AN INVESTIGATION OF THE IMPACT OF DIRECT TAXES ON ECONOMIC GROWTH IN ZAMBIA.

Abstract

Taxes contribute significantly to all economies. They are a major source of revenue for the government and forms part of the fiscal policies. The purpose of this study is to investigate the impact of direct taxes on economic growth in Zambia. The study used quarterly data for analysisusing E-views statistical software. The study variables were Gross Domestic Product, Company Income Tax, Personal Income Tax and Withholding tax and were tested for presence of unit root. It was found that Gross Domestic Product and Company Income Tax were integrated of order 0 whereas Personal Income Tax and Withholding Tax were integrated of order 1. Thus, the Autoregressive Distributed Lag was used for estimation. The bound test was used to check for cointegration among the variables and it was found that there was cointegration among the variables. The study found that Personal Income Tax has a positive effect on economic growth in the long run and a negative effect on economic growth in the short run. In addition, the study found that withholding tax has a negative effect on economic growth both in the long run and short run. Besides, it was found that Company Income Tax does not have a significant effect on economic growth both in the long run and short run.