Effectivness of palestinian income tax rates in facing tax evasion

Abstract

The main challenge faced Palestinian Public Budget is the weaknesses of tax revenues in meeting the accelerating of public expenditures. One of the main reasons of this weakness is the incompliance of taxpayers from their duties toward their national government. Palestinian legislators tried to develop a new income tax system during last 7 years to increase the income tax revenues. Unfortunately, the public budget still suffering from high deficit, this case could be interpreted because of increasing the tax evasion- side effect of increasing tax rates-. This paper is designed to explore whether the change in tax rates has raised the tax evasion or not. Therefore, this paper used an indirect method to test the change in the percentage of tax evasion among last 5 years (the same periods of issuing new income tax system). Our findings show that there is a positive relationship between changing income tax rates and increasing the percentage of tax evasion in the last 5 years. The estimated tax evasion has been increased by 22% from 2007 to 2015.