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Volume :10 Issue : 40 1984      Add To Cart                                                                    Download

MEASURING THE TAX CAPACITY OF THE YEMEN ARAB REPUBLIC

Auther : By: Dr. Abdulaziz Y. Saqqaf

The tax capacity of a country can be defined as the total value of taxes that can be collected by the government under normal circumstances in any given year. Usually it is expressed as a percentage of the national income or gross domestic product. It is readily evident that the tax capacity or the tax base greatly varies from country to country depending on a number of factors. These include the size of the population and the age distribution, the average national income and its distribution, the structure of production in the economy, etc. Statistics show, therefore, a marked variation among nations in terms of their ability to collect tax dues. Developing countries, in general, fail to collect high proportions of tax dues.

In the Yemen Arab Republic, the tax system itself is less than fifteen years old. Nevertheless, tax earning has jumped from around one hundred million Rials in the early seventies, to an estimated earning of YR. 4 billion in 1984. Even then, about 50% of the taxable base is beyond the reach of the tax authorities. In an analysis of the individual taxes, the disparity in enforcement and collection is astounding. Tax collections as a percent of dues range from 6% in taxes on professional services (lawyers, doctors, accountants, engineers, consultants, etc) to a remarkable 90% in vehicle taxes. The weighted average of actual tax receipts is 50.4% of total dues. The balance is lost because of evasion and lack of enforcement. In an extrapolation of past trends, we can safely forecast that better collection methods and an expansion of government authority to cover all regions and individuals will lead to higher tax income. If evasion is controlled on a 5% annual cumulative basis and a 10% annual cumulative growth in the reach of the tax authorities, tax earnings could cover 78% of the tax base by 1990.

During the eighties, the Yemen Arab Republic has been negatively affected by the disarray in the oil market. Since substantial portions of the country’s foreign assistance used to come from the fraternal oil-Arab countries, the fall in these countries’ revenues has led to a fall in their foreign aid. The world recession has also deprived the country of other sources of foreign assistance. As a result, the country faced two problems: a deficit in the government’s budget, and a foreign exchange gap. The government has tried to remedy its deficit by curbing expenditures as well as by borrowing, internally from the monetary authorities as well as externally. However, the final remedy can be achieved by mobilizing domestic financial resources, notably, taxes.

Within the experience of the Yemen Arab Republic, it is apparent that a few steps need to be taken if tax earnings are to be increased. These include expanding the jurisdiction of the tax authority, adopting a selective approach in providing tax exemptions, Yemenising some of the imported tax laws, and modification of the tax evaluation and collection procedures. Preliminary studies indicate that tax revenues, along with other sources of domestic government revenues could increase to an extent that they will meet government expenditure and cover the deficit in a short time.

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