In developing countries, an excess of industrial capacity is a disturbing phenomenon. Whereas at one time capital formation was believed to be the basis for economic development, recent attention has focused on the underutilization of existing capital stock.1 Thus, in Pakistan, where it is assumed that capital is critically scarce, the use of industrial capacity is reported to be much less than it is in the capital-rich United States—a paradox of no small significance.2 This finding has initiated a review of the accepted beliefs concerning economic development policies.3 Higher capacity utilization rates should be recognized explicitly as an alternative to saving, it is argued, and policies should be designed specifically to increase these rates as this “… holds great promise for increasing the level and rate of growth of income in underdeveloped countries.” 4
When capital formation was still the dominant theme in development economics, tax incentives such as accelerated depreciation, investment allowances, rate reductions, and exemptions of income and product taxes played a prominent role in furthering a government’s industrialization objectives. While the literature on these investment incentives is impressive,5 little attention has been given to the possibility of using taxation to promote a fuller utilization of existing capital stock.
In the past, production incentives have been largely associated with agricultural taxes. For example, the incentive aspects of presumptive agricultural income taxes based on standard land yields or on standard rates of return from the capital value of land have often been stressed.6 A similar effect is ascribed to land taxes based on potential output or on the value of land determined as a function of potential output.7 However, as a rule the incentive effect is only an incidental (though welcome) by-product of presumptive assessment methods, which are probably introduced in most cases because it is difficult to tax the agricultural sector on the basis of actual yields and values.
Early incentive schemes relating to industrial production were designed to correct market imperfections such as those caused by the monopolists who, being in a position to set the price of their products, could earn excess profits by keeping their output below the socially optimum level. The most notable is the tax-and-bounty scheme of Joan Robinson, who suggests that monopolies should be induced to produce a purely competitive output by granting them a subsidy equal to the marginal cost minus the marginal revenue corresponding to that output. The excess profit (inclusive of the subsidy) would then be fully recouped through a lump-sum tax that would leave the post-bounty equilibrium undisturbed. However, she notes that the proposal would be impractical because of the indefiniteness and instability of demand curves.8
A more detailed incentive tax for production has been worked out by Knorr and Baumol.9 They suggest that the rate of economic growth should be accelerated through a tax-and-rebate scheme involving the imposition of a flat rate penalty tax on each firm’s value added, in conjunction with the allowance of a tax rebate (or subsidy) dependent on the rate of growth of the value added to goods that the firm actually sells. A similar tax was experimented with in Canada in the early 1960s, when an offset against taxable income was made available in the form of a tax credit on the taxable income from the sale of goods marketed in excess of the “sales base” (defined as average net sales in the three preceding years).10 Recently, the use of tax incentives for production has been recommended for developing countries by Vito Tanzi, who proposed a levy on potential value added, measured by deducting actual inputs from the full capacity output (determined through annual surveys) of manufacturing enterprises.11
With the exception of the brief Canadian experiment, these incentive taxes for production never left the drawing board—perhaps largely because of their administrative complexity and the uncertainty of their effect. Another possible reason is that there is little need in developed countries to induce the business community to do what is usually in its own interest and within its reach. On the other hand, various constraints may inhibit the growth of industrial output in developing countries, even though the necessary capital stock is already in place. Faced with this situation, the Government of Pakistan designed a tax to increase the level of industrial production through better utilization of existing capacity. It believed that firms taxed on the basis of their full capacity output instead of their actual production could be induced to use their plant and equipment more fully. In view of what appears to be at stake, Pakistan’s experience with “capacity taxation” deserves closer scrutiny.
This paper first outlines the conceptual characteristics of the capacity tax, its setting, and its historical development. It then describes and comments on the technical features of the scheme. Next it analyzes the likely economic effects of capacity taxation and offers some evidence on the development of capacity utilization rates after the imposition of the tax. This is followed by reflections on the revenue implications of the tax. Finally, the paper summarizes the major findings and conclusions to be drawn from Pakistan’s experience.
Mr. Cnossen, a Senior Economist in the Fiscal Affairs Department, is a graduate of the Netherlands Academy of Taxation and Erasmus University, both in Rotterdam. He was formerly an income tax inspector with the Netherlands Ministry of Finance and is author of The Indonesian Sales Tax. In addition to thanking staff colleagues for their assistance, the author wishes to express his appreciation to Gordon C. Winston, Williams College, for his comments on an earlier draft of this article.
Gordon C. Winston, “Capital Utilisation in Economic Development,” Economic Journal, Vol. 81 (March 1971), pp. 36–60.
Gordon C. Winston, “Overinvoicing, Underutilization, and Distorted Industrial Growth,” Pakistan Development Review (Winter 1970), p. 416
For a review of the literature, see Derek T. Healey, “Development Policy : New Thinking About an Interpretation,” Journal of Economic Literature, Vol. 10 (September 1972), pp. 757–97, with a summary of capacity utilization data for 13 developing countries (p. 785).
Winston, “Capital Utilisation in Economic Development” (cited in footnote 1), p. 58.
For a summary and discussion of tax incentive studies relating to developing countries, see Jack Heller and Kenneth M. Kauffman, Tax Incentives for Industry in Less Developed Countries, Harvard Law School, International Program in Taxation (Cambridge, Massachusetts, 1963), and George E. Lent “Tax Incentives for Investment in Developing Countries,” Staff Papers, Vol. 14 (July 1967), pp. 249–323. Depreciation allowances can also be employed to increase capacity utilization by permitting higher write-offs for multiple shifts. For references to this practice, see Richard M. Bird, Taxation and Development: Lessons from Colombian Experience (Harvard University Press, 1970), p. 86; Richard Slitor, “Reform of the Business Tax Structure: Analysis of Problems and Alternative Remedial Proposals,” in Fiscal Reform for Colombia, ed. by Richard A. Musgrave and Malcolm Gillis, Harvard Law School, International Tax Program (Cambridge, Massachusetts, 1971), pp. 484–85; and Lauchlin Currie, Accelerating Development: The Necessity and the Means (New York, 1965), p. 111.
For a useful description of these agricultural income taxes, see George E. Lent, “Taxation of Agricultural Income in Developing Countries,” Bulletin for International Fiscal Documentation, Vol. 27 (August 1973), pp. 324–42. In the specific case of Colombia, an interesting and carefully argued study concludes: “Overall, it seems probable that a presumptive income tax on land is a relatively ‘safe bet’ policy in terms of the output and distribution goals and in terms of the low probability of its having negative results. …” (See R. Albert Berry, “Presumptive Income Tax on Agricultural Land: The Case of Colombia,” National Tax Journal, Vol. 25 (June 1972), p. 180).
Resolution of the Third Inter-American Conference on Taxation, Mexico City, September 3–8, 1972.
Joan Robinson, The Economics of Imperfect Competition (London, 1950), p. 163. See also A. C. Pigou, A Study in Public Finance (London, 1949), Chapter 8; Alfred Marshall, Principles of Economics (London, 1961), Book 5, Chapter 14; Hugh Dalton, Principles of Public Finance (London, 1954), p. 42; and Ned Shilling, Excise Taxation of Monopoly (Colombia University Press, 1969), pp. 44 and 99–101. In an analysis of Mrs. Robinson’s scheme, Higgins proposed as an alternative “a tax on profits in excess of a fair return on utilized capacity,” which in his view would approximately attain the same objective and be easier to administer than the tax-and-bounty scheme. As long as the rate of net (after tax) profits rises with output, it would be advantageous “not only to utilize existing plant and equipment more fully but to operate the part that is utilized as efficiently as possible.” See Benjamin Higgins, “Fiscal Control of Monopoly,” in Readings in the Economics of Taxation, Vol. 9, ed. by Richard A. Musgrave and Carl S. Shoup (Homewood, Illinois, 1959), pp. 312–21.
Klaus Knorr and William J. Baumol, eds., What Price Economic Growth? (Englewood Cliffs, New Jersey, 1961).
See Richard Bird, “A Tax Incentive for Sales: The Canadian Experience,” National Tax Journal, Vol. 18 (September 1965), pp. 277–85.
Vito Tanzi, “Theory of Tax Structure Development and the Design of Tax Structure Policy for Industrialization,” paper presented at the Conference on Fiscal Policy for Industrialization in Latin America, February 17–20, 1971, held at the Center for Latin American Studies, University of Florida (unpublished), pp. 16–17.
Ministry of Finance, The Budget Speech for 1966/67, pp. 16–17. (Hereinafter referred to as Budget Speech.)
Because of the seasonal pattern of production, sugar manufacturers were given the option of paying the total annual amount in eight equal installments beginning in November of each year.
Act No. XI of 1966,” Gazette of Pakistan, June 30, 1966, pp. 545–46.
Pakistan has excellent budget documents with details of the tax system. The Ministry of Finance issues the Budget Speech, The Budget in Brief, and The Explanatory Memorandum on the Budget annually. For an analysis of indirect taxes, including excises, for the period 1954/55–1962/63, see Stephen R. Lewis, Jr., and Sarfraz Khan Qureshi, “The Structure of Revenue from Indirect Taxes in Pakistan,” Pakistan Development Review, Vol. 4 (Autumn 1964), pp. 491–526, and Ghulam Mohammed Radhu, “The Rate Structure of Indirect Taxes in Pakistan,” ibid., pp. 527–51.
Thus for four products—cement, sugar, vegetable products, and textiles—the capacity tax rate was made up of the old excise duty, the sales tax (a 20 per cent levy at the manufacturing and importing stages), and two surcharges levied for defense and the rehabilitation of refugees.
“Central Finance Minister Defends the Budget in the National Assembly” in Budgets of Pakistan, 1966–67 (prepared by the Economic Adviser, Ministry of Finance), p. 71. It is worth mentioning that a reduction in revenue was also not envisaged. In this respect the capacity tax, like a presumptive income or land tax in the agricultural sector, differs from the usual tax incentive that sacrifices revenue.
Budget Speech for 1961–62, pp. 23–24.
Reportedly, the incentive became so strong that in 1965 the exempt, small industry sector comprised 13,000 looms as against 35,000 looms in the mill sector (Budget Speech, 1965–66, p. 26). For similar avoidance techniques in the sugar industry, see Government of Pakistan, Taxation Enquiry Committee Report, Vol. 1 (1961), pp. 180–81.
Budget Speech for 1959–60, p. 19. However, units with not more than four power looms remained exempt from tax. A similar administrative expedient was adopted in India in 1964 (Government of India, Budget Speech for 1964–65, part B, p. 4).
Budget Speech for 1963–64, p. 15.
Budget Speech for 1964–65, p. 27. Another interesting production incentive, similar to the Canadian experiment cited above, was proposed at budget time. It involved a rebate of the excise duty on tea for outputs above the highest level of production attained during the preceding four years. For small tea gardens with less than 500 acres under cultivation, the rebate would be 50 per cent and for larger gardens, 25 per cent (ibid., p. 26).
Ibid., p. 27, and Budget Speech for 1965–66, pp. 27–28.
Pakistan Ministry of Finance, Central Board of Revenue, Central Taxes in Pakistan: A Decade of Development and Self Effort (Islamabad, 1968), p. 16.
“A Talk by the Secretary, Ministry of Finance, Broadcast from Radio Pakistan, Rawalpindi, on 12th June 1966,” Pakistan Budgets 1966–67, p. 205.
Ministry of Finance, The Budget, 1969–70, p. 33 (hereinafter referred to as The Budget) and Ministry of Finance, The Budget in Brief, 1972–73, p. 28 (hereinafter referred to as The Budget in Brief).
Budget Speech for 1966–67, p. 16. The collusion argument was also voiced by the Finance Secretary on June 13, 1964 (Pakistan Budgets, 1964–65, p. 211). See also A. Farouk, “Pakistan Budget for 1965–66,” in Pakistan Budgets, 1965–66, p. 238.
Winston, “Capital Utilisation in Economic Development” (cited in footnote 1), p. 60.
Gordon C. Winston, “Capacity Taxation,” (unpublished, Pakistan Institute of Development Economics, Karachi, November 1967), p. 2.
Budget Speech for 1966–67, p. 20.
Budget Speech for 1967–68, p. 15.
Pakistan Ministry of Industries and Natural Resources, Report of the Textile Industry Capacity Committee (unpublished, February 1968).
Budget Speech for 1970–71, p. 16.
Ibid., p. 17.
Dawn, November 22, 1972 and Gazette of Pakistan, October 14, 1972.
Central Statistical Office, Monthly Statistical Bulletin, Vol. 20 (July 1972). (Hereinafter referred to as Monthly Statistical Bulletin.)
See Richard E. Gift, Estimating Economic Capacity: A Summary of Conceptual Problems (University of Kentucky Press, 1968), pp. 30–31.
Thus, in the United States, the McGraw-Hill Company, arguing that “… companies follow a commonsense definition of capacity, such as maximum output under normal work schedules,” accepts the aggregated composite response of what manufacturers themselves regard an appropriate level of output. The Wharton School Econometrics Unit, on the other hand, ascertains capacity from the peaks of seasonally adjusted, averaged quarterly production figures. Capacity for any period is then the straight line from one peak to another. (For forecasting purposes, the last straight line is extrapolated.) A third measure, used by the Industrial Conference Board, involves the computation of constant dollar book values of fixed capital which are in turn combined with deflated and inventory-adjusted output data into capital-output ratios. Peak ratios indicating “virtually full capacity” utilization are selected by inspection, and other output rates are measured with reference to the peak capital-capacity output ratio. Fourth, it is sometimes assumed that capital outlays themselves reflect capacity utilization. Finally, engineering or historical data are used to establish production functions—the relationship between the quantity of output and the quantities of various inputs, for example, machine ratings—that offer a basis for determining physical production capacity. See Almarin Phillips, “An Appraisal of Measures of Capacity,” American Economic Association, Papers and Proceedings of the Seventy-fifth Annual Meeting, American Economic Review, Vol. 53 (May 1963), pp. 275–92.
It will be noted that this closely parallels similar methods of determination of standard yields under some agricultural taxes. Fluctuations are also inevitable in the crushing season, which may last from 120 days to 200 days, but this was taken care of by an amendment of the sugar capacity rules to the effect that a day on which no crushing of sugar from cane took place in the factory was deemed to be a day of closure, making the factory eligible for abatement. See Statutory Rules and Orders (S.R.O.) 1984 (K)/68 and the section of this paper on Abatements, below.
United Nations Economic and Social Council, The Tax System in Pakistan: Studies in Tax Reform Planning (July 19, 1971), p. 40 (revision of a study originally prepared by Nurul Islam, Director, Pakistan Institute of Development Economics, Karachi). For the rebates, see S.R.O. No. 61 (R)/68, rule 3, Gazette of Pakistan, April 22, 1968, p. 198; the common denominator of the regional reliefs is taken as the country-wide rebate. For cotton yarn a one-time 10 per cent rebate was given for 1968/69.
For brevity, reference is mainly to cotton fabrics in the following paragraphs. The only difference between the capacity tax rules for cotton fabrics and yarn lies in the kind of machines (looms versus spindles) and the tax rate structure (fineness per square yard versus counts per pound).
S.R.O. No. 61(R)/68, rule 3(9)–(11) op. cit. Further implementing rules prescribed that each manufacturer had to maintain a daily account of each working shift, showing inter alia their time of commencement and termination, the number of looms worked, and the quantities of each category of cotton fabrics manufactured during the shift.
S.R.O. No. 61(R)/68, rules 4 and 5, op. cit.
Winston, “Capacity Taxation” (cited in footnote 29), p. 6.
In the case of cotton fabrics, an additional rebate is granted ranging from Rs 0.55 a pound to Rs 2.80 a pound, depending on the fineness of the fabric and reflecting the estimated incidence of the duty on yarn; see Table 3 and S.R.O. No. 61(R)/68, rule 8(3), op. cit.
The rebate problem is particularly difficult to solve in the case of fabrics containing mixed counts or mixed fibers. Initially, when fabrics with mixed counts were exported, a rebate was allowed on the basis of average count, but with revenue apparently suffering, the rules were revised and rebate is now granted on the basis of the actual weight of each category of yarn. To qualify for the rebate, the exporter has to keep a record of the number of ends per inch and counts of warp yarn, as well as the number of picks per inch and counts of weft yarn, even though the administration continues to draw samples from export consignments. See S.R.O. No. 3(1)/71, Gazette of Pakistan, January 4, 1972.
See Budget Speech for 1969–70, pp. 8–13. In the excise system a large number of other bracketed specific and ad valorem rates employ quality, price, or other differential characteristics of the taxable commodities. Products that are taxed in this way include tea, cigarettes, soap, cosmetics, knitting wool, electric batteries, bulbs, tubes, and lubricating oil.
Of course, the crucial underlying assumption is that the tax is actually passed on to the consumer; presumably this is largely the case for the highly competitive cotton textile products. Another point is that bracketed rate structures may be deceiving because rates which are progressive in relation to quality may only be proportional or even regressive in relation to price.
Similarly, small changes at the margin (for example from 34 to 35 counts of yarn) involve an increase in the export rebate from Rs 1.10 to Rs 1.75 per pound. The share of fine and medium cloth in total production increased by 7.5 per cent in West Pakistan over a four-year period ended 1971/72, while coarse cloth output declined correspondingly. Data computed from Monthly Statistical Bulletin, Vol. 20 (July 1972.)
The regional development incentives were in addition to the general relief mentioned above. For yarn units, a 10 per cent rebate was granted to factories in East Pakistan in 1968/69 and 1969/70. During the same period, specified units in West Pakistan received rebates of 5 and 10 per cent. Again, rated capacities could not be reduced below average actual production in the three years prior to the imposition of capacity tax. See S.R.O. No. 61(R)/68, rule 3(3), (4), and (5), op. cit.
Budget Speech for 1966–67, p. 18, but in particular Budget Speech for 1969–70, pp. 8–13. For textiles, see S.R.O. No. 120 (I)/69, Gazette of Pakistan, June 28, 1969.
Budget Speech for 1972–73, p. 46.
Carl S. Shoup, Public Finance (Chicago, 1969), pp. 9–10. Sugar may be an exception to the condition that there should be no untaxed substitutes. Cane is often diverted to the production of gur or khandsari, crude forms of sugar with a very low recovery rate.
In the following analysis, the effect of differences in assessment and collection methods is ignored. (Excises are payable at the time of sale, but capacity tax is assessed annually and payable in monthly installments.)
The effects are opposite to the imposition of an excise duty, the case generally examined in literature. See Richard A. Musgrave, The Theory of Public Finance: A Study in Public Economy (New York, 1959), pp. 288–89.
Ibid., p. 210.
In “Capital Utilisation in Economic Development” (cited in footnote 1), p. 57, Winston says: “In making it more expensive to let plant sit idle, the tax may increase utilisation through an income effect on entrepreneurial utility maximisation such that managerial input may increase as profits are reduced.” For supporting arguments he refers to Tibor Scitovsky, Welfare and Competition: The Economics of a Fully Employed Economy (Homewood, Illinois, 1951), pp. 142–47.
For the treatment in this and the following paragraph, reference may be made to Shoup, Public Finance (cited in footnote 53), pp. 273–79 and 394–99.
Winston, “Capacity Taxation” (cited in footnote 29), p. 11. Since both sugar and cement operated at high levels of capacity when Winston made this calculation, it was only necessary to express the tax as a percentage of sales, so that the product of this ratio and the inverse of the capital output ratio (computed in connection with another study) gave an estimate of the tax per rupee of installed capacity. In this form, the tax is expressed as a yearly charge on installed capacity—an addition to the effective interest rate.
Two other variables are the capital intensity of the production process and the elasticity of substitution. See Gordon C. Winston, ‘The Four Reasons for Idle Capital” (unpublished, Williams College/Nuffield College, September 1971) and his pioneering study “A Primer on Pure Flow Production Analysis” (unpublished, Williams College, January 1973).
For Pakistan, the prevalence of oligopolistic tendencies is argued persuasively by many authors. For example, see Mohammed Yaqub, “The Elasticity of Taxes in a Developing Country—A Case Study of Pakistan” (unpublished, Pakistan Institute of Development Economics, Karachi, 1966), as quoted in M. Z. Farrukh, “Tax Concessions to Industries—An Overview of Pakistan’s Experience” (unpublished, Harvard University Law School, International Program in Taxation), p. 26; also Lewis and Qureshi, ‘The Structure of Revenue from Indirect Taxes in Pakistan” (cited in footnote 15), p. 498.
Winston, “Capacity Taxation” (cited in footnote 29), p. 9.
See Ghulam Mohammed Radhu, “The Relation of Indirect Tax Changes to Price Changes in Pakistan,” Pakistan Development Review, Vol. 5 (Spring 1965), pp. 54–63.
Compare also Budget Speech for 1970–71, p. 13, in which the Government of Pakistan indicated that it expected that the duty on paper and paperboard would be paid out of profits and would not be passed on to the consumer.
Winston, “Capital Utilisation in Economic Development” (cited in footnote 1), p. 48. For an analysis of Pakistan’s import substitution policies, see also Stephen R. Lewis, Jr., Pakistan: Industrialization and Trade Policies (Oxford University Press, 1970), in particular Chapter 5; also Lewis and Stephen E. Guisinger, “The Structure of Protection in Pakistan,” in Bela Balassa and Associates, The Structure of Protection in Developing Countries (The Johns Hopkins Press, 1971), Chapter 10.
Winston notes that, since imported raw materials and competing imports are highly correlated, the problem of multicollinearity arises. However, other studies support the hypothesis regarding the negative correlation between imported raw materials and capacity utilization. See, for instance, Pakistan Central Statistical Office, Economic Affairs Division, Report of Survey on Capacity Utilization by Manufacturing Industries 1965, Annexure B, and Warren Hogan, “Capacity Creation and Utilisation in Pakistan Manufacturing Industry,” Australian Economic Papers, Vol. 7 (June 1968), pp. 36–38, who also lists the inefficiencies in policies and planning, both of government and private enterprise, as well as some forms of technological or demand determinism often associated with capacity underutilization.
Winston, “Capital Utilisation in Economic Development,” (cited in footnote 1), p. 43.
Ibid., pp. 43–49.
For an analysis of this phenomenon, see Winston, “Overinvoicing, Underutilization, and Distorted Industrial Growth” (cited in footnote 2). Earlier, the practice was signaled in Budget Speech, 1965–66, p. 24. It was facilitated by an overvalued exchange rate that made imports artificially cheap, import duty exemptions, and a liberal system of depreciation allowances—up to 35 per cent on plant and machinery in the first year of installation, which further reduced the cost of capital goods. See Central Board of Revenue, Tax in Pakistan: A Brief Outline With Particular Reference to Tax Concessions to New Industries and Incentives to Foreign Investment (rev. ed., Karachi, December 1965).
If the industry reported higher operating rates, actual operations were taken as the standard. See Winston, “Capital Utilisation in Economic Development” (cited in footnote 1), pp. 41–42.
For these and following developments, see Ministry of Finance, Pakistan Economic Survey (Islamabad), various issues.
The rate of 42.52 in Table 4, representing the whole nonmetallic minerals industry, understates the degree of capacity utilization in the cement sector itself; actually cement had the highest utilization rate of the industry. See Report of Survey on Capacity Utilization by Manufacturing Industries (cited in footnote 66).
See, on earlier years, A. H. M. Nuruddin Chowdhury, “The Predictability and the Flexibility of Tax Revenues in Pakistan,” Pakistan Development Review, Vol. 2 (Summer 1962), pp. 189–214.
No changes in rates were made before the introduction of the capacity tax. The figures have some inevitable shortcomings. Thus, actual output data could not be corrected for changes in stocks of excisable commodities. Tax collections for some years show lags or leads, if only on account of the litigation procedures which were initiated. In addition, the fact that many production figures are collated by the Central Board of Revenue may have some effect on their reliability because firms that evade tax would also be likely to suppress production figures.
It will be noted that this ratio differs from the elasticity concept used in the first paragraph of this section, as it relates to production volume rather than value and eliminates the effect on collections of rate increases.
S.R.O. No. 73(R)/69, Gazette of Pakistan, May 6, 1969.
Islam, The Tax System in Pakistan (cited in footnote 40), p. 40.
J. Russell Andrus and Azizali F. Mohammed, The Economy of Pakistan (Stanford University Press, 1958), p. 342.
S.R.O. No. 127(1)/70, Gazette of Pakistan, June 29, 1970, p. 847.
The phenomenon that capital goods may have a substantial cost advantage relative to labor is not restricted to Pakistan. An overvalued exchange rate that cheapens the cost of imported capital goods is cited as one of the main reasons, but other contributory factors are: (1) comparatively low interest rates for large foreign producers or government-owned enterprises, (2) the transplanting of capital-intensive techniques from abroad, and (3) as regards labor, the prevalence of artificially high wage levels on account of minimum wage laws, union demands, and the employment of well-paid foreign staff against which local wages are measured. See Bird, Taxation and Development (cited in footnote 5), pp. 124–25, and John F. Due, Indirect Taxation in Developing Economies (The Johns Hopkins Press, 1970), pp. 142–43.
For a review of these measures, see IMF Survey, November 6, 1972, pp. 103–104.
Amotz Morag, “Some Economic Aspects of Two Administrative Methods of Estimating Taxable Income,” National Tax Journal, Vol. 10 (June 1957), p. 180, quoted by Richard M. Bird in Taxing Agricultural Land in Developing Countries (Harvard University Press, forthcoming), Chapter 7.
In this respect, the capacity tax can be compared with the forfait system of assessment for the sales and business income taxes in French-speaking West Africa and other countries. See Due, Indirect Taxation in Developing Economies (cited in footnote 80), p. 169.
The classic reference is to Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, edited by Edwin Cannan (London, 1950), Vol. II, pp. 310–11. In a more recent study, Harley H. Hinrichs considers “certain” tax administration preferable to appealing tax inducements of doubtful merit. See “Certainty as Criterion: Taxation of Foreign Investment in Afghanistan,” National Tax Journal, Vol. 15 (June 1962), p. 153.
See G. Schmolders, Der verlorene Untertan (Düsseldorf: Econ. Verlag), pp. 181–82, quoted by J.C.L. Huiskamp, “Belastingontduiking” in Economisch Statistische Berichten, November 1, 1972, p. 1048.
See Bird, “A Tax Incentive for Sales: The Canadian Experience” (cited in footnote 10).