1. Abstract
The progress and development of any nation depends
over the larger extent up on human capital with respect to the skillsets and
capabilities. With respect to numerous initiatives for bettering human
development in terms of quality and inclusive public services in terms of
health care, education, infrastructure, etc., skill development is one of the
key tools. One of the initiatives is the use of tax levies for funding/
enabling training of individuals for skill development. At the outset, the
objective of this research is of two parts, (i) Undertake a study over various
levies based training model adopted across various countries and their
effectiveness / implication, and (ii) Based on this study as input, develop a
model that can be applied by developing countries to effectively aid in the
human capital development. The research method that is employedis qualitative
approach for aiding the study that is undertaken. The qualitative research
encompassed the following, (i) case study approach for assessing the
significance of tax systems and capabilities, (ii) exploratory approach for
surveyingthe various literature for reviewing various levies based training
model, their application across various countries, their implication/
effectiveness, etc, and (iii) A survey for assessing the perception,
expectations, challenges, implications in terms of various aspects of levies
based training in the context of developing nations. Based on the data and
insights collated from the studies, a detailed analysis was undertaken to
devise a model that is applicable in the context of developing countries. The
proposed model in the context of the developing nations is based on the Model
of Levy Grant with the intervention scheme of reimbursements.
2. Introduction
The progress and development of any nation depends
over the larger extent up on human capital with respect to the skillsets and
capabilities. Various studies have illustrated that the human development
factors vastly influences the growth in terms of wealth creation and economic
progress.
One of the composite indexes, Human Development Index
is made use for measuring the development element of the human resources with
respect to a nation and encompasses four different indicators comprising,
average of number in years for studying and hoping over the number in years for
education that shall be formed, expectancy of life, and income per capita. All
nations, as per their respective Departments for Human Development compute the
Index rates to relate their status with relation to human capital development,
and place themselves among nations that have higher human development as well
as nations with human development rates that are lower and medium and classify
themselves according to the same to gain perspective for further development.
The Goal of Development relates to the creation of conditions wherein people of
a nation can have lives that are healthy, long, better standards, productive,
sustainable and knowledge based. The development indexes for Human Resource are
considered to be one among the various key indicators relating to economic
progress and development for all nations and are noted to play important role
for development of their respective economies.
In order to further elaborate on this theme, a paper
authored byKhodabakhshi, studying the relationship between indexes of human
development with that of economic development context of India, which is a
developing nation, shall be detailed (Khodabakhshi, 2011). The significance of index of human
development leads in putting a review of the Indian economy. The changes in
trend for three of the development indexes relating to human resources over a
period of thirty years starting from 1980 until 2010 over the objective of the
research presented by author(Khodabakhshi, 2011). In the paper the author
considers the relationship among the Gross Domestic Product (“GDP” and three
different indicators / indexes relating to human resources with respect to
India. Further additionally, the author also evaluates relationship as well as
mutual impacts on account of all three of the indicators relating to
development of the human resources in context of the economy of India by
applying the computation formula that was presented by United Nations. The
indicator of GDP or the income was used as the dependent variable while three
different indicators, i.e., longer life, education and health are used as the
independent variables for this model of research by the author (Khodabakhshi,
2011).
The concept of human development as pioneered and
developed by an economist MahbubulHaq. This economist initially during his
tenure in World Bank during 1970s and subsequently as the minister in charge of
finance at his home country (Pakistan), he argued against the prevailing
measures relating to human progress that were failing due to the failure for
these measures in achieving the intended purposes of development in improving
the lives of people. In specific, this economist stated that measures that were
widely utilized, that is, GDP and related ones did not satisfactorily measure
the people’s well-being. In collaborating with Nobel Prize winning economist,
AmartyaSen, and various other eminent economists, Mr. Haq presented the initial
report on Human Development in the year 1990 that was commissioned and
published by United Nation Development Program. This model of human development
focuses on day to day experiences of the normal people, encompassing the
process relating to politics, environment, culture, psychology, legal, social
and economy. This initial index of human development (“Index of HD”) was
published in the year 1990. Since then, this publication has become a yearly
affair with respect to each of the report relating to human development after
that, ranking almost all of the nations across the globe. The Index of HD have
over years transformed to be one among the extensively applied indices relating
to well-being and on its purposes been effective for making broad the various
discussions and measures relating to well-being over and above the significant
yet still limited confines of the income factor. In addition to this, these
indexes also stimulated the nations in investing over collection of data with
respect to the well-being of the citizens and stimulated various nations in
striving to progress the respective rankings in terms of the index.
Thus, with respect to numerous initiatives for bettering
human development in terms of quality and inclusive public services in terms of
health care, education, infrastructure, etc., skill development is one of the
key tools. In India, the factor of
Education within the Index of Human Development shall illustrate that the index
has grown from a rate of 64.5 in the year to 68.3 in the year 2010. This
specific indicator has shown a growth that is good across the balance course of
the years. The Figure 1 illustrates the index growths of training carriers starting
from the year 2005 until the year 2010. On account of this, the index of
production per capita of the GDP has shown higher impact in the indicator. The
values illustrated in Table 1 with respect to the index in
relation to the period showing a list of the values basis on the chart in Figure
2 that illustrates trends in conditions of growth being better as
compared to various other indices.
As per the various results that are illustrated in the
Table
1 it can be seen to describe the Index of Human Development in the
context of India over the period of five years. As per the various values that
are procured with respect to indicators of development for India shown in Table
1, one can state that the index of education seems to have had the
biggest impact over the growth of domestic level Index of Human Development
next to that the index of GDP per capita seems to have higher level of growth
in terms of Index of Human Development. Even though the trends relating to
expectancy of life illustrate a growth, yet it seems to have an impact that is
lower than that of production index for GDP per capita over the index of human
development. The same is illustrated in Figure 3 showing the growth in Index
of Human Development in the context of India. These indexes are the measures of
the broader levels of the lives of people lives in the context of developing
nations. These indexes at initial stages of period were at 0.482 and later
towards the final stage of period had attained a level of 0.519. The highest
levels of increases in the indicators of human development in the context of
India across a period of five years until the year 2007 are relating to the
0.018 growth as against other years. Lesser growths are relevant for the growth
in the year 2008 and year 2009. The Table 2 illustrates yearly rates of
growth for each of three different indicators of human development and also
trends distinctively and further changes the Indexes of the Human Development
over the period of five years.
The findings in the India related paper discussed here
illustrates that for a per capita gross domestic based production index in case
of the Indian economy have had the better growth yet the impacts over other
various indicators of indexes of human development are relatively lower even
for certain indicators like that of expectancy of life have been not effective.
These outcomes illustrate that the Index of Human Development in the Indian
context is progressing over the down side. The index of growth has had a trend
that is decreasing starting from initial periods of the year 2009 and during
that least 0.012, yet attained the growth index of year 2010 was noted that the
situation flip reverse with attainment of 0.014. The ranking of India in the
global context was 119 in respect to index of human development.
Additionally the significance of skill development
initiative by government gains higher importance in recent times on account of
the increasingly dynamic environment, characterized by various other factors
like, (i) Globalization leading to liberalization and open economies causing
global market to be one single market resulting in unreliability of single or
few basic skills as a lifelong aid, (ii) Advancement in technology leading to
increasing automation thus necessitating constant skill upgrade for survival
and, (iii) The near transformation to digital based economy, bringing about
transformation to conventional state of job creation, job opportunities ad
eligibility criteria.
In light of this, in specific among developing
countries, it is imperative that an effective model for public funded/
supported skill development / training initiatives as a necessary tool for
economic growth is mandatory. One such initiative is the use of tax levies for
funding/ enabling training of individuals for skill development.
At the outset, the objective of this research is of two parts:
·
Undertake
a study of various levies based training model adopted across various countries
and their effectiveness / implication.
·
Based
on this study as input, develop a model that can be applied by developing
countries to effectively aid in the human capital development.
The research method shall employ a qualitative
approach to aid the study being undertaken.
·
A
case study approach to present the significance of robust tax systems and
capable administration.
·
An
exploratory approach shall be employed to undertake the survey of various
literatures, government publications, etc. to review the link between human
capital and economic growth, the various levies based training model and their
application across various countries, their implication/ effectiveness, etc.
·
A
survey among pre identified participants to assess the perception,
expectations, challenges, and implications in terms of various aspects of
levies based training schemes.
·
Based
on the data and insights collated from both exploratory and survey based study,
a detailed analysis shall be undertaken to devise a model that shall be
applicable in the context of developing countries.
3. Review
of the Literature
This section presents the various literatures relating
to the levies and affiliated model for promoting training for human
capabilities and skillsets development. The literature also reviews the various
models, their implications, relevance, etc, across various nations.
3.1. Literature
Survey
The
systems for training in various nations with developing economies are exposed
to efforts in striving to establish and setup strategies on ways for enhancing
their nation’s effectiveness as well as efficiency. While there could be
numerous significant factors for such type of strategy, one of key important
factor relates to that of planning and arranging the financing for such training
schemes. The most suitable policy for financing needs to make sure that both
steadiness / stability of the funding required for developing the essential
capacities for implementation of policy and the levels of the financing for
improving the outcomes of training schemes (World Bank, 1991). The claims over
resources of public nature towards vocational training schemes / education and
the training schemes are much lesser strong that in case of lower stages of
education among the most nations. In addition, in most of the countries with
developing economies, the budgets of the government encompass sources of the
financing towards training schemes that are unreliable and vulnerable. Hence
the significant goals in case of financing of this system of human capital
development is for increasing the contributions relating to the intended
beneficiaries, that is, both the trainees and employers.
In the paper titled “Training Levies- Rationale &
Evidences from evaluation”, the authors, Dar, A., Canagarajah, S., and Murphy,
P., assess one among the widely and extensively applied techniques towards
generation of the resources directly from the employers, that is, payroll
levies. Various set of nations have established policy to impose payroll tax
over corporates that have turned to be major sources for the financing of training
schemes for skillsets, at both institutions for specialized training schemes or
else at the corporates(Middleton et. al., 1993). The crucial principle over
schemes like these are that the individual benefitting has to pays for it – as
per the model for human capital that was developed in the year 1964 (Becker,
1964), though the costs of the completely broad training has fall over
trainees, the employers need share the burden of training costs that are firm.
The other rationale for schemes like these are general that a government
believe in it as the corporates are paying in the financial manner, these
interventions shall stimulate them for putting higher focus to upgrade the
skillsets for the work force and also turn them in being competitive. The taxes
over payroll are attractive in addition to the governments on account of them
providing the source of revenues that is sheltered towards training schemes and
also a mode to mobilize the funds, which could otherwise not be available for
the public sector (Atchoarena, 1996).
In case of this mode, there are models of mixed design
two of the predominant type of the payroll taxes to finance training schemes
are present for development and advancement of nations. In the more
conventional model, i.e., the revenue generating one, organizations are applied
taxes for generating revenues for financing training schemes that are offered
by way of public sector. In other alternate mode, that is, the levy grant or
else levy rebate model, in-plant training schemes provisions are supported by
offering organizations with incentives for training schemes. These models are
further elaborated in following passages (Bolina, 1996).
The Model of Revenue Raising
In the model of revenue raising, the revenues are
applied for building up the systems of national training schemes that offers an
extensive ranges of training modes like pre-employment training schemes and
in-service training schemes like that of the cases seen in countries like
Morocco, Brazil, etc. The focus here is over the training schemes provisions
from the public sector training schemes instead of support towards
organizations in undertaking the training schemes. The scope of these levies
also changes both at the levels of industries / sectors as well as the size of
the organizations. In most nations, these levies are limited with industrial
sectors of an economy, illustrating the restrictions over the various programs
that presented by establishments offering public training schemes, yet they
shall also encompass the various commercial sectors as well as in certain
instances it could be all encompassing (Dougherty & Tan, 1991; Gasskov,
1994; Tzannatos&Peresson, 2000). Conventionally smaller organizations (with
work force lesser than fifty) are exempted in participating with respect to the
levies.
The Model of Levy Disbursement
In various other nations, the payroll based taxes are
linked with the schemes of disbursement, with the organizations getting grants
that are proportional with the levels of the training schemes which the
employees shall undergo. The benefits of the model are that these tax proceeds
from the payroll are then utilized for encouraging organizations in either
setting up the programs for in-service based training schemes or else upgrade
the skillsets of the work force by purchasing the training schemes for themself
at any training center that is recognized, and later qualifying to avail
rebates to the extent of a specific per cent of the taxes that were paid. The
interventions wherein the taxes are related with the schemes of disbursement
take varying set of forms that involve exemption of payroll taxes, levy grants
or else reimbursements of training costs.
·
Exemption
of payroll taxes
Organizations
could bring down or else eliminate their respective obligations for levies to
the extent or scale of training schemes, which they offer or else purchase.
Herein there are assumptions that the organizations realize the extent of the
needs of required training schemes, they shall expend the funds over training
programs that are relevant and appropriate. Some instances of the nations that
have implemented tax models like this comprise France, Cote ‘d Ivoire, etc.
·
Reimbursement
of Training Costs
In
this model, the organizations are paid with grants basis the various costs that
incurred over specifically assigned modes of training schemes. All these models
generally stimulate approaches that are ad-hoc for training provisions, instead
of forcing firms in developing training programs that are systematic. Some
instances of the nations that have implemented this scheme comprise Singapore,
Malaysia and Kenya.
·
The
Model of Levy Grants
In
this model the grants are actually paid to the organizations on the conditions
that the criteria are being satisfied immediately on adopting the systematic
training approaches. By deliberating over the eligibility for qualifying to the
rebates of these levies, the schemes of levy grants drive the organizations for
acting in a systematic manner with respect to the various training programs.
Some instances of the nations that have implemented this scheme comprise
Hungary and South Africa.
The management and establishment of the schemes vary
nation to nation and based on the type of the model. In the model of revenue
raising the funds are generally gathered and then administered by government
based bodies / agencies with direct responsibilities for training schemes. In
the other end, nation or sector based funds are usually established by the
governments and / or else the workers and employers entities for administering
mechanisms of reimbursements and schemes of levy grants. The funds like these
gather levies and then decide over the process of distributing the grants for
training among the firms. The schemes of levy exemption conventionally operate
by way of the individual actions of the employers and are also guided by one
among Labor related Ministries, or else by way of agencies for national level
general revenues or the authorities of tax.
3.2. Theoretical
Framework
This
can be further explored by beginning to furnish the theoretical framework that
forms the basis on who holds the burdens over training related taxes as well as
the various conditions basis which the burdens of taxes are considered to be
fair. This is then followed by the evaluation of any prospective benefits and
the challenges of levies for revenue generation and the schemes for incentives,
and also the circumstance, which factor in the manifestations.
The Accountability on Bearing the Burden
The taxes for the purpose of financing the training
schemes rely over the enterprises and also are considered that this same
enterprise shall bear the burdens with respect to the levies, leading to making
the same seem to look fair. Yet on over whom the actual burdens finally fall,
that is, either the employers bearing the related costs or else do they pass it
over to their worker force in terms of low net of taxes wage needs to be
further explored.
The exact party who shall be bearing the extent if
shares over the burdens of the taxes rely over two of the factors, (i) The
levels up to which designs of the schemes of the training schemes differ from
what exactly the worker force shall have gone through for their need, (ii) To
the levels that few of the differences present among the prevailing schemes and
that the work force shall have decided by themselves, the contributions of
payroll shall be seen as the tax, the occurrence of the same shall rely over
the elasticity of the labor demands and supplies. Hence, if the training
programs financed by the firm are in exact what each of the worker shall have
decided on their own, that is, in case the worker wills and has ability for
paying the required training schemes, then these costs shall be borne in full
by the workers who shall willingly consent to wages that are net of full set of
tax contributions of payrolls. If, in the instances of more likelihood, the
various schemes are differing, then the burden of tax shall at the overall
level be mutually shared among the employers as well as the workers. The higher
levels of elasticity in relation to demands for the labor, all other conditions
remaining unchanged, the higher the proportion of the taxes that are burdened
by the work force; then higher levels of elasticity of the supplies of the
labor, all other conditions remaining unchanged, the vaster the proportion of
the taxes that are burdened by the employers. In actual that shall pay, that is
bearing the incidences, hence depend not over who all the taxes are levied
rather the designs of the schemes and actually relative powers of market held
by the worker force as compared to the employers (Whalley&Ziderman, 1989).
The various evidences arising from nations with
developed economies seem to indicate that the worker force bear the burden over
payroll related taxes. Hence, the issue has to be deliberated over the ways of
close training schemes advantages meet the individual payments of taxes are
made. To take an example, the manner of charging uniform levels of tax all
across board that is a common method that is used in largely most nations, when
the costs as well as the types of training schemes differ in a significant
manner by sectors, could result in the cross subsidization of overall work
force in certain sectors at expenses of the others. The other issue that has to
be deliberated relates to the aspect of training opportunities being equitably
distributed among the workers. The solution for the predicament rely over
aspect of the taxes being utilized for financing public training schemes or
driving training schemes at the job by the organizations, and also on the
various type of the training programs that are financed by way of taxes. To
take an example, in case of tax financing the training schemes in public
sector, the workers within firms that are exempted from taxes, for example
parastatals, could find some advantages from these training schemes with no
payment of the various costs that shall contribute over some of the inequities (Middleton
et. al., 1993). In similar manner, the issues of cross subsidization could
arise, if just in case of few work force in an organization are gaining
advantages from the training schemes. This then makes it necessary for
exploring the various potential benefits and challenges which could be
affiliated with the schemes of levy that are revenue generating and the schemes
of incentives (Ziderman& Adams, 2000).
The schemes of levy that are revenue generating are
considered to be one among the highly sheltered as well as robust / dependable
sources relating to financing of the public vocational educations was well as training
schemes in nations with developing economies, in specific are ones that face
significant challenges to mobilize the essential funds by way of other
alternates in their authority. The schemes could aid in advancing the
capacities in terms if national level training schemes and could aid in
financing the needs of training schemes over groups that are disadvantaged and
smaller employers. Though, schemes like these are also faced with adverse
challenges. It is more challenging in sustaining the interests of employer and
participating in the schemes, numerous employers consider respective
contributions as just the taxes. Usually in case of the public levels system
that are of lower quality, they consider that the levies which are being paid
is support of the inefficient supply driven and thus, not appropriate, systems
of public nature, and on certain cases it is also seen to be sidetracked by
local governments for usage apart from the training schemes. To take an
instance in the context of Brazil, the employers think that the centers for
public training schemes are not responsive to full extent for the requirement.
In addition, the schemes of revenue generation are costly from an
administrative perspective for putting it in action. They seem to bring about
bureaucracies that fail in effectively providing training schemes and
accumulating unwanted surpluses that are later in some occasion utilized for
expanding in the areas that are irrelevant for the demands of the employers. To
take an example in the context of Colombia, the training authorities (“SENA”)
have expanded in domains like that of training schemes, construction and
agriculture in case of the self-employed, that is services which are solely
loosely related to the requirements of the organizations which pay required
levies (Gasskov, 1994).
In case of systems like these in being sustainable,
they are in addition very crucial that the effectively working apparatus for
tax collection are in process and that the scale of the organizations is
relatively larger for the purpose of generating the revenues. This can be seen
as generally a major issue in various numbers of nations with backward or
developing economies wherein the mechanism of collecting taxes could never be
in operation. In relation, on account of the employers, in specific smaller as
well as medium sized organizations, could hold an attitude that is negative
with respect to the levies and could resist the tax paying, the group of the
organizations which pays are small in a significant way.
The key benefits of the levy schemes are the abilities
for promoting a higher extent of self-financed and employer based training
schemes. They could in addition contribute over the advancement of the culture
of employer based training schemes. The schemes such as this pave way for
management of the training schemes in
terms of quality as well as the profiles that are provided by the employers for
setting up the conditions which needs to be complied for the purpose of a
program of being eligible to be financed from the funding through levy based
models. The benefits which are evident as is the case of the Skill Development
Fund that is setup by Singapore wherein the amount of people who are trained
increased by a triple after its establishment and amount of organizations that
benefit from these funds have more than increased by a double since the year
1991 with the larger part of the training schemes being undertaken at the job
level.
Although, the flipside with the various schemes re
that the incentives could be not adequate for mobilizing extra training schemes
and subsequently, could lead to catastrophic losses, that is, the programs
which the employers could have deliver in any case end being funded /
subsidized by the government. Usually all the schemes could result to be a
bonus for the organizations that already hold training programs that are
well-established. In case of Singapore, for instance, all of the organizations
with employee strength of two hundred or much more had raised application for
the grants relating to training schemes as opposed to solely 25 per cent of the
organizations that have fifty employees or much lesser. In addition, the
process, procedures, etc. are generally very intricate and thus could
discourage firms of smaller size to file the claims (Edwards, 1997).
As per all these levies models, the organizations
could in addition hold the tendencies for implementing programs which implement
very little over and above complying with mandatory set of training related
requirements and thus could not result in carrying out any amount benefits that
are tangible. For the purpose of addressing the issue, the content as well as
the quality of the training schemes could be supervised. Although the same
could come with two challenges, both being problematic as well as expensive
(ILO, 1998). In some cases some of the supervisions are undertaken by the tax
authorities or relevant departments, which lack experiences that are adequate.
Higher quality in terms of supervision usually needs the formation of more
bureaucracy that can lead to other set of related costs as well as problems.
One other problem in case of the schemes is the employers fail to recover the
contributions in terms of levy contributions fully, as in most instances part
of these contributions are fueled back with authorities of national training
bodies or the training institutions for funding the training programs for
pre-employment individuals. In case of Mauritius, for instance, close to about
50 per cent of the recurring expenses for public training based institutions
were financed by way of payroll taxes that were raised by the schemes of levy
grants.
With this background, it is natural to survey the
discussions over the scope of the schemes related to levies across the globe
and observe at the evaluative proofs over the implications of the schemes.
Across the globe more than thirty nations have in
place or had in place schemes for levies over the recent years. The schemes of
levies for revenue generation are widely common across Latin American nations,
and the various other modes of schemes for levies are noted to be established
across various regions. Usually the rates of tax range between 0.5 per cent and
2 per cent of the overall payroll and generally continue to remain stable over
the time. Naturally the nations differ across the various sectors which are
covered by this tax model, with usually the public sectors as well as the
agriculture domains exempted from the same (Middleton et. al., 1993). Employers
of smaller size are in addition in some instances exempted from this coverage
as well. The Table 3 offers the data with respect to rates of taxes and the
types of funding models in few of the nations with both developed as well as
developing economies.
