This research investigates the effect of the new income tax Proclamation 979/2016 on the employee’s disposable income, tax liability and the income inequalities among the high and low income earning groups of employees. For this, the quantitative research method is used and secondary payroll data is collected through the survey by using email and hard copy.
The data is analyzed using the summary of descriptive statistics and paired sample means t-Test. Besides this, Gini-coefficient analytical tool is also used to measure the income inequalities among 1120 employees. The payroll data is gathered from 8 different public and private companies in Addis Ababa. The sample is selected by applying purposive sampling techniques and the sample size is determined using a statistical formula for an unknown population.
The result shows that the tax reform brings a 9% increases on a disposable income and 30% decreases on the income tax liability of employees under this investigation. But on the contrary, the new tax reform doesn't play its role in reducing the income inequality among different income earning groups of employees rather it shows 0.4% marginal increases in income inequalities.
This is because of reform gives higher disposable income for the top 20% income earning groups than the lower one. Furthermore, the study evidences the existence of high-income inequality among employees which is 0.41 Gini coefficient. It is slightly higher than the national Gini coefficient it is because of the size and scope of the study.
Finally, the research indicates that 73% of the income tax revenue has paid by the top 20% income earning groups. So, it is advisable for policymakers to improve the minimum taxable income from birr 601 to birr1500 to reduce the income inequality by minimizing the tax burden of lower income earning groups.
Table of Contents
1 Introduction
1.1 Background of the Study
1.2 Statement of the Problem
1.2.1 Research Questions
1.3 The Objective of This Paper
1.3.1 Objectives (General)
1.3.2 Specific Objectives
1.3.3 Scope of the Study
1.4 The Significance of the Study
1.5 Organization of the Paper
1.6 Limitation of the Research
2. The Theoretical and empirical Literature Review
2.1. Definition and Classification of Taxes
2.2. Theories of Taxation
2.2.1 The Haig-Simons Income Tax Theory
2.2.2 Samuelson Depreciation
2.3 Lorenz Curve, Gini Coefficient
2.4 Empirical Literature Review
2.5 The Research’s Empirical Contribution to other Similar Studies
2.6 Literature Gap and Summary
2.7 Conceptual Framework of the Study
3. Research Design and Method
3.1 Research Design
3.2 Sample and Sampling Techniques:
3.3 Source and Tools/Instruments of Data Collection
3.4 Method of Data Analysis
4. Data Analysis and Interpretation
4.1 General Information about Data
4.2 Descriptive Statistical Data Analysis and Interpretation
4.3 The paired sample means t-test
4.4 Analysis of Income Inequality among different income groups
5. Conclusion and Recommendation
5.1 Conclusion
5.2 Recommendation
Objectives and Research Focus
The primary objective of this research is to evaluate the impact of the income tax proclamation 979/2016 on employees' disposable income, tax liabilities, and the reduction of income inequality within public and private companies in Addis Ababa, Ethiopia.
- Investigating changes in disposable income following the tax reform.
- Analyzing the reduction of personal income tax liability.
- Measuring income inequality using the Gini coefficient.
- Comparing the tax burden between high and low-income employee groups.
- Providing policy recommendations based on the findings.
Excerpt from the Book
2.2.1 The Haig-Simons Income Tax Theory
Individuals’ income taxation has largely been based on some variant of the standard suggested by Haig (1921) and Simons (1938). This “Haig-Simons” (H-S) standard argues that an ideal income tax should be imposed on “comprehensive income”, and the H-S standard has been used to justify the frequently heard a call for a “Broad-based, Low-rate” tax reform strategy (Alm, 2018).
The Haig-Simons definition of income is generally considered by most tax scholars to be the ideal definition of income. However, the recent studies like Alm (2018) considered a truly H-S individual income tax has in fact never been fully applied.
It is sometimes referred to as the Schanz-Haig-Simons definition of income, reflecting the early contribution of Georg von Schanz. This definition is the accretion concept of income, which defines income as the sum of consumption and accumulation.
Robert Haig published his definition of income in 1921, explaining income as the increase or accretion in one’s power to satisfy his wants in a period in so far as that power comprises (a) money itself, or (b) anything susceptible of valuation in terms of money. More satisfy the definition of income which the economist offers is this: income is the money value of the net accretion to one’s economic power between two points of time(Hanna,2006).
Summary of Chapters
1 Introduction: Provides the background and research problem, highlighting the context of Ethiopia's tax system and the shift towards the 979/2016 proclamation.
2. The Theoretical and empirical Literature Review: Discusses the foundational theories of taxation, including Haig-Simons and the Lorenz Curve, alongside an empirical review of previous tax studies.
3. Research Design and Method: Outlines the quantitative approach, sampling methodology involving 1120 employees, and data collection techniques used for analysis.
4. Data Analysis and Interpretation: Presents the descriptive statistics, paired sample t-tests, and Gini coefficient measurements comparing the 286/2002 and 979/2016 tax regimes.
5. Conclusion and Recommendation: Synthesizes the research findings, concluding that the tax reform failed to significantly reduce inequality and offers suggestions for policymakers.
Key Words
Employment income, income tax reform, income tax liability, income inequality, Gini coefficient, Lorenz curve, Addis Ababa, disposable income, progressive tax, tax burden, tax policy, socioeconomic development, payroll data, tax proclamation, tax brackets.
Frequently Asked Questions
What is the core focus of this research?
This work investigates the economic effects of the 979/2016 income tax reform in Ethiopia, specifically regarding disposable income and income tax liability for employees in Addis Ababa.
What are the primary themes discussed in the book?
The main themes include theories of taxation, the measurement of income inequality, the impact of progressive tax reforms, and the comparative analysis of tax systems before and after the 2016 reform.
What is the primary research goal?
The goal is to determine if the 979/2016 tax reform achieved its intended goal of reducing income inequality among employees in different earning brackets.
What methodology does the author use?
The author employs a quantitative research method, utilizing descriptive statistics, paired sample mean t-tests, and Gini coefficient calculations to analyze payroll data from 1120 employees.
What does the main body cover?
The main body covers a literature review of tax theories, the research methodology, data analysis based on income deciles, and an evaluation of the tax burden across various employee groups.
Which keywords best describe this study?
Key terms include employment income, tax reform, income tax liability, income inequality, and Gini coefficient.
Why is the Gini coefficient significant in this study?
The Gini coefficient is used to gauge income inequality and to determine whether the new tax brackets succeeded in narrowing the gap between low and high-income groups.
What does the study conclude regarding the tax reform's impact on inequality?
The study concludes that the reform did not significantly reduce inequality and, in fact, showed a marginal increase in inequality as high-income earners received a larger percentage increase in disposable income.
What recommendations are provided for policymakers?
The researcher suggests increasing the minimum taxable income threshold and focusing tax relief efforts more effectively on low-income earning groups to genuinely reduce the inequality gap.
- Citar trabajo
- Tewodros Ayalew (Autor), 2019, The Effect of The Income Tax Reform 979/2016 On Employees' Income Equality, Múnich, GRIN Verlag, https://www.grin.com/document/497409
