Chapter One: 1.1. Background of The Study

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CHAPTER ONE

1. INTRODUCTION
1.1. BACKGROUND OF THE STUDY
Tax is the most source of government income. Taxes are imposed by government on taxpayer
based on their respective ability to pay without receiving any benefit in return. To administrate
and establish effective and efficient tax system in the country the tax unit must follow some
principle, rule and regulation. (Gebre Worku, 2006, p-1)

Every taxpayer in the country should be taxed according to his ability to pay and the time of
payment, the manner of payment, the quality to pay must be certain.

The tax levying and collecting system must be economical for the government. i.e., the amount
of collected and the cost collection must be proportional and the system should be simple to
understand and administer. (Gebre Worku, 2006, p-1)

1.2 STATEMENT OF THE PROBLEM


Any government provides good and service to the public like, police defense, hospital,
education, and other infrastructure facilities. In order to provide those good and service, the
government will enter expenditure to cover those expenditure government needs to collect
revenue. Government has different source of revenue. From that, revenue tax is the main sources.

Tax is a payment, which is paid by citizens to the government without expectation of direct
benefit to the amount paid. However, the problem is the most time occurs in tax levying,
collecting efficiency, luck of motivation of employees to collect the tax required and poor
awareness of the people to pay the tax. Therefore, the research will focus in assessing tax levying
and collecting system in Adwa town to answer the following questions;

 Are the people of Adwa town are voluntary to pay tax?


 What are the factors, which are consider in levying the tax?
 Are the employees of this town are motivated to collect the required amount?
 Is the collected tax can much with budget (estimated) tax revenue?

1.3 Objective of the study

1.3.1 General objective


The general objective of this research study will be to examine the tax levying and collecting
system in Adwa town.

1.3.2 Specific objective

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 To asses factor to be consider in levying the tax.
 To know the motivation made to employees to collect tax.
 To identify the main source (areas) for the for the tax revenue of Adwa town.
 To assess the awareness of Adwa town employee to collect tax.

1.4 Significance of the study


The significance of this research study was to give clue to the office how to improve its tax
levying and collecting system and the amount of tax revenue would collect. It would also provide
some point how to improve taxpayer participation towards tax. This research study would use as
reference for another researcher who make a research on this point.

1.5 Scope of the study


As tax is crucial source of revenue, it can be study in country level as well as regional level but
due to time and cost constraint the research would focus in assessing of tax levying and
collecting system in Adwa town.

1.6 limitation of the study


One research work cannot be found without problem. Some limitation of the study work would
be:

 lack of well prepared secondary data the sector


 shortage of reference material and information
 lack of enough time and financial resources like computers and internet accesses
1.7 Sources, type of data and method of data collection
For this research, both primary and secondary types of data were collected. The primary data was
collect using questioner and face-to-face discussion with the person who was select as a sample
to represent the total population.

Secondary data was obtained different documents and reviewing different record of the
organization.

1.7.1 Sampling technique


The samples used select from the employees of Adwa town tax collection office and the people
of Adwa town. Those samples were select using random sampling technique in order to give
equal chance for all employees (for sample of workers). 20% of the total population (50
employees)

10 employees of Adwa town who are 20% of the total population 50 were select as a sample
unit. 20% is considered more representative and 20% from all taxpayer.

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From workers 20% x 50=10 person

From tax payer 20 people

Total sample unit 30 person

1.8. Organization of the study


This research survey has four chapters. Chapter one deals about the introduction of the research,
attempt would make to introduce the general purpose of the study, the method of data collection
and analysis. In chapter two, it would try to organize different ideas, principle and rules from
different author’s books as literature review. In chapter three, finding during the research work
discussed and analyzed. Finally, in chapter four conclusion and recommendation are stated in
brief.

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CHAPTER TWO
2. LETREACURE REWIEW

2.1 DEFINATION OF TAXATION AND RELATED CONCEPTS


Taxation is a system of raising money to finance government service and activities. Government
at all level local, state and national-requires peoples and business to pay the taxes. Tax is
contribution to state revenue legally lived on person property or business.

Government can be finance their activities by borrowing, creating money or by obtaining


technical assistance from abroad and donation, but the major service of revenue to finance public
expenditure are taxes. It is compulsory contribution by people or organization to the government.

Taxes are as old as government. The general level of taxes has varied through the years; depend
on the role of governments. In modern times, many governments especially in advanced
industrial countries have rapidly expended their roles and take new responsibility. As a result,
their need for tax revenue has become great. (Gebrie Werku, 2006, p-1)

2.2 Principles of taxes


The pioneer economists Adam Smith who are argues for “Lassies fair” states four principles of
taxation which he called them as “canon of taxation”

2.2.1 The canon of equity


The canon of equity, equity or justice is the most important canon of taxation. Smith explained it
thus: “The subject of every state ought to contribute towards the support of the government as
nearly as possible, I proportion to their respective ability, that is in proportion to their revenue
which they respectively enjoy the protection of the state. “ It means that, every person should pay
the tax according to thus ability and not the same amount and should net pay of the same rate,
rather every person pay the tax in proportion to his income.

2.2.2 The canon of certainty


According to Smith, there should be certainty in taxation because uncertainty breeds corruption,
by the cannon of certainty he means that “the tax which each individual is bound to pay ought to
be certain, and not arbitrary. The time of payment, manner of payment, the quantity to be paid
ought all to be clearly and plain to the contribution and to every other person. “Thus this canon
refers there should be no element of arbitration in tax.

(Money Banking, International Tread and Public Finance, 2006, p, 770-771)

2.2.3 Canon of conveniences

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This canon lay down that both the time and manner of payment should be convenient to the
taxpayer. In the words of Smith, “every tax ought to be levied of the tame on the manner in
which it is most likely to be convenient for the contribution to pay. The payment of sale tax and
excise duty by the consumer is also convenient because the pays theses taxes when he buys
commodities and at a time when he has the means to buy.

2.2.4 The canon of the economy


Every tax should be satisfying the canon of economy in two ways. First, it should be economical
for the state to collect it. If the cost of collection in the form of salaries of tax officials is more
than what the tax bring as revenue, such tax is uneconomical, and hence it should not be levied.
Second, it should be economical to the taxpayers. It means that he should have sufficient money
left with him after paying the tax.

Now a day, Smith canon get wider acceptance and some other philosopher also are added
principles. Todaro tried to put factors, which determine the tax potential in to five categories
these, are;

1. The level per capital income (PCI)


2. The degree of inequality in the distribution of that income
3. The industrial structure of the economy activity (for example the importance of foreign
trade, the significance of the enterprises, the degree to which the agriculture sectors is
commercialized as opposed to subsistence oriented.
4. The social, political and institutional setting and the relative power of different group’s
landlords as opposed to manufactures trade union, village or district community
organization.
5. The administrative competences, honesty and interesting of the gathering branch of
government.
(Money Banking, International Tread and Public Finance, 2006, p, 771-772)

2.3 Tax evasion

A person who evades the declaration or payment of tax, commits an offence and in
addition to any penalty may be prosecuted and be subject to a term of
imprisonment of not less than five (5) years. If any amount of tax is not paid by the
due date, the person liable is obliged to pay interest on such amount for the period
From the due date to the date the tax is paid. The interest rate is set at 25% over
and above the highest commercial banks lending interest rate that prevailed during
the preceding quarter. A person who fails to file a timely return is liable for a
penalty equal to 5% of the amount of tax underpayment for each month (or portion
thereof) during which the failure continues, up to 25% of such amount. The

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penalty’s limited to 50, 000 Birr for the first month in which no return is filed.
(Www. bds-forum.net)
2.4 Tax structure
Tax structure is an exasperation of the relative incidence (burden of tax system on individual at
different economic levels. Generally, there are 4 types of tax structure such as progressive,
proportional, regressive and digressive.

1. Progressive tax structure


If the tax system is progressive, the proportion of income taken in tax (the tax rate) rises with
income or spending power. Here as the income or spending increases the marginal rate of tax for
the increased income or spending also rises. On other words, it is tax structure that deals with
people at higher economic level pays greater percentage of their income in the form of tax.

In developed countries, they owe a progressive income tax, for example US income tax in the
most progressive tax in the USA. Progressive tax the most equitable than regressive or
proportional taxes in the senses that they are lived according to the ability to pay. In Ethiopia
some of the progressive taxes are personal income tax of proclamation 30/1992 and 107/1994
and the rental income tax of proclamation No 64/1993. The income level will be categorized in
different income bracket and taxed by progressive rate.

2. Proportional tax structure


A system that taxes everyone at some rate, regardless of his/her income bracket, a proportional
tax rate is usually started as flat percentage of the base regardless of its sizes. Supporters of flat
tax argue that it gives people incentive to earn more, because they could not be, penalizing by
graduating to higher tax bracket. For example, the property tax usually operates with proportion
rate, the tax might be expressed as 1% of the assessed property sales, and excise taxes, payroll
taxes and most custom duties are lived on the bases of proportion rate.

This kind of taxes in Ethiopia are seen in the mining income tax proclamation No 23/1996 which
states that both lose and small scale minors shall pay 35% of their mining income.

3. Regressive tax structure


In this kinds of tax the marginal rate of tax decreased, as the income or consumption increases.
This tax is a large share of income from the low income tax payers than from the high income
tax payer. A tax which is technically proportional in term of the tax bases, can often be
considered regressive in terms of tax payers income common example of such regressive income
tax are sale tax, excise tax and property tax. For example, an excise tax or cigarette is based on
the No of cigarettes sold and this by definition is proportional since the number of cigarettes

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consumed may rise as income rise, however the rate of tax decrease with increasing income and
thus can be called regressive.

Most of indirect taxes are regressive, for example excise tax and sale tax; the same amount of tax
is paid per unit purchases. This the amount tax represents higher proportion of income to the
poor, some people argue that regressive tax encourages people to work harder to be elevated
above lower income group.

The following examples illustrative the relationship between tax structure (proportional,
progressive and regressive) tax rate.

Tax base (in birr) Tax Rate


Proportional Progressive Regressive
1000 10 10 50

2000 10 20 40

3000 10 30 30

4000 10 40 20

5000 10 50 10

(Gebire worku, 2006, p, 32-35)

4. Digressive tax structure

This tax structure is an alternative type of progressive tax structure, which is marked by a
steadily declining in the increasing rate of progressive taxes. (Gebrie worku, 2006, p-35)

2.5 Effective of taxation


Economists have devoted considerable export to studying the effects of taxes. In particular, they
study how taxes affect people’s behavior, including their choosing in working, saving and
investing.

To understand the effect of any tax, one must determine who bears the burden of the tax. The
way a tax affects people is called the tax incidences the statuary incidences of tax refer to the
individual group who must legal pay in contrast, the economics of a tax refers to its actually
effect s on people incomes. The economics incidences of a tax depends on how buyer and seller
of the commodity when the tax is imposed. It have also been used to reducing the inequality of
income and wealthy.

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2.5.1 Effect on the ability to work, save and invest
Taxation refer the money income from the public to the government and their by reducing their
purchasing power. The reduction in purchasing power reduces their ability to obtain necessity
luxuries of life.

Thus, the levies of tax on peoples reduce their competitions of necessities and comforts, which
lower the standard of living, when the standard of living is affected. This effect is strongly felt by
the poor people. However, the efficiency and ability of rich people is not so much affected by
taxation.

2.5.2 Effects of taxation on willingness to work, save and invest


Taxation affects the design of the people to work, saving invest. If the willingness of the people
to work, save and invest is affected by taxation, the production will automatically be affected. It is
universal recognized that direct taxes have more adverse effects all the willingness of the people
to work, save and invest.

It is all the ground psychology reaction of the people. That is when the higher progressive of
taxation is levied, the government takes the major of protection of the additionally income book.
This many create a trends in the mind of the people not to take risk to work, hard to earn a
manager income.

However, fair and justices tax system may not have any such bad effective on the willingness to
the work save and invest.

2.5.3 Effects of taxation on the divers of economic resources


Will the value of production of the encounter depend up on ability and willingness to a work,
save and invest, the patterns of production depends up on the allocation of economic resources
amount the industry and region and consumes. If the product certain industry are taxed, their
prices would rise and therefore, the demands for their product would reduce and there bathe
profits also Is reduced, this may result in the diversion of resources from this industries to some
other industries whose product is subjected to no tax or low rate.

If there is original imbalance with in the country, government can uses taxation to remove such
imbalance by tax examination and tax concession to investors who made investment in under
developed regions. The diversion may be beneficial diversion or harmful diversion. Taxation on
the commodities that has injuries to the health like cigarettes and liquid may discourage their
consumption, which in turn affects their production. The factors of production engaged in these
industries may be diverted some other industries. This is “beneficial diversion”. The taxation on
the goods of common consumption will increase their price.

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Hence may be diverted to the production of some other commodities which may be in the nature
of luxury or harmful to healthy, it is known as “harmful diversion”. (Public Finance, 7th edition)

2.6 Types of taxes


Personal finance decision is affected by variety of taxes-both direct and indirect tax-that
reduces funds available for other expenditure or saving. The amount of taxes paid and the type of
taxes affecting individual consumer. In general, in terms of the relationship between the nature of
taxes and the reason for payment, taxes classified as direct and indirect taxes.

Direct tax
According to Dalton, direct taxes are those, which are paid interlay by that person on whom they
are imposed. Direct tax are those taxes, which cannot be shifted others.

Direct taxes are:

A. Personal income tax


B. Rental income tax
C. Business profit tax
D. Agricultural income tax
E. Tax on dividends and chance wining
F. Rural land use tax
G. Personal income tax
H. Personal tax

Indirect tax
Indirect tax is a tax in which the burden may not necessarily be swallowed by asses, which
means indirect tax can be shifted on the other persons.

Generally, the tax incidence of the indirect tax is an ultimate consumer; however, sometimes
seller might absorb such indirect tax to be competitive in the market. This action reduces its
profit. Indirect taxes are:

I. Excise tax: levied in respect of goods produced locally and imported goods. Excise
tax should be paid within 30 days, after the month the production has been
produced.
II. Turnover tax: the turnover tax would be payable on good sold and services
rendered by person not registered for value added tax, which their annual taxable
transactions are under the total value of 500,000 Birr.
III. Value added tax is a tax on the value added to good and services by enterprises at
each stage of production and distribution process. (Gebire worku, 2006)

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2.7 Objective of taxation
Taxes are the primary source of government revenue through the proportion of tax revenue
varies among level of government. Taxes may be regulatory in either a microeconomics or a
macroeconomics sense. In the micro economic contexts, they may influence the consumption of
particular good or the utilization of productive resources. In the macroeconomics, fiscal policy is
directed toward achievements of the stabilization goods of the society. In addition to source of
revenue, the tax policy of nation enables government to stabilize economy, to distribute income,
to allocate resource and used to stimulate private sector.

A. Stabilization function

Stabilization of function of tax goes with allocation and fiscal policies of government. The
increase and decrease of income has an impact on supply of goods and services. This can be seen
on the basic economic indicator as increment or decrement of an employment, value of goods
and services or on saving and investment.

In general, collection of revenue and using it for different economic and social sectors is given
priority and the country expenditure should correspond with its revenue to reduce the risk of
instability.

The goal of stabilization includes in order combating the undesirable condition of recession or
depression stabilization may also be applied in the pursuit of price stability in order to prevent
inflation. It may be directed toward the promotion of economic growth and implement in the
nation’s balance of international payment

B. Income redistribution

Income redistribution is made on the pattern in which aggregates income or wealth is divided
among the peoples so government levy tax not only to cover public expenditure such as
policies ,law and justice, for other partial public service be such education and health and for
constructing infrastructures but government also levies tax for income redistribution. The public
sector budget plays an important role in the distribution of income one unique approach to
income distribution is to view it as public good.

C. Resource allocation

Government collects tax revenue and uses it to allocate the limited productive resources to be
available to the society. The unlimited of aggregate human wants along with limited resources,
which produce the economic goods capable of satisfying this wants, make it necessary to collect
resources.

D. Stimulation of privet sectors

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Privet sector involvement is very important in planning and development program in free market
economy. This can be achieved by exemption, deductable, transferring loses and by allowing,
other incentives to increase the participation of privet sector in the development program of the
country to initiate the individual investor the government provide tax exemption and other
incentives. (Income Tax Fundamental, 1st edition)

2.8 Tax reforms


The tax system reform project aims to create tax system that is more supportive of privet sector
development, improving revenue collection and ensuring equity and fairness of tax system. The
tax reforms that have been initiated will lay the foundation for the strengthened revenue base.

Continuing efforts to improve tax administration and collection including strengthening the large
taxpayer unit, have resulted in increase tax revenue. Reforms have sought to stream more
efficient, strength, and the collection of domestic indirect tax through selective rate increase and
burden the tax base. The tax reform greatly benefited the country in;

 Formulations of tax policy and legislation


 Introduction of presumptive taxation system
 Introduction of value added tax (VAT)
 Tax payer identification number system (TIN)
 Federal Inland Revenue Authority (FIRA)
 Operational program, system and procedures
 Continuing measures to stabilize the tax regime

There are a number of problems related to Ethiopia tax system to solve this problem tax reform
are necessary. The reason presently being for Ethiopia tax reforms include that the existing tax
system was:

 Old and lose tax legislation because of


 Economic structure has changed and fiscal federalism
 Not comprehensive and has no strong enforcement power
 Weak administration such as;
 Lack of modern operation system
 Provide inefficient services
 Open to unfair dealing with tax payers

Because of the above inefficiency service were given to taxpayers who discourage investment
and reduces the credibility of government by the societies. To attain sustainable economic
development radical’s change in domestic revenue should be made. Thus, tax reforms were taken
place with the objectives of increasing tax revenue and to have strong tax fiscal policy
instruments to encourage capital investment and economic development. The broad categories of

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the tax reforms are over having strong the tax system and improving tax administration. To
improve tax administration then following activity taxation:

1. Presumptive taxation
 Simplified and cost effective method
 Small business (hard-to-tax-groups)
2. Value added tax implementation-replaced sale tax
3. Computerized TIN (taxpayer identification number) system.
 Needs huge computerization
 Lay basis for modern tax administration system
 Gives identification number to tax payers
 Provide efficient tax operation service
 Help to control tax evasion
4. Operation programs, recognition and tax payers education
 Reorganization, better staffing, better salary for FIRA employees
 Production of audit and accounting manuals
 Education for tax payer

The present tax reforms are aimed at over having the tax legislation and improving the tax
administration. Thus, the new system improves tax revenues and changes capital investment by
insuring equity and fairness in the tax system. (Income Tax Fundamental, 7th Edition)

2.9 Tax Administration


A nation’s ability to collect tax for public expenditure programmers and to use the tax system on
a basis for modifying the distributions of personnel income will depend not only the enactment
of appropriate tax legislation.

The tax laws of United States are administrated by the internal revenue service’s (IRS) in
administrating the tax law, the IRS has responsibility for determining assessing and collecting
internal revenue tax and enforcing other provision of the tax law. The IRS is a division of the
treasury department, which intern is part of the administrative branch of the federal government.

The constitution of federal democratic republic of Ethiopia (FDRE) states that the federal
government and the states all collect taxes and shall share revenue considering the federal
arrangement. In exercising their taxing power, states and federal government shall insure that
any tax is relative to the source of revenue taxed and that is determined flowing proper
consideration. They shall insures that the tax does not adversely affect the relationship and that
the rate and amount of tax shall be common with services the taxes help deliver neither state nor
federal government shall levy and collect taxes on each other’s unless it is profit making
enterprise.

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An important contributing factor to week tax administration is the excessive complicity of tax
law makes. It both more difficult for tax payer to comply with the law if the wish to comply and
cashier for them to evade if it if they wish to evade complex tax laws and procedures make it
difficult to assess and collect tax as well as to follow up on compliance through audit.

Purely designed and implemented administrative procedures and methods, in adequate


management procedures which lead to pure use of staff resource in adequate facilities and lack of
political support can also undermine the fair enforcement of the tax codes and other directly
productive actively. ((Gebrie worku, 2006, p-42)

2.10 Category of taxpayer


Taxpayers are classified in to following three major categories:

1. Category “A” tax payer


2. Category “B” tax payer
3. Category “c” tax payer
1. Category “a” tax payer
In this category of taxpayers includes:

A. Any company incorporated under the law of Ethiopia or a foreign country


B. Any other business having an annual turnover of Birr 500,000 or more

Category “A” taxpayers are required to submit to the tax authority, at the end of year, a balance
sheet profit and loss statement and the following details:

A. Gross profit and the manner in which it is computed


B. General administrative expense
C. Depreciation expense and
D. Provision and reserves

In addition, these taxpayers should register with the tax authority the type and quantity of
vouchers they use before having such vouchers printed.

Any printing press before printing vouchers of tax payers shall insure that the type and quantity
of such vouchers is registered with the tax authority.

2. Category “B” tax payer


Unless already classified in category “A”, any business having an annual turnover of Birr
100,000 would be classified under category “B” taxpayer.

These categories of taxpayers should submit to the tax authority profit and loss statement at the
end of year.

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3. Category “C” tax payer
Unless classified in categories “A” and “B” those businesses who is annual for turnover is
estimated Birr 100,000 are classified under this category of taxpayers. (Www.bds-forum.net)

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Chapter Three

Data analysis and interpretation


3.1 Introduction

In this chapter there researcher made an attempt to analysis the data collection from the
respondent and present finding. Because of the information gathered from Adwa office of
finance and economic development employee and those who paid tax in the town analysis is
done.

3.2. Personal Information

Table 1 Demographic Distribution of respondents .

Description Number Percentage (%)


Sex
 Male 6 60%
 Female 4 40%
Total 10 100%
Educational Level
 High school completed - 20%
 Diploma 2 80%
 Degree 8
 Master and above -
Total 10 100%
Source: survey result

From the total respondent 60% of them are males and the remain 40% are females. In the above
table no 2 show that the education level of the respondents. Most of the respondents are degree
with 80% of respondents, and the remain 20% of the respondents are diploma. So this indicates
that the institution is advantageous being all of the respondents are diploma and degree, mean
that all respondents are experienced in terms of the activity they performed.

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3.3 Assessment of factor to be considered in laving tax

Table 2 Which type of problem do you face when you pay your tax liability

Question Total number of Percentage of

respondent responses

Which type of problem 20 Inefficiency of tax collector---


do you face when you 45%
pay your tax liability?
Discrimination------------------0%

Absence of tax collector-----10%

I don’t face any problem----45%

Source: survey result

From the information gathered through questioner, around 45% of taxpayers face problem of
inefficiency tax collector and the other 10% of face a problem absence of tax collector. The main
reason for inefficiency and absence of tax collector are lack of experience, knowledge, absence
of computerized conducting their jobs, absence of good management coordination and lack of
required labor.

3.4. To know the motivation made to employee to collect tax

Table 3 When do you pay tax liability

Question Total number of Percentage of

respondent responses

When do you pay tax 20 When I receive assessment


liability notification-------------------45%

Before due date-------------55%

After due date---------------0%

Source: survey result

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Concerning on the payment period of tax liability around 45% of the respondents pay their tax
liability when they receive assessment notification after due date where as the remaining 55%
pay their liability before dues date. This happened because of the following reasons:

 Absence of willingness and poor understanding about the tax by the taxpayer
 The amount they pay may be beyond their paying ability
 The bureaucracy of the office
 They do not know the type of tax they pay and also the time when they pay

According to Ethiopian constitution, both regional and federal government has the power to
asses and collects tax from the society. Thus, Adwa town administrations have the power to
asses and collect tax all income from employment, profit tax, excise tax and turn over tax from
individual business trading in the town

The office has the following duties and responsibilities.

 To execute tax policy of federal and regional government


 To introduce new method for the efficient revenue assessment and accounting system
within the town
 To purpose for new revenue resource and follow up when it gate approval by the
government
 To introduce new procedures and man values for the identification and registration of
taxpayers
 To advocate taxpayers in order to be aware of their duties and right and so on

Source: the office vision and mission statement

Table 4. To know the annual income of your business

Question Total number of Percent of responses

respondent

Do you know the annual 20 Yes---------------------------------------70%


income of your business?
NO----------------------------------------30%

Source: survey result

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From the above table-5, 70% of the respondents know annual income of their business. But most
of them have not accounting records. Thus, the office imposes tax liability based on authoritative
judgment. The reasons why they do not have accounting records are:

 When they need to evade tax burdens


 They may not have awareness about accounting records
Table 5 Is the tax payment period enough

Question Total number of Percentage of

respondent responses

Is the tax payment period 20 Yes-----------------------------40%


enough
No-------------------------------60%

Source: survey result

From the information gathered in the above table 7, 60% of the respondent states that the tax
payment period is not enough. The main reason for this problem is

 Lack of awareness about tax


 Lack of co-ordination between taxpayers and the office

Table 6 Do you know the purpose of tax revenue

Question Total number of Percentage of

respondent responses

Do you know the 20 Yes-------------------------------80%


purpose of tax revenue?
No--------------------------------20%

Source: survey result

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 From the abov24e table 8, 80% of the respondent said that they know their purpose of tax
revenue where as 20% of respondent do know the purpose of tax revenue. This due to
absence of awareness creation campaign in the office, lack of knowledge about tax
purpose in the taxpayers, etc.
Table 7 How do you consider the present tax levying and collecting system

Question Gender Total number of Percentage of


respondents respondents

How do you consider Male Female


the present tax levying 5 5 10 Have insufficient man
and collecting system? power----80%
It is efficient-------0%
Not organized---20%

Source: survey result

 Based on information gathered through questioner and personal discussion with tax
assessment and collection office employee around 80% of the re4spondent said the office
that in the office there is insufficient man power where as the other 20% of the
respondents said that it is not organized.
 The main reason for this problem is lack of required capital to hire new employee, low
scale of salary and motivation for the existing employee in the assessment.

Table 8 Is there any computerized way of the tax levying and collection system in the
organization
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Question Total number of respondents Percentage of respondents

Is there any computerized way 10 Yes ------------------------ 20%


of the tax levying and
collection system in the No ------------------------- 80%
organization
Source: survey result

From the above table 14, 80% of the respondents started that there is no computerized way of the
tax levying and collection system in the office where as the remaining 20% said that there is a
computerized way of tax levying and collection system, from this point the researcher can say
that there is no computerized system in the office. This is due to

 The office does not have the required financial resource


 Absence of skilled personnel
Table 9 Who is responsible for effectiveness of tax assessment and collection

Question Gender Total number of Percentage of


respondents respondents

Who is responsible for Male Female


effectiveness of tax
5 5 10 The policy-----0%
assessment and
collection Tax payers---40%
Tax office-----60%

Source: survey result

According to the information gathered 60% of the respondents said that tax officials is the
responsible body for effectiveness of tax assessment and collection where as the other 40% said
that the tax office, the policy and taxpayers are respondents said that the tax office is responsible:

 There to conduct perpetual capacity building to employees


 Failure to conduct perpetual capacity building to employees
 Lack of knowledge about who is responsible
Table 10 How do you present the taxation system

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Question Total number of Percentage of

respondent responses

How do you present the 20 Good --------------------------20%


taxation system
Not bad------------------------40%

Needs reform----------------40%

Source: survey result

 Even though around 60% of the respondents accept the present taxation system 40% of
the other respondents are not agreed on the structure. 40% of the respondent stated that it
needs reforms. The reform for the system is done when the system is not participatory;
there is discrimination in practice, the structure is not followed the stated principles, rules
and regulations.

Table 11 How do you Understand taxation

Question Total number of Percentage of

respondent responses

How do you 20 As an obligation---40%

Understand taxation As debt----------------

As useful---------------60%

Source: survey result

Responses of taxpayers in the above table 1, around 40% of the respondent understand taxation
as an obligation. This is due to poor understood and lack of awareness about the purpose and
concept of taxation.

Table 12 Do the taxpayers pay the tax liability on the time

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Question Total number of respondents Percentage of respondents

Do the taxpayers pay the tax 10 Yes ------------------------- 40%


liability on the time?
No -------------------------- 60%
Source: survey result

As indicated in the above table 15, most of the respondents 60% said that the taxpayers do not
pay their liability on time. The main reasons for this:

 Employee of the office do not have the knowledge how the office collect tax due to
lack of experience
 Absence of computerized system of doing their tax
 Lack of awareness in their taxpayers when they pay tax

Table 13 Does the office makes any structure adjustment to make their tax more effectives

Question Total number of respondents Percentage of respondents

Does the office make any 10 Yes ------------------------- 20%


structure adjustment to make
their tax more effectives No -------------------------- 80%

Source: survey result

From the above table 16, 80% of respondents said that the office does not make any structure
adjustment where as the remaining 20% said that the office makes any structure adjustment to
make the tax efficient. This Due to:

 Lack of good management system in the office


 Lack of skilled man-power

3.5. To identify the main source (areas) for the tax revenue of Adwa town

Table 14 How do you levying tax on the taxpayers

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Question Gender Total number Percentage of respondents
of
respondents

How do you Male Female


levying tax on 7 3 10 Using authoritative judgment---20%
the taxpayers? Analyzing the financial statement--80%
As the taxpayers want------0%

Source: survey result

From the above table 11 around 80% of employee said that when levying tax they analyze the
financial statement of taxpayers.

Whereas 20% of respondent said that using authoritative judgment. However, they provide their
comment in the space provided most of time use authoritative judgment. These problem results
from the taxpayer are not willing to prepare the financial statement.

3.5. To assess the awarness of Adwa town employee to collect tax


Table 15 How do you evaluate the co-ordination of your offices with other employee of
the organization

Question Gender Total number of Percentage of


respondents respondents

How do you evaluate Male Female


the co-ordination of 4 6 10 Excellent--------20%
your offices with other Very good-------60%
employee of the Good-------------20%
organization?

Source: survey result

As shown in table 12 above, 60% of the respondents states that the co-ordination of the offices
with other employee are very good , 20% it is good but 20 %is excellent.

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Table 16 Do you think that the present tax structure initiate the people to save, worth and
investment

Question Total number of Percentage of

respondent responses

Do you think that the present 20 Yes-------------------------60%


tax structure initiate the people
to save, worth and investment? No-------------------------40%

Source: survey result

Based on information gathered through questionnaires in the above table 60% tax payers
agree on the present tax structure initiates people to save, work and investment. But the other
40% do not agree with this idea. This due to

 The office does not consider the new taxpayers ability to pay tax
 The office does not give any supporting things for the new commerce in the business
like tax cancelation

Table 17 Do you believe that you annual tax liability is based on your income

Question Total number of Percentage of

respondent responses

Do you believe that you annual 20 Yes-----------------------------60%


tax liability is based on your
income? No-------------------------------40%

Source: survey result

From the information gathered through ‘Yes’ or ‘No’ question, around 40% of the respondents
believe the amount of their tax liability is not based on their ability to pay tax. The reasons for
such problem are:

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 Their daily save is estimated over and above their income
 The taxpayers do not have accounting records
 The limitation of the business
 They have low attitude towards tax by taxpayers
 The office does not properly analyze the ability of taxpayers or office may have a corrupt
official that judge the amount of tax and payment.

CHAPTER FOUR

CONCLUSION AND RECOMMENDATION

4.1 CONCLUSION

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A government a large no of social activities to the society and finance these social activity
expenditure using different source of revenue. Generally

Taxation is the system of rising money to cover government expenditure. It is compulsory


payment made by taxpayers to government in accordance with some established criteria. The
basic distinction between tax and other source of revenue is compulsory elements involved in
taxation the objective of tax are strongly related with overall economy and non economic activity
of government in fiscal year. As a result, the object of a tax system in developed country tends to
be different from those in underdeveloped country.

In addition to generating revenue, taxes have the following uses:

 Distribution function
 Resource allocation
 Stabilization function
 Income redistribution
 Discourage consumer’s from consuming non essential goods

Encourage consumption of essential goods

Nowadays, Ethiopia’s tax structure composed of two types of taxes such as direct and indirect
taxes. The current tax law and regulation divide taxpayers in to three categories; category “A”,
category “B” and category “C” based on values of sales and from of business organization.
Excessive tax rate, poor quality of tax administration, frequent change of policy, and lack of
update information and absence of computerized ways of conducting works leads to negative
economic changes. In addition to this the above mentioned weakness open an opportunity from
corruption and any taxes tend to discouraging investment and discourage working environment
of the sociality.

This research survey tried to see know Adwa office of finance and economic development
system of tax levying and collecting. On the analysis part of this study, a number of problems
arise in tax assessment and collection system.

Based on the data gathered, there is inadequate worker’s in tax office. The numbers of
employees available in the office are not through to provide the service as compared to the
number of taxpayers, absence of computerized ways of doing their jobs make their works more
complicated, poor management coordination and lack of capacity building program.

As per the data gathered, the taxpayers due to poor understanding about tax most of them do not
know why they are paying taxes, what type of taxes are affected from them, when they pay their
tax liability, they are not willing to prepare financial statement and luck of awareness about the
rule and regulation of tax.

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For all problems mentioned above any efficient and proper tax, administration is required.
Beside to those tax office should be equipped with a new technology, should have adequate
skilled human resource and awareness creation campaign.

4.2. Recommendation

For better improvement of tax assessment and collection, system or responsible body should
work hand in hand together. To enhance the tax levying and collecting system in Adwa town the
researcher made an attempt to give recommendation that help to have an efficient and proper
ta assessment and collection with prevalence of clear rule and regulation and solve problem
associated with tax assessment collection performance

 Recommendation regarding to the problem are;


 For efficient tax system active participation of taxpayer’s. To have these active
participation taxpayer’s must have good understanding about taxation .In order to
create this understanding the office should prepare pamphlet that describe the purpose
of tax revenue, establish awareness creation campaign and make discussion with
taxpayer’s about the tax
 Manpower required in an organization should be give more attention .Because if there is
lack of employees with required qualification and qualification and experience the work
does not complete at the right time. Therefore, to strength there capability and improve
the effectiveness in the work place, the office should provide training for employees, the
opportunity of education for low level employees and capacity building programs should
be establish.
 Nowadays, users of computer have increased from sample to complex work area to
make their work more sample and effective.
 One ways of canceling tax is making sale without invoice and use of illegal invoice and
unwillingness to prepare financial statement. Therefore, to solve such problems the
office should make collaboration with the town administration to control such illegal act
and give capacity building for those taxpayers who do not have financial statement
about accounting records.
 To correct the policy failures government should adopt series of tax reform measures,
focusing on;
 Broadening the tax base
 Improving and modernizing the revenue collecting institution

Therefore, the office must establish good tax administration, and taxpayers must receive clear,
concise and up to date information that describing what is to be taxable, how to calculate their
tax liability. In addition, forms and procedures for calculating paying taxes should be as simple
as possible.

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