PHARMA COLLEGE

HAWASSA CAMPUS MASTERS OF BUSINESS

ADMINISTRATION (MBA) PROGRAM

A STUDY ON ENFORCEMENT PROBLEMS OF SIGTAS AND

AUTOMATION SYSYTEM IN TAX COLLECTION: IN THE
CASE OF SIDAMA REGIONAL STATE REVENUE
AUTHORITY

BY

ALEMESHET YOSEF

ID No PHEMBA 104694-15

ADVISOR: Dr. AYNESHET AGEGNEW

Nov, 2017

HAWASSA, ETHIOPIA
 DECLARATION

I, Alemeshet Yosef, Registration Number /I.D. Number PHEMBA 104694-15, do

here by declare that this Thesis is my original work and
 ABSTRACT
The aims of the research were to find the problems related with automating tax collection system
in Sidama National regional State Revenue Authority (SNRSRA). It is known that the existence
of state without tax is unthinkable because, government raises fund from tax collection. So
studies of problems associated with tax collection and finding appropriate solution may help to
contend with development constraints successfully through detailed investigation. Because of
this, this study was designed and looked at the problems related with tax collection in SNRSRA.
With the main objective of assessing problems related with tax collection this may help the
Sidama State’s revenue and branch tax office to look at originated problems.

The research used descriptive research methodology and both qualitative and quantitative
research approach were adopted for the study. To bearing the research both primary and
secondary data were gathered from representative taxpayers and tax officers. The sampling
technique employed both probability and non-probability and questions were distributed for
thirty nine (39) tax employees and one hundred seventy (170) sample taxpayers.

The research determine difficulties such as the full utilization of system integrated government
tax administration system (SIGTAS); the regulations, inadequacy of tax knowledge ; absence of
providing on time and excellence service; shortage of collaboration among other tax office
branches and taxpayers.
Therefore based on the determined problems the study suggested the succeeding: there ought to
be complete use and application of computerization for sufficient data accessibility; doing
extensive about automation system tax education schedules; There ought to be close
collaboration with revenue minister and other institutions including merchants; the tax authority
ought to emphasis for administration of fraudulent traders, and modernizing plea process.
 ACKNOWLEDGMENTS

First and for most I would really like to thanks my almighty God for his mercy, protection, and
assistance he has given me to complete this study work.
Then, I am very happy to express my heart felt deepest gratitude inner most to my advisor Dr.
Ayneshet Agegnew for his positive observations, helpful idea and his support during the
working of the study.
Finally, I express my greater credits to my Family and my Friends for their open support in the
working of this study. Similarly I want to express my appreciations for sidama region tax
authority staffs and Taxpayers to offer vital evidence and who have contributed materials and
suggestions leading to this research.
Table of Contents
LIST OF ACRONYMS

SNRSRA Sidama National regional State Revenue Authority

SIGTAS Standard Integrated Government Tax Administration System

MoR Ministry of Revenues

IT Information Technology

IMF International Monetary Fund

FDRE Federal Democratic Republic of Ethiopia

TIN Tax Identification Number

VAT Value Added Tax

PLC Private Limited Company

ERCA Ethiopian Revenue and Customs Authority

SRM/CRM Sales Register Machine/Cash Register Machine

RTS Receipt Tracking System

ITSM Information Technology Service Management

 CHAPTER ONE

INTRODUCTION
Tax collection is one of the public administration which governed by the rules and regulation by
the responsible government organization or bodies. The fundamental purpose of taxation is to
raise revenue for financing public goods and services. An effective tax system therefore strikes
an appropriate balance between public and private needs to achieve national development goals,
given the prevailing structural and social conditions and political priorities (European
Commission 2007a). The governance view focuses on how taxation influences state ability,
awareness, and responsibility, as well as the political economy of tax reform.

Four things are well-known in the history of taxation and governance. First, it is a central
characteristic of the social contract on the position of the state, control networks, economic
interests, and government abilities in each country. Second, taxation is a centre of means for
state-building and good governance. Third, the levying of tax can develop governance by
fostering fiscal bargaining and encouraging governments to be responsive and efficient. Fourth,
connections also work in the opposite direction, as the quality of governance affects revenue
mobilization through its influence on the culture of compliance (Nathan Associates, 2011).

Since the early 1980s the world has experienced an unprecedented pace of advancement in the
field of information technology. These technological innovations are having a profound impact
on the administration of fiscal systems and have revolutionized the way in which tax reforms are
implemented. No tax reform can be successful without successful tax administration is becoming
increasingly obvious, with the result that governments are starting to pay special attention to the
improvements of tax collection system. One of the attention areas for government is automating
tax collection system (Jenkins, 1996). New applications of modern information technology
systems to enhance voluntary compliance are being discovered and tested at increasing
frequency. Mangers of tax systems and fiscal reform specialist becoming aware of the fact that
the introduction of computerized information system to restructuring administrative systems.
Obviously, computerized integrated tax information systems are to be accepted and viewed as
successful tax administrators and support personnel. It had always been one of the major
components of the tax reform process. Information and Communication Technologies (ICT), by
enhancing efficiency and transparency can contribute to the improvement of tax assessment and
collection systems. It has also been used to increase the quantity and quality of the information
available to the tax administration (Jenkins, 1996). This available information facilitates decision
making system. The tax decision support system offers a separate environment optimized for
decision support and data mining. It enables users to gain access to huge amounts of information,
which can assist them in meeting their overall business objectives like complex tax analysis.

1.1 Background of the Study

Tax collection system 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 collection system, therefore, covers a wide area of study, encompassing aspects
such as registration of taxpayers, assessments, returns processing, collection, and audits
(Kangave, 2005). It also aims at improving on laws regarding the registration, assessment,
collection revenue, and exploiting fully taxation potential of a country (World Bank, 1991).

A long process study called “Business Process Reengineering” had takes place before any steps
were taken to effect the merger of the forgoing administration. The study looked into selected
key business process and come across in effective organizational structure and unnecessary
procedures that permitted in sufficient service delivery. To solve these depressed problems the
authority deals so many business process improvements like tax assessment and collection and
enforcement and audit process (SNRS, 2013).

Automation impacts on the efficiency of tax collection system. Efficiency of tax collection
system may be measured by the amount of costs incurred, tax clearance time and effectiveness of
revenue collection (UNCTAD, 2006). A modern tax administration system is based on the
creation of a unique taxpayer identifying number (TIN) which is the foundation of its
management information system and which scrutinize the status and overall cases of taxpayer
through all main business activities. Information technology can support the function of tax
administration in different manners. Ethiopian Revenues and Customs Authority (ERCA) is used
information technology for supporting customs administration and domestic tax administration.
Since 2003, Ethiopian Government implemented information technology systems to supports tax
administration’s functions and procedures. The first tax type supported by information
technology was value added tax (VAT). Following VAT and TIN implementation all other types
of taxes were automated in all branches of Federal Inland Revenue Authority (ERCA, 2012). The
modern information technology applications employed in ERCA to administer the taxation
consist: standard integrated government tax administration system (SIGTAS), e-filing, sales
register machine system (SRMS), receipt tracking system (RTS), information technology service
management tool (ITSM), biometric data and TIN central and regional application. Sidama
National regional State (SNRS) Revenue Authority is one of the regional authorities.

The SNRS Revenue Authorities have 4 Zone and 1 city administration that are under all tax
control and administration. Therefore, this study is aimed at the use of modern information
technology in tax collection system effects such as registration, auditing and assisting taxpayers
and daily sales controlling system to support the tax collection system by SNRS Revenue
Authorities.

1.2 Statement of the Problem

Tax collection is a difficult and unenviable task, but nevertheless critical for revenue generation
required for accelerating growth and to improve the quality of life of the citizens. Revenue is one
of the principal means by which a government finances its expenditure. Automation based
approaches have become an important vehicle for achieving efficiency in tax collection
(UNCTAD, 2006). Unless a computerized tax system supports and simplifies the overall
function of tax collection, provides faster access to information for its main users, identifies
taxpayers who are not in compliance, and produces reports in a manner more timely than did the
manual systems, then the design is flawed and its eventual effectiveness doubtful.

The purposes of supporting tax collection system with integrated tax information systems are to
increase the effectiveness and efficiency of tax collection system to make reliable and timely
decisions. And there is also to reduce unnecessary waiting time in providing service for
taxpayers and to have clear and easily accessible data and document management. Even though
all tax collection supported by Modern information technology, the SNRS Revenue Authorities
has not properly achieved the objectives automating the tax collection system. Therefore, this
study will addressed problem encounter by this Revenue Authorities which includes improper
function of the network system, shortage of computer, delay in providing information for
decision making, / tax administration system, inadequate support from IT support team,
insufficient trained employees and inadequacy in competency, limitation in access privilege,
delay in giving a solution for existing problems and lack of quality data. Thus, this study tries to
answer the following question:

1.3 research question

1. What are the roles of automated using the tax collection system?
2. What are the impacts of the automated on tax collection system?
3. What are the challenges and problems faced in the application of automated tax
collection system?

1.4 Objective of the Study

The objective of the study is to include both the general and specific objectives.

1.4.1 General Objective

To assess the use of automated in to improving the effect of tax collections system in
case of SNRS Revenue Authorities of the SNRS government.

1.4.2 Specific Objectives

To assess the roles of automated using the tax collection system.
To examine the impacts of the automated on tax collection system.
To identify challenges and problems of the faced in the application of automated tax
collection system.

1.5 Significance of the Study

Automating Tax collection system enables the tax administration to improve revenue collection
and services to taxpayers. And also facilitate access to integrated information for further uses.
Therefore, this study provides feedback for the SNRS Revenue Authorities as well as for the
taxpayers especially for the authority in the areas of which the information technology not
properly exercised and that needs improvement. For the other researchers in the future it may be
an input for future further study.
1.6 Scope and Limitation of the Study
Even though there are different application of information technology employed in the authority,
this research was limited on the SNRS Revenue Authorities tax collection of the use of modern
information technology for tax collection which currently applied such as standard integrated
government tax administration system(SIGTAS) and sales register machine system (SRMS)
tools. It was also be limited on the role of automated system on the tax collection. The study did
address tax educational and low, tax assessment and collection and enforcement core business
processes and IT support sub process. The total populations for this study were taken from VAT
register taxpayers who are active filler and located in SNRS Revenue Authorities.
The study encountered the following shortcoming during the time of the research study:
unwillingness of the respondents to give the whole and unbiased information during the time of
filing an answer in the questionnaire; some of the tax payers did not respond and some other
returned the questionnaire without answering the entire question; shortage of time, finance and
material for collecting and conducting the research paper and lack of enough literature materials
of the automation system in tax collection.
 CHAPTER TWO

REVIEW OF LITRATURE

2.1 Introduction
Automating Tax Collection has an effect on improving service delivery and revenue performance
of the tax authority. My research was review that related literatures written by various scholars.
The literature reviewed by this study includes: tax books, journals, tax proclamations and rules,
integrated tax administration procedures, user guidelines and manuals, tax magazines and
brochures, other countries best experience and practice, internet and web sites and tax research
working papers.

2.1.1 Taxation:

Different governments of the world generate revenue in different forms, and one of the mostly
practiced ways of collection through taxation. Taxation is an important way to strengthen the
effective functioning of the state. Usually governments encourage citizens to pay taxes as a
social contract between government and citizens where the governments would be able to
organize and run their administration and provide social services to citizens. Furthermore,
taxation would encourage dialogue between states and their citizens; consequently, the taxation
process is central to more effective and accountable states. In addition, taxation is major means
through which governments can create equitable wealth distribution among citizens. Therefore,
governments make different reforms towards taxation, which begin in tax administration, may
spread to other parts of the public sector (World Bank, 1991).

Taking taxation as important to any economy cannot be overstated, while taxation plays the
important traditional roles of raising government revenue, discouraging activities that may be
deemed socially undesirable, redistributing wealth and income and the allocation of resources
among the population, it has a major role of ensuring good state-society relations through
accountability and good governance. Citizens of a country entrust the government with a share of
their income through taxation and in return expect efficient delivery of services. Whichever
direction this relation goes, will have a profound effect on good governance. Taxation can also
be a tool to achieve trade policy objectives. One of the objectives of trade policy is to nurture and
protect the economy in general and specific sectors in particular from premature exposure
(Strengthening Africa in World Trade, 2010).

2.1.2 Tax collocation:

Tax collocation is rooted in the theory of revenue exaction which a result that gives an
undeniable justification of the positive theory of the state and its relationship with the market
economy (Albright, 2008 cited in Isaac and Lilian, 2010). According to Thomas (2008 cited in
Isaac and Lilian, 2010) the importance of the theory of revenue exaction in a more concise
manner; he leaves a gap by dealing more with taxation theory than tax administration. It
describes how it should be conducted in order to achieve the desired administrative efficiency
defined in terms of time delay, cost and effectiveness in terms of revenue collection (Gunning,
2007cited in Tetteh, 2012). It needs to be complimented by the efficiency theory and the
effectiveness paradigm both of which provide the rational basis for adopting automation in tax
administration (WTO, 2007). A tax and taxation distinct where a tax is being any payment by
economic agents and individuals to the government and taxation which focuses on the
methodologies for determining the means of raising taxes, the types and rates of taxes.
Therefore, taxation includes a system of law, rules and strategy, which finds out the rates and
types of taxes (Albright, 2008 cited in Isaac and Lilian, 2010).

2.1.3 Tax collection system Functions and Procedures:

According to Tanzi and Pellechio (1995) the main tasks of tax collection system involve:
information and instruction to taxpayers, registration, and processing tax returns, assessments,
enforcement collection, audit and control and legal services and complaints. Inclination towards
functional organization of tax administration definitely prevails in modern theory and practice.
This facilitates introducing additional dedicated activities which give far better support to self-
assessment of the taxation system.

Modern tax collections perform common types of activities or business processes. As said by
Tanzi and Pellechio (1995) some of these main business practices directly relate to the objective
of the tax authority while other activities provide the support framework to properly carry out the
authority mission. Main business processes are interrelated and ongoing communications and
coordination between these processes are essential. For example significantly increasing the
number of audits in a given year will impact taxpayer services and enforced collection resource
requirements. In the same way, increased concentration to non-filers will affect collection and
audit resource needs.

2.2 Modernizing Tax collection and Business Process Reengineering

Information technology has a significant effect on management tools and tax collection. These
tools include: time based competition, total quality management, business process reengineering,
web-enabled business and knowledge management.

2.2.1 Time Based Competition

Time-based competition is the extension of just in time into every aspect of the product and
services. It has been a strategy which leads a tax collection on timely specified target. This target
has moved with speed and time-based competition (Inman, 1995). According to Hum and Sim
(1994) time-based competition mandates an approach of customer responsiveness and rapid
service delivery together with better quality. A good quality time-based organization is
distinguished by that of making informed decisions rapidly; makes extensive use of information
technology; reduces the time required for all business processes; has reduced costs.

2.2.2 Total Quality Management

According to Rouse (2005) total quality management is a comprehensive and structured

approach to organizational management that seeks to improve the quality of products and
services through ongoing refinements in response to continuous feedback.

2.2.3 Business Process Re-engineering

According to Hammer and Champy (1990), business process reengineering is the analysis and
redesign of workflow within and between organizations. It is also defined as a fundamental
rethinking and radical redesign of business processes to bring about dramatic improvements in
performance. The role of IT in business process re-engineering is to improve work efficiency;
the capabilities of IT have to be applied to redesign business processes (Choudrie et al., 1999).
2.2.4 Web-enabled Business

Web enabling is the art of constructing, adapting, or interfacing software applications so that the
user of the software needs a browser on the desktop (CCC, 2001). Web based business used web
browser like Netscape navigator or internet explorer. The computer server that is hosting the
decision support system application is linked to the user’s computer by a network with the
TCP/IP protocol. The tax administration software are web enabled (CGI Group, 2008).

2.2.5 Knowledge Management

Based on Koeing (2012) knowledge management is the process of capturing, distributing, and
effectively using knowledge. It is a discipline that promotes an integrated approach to
identifying, evaluating, retrieving, and sharing all of an organization’s information assets. There
are two types of knowledge tacit and explicit knowledge: tacit, which is embedded in the human
brain and cannot be expressed easily and explicit knowledge, which can be easily codified.

2.3 Information Technology in Tax collection

2.3.1 Evolution of the Use of IT in Public Sector

Information technology preceded the invention of computer. According to Moreau (1984) the
abacus, used by Asians, Egyptians, Romans and Greek can be termed as a source of information
technology. Information technology includes all form of technology used to generate, hoard,
exchange and use information in its different forms. These are business data, voice
conversations, still images, motion pictures, multimedia presentations and other forms. It is a
convenient term for including both telephone and computer technology in the same word.

In accordance with Bertucci (1995) IT in public sector use in different dimensions: office
automation and information systems. So an information system is a mechanism used for
obtaining, filing, storing, and regaining an organized body of knowledge. Generally speaking, an
information system is composed of computing hardware, software, and communication facilities.
These are tangible portions of an information system. The intangible portion of an information
system, which is very important and normally neglected, is the organizational issues of an
information system. User requirements analysis, data capturing and cleaning, data maintenance
and updating, information dissemination and utilization, etc., all need to be well planned and
organized.

Technology has influenced the way we work, play, and interact with others. It is not surprising
that technology has also affected how tax systems are designed and administered in developing
countries. Radical improvement in tax administration requires changes in organization and
methods, and modern information technology greatly facilitates the needed transformation
(Engelschalk, 2004).

2.3.2 Components of Modernized Tax Administration Functions and Procedures

Many countries use different kind of information technology applications; integrated tax
administration system (iTAX) is one of the IT systems developed for administering taxation. It is
a completely integrated modular system for taxation with an open source database, which can
handle all types of taxes. iTAX supports the revenue authority in registration, Payment,
assessment, collection, debt management (enforcement), auditing, and tax monitoring, and
reporting (Seelmann, et al., 2011). The main components of iTAX are:

i) Taxpayer Registration and Assistance

Taxpayer registration is the first process that should become operational and it is the first module
in registering and processing taxpayers’ information. This function contains registering taxpayers
such as companies and individuals and assigning unique taxpayer identification number (TIN),
maintaining and updating taxpayer registers, contact point for taxpayers who visit, call, or write
to the tax administration, providing and staffing taxpayer service counters and call-in operations.
It 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 in every transaction, and no
taxpayer should have more than one TIN. A primary objective of taxpayer services is to inform
the public of their duties and responsibilities under the tax laws in a way that is easily
comprehensible by even the less educated taxpayers (UN, 2000).

ii) Receipt and Processing of Tax Payments and Revenue Accounting

Taxpayers are required to file returns within specified months of the end of their tax accounting
year. The return should be filed in containing full information of the taxpayer. All documents
respecting taxation should be presented to the tax authority office where the taxpayer has their
file. Taxes are due on the due date of the submission of the self-assessment returns. Thus, this
business process involves both front and back office activity which includes: Processing
payments received directly from taxpayers or electronically from banks or other third party
sources (Lewis, 2005). Taxes and fees are paid and collected by the taxpayers’ the cashier has to
register the payment, the purpose of the payment and to issue a receipt through automated system
(Seelmann, et al., 2011).

iii) Assessment Processing

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 or no. Tax return and related data has been entered into assessment module that is
capture remittance screen and matching of taxpayer and third party documents and data. It also
used make tax amendments for all domestic taxes and processing self-assessments, estimated
assessments and re-assessments. Most of the assessments are self assessments where the return
by the tax payer is accepted as official assessment. If a return is not submitted, an official
estimated assessment will be issued by the system after due date. This module helps to issue
assessment notice to taxpayers balance due, non-filer and stop-filer and maintaining, updating,
and providing revenue accounting data (Seelmann, et al., 2011).

iv)Audit or Control

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. This compliance business process encompasses all taxpayer audit/inspection/control
operations. The audit functions can: develops the tax administration’s audit plan, audit case
selection including development and application of risk analysis programs. And conducting and
managing both field and office audits for all types of taxes and contributions administered by the
tax administration. The mechanism for verifying take in examination of tax returns, books,
records, invoices, and related financial data (Lewis, 2005). The iTAX module for audit and risk
analysis supports the selection of audit cases by generating a list of taxpayers, sorted by risk
allocation. Additionally, it supports generating the audit business plan. The system prepares a
notice to the taxpayer and records the time needed for the audit as well as the audit results. It also
allows allocating human resources to audit cases (Seelmann, et al., 2011). According to Okello
(2008) data matching and data mining technology is used to identify risks, assist in risk
quantification, and improve case selection. Automated risk rating engines for risk assessing
registrations and returns data and case management systems to improve management and quality
of audit casework.

v) Appeals

This process provides an independent administrative review upon request of a taxpayer who
disputes the results of determinations made by the audit functions. There will be conducts
administrative hearings to review case determinations by audit staff. Lastly, issues written
determinations which can uphold or modify audit results (Lewis, 2005). The ability to handle
objection and appeal cases is a useful function for an integrated tax administration system. It is
used to register and open objection case (Seelmann, et al., 2011).

vi ) Collection of Delinquent Accounts/Enforced Collection

This process deals the actions the tax administration takes when the taxpayer fails to pay a tax
liability based on either a self-assessed tax return or an assessment resulting from audit activities.
Contacting taxpayers and requesting payment of all delinquent and current taxes that are due.
Interviewing taxpayers and third parties to secure information regarding sources of income and
assets and taking enforced collection actions when taxpayer refuses to pay voluntarily (Lewis,
2005). As Seelmann, et al (2011) the collection of delinquent module reconciles payments with
assessment debits. After reconciliation has been completed, processes can be run to identify
defaulters. Defaulting applies in cases of no submission of a return, late submission of a return,
no payment, or late payment. The system will issue reminder letters, demand notices, and
propose additional enforcement actions. The module includes functions for write-offs, if there is
no way to recover tax arrears.

vii) Information Systems Support and Management

As Lewis (2005) stated this business process involves the development of and updating of the tax
administration’s information systems plan as well as all hardware and software support services.
This encompass: determines computer and communications hardware requirements, develops
computer software applications to support tax administration operating functions including
management information reports. The process manages tax administration systems and
databases. In addition, maintain the confidentiality, integrity, and security of the database of
taxpayer information and safeguard the information from unauthorized users, accesses, and
tampering.

2.3.3 The Role of Information Technology in Tax collections

As World Bank (2000) stated, the most obvious potential benefit of computerization is more
effective revenue collection due to better audit selection, easier detection of stop-filers and non-
filers, and faster payment and refund processing. But while computerization seeks to enhance
revenue, this should not be the sole objective of tax computerization projects. Information
technology can also increase the transparency of tax and customs administrations and reduce
corruption. It can improve taxpayer service. And it can revolutionize communications between
tax authorities and the private sector, as well as the exchange of data with other government
agencies.

Information and communication technology (ICT) plays a major role in delivering taxpayer
service as well as improving the efficiency of tax administration. The wide array of technology
selections that are available today, e.g., mobile, internet, has allowed more ICT-based services to
be provided by tax administration. Taxpayers which are located in places far from tax offices, for
instance, can now be reached and serviced through the provision of internet (Indonesia, 2011).
As stated by Tetteh (2012) the use of computer programs transfer electronic information required
by tax authorities to authenticate tax declarations, accurate assessment of tax dues, increased
time efficiency, reduced tax administration cost, and improved effectiveness of revenue
collection. The use of the system has resulted in a significant improvement in the revenue
collection time for tax payers.

Computerization of tax and revenue authorities can contribute to reaching the goal of good
(financial) governance. It improves accountability and transparency of the revenue authorities.
Nevertheless, while reforming and modernizing the tax system is an essential part of improving
domestic resource mobilization, such a reform will be sustainable only in conjunction with more
profound changes in the administrative and political structure of a state (Seelmann, et al., 2011).
Computer then should be used to perform corresponding routine functions, like verifying TINs
and other credibility checks, verifying arithmetic calculations, accounting for withheld and pre-
paid or estimated taxes, maintaining individual accounts, matching payment with declarations,
and identifying non-compliance through the use of third part information. Self-assessment of tax
liabilities allows the tax administration to devote more resources to facilitation of procedures and
to detection of non-compliance and fraud. Self- assessment also permits the tax administration
computerization, to cope with additional workload resulting from a growth in the number of
taxpayers. The taxpayer identification number (TIN) recognized as another key element of
modernization and one of the prime prerequisites to the successful implementation of a
computerized tax administration because it gives access to the taxpayer records and all relevant
information (AFTAT, 1998).

Automating tax collection is aimed at properly and efficiently managing tax collection and
improving servicing and auditing of the taxpayers. The use of automation system has been
helped to properly and efficiently manages tax collection, improve servicing of the taxpayers and
audit work, improve support to the basic business processes of tax administration, increase
transparency in assessment, collection, and related processes (Republic of Serbia Standard
Summary Project, 2011). It brings efficiency and effectiveness in tax administration which
results in increments of revenue collection, timely monitoring of taxpayers and imposing penalty
and interest. And also enhancement of data security (confidentiality, integrity and availability),
time saving during processing of returns, data harmonization and equity in tax administration due
to enhanced data transparency and processes. It can also create impediment to tax avoidance,
evasion and proper management of tax refunds (Salum, 2011).

2.3.4 Benefits of ITAS

ITAS has benefits for both taxpayers and tax authority. This benefit includes: For Tax Authority:
increases taxpayer’s compliance, self-declaration, and tax administration performance and
promote voluntary compliance, decrease tax evasion and fraud and also provides greater
transparency thus better service to taxpayers.

For Taxpayers: it lowers compliance cost, reduces queues and shortens the time for tax
compliance of tax obligations and errors in the tax accounts; it brings about timely information
on tax account, stimulates taxpayers by sending remittance forms, assessment notice and other;
taxpayer correspondence automatically and provides quality service for taxpayers
(www.mofrevenue.gov.lr).

2.4 Challenges and Problems

Infrastructure constraints: Lack of adequate electricity supply. Power cuts may result in
breakdowns or downtime of the system. The other limitation is the available telecommunication
bandwidth. Limited bandwidth will increase the response time of the system, and thus adversely
affect it. Human resource constraints: Developing countries suffer from a brain drain of qualified
information technology personnel (Seelmann, et al., 2011).Today’s industry challenges tax and
revenue collections today are faced with unprecedented demands to increase efficiency and
effectiveness. Included in these demands are: professional customer service, responsiveness to
legislative change, accuracy in collections, and pro-active actions that reduce fraud and non-
compliance (Oracle 2008). Today, the real challenge for tax agencies is to improve the tax
collection process to provide better taxpayer services (Tata, 2007).

2.5 Automated Tax collection Systems in Ethiopia

Automating tax collection functions have different kinds of benefit for the Tax Authority. These
are increase taxpayer self-declaration and promote voluntary compliance and increase tax
administration performance. Increase in a sustainable way fiscal revenue and decrease tax
evasion and fraud (CRC sogema, 2006). Automated application in ERCA encompasses: TIN,
SIGTAS, sales or cash machine register system (SRMS/CRMS), withholding applications, and e-
filling and cost sharing, receipt tracking system (RTS) and information technology service
management (ITSM) tool. Among them e-filling and withholding application is not functional in
mobile.

2.6 Standard Integrated Government Tax Administration System (SIGTAS)

SIGTAS used in different Continents like Africa, Easter Europe, Asian countries as modernized
tax administration functions and procedures. SIGTAS employed in Ethiopia for the
administration of VAT in the year of 2003. Due to data handling, efficient collection
performance and fast service delivery results from VAT administration, since 2005, all other
taxes in Federal Revenue collecting offices have been automated/used by SIGTAS.
Currently, the four Regional State of Revenue Authorities such as Oromia, Tigray, Amhara and
SNRS and the two city administration have been automated their tax administration functions
and procedures. For individual taxpayers the TIN system was supported by the biometric
information system. The e-filling processes have been started in Large Taxpayer Office (LTO),
but the others branches are in the process.

Tax types supporting by SIGTAS includes: Business profit tax, schedule C mining, rental
income tax, withholding tax, VAT, employment tax, turnover tax, sales tax, excise tax, royalty,
dividend, chance of the game and stamp duty. It has advantages of increase revenue, improve
taxpayer service and reduce errors and fraud (ERCA, 2012).

The Major Modules of SIGTAS includes:

1. Tax Roll: It is the first module of the SIGTAS. This section helps to register TIN applications,
manage and see registered taxpayer information. It also helps to activate, maintain and close tax
accounts and create tax account statements.

2. Cashing: This section allows capturing and reversing payments, distributing arrears and
viewing information about collected tax per tax type. It is also used for creating cash balance
reports and issuing receipts (ERCA SIGTAS user guides, 2009).

3. Tax Assessment: Assessment module used to create and monitor batches, capture
remittance/declaration forms, create and modify assessments, reassessments and estimated
assessments, set the appeal deposit status. It also helps to create and print notices, letters, non-
filing reminders and late-payment reminders.

4. Document Management: The document module provides access to create and delete files
containing information about taxpayer documents, print a list of documents in a file, register
incoming and outgoing documents, monitor the lending of taxpayer files and view information
about requested or borrowed files.

5. Collection: This section used to find and open collection cases, register a collection case
contact, create a list of collection cases report, create an arrears distribution statistics report,
register refund and sending late payment reminder.
6. Audit: The audit module used to register or updates an audit plan, view an audit plan, find
potential audit cases, create a list of audit cases report and an impact of additional income by tax
auditor and tax type reports.

7. Objection: It is used to open an objection case, view information about an objection case,
close an objection case, create a list of objections and create an objection additional assessment
report (ERCA SIGTAS user guides, 2010).

8. Reporting: Reporting section is exist in every module which offers standardized reporting on
a daily, weekly, monthly, quarterly and yearly basis.

2.7 Sales /Cash Register Machine (SRM / CRM)

The sales register machine is a machine that is used to issue an electronic receipt for transactions
made by sellers or service providers. Due to different sales person cheating on daily sales, James
Jacob initiated to create SRM. In 1879, he was the first man for innovating sales register
machine. Now a day combing with modern technology, it assists traders and support tax
authority by providing detailed sales reports. The SRM avoids traditional tax assessment ways of
estimation and increase the revenue collection of the tax authority. ERCA have been started
SRM system since 2008 (ERCA, 2012).

Its main objective is to provide fast service and accurate data for the users. There are two parts in
the sales register machine. The first part is fiscal memory, it is used to record a summary of daily
sales transactions and enable to read the report and it is difficult to remove and modified. The
second is temporary memory, which is used to temporarily hold the sales transaction before
transferred to fiscal memory. The GPRS terminal used to transfer information/ data from sales
register machine to ERCA database by using Ethiopia telecom information system (Ibid.). SRM
system is used to maintain and trucked all suppliers, manufacturers, models, technicians, and
service centres and inspectors information. They also used to register detail information about
the issue. (ERCA SRM system user guide, 2011).
2.8 Receipt Tracking System (RTS)
RTS is prepared by ERCA MIS department software engineer to manage the receipt system and
to make control on receipt permission and easily identify those who issue a receipt when and
where (ERCA RTS user guide).

2.9 Information Technology Service Management (ITSM) Tool

It is used to flow information between the MIS department and end user that is information
technology supporting officers and MIS department. The main purpose is to optimize
relationships with end-users in terms of end-user help and satisfaction, to enable end-users to
easily resolve potential problems or questions about the services offered by MIS section and to
prohibit the traditional end-user support methods, such as telephone calls which are expensive
and time consuming (ERCA ITSM tool user guide).

2.10 Empirical Studies

The previous section presents the theory of automating tax collection effects functions. This part
presents the empirical studies and two different countries experience.

As stated by Isaac and Lilian (2010), the increased in the use of computerization results in
reduced declaration time in the Uganda revenue authority. The study also indicated that there is
positive relationship between automation and effectiveness of revenue collection. This showed
that the level of effectiveness of revenue collection increased with increased the use of
computerization.

According to Seelmann et al. (2011) an integrated tax administration system in Tanzania results
in the better tax compliance and lower compliance cost, reduced administrative and collection
costs, time savings for taxpayers and transparency in assessment, collection, and related
processes. It contributes to improve taxation by speeding up administrative processes,
enforcement processes, timely monitoring of taxpayers and their penalties and interests. It results
on increase of revenue and income from $25 million to $300 million per month in 1996 and 2007
respectively. iTAS also enhanced efficiency, data security and even transparency of processes,
release of staff from unproductive work, and possibility of electronic transfer and exchange of
data with government and non-governmental institutions. Through iTAX, there is a promotion of
equity, communication with taxpayers, preventive impact on corruption and bribery, and
impediment on tax avoidance and tax evasion.

According to Tetteh (2012) study findings indicate that the Ghana revenue authority employees
agreed with the introduction of automated system. The automated system has reduced delays in
all processes and operations regarding revenue mobilization. It study findings revealed that the
introduction of the automated system has brought increased revenue, efficiency and effectiveness
in revenue collection and it is a powerful monitoring tool for Ghana revenue authority. There
was no response for payment of duties and taxes everywhere. Ghana government gain benefits
from automated system usage in revenue collection such as increase cash receipts; it lead to
increase collection efficiency; it able to control the collection process and efficient time
utilization.

According to Tata (2007) the use of tax DSS and/or a successfully implemented tax return data
warehouse can realize some significant which includes: a conservative 10% improvement in
noncompliance can yield additional increase in tax revenue of 20-30%; more cost-effective
decision is enabled by separating (ad-hoc) query processing from running against operational
databases; better business intelligence is enabled by increased taxpayer services and flexibility of
tax non-compliance analysis; improved productivity, keeping all required data in a single
location and reduced redundant processing; enhanced taxpayer services and ability to focus on
business processes and perform a complete analysis and ability to rationalize and automate the
process of building an integrated information store.

Philippines Experience

As stated Seelmann et al. (2011) automated system supports the Philippines tax administration,
in the assessment, accounting, and collection of local taxes, fees, and service charges. The
integration of tax systems and the exchange of information between then different tax authorities
by using the iTAX system streamline processes and facilitate the creation of one-stop-shops for
matters where both local and national authorities are involved. The iTAX software is organized
in modules in line with its basic functions. These include: registration of the taxpayer;
assessments, processing of self- assessments, and verification of information; debit of those
liabilities; processing of payments; booking of payments to the taxpayer’s account and balancing
of payments with debits; compilation of reports on revenue; preparation of documentation for
legal enforcement and issuing of taxpayer information letters; selection of audit cases,
management of audits, and review of audit results and performance; handling of objections and
appeals; electronic document and file handling as a movement towards paperless processing and
taxpayer services (official tax forms are available for download on the Internet; electronic
submission of these forms is possible).

Indonesia experience

Current practice of ICT-based service in Indonesia is generally classified into two objectives like
servicing taxpayers in dealing with self-assessment system and ensuring tax compliance through
activities such as: monitoring, audit, collection, accumulating the number of new taxpayers, and
objection and appeals. In all of those objectives, ICT utilization is prominent. In self-assessment
system, taxpayers are trusted by the tax administration to calculate their tax expenses on their
own based on reported income. Thus, the use of IT to prescribe taxpayer’s tax expenses is
drifting away from self-assessment’s basic idea. The use of e-filing as an alternate medium to file
tax returns can reduces the cost of printing for taxpayers as well as the time needed to hand in the
tax return in person or by mail (Indonesia, 211).
 CHAPTER THREE

Research Design and Methodology

3.1 INTRODUCTION
This section of the reading displays particulars of the study design, the sampling technique and
also the way in which the facts was gather and interpreted for this study.
A study design is the process of circumstances for the assortment and interpretation of data in a
way that objectives to combine important to the exploration (Kothari, 2004). This section mostly
emphases on explaining of research approach, methods and techniques, sampling design, and
source of data, ways of data analysis, interpretation and presentation.

3.2 Research Design

A research design is the arrangement of conditions for the collection and analysis of data in a
manner that aims to combine relevance to the research purpose with economy in procedure
(Kothari, 2004). Thus, this section mainly focuses on explaining of research approach, research
methods, research techniques, sampling design, and source of data, methods of data analysis,
interpretation and presentation.

3.3 Research Approach

According to Kothari (2004), there are two basic approaches to research. These are quantitative
and qualitative research. A quantitative research approach helps the researcher to produce data in
measureable analysis. The second is a qualitative approach helps the researcher for subjective
assessments of behavior, opinion and attitudes research. The methods used in the study to gather
data were observation of field works and secondary data where policy documents and yearly
reports which assisted to get important data for the study, questionnaire which contains both
open ended and closed ended questions. Interview with tax officers and tax payers is conducted.
Therefore, the study used the mixed approach as both qualitative and quantitative methods.

3.4 Research Methods

The research design for this study was used a descriptive research method which tries to define
analytically a phenomenon, a condition, problem and defines attitudes regarding the issue.