving it.
Progressive taxation in China
Most of China’s tax reforms were initiated in the years of 1970s, but the reforms have been accelerated in the recent past decades. This has seen the per capita income of China rise to a considerable amount (Piketty, and Qian, 2009, pg55). The country recently has modernized its tax system to incorporate the progressive taxing system for the individual income earners. According to this system, an individual earning 500 yuan pays a 5 percent tax while 45 percent tax rate is levied on any income exceeding 100,000 yuan. Livingston (2006) indicated, “…..included a progressive individual income tax rates with rather steeply progressive ratesfrom 5 percent on the first 500 yuan (Livingston, 2006, pg13). The lower tax rates apply to the incomes out of the self- employment.
The effort by China to achieve the tax equalization has been observed in the recent months when it increased its threshold for imposing the tax on income. The process has resulted in the removal or reducing the tax rates on those earning lower wages (Li, 2007, pg91). The initiative has seen a lot of tax concentration on those within the brackets of higher income earners. To achieve this new tax outlook, the country has made it a requirement that those earning the specified amount of income have to file their tax income returns annually (Shu-Ki, and Yuk-Shing, 1994, pg770). The program is among the many changes the country initiated to achieve what they refer to as the harmony in the income distribution.
Even as progressivity seems to succeed in China, the situation does not mean that the country is unique and immune from the challenges that developing countries face in implementing tax progressivity (Shu-Ki, and Yuk-Shing, 1994, pg770). Neither does China has the immunity on the general issues and the economic concepts that do apply on other developing countries. The discussed issues include lack of the administrative structures and resources, political and ideological issues that affect the progressivity tax reforms. The fact is that China is so big that it presents many issues which make it so hard to contain all of them in a general project (Li, 2007, pg91). In fact, the researchers suggest that for these issues to be identified in China, one has to pay a visit to another country that shares the political history and cultural heritage as China and do a different study. The study should consider however distinct it from the general issues of tax that are examined in other developing countries. The conclusion by the scholars indicates that China as well faces the same issues that other developing countries face in progressivity tax reforms. However, the fact that China is big makes it difficult for these issues to be identified.
Progressive taxation and the general population
Developing countries have been on record in the past decade trying to expand the social protection. When examining the question of the social impact that the effects of progressive taxation have on the general population, experts ask the two main questions. One of the questions is who has carries the burden of the taxpayers. The next question aims at getting to understand whoever benefits from the tax that is paid. The general outcome of the literature indicates that the highest income distribution inequality is recorded in the developing economies (Bird, and Zolt, 2004, pg1627). At the same time, these literature associate progressive taxation with more friendly to the lower income earners as compared to the effects it has on those earning the higher income. In these countries, very few people work and earn highly while the majority of those working earn lowly. Thus there is high prevalence of low-income population and the poverty rate is considerably higher. The social stratification in these countries is higher as the treatment is based on the social class of a person (Bankman, and Griffith, 1987, pg1905). The flat-tax system dominates in most of these countries thus continuously widen the gap between the rich and the poor.
Chapter three: Methodology
In this chapter of the dissertation, the method used in the study is presented and all its aspects defined. The presented aspects of the methodology include the design used in the research, the targeted population which took part in the research and the technique that was used in sampling the participants. The instruments of data collection that were used in the study are identified and discussed as well as the procedure followed during the data collection process. Finally, it presents the analysis of data, interpretation and any expected results of the analysis of data.
The paradigm of research applied the mixed method research as one of the popular approaches that are used in the contemporary studies. The study design involved the use of the cross-sectional survey research approach. The employment of the cross-sectional survey had the aim of investigating the research phenomenon focusing at a particular point in time thus paying a close target of a specific population. By adopting this study design, all the participants in the study could be conducted at a particular point in a given time. The researcher did not need to make any follow up on the participants. The experts highly advise the usage of this research design due to its rapid ability to turn around the research in data collection. The survey design was quite crucial in this study as it can collect the large volume of data from a more significant number of the respondents. At the same time the cross- the sectional survey can generalize the collected data from the used sample and equate it to the whole population. Most of the participants that were engaged differ in one aspect or the other. The participants differed socioeconomically, ethnically and regarding their educational n background.
In any research, there is a group of individuals deemed to have the information that is relevant to the research questions. The particular group of these individuals is the population used in the research. For convenience, the study targeted the different group of the taxpayers who had the divergent opinions on the effects that the progressive taxation has income distribution (Patton, 1990, pg78). As well, these people differed in several other aspects including their social-economic and their educational background. This was a wonderful group to work with as they were differently affected by the implementation of the progressive taxation system.
Since Seychelles has a population of more than 96, 000 people, it was not convenient to research each of the taxpayers in the country. There are also 115 islands which makes it the difficulty that all the islands are involved in the study. Instead, a sample was only drawn from the Island of Mahe since it is the largest island. A sample is a small portion or part of the entities that have been drawn from the entire population with the aim of giving the entire population some characteristics (Singh, and Masuku, 2014, pg15). One basic idea that surrounds sampling is the fact that only a few elements are selected from the population to allow the similar conclusion to be drawn on a population. Sampling was intentionally incorporated in the study to reduce the cost that was incurred in the study. This was also meant to ensure that the highest level of accuracy was achieved in the study.
For this study, snowball sampling was the suitable technique to help the researcher to acquire the suitable sample to be used in the study. The application of this technique in the most cases where it is quite difficult to get the sample with the characteristics that is suitable to represent the whole population (Singh, and Masuku, 2014, pg15). Thus, first, the research can identify an individual who meets the required criteria and use the person to get other individuals on board. The chain of referral by the recruited team continues to build up like the snowball rolling down in a steep place. Snowball sampling is one type of the convenience sampling. Various advantages are attached to this kind of sampling where the researcher is likely to end up with a pretty nice mix of the sample. The situation results especially after the selected participant makes a referral to potential participants who live the farthest. The researcher than should be sure that he or she will have a pretty composition of his sample (Patton, 1990, pg78). Practically, for this study to apply snowball sampling, the team of 50 members was identified and selected as having meant the required criteria. They then helped in recruiting other participants. Therefore, in total, those who were selected to participate in the study were 200 people. This composed of the low- income earners and the higher income earners who were affected by the implementation of the progressive taxation in Seychelles. The 200 number was reached following the continuous recruitment of the potential participants to take part in the study by an earlier selected team. However, all the selected participants were briefed on the specific criteria that the referred participant was to meet. In this case, therefore, a person was either to be low-income earner or a high-income earner who could fall within the brackets of the progressive taxing rates set by the government of Seychelles.
The research was facilitated by both the primary and the secondary data that were collected using various forms. Questionnaires acted as the preliminary technique that facilitated the primary data collection which provided the empirical analysis in the study. The formulated surveys aimed at describing the general pattern of the progressive taxing system in Seychelles and determine the effects emanating from the introduction of this particular taxing system in Seychelles. The ordinal preference scale of measurement was involved in the formulation of the questionnaire. This means that only main objective questions regarding establishing the social impact of progressive taxation on equal income distribution. The taxpayers were asked to indicate the efficiency and effectiveness of the progressive taxing system in ensuring that the income was equally distributed. Thus, the nature of questions aimed at finding the social impact of progressive taxation in regard equal income distribution among the taxpayers. The responses to the question would reflect equal income distribution impacts the general population socially. By having a workforce who enjoys equal income distribution, the social aspect of the society will improve where people can no longer be discriminated because of the gap in wealth.
The validity and the reliability of the collected data and the received rate of response from the respondents are always determined by the design of the presented questionnaire regarding its structure. In this study, the design of the questionnaire was determined by the researcher based on the ordinal preference scales of measurement. This technique ensured that significant questions that could help inaccurate results were given the priority. To compare what the literature had presented and the findings of the research questions formulated were also consistent with the written documentation on the progressive taxation in the developing countries. In fact, this process proved to be more time saving and could exactly achieve the expected results depending on the question of research. The questions that were included in the questionnaire were both closed and open-ended questions. The closed questions were meant to extract fact responses from the participating group (Morse, and Field, 1995, pg56). The participants were expected to be brief, concise and observe clarity when responding to these questions. In other words, the closed questions limited the respondents regarding the information they were to give to the researcher. On the other hand, open-ended questions allowed the respondents to provide their own opinions in as many words as they wanted to share the information. Generally, the clarity of the questions was maximized which helped to enhance the reliability of the results.
A sample of 200 participants was selected for the study, and this is the group whom the questionnaires were served to by the researcher. All the participants who took part in the study were the residents of Mahe. The capital city was chosen because it could provide a pretty good mix of the participants exhibiting all the required social class by the researcher. Despite the fact that snowball sampling technique was employed, it was a requirement that for any participant to be issued with the questionnaire, one had to meet the relevant criteria. That is, a participant included all the workers in Seychelles across all the wage brackets. The participants should also have worked for at least two years before this study (Morse, and Field, 1995, pg56). Since some of the participants were located some distances away, questionnaires were administered to them through the online means. However, for those who could be accessed, questionnaires were hand- delivered through the delivery- collect means. The study utilized the inductive approach to theory whereby observation was made on the data first before developing the theoretical explanation on them.
The collection of the secondary data was achieved through the desk research where a wide range of literature was reviewed. The reviewed literature contained the information in the previous research that was relevant to the implementation of the progressive taxation in the developing countries. The secondary data that is documented is often guided by the professionalism and the expertise which the individual researcher may not have (Neuman, 2013, pg45). Thus, for this study, secondary data were obtained from multiple sources which included the research studies done on the market and reports, journals and books. Other secondary resources that were used doctoral theses and the master degree theses that had presented the similar study, newspapers and magazines, proceedings and the conference papers.
Data analysis involves getting some order, the structure and giving the data collected the interpretation. In the case of this study, both quantitative and the qualitative data analysis methods were used during the analysis process (Neuman, 2013, pg45). The quantitative method applied to the phenomena such as age, tax, income and size of the population that could be expressed regarding quantity. Regression method as suggested by Farragher is a major statistical method that was applied to measure the effects that the progressive taxing system has on developing countries (Neuman, 2013, pg45). By using of the regression method for the quantitative data analysis, it meant that the ratio scale could measure at least all the variables in the study. Another benefit associated with the regression method when used is that in cases where the sample size used is sufficient enough, this method has the capacity of testing the correlation between two variables and even more than two. The qualitative data was obtained through the open-ended questions administered to the participants through the means of the questionnaires. There were others that were obtained from the literature review where books, journals, and other secondary sources were reviewed. Such data were first categorized then summarized before being organized and analyzed. To analyze the qualitative data, identification of the themes of the major variables was necessary.
Data validity and reliability
Reliability in the study is described by the extent to which the result of the study is consistency over a period and how it meets the accuracy of the population representation in the study. Therefore, for this study, data reliability was achieved through the clarity of the questions presented on the questionnaires. On the other hand, validity is measured by how the truthful the research results are and if the research measures the variables that were targeted. Data validity was achieved by the utilization of the ordinal preference scales of measurement that ensured that the relevant questions about the progressive taxation and the developing countries were included in the questionnaire.
Chapter four: Findings
This dissertation chapter is a presentation of the results of the study which had investigated the effects the progressive income taxing system has in Seychelles as a developing country. The presentation of these findings is guided by the aims and the main purpose of this research project. The responses from the participants are described in the form of figures, frequency tables, graphs and pie charts. All these illustrated results are presented in an orderly form. In turn, the chapter will display the results of the specific area being investigated in the study. The sample size for the review was 200 Seychelles taxpayers majority living in capital Victoria. The results show the responses of the participants who were served questionnaires online and by hand delivery.
The rate of participation
As introduced in the chapter, 200 taxpayers were targeted for data collection about the effects of the progressive income taxing system in Seychelles. All the respondents who were served hand delivery questionnaires responded while 80 respondents who were sent questionnaires responded. In total, 180 participants out of the sample of 200 responded to the questionnaire. This number represents 90 percent which was fairly recommendable. Scholars have found 50 percent response as adequate, 60 percent marked good, and any response above 70 is marked as very good. Therefore, the participation rate can be illustrated as in the table below.
Respondents Administered questionnaires Filled & returned questionnaires Response percentage General percentage
Hand-delivery 100 100 100 90
Online 100 80 80 Total 200 180
Number of years of employment
Number of years employed Frequency Percentage
2- 4 years 40 22.2
5-8 years 50 27.8
9 years and above 90 50.0
The results in the table indicate that majority of the participants (50 percent) who are the taxpayers have worked for over nine years in their respective jobs. This number is followed at a range by those who have been on work for 5 to 8 years which represents 27.8 per4cent. The lowest number of the taxpayers has worked for less than four years moving down to 2 years. The aim of the study to determine the years of work was to understand the tax progressivity in Seychelles.
Distribution of gender of the participants
In the questionnaires, the participants were required to indicate their respective ages. The results were as indicated in the pie chart above. According to the findings, the majority of them were from the male gender representing 66.7 percent. Then the female gender represented the minority of 33.3 percent. This was essential to the researcher to understand the demographic dimension related to the effects of progressive taxation.
Salary description of the participants
Since the identity of the participants was kept anonymous, they were also required to indicate their salaries. The findings are as recorded in the table.
Salary before tax Frequency Percentage Tax rate Salary after tax (SR)
SR (0- 8555.50) 40 22.2% 0% SR (0-8555.50)
SR (8555.51 – 10000) 80 44.4% 15% SR (7271.18- 8500.00)
SR (10000.01- 83333) 40 22.2% 20% SR (8000.01-66666.40)
Above 83333.01 20 11.1% 30% Above SR 58333.11
From the results on the table, the majority of the taxpayers (44.4%) earn between SR 8555.51 and SR 10000. Thus, with the implementation of progressive taxation, it is the majority who earn below the per capita to benefit from the tax system. The number of the participants who earn between SR 0 to SR 8555.50 is the same number as those participants earning SR 10000.01 and SR 83333. However, the smallest number of the participants indicated that they earn above 83333.01 with a representation of 11.1 percent.
Respondents level of agreement on the role of progressive taxation in equal distribution of income
Respondents level of agreement on the role of progressive taxation in equal distribution of income
Statements Strong agree Agree Mod. agree Disagree Strongly disagree
Low- income earners pay little tax in progressive taxation system than any other tax system
Those earning higher also pay higher with the progressive taxation system
The social, economic status of the low- income earners improved due to progressive taxation.
The poor are able to afford what the rich could afford in the progressive taxation.
Progressive taxation is the best tool that can make the low income get equal to those earning highest. 30
From the results as they are present in the above table, the majority those who responded to the questionnaire stated that they agreed with most of the statement presented about equal wealth and income distribution through progressive taxation improvement. This was followed by the number of the participants who had moderate agreement on the said issues pertaining the role played by progressive income taxing system in income distribution. The third largest group indicated that they strongly agreed with these statements indicating that progressive taxation distributes wealth equally among the workers. Then the smallest of these participants recorded their strong disagreements with the statements.
The respondents were required to show their levels of agreement to the role of progressive taxation to the economic growth of Seychelles.
Statements Strong agree Agree Mod. agree Disagree Strongly disagree
The revenue collected has increased in the country
The has been reduced external and internal borrowing by the government
There has been recorded improvement in the infrastructure of the country.
The citizens of Seychelles have been able to access their basic amenities.
The rate of employment has increased.
The cost of commodities have generally lowered 30
Again, from the results in the table, the majority of those interviewed indicated that they agree with the statements in the questionnaire which tend to show that implementation of the progressive taxation in Seychelles positively contribute to economic growth of the country. Another considerate number indicated that they moderately agreed. The third group indicated that they strongly agree. The smallest number of the participants stated that they do not agree with the given statements linking progressive taxation to economic growth.
Both the independent and dependent variables are believed to have the correlation when the coefficient of their correlation is more than 0.5. Thus, a regression analysis was performed to define the existing relationship between the independent variables and the dependent variables. The research adopted the regression model as:
Y = βo + β1D + β2E + e
Where Y= Progressive income taxing system
D= Distribution of income
E= Economic growth
β1= Coefficient of the dependent variables
e= Standard error
Table: Brief of the model
Model R R square Adjusted R square Std. Error of the estimate
1 0.927(b) 0.859 0.848 .51239
Independent variable, Progressive income taxing system
Dependent variables (Distribution of income and economic growth)
In the above table, the coefficient of determination value is 0.848 which represents the variables that were under the study. The value then indicates of an existing variation of 84.8% between the dependent and independent variables under research. Then it means that progressive income taxing system was able to explain 84.8% of the distribution of income and the economic growth of Seychelles.
Table: Analysis of Variance
Model Sum of squares df Mean square F Significance
Regression .820 2 .410 2.216 0.000
Residual 22.43 121 .185 Total 23.25 123 Independent variable, Progressive income taxing system
Dependent variables (Distribution of income and economic growth)
The table above is the findings of the analysis of variance which measured how appropriate is the regression model to provide results that were reliable. This was able to establish a P-significance value of 0.000. Thus, the likelihood of the regression model giving a wrong prediction is less than 0.001.
Chapter five: Analysis
In this chapter, analysis of the findings in the previous chapter is presented. The main focus of the chapter is the identification of the patterns as well as making a series of deductions about the illustrations of the above results. Further, in this chapter, the information and the theories that were presented in the literature review are discussed. This use of this information and the theories is to allow where possible the substantiation of the made deductions where it is possible.
Current progressive taxation in Seychelles
The literature review was able to describe the tax system that is progressive about the equal distribution of income after tax that if the income is distributed before income. In this analysis, the most progressivity tax code for Seychelles are the estimates available from January 2017. The government of Seychelles announced the end of the flat- tax system where the taxpayers were deducted 15 percent on all the salaries. According to the new adjustments, the taxpayers were to pay tax as per the following rate:
8555.50 rupees and below, the tax rate is 0%
From 8555.51 rupees to10000 rupees the tax rate is 15%
From 10000.01 to 83333 rupees, the tax rate is 20%
Above 83333 rupees, the tax rate is 30%
From these rates of taxes on the amount of income, they show that taxpayers will no longer pay the equal amount of income tax across all the salary brackets. Those taxpayers earning higher income will payer the higher income tax than those who earn low salaries. From the findings of the questionnaires, a majority of the participants in the survey indicated that the income they earn ranges from 8555.51 rupees to10000 rupees. Therefore, the range of tax rate is 15%. Then the number is followed by those workers earning below the taxable level. Only very few falls in the bracket of higher income that is taxed the highest at the tax rate of 30 percent. The analysis of this indicates that many of the workforces were able to pay less income tax. With only a few taxpayers earning the highest tax income, Seychelles had to record the loss of its revenue. Thus, it means all the instruments were implemented to ensure that progressive taxation effects of the loss in the revenue are handled.
The income groups in Seychelles
In consideration of the rate of participation in the study, it is evident that 90 percent of the participants were able to fill and return their questionnaires in general whether it was hand delivery or through online. All the participants earn an income whether it is high or low. However, regardless of the level of the income that the workers of Seychelles earn, it indicates that at least majority are engaged in the employment. However, this does not matter a lot of progressive income taxing system does not consider the income before tax. It is more focused on the income after tax. Thus, the high rate of the participation in the study does not signify the equal wealth distribution (Campling, and Rosalie, 2006, pg54). However, the high rate of participation signified how ready the taxpayers in Seychelles are ready to talk about the task matters since tax affects their life socially, economically and in all other forms. Income is one of the attributed factors that is behind the phenomenon of inequality in the society. Thus, any form of the effort by the government to have the rate of the income discussed and the correct amount distributed among the workers.
Another income group was revealed when the study wanted to establish the years that majority of the taxpayers in Seychelles have been working in their respective jobs. Like in many developing countries which exhibit the lowest growth in the area of employment thus the continued increase in income inequality. Majority of the workers indicated they have worked over a period of 9 years and above. Thus, Seychelles has recorded the lowest increase in the employment sector of the income groups. The factor vividly can explain why Seychelles among other developing countries has been experiencing the increased inequality in the income distribution (Campling, and Rosalie, 2006, pg54). Again this deduction approves the findings in the literature review that developing countries have continuously been recording the highest increase in the inequity in the distribution of the wealth. Various countries are mentioned in line with this discussion. Among the indicated countries are East Asia, Latin America, Chen, Ravallion, Central Asia, Eastern Europe and in China. China is listed in this group despite its general improvement in the poverty level of this people. The changes were majorly noticed in the 1980s and 1990s.
In the further description of the income growth that is important, that was presented by the study was based on gender. The participants indicated at more than 66 percent of the people who participated were from the male gender. As economic experts put it, countries with the unequal wealth distribution have achieved so by discriminating against the women. Thus, it is no surprise that Seychelles could portray this in its gender composition of the workforce in the country. More vividly, this explains the democratic dimension of the study where the gender is highly regarded. Nevertheless, men in Seychelles dominate the accumulation of wealth hence the unequal distribution. Therefore, with the implementation of the progressive taxation system, the group of men is the most affected as they dominated the bracket containing the highest paid workers.
Income distribution in Seychelles
Income share before and after tax
The third table in the results section indicates the salary description of the participating sample in the study. The figures presented in the table indicate the income before tax for the participants. The very final column is an illustration of the income after tax for the same group. The illustration presented in this table presents a lot of themes. The first theme or pattern presented is the comparison of the share of the income before and after tax for the two income groups, i.e., those earning higher and lower incomes. If these figures are anything to go by, it clearly shows that Seychelles has considered the implementation of the progressive income taxing system in its tax collection. The figures elaborate that the income shared after tax for the income groups is higher for those earning the lower incomes. However, this share is smaller to the income before tax. Similarly, the income group that earns the higher income, their share is smaller after the tax income than when they receive before tax.
Relating to other countries
The literature review presented the same pattern of income distribution when its implementation was viewed in other developing countries. In reference to China, the country seems to have adopted the progressive system following the tax reforms that started in 1994. In the case of China, its progressive tax rates range for 5 percent to 45 percent. The 5 percent tax rate is levied against those who have an income of 500 yuan while the 45 percent is for those who earn anything exceeding the 100,000 yuan. China has as well completely removed any tax levy against those whose income falls below the taxable bracket. The same trend on the income distribution was observed on the scenario of India. India is deemed to have the developing economy just like Seychelles as the country still struggles with the inequality in the income and lower median income for most of its citizens. The so many changes that India underwent including the tax reform seemed to have altered the taxing system as the country headed towards the progressive income taxing system. Immediately after India sharply reduced its flat- tax rate from 95 percent to 30 percent, the country never too long before it started to indicate going the progressivity way. It started by reducing the tax rate for the business that operated in the small scale and among the service sectors. Thus, the pattern of tax observed in the Seychelles as illustrated in the table of income distribution is the same pattern experienced in India and China and other developing countries. The developing countries like Seychelles use the progressive income taxing system to help distribute the income equally among its working class individual groups. One common feature about these countries is that, from the table, Seychelles has the uneven income distribution.
Contribution to the tax payment
There is another pattern which is represented presented by the table which described the distribution of income. The theme indicates that the people earning the highest are the smallest in their numbers as an income group. This income group dominates the range of income both before and after tax (Prasad, 2008, pg945). However, despite their smaller number, the same taxpayers pay the highest amount of tax. This then means that majority of the taxpayers in Seychelles pay little tax or no tax at all since most of them fall within the lowest income brackets. Though, despite the lower wages that these lower income earners receive, the progressive income taxing system allows them to pay the lowest level of tax. It is one sure way that Seychelles has introduced progressive taxation to ensure that the level of income in the country is equally distributed.
Progressive income tax as the only tool for income redistribution
The final theme that can be discussed under the table of the income description of the participants is the assumption that progressive taxation is the only optimal measure which can be incorporated to achieve the redistribution of the income. The table in the results section place majority of those working in Seychelles in the salary brackets of 8555.50 rupees to 10000 rupees. However, the top income earners represent the smallest number of the taxpayers. Therefore, in a move to have the situation controlled, Seychelles seemed to have come up with new tax rates that tend to increase as the number of income increases (Prasad, 2008, pg940). This decision is taken up by the government even though the fact implementation of these tax rates will lead to only the smallest number of the taxpayers. The likelihood that this will occur is facilitated by the fact that those who earn lower income are the majority. However, the lower income earners have either been exempted from paying taxes or are only allowed to pay at the small rate.
Therefore, the results in the table indicating the salaries for the participants mean that majority of developing economies such as Seychelles have borrowed a leaf from other developed countries. Literature review on the definition of the progressive taxation indicated that this form of taxation is most associated with the already developed countries than the developing countries. The explanation that has been offered by the scholars and the tax experts is that the developed countries are already wealthy and have the political goodwill to implement the progressive income tax system successfully. At the same time, the developing countries are seen as they lack the structures and the tools in place to achieve this form of taxation. However, from what the findings in the table present, this theory that progressive income taxing system is more of the developed countries than the developing countries is strongly refuted. Seychelles have the highest level of income distribution has successfully adopted the progressive taxation system. Though, the decision to have the rates set was influenced by the urge to have the income distribution on the equal measure. Thus, this is a proof that progressive taxation is indeed the only best tools that any country whether developed or non- developed can adapt to have income equally distributed to the workers.
Progressive tax over time
The second table in the results section indicates the number of the year that the participants had worked in Seychelles in their different job postings. This in effect shows the effects of the tax progressivity on the workers in the country. The results indicate that many respondents have been working for more than nine years. This is the most prolonged period that the table record. Then, we can tell that the tax rates have progressively been decomposed into the income of the individual taxpayers. This result indicating the number of years participants have been working is an explanation behind the progressivity since many have worked over a long period. In this sense, this makes an assumption that those who have worked the longest are the biggest beneficiaries of the income distribution inequality in the country. Thus, the progressive taxes have been developed over time to avert this system where few are paid the highest as the majority share the little remaining. Thus, to have the redistribution, progressivity has been developed year by year in Seychelles.
Effects of progressive taxation on the income distribution Seychelles
The fifth table in the results section indicates the level of the agreement the respondents gave the statements given. The statements supported the notion indicating that the progressive income taxing system implementation supports the achievement of the income redistribution in Seychelles. Since many of the taxpayers agreed with these statements, then it indicates that there is a high prevalence of the income distribution inequality is in Seychelles. This reflects the results of other factors such as the income distribution where the majorities are deemed to earn the lowest income. Thus, it is a general agreement that indeed progressive income taxing system can redistribute income. The results also align with what is presented in the literature review section by the majority of the scholars and tax experts.
Assumptions in the analysis
In doing the analysis of the results as well as relating the theories and themes developed from the findings and those extracted from the literature review, various issues are ignored about the progressive income tax system. The first assumption made was that the salaries that the workers in Seychelles receive are the only contributing factor to the income distribution of the people. Therefore, regarding this assumption, the policymakers believe that by having the salary of the workers regulated by the progressive taxes, equal income distribution will be attained. Though, this assumption is correct based on the fact that majority of the citizens of Seychelles draw their income from salary earned and is the primary source of income for them.
The second assumption made in the analysis is that that though, the annual incomes do not correctly measure the permanent income of the individual, they are used anyway. Over the course of the lifetime, the progressive income taxes of an individual tend to be less progressive when compared to a period of one year. The behavior of these progressive taxes is contributed by the fact that income experience transitory fluctuations year after the other. Finally, the tax behavioral responses such as tax evasion and tax avoidance are ignored. Other ignored include the untaxed income and the local taxes if any exist.
Chapter six: Conclusion and recommendation
This research paper has discussed the effects that the implementation of the progressive income taxing system has on the developing countries in specific reference to Seychelles. Initially, the paper began by acknowledging the existing differences between the developed and the developing countries regarding the income and wealth distribution. In developed countries, incomes are more equally distributed when compared to the income distribution in developing countries. As the paper develops, taxation is discussed as the best tool to have this inequality addressed with specific reference to the progressive income taxing system. The progressive taxation operates under the principle that those earning the highest income should have the highest tax rate when paying their taxes. At the same time, those with lower income should be charged lower income tax. However, even though the paper associates the progressive taxation to the developed countries, the system is examined, and its behavior observed when implemented in the developing countries. In this case, the study examines the progressive taxing system about Seychelles implementation.
The paper examines the various literature of the progressive income taxing system and how this relates to the effects it has on the developing countries. The study examines this system in the broad context of the impact it poses on the developing countries. Despite the general outlook of the paper at its initial stage, the document does not lose its focus. Instead, it cautiously focuses on the specific social effects of the progressive income taxing system taxpayers with particular attention given to the equal distribution of the income. The literature review examines this topic in details even about the similar implementation in other developing countries like India and China. The use of the previous implementation cases is to facilitate smooth comparison.
The methodology of the paper makes use of the cross-sectional survey where the questionnaires are distributed to the respondents through online and in hand delivery for data collection. The potential participants identified are the taxpayers. A snowball sampling technique is used to select the participants where 200 participants are identified. All of the chosen participants are supposed to respond to questionnaires sent to them. The results of these data collection are analyzed and interpreted. The findings were presented in tables, figures, and the pie charts. The analysis of the findings of the literature review finds progressive income taxation to find a significant role in the social impacts of the population of Seychelles. This is because progressive taxation can equally distribute income among the lower and higher income workers.
Way forward for the Progressive taxing system
Progressive taxation system has proved its effectiveness in the developed countries. The developing countries also seem to be going for the system to have the income equally distributed. As a way forward, there is need to consider the economic impact of the progressive income taxing system especially in countries where income is unevenly distributed. As many developing countries continue to adopt the policy, efforts should be made to make sure that the revenue collected through the system facilitates the smooth running of the countries.
In future, the investigation of similar nature needs to consider other factors that may come up as a result of the implementation of the progressive taxation system. Among them include the tax response behaviors such as tax evasion, tax avoidance, and untaxed income.
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Free Implementation of Progressive Income Tax System in Developing Countries: Case Study of Seychelles Dissertation Example
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