Research On Taxation Practice

AN ASSESSMENT OF TAX COLLECTION PRACTICES IN (CASE OF CATEGORY
“A” TAXPAYERS) IN DIRE DAWA ADMINSTRATION AT KEBELE O3
RIFT VALLEY UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
A RESEARCH PAPER SUBMITTED TO DEPARTMENT OF

ACCOUNTING FOR PARTIAL FULFILLMENT OF BA DEGREE IN ACCOUNTING
PREPARED BY:-
Name ID
1. Ebsa Mohamed 0037/18
2. Bahar Yahya 0027/18
3. Abdumalik Abdella 0010/18
4. Aster Sintayehu 0024/18
5. Betelhem Mitiku 0032/18
ADVISOR:- ********
July, 2021
DIRE DAWA, ETHIOPIA
0|Page
ACKNOWLEDGEMENT
First we would like to thanks to the almighty God/ALLAH for granting us great guidance,
energy, wisdom and academic intellect which enabled us to accomplish this study.
Second our deepest appreciation and thanks go to our Advisor, Instructor HHHHH, for his
constructive suggestions, right criticisms and guidance that helped us stay on course and to
finish this study.
Special thanks to our colleagues and a number of people who contributed greatly to
completion of this research and our deepest gratitude to category ‘C’ tax payers in Dire Dawa
city kebele 03 and tax collectors branch of kebele 03 who helped us to administer
questionnaires and interview, and to all the respondents who patiently bore the displeasures of
completing the questionnaires.
Finally we would like to thanks our parents and family those who supported us morally and
financially to finish this study.
i|Page
TABLE OF CONTENTS
ACKNOWLEDGEMENT............................................................................................................i
LIST OF TABLE........................................................................................................................iv
LIST OF ABBREVIATIONS.....................................................................................................v
ABSTRACT...............................................................................................................................vi
CHAPTER ONE..........................................................................................................................1
1. INTRODUCTION.................................................................................................................1
1.1 Back Ground of the Study...........................................................................................1
1.2 Statement of the problem............................................................................................................2

1.3. Research questions......................................................................................................................3
1.4. Objective of the study..................................................................................................................4
1.4.1 General objective.......................................................................................................................4
1.4.2 Specific Objectives......................................................................................................................4
1.5. Significance of the study..............................................................................................................4
1.6. Scope and limitation of study.......................................................................................................4
1.7. Organization of the paper...........................................................................................5
CHAPTER TWO.........................................................................................................................6
2. LITERATURE REVIEW.........................................................................................................6
2.1 Theoretical Review of Tax Administration.....................................................................................6
2.1.1. Legal Structure for Effective Tax Administration.......................................................................6
2.1.2 Importance of Tax Administration..............................................................................................7
2.1.3. Tax Administration Challenges...................................................................................................7
2.1.4. Efficiency of Tax Administration................................................................................................8
2.1.5. Service Commitments of Tax Administration....................................................................9
2.1.6. Resource Cost (Collection Cost)........................................................................................9
2.1.6.1. Administrative Cost...........................................................................................................9
2.1.6.2. Compliance Cost..............................................................................................................10
2.1.7. Tax Evasion, Avoidance and Compliance........................................................................10
2.1.7.1. Tax Evasion and Avoidance.............................................................................................10
2.1.7.2. Tax evasion......................................................................................................................11
2.1.7.2.1. The Vulnerability of VAT to Evasion and Fraud.............................................................11
ii | P a g e
2.1.7.2.2. Determinants of Tax Evasion.........................................................................................12
2.1.7.3. Tax Avoidance.................................................................................................................12
2.1.7.4. Tax Compliance and Voluntary Compliance....................................................................13
2.1.5 Tax Assessment........................................................................................................................13
2.1.5.1 Procedures for Tax Collection..........................................................................................14
2.1.5.2 Identification and Registration of Taxpayers.........................................................................14
2.1.5.3 Filing Returns.........................................................................................................................14
2.1.5.4 Returns Processing................................................................................................................14
2.1.5.5 Payment of Taxes...................................................................................................................15
2.1.5.6 Audit and Examination..........................................................................................................15
2.1.5.7 Collection and enforcement..................................................................................................16
2.2 Empirical literature review...........................................................................................................16
CHAPTER THREE...................................................................................................................19
3. RESEARCH METHODOLOGY.......................................................................................19
3.1. Research Methodology..............................................................................................................19
3.2. Research Design.........................................................................................................................19
3.3. Types and Sources of Data.................................................................................................19
3.3.1. Primary Data..........................................................................................................19
3.3.2. Secondary Data.......................................................................................................19
3.4. Method of Data Collection.........................................................................................................20

3.5. Target Population and Sampling Method...................................................................................20
3.5. 1. Study Population...................................................................................................20
3.5.2. Sampling Method...................................................................................................20
3.6 Data Analysis...............................................................................................................................21

CHAPTER FOUR.....................................................................................................................22
4. RESULTS AND DISCUSSION.........................................................................................22
4.1. Background information..............................................................................................................22
4.2. ERCA Kebeles 03 Small Tax Payers Branch Office............................................................23
4.3. Data analysis...............................................................................................................................32
CHAPTER FIVE.......................................................................................................................36
5. CONCLUSIONS AND RECOMMENDATIONS.............................................................36
5.2. Conclusions.....................................................................................................................36
iii | P a g e
5.3. Recommendation............................................................................................................37
6. REFERENCES...................................................................................................................39
LIST OF TABLE
Table 3. 1. Probability proportionate to sample size________________________________21
Table 4.1: Response rate______________________________________________________23

Table 4.2: Gender of respondents______________________________________________24
Table 4.3: Respondents’ age distribution__________________________________________24

Table 4.4: Respondents’ educational level________________________________________24
Table 4.5: Respondents’ work experience_________________________________________25
Table 4.6: Respondents’ legal form of their organization_______________________________25
Table 4.7: Year of organization establishment of the
Respondents_______________________25
Table 4.8: Respondents’ business sector_______________________________________________26
Table 4.9: Respondents average annual revenue (in Ethiopian

Birr)________________________27
Table 4.10 Summary of respondents’ tax perception___________________________________28
Table 4.12 responses related to cash register machine.________________________________28

4.13. Summary of respondents’ response on tax evasion______________________________30
Table 4.14.Summary of Respondents response related with penalty

_______________________________________________________________________________32
iv | P a g e
LIST OF ABBREVIATIONS
CCRA: Canada Customs and Revenue Agency CPF: Counter Part Fund
DBS: Direct Budget Support
ERCA: Ethiopian Revenue and Customs Authority GDP: Gross Domestic Product
GTP: Growth and Transformation Plan IMF: International Monitory Fund
MoFED: Ministry Of Finance and Economic Development MDG: Millennium
Development Goals
MBA: Masters of Business Administration SAS: Self Assessment System
SIGRAS: Standard Integrated Government Tax Administration System SIRMS: Standard
Integrated Revenue Management
TIN: Tax Identification Number VAT: Value Added Tax
v|Page
ABSTRACT
Governments of developing countries endeavour to create modern tax systems. However
most of these developing countries are burdened with weak tax administration and tax
payers’ resentment towards taxes. Tax payers’ resentment and hence non compliance may
be due to tax payer’s perceptions about the tax administration and other aspects of the tax
system. Following Growth and Transformation Plan (GTP) government of Ethiopia has
introduced a new era in social and economic areas of the country. It has been observed that,
along with this growth there has been an increased government spending and deficit
financing. It is believed that modernizing tax system and broadening tax bases promotes
economic growth by encouraging saving and investment. The goal of this study is to
investigate Tax assessment and collection challenges and causes with regard to category “A”
tax payers found in Kebele 03. The researcher distributed self administered semi structured
questionnaires to tax payers and selected tax officers. The study was based on descriptive
analysis. The findings indicated that there exists inefficient and insufficient number of tax
assessment and collection officers in relation to number of tax payers in the Kebele.
Moreover, most tax payers lack sufficient information of tax assessment procedure
applicable rules and regulations, lack of clear, transparent and up-to- date information and
training on new technology. Furthermore, tax officers are non motivated, lacks adequate
skills, lack of audit flow up and prompt decision. Due to this and other reasons identified in
this study, non compliance, evasions and corruption are increasing in the system.
vi | P a g e
CHAPTER ONE
1. INTRODUCTION
1.1 Back Ground of the Study
Tax is defined as a "a compulsory contribution payable by an economic unit to a

government without expectation of direct and equivalent return from the government for
the contribution made ” (Bhatia, 2003).
Tax administration refers to the identification of tax liability based on the existing tax law, the
assessment of this liability, and the collection, prosecution and penalties imposed on
recalcitrant taxpayers. Tax administration, therefore, covers a wide area of study,
encompassing aspects such as registration of taxpayers, assessments, returns processing,
collection, and audits (Kangave, 2005).
Tax administration therefore, should aim at improving on laws regarding the registration,
assessment, collection revenue, and exploiting fully taxation potential of a country (World
Bank, 1991). Taxes are the primary sources of government Revenues. Whereas taxation
polices depend on the socio-economic and political structure of country .In Ethiopia, taxation
come in to being with the emergence of state and government but there is no concrete
documentary evidence as to when taxation was exactly introduced.
According to the new constitution of Ethiopia, the Federal Democratic Republic of Ethiopia
would comprise a federal state and member states, in which both organs shall have their
respective legislative, executive and judicial powers. A number of changes have been made in
the tax policy of the country pursuant to the structural changes. The new tax reform program
and restricting hand two broad categories aimed at over having the tax legislation and
improving the tax administration. In line with this, the proclamation and regulation that cover
tax payables on business undertaking are the statutory bases for income tax assessment and
collection. As compared to the previous ones, the current proclamation reduced tax rates on
business income as a measure of the tax reform program in progress. The reduced tax rate is
believed to serve as an investment incentive.
Ethiopian Revenue and Customs Authority (ERCA) is the body responsible with taxes at
federal level .In Dire Dawa, there are different tax administrators. The authority conducts
1|Page
investigation, audit and prosecutes offenders. In the attempt to discharge its
responsibility, the authority closely works with the Federal Police, Standardization
Authority, Ministry of Health and Immigration Service and with other stakeholders.
Category "A”, shall include any company incorporated under the laws of Ethiopia or in a
foreign country, for example Private Limited Companies Share Companies and any other
business having an annual turnover of Birr 500,000 (Five hundred thousand Birr) or more.
Dire Dawa City Administration is located in the eastern part of Ethiopia. It occupies a total
area of 1559.02km2 with a total population estimated to be 412,333 according to Dire Dawa
Administration Statistical abstract. The city is the, one of the two chartered cities (aste dader
akebabi) in Ethiopia and 515km far away from Addis Ababa. The administration is divided
into 38 rural kebele and 9 urban kebele. Regarding its boundary, it shares borderline with East
Hararghe zone of Oromia region and Shinle zone of Somali region.
The study focus is on category “A” taxpayers that are found in Dire Dawa specifically at
kebele 03. This category is required to maintain proper books of account and other necessary
documents for tax purpose (council of Ministers, 2002). There are about 2,083 taxpayers in
Dire Dawa in the year 2008 e.c. of which category A, B and C accounts for 160, and 877 and
1,056, respectively. On the basis of the above background, this study is initiated to examine
the challenges of Category “A” taxpayers found in Dire Dawa specifically at kebele 03.
1.2 Statement of the problem.
To finance its expenditures a government may acquire fund from the service given by the
government, tax, loan and donation. From all sources of finance, tax is the major source. In
principle, government could use both domestic and external sources of finance that a
country can tap to finance the deficit. The government collected significant amount of
revenue including grants, which could not fully finance the total expenditure.
Ethiopian government revenue and grant performance during 2010/11 was Birr 85.6 billion.
This accounted for over 99% of the annual budget and showed a 29.2% increase from the
previous year. Out of the total resources, Birr 69.1 billion was collected from domestic sources
(104.5% of the annual budget), while the grant component amounted to Birr 16.5 billion. The
grant component was less than the planned amount (82.5%), although there was some
improvement from the previous year. During 2010/11, domestic revenue collection and tax
2|Page
revenue increased by 28.3% and 36% respectively compared with the previous year. As a
share of GDP, the total domestic revenue collection accounted for 13.5% which was
lower than that of 2009/10 (which was 14.1% of GDP).
Following Growth and transformation Plan (GTP) government of Ethiopia introduce a new era
in social and economic relations and institutions in the country. Along with this growth, it has
been observed that there has been an increased government spending and deficit financing. It is
believed that modernizing the tax system and broadening the tax bases promotes economic growth
by encouraging saving and investment. Furthermore, due to the great encouragement and
conducive environments like investment opportunities created by the Ethiopian government,
new firms are emerging surprisingly, As a result of these developments; the existing system of
income tax needs to be adjusted to the basic principles of fiscal treatment in a free market
economy. However, the amount of tax revenue for the government is not increasing
proportionately so often a decreasing trend was observed. Accordingly, huge unfavorable
variance is observed in the performance report. Consequently, huge amount of money that should
have been paid is not really collected by the government, which could have been used to meet the
various objectives of a government. Moreover, the prevalence of such significant deficit
demands the government to improve internal revenue generating activities to reduce
dependence on foreign funding. Tax administration has to secure compliance with the laws by
applying an array of registration, assessment and collection procedures. Tax administration
should aim at improving on laws regarding the registration, assessment, collection revenue,
and exploiting fully taxation potential of a country.
Therefore, identifying the problems on tax assessment and collection at each tax office
helped the government to take corrective action when needed so as to boost its income.
Accordingly, this study tries to identify the problems on the tax assessment and collection
activities of the Dire Dawa specifically at kebele 03 revenue administration.
To this effect, the research attempt to answer the following questions.
1.3. Research questions
1. How effective and efficient is tax assessment and collection system for category ’A’ tax
payers in Dire Dawa specifically at kebele 03?
2. What problem or challenges are there which impede tax assessment and collection at Dire
Dawa specifically at kebele 03?
3|Page
3. What policy interventions are needed to rectify these problems?
1.4. Objective of the study
Based on these research questions we have determined the objective of this paper is as
follows.
1.4.1 General objective
The general objective (purposes )of this research paper is to investigate the problems facing
tax payers and tax collecting party in the assessment of tax collection practices pertaining to
category ‘’A’’ tax payers in Dire Dawa specifically at kebele 03.
1.4.2 Specific Objectives

The problems explained in the statement of the problem leads to describe the following
specific objectives.
 To assess effective and efficient is tax assessment and collection system for category ’A’
tax payers in Dire Dawa specifically at kebele 03.
 To identify problem or challenges are there which impede tax assessment and collection
at Dire Dawa specifically at kebele 03.
 To know policy interventions are needed to rectify these problems.
1.5. Significance of the study.
The findings of this study give clear understanding of what problems are there and how those
problems were handled by both tax payers and Administrators. Thus, the governments enable to
adopt a comprehensive strategy, and minimize the observed tax administration problems to
increase tax revenue. At the end of the study a clear picture emerges showing the tax assessment
and collection is taking place. The revenue bureau uses this finding to revise its strategies
concerning tax assessment and collection. Furthermore the results of finding serve as a reference
for other researchers on this area.
1.6. Scope and limitation of study
The study is limited to category “A” tax a payers which are found in Dire Dawa specifically at
kebele 03 and data collection is also addressing only 45 employees of the office and 50 tax
payers.
4|Page
1.7. Organization of the paper
The paper composed of five chapters. The first chapter deals with the introduction of the
study, which consists of background of the study, statement of the problem, research question,
objective of the study , significance of the study, limitation of the study, scope of the study and
organization of the paper. Chapter two is review of literature that is presented under the title.
The third chapter describes methodology of the study. The analysis and interpretation of data
is under chapter four and the last one is chapter five which includes summary, conclusion and
recommendation part of this paper.
5|Page
CHAPTER TWO
2. LITERATURE REVIEW
2.1 Theoretical Review of Tax Administration
Tax administration refers to the identification of tax liability based on the existing tax law,
the assessment of this liability, and the collection, prosecution and penalties imposed on
recalcitrant taxpayers. Tax administration, therefore, covers a wide area of study,
encompassing aspects such as registration of taxpayers, assessments, returns processing,
collection, and audits (Kangave, 2005).
The low revenue yield of taxation can only be attributed to the fact that tax provisions are
not properly enforced either on account of the inability of administration to cope with
them or on account of straight forward collusion between the tax administration and
taxpayers.(World Bank, 1999).
2.1.1. Legal Structure for Effective Tax Administration

The legal rules required for effective tax administration might be categorized under four broad
headings: Rules for the establishment of an individual’s tax liability; Rules establishing a
system of appeals from the initial assessment of tax; Rules for the collection of taxes that
have been established to be owing; and Rules relating to tax offences and their punishment
The importance of a sound legal structure for effective tax administration and the
importance of incorporating principles that will further tax compliance in the design of
that legal structure. Since each stage of the administrative process is dependent upon the
other, to achieve a significant improvement in the overall effectiveness of the tax
administration each element of the legal structure needs to be designed for maximum
effectiveness (Asian Development Bank, 2001).
In addition to the legal structure for tax administration, obviously, the organizational
structure of the tax administration is also of crucial importance. According to the Asian
Development Bank, 2001, the range of issues that must be resolved, in this regard,
include: Agreement of autonomy from the executive branch, Accountability to legislative
assembly, Relationship to the Ministry responsible for the tax legislation, Type of
organization structure in relation to taxes administered, Decentralization, Personnel
policy, Policies for internal audit and Mission statement and strategic plan
6|Page
2.1.2 Importance of Tax Administration
According to Asian Development Bank, 2001, tax administration dictates tax policy.
Indeed, tax administration and compliance issues determine the broad evolution of tax
systems. The shift in industrialized countries over a century ago from reliance on excise,
customs and property taxes to corporate income and progressive income taxes can be
explained, in large part, by the relative decline in the rural sector, the concentration of
employment in large corporations and the growing literacy of the population. In recent
years, the shift away from these taxes - corporate income and progressive individual
income tax - and toward tax systems that rely more on broad-based consumption taxes
such as the value-added tax, flatter rate structures, and the adoption of “dual income
taxes,” in which a progressive tax on labor income is accompanied with a low flat-rate
tax on capital income, as adopted in certain Scandinavian countries, can be explained, in
large part, by the forces of globalization and developments in financial innovation and the
inability of tax administrators to develop technologies to cope with these forces and
developments (Asian Development Bank, 2001).
As a preliminary step to developing a successful strategy for the reform of a revenue
agency, the “Tax Policy and Administration Thematic Group” of the World Bank has
developed a useful diagnostic framework for revenue administration. It includes a
description of quantitative indicators and indicators of effectiveness and efficiency that
might be used to get a general idea of the physical dimensions of the revenue
administration and how effectively and efficiently it is currently performing its functions
and where performance problems might be acute. It also provides a framework and checklist
of questions relating to all aspects of revenue departments operations,
environment, resources, history, organization and management functions and informal
culture that can be used to assess its operations and diagnose its failings (Asian Development
Bank, 2001).
2.1.3. Tax Administration Challenges
The efficiency of a tax system is not determined only by appropriate legal regulation but
also by the efficiency and integrity of the tax administration. In many countries,
especially in developing countries, small amounts of collected public revenue can be
explained by either incapability of the tax administration in realization of its duty, or
7|Page
with some degree of corruption. Regardless of how carefully tax laws have been made,
they could not eliminate conflict between tax administration and tax payers. Tax
administration with a skilled and responsible staff is almost the most important
precondition for realization of "tax potential" of the state. It is generally known that tax
laws and tax policy are as good as good is the tax administration (Kaldor, 1980).
Tax administrators face a formidable number of challenges in every country. In many

developing countries tax administration reforms are needed simply to achieve
macroeconomic stability. In countries with economies in transition there is a need to
establish a tax administration that can respond to the demands of a growing market
economy and the resulting increase in the number of taxpayers.
Most developing countries continue to face serious problems in developing adequate and
responsive tax systems (Richard, 2008). No matter what any country may want to do with
its tax system, or what anyone might think it should do from one perspective or another
(ethical, political, or developmental), what it does do is always constrained by what it can do.
Economic structure, administrative capacity and political institutions all limit the range of tax
policy options (IMF 2006).
2.1.4. Efficiency of Tax Administration

The key precondition for efficient tax administration is tax structure with minimizing
distortions, strictly tax exemptions and elimination of the differences in tax treatment
of particular parts of economy. This will mean extending the VAT to all but a few
goods and services (notably export, which should be zero - rated, and banking and
insurance services, where it may be difficult to determine the amount of value added to be
taxed) (Hesse, 1993).
Effective tax administration in a market economy is based on voluntary compliance by a
large number of decentralized taxpayers. Most transition economies have only recently
started to address compliance issues and build up a modern tax administration with better
overall revenue performance. A first step is restructuring how the work is organized. In
transitional countries, tax administration can be organized respecting the functional
principle (collecting, recording, auditing, and enforcement) according to the type of
taxpayers; the type of taxes; and type of enterprises in economy. Tax administration
8|Page
should develop around activities (such as recording or auditing), as in Hungary, rather
than according to the type of tax and taxpayers. More generally, tax payment needs to be
assessed, collected and recorded more efficiently. Improving Tax Administration
In reform of tax administration the importance of tax structure is clearly reflected,
because tax administration and tax structure are interconnected and they have to be
improved simultaneously in the tax reforms (The World Bank, 1991).
Good tax administration is a difficult task even at the best of times and in the best
of places (Auriol and Warlters 2005). Conditions in few developing countries match
these specifications. How revenue is raised - the effect of revenue-generation effort on
social capital, equity, the political fortunes of the government, and the level of
economic welfare
2.1.5. Service Commitments of Tax Administration
The tax administration should provide impartial and professional courteous service and
must keep private and confidential information regarding the individual taxpayers. It
should also offer clear, understandable and current tax information and will make this
information available to tax payer through various media and provide timely, accurate
written information that one can rely on to questions and requests for tax information
(Asian Development Bank, 2001).
Education and information programs on specific tax issues should be arranged with
taxpayers to enhance their awareness and taxpayers should be allowed to voluntarily
disclose their tax situation without incurring a penalty or being prosecuted for tax
violations under certain conditions (Asian Development Bank, 2001).
2.1.6. Resource Cost (Collection Cost)
In order to evaluate the administrative capabilities of a system, resource cost associated with
the operation of any tax are significant aspect. There are two broad types of resource cost
associated with the operation of any tax: administrative costs incurred by the tax
authorities and compliance costs incurred by the taxpayers. Taken together, they are referred
to here as collection costs.
2.1.6.1. Administrative Cost
The most obvious administrative costs are those incurred by the revenue departments in
bringing in the tax revenue. It includes salaries and wages of staff at all level, accommodation
9|Page
cost (rent, rates, lighting and cleaning), postage, telephone, printing, stationary, travel,
computing and other equipment cost etc. An important problem that arises in studying
administrative cost is the limitation on available information. Many countries do not record
the detailed component of expenditure or allocate that expenditure to particular tax (IFA
1989 cited in Sanford et. al., 1989:6). To study the administrative cost it is worthwhile to
scrutinize its intended purpose or practical tax administration first
2.1.6.2. Compliance Cost
Compliance cost are defined as those costs incurred by tax payers, or third parties such as
businesses, in meeting the requirements laid upon them in complying with a given tax
structure. They include, for individual, the cost of acquiring sufficient knowledge to meet
their legal requirements; of compiling the necessary receipts and other data and of completing
tax returns; payment for professional advisers for tax advice; and incidental costs of postage,
telephone and travel in order to communicate with the advisers or the tax office. For a
business, the compliance cost include the costs of collecting, remitting and accounting for
tax on the products or profits of the business and on the wages and salaries of its employees
together with the cost of acquiring the knowledge to enable this work to be done including
knowledge of their legal obligation and penalties. The existence of uncertainty about the
meaning of some aspect of the legislation will generate additional compliance costs (Sand
ford et. al., 1989:12). Psychic (psychological) costs, whilst difficult or impossible to measure
satisfactorily are an important component of compliance costs. Many people experience
considerable anxiety and frustration in dealing with their tax affairs; some employ
professional adviser primarily to reduce this burden of worry. Another source of psychic cost
is the anxiety, which may be generated, even for the most honest taxpayers, by a tax
investigation. The above explanation of administrative and compliance cost highlight the
difference between taxes in terms of administrative and compliance costs. This helps to
identify areas of high compliance costs, to indicate policy-makers the importance of
administrative and especially compliance costs, and to provide tax policy-makers with
guidelines on how the costs of operating the tax system might be minimized.
2.1.7. Tax Evasion, Avoidance and Compliance
2.1.7.1. Tax Evasion and Avoidance
Tax evasion and avoidance are a worldwide phenomenon. The problem is especially
10 | P a g e
acute in transition and developing economies, since they do not have an appropriate
infrastructure in place to collect taxes (McGee and Tyler, 2006:1). Tax avoidance is the legal
arrangement of the taxpayer’s affairs in order to minimize the tax liability, whereas tax
evasion is illegal. Sometimes, however, the borderline between avoidance and evasion can
become blurred, a fact that is evidenced by the huge body of anti-avoidance legislation and
the development of case law in this area (Nightingale, 2003:44).
2.1.7.2. Tax evasion
Tax evasion involves the intentional disregard of the legislation in order to escape the
liability to tax. Tax evasion may be achieved by understating income, overstating expenses,
making false claims for allowances or failing to disclose a chargeability tax. Because of
its illegal nature, there is little hard evidence as to measure the true extent of tax evasion.
Whatever the actual level of evasion, it is likely to be more prevalent when the tax system is
perceived to be unfair or levied at confiscatory rates (Nightingale, 2003:44). Tax evasion is
illegal and the offender may be liable to prosecution, however, the authorities will usually
only resort to criminal prosecution where the case involves substantial amount of lost
revenue, many minor cases of tax evasion that are discovered by the revenue are generally
steeled out of court.
2.1.7.2.1. The Vulnerability of VAT to Evasion and Fraud
Like all taxes, VAT is subject to evasion. For example, traders may fail to register for the tax,
they may under-report sales or, where different goods are subject to tax at different rates, they
may reduce their tax payments by misclassifying sales into the category subject to a lower rate
(or zero rate) of tax. In some respects, the particular structure of VAT may reduce its
exposure compared with other systems of sales taxation. In particular, the gradual
accumulation of the tax at each stage of the chain of production and distribution may reduce
the amount of tax at stake at each stage, and hence the gains to be made from making untaxed
sales. This does not make the VAT ‘self-enforcing’, as sometimes claimed, but it does reduce
its exposure to evasion compared with alternative single-stage sales taxes levied at a
comparable rate, such as the retail sales taxes. In other respects, however, VAT offers
distinctive opportunities for evasion and fraud, especially through abuse of the credit and
refund mechanism. Revenue may be lost through exaggerated claims for credit for VAT paid
on inputs to production. Moreover, the opportunity exists for outright fraud through the
11 | P a g e
construction of business activities with the sole purpose of defrauding the exchequer, because
some categories of business can be entitled to net refunds of VAT from the revenue
authorities. These can include firms selling predominantly zero-rated goods while claiming
credit for significant amounts of VAT paid on standard-rated production inputs. While zero-
rated domestic sales can create opportunities of this sort, the main point of vulnerability in the
current system arises because of the VAT zero- rating of exports. (Nightingale, 2003:45)
2.1.7.2.2. Determinants of Tax Evasion
In the standard approach to tax evasion a risk-averse individual chooses either the amount or
the share of income to be concealed so as to maximize his or her expected utility of income,
considering
i. The probability of detection,
ii. The penalty tax rate applied when tax evasion has been detected,
iii. The marginal tax rate, and
iv. The level of true income
All theoretical studies conclude that both the probability of detection and the penalty tax rate
will negatively affect underreporting of income (Hennemann 1996: 162). That is, if taxpayers
believe the probability of detection is low they will tend to underreport. In addition, if the
penalty tax rate applied when tax evasion has been detected is low again taxpayers might
tend to underreport. When underreporting is measured by the absolute amount of income
concealed, a risk-averse individual experiencing an increase in his or her true income will
underreport more.
2.1.7.3. Tax Avoidance
A tax such as VAT can be avoided simply by not buying the taxed good or services. The
arrangement of an individual’s affairs so as to mitigate the liability to tax is tax avoidance,
and provided that the taxpayer acts within the framework of the law, tax avoidance is legal.
However, where the activity is within the letter of the law but outside the sprite of the law, the
distinction between avoidance and evasion may become blurred (Nightingale 2003:46). Many
form of tax avoidance are merely tax planning opportunities that exist in the legislation for
reducing the liability to tax, for example, choosing the most tax efficient savings and
12 | P a g e
investments, or making sure that all available relief are used to their full advantage. However,
loopholes in the legislation also create opportunities for tax avoidance. However, once
loopholes have been exploited, the revenue reacts by introducing legislations to close those
particular loopholes. The increasing body of anti-avoidance legislation merely makes the tax
system more complicated, detracting from the cannon of simplicity even though it has been
suggested that ‘an economy breaths through its loopholes’. The tax avoidance industry
grew to enormous proportions during the 1970s as high rates of tax mate the cost elaborate
avoidance schemes worthwhile, supporting the view that ‘the existence of wide spread
avoidance is evidence that the system, not the taxpayer, stand in need of radical reform.
General anti-avoidance rules have been tried in Australia, New Zealand and Canada with little
success, which would indicate that targeted legislation may be more desirable. However, the
policy makers are faced with the dilemma of how wide or narrow anti-avoidance legislation
should be; too narrow and it may fail in its objectives, too wide and it may well be applied to
situations for which it was not intended. Whatever steps are taken to counter tax avoidance
the principles of certainty of taxation would require a definition of legitimate tax planning
which may be difficult to frame as ‘the boundaries move with public sentiment’ with
developing financial techniques and with the introduction of new statutory relief. Tax law
will always have to address this equation and to determine where the line will be drawn.
(ibid: 47)
2.1.7.4. Tax Compliance and Voluntary Compliance
Tax compliance can be defined as the degree to which a taxpayer complies (or fails to
comply) with the tax rules of his country. It is widely accepted that the goal of an efficient tax
administration is to foster voluntary tax compliance using all possible methods including
penalties. Penalizing tax evaders or going after delinquent taxpayers are not in themselves the
object of tax administration, although it would serve to encourage voluntary compliance if the
taxpayers believe that the tax administration can effectively detect and punish noncompliance.
Webley et al (2002:1)
2.1.5 Tax Assessment
A tax assessor is responsible for preparing and maintaining the assessment roll, the tax
roll and collecting the tax levies in accordance with the quality standards. The core
service responsibilities include:
13 | P a g e
 Preparing annual market value assessments for all properties
 Preparing the business assessment valuations for all business premises
 Maintaining accurate property information and ownership on all realty accounts
 Maintaining accurate business information and ownership on all business

accounts defending assessments before municipal and provincial assessment tribunals
 Responding to inquiries and requests for information related to assessment and taxation
 Producing and mailing annual assessment and tax notices to tax payers
reporting assessment rolls and meeting annual audits
2.1.5.1 Procedures for Tax Collection
It is expected that people’s tax payments should be in line with their income and they are
required to pay a tax in proportion to their level of income. On the other part of the tax
collectors, collection of tax should be time conscious and convenient and the cost of
collecting the taxes should not be high to discourage business. Alternatively, this means
that the ideal tax system in developing countries should raise essential revenue without
excessive government borrowing and should do so without discouraging economic
activity and without deviating too much from tax system in other countries (Tanzi, 2001).
The procedures undertaken by tax authority to ensure compliance are discussed as
follows.
2.1.5.2 Identification and Registration of Taxpayers
Tax Identification Number (TIN) is used to identify taxpayers. Every taxpayer has a
unique TIN, which he or she is supposed to use in all his or her correspondence with
the tax authority, and no taxpayer should have more than one TIN. In countries like
Uganda, they issue TIN free of charge upon the taxpayer completing a TIN application
form (Kangave, 2005).
2.1.5.3 Filing Returns
Taxpayers are required to file returns within specified months of the end of their tax
accounting year. The return should be filed in quadruplicate and should contain all the
particulars of the taxpayer. All documents respecting taxation should be presented to the tax
authority office where the taxpayer has their file. James (1999)
2.1.5.4 Returns Processing
14 | P a g e
Upon receiving a taxpayer’s return, the tax authority officers examine the accuracy of the
return by determining whether the return is properly completed, whether tax has been
properly computed, and whether there are any penalty payments to be made by the
taxpayer. The officer then allocates an assessment number to the return and issues the
taxpayer with a Bank Payment Advice Form, stating the tax payable. James (1999)
2.1.5.5 Payment of Taxes
Taxes are due on the due date of the submission of the self-assessment returns. Tax
should be paid to an authorized bank, using the Bank Payment Advice Form.
2.1.5.6 Audit and Examination
The role of tax audits and examinations is to check the accuracy of the information that
taxpayers provide to tax authorities. The audits range from simple field and desk audits to
comprehensive audits.
The Screening Process: The majority of cases for audit are selected during this process.
Here, comparison is made between returns of taxpayers who engage in similar
businesses or occupations, and between information contained in returns of current and
previous years for a taxpayer. Where inconsistencies are detected, CCRA officials put the
returns aside for possible audit and specific returns are selected for audit. The selective
and careful scrutiny not only saves resources but also increases the chances of detecting
evasion.
Auditing Projects: Under these projects, CCRA tests the compliance of a particular
group of taxpayers. If the test results show that the group is non-compliant, the group
members may be audited.
Leads: The CCRA at times uses information from investigations or external sources, such as
informers, to select cases for audit. Since these audits are not conducted arbitrarily, it is
almost always likely that cases of noncompliance will be discovered.
Secondary Files: Here, a file is selected for audit because of its association with another
file that has already been chosen for audit. For instance, where taxpayers conduct
business in the same area and under the same control, if the CCRA decides to audit one
taxpayer, it may decide to audit all the other taxpayers in that place of business.
Random Audits: At times the CCRA randomly picks returns for audit. These returns are then
periodically audited to check whether the audits affect compliance in any way. (Gorman,
15 | P a g e
2001).
2.1.5.7 Collection and enforcement
When the taxpayer has not made payment on the due date, and does not object to the tax
assessed, tax authority can enforce payment in a number of ways. The Commissioner may
bring a suit against the taxpayer or request a person owing or holding money for the taxpayer
to pay the money on a specified date or institute distress proceedings against the taxpayer’s
moveable property. In a wider context, the issue of enforcement includes offences
committed by the taxpayer, and the penalties for these offences.
In general, the discussions so far focused on the review of the literature on the
theoretical aspect of tax administration. The following section presents the empirical evidence
on tax administration and their problems from the perspective of developing countries,
Ethiopia in particular.
2.2 Empirical literature review
Kangave (2005) discussed tax administration in Uganda’s context. It then discussed
Uganda’s tax structure, the problems faced in administering taxes, and it gave possible
solutions to the problems the author identified in his research. The author, in his research,
identified corruption, tax evasion, and inadequate resources for tax administration poor
quality of audits and inadequate support for tax administration as problems or
challenges of tax administration that have weakened the ability to achieve desired
revenue targets. The author did not purport to address all of the problems. Neither does
it set out to address in detail the causes of these problems. Instead, it points out the
problems. Besides, the author recommendations for solving the tax administration
problems were adopted from the Canadian tax administration system. The researcher do
not believe that the tax Canadian tax administration system should not be taken as
standard for measuring the performance of tax administration system. In addition to
this, the author used interview with the tax officials and relied on secondary sources.
However, author could have also gathered responses from the target taxpayers to get
additional information for his research.
James (1999) examined issues affecting the formulation of tax policy through the
development of actual proposals by tax policy-makers. This was done taking account of
the possibility that too narrow an approach to this process can produce misleading
16 | P a g e
conclusions and that proposals for tax reform may be inappropriate when the wider
context of the tax system as a whole and the environment in which it has to operate are
considered. Two issues ware used to illustrate the situation - tax compliance and tax
simplification. The paper concluded that in developing tax policy it is important to ensure
that the wider context is taken into account and it also outlines a practical approach to
achieve this aim. Jenkins (1991) emphasized that the tax system can never work better
than its tax administration, but even the best tax administration would certainly fail to
turn a bad tax system into a well-operating one. The researcher also warned that many
ambitious tax reforms failed because of the inefficient tax administration. Without the
permanent reorganization of the tax administration and almost daily improvements in
methods of its management, it is impossible to expect that tax reforms could be realized
successfully.
The removal of exemptions, loopholes, and concessions can simplify administration and
reduce evasion. Taking a systematic view of the tax system, rationalization,
simplification, and the removal of anomalies should have the effect of reducing the
administrative costs of identification, assessment, auditing and enforcement. The
administrative simplicity of "tax handles", however, while influencing tax policy, should
not be allowed to dictate it. Concentrating on just a few handles can lead to highly
distortion structures (Burges and Stern, 1993).
Sahota (1961) undertook a study on the tax performance of the tax system of India for the
period 1948-1958 using the proportional adjustment method and found that the tax
system was inelastic even though the country had a highly progressive income tax at that
time. The reason was due to a defective tax structure and rate schedule, wide spread tax
evasion and income distribution in favor of the "non-income tax payers group" or in favor of
the low-income brackets within the taxpaying group. Sahota (1931), on his part, studied the
performance of the Indian tax system for the period 1948-58. This study used the proportional
adjustment method to estimate elasticity of the system. Results of the study showed that
the Indian tax system was inelastic, the causes of which were found to be a defective tax
structure and wide spread tax evasion. Kussi (1994) tried to show the effect of tax reforms of
1983 on the revenue productivity of the tax system in Ghana. To this end, two separate
17 | P a g e
regressions for the pre- reform period (1970-82) and the reform period (1983-1993) were
fitted for some major tax types. It was found out that there was a progress of both
buoyancy and elasticity for personal income tax, company income tax, sales tax and
import tax. The study attributed the improvements to growth in GDP and general
improvement of the tax administration. This study on the other hand showed that there was a
fall in buoyancy and elasticity for excise duty whose cause was stated to be abolition of all
excise duties on products other than beverages and tobacco in 1987 and the successive
reduction in the duty rates of the affected goods.
The following part will be discussing the empirical review specific to Ethiopia related to
tax administration in the country Wogene (1983) tried to examine the contribution of
taxation. He argued that taxation and tax system was used as a tool for establishing the
material basis of socialism. He estimated the buoyancy and built-in elasticity of the total
tax revenue and examined the difference between the two measures to reflect the impact
of the tax reforms on tax revenue for the period 1975-1981. He used the constant rate
structure method to separate the revenue impact of discretionary tax measure. His result
indicated that the tax reforms have significantly contributed to increasing tax revenue in
the country.
The study by Wogene (1983) showed that for the period 1975-81 tax reforms had enabled
an increase in tax collection. This study employed the constant rate of adjustment
method to estimate elasticity of the tax system. Likewise, the study by Eshetu compared tax
productivity in the pre revolution, post revolution periods of Ethiopia, and found out that
there was certain improvement in the tax collection of the government in post revolution
Ethiopia.
18 | P a g e
CHAPTER THREE
3. RESEARCH METHODOLOGY
3.1. Research Methodology
The study was conducted in Dire Dawa city particularly in Kebele 03. The researchers were
utilized different research methods and materials in taking in to consideration the variables.
3.2. Research Design

A research design is simply the framework or plan for the study, which is used for the
collection of pertinent data. In this study, the case study design was adopted with particular
concentration on the descriptive method. This is preferred to others given the nature of the
study, which is an exposition of selected company with respect to the role of accounting
information system on internal control as a tool for management decision and performance
evaluation. So as to put the objectives of the study in to effect, descriptive method was
conducted to observe assessment of tax collection practices pertaining to category ‘’A’’ tax
payers in Dire Dawa.
3.3. Types and Sources of Data
This study was employed both primary and secondary data sources in order to have more
reliable results.
3.3.1. Primary Data
The primary data sources were those original data collected and analysed by the researchers
from the field. The primary data for this study was mainly obtained from the responses of
respondents to self-completion questionnaires and semi structured interviews from employee
of revenue authority offices and tax payers.
3.3.2. Secondary Data

The secondary data source was gather from available handbooks, annual reports, performance
reports, employment policies, relevant information from the organisations website, journals,
and other documented materials made up the secondary data was used by the researcher.
The data obtained from these sources will scrutinised for reliability, validity, adequacy
and suitability in answering research questions and to establish the truth and accuracy of any
claim; thus it is expected to enhance the reliability and validity of the study.
19 | P a g e
3.4. Method of Data Collection
The primary data was be collected through open ended questioner and employees of the
organization and interview.The secondary data was be collected from book,journals,
documentaries, record, annual reports periodically, magazine and other written materials.In the
case of the subject matter is very vast; the factors which can affect the study are numerous. In
order to get required information the researchers were selected data collectors and give
orientation about the method of data collection and explanation for the purpose of each item.
Validity of data collection was accepted by principal investigator.
3.5. Target Population and Sampling Method

3.5. 1. Study Population
In this study, the target population which is the entire set of units for which the research data
was used to make generalisation is the managers and non-managerial employees of employee
of revenue authority offices and tax payers.
3.5.2. Sampling Method

The data were collected from different groups such as employees and tax payers that have
long term experiences engaged in tax authority of revenue in Dire Dawa city administration
kebele 03. Kebele 03 revenue authority offices have about 55 permanent employees, and 70
tax payers of Category “A”. From the total of 125 the researchers were selected 95 employees
from revenue authority office and tax payer of Kebele 03 under category “A”.
The researcher used the following formula to define the required sample size at 95%
confidence level, degree of variability of= 0.05 and with desired level of precision required =
5%.
N
n= ¿
1+ N ¿ ¿
Where, n: is Sample Size,
N: is Total Population,
e: is permitted error of 5%
1: designates the probability of the event occurring
125
Therefore,n=
1+125 ¿ ¿
, n = 95
20 | P a g e
Then in the second stage, the determined sample size distributed to each employee of revenue
authority offices and tax payers on the basis of probability proportional to size (PPS).
Probability proportional allocation formula adopted according to (Kotari, 2004) as follow:
nN 1
n 1=
N
Where: n= determined sample size N= target population N1= total number of population in
each revenue authority offices and tax payers t n1= number of samples in each category
(Table1)
Table 3. 1. Probability proportionate to sample size
S. Name of Each category of Number of and tax Probability

N staff and tax payers payers proportionate to size for
Total each category of staff
and tax payers (PPS)
1 Revenue Authority staff 55 42
2 Tax Payers 70 53
Total 125 95
Source: Revenue Authority Offices data, 2021
3.6 Data Analysis
The researchers were used the descriptive statistical tools excel (graph, percentages) in
preparing and analyzing the data generated from study and compare the actual performance
against what to be planed.
CHAPTER FOUR
4. RESULTS AND DISCUSSION
The previous chapter presented detail of the research design adopted in the study. Based upon
21 | P a g e
the methods mentioned in the research design, this section analyses the data obtained from
Category “A” taxpayers and the tax officers of the Kebeles 03.
This chapter deals with an attempt to identify category “A” taxpayer’s tax assessment and
collection problems and factors that caused the problems. This part has three sections.
Section presents the background information whereas section 4.2 presents the data obtained
through self administered semi structured questionnaires and in-depth interview. Finally,
section 4.3 presents the analysis of the data presented in section 4.2.
4.1. Background information
Tax administration in Ethiopia is conducted on two levels as federal and regional. At the
lowest level there are nine kebeles in different City. The tasks of Kebeles are assessment and
collection of taxes and other liabilities of Category “A”. The others are the different
sub cities that are in charge of tax assessment, collection, and control of veracity of the
tax bases declared by Category “A” and “B” taxpayers in their jurisdiction. At federal level,
ERCA is in charge of collecting revenues, both tax and none tax, from
different organizations owned by federal government and from customs duties.
The study focus here is DDA city and Category “A” tax payers residing in the Kebeles
03. In the Kebeles 03, tax assessments and collections are carried out according to
income tax regulation No. 78/2002 article 18 and value added tax proclamation No. 285/2002.
Category ‘’ A’’ tax payers are those having separate legal personality, incorporated under the
law of Ethiopia or in a foreign country or any registered business having annual turnover of
birr 500,000 and over(Income tax regulation no. 78/2002, article 18 A).
TIN system is registering mechanism in which each taxpayer is given a

single identification number to be used in administering the taxes. The TIN system
encompasses personal and business profiles of the taxpayers including full name, address,
business information and related information of the taxpayer (Income tax proclamation no
286/2002, article 43). The TIN system has the advantages of facilitating proper use of various
systems and enhancing the financial recording system of the business communities.
The main expected taxes are business profit tax; value added tax, rental income tax and
employment income tax from their employee.
22 | P a g e
Category “A” taxpayers are required to submit balance sheet profit and loss statement to the
tax office within Hamle to Tikemt 30 of Ethiopian calendar. Next the Auditors receive the
documents and then it is reassessed based on proclamation No. 286/2002 and 311/2003,
during the period of Hamle to Tikemt 30 and then assessment notification will be distributed
to tax payers for payment.
4.2. ERCA Kebeles 03 Small Tax Payers Branch Office
ERCA Kebeles 03 small tax payers’ branch office is the tax authority, which is delegated
to assess and collect both direct and indirect taxes from Category “A”, “B” and
“C” taxpayers performing different types of business activities in Kebeles 03.
ERCA Kebeles 03 small tax payers branch office has an objective to establish modern
revenue assessment and collection system, and provide equitable, efficient and quality
service to tax payers, who are considered customers, and cause taxpayers voluntary
discharge their obligation by enforcing the applicable tax laws. SIGTAS (Standard
Integrated Government Tax Administration System) and SIRM (Standard Integrated
Revenue Management) software are applicable for regular tax assessment and collection.
The organizational structure is designed on the basis of different activities to be
performed rather than depending on the different tax types. The DD city administration
has nine Kebele, of these Kebeles 03 has employees 45 and 50 tax payers.
Table 4.1: Response rate
Particulars Tax Payers Tax Officer Total

Frq % Frq % Frq %
Respondents 42 79% 40 95% 82 86%
None responded 11 20% 2 5% 13 14%
Total 53 100% 42 100% 95 100%
Source: Own Survey 2021
From the semi structured questionnaires distributed, 86% of them returned the
Questionnaires, whereas the remaining did not (Table 4.1).
Table 4.2: Gender of respondents
Gender Frequency Percentage
Male 28 34
Female 54 66
23 | P a g e
From above table the eighty-two respondents, around 66% of them were male and 34% were
female.
Table 4.3: Respondents’ age distribution

Age Frequency Percentage
20-30 24 29%
31-40 43 52%
Above 40 15 19%
Total 82 100%
Table 4.3: Respondents’ age distribution of the eighty-two respondents, around 29% of them
was age between 20 and30, majority (52%) were ages between 30and 40 and 19% were
above 40 years (Table 4.3).
Table 4.4: Respondents’ educational level
Educational Level Frequency Percentage
Second Degree and above 22 27%
First Degree 46 56%
Diploma 14 17%
Total 82 100%
Table 4.4:Respondents’educational level of the eighty-two respondents, around 27% of them

were first degree holder, majority (56%) were diploma holder and 17% were below diploma
,finally no respondent were available who has Second degree and above (Table 4.4).
Table 4.5: Respondents’ work experience
Work Experience Frequency Percentage
Above 10 years 16 19%
5-10 years 31 38%
4-5 years 113 16%
0-4 years 22 27
Total 82 100%
19% of the eighty-two respondents had work experience Above 10 years, majority (38%) had 5-
10 years, 16% had 4-5 years and 27% had work experience blow 4 years. (Table 4.5)
Table 4.6: Respondents’ legal form of their organization
24 | P a g e
Legal Form Frequency Percentage
Sole proprietor ship 22 52%
Share companies 12 30%
Joint Venture 0 0%
Others 8 18%
Total 42 100%
From total of the 42 respondents of tax payers, majority (52%) were Sole proprietor ship, 30%
were Share companies and 18% were other forms of organization. (Table 4.6)
Table 4.7: Year of organization establishment of the Respondents
Establishments Frequency Percentage
Before 5 years 16 64%
4 years ago 27 18%
3 years ago 4 10%
This year 3 8%
Total 42 100%
From total of the 42 respondents of tax payers, majority (64%) were established before 5
years, 18% and 10% were established 4 and 3 years ago respectively and 8% were established this
year.(Table 4.7)
Table 4.8: Respondents’ Business sector
Business sector Frequency Percentage
Manufacturing 2 5%
Importers and Exporters 7 17%
Wholesalers and Retailers 16 44%
Service Providers 14 34%
Total 42 100%
The survey was made by grouping the Category “A” taxpayers in four business
sectors.
Accordingly, around 5% of the respondents were manufacturer, 17% were importers and
exporters, 44% were wholesalers and retailers, and 34% were service giving firms (Table 4.8).
As can be observed from table 4.9, 50% of the respondents generate annual revenue
ranging from Birr 500,000 to Birr 1,000,000; 24% from companies earning Birr 1,000,000 to
Birr 5,000,000; 14% from Birr 5,000,000 to Birr 10,000,000, whereas, 7% is from companies
earning Birr 10,000,000 to Birr 50,000,000, and the remaining 5% is from companies earning
25 | P a g e
above Birr 50,000,000.
Table 4.9: Respondents average annual revenue (in Ethiopian Birr)
Average Annual Revenue Frequency Percentage
In Ethiopia (Birr)
500,000-1,000,000 21 50%
1,000,000-5,000,000 10 24%
5,000,000-10,000,000 6 14%
10,000,000-50,000,000 3 7%
Over 50,000,000 2 5%
Total 42 100%
Table 4.10 Summary of respondents’ tax perception

Items Description Response Frequency Percentage
A How do you feel As Dept 0 0
Development 40 95
about paying of
As Obligation 2 5
tax Others 0 0
Total 42 100
B When do you pay On Due Time 38 90
Period is over 4 10
your tax liability
Total 42 100
C What are the Get Bank Loan 15 34
Participate in Bid 16 36
benefits you get by
paying your tax Guarantor 8 20
liability Other 3 10
Total 42 100
Out of 42 tax payer respondents majority (N=40-95%) believe that paying tax to government
contributes to national development whereas (N=2-5%) believes tax as an obligation.(N=38-
90%)of the respondents were paying their tax with in payment period while only (N=4-10%) were
26 | P a g e
paying tax after the payment period is over.34% of the respondents perceived that they can get
bank loan if they pay tax ,36% can participate in bid,20% believed that right to be guarantor and
10% can get other benefits. This implies that tax payers know why to pay tax. (Table 4.10)
Majority of tax payer respondents (N=23-54%) did face problem when they pay tax. Out of
54% respondents majority (N=13-56%) were perceived inefficiency of the tax collectors
while some of the respondents (N=8-35%) perceived ill-treatment and few (N=2-9%) came
across discrimination on service giving. Most tax payers (N=24-57%) get notice from ERCA
about taxation but the message communicated by ERCA were perceived by majority of the
respondents (N=28-67%) as not understandable. As it can be seen from the above table,
majority of the tax payers (N=16-38%) take half day to pay, even tax no one can pay with in
thirty minutes.
As we can see the above table the respondents gave their opinion about whether ERCA gave
enough training about VAT. Out of 40 respondents 9 or (22%) of them strongly agree, 18
(45%) of them agree that ERCA does gave enough training to VAT registered organizations
and to the people who are consumer of the VAT registered organizations. 75% Respondents
also agree that the criteria for selecting tax payers for audit not clear and transparent. Out of 40
respondents 24 or (55% ) agree that tax payers do not have good perception on ERCA tax audit
flow up system More ever, Out of 40 respondents majority (N=37-93%) were agree and
strongly agree that there is lack of transparency and consistency in imposing penalties. Majority
of the respondents (75% agree and 7% strongly agree) that education and awareness creation
program given by ERCA through media, brushers and others means is not sufficient to improve
tax compliance. Most respondents (strongly agree25%, agree 67%) on the statement that if an
official engaged in corrupted activity, the chance of being detected is relatively low.
Concerning to present tax rate, majority (N=25-60%) replied as not fair and needs
adjustment.76% of the respondents agreed that the tax payment period is enough and 24% needs
additional time period to pay their tax. Most respondents (N=34-74%) were not comfortable with
present taxation system and suggested adjustment .Almost all respondents recommended that tax
related messages shall provide through all means of communications. (Table 10.11, annexed)
Table 4.12 responses related to cash register machine.
Item Description Response Frequency Percentage

Yes 23 54
27 | P a g e
No 19 46
When you use cash register machine,
A Total 42 100
did you encountered any problem?
Strongly Disagree 3 9
Disagree 5 13
Neutral 4 11
Agree 20 47
The use of Cash Register machine Strongly Agree 8 20
B reduces tax evasion and fraud. Total 40 100
Disagree 6 15
Neutral 0 0
Using cash registers machine Agree 30 75
C facilitates the tax collection process Strongly Agree 4 10
Total 40 100
Disagree 3 8
Neutral 4 10
Using cash register machine reduces Agree 25 62
D administration cost. Strongly Agree 8 20
Total 40 100
Disagree 6 13
Neutral 2 4
Agree 27 60
E Tax collection increases after Strongly Agree 10 23
introduction of cash register machine. Total 40 100
Disagree 19 47
F Cash register machine reduces Neutral 2 5
corruption Agree 8 20
Strongly Agree 0 0
Total 40 100
28 | P a g e
Yes 42 100
G Do you use cash register machine? No 0 0
Total 42 100
Yes 42 100
H If you use cash register machine, Do No 0 0
you get enough training on usage of
cash register machine. Total 42 100
Disagree 22 55
Adequate Awareness creation training Neutral 0 0
I has been given to the VAT registered Agree 7 18
organization regarding use of cash Strongly Agree 0 0
Total 40 100
Even though use of cash register machine facilitates cash collection process, majority of the tax
payer (N=23-54%) were encountered problem when they use cash register machine. Besides
most respondents strongly agree and agree (N=28-67%), on the cash register machine
reduces fraud, increases tax collection and evasion. Furthermore, (N=33-82%) respondents
strongly agree and agree on cash registration machine reduces administrative cost but did not
reduce corruption. All 42 respondents, 100% use cash register machine however the survey
discovered whether those taxpayers using the cash register machine got adequate training
regarding the use of the machine. The result indicates that Out of 42 of the respondents, who
used cash register machine, 70% complained that they did not receive adequate training
regarding the use of the cash register machine. They believe that they do not have knowledge
of operating the machine. Whereas, the remaining, 30%, are comfortable in using the machine.
(Table 10.12)
4.13. Summary of respondents’ response on tax evasion
Item Description Response Frequency Percent

Disagree 6 15
29 | P a g e
Neutral 7 18
The Existing audit selection criteria are
Agree 20 47
A not sound enough to identify tax payer
Strongly Agree 6 16
that engaged in tax evasion.
Total 40 100
Disagree 1 2
Neutral 4 10
Sometimes Tax Officials cooperate Agree 12 30
B with tax payers who intend to evade tax Strongly Agree 23 58
and engage in bribery activity. Total 40 100
Yes 14 33
No 23 55
Do you think Tax evasion in category I Don’t Know 5 12
C “A” tax payers is Significant? Total 42 100
Payroll Tax 0 0
Business Profit Tax 3 22
Vat 4 28
Rental Income 7 50
D Which tax do you believe is evaded Others 0 0
more? Total 14 100
Disagree 17 42
Neutral 0 0
Tax Evasion by most organizations Agree 9 23
E arises from lack of knowledge on tax Strongly Agree 4 10
issues like penalty, tax codes and tax
regulation. Total 40 100
Source: Taxpayers and tax officers’ survey
Most respondents (N=26-63%) agree and strongly agree that the existing tax audit selection
criteria is not sound enough to identify tax payer that engaged in tax evasion whereas (N=7-
19%)strongly disagree and disagree and (N=7-18%) remain neutral. Furthermore majority of the
respondents (88%) strongly agree and agree that sometimes tax officials cooperate with tax
30 | P a g e
evaders. 55% of the respondents indicated that Tax evasion in category “A” tax payers is not
Significant and 33% indicated as significant whereas 12% kept silent. Pertaining to category of
tax that evade more, 50%, 28% and 22% believed that rental income tax, value added tax and
business profit tax respectively. 33% of the respondents strongly agree and agree, 67% of them
strongly disagree and disagree that tax evasion by most organizations arises from lack of
knowledge on tax issues like penalty, tax codes and tax regulation. (Table 4.12)
Table 4.14.Summary of Respondents response related with penalty

Item Description Response Frequency Percent
Disagree 13 33
The Existing level and Extent of Neutral 4 10
penalties for evaders and tax
A Agree 8 20
personnel who are working in
collusion with tax evaders are Strongly Agree 0 0
sufficient to discourage tax
Total 40 100
evasion/frauds
Strongly Disagree
Disagree
Neutral
Agree
The existing penalty for corrupt
B Strongly Agree
official is not sufficient to detect
Total 40 100
corrupt activities
31 | P a g e
Disagree 23 55
The existing practice of penal Neutral 5 12
C actions is too weak to discourage tax Agree
payers who evading tax Strongly Agree
Total 42 100

Out of 40 respondents 37% strongly disagree, 33%disagree, 10%remain neutral and 20%were
agree that existing penalty level and extent is not sufficient and too weak to deter evasion and
corrupt activity.(Table 4.13)
4.3. Data analysis
The previous section presented the background information and the outcome of the survey
result. This parts focus on the analysis of the outcome of survey along with outcome of the
interview with tax officers and secondary data in the context of the literature review.
4.3.1. Tax assessment and collection challenges
Since there is no specific plan for category ‘’A’’ taxpayers, the tax officers were faced with
problems of identifying problems while budget implementation. The fact sighted by tax officers as
32 | P a g e
being the reason for not having a specific plan for each category of taxpayers is the frequent
turnover of staff of the core process .As shown on table 4.2 total employee turnover was 9%. But
there is only general annual plan, which includes actual collection and performance percent for all
categories, which made variance analysis very difficult for each category. Therefore, the tax office
did not perform various variance analyses to come up with a concrete conclusion about where the
problem might be so as to take corrective actions. From the interview made with the tax officers,
one of the biggest challenges faced by the authority is solving the pervasive problem of
corruption. Undesired communication of tax auditors with taxpayers was the major challenge that
the tax administration is facing. For one thing, there is constant interaction between
taxpayers and tax officials since taxpayers have to file returns physically. This interaction
encouraged the two parties to negotiate tax liability. They also are facing problems in identifying
corrupted tax officers since corruption networks develop and go undetected. Moreover, the lack
of close and unreserved follow up by law accomplisher and controlling process in connection
with different tax related activities are the main problems. Besides, some of category ‘’A’’
taxpayers' financial assessment result done by the auditors ultimately fall to the category ‘’B’’
or ‘’C’’. This indicates failure of the tax authority to make continuous follow-up of the taxpayers’
profile.
Taxpayers do not timely keep adequate record for the purpose of assessment. There is
inconsistency in record keeping by category “A” taxpayers. Taxpayers have limited ability
regarding tax knowledge and competent accountants to keep accounts. Due to lack of manpower,
Kebeles 03 tax officers are not able to follow up whether all taxpayers declared and paid tax for
each tax period since they have registered. In addition, they are not able to make sure that whether
all taxpayers that must be registered were really registered. Regarding rental income tax, the
taxpayers submitted unreliable signed document to the tax authority. They produce two
documents signed by both the lessor and lessee and submit the one with the reduced amount of
agreement.
Due to this there exist taxpayers, who collect tax from customers but not identified properly.
When the taxpayer presents income that is understated, the taxpayers will be penalized.
However, the tax officers are facing challenges due to the absence of any stated
parameter to say a certain understated amount as substantial or not. Therefore, this created a
loophole for some undesired bargaining and behavior between taxpayer and tax
33 | P a g e
officer. There were lack of competency, degree of satisfaction of employees and unwillingness to
delegate responsibility. The quality of audits made by the officers of the tax office is affected
by lack of sufficient comprehensive audits due to shortage of man power. Furthermore, tax
audits in most cases have been conducted manually. Manual verification of taxpayer
information is not only susceptible to mistakes by revenue officers, but also slows down the
auditing process.
Moreover, the tax collectors did not have adequate skills. The prevalence of poorly trained
employees accompanied by perceived low remuneration packages and corruption have affected
the tax administration.
From the interview made with tax officers, the decision-making process within the core process
show that it is not participatory. This may force the subordinates not to take part in the core
process activities and lack of willingness to implement decision. It also creates conflict within the
core process, which hinders the effectiveness of the core process. The organization also gives less
attention on employee training and personal development as it is seen on table 4.1 there are no
employees who have qualification above first degree. There exist lack of identification of
documents and shortage of strict assessment system. This failure has an impact on collection
The registered taxpayers are required to use cash register machine, which is very
expensive and difficult to use. Due to this, they complain about high cost of tax
compliance and knowledge of operating the machine.
The training given regarding the use of cash register machine was not adequately sufficient.
Due to this, taxpayers are facing big problems in respect of the way how to use the
machine. The other problem is when there is electric power failure, they are obligated to inform
the tax authority; unfortunately, they usually face problems when calling to the
tax authority no reply by tax authority. Due to these, they are saying that they are exposed to
a high compliance cost.
Furthermore, if there are technical problems regarding of the cash register machine, they are
supposed to get support from the suppliers of the machine, unfortunately, they are not getting
quick and adequate support from the sole suppliers and high charge for the service .
Taxpayers continuously complain on the bureaucratic civil service procedures existing in the
tax office, when they went there for getting support or complain about different situations at
34 | P a g e
their hand. The major causes for the aforementioned challenges or problems on profit tax
administration are:
 Absence of willingness and poor understanding about tax proclamations, rules and
regulations by taxpayers and Complexity in understanding tax laws and proclamation.
 Lack of paying attention to follow up the frequent government policies Confusion due
to frequent change of policies
 Delayed tax assessment process by the authority due to lack of sufficient assessors.
 Lack of sustainable educative and clear promotion by the government
 Lack of sufficient, incompetent and motivated tax officers and Very frequent
employee turnover
 The bureaucracy of offices in giving service to the tax payers.
 Lack of close follow up by law accomplisher and controlling process
 Unwillingness to give clear information by taxpayers
 Lack of willingness to provide information by third party to the office.
 Inefficiency and ineffective organized computerized system in tax administration
 Electric power failure and Inflexibility of the software in use
 Frequent change of taxpayers address without acknowledgement of the office
35 | P a g e
CHAPTER FIVE
5. CONCLUSIONS AND RECOMMENDATIONS
The main objectives of this project have been to investigate tax assessment and collection
challenges in respect of category “A” taxpayers found in Kebeles 03. Both survey and in-depth
interview techniques were employed to investigate the existing challenges in tax administration of
the selected Kebeles 03. Based on the presentation and analysis of the data obtained, the main
conclusions and recommendations are summarized in this chapter.
5.2. Conclusions
Ethiopia has witnessed significant changes in many aspects of its economy over the last10
years, but like most developing countries, it has had to contend with the common problems which
affect the tax systems of developing countries. Based on the results from data analysis and
findings of the research, one can safely conclude that the sub-city tax office has faced
different financial, operational and administrative problems and challenges to handle the
taxpayers. It may be considered as the implemented tax collection and assessment system is
not successful. That is, there exists inefficient and insufficient number of tax assessment and
collection officers in the Kebeles 03.
Training was not considered as vital activity, which does not justify much attention. There are
few or no training professionals on staff. The emphasis of staff training is on teaching the
contents of tax laws as opposed to applying the laws. Little or no attention is paid to skills,
techniques, procedures, customer relations, or managerial training.
The tax office does not offer sustainable training to create tax awareness by taxpayers
Furthermore; the office does not produce report for separate annual plan of collection in each
category of taxpayers. Lack of clarity in tax law left room for interpretation.
Based on the survey results, the study found that there exist lacks of tax knowledge by tax
payers. Most of them do not know the rules and regulations of different types of taxes
they pay. Due to this, negligence, delay in tax payment and evasion are taken by
taxpayers as solution to escape from payment of taxes. In addition, the newly
36 | P a g e
implemented system of using cash register machine is causing challenges to the tax
payers even though it has a positive impact on tax income of the country. Compliance cost of the
taxpayers decreases after they started to collect tax by using a cash register machine. It has
also led to improved sales audit for the business, since everything that is captured to record.
But it is not friendly usable when the casher made a mistake while collecting cash, it takes time
for a correction of mistakes, the tax laws threatened the business if thee made any mistake
unintentionally it might considers as tax evasion. It also reduces the operating cost of the
government that was incurred to collect tax and also business income. While increasing the tax
income it also reduces the tax evasion loophole. Power failure is the major problem mentioned
that caused problem. Furthermore, the prevalence of unfair competition has led to less voluntary
compliance.
Generally, taxpayers and tax offices have tax administration problems of different natures.
The following section presents different recommendations as to which these observed tax
administration problems can be solved.
5.3. Recommendation
This section presents the appropriate suggestions that can be utilized to minimize the tax
administration problem in the Kebeles 03.
An efficient and proper tax administration is required by setting clear and transparent rule and
regulation. Beside all these, tax offices should be equipped with new technology and adequate
skilled human resources. The tax authority must maintain adequate management information
system. So that, taxpayers must receive clear, concise and up-to-date information on describing
what is taxable, how to calculate their tax liabilities and procedures for calculating paying taxes,
where and when they pay taxes. The tax office should offer sustainable training and prepare
discussion or forum for collaborators such as legal bodies, city administrators, and security
bodies as they have direct or indirect contributions for the implementation of the tax. Besides
extensive work must be done by the tax office to gather information and register taxpayers,
who have refused to be registered. Accordingly, there should be continuity on the already started
activities of giving feedbacks and awareness vastly to the community. Sound use of such
information technology approaches as withholding, information reporting, web-based client
focused interfaces with the private sector, and value chain analysis and monitoring all activities
going on in both private and public sectors can be enormously effective in reducing corruption,
curbing evasion and improving revenue yields. The core process should establish appropriate
37 | P a g e
procedure and system of tax collection and assessment procedure and assigning relatively
best and capable professionals. The management of the ERCA should work towards bringing
the team spirit by solving internal problem. The core process must also give high attention on
employee training and personal development, to cop up the new science and technology. ERCA
should work with regard to creating enough awareness through different mechanisms since
awareness of the people is very important to eliminate the tax evasion and can enhance the
efficiency of the authority. This can be achievable if ERCA give training to tax payers as well as
tax officers’ and ERCA can also create awareness by news papers, pamphlets, with
attractive radio and television programs. In addition to that strong audit follow up is very
important element to enhance tax income and to reduce tax evasions. So, ERCA needed it audit
follow up on tax payers. Furthermore, ERCA is better to designed good and fast systems that
can reduce the time of users of cash register machine to make corrections for their errors without
wasting time and additional cost.
The tax office must also maximize its capacity so that taxpayers’ complaints in respect of
cash register machine are solved quickly. Furthermore, rather than delegating the task of
providing support for mechanical problems of the machine to the suppliers, the tax office
must equip its employees about the technical knowledge so that they do the activities by
themselves. Moreover, the tax office should increase taxpayer educational programs to increase
tax awareness by tax payers.
Generally, in order to increase tax compliance, governments must adopt a comprehensive

strategy, beginning with the writing of the tax laws in easy and understandable terms to
enforce. In the light of changing social and economic conditions, Kebeles 03 tax office must
take a sustainable comprehensive look at their tax administration in order to assess how
they can increase compliance and minimize the problems existing in the tax administration.
Furthermore, Kebeles 03 tax administration can achieve its goals if allows taxpayers to give
their genuine feedback on the process so that their problems will be taken due attention in
order to have voluntary compliance.
38 | P a g e
6. REFERENCES
Ahmad, E and stern, N 1991. The theory and practices of tax reform in developing
countries. New York: Cambridge University Press.
Asian Development Bank 2001 Conference, Challenges of tax Administration and
Compliance
Bird and Casangera de Janscher, eds., 1992, Improving Tax Administration in Developing
Countries (Washington: International Monetary Fund).
Burges, R Stern, N. (1993): Taxation and Development, Journal of Economic Literature, June
1993, 31 (2): pp.762-830.
Council of ministers, 2002, income tax proclamation no. 78/2002, Negarit Gazetta, FDRE
Council of ministers, 2002, value added tax proclamation no. 79/2002, Negarit Gazetta,
FDRD
Council of ministers, 2002, Income tax proclamation no 286/2002, Negarit Gazetta, FDRE
Council of ministers, 2002 Value added tax proclamation no 285/2002, Negarit Gazetta,
FDRE
ERCA 2009. Annual Report of fiscal year 2008/09.Addis Ababa
Gorman. Canadian Income Taxation: Policy and Practice, 2nd ed., Toronto, 2001, pp.591.
Hesse (eds.) (1993): Administrative Transformation in Central and Eastern Europe,
Towards
Public Sector Reform in Post-Communist Societies, Blackwell Publishers, Oxford, UK.
And Cambridge, MA.
James, “Tax Compliance and Administration “1999, Handbook on Taxation,
edited by W.Bartley Hildreth and James A. Richardos (New York: Marcel Dekker, Inc.),
pp.741-768.
Kaldor (1980): “The Role of Taxation in Economic Development”, Essays on
Economic Policy I, Duckworth, London.
Kangave, 2005, Improving tax Administration: A Case Study of The Uganda Revenue
Authority, Jorunal of African Law, pp.145-176
Kene, M and Lockwood, B 2007. The Value Added Tax: Its Causes and consequences.
Available at:
http://www2.warwick.ac.uk/fac/soc/economics/research/papers/twerp_8 01.pdf Accessed on
39 | P a g e
15 December 2009
Kusi, N. K. (1994). ‘Tax Reform and Revenue Productivity in Ghana’. AERC
Research Paper 74 (March). Nairobi: African Economic Research Consortium.
Mansfield, C.Y. (1990): “Tax Reform in Developing Countries, the
Administrative Dimension”, Bulletin International Bureau of Fiscal
Documentation,
(March 1990: pp.137-143).
OW, A.S.S (1992): “Developments in Tax Administration in Singapore”, 9th Asian –Pacific
Tax Conference, Asian –Pacific Tax and Investment Research Center,
Singapore, in Jenkins (1994).
Sahota, G.S. (1961). Indian Tax Structure and Economic Development, London: Asia
Publishing House.
Wogene (1983 ) the contribution of tax reform, the changes in its structure (1983: 26-7)
World Bank (1990): Lessons of Tax Reform, The World Bank, Washington, D.C.
Zelalem, Y. (1999). Revenue Productivity of the Tax System in Ethiopia. M.Sc. Thesis,
Addis Ababa University.
40 | P a g e
Tax Authorities Employee
Personal Data
Personal Information
Gender: - Male  Female 
Age: 20-30  31-40  41=< 

Educational Level
Diploma  First Degree  Second Degree  Above 
Others
Work Experience
0-4 Years  4-5 Years  5-10
Years  > 10 Years 
2. Tax Related Information

2.1 Do you think Tax evasion in category “A” tax payers is Significant?
Yes  No  I don’t know 
If your response is “Yes” for question no 2.1 which tax do you believe is
evaded more? (Multiple Answers is Possible)
Business Profit Tax  Payroll tax  VAT  Rental income 
Others specify
If your Response for question no 2.1 is “yes” What do you think is the causes
for the problem?
41 | P a g e
3. About VAT, Cash register machine and other tax related issue for
the following questions please put tick () mark on the choice of your
response which shows the level of your agreement
Questions/Statements strongly Disagree Neutral agree strongly

disagree agree
3.1. Ethiopian Revenue Customs
Authority (ERCA) offered
adequate training about VAT.
3.2. The use of Cash Register

machine reduces tax evasion and
fraud.
3.3Adequate Awareness
creation training has been given to
the VAT registered organization
regarding use of
cash register machine
3.4.Using cash registers

machine facilitates the tax
collection process
3.5.Using cash register machine
reduces administration cost
3.6. Tax collection increases
after introduction of cash
register machine.
3.7.Cash register machine

reduces corruption
3.8. The criteria for selection of
tax
42 | P a g e
auditing lack clarity and
transparency.
3.9.Tax payers do not have good
perception of ERCA tax audit
follow up system
3.10. The Existing audit selection

criteria are not sound enough to
identify tax payer that engaged in
tax evasion.
3.11. Sometimes Tax Officials

cooperate with tax payers who intend
to evade tax and engage
in bribery activity.
3.12. The Chance of being detected

is relatively low if an official is
engage in corrupt activity.
3.13.Tax Evasion by most

organizations arise from lack of
knowledge on tax issues like
penalty, tax codes and tax
Regulation
3.14.The existing level and extent of

penalties for evaders and tax
personnel who are
working in collusion with tax
evaders are sufficient to

discourage tax evasion /frauds/
43 | P a g e
3.15. The existing Penalty
for corrupt officials is not
sufficient to defer corrupt
activity.
3.16.The existing practice of penal

actions is too weak to discourage tax
payers who
evading tax
3.17.There is lack of
transparency and consistency in
imposing penalties
3.18.The education and awareness

creation program through media,
brushers and others means is not
sufficient to
improve tax compliance
4. Please write short and precise response for the following questions.
5. What suggestions do you give that could mitigate problems related to

tax education or public awareness program so that tax evasion is minimized.
.
Specify the weak links that exist in ERCA that open the door for
corruption by tax officers related with tax
.
If you think existing tax enforcement and penalty are weak, what do you
think are the reason (s)
What problems do you think are showing on tax assessment and collection in general?
44 | P a g e

Research On Taxation Practice

Uploaded by

Copyright:

Available Formats

Research On Taxation Practice

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Research On Taxation Practice

Uploaded by

Copyright:

Available Formats

AN ASSESSMENT OF TAX COLLECTION PRACTICES IN (CASE OF CATEGORY

“A” TAXPAYERS) IN DIRE DAWA ADMINSTRATION AT KEBELE O3

RIFT VALLEY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

A RESEARCH PAPER SUBMITTED TO DEPARTMENT OF

DIRE DAWA, ETHIOPIA

1.2 Statement of the problem............................................................................................................2

3.3.2. Secondary Data.......................................................................................................19

3.4. Method of Data Collection.........................................................................................................20

3.5.2. Sampling Method...................................................................................................20

3.6 Data Analysis...............................................................................................................................21

Table 4.1: Response rate______________________________________________________23

Table 4.3: Respondents’ age distribution__________________________________________24

Table 4.9: Respondents average annual revenue (in Ethiopian

Table 4.10 Summary of respondents’ tax perception___________________________________28

Table 4.12 responses related to cash register machine.________________________________28

Table 4.14.Summary of Respondents response related with penalty

Tax is defined as a "a compulsory contribution payable by an economic unit to a

1.2 Statement of the problem.

1.4.2 Specific Objectives

2.1.1. Legal Structure for Effective Tax Administration

Tax administrators face a formidable number of challenges in every country. In many

2.1.4. Efficiency of Tax Administration

2.1.7.2.2. Determinants of Tax Evasion

iii. The marginal tax rate, and

iv. The level of true income

 Preparing the business assessment valuations for all business premises

 Maintaining accurate property information and ownership on all realty accounts

 Maintaining accurate business information and ownership on all business

3.2. Research Design

3.3.2. Secondary Data

3.5. Target Population and Sampling Method

3.5.2. Sampling Method

Table 3. 1. Probability proportionate to sample size

S. Name of Each category of Number of and tax Probability

TIN system is registering mechanism in which each taxpayer is given a

Table 4.1: Response rate

Particulars Tax Payers Tax Officer Total

Table 4.3: Respondents’ age distribution

Table 4.4:Respondents’educational level of the eighty-two respondents, around 27% of them

Table 4.6: Respondents’ legal form of their organization

Table 4.10 Summary of respondents’ tax perception

Source: Own Survey 2021

Table 4.12 responses related to cash register machine.

Item Description Response Frequency Percentage

Source: Own Survey 2021

Item Description Response Frequency Percent

Table 4.14.Summary of Respondents response related with penalty

Source: Own Survey 2021

Generally, in order to increase tax compliance, governments must adopt a comprehensive

Age: 20-30  31-40  41=< 

2. Tax Related Information

Questions/Statements strongly Disagree Neutral agree strongly

3.2. The use of Cash Register

3.4.Using cash registers

3.7.Cash register machine

3.10. The Existing audit selection

3.11. Sometimes Tax Officials