A Tax Assessment and collection related problems of category "C" Tax payers

(A case study of Gulele Sub-City Administration)

A RESEARCH PAPER SUBMITTED TO DEPARTMENT OF ACCOUNTING AND

FINANCE IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR BACHELOR
OF ART DEGREE IN ACCOUNTING AND FINANC

PREPARED BY: Brihanu Anteneh

ID No: UGR/6344/12

ADDIS ABABA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

COURSE CODE: AcFn4091

ADVISOR: Mr. Andualem Zenebe
DATE OF SUBMISSION: 20-03-2023
Table of Contents
Chapter one......................................................................................................................................4
1. Introduction..............................................................................................................................4
1.1 Background of the study....................................................................................................4
1.2. Statement of the problem..................................................................................................6
1.3. Objectives of the Study.....................................................................................................7
1.4. Significance of Study........................................................................................................8
1.5. Scope of Study..................................................................................................................8
1.6 limitation of the study........................................................................................................8
1.7. Organization Paper...........................................................................................................9
Chapter Two.....................................................................................................................................9
2. Research Design and Methodology..........................................................................................9
2.1Overview.............................................................................................................................9
2.1. Research Design.............................................................................................................10
2.2. Research Methodology...................................................................................................10
2.3. Source of Data................................................................................................................10
2.4. Method of Data Collection.............................................................................................10
2.5 Sample size and Sampling method..................................................................................10
2.5. Data Processing and Analysis.........................................................................................12
3.5.1. Data Processing...........................................................................................................12
CHAPTER THREE.......................................................................................................................13
3. LITERATURE REWIEW......................................................................................................13
3.1 Overview..........................................................................................................................13
3.1 Definition of taxation and related concepts.....................................................................13
3.2 Tax evasion......................................................................................................................13
2.3 Tax structure....................................................................................................................14
2.5 Objective of taxation........................................................................................................16
2.7 Tax reforms......................................................................................................................18
2.7.2. Indirect Tax..................................................................................................................20
2.7.3. Categories of tax payers...............................................................................................21
2.8. Tax administration..........................................................................................................21
 Chapter one
1. Introduction

1.1 Background of the study

The main source of income for the government is taxes, which are imposed on taxpayers based
on their ability to pay without any return benefits. To establish an effective and efficient tax
system, certain principles and regulations must be followed, such as taxpayers being taxed
according to their ability to pay and ensuring the time, manner, and quality of payment is certain.
The tax levying and collecting system should be economical for the government and simple to
understand and administer.
Ethiopia has undergone tariff and tax reforms since 1992/93, with outdated tax laws being the
main reason. Legislative, administrative, and judicial sources provide the basis for Ethiopian tax
laws, with the legislative sources being the most important. Traditional taxation systems have
continued to modern times, with personal income tax, business income tax, agricultural income
tax, land tax, education tax, health tax, road tax, salt tax, tobacco tax, the tithe, and alcohol tax
being the main elements of the tax system.
The initial tax review by the tax authority of the taxpayer's declaration and verification of the
declared tax liability and tax payable is known as tax assessment. Tax collection is done by a unit
whose primary function is to collect revenue and return it to the treasury unit for maintenance
and disbursement.

• Problem of tax assessment and collection

There is a big problem for system connection due to this many tax payers does not get the service
as they came to the tax office. More over there is lack of tax knowledge bay tax payers. Due to
this delay in tax payment, do not pay the negligence are taken by tax payers as solution to escape
from payment of taxes. To create effective and efficient employees, the tax office should offer
continuous training for their employees by allocating enough money to training center.

1.2. Statement of the problem

Taxation enables the government to provide administrative and social services, but also comes
with compliance costs. Therefore, it is essential for the government to develop tax laws that
enable it to collect revenue efficiently. Taxes are mandatory payments made by individuals and
organizations to the government, and they represent the primary source of revenue for the
government without any expectation of direct return. However, taxes can be a burden on
individuals and businesses, reducing their economic welfare. The benefits that come from
government spending, which is financed through taxation, can bring benefits to individuals and
organizations. Therefore, it is crucial to strike a balance between tax collection and spending that
maximizes the welfare of both the government and the public.
No doubt that the existence of better tax collection system decisive for existence of well-
developed and economically strong states. If no complain that better tax collection system is
decisive in one country's overall capacity, that is the main reason motivated the researcher to
study the constraint of tax collection system with tittle assessment of problem related in Gulele
Sub-City Administration.

In the researcher study area there are some problems of tax collection for Instance In 2009 E.C
the proposed amount of tax was greater than the amount that actually collected and also some
problem related with awareness and willingness of tax payers. According to research done on
assessment of tax revenue collection effectiveness and it is accounting system in case of revenue
Kefale Yamret conducted a study on tax administration in Axum town in June 2015 and
identified several major problems (Yamret, 2015). Taxpayers commonly complained about
taxation, and there was a lack of efficient administration staff to ensure effective tax collection.
Additionally, tax collectors did not have good working conditions or incentives, and tax rules and
ethics were often violated. The tax revenue assessment in the town was found to be full of
subjective measurements, and committee members for tax assessment may not have had
sufficient knowledge about business activity (Yamret, 2015).

Similarly, Mizan Abeto conducted research on land use tax collection problems in June 2017 at
Arba Minch University (Abeto, 2017). The study identified several issues, including the
performance of the revenue authority office in relation to land use tax, the awareness of
taxpayers about land use tax, and land use tax assessment problems. However, Abeto's study did
not investigate the determinants of land use tax payments by taxpayers.
Therefore, the current study focuses on land use tax and how it impacts taxpayers with special
reference to the land use tax in Axum town. Based on data collected from the revenue authority
office, most respondents said that the assessment processes were well-designed, and a well-
designed assessment process is critical to increasing town revenue (Yamret, 2015). To achieve
this, the study recommends that all tax assessment committee members have adequate
knowledge to determine how much tax is paid by taxpayers, and that action be taken to correct
any errors in revenue collection even if the time limit for repair or amendment has passed
(Yamret, 2015).

In conclusion, tax administration in Axum town and land use tax collection problems are critical
issues that require careful attention. By addressing the problems identified in previous studies
and implementing the recommendations of the current study, the town can increase its revenue
and improve the welfare of its citizens.

There is a difference between the gap and my title based on the assessment of tax revenue
collection effectiveness and accounting systems. However, the gap assessment does not address
the problem of tax collection. Thus, I conducted research to identify the major problem in tax
collection in the case of Gulele Sub-City Administration. I presented some findings and
recommendations. Therefore, the purpose of this research was to assess the problems related to
the assessment and collection of category "C" taxes in Gulele Sub-City Administration by filling
out the following questionnaire.

1. How to tax payer can understand the rule and regulation of tax?
2. What are the cause for the inadequacy of tax assessment and collection?
3. How to compliance tax evasion and avoidance problem by the tax payer?
4. What are the problem and weaknesses in the side of government bodies (tax collectors)
or the system?

1.3. Objectives of the Study

1.3.1. General objectives
The general objective of this study is on tax assessment and collection related problem of
catagory "C" Tax payer's (A case study of Gulele Sub-City Administration).
1.3.2. Specific objectives
The specific objectives of the study were to assess factors to be considered in tax assessment and
collection and to determine the motivation behind employee tax collection. Additionally, the
study aimed to achieve the following objectives:

1. To assess whether taxpayers can understand the rules and regulations of taxation.
2. To check for the existence of tax avoidance and tax evasion.
3. To evaluate the knowledge and awareness of taxpayers about taxation.
4. To identify problems and weaknesses on the side of government bodies, particularly tax
collection systems.
1.4. Significance of Study
The significance of the study was to give a clue to the office how to improve its tax assessment
and collecting and the amount of tax revenue collected. It was also provide some points on how
to improve tax payer’s participation toward tax.
1. To provide a positive contribution in finding a solution to the focused area.
2. To develop the researcher's experience in conducting future research.
3. To provide information to employees of the office regarding tax and collection-related
problems in the area.
4. To raise awareness among the revenue authority and take corrective action for the
identified problems.
5. To raise awareness among taxpayers and encourage compliance.
6. To assist the researcher in partial fulfillment of a seminar course in accounting.
7. To identify tax and collection-related problems
It will be used as abases for another researcher who want to make further study on the area.

1.5. Scope of Study

The overall scope of this study is focused on the extent to which the research objectives are
concerned. To avoid discrepancies, ambiguity, misunderstanding and other related problems, in
conducting the research objectives.
The study on taxation is wide and very vast and need long term study so researcher study is
restricted only in problem of tax assessment and related collection related problem of category
"C" tax payer's in Gulele Sub-City Administration.
1.7. Organization Paper
The study do have five chapters, the first chapter which is an introductory section of the paper
which include background of the study, statement of the problem, objective of study, significance
of the study, scope study and limitation of the study. The second chapter details with the research
methodology of the study with the data analysis and presentation of the findings. The third
chapter deal with the related literature review. Fourth chapter result analysis and discussion.
Finally the last chapter deals about conclusion are recommendations.
 Chapter Two

2. Research Design and Methodology

2.1Overview

The researcher was using descriptive method of data analisis .For this purpose of
the study tabulation, percentage and proportion data presentation tools will be
used. Do to time and other resource constraint,the the researcher take sample from
the population by simple random and systematic sampling methods.The data was
collected through by using primary and secondary, primary data was obtain
through questionnaires and interview. Whereas secondary data are obtained from
website and manual report of the city administration. The detail is presented as the
following.

2.1. Research Design

So as to put the objectives of the study in to descriptive method has been conducted to observe
tax and collection related problems of category "C" tax player’s case study on Gulele Sub-City
Administration.
.

2.2. Research Methodology

The study is conducted in Gulele Sub-City Administration. Particularly of the limit to the tax
assessment and collection related problem. The researcher is utilized different research methods
and materials in taking in to consideration the variables.

2.3. Source of Data

Primary and secondary data source are considered and used in study. Primary sources are the
main source of information for the study. Some information for study has been collected by
researcher (open-ended and close- ended questionnaires), using primary source of data collection
through unstructured interview and questionnaires. The study is conducted by distributing
questionnaires to the Gulele Sub-City Administration.
Employees and tax payer. Secondary data is collected data through survey and reviews the
document manuals of Gulele Sub-City Administration report issued to the employees.

2.4. Method of Data Collection

The study was collected through by using primary and secondary, primary data was obtain
through questionnaires and interview. In order to get required information the researcher has data
collectors and gives orientation about the method of data collection and explanation for the
purpose of each item. Validity of data collection was accepted by principal investigator.
Secondary data was collected from journal documentary record, annual reports periodically,
magazine and other written materials. Interview was used to obtain relevant data from financial
manager or employees.

2.5 Sample size and Sampling method

The researcher was used simple random and systematic sampling because of used in those
cases where are complete list of the population from which sampling is to be drawn is available
and each and every item of population is give and have equal chance being chose and also free
from personal bias because researchers does not exercise his dictionary preference choosing of
population subject to questionnaire.
The total population of the tax payers is 27,864 peoples and there are 250 employees the Gulele
Sub-City Administration, the sample size is determined by the following formula which is come
from statistic’s subjects as the following using
The sample size (67) and (41) is determined by using the following formula which came from
statistics subject, as following using 90% confidence level, error of confidence level will be
10%. ( kottari 2004)

n= sample size
Z2 = from table of using confidence level
P = probability to be selected
q = probability not to be selected
N= Total population of category “C” tax payers in Dire dawa city Administration = (tax
officers’ stratum(N1) +tax payers’ stratum(N2))
e = error of confidence level
For tax payers
n=(1.64)2 ×0.5×0.5×27864
(0.1)2×(27864-1) + (1.64)2 × 0.5×0.5

n= 8741.2 = 67
130.22
And for tax officers which was stratified in to 5 departments

n= (1.64)2 × 0.5 × 0.5 ×250

(0.1)2 × (250-1 ) + (1.64)2 × 0.5 × 0.5

n= 2.6896 × 0.5 × 0.5 ×250

(0.1)2 × 250 + 2.6896 × 0.5 × 0.5
n= 53.1

2.5. Data Processing and Analysis

3.5.1. Data Processing
Data processing implies editing, coding and classification of collected data so as to make suitable
for further analysis. The research paper is also conducted after the collected data are edited.
Coded and classified as per the techniques.
2.5.2. Data Analysis desires.
Descriptive analysis is a forms of data analysis used for the study, because it is less complicated
and is to avoid misinterpretation for the results. The main forms of descriptive analysis used for
the study are tabulation percentage and proportion.
 CHAPTER THREE
3. LITERATURE REWIEW

3.1 Overview

Taxation is revenue of the goverment which is collected from the public to finance government
service and activities. When we talk about tax we talk about it's
structure,purpose,form ,type ,category of tax payer ,tax adiministration ,merit and demerit of
tax.The the content is briefly explained below.

3.1 Definition of taxation and related concepts

According to current understanding, taxation refers to a system that governments use to raise
money to fund their services and activities. This involves levying mandatory contributions on
individuals and businesses at the local, state, and national levels. These contributions, known as
taxes, are a legally-binding obligation on personal property and businesses that contribute to the
state's revenue. While governments can fund their activities through other means, such as
borrowing, creating money, obtaining technical assistance from abroad, and donations, the
primary source of revenue to finance public expenditure remains taxes. Taxes are a compulsory
contribution by individuals or organizations to the government, and they have been in existence
since the inception of government. Over the years, the general level of taxes has varied
depending on the role of governments. However, with the expansion of government
responsibilities and the increasing need for tax revenue, many governments, particularly in
advanced industrial countries, have greatly expanded their roles. (References: OECD, 2019; IMF,
2020)
3.2 Tax evasion
Any individual who evades or fails to declare or pay their taxes is committing an offense, and in
addition to any penalties, they may face prosecution and be subject to a term of imprisonment of
not less than five (5) years. In the case where any amount of tax is not paid by the due date, the
person liable is obliged to pay interest on such amount for the period from the due date to the
date the tax is paid. The interest rate is set at 25% over and above the highest commercial bank's
lending interest rate that prevailed during the preceding quarter. Furthermore, any person who
fails to file a timely tax return is liable for a penalty equal to 5% of the amount of tax
underpayment for each month (or portion thereof) during which the failure continues, up to 25%
of such amount. It is important to note that the penalty is limited to 50,000 Birr for the first
month in which no tax return is filed (Ethiopian Revenues and Customs Authority, 2021)
2.3 Tax structure
The tax structure is an evaluation of the relative burden of the tax system on individuals at
different economic levels. Generally, there are four types of tax structures, namely progressive,
proportional, regressive, and digressive.

A progressive tax structure is one where the tax rate increases as the taxpayer's income increases.
A proportional tax structure, on the other hand, applies a constant tax rate regardless of the
taxpayer's income level. In contrast, a regressive tax structure imposes a higher tax burden on
lower-income earners compared to those with higher incomes. Lastly, a digressive tax structure is
one where the tax rate decreases as the taxpayer's income increases up to a certain level, after
which it becomes progressive.

It is essential to note that the choice of tax structure depends on various factors, including the
government's fiscal policies, economic conditions, and social objectives. The aim is to strike a
balance between fairness and efficiency in the tax system ( OECD, 2019; IMF, 2020)
2.4 Main types of tax structures

1. Progressive taxes are based on the idea that people with higher incomes should pay a higher
percentage of their income in taxes. In other words, the tax rate increases as income increases.
This type of tax structure is often used in countries with social welfare programs that aim to
reduce income inequality.

2. Regressive taxes, on the other hand, take a larger percentage of income from people with
lower incomes than from those with higher incomes. This means that the tax rate decreases as
income increases. This type of tax structure is often criticized for being unfair to low-income
earners and contributing to income inequality.

3. Proportional taxes, also known as flat taxes, are based on the principle that everyone should
pay the same percentage of their income in taxes. This means that the tax rate remains the same,
regardless of income. Proportional taxes are often used in countries with simpler tax systems and
lower levels of government spending.

It is important to note that each type of tax structure has its advantages and disadvantages, and
different countries may choose to implement different tax structures based on their unique
economic, social, and political contextsDigressive tax structure
According to Gebrie Worku (2006), this tax structure represents an alternative form of
progressive tax structure, characterized by a gradual decrease in the progressive tax rates as
income increases (p. 35).
2.4 Effective of taxation
Economists have devoted considerable export to studying the effects of taxes. In particular, they
study how taxes affect people’s behavior, including their choosing in working, saving and
investing.
To understand the effect of any tax, one must determine who bears the burden of the tax. The
way a tax affects people is called the tax incidences the statuary incidences of tax refer to the
individual group who must legal pay in contrast, the economics of a tax refers to its actually
effect s on people incomes. The economics incidences of a tax depends on how buyer and seller
of the commodity when the tax is imposed. It have also been used to reducing the inequality of
income and wealthy.
2.4 The effect on ability to work, save and invest

Put appropriate references to the Paragraph "Taxation refer the money income from the
public to the government and their by reducing their purchasing power. The reduction in
purchasing power reduces their ability to obtain necessity luxuries of life.
Thus, the levies of tax on peoples reduce their competitions of necessities and comforts,
which lower the standard of living, when the standard of living is affected. This effect is
strongly felt by the poor people. However, the efficiency and ability of rich people is not so
much affected by taxation.
2.4.2 Effects of taxation on willingness to work, save and invest
Taxation affects the design of the people to work, saving invest. If the willingness of the
people to work, save and invest is affected by taxation, the production will automatically be
affected. It is universal recognized that direct taxes have more adverse effects all the
willingness of the people to work, save and invest.
It is all the ground psychology reaction of the people. That is when the higher progressive
of taxation is levied, the government takes the major of protection of the additionally
income book. This many create a trends in the mind of the people not to take risk to work,
hard to earn a manager income.
However, fair and justices tax system may not have any such bad effective on the
willingness to the work save and invest.
2.4.3 Effects of taxation on the divers of economic resources
Will the value of production of the encounter depend up on ability and willingness to a
work, save and invest, the patterns of production depends up on the allocation of economic
resources amount the industry and region and consumes. If the product certain industry
are taxed, their prices would rise and therefore, the demands for their product would
reduce and there bathe profits also Is reduced, this may result in the diversion of resources
from this industries to some other industries whose product is subjected to no tax or low
rate.
If there is original imbalance with in the country, government can uses taxation to remove
such imbalance by tax examination and tax concession to investors who made investment in
under developed regions. The diversion may be beneficial diversion or harmful diversion.
Taxation on the commodities that has injuries to the health like cigarettes and liquid may
discourage their consumption, which in turn affects their production. The factors of
production engaged in these industries may be diverted some other industries. This is
“beneficial diversion”. The taxation on the goods of common consumption will increase
their price.
Hence may be diverted to the production of some other commodities which may be in the
nature of luxury or harmful to healthy, it is known as “harmful diversion

4.1 Objectives of Taxation

According to Income Tax Fundamental, 1st edition, taxes are the primary source of government
revenue, and they serve various functions. One of these functions is stabilization, which involves
the use of fiscal policy to achieve the stabilization goals of the society. The increase or decrease
in income affects the supply of goods and services and basic economic indicators such as
employment, the value of goods and services, savings, and investment. The goal of stabilization
is to combat undesirable conditions such as recession or depression and promote economic
growth. Another function of taxation is income redistribution, which is achieved through the
pattern in which aggregate income or wealth is divided among the people. The public sector
budget plays a significant role in income distribution, which can be viewed as a public good. Tax
revenue is also used for resource allocation, which involves collecting revenue and allocating
limited productive resources to society. Finally, taxes can be used to stimulate private sector
involvement in planning and development programs in a free market economy. The government
provides tax exemptions, deductions, transfers of losses, and other incentives to increase the
participation of the private sector in the development program of the country (Income Tax
Fundamental, 1st edition).

2.7 Tax reforms

The tax system reform project aims to create tax system that is more supportive of privet sector
development, improving revenue collection and ensuring equity and fairness of tax system. The
tax reforms that have been initiated will lay the foundation for the strengthened revenue base.
Continuing efforts to improve tax administration and collection including strengthening the large
taxpayer unit, have resulted in increased tax revenue. Reforms have sought to stream more
efficient, strength, and the collection of domestic indirect tax through selective rate increase and
burden the tax base. The tax reform greatly benefited the country in;
1. To solve the problems related to the Ethiopian tax system, tax reforms are necessary. The
reasons for the tax reforms include the following:

2. Old and loose tax legislation due to changes in economic structure and fiscal federalism.
3. Lack of comprehensiveness and strong enforcement power.
 4. Weak administration, such as the lack of a modern operational system and inefficient
services.
5. Openness to unfair dealing with taxpayers.
The tax reforms have involved the following measures:

1. Formulations of tax policy and legislation.

2. Introduction of the presumptive taxation system.
3. Introduction of the value-added tax (VAT).
4. Taxpayer identification number system (TIN).
5. Federal Inland Revenue Authority (FIRA).
6. Operational programs, systems, and procedures.
7. Continuing measures to stabilize the tax regime.
These reforms aim to create a modern tax system that is comprehensive, efficient, and fair to all
taxpayers. By introducing new legislation, strengthening enforcement, and improving
administration, Ethiopia is laying the groundwork for a more stable and sustainable tax system.
(References: World Bank, 2019; IMF, 2020)

To attain sustainable economic development radical’s change in domestic revenue should be

made. Thus, tax reforms were taken place with the objectives of increasing tax revenue and to
have strong tax fiscal policy instruments to encourage capital investment and economic
development. The broad categories of the tax reforms are over having strong the tax system and
improving tax administration. To improve tax administration then following activity taxation:
1. Presumptive taxation
2. Simplified and cost-effective method
3. Small business (hard-to-tax groups)
4. Value-added tax implementation-replaced sales tax
5. Computerized TIN (taxpayer identification number) system.
6. Needs huge computerization
7. Lay basis for modern tax administration system
8. Gives identification number to taxpayers
9. Provide efficient tax operation service
 10. Help to control tax evasion
11. Operation programs, recognition, and taxpayer education
12. Reorganization, better staffing, better salary for FIRA employees
13. Production of audit and accounting manuals
14. Education for taxpayers
2.7.1. Direct tax
Acceding to dalto, direct taxes are those, which are paid entirely by those persons on whom they
are imposed. Direct taxes are those taxes which cannot be shifted to others. Direct taxes are
made up of different individual taxes personal income tax: are applied to the income of
individual and families.
Capital gain tax business profit: - this is tax imposed on the taxable business income or net profit
realized from entrepreneurial activity.
Property tax: - are lived on the value of such property as firms houses, stores, factories and
business equipment property tax first become important in ancient time.
Merits and Demerits of Direct Taxes
Merit of Direct Taxes,
Equitable: - direct taxes such as income tax are equitable because it is based on the principle
progression. Certainty direct taxes satisfy the canon of certainty. The tax payer is certain as to
how much he/she is expected to pay and similarly the tax collector is certain how much it
receive.
Elasticity:- elasticity in direct taxes implies that the government collects more revenues simply
by raising the rate of taxation.
Reduce inequalities: - direct taxes are progressive in nature and therefore, rich people are subject
to his/her rate of taxation, while poor people are exempted from direct tax obligation.
Ensures principle of ability to pay:- direct taxes are based on the principle of ability to pay. The
fall more heavily on the rich than poor. The tax burden is distributed on different section of the
social in just and equitable manner.
Control effect of traded cycles:- direct tax control the effect of trade cycles. They can be used as
tool to mitigate the effect of inflection and deflationary trends by raising or reducing the tax rate.
Demerits of Direct Taxes
In convenience: tax payer should submit the statement of total income along with the source of
income from which is derived.
Evasion: direct tax are certain and tax payers know the rate of tax they have to pay, therefore,
awareness of tax liability to tempts the tax payer to evade tax.
Arbitrary: there is no logical or scientific principle to determine the degree of progression in
determing tax brackets (Gebrie 2008, 29).

2.7.2. Indirect Tax

Indirect tax is often avoidable and not taken from wages. Tax in which the burden may not
necessarily be swallowed by assesses, which means indirect taxes can be shifted on the other
persons (Gebrie worku 2008, 29 and Richard A. Margrave, 2989).
Example indirect taxes areas excise tax, value added tax, turn over tax
Excise taxes levied in respective of goods produced locally and imported good :-
value addied is a tax on customer expenditure. It is broad tax on the consumption of good and
service.
Turn over tax:- would be payable on goods sold and services rendered by persons not registered
for value all tax.
Merits of Indirect Taxes
Convenience:- indirect tax are more convenient to the tax payers.
Wide scope: while the people with income and wealth above a certain limit, are brought under
the levy of direct taxes, indirect taxes are paid by all both poor and rich.
Elastic the revenue from the indirect taxes can be increased or decrease as government need.
Tax evasion is not possible:- indirect taxes are included in the selling price of the commodities
so, evading of such tax become, very difficult.
Substantial revenue:- indirect taxes yield substantial revenue to both central and states of
government.
Progressive:- indirect taxes can be made progressive by imposing lower rate of taxes or giving
exemption to the necessary article and heavy taxes on luxurious articles.

2.7.3. Categories of tax payers

Category “A” tax payers whose annual income about 1000,000 birr declare and pay tax after the
budgetary years four months. They are obligated to keep books of account and present balance
sheet and profit and loss statement to the tax office.
Category “B” tax payer
Tax payers who are under the threshold of annual turnover income between 500,000 to 1,000,000
birr maintain records on books of daily revenue and expenditure and should declare and pay tax
after the budgetary year of carryon know months.
Categories “C” taxpayers
Tax payers whose annual turnover income up to 500,000 birr keep recodes and present it for
assessment. It is highly appreciated by the tax offices and pay tax after the budgetary year of one
month (Gebrie 2006, 64 and 65).

2.8. Tax administration

Since taxes are an involuntary payment for governmental services tax payers have a strong
inventive to minimize their tax liability either through avoidance (legal) or though evasion
(illegal). Tax administration has to secure compliance with the laws by applying an array of
registration. The ability to tax payers to keep form doing this procedure and thus successfully
avoid evading taxation determines the sizes and the nature of economy’s actual effective tax
base. Both evasion and avoidances seriously compromise the demonstration of the tax system,
producing a system that departs scientifically in its operation from the one that is described on
the tax legislation (Misrak p. 453).

References

A Warning Remark – Read carefully.

To one’s surprise there is no a single mention of the current active/applicable income tax
proclamations, regulations and directives. This is entirely unacceptable conduct and
irresponsibility. You must strictly work following my instruction and advice. I will be forced to
reject all your work and decide rework!
Go to the website of the inland revenue authority you will get a number of resources.
 References:
 Abeto, M. (2017). Assessment of land use tax collection problems: the case of Gamo
Gofa zone, Ethiopia. Journal of Economics and Sustainable Development, 8(13), 35-44.
 Yamret, K. (2015). Tax administration problems and prospects in Axum town, Ethiopia.
Journal of Finance and Investment Analysis, 4(4), 1-14.

 Musgrave, R. A., & Musgrave, P. B. (1989). Public finance in theory and practice. New
York: McGraw-Hill.
 Bird, R. M. (2008). Taxation and development: Lessons from Colombian experience. In
Taxation and development: Lessons from Colombian experience (pp. 1-14). Inter-
American Development Bank.
 Tanzi, V. (1995). Fiscal federalism and decentralization: A review of some efficiency and
macroeconomic aspects. Annual World Bank Conference on Development Economics
1994, 335-359.
 Slemrod, J., & Gillis, M. (2019). Tax systems. In Handbook of Public Economics (Vol. 5,
pp. 1-146). North-Holland