Tax Policy and Enterprise Development
in South Asia

TEDSA

 

 

Overview   Background   Objectives   Methodology   Outcomes   Partners
 
 
   Research Themes
   User Participation
   Data Collection & Analysis
   Gender Considerations
   Ethical Considerations
   Organizational Matters
   Project Timeline
 

Data Collection and Analysis

 
The methodology for collecting and analyzing data under each theme is provided below. In each case, the focal institute in each country shall nominate personnel, build and coordinate teams, and assign personnel roles and responsibilities. They shall also provide substantive guidance for the research as a whole. These focal institutes will monitor the progress of the research, ensure timely delivery of research outputs, provide human resources, as well as other resources which may be needed as in-kind contributions to the research.

  Under each theme, research would cover all 5 countries in South Asia, given that these themes hold relevance across the region. Five country studies are proposed, for each theme (one focusing on each country), which could then be drawn together for meta-analysis highlighting the similarities, differences, learning outcomes, and cross-cutting recommendations at the regional level.

  For each Country Study, the following methodology will be adopted.

First, a Literature Review will be conducted that will focus on (at the national and sub-national level):

Enterprise surveys conducted by the World Bank, ILO, UNDP and other donors

Previous research including reports by IFIs, think-tanks (including research partners) and government institutions (including annual reports, laws and regulations, etc.). These government institutes will include those mandated to promote the development of small enterprises in Pakistan (e.g. the Small and Medium Enterprise Development Authority), India (e.g. National Commission for Enterprises in the Unorganized Sector & National Institute of Micro, Small and Medium Enterprises), Sri Lanka (Ministry of Enterprise Development and Investment Promotion), and Bangladesh (SME Cell in the Ministry of Industries and the Small and Cottage Industries Corporation), and Nepal (Industrial Promotional Board).

Manifestos of political parties, and programme documents of traders / farmers / transporters associations, Chambers of Commerce and other interest groups to map out the political economy factors at play

Enterprise statistics for micro-economic data (such as value added for small enterprises, earnings information for self-employed workers, etc.) on informal and formal enterprises

The constitutional, legal, and regulatory injunctions that govern taxation in each country

Periodic Reports by revenue administration authorities such as the Federal Board of Revenue in Pakistan, the National Board of Revenue in Bangladesh and the Inland Revenue Department in Sri Lanka

Consumption patterns and input-output tables from surveys and statistical data compilation authorities e.g. the Pakistan Living Standards Measurement Survey (PLSMS), Labor Force Survey, and the Federal Bureau of Statistics in Pakistan

Second, Key Informant Interviews will be conducted involving:

Boundary analysis (a problem structuring technique) will be applied so that the number of ideas, opinions, and facts are exhausted

Snowballing technique will be applied where each Key Informant will yield new contacts

These Interviews will target (at the national and sub-national levels):

Serving and former civil servants (especially Customs & Excise and Income Tax Groups including personnel from revenue administration authorities, relevant Ministries, and enterprise development authorities including those mentioned above, trade and export control authorities, etc.)

Elected officials (especially research partners of relevant parliamentary committees)

Non-state actors including farmers /traders / professional associations, associations of home-based workers, Chambers of Commerce and Industry, Associations of Accountant Firms, NGOs active in this area, and scholars who have written on this issue.

Representatives of the international donor community, including Programme Officers, Chief Technical Advisors, senior managers of the development assistance departments in relevant embassies, etc.

Government officials involved in assessments and evaluations of tax bases, setting and revising of rates, and administering property taxes at the local (and/or higher)levels

Government officials involved in land administration, governing aspects such as land registration and record-keeping, tenure, use, rights, markets, etc. at the local (and/or higher) levels

Non-state stakeholders of land markets, including real-estate agencies, banks and lending institutions, NGOs advocating for land rights, etc.

  Both the literature review and the Key Informant interviews will place particular emphasis on sub-national variations in both de facto and de jure policy regarding tax expenditures, VAT, and property taxes, as well as industrial composition and levels of informality, particularly in the 3 Country Studies on India and Pakistan, respectively.

  Third, a survey of small compliant and non-compliant enterprises (and/or entrepreneurs) will be undertaken to assess key parameters of inquiry. They will include, employment, value added, fixed assets, wage bill, labor productivity, access to credit, expenditure on public goods and services, tax compliance costs, the knock-on effects of personal income tax levied on owners/managers, etc. The survey will employ an appropriate and workable sampling methodology. Women owned/managed enterprises will be sampled to higher proportions to allow sufficient number of observations.

  The Themes demands expertise from public finance (specializing in tax policy), labor economics, local finance, land economics, and land administration backgrounds. In addition, experience conducting econometric analysis on microeconomic data is essential. Therefore, each Country Study should be developed by a 3-4 member team, composed of relevant qualifications and experience from each focal institute.

Data Analysis Methodology for Theme 1
The Impact of Tax Exemptions and Concessions on Enterprise Development

Data Analysis Methodology for Theme 2
The Impact of the Value-Added-Tax (VAT) on Enterprise Development

Data Analysis Methodology for Theme 3
The Impact of Property Tax on Enterprise Development

 First, for sub-sets of small compliant and non-compliant enterprises total tax expenditures will be calculated, covering exemptions, allowances, credits, rate relief, and deferrals. Tax expenditures will be identified for a comprehensive list of enterprise taxes, using a legal approach which takes current tax legislation as a basis for defining the benchmark tax from which deviations will constitute tax expenditures and be duly measured using the foregone revenue method, which measures the loss of revenue occurring after the introduction of the expenditure. This will be estimated using aggregate statistics obtained from national accounts.

 Second, the level of parity between the nature and magnitude of tax expenditures afforded to compliant and non-compliant enterprises will be determined.

 Third, econometric analysis will be conducted to determine the degree to which differences in the nature and magnitude of tax expenditures emerge as strong determinants of labor productivity, and the ability of small enterprises to grow and create productive jobs. The dependent variables in this case will be obtained from the survey carried out (described earlier). Women owned/managed enterprises will be separately analyzed in both sub-sets.

 Fourth, the same independent variables will be tested for significant correlation with emigration levels of entrepreneurs, with data on the latter obtained from relevant government authorities.

 Finally, policy recommendations will be made, considering the costs and benefits of these tax expenditures accruing to both compliant and non-compliant enterprises, especially those managed/owned by women.

 First, researchers will conduct a tax incidence analysis of VAT on small compliant and non-compliant enterprises. They will group consumption items into categories where tax receipts and consumption patterns of enterprise deciles is matched. Next, researchers will estimate the relative share of a consumption category for each enterprise quintile or decile. Finally, tax receipts for each consumption item category will be distributed based on the relative share of its consumption in each enterprise quintile or decile. Finally, this will allow the progressivity impacts of the VAT on small enterprises within and outside the tax net, to be determined. Two important assumptions will qualify the findings:

  • Final tax burden is borne down the supply chain to the consumer

  • Distribution of tax evasion among the population varies proportionally with consumption

Second, researchers will conduct econometric analysis to test the degree to which indicators of taxpayer friendliness and compliance costs (including the second-order costs related to personal income tax  as measured from the survey conducted), are significant determinants of the ability of small enterprises to grow and create productive jobs.

 Finally, policy implications and ensuing recommendations will be made for VAT design and administration to achieve greater equity and compliance, and to reduce disincentives for informal firms to join the regulated economy.

Data gathered through Key Informant Interviews with relevant stakeholders will be analyzed to identify:

  • Weaknesses in local property tax systems rising from areas such as inter-governmental fiscal relations; classification, valuation and assessment mechanisms; political factors; compliance culture; tax administration functions, especially record-keeping; exemptions and preferential treatments; among others.

  • Anomalies in informal land markets rising from areas such as interest groups, formal land registration systems, recognition of informal transactions, and the ways in which informal transactions are carried out e.g. subdivision; renting and sub-renting; simple occupation, etc. The impacts of these anomalies on enterprises, especially enterprises owned/managed by women and those operating outside the tax net in the undocumented economy, will be focused on.

  • Policy recommendations that address weaknesses in property tax systems which cause or worsen informal land development and the associated anomalies in informal land markets at the local levels.

The Themes demands expertise from public finance (specializing in tax policy), labor economics, local finance, land economics, and land administration backgrounds. In addition, experience conducting econometric analysis on microeconomic data is essential. Therefore, each Country Study should be developed by a 3-4 member team, composed of relevant qualifications and experience from each focal institute.

(C) 2012 at GINI, Islamabad-Pakistan