DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF OF THE VALUE ADDED TAX PRACTICE AND ITS

PROBLEMS: IN CASE OF BENSA DAYE CITY REVENUE BEREAU.

THIS SENIOR ESSAY RESEARCH IS SUBMITED TO DEPARTMENT OF BUSINESS

MANAGEMENT, IN PARTIAL FULFILLIMENT OF THE REQUIREMENTS FOR THE
DEGREE OF BACHLER OF ART IN BUSINESS MANAGEMENT.

BY; ADANE MAMO MATE

ID No 1081/12

JUNE, 2022

SIDAAMA, BENSA, ETHIOPIA

 ACKNOWLEDGMENT
Above all I would like to thank the almighty GOD for helping in my duties had it not been
for assistance. It would have been impossible to overcome the challenges. my special tank
goes to Teshale D. (MA) who has provide his wise and intellectual advise, guidance and
directives to make the research effective In would also like to tank VAT supervisor of Daye
city administration and other department heads who province me necessary material and my
family who provide financially and moral support while doing this research. At least I would
like to add my tank fullness to my secretary Meron Shelemo for her valuable cooperation in
typing this research.
 ABSTRACT
Taxation is a system of raising money to finance government activities VAT is levied on most
business transactions on many goods and services. The study focused on VAT assessment and
collection problem that was conducted Bensa Daye City administration. The data needed for
these studies were both primary and secondary data was obtained from annual report of VAT
and documentary analysis of the organization. The study used different method of analysis
ration, percentage and tabulation to disclose the facts in very meaning full way. Finally
based on the discussion and analysis of the study, Conclusion and recommendation is given
for future implementation of VAT system of the organization.
 Table of Contents
Content Page
CHAPTER ONE........................................................................................................................1
INTRODUCTION......................................................................................................................1
1.1 Background of the study..................................................................................................1
1.2 Statement of the problem.................................................................................................2
1.3 Research Questions..........................................................................................................3
1.4 Objectives of the study.....................................................................................................3
1.4.1 General Objective..........................................................................................................3
1.4.2 Specific objective..........................................................................................................3
1.5 Significance of the study..................................................................................................4
CHAPTER TWO.......................................................................................................................5
2. LITERATURE REVIEW.......................................................................................................5
2.1 Tax....................................................................................................................................5
2.1.1 Direct Taxes..................................................................................................................5
2.1.2 Indirect Taxes................................................................................................................5
2.2 Value Added tax (VAT)...................................................................................................5
2.3 Types of VAT..................................................................................................................6
2.4 Value Added Tax terminology.........................................................................................7
2.5 Collection.........................................................................................................................8
2.5.1 Benefits of voluntary registered................................................................................9
2.5.2 Register from procedure................................................................................................9
2.5.3 Time of application.......................................................................................................9
2.5.4 Time of collection.......................................................................................................14
2.5.5 Cancellation of collection...........................................................................................14
2.6 VAT invoice...................................................................................................................15
2.7 VAT refund....................................................................................................................16
2.8 The VAT Regime in Ethiopia........................................................................................16
2.9 Assessment of tax...........................................................................................................17
CHAPTER THREE..................................................................................................................18
3. RESEARCH DESIGN AND METHODOLOGY...............................................................18
3.1 Research design..............................................................................................................18
3.2 Description of the Study Area........................................................................................18
3.3 Types and Source of Data..............................................................................................18
3.4 Population and Sampling Techniques............................................................................19
3.4.1 Target Population........................................................................................................19
3.4.2 Sample Size and Sampling Techniques......................................................................19
3.5. Tools and Methods of Data Collection.........................................................................20
3.6 Methods of Data Analysis..............................................................................................20
3.7. Organization of Paper...................................................................................................20
4. Research Work plan and Budget Break down.................................................................21
4.1 Work Plan.......................................................................................................................21
4.2 Budget Break down........................................................................................................22
The research work will be carried out using the following budgets....................................22
REFERENCE.......................................................................................................................22
 CHAPTER ONE

INTRODUCTION
1.1 Background of the study
Emergence and rapid spread of VAT is one among the most important tax developments of
the latter twentieth century. VAT was invented in 1954 by a French economist Maurice
Laurie who was Joint director of the French Tax Authority. French was the first country to
introduce VAT effective from April 10, 1954. By 1969. Only eight nations had adopted VAT,
out of this Cote Devoir was the first country in Africa to introduce VAT in 19 60. since 1979,
VAT has been adopted as the main form of an indirect tax by many countries in different
parts of the world According to international monetary fund (IMF) report (2004) more than 4
billion , 70% of the world’s population now live in counties with VAT and VAT raises about
$18 trillion in tax revenue, roughly one of quarter of all government revenue, Nowadays,
among 190 countries of the world, over 136 (72%) of them have made VAT part of their tax
system and from 53 members f countries of African union, 33 (60%) of them have introduced
VAT. (mistrak Tesfaye. 2008,p.310).
The Federal Democratic republic of Ethiopia (FDRE) has adopted. VAT in to its tax system
in 2003. It has been introduced on January 1, 2003, replacing the former sales tax system.
The VAT proclamation NO 285/2002/ (VAT law) has been ratified by the house of peoples
Representatives six months before VAT implementation (July, 2002).
This VAT proclamation has thirteen sections (130 and sixty-six (66) articles In December,
2002 the VAT regulation No 79/2002 has also been issued by council of ministers pursuant to
the Value add tax proclamation for the implementation and regulation of VAT. The VAT
regulation has three chapters (3) and forty (40) articles.
VAT is introduced in Ethiopia by proclamation NO 285/2002, replacing sales tax with the
following objectives:
a. To collect tax on the added value whenever a sales transaction is conducted since
the former sales tax system already replaced did not allow collection of the tax on
the added value created whenever sales transaction is conducted
b. To minimize the Damage that may be caused by attempts to avoid and evade the
tax and to ascertain the profit obtained by the tax taxpayers
c. To enhance saving and investment as it is a consumption tax and does not tax
capital and.
 d. To enhance economic growth and improver the ration relationship between gross
Domestic product and gross revenue According to the newly implemenented VAT
law supply of goods and rendition of services in Ethiopia are subject to VAT at a
standard VAT of 15% is applied only to imports and domestically manufactured
goods. (misrak Tesfaye, 2008, p 320)
Unlike the sales tax, VAT provides the relief of the tax on all business in puts (taxable
supply) including capital goods operating and administrative expenditures. The relied of the
tax and zero rating also encourages investment and exports. The VAT system that Ethiopia
has implemented also gives exemption to basics and necessities such education medical
service electricity water kerosene, basic foods, transportation service fertilizers books and
printed materials the supply of goods or services in the form of humanitarian aid etc. (Misrak
Tesfaye, 2008, p.320)

1.2 Statement of the problem

Taxes are important sources of public revenue. The existence of collective consumption of
goods and services necessitates putting some of our income into government hands. Such
public goods like roads, power, municipal services, and other public infrastructures have
favorable results on many facilities, business enterprises, industries and the general public.
Government intervention in the supply of public goods is therefore inevitable and can only be
done if the public pays taxes for the production and supply of such goods. (ERCA, 2015.)

Ethiopia is passing through in a sensational development process, the development that going
to solve a lots of problems for the society like road constructions, water supply, electric
power supply, and many other infrastructures, to achieve this socio-economic development
VAT which is collected from the society is become the ultimate ways for the development of
the country. The economic development of the country depends on tax which is paid by every
citizen in the country especially VAT become the necessity income for the government
because it is taxed 15% at every step from the producers of goods to retailers and consumers,
also from service renders. (ERCA, 2015)
There are a number of rules and regulations which are stated about VAT and VAT collection.
From this stated rules and regulations some of them are not implemented as expected to be,
so it is the faller for proper collections of VAT. The ignored rules are not the only reasons but
also VAT un-registered business activities and organizations who are supposed to be
registered are also another collapse for the country.
Wollela A. (2008) noted that in developing countries the poor performance of taxes is likely
to be due to weak tax collection (i.e., the incapacity of the collection to implement the tax in
practice). This is perhaps caused by such factors as resource constraint and designing the tax
separately from the collection. Concerning the latter, Bird and Gendron (2005) noted that
developing and transitional countries, unlike developed countries, appear to have fragmented
economies, large informal sectors, low tax morale, rampant evasion, and total distrust
between tax collectors and taxpayers.
In addition, because of inadequate managing the process of VAT sell, there is unfair
competition with their opponents by not issuing receipt for the customers the problem
become very complicated. Receipt is an evidence for the government to collect revenue from
any kinds of business activity. So; this is also another basic problem for decreasing of
government revenue.
In general, there have been studies on VAT collection in Ethiopia and also in the different
towns of the counties by different researcher; in Daye branch level there are no
comprehensive studies that assess VAT collection practices. It is, hence, not well known
which factors that affect VAT collection practices as a whole. In this context, the researcher
selected ERCA in Daye branch. The objective of this study is to assess VAT collection
practices in Daye branch large tax payer’s branch office.

1.3 Research Questions

Therefore, the paper was make an attempt to answer the following questions
1. Is there efficient VAT collection system in ERCA Daye branch?
2. Dose the VAT payers use has proper accounting records?
3. Do the VAT payers have good knowledge and awareness about VAT?
4. What are major problems of VAT Collection system in ERCA Daye branch?

1.4 Objectives of the study

1.4.1 General Objective

The general objective of this study is the assessment of the factors affecting VAT collection
system in Daye branch ERCA.

1.4.2 Specific objective

To determine whether the collection system VAT efficient or not in ERCA Daye branch.
To assess the VAT payers use has proper accounting records.
To identify the VAT payers have good knowledge and awareness about VAT.
To find out the major problems that affects the VAT Collection system in ERCA Daye
branch.

1.5 Significance of the study

The need to conduct this study is to explore the problem of VAT collection that was known
and individual living condition with in the country. For the researcher it is an opportunity of
relating academic knowledge with that of what is practiced with real world. For the collectors
give a way it would raise the employees awareness towards VAT and show them the role
they have to play. It paves way for other researcher and contribute some to those tax want to
make further research and necessary for the identification of the obstacle at the collection of
VAT.

1.6. Limitation of the study

The researcher will be faced certain problems at the time of conducting the study, among
them:
 At the time of data collection some design respondents were not present that elongate
data collection period more than expected.
 There was reluctance on the part of some numbers of the respondents to give genuine
information when asked.

1.7. Organization of the paper

This study contains five chapters. The first chapters present the introduction part reflecting
the background, the statement of the problem, objective of the study, significance of the
study, scope and limitation of the study. The second chapter deals with literature review. The
third chapter deals with research design and methodology. The fourth Chapter deals with data
analysis and presentation and the fifth chapter consists of summary, conclusion and
recommendation.
 CHAPTER TWO

2. LITERATURE REVIEW
2.1 Tax
Tax is contributed without expectation of direct and equivalent return for the contribution
made .This means. there is no direct relationship between the compulsory contribution to a
government and the amount of the service received from the government for the compulsory
contribution made Rather, the benefits of government expenditures may go to any one
irrespective of the taxes paid taxes are broadly classified in to two These are direct and
indirect taxes (Misrak Tesfaye, 2008, p, 2)

2.1.1 Direct Taxes

Direct taxes are those taxes whose impact (immediate burden) and incidence (ultimate
burden) fall on the same person. such taxes are entirely paid to the government by those
persons on whom the taxes are imposed .they cannot be shifted (passed on) to other some
economists also define direct taxes as taxes whose burden are borne by the persons on whom
they are levied. professor shivras also define direct taxes as taxes based on income or wealth
(property) of persons some examples of direct taxes are employment income tax, business
income tax, rental income tax, interest income tax, royalty tax ,capital gain tax ,property
tax ,agriculture tax gift tax etc (misrak Tesfeye 2008, p. 29)

2.1.2 Indirect Taxes

Indirect Taxes are those taxes whose impact (immediate burden) and incidence (ultimate
burden) fall on different persons. That is the impact of the tax falls on the person who pays it
to the government in the first instance but the incidence of the tax falls on the person who
finally bears the burden of tax. for instance the import duty on vehicles is paid in the first
instance by the importer of cars but ultimately the importer transfers the burden of this duty
(tax) to the purchaser of the vehicle in the form of price The importer includes the import
duty paid by him in the price of car which is charged from the customer In direct taxes can be
shifted on to others so that the burden of indirect tax is on ultimate customer .indirect tax can
also be defined as taxes bases on consumption or
Expenditure of persons Some examples of indirect taxes are value Added Tax (VAT)
Turnover tax (TOT) excise Tax and custom duty. (Misrak Tsfaye 2008, p31).

2.2 Value Added tax (VAT)

VAT is tax on the value added to goods and service by enterprises at each stage of the
production and distribution processes. It arises whenever a “taxable person” makes a “supply
of goods or services “in the course of his business. Thus in some countries it culled goods and
services tax or GST VAT was invented by a French economist in 1994 by Maurice laurel,
director of French tax authority VAT was invented because very high sales taxes and tariffs
encourage cheating and smuggling.
Unlike the turn over tax which is applied to the full value of a product every time the item
changes hands in the process of production and distribution the VAT is assessed attach stage
on only the increment in value acquired by the product since the last taxable transaction. At
the end of the chain the total amount of tax paid on a given commodity is determined only by
tax rate and final price of the commodity regardless of the number stages through which it
has passed what has been collected in fractional payments is equivalent to a single stage tax
on the value of the final product (Gebrie worku 2008 P.186)
The VAT collection belongings to the family of sellers and payers of tax. A VAT may be
defined as a tax to be paid by the manufactures or traders of goods and services on the basis
of value added by them it is not tax a total value of the commodity being sold but on the
value added to pay the tax only on the net value added by them in the process of production
or distribution (Rama swami 2005. p 105)

2.3 Types of VAT

In modern taxation world there are four types of VAT, namely, consumption, production,
income and wage VAT.
1 consumption VAT
In this type of VAT of the firm, is allowed to deduct from the gross Value of its product n the
non-capital in puts purchased from other firms but also the capital equipment purchased
Thus, in consumption type VAT, tax based in the difference between gross value and total
value of inputs purchased (capital and non-capital)
2 Productions VAT
In production type VAT, the value of the inputs purchased by the firm from other firms is not
deducted in full only the value of non capital purchase is deducted furthermore, no
deprecation is permitted on the purchased of capital goods even in subsequent years, Thus the
tax base in production type VAT is equal to gross value less value of non capital goods
purchased.
3 Income VAT
According to income type VAT, the firm is allowed deduct the depreciation on the capital
goods (during the year) apart from the full value of its non capital purchases .Here, firms cam
not deduct the entire value of the capital goods purchased during the year but they can deduct
the respective amount of deprecation attributable to that year.
4 Wages VAT
In wage VAT the firm is able to deduct the net earnings from its capital in order to arrive at
the tax base .it is unlikely to be used for taxation by any government. (mistrak Tesfaye. 2008.
p.309-310).
2.4 Value Added tax terminology
Some of the terms that are in VAT literate are:
A. In put VAT :- the VAT that your business pay over on taxable supplies made (VAT paid
on purchase ) and can be recovered only in so far as your business is VAT registered and
makes taxable out puts
B. Output VAT:- the VAT that you business collects over on taxable supplies (VAT paid on
sales )
C. VAT payable:- this is the net VAT to be paid to the FIRA by taxable person it is arrived
at by the formula: VAT payable= output – in put tax
D. VAT Re fundable:- the net VAT that taxable person expected from FIRA when input
VAT exceeds output VAT in Ethiopia cases FIRA deed note fund up on declaration date
rather taxable person shall carry forward the balance for months until it offset by output
VAT. It taxable person doesn’t sell taxable supplies within these months he/she is
entitled for refund.
E. Zero Rating: - the supply is charged with VAT at 0% but credit can be taken for VAT
paid on purchase used to make the supply.
F. Positive rate (Standard rate ) the supply is charged with at the react of 15%
G. Exemption: the supply is exempted from VAT No VAT is charged on the supply and
noncredit can be taken for VAT paid on purchases used to make the supply.
H. Exempt supplies : supplies which are not liable to VAT Exempt supplies are not taxable
supplied and do not form part of taxable turnover to VAT purposes A person making
only exempt supplies cannot be registered for VAT.
I. Threshold : this is the level of turnover of taxable supplies prescribed by the law at or
above which a person must register for VAT
J. Taxable person: is legal entity such as company partnership sole proprietor who is liable
to be registered for VAT.ITIS the person not the business that is register for VAT.
K. Taxable supplies: these are business transactions which are liable to VAT at the zero or
standard rate (Gebrie worku 2008,189-190)
2.5 Collection
In Ethiopia collection for VAT is categorized in two
A. Obligatory collection
Any person conducting a commercial enterprise or intending to conduct a commercial
enterprise may apply to be registered for VAT. However if the taxable turnover of the
conduction the enterprise must register for VAT with FIRA. Turn Collection is compulsory.
The term any person for proposes of VAT collection includes.
 sole proprietorship
 company
 partner ship
 estate of the decease
 trust
 in corporate body or un in corporate body
 club or association
A commercial enterprise refers to any business of whatever natural and include.
 Ordinary business example shop, contractors manufacture, wholesaler etc
 Trades and professions example builders engineers accountant, lawyers etc
 Activities of non-profit making bodies’ example societies’ association sporting club
etc…
The turn is calculated on all ongoing bases two periods need to be considered the past 12
calendar months and the next 12 calendar mother – by month basis. There is the need to
estimate at the end of each trading calendar month the total values of taxable goods and
services supplies by all business for the past 12 months where the total exceeds birr 500,000
the then there is the requirement to register for VAT (Gebrie worku, 2008 P 201-202)
B. Voluntary Collection
A person who carried on taxable activity and is not required to be register for VAT max
voluntary apply to the authority for such collection if he/she regularly is supplying or
rendering least 75% of his goods and services to registered persons (Gebrie worku 2008 P
202- 203)

2.5.1 Benefits of voluntary registered

In put VAT can be recovered if a person registered it will therefore be beneficial to
voluntarily resister where the person makes many zero rated supplies in such a case in put
VAT will be recovered on VAT will be charged on zero rated out puts (Gebrie worku 2008 P
203)
2.5.2 Register from procedure
Application for compulsory as well as voluntary collection must be made on application
from caused “application for VAT collection” on application for calve and the alltroity is
required to register the person in the VAT register and issue a certificate of collection within
3 0 days of the collection containing details of
The full name and other relevant details of the registered person.
o The date of issuance of the certificate.
o The data from which the collection takes effect and
o The registered person’s tax payer identification number if collection is
disallowed FIRA will have to notify the application and the reasons for the
refusal the tax authority many deny the application for voluntary collection
if the person.
o Has no fixed place of residence or business
o Does not keep proper accenting records
o Has no bank account
o Has previously been registered for VAT purposes but failed to perform his
duties under the VAT law (Gebrie worku 2008 P 203)

2.5.3 Time of application

A person who carries on taxable activity and is not registered is requires to file in application
for VAT collection on later than the last day of the month after the end of the period if
(Gebrie worku 2008 P 204)
 At the end of any period of 12 calendar months the person made during those period
taxable transactions with a total value exceeding 500.000 birr or the last day of the
month of the period if.
 At the beginning of any period of 12 calendar months when there is reasonable around
to expect that the total value of taxable transaction to be made by the person during
that period will exceed 500,000 birr

2.5.4 Time of collection

Collection takes place on one of the following depending on which date come first
- In case of obligatory collection on the first day of the accounting period following the
month in which the obligation to apply for collection arose.
- In the case of voluntary collection on the first day of the accounting period following the
month which the person applied for collection or
- On the date selected by the registered person on his application for a collection person
who conducts taxable activity in a branch or division shall be registered only in the name
of the registered person to register one or more of its branches or divisions as separate
registered person. The tax authority allow when its satisfied on such case that divisions or
drenches maintains and independent accounting system and can be identified by the
nature of its activities or location (Gebrie worku 2008, P 204)

2.5.5 Cancellation of collection

VAT resisted person can apply for can cancellation of collection
- If tax payer ceased to make taxable transactions
- At any time after a period of 3 years of the date of his most recent collection for VAT if
the collection persons total taxable transactions in the period of 12 month then beginning
reasonable are expected to be not more than 500,000 birr the cancellation VAT collection
takes effect
- At the time the collection person ceased to male taxable translation for example if one
close down or his business. However if one has more than one business and is not closing
down or saving them all he may not be able to mantel it will depend on the level of
taxable turn of remaining businesses.
- If the registered person has not ceased to do so at the end of the accounting period during
which the person applies to the authority for can collation of VAT collection when
registered for VAT is canceled the authority is required to remove the person’s name and
all other detail from the VAT register and the person is required to return back the
rescued certificate of vegetation VAT registered person cannot charge VAT or issue tax
invoices for any supplies made and cannot claim are fund of VAT in curried on any goods
or services purchased from the date office collection is canceled.(Gebrie worku 2008 P
209)

2.6 VAT invoice

The registered person is required to issue VAT invoice to the purchase of goods or services
up on the supply or rendering, but not later than 5day after the transaction however the
ministry of revenue may wave a registered person’s obligation to issue receipt or tax invoice
for cash sales if the total consideration for the entire supply does not exceed birr 10.
A person who is not registered for VAT Dees not have the right to issue a tax invoice VAT
invoice is prepared by ministry of revenue and shall contain the following in formation
a) Full name of the registered person and purchaser and the registered person’s trade name if
different from the legal name
b) Tax payer identification number of the registered person and the purchaser
c) Number and date of the VAT collection certificate
d) Name of the goods shipped or services rendered
e) Amount of the excise on excisable goods
f) Amount of the taxable transaction.
g) Sum of the VAT due on the given taxable transaction
h) The issue date if the VAT invoice and
i) Serial number of the VAT invoice (Gebrie worku 2008 P 206)
A registered person shall keep the following document for minimum of 10 years
- Original tax invoice received by the person
- A copy of all tax invoice issued by the person
- Customs documentation relating to imports and exports by the person
- Accounting records and

2.7 VAT refund

1. Article 27, sub- Article (5) (b) of the proclamation provides the Authority is not obliged to
refund excess credits if the amount to be re funded is not more than 50 birr or less this
amount can be carried forward and credited against tax due in the subsequent accounting
period
2. Where a registered person applying for a tax refund has failed to furnish a required return
the authority may with hold payment of any amount refundable under article 27 of the
proclamation until the registered person furnishes such return
3. If the authority does not pay the refund in timely manner as provided under article 27 sub-
article (6) the authority shall pay interest calculated from the date on which the payment of
the refund in made (Federal Negarit Gazeta 2002 P 1988)

2.8 The VAT Regime in Ethiopia

The Federal Democratic republic of Ethiopia (FDRE) has adopted. VAT in to its tax system
in 2003. It has been introduced on January 1, 2003, replacing the former sales tax system.
The VAT proclamation NO 285/2002/ (VAT law) has been ratified by the house of peoples
Representatives six months before VAT implementation (July, 2002).
This VAT proclamation has thirteen sections (130 and sixty-six (66) articles In December,
2002 the VAT regulation No 79/2002 has also been issued by council of ministers pursuant to
the Value add tax proclamation for the implementation and regulation of VAT. The VAT
regulation has three chapters (3) and forty (40) articles.
VAT is introduced in Ethiopia by proclamation NO 285/2002, replacing sales tax with
the following objectives:
a. To collect tax on the added value whenever a sales transaction is conducted since
the former sales tax system already replaced did not allow collection of the tax on
the added value created whenever sales transaction is conducted
b. To minimize the Damage that may be caused by attempts to avoid and evade the
tax and to ascertain the profit obtained by the tax taxpayers
c. To enhance saving and investment as it is a consumption tax and does not tax
capital and.
d. To enhance economic growth and improver the ration relationship between gross
Domestic product and gross revenue According to the newly implemenented`
VAT law supply of goods and rendition of services in Ethiopia are subject to VAT
at a standard VAT of 15% is applied only to imports and domestically
manufactured goods. (misrak Tesfaye, 2008, p 320)

2.9 Assessment of tax

The authority may issue an additional assessment in a variety of circumstances in including
the case where
a. A person fails to furnish return as required by article 26 of the proclamation fails of
furnish an import decal ration as required by article 5 of the regulations
b. The authority is not sat is field with are turn or which a tern of import declaration
furnished by a person
c. The authority has reason to believe that a person has became liable for the payment of an
amount for the payment tantamount of tax but has not paid such amount
d. A person, other than a registered person supplies goods or services and represents that
tax is charged on the supply
e. A registered person supplied goods or services and the supply is not a taxable transaction
or is a taxable transaction charged which tax at the rate of zero per cent and, in either
neither case the registered person represents that a positive rate of tax is charged on the
transaction or
f. The authority has determined the liability of any person in terms of article 60 sub- article
(2) of the proclamation (Federal Negarit Gazeta 2002 P 1989)
 CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1 Research design

The study will focus on VAT collection problems of Daye city, Tula sub city in Revenue
and Custom Authority which is found in southern Ethiopia, Sidaama region. The study was
used Descriptive method to assess the present situation of VAT collection in the area and
identifying the major problem that affect VAT collection in zone.

3.2 Description of the Study Area

Daye is a city in Ethiopia, on the shores of Lake Daye in the Great Rift Valley. It is
located 275 km south of Addis Ababa via Debre Zeit on the Trans-African Highway to
Kenya. The town serves as the capital of the Southern Nations, Nationalities, and
Peoples' Region, and is a special zone of this region. Daye has latitude and longitude of
7°3′N 38°28′E Coordinates: and an elevation of 1708 meters above sea level. This city is
home to Daye University (which includes an Agricultural College, a Main Campus and
a Health Sciences College Daye Comprehensive specialized college), Zion College, Furra
College, Unique Star College, Daye Adventist College, and others and a major market.
The city is served by Daye Airport. Postal service is provided by a main branch;
electricity and telephone service are also available. Important local attractions include
the St. Gabriel Church and the Daye Kenema Stadium. Fishing is a major local
industry.

3.3 Types and Source of Data

This study will focus on the assessment of factor affecting VAT collection system in Daye
branch revenue and custom authority. In order to attain the proposed objectives, the
researcher will use both primary and secondary data. The source of primary data will be
obtained from respondents through questioners contains both closed ended and open ended.
Whereas, secondary data will be obtained from financial statements and various document
analysis of the college.

3.4 Population and Sampling Techniques

3.4.1 Target Population

Population refers to the entire group of people, events or things of interest that the researcher
wishes to investigate (Sekeran, 1990). The population of this study is staff members of the
ERCA Daye branch office. Due to time and financial constraints, the researcher may not
cover the entire population and therefore a representative sampling will be chosen for the
study. The target population of this study is the employees who are directly or indirectly
involved in VAT collection system departments. This means, process coordinators, team
leaders, senior officers, and junior officers will include in the target group.
In Daye branch the large tax payers branch office there were 222 total workers from this 100
of them were workers who are directly or indirectly involved in VAT collection and
administrating departments and the remaining 122s were staff members. (Daye ranch large
scale tax payers branch office 2010 (E.C) human resource department data). Therefore, the
researcher focused in this 100 VAT collection and administrating department workers only.

3.4.2 Sample Size and Sampling Techniques

The researcher collected data from representative size of sample in the sample frame. These
are done using purposive and convenient non-probability sampling technique from the
selected list of employees. The reason for the researcher selected purposive and convenient
non-probability sampling method is workers related to VAT collection and administrating
department are essential to the research, and based on availability of workers during the
survey period, respectively. In large tax payers branch office 100 employees are working
directly or indirectly on VAT issues from this total target population the researcher determine
representative sample size based on the formula stated below.
Base on Taro Yamane (1967) the following formula was used to determine the sample size
N
n=
1+ N (e ¿¿ 2) ¿
Where:
n = sample size
N = total population
e = sample error
100
2
1+ 100 ( 0.05 )
100
=80
1.25
Hence, from the total 100 workers related to VAT collection and administrating department
of the branch office, the acceptable sample size according to the above formula is 80.
Therefore, the total sample size considered by the researcher is 80.

3.5. Tools and Methods of Data Collection

Primary and secondary sources of data collection methods were used by the researcher.
Primary data is collected from the staff of the branch office by using surveying technique.
The researcher used questionnaire guide as the main instruments for data collection. The
researchers used one set of questionnaire for the survey which was answered by the selected
departments and junior and senior officials, auditors and process coordinators, team leaders
of tax assessment and follow-up, collection and enforcement departments. Secondary data
were also obtained from source of branch office periodic reports.

3.6 Methods of Data Analysis

The researcher used descriptive analysis technique to analyze the collected data. In the
qualitative part of the study, after the data was collected and processes manually, descriptive
technique is adopted for analysis of the data. The statistical analysis conducted based on
percentages. Tables are used to present the findings. The data collected through
questionnaires are carefully coded in to statistical package for social scientists (SPSS) and
checked for consistency. The analysis is performed with a method of SPSS version 20. The
data was analyzed, presented, and interpreted to give solutions for the research problem.
Document analysis method was used to analyze the qualitative data.

3.7. Organization of Paper

This study contains about five Chapters. The first chapter deals about background of study,
statement of problem, objective of the study, limitation of study, significance of the study and
organization of paper .
The second chapter would deals with theoretical and empirical literature review. The third
chapter would deals also methodology and research design ,source of data ,target
population ,sample size and sampling method , data collection methods and methods of data
analysis . The fourth chapter would deals about, interpretation, analysis and presentation of
data and the last chapter would deals conclusion and recordation.
 CAHPTER FOUR

4 DATA PRESENTATION AND INTERPRETATION AND ANALYSIS

As indicated in methodology part of this research total sample size taken form category B’
tax payer in Daye city Administration are 67 and 18 form revenue office employee, among
the questioner distributed to 67 tax payer researcher can able to collect 56(83.38%) from tax
payer and (88.9%)of from revenue employee were collected
4.1 Analysis Personal Information of Respondent of Category “B” Tax Payer
The objective of this study is to investigate tax assessment and collection problem in respect
to category “B” tax payer residing in Daye city administration. in order achieve this objective
sixty seven questioner is distributed to the selected tax payer
Table 4.1 response rate of respondent
Particulars Frequency Percentage
Responded 56 84%
Not respond 11 16%
Total 67 100%
Source:-primary data.
Table 4.1Form questioner distributed 56 (84% )of them returned and remining11(16%) did
not returned
Table 4.2 Demographic characteristic of respondent
Gender Frequency Percentage
Female 17 30%
Male 39 70%
Total 56 100
Source:- primary data (2016)
Of the fifty six respondent around 70% male and 30% is female (table (4.2)from his
researcher can understand that participation of female in payment of tax is low.
4.3. Age composition of respondent
Age group Frequency Percentage
18-25 24 43%
26-40 78 50%
40 and above 4 7%
Total 56 100%
Source primary data (2016)
Table 4.3 form this age composition of respondent 24 (43%) is between 18-25 and 28(50%)
age between 26-40 and remaining 4(70%) age between 41 and above
4.1.2 Analysis General Question From Category “B” Tax Payer)
With respect to the problem of tax assessment and collection in category “B” tax payer
questioner is distributed and collected form tax payer analyzed by using.
4.1.3 Willingness Of To Pay Their Income Tax Obligation
Willingness of the payer is one of the criteria to collect revenue as expected form tax payer,
to identify the willingness of tax payer. The student researcher summarizes response or
respondent in Table 4.4.
No Item Frequency Percentage
Do you have wiliness to
pay business income tax?
Yes 22 39%
NO 34 61%
Total 56 100%
Source primary data (2016)
Among the questioner distributed to category B tax payer one is about willingness of tax
payer to pay their income liability .As result 4.4 indicates that 22(39%) of the respondent
response yes, 34(61%) respondent answer No (unwilling) so, un wiliness of tax payer affect
actual collection of tax form tax payer
4.1,4 Reason of Unwillingness To Pay Tax From Tax Payer Perceptive
As indicated in table 4.4 most of the taxpayer unwilling to pay their income tax Labialityto
know their reason the student researcher presents
Table 4.5 reason of un willingness of tax payer to pay their tax liability
Item Frequency Percentage

If
your answer is yes in
question №6 why?
Lack of awareness 16 47%
Lack of ability to pay 13 38%
Care less ness 0%
If additional 5 15%
Total 34 100%
Source primary data
Table 45, shows that 16(47%) of respondent respond that the reason is due to low level of
awareness. 13(28%) of them lack of ability to pay is a reason and remaining 5(35%) because
of weak and tedious tax collection system. Form this analysis researcher can understand that
one of the main reason for un willingness of tax payer is their low level of awareness about
tax, lack of ability to pay and because of weak and tedious tax collection
4.1.5 Program of Training for Tax Payer
Table 4.5.Response rate of tax payer about program of training
No Item Frequency Percent

Does tax office prepare training to create

awareness?
Yes 56 100%
No 0 0%

Total 56 100%
If your answer isyesin above table4.5 how
many time youtake?
Once year 20 38%
Twice a year 10 18%
Three and above a year 5 4%
Not at all 21 38%
Total 50 100%
Source; primary data
Table 4.5 indicates that 56(100%) respondent respond that the tax office prepares trainings
session form mean,-3-
Whereas 20 (38%), 10(18%), 5(9%) respondent is take training once, twice, and three and
above a year respectively the remain 21 (39%) of respondent respond are not take at all for is
researcher can
Understand even if the tax office prepare training session effectively tax payer have low level
Participation of training session. Because offer revenue office and tax payer gives little
attention to training.
4.1.6 Problems of tax payer
4.6. Problem tax payers
Mo Item Frequency Percentage
What problem do you face while you
paying tax?
Enforcement of law 9 16%
Short period of tax payment 16 29%
Tax Above tax payers income 28 50%
If Addition please specify 3 5%
Total 56 100%
Source primary data
The result revealed in table 4.6 indicates that 9(16%), 16(29%), 28(50%) of respondent of tax
payer response is enforcements for payment by law, Short period payment, tax above tax
payer’s income respectively and remaining 3(5%)respondent responsethat there is over
taxation,Payment is not based on net profits and uniform tax system. form this researcher can
understand that tax above tax payer income and short tax payment period are major problem
affects tax payer.
4.1.7. Reason for Tax Evasion
Tax evasion is one of the main ways of escaping from tax and it reduce actual collection of
tax payer asked question another they are tries to evade of not & their reason table 4.7.
Response of the reason of tax evasion and how tax payer wade tax revenue
No Item Frequency Percentage
7 As tax payer do you believe tax payer
tries to evade tax revenue?
Yes 36 64.3%
No 20 35.7%
Total 56 100%
8 If your answer or is yes in No7why?
High rate of taxation 18 50%

Compaction of law 5 13.9%

Ineffective tax enforcement 3 8.3%
Lack of awareness 10 27.7%
Total 36 100%

Source primary data(2016)

As indicated in table 4.7 36(64.3%) of respondent are replies that tax payer were evade Tax
revenue and remaining 20(35.7%) of respondent are not evade. This shows that most of tax
payer evade tax and also tax payer Asked reason that leads to evade tax revenue. Form 36
responds who says yes. There is tax evasion by tax payer 18(50%) responds replies that they
evade because of high rate of taxation. Remaining 5(13.9%) 3(8.3%) ,10(27.8%) respondent
respond that they evade because of complication of law, ineffectiveenforcement oflaw and
lack of awarenessrespectively. Form this researcher can understand that main cause that leads
tax payers to evade tax revenue is high rate of taxation and lack of Awareness to are the main
cause of tax evasion by tax payer.
Table 4.8 knowing what expected form them regarding to their tax obligation
Rating scale Frequency Percentage
Strongly Agree 5 10%
Agree 12 24%
Not certain 3 5%
Dis agree 24 42%
Strongly dis 12 24%
agree
Total 56 100%

Source primary data

In table 4.85(10%), 12(24%) and 3(5%) of respondent respond thatstrongly Agree, agree, not
certain, respectively whereas 24(42%) of respondent and 12(24%) respondent respond dis
agree and strongly disagree respectively, this indicatesthat majority of tax payer did not know
what expected form them regarding to their income tax obligations so it is highly influence
the collection of tax form tax payer.
Table 4.9. The Amount of tax liability determine with certainty
Rating scale Frequency Percentage
Strongly agree 4 7%
Agree 7 13%
Not certain = -
Dis agree 25 45%
Strongly dis agree 20 35%
Total 56 100%
Source primary data
This table Indicate that 4(7%), 7(13%) of respondent replies that strongly agree, agree
respectively, in relation to determination of tax liabilitycertainly and majority of respondent
i.e. 25(45%) and 20(35%) of respondent is dis agree, strongly disagree respectively. This
shows that tax officer does not determine tax liability of tax payer certainly,from this
researcher can understand that there is a disparity in determination of tax liability or they
determine without reaevidence
Table 4.10 high rate of taxation is main cause of taxation?
Ratingscale Frequency Percentage
Strongly agree 18 32%
Agree 12 21%
Not certain 21 7%
Dis agree 12 21%
Strongly dis agree 10 18%
Total 56 100%
Table 4.10 half of respondent strongly agree, agree i.e. 18(32%), 12(21%) respectively with
high rate of taxation is main causes for tax evasion while other 21(7%,) 12(21%) and
10(18%) of respondent responds not certain, dis agree and strongly dis agree. Form this
research can understand that if rate of taxation iscontinuous in this way the number of tax
payer that evade tax revenue increase from time to time this in turn affects actual collection
to low
Table 4.11 tax collection period is convenient to you?
Dating scale Frequency Percentage
Strongly agree 4 7%
Agree 6 11%
Not certain 2 4%
Dis agree 21 38%
Strongly dis agree 23 41%
Total 56 100%
Source primary data
This question is highlyemphasized on whether the collection period is convenient to tax
payers or not accordingly survey results shows that 4(7%], 6(11%), 2(4%); 21(38%) and
23(41%) of the respondent replies that strongly agree, agree, Not certain dis agreeand
strongly dis agree respectively , this show that most of the tax payers are inconvenient with
tax collectionperiod of tax revenue. so it challenges the revenue office to collect the actual
collection as estimated/ expected
able 4.12 generally the tax collection procedure is complex
Rating scale Frequency Percentage
Strongly agree 18 32%
Agree 22 39%
Not certain 5 10%
Dis agree 5 10%
Strongly disagree 6 11
Total 100%
Source primary data(2016)
Based on the tax payers respond 6(11%)5(10%), and 5(10%) respondent respond’s that
strongly agree, dis agree, and not certain, respectively, aboutcomplexity of collection
procedure . However most of the tax payer 18(32%) strongly agree and 22(39%) are agree
respectively, from this researcher can understand that tax collection procedure is complex
that leads to tax payer to evade and avoid tax revenue.
4.2 Analysis of Data Form Revenue Office Employee Directly Involved In Collection
Tax Form Category “B” Tax Payer
Table4. 10 demographics characteristic of employee
NO Item Frequency Percentage
Female 10 63%
Male 6 37%
Total 16 100%
Source primary data(2016)
Table4. 10 show that above table 4.1 out of 16 respondents 10(63%) respondent is female and
remaining 6(37%) are male 4.10 age distribution of respondent
Age Frequency Percentage
18-25 7 44%
26-40 6 37%
Above 3 17%
Total 16 100%
Source primary data(2016)
Table depict that 7(44%) of respondent 18-25 and 6(37%) respondent are age between 26-40
remaining 3(17%) of respondent are age above and above, researches believed that age
grouped 26-40 and 18-25 is important to perform routine activity effectively the because as
employee under age can be considered as| productive capacity with enough knowledge any
improving tax collection in terms of efficiency and effectiveness
Table 4.11Educational background of respondent
Education Background Frequency Percentage
Diploma 3 18.75%
Master 1 6%
PHD and Above 0 0%
BA degree 12 75%
Total 16 100%
Sources primary data
table 4.11 shows that educational qualification of Daye city administration revenue authority
office employee 3{18.75%],1{6.25%} ,12{75%} of employee are diploma ,master ,degree
respectively from this most of Daye city revenue employee are degree and Diploma holder.
Table 4.16 experience of revenue office employee
Experience Frequency Percentage
6-5 11 68%
6-10 3 19%
11-abe 2 13%
16 100%
Source primary (2016)
Table 4.16 depicts that experience of Daye City administration revenue Authority employee
11(68%), 3(19%) and remaining, 2(13%) of respondent are 6-5, 6 -10 an d11 and above
respectively form this researcher can understand that 68% of respondent are experience b/n
0-5 this infer less experience employee cannot do their activity routinely.
4.2.1 Problem of Tax Collector
Table 4.17 response for problem of tax collector
No Item Frequency Percentage
1 What problem do you facewhile you -
colleting tax?
Tax payer is not willing to pay 11 69%
Disagreement with tax payer 1 6%
Lack of infrastructure - -
Tax evasion by tax payer 4 25%
If other -
Total 16 100%
Source primary data (2016)
Tax collector is asked about their problem while collecting tax form tax payer. As result
revealed in table 4.17 11(69%) 1(6%) and 4(25%) of the respondent are respond that tax
payers are not willing pay tax liability ,evasion by tax payer, and disagreement with tax
payer respectively, from this researcher can understand that un willing of tax payer and tax
evasion by tax payer are major problems that affect actual collection of tax revenue in
office.
4.2.2. Factors Affecting Tax Collection
Table 4.18 factor affecting during collection?
No Item Frequency Percentage
20 Falsification of account 4 25%
Tax evasion by tax payer 3 19%
Tax Avoidance - -
Late payment 6 38%
All 2 13%
If other specify 1 6%
Total 16 100%
Source primary data (2016)
Table 4.18 above depict that 4(25%), 3(19%), 6(38%) 13% of respondent are respond
falsifications of account tax evasion by tax payer, late payment are major factor that affect
actual collection of tax and remaining 1(6%) respondent respond lack of Awareness to words
of tax payer are also other factor that reduce collection as expected.
4.2.3 Remedies Possible Solution of Reducing False Falsification, Late Payments and
Tax Avoidance
Table 4.19 solution that used table 20
No Item Frequency Percentage
Increasing penalty 1 6.25%
revoking of trade license 5 31.25%
Creating Wariness 4 25%
All 6 37.5%
Total 16 100%
Source primary data (2016)
Table 4.19 shows that 1(6.25%) 5(31.25%) 4(25%) and6(31.5%) of respondents responded
that increasing penalty , trade license, creating Awareness through training and all are
solution for revenue office to reduced tax evasion falsification of account and late payment,
from this researcher infers that even if tax office takes this measure tax payer evade tax
revenue
4.2.4. Tax Payer Is Maintain Book of Account Properly
Table 4.20 your tax payer maintain book of account properly?
No Item Frequency Percentage
22 Yes 7 43.75%
No 9 56.25%
Total 16 100%
If your answer is No why? - -
Because of intentional evasion 6 66.67%
Because of poor knowledge - -
Because of carelessness 3 33.33%
Because of all - -
If other - -
Total 9 100%
Source primary data
As indicated in table 4.20 7(43.75%) and 56.25%) of respondent responds that respectively
these shows that most of tax payer did not maintain book of account properly. From
9(56.25%) of respondent 6(66.67%) of responds no, because of intentionalevasion, renaming
3(33.33%) of respondent responds that because of because of carelessness. Form this
researcher can understand that tax payer not maintain book of account because of intentional
evasion and due to carelessness of tax payer are major factor affect employees during
collection
4.2.5. Factors Affecting Tax Collection
Table 4.21 factors affecting ta x collection tax collection?
No Item Frequency Percentage
Are factor that affect tax collection
Yes 16 100%
No - -
Total 16 100%
If your answer is yes which factor
affect
Lack of sufficient man power in your 4 25%
office
Setting of multiple of account by tax 4 25%
payer
Lack of awareness -2 12.5%
All are factor 8 37.5%
Total 16 100%
Source primary data
As table 4.21 it is clearly observed that 100% of tax collectors say that there are factor that
affect actual collection of tax, from this factors most the respondent which is 4 (25%), 4
(25%), 2(12%) and 6 (37.5%). Respondent respectively respondsthat, lack of sufficient man
power in office, setting multiple set of account by tax payer, luck of infrastructure and all
factors respectively. From this researcher can understand that the main factors that affect the
collection of tax is lack of sufficient man power in office ,setting of multiple set of account
by tax payer and luck of self-awareness payer to words of taxation
4.2.6. Period of Tax Collection on Category B Tax Payer
In order to evaluate tax collectors whether tax collector understand not researcher arises
question
Table 4.22 when you collect tax from category B tax payer
No Item Frequency Percentage
1 Sene 30 – tikemit 30 -
2 Haml 1 pagume 5(6) 16 100%
3 Hamle 1 – 30 -
4 Others
Total 16 100%
Source primary data
From table 4.22 shows that 16 (100%) respondent response that tax collection period form
category B tax payers are hamle 1 to pagume 5(6) and researcher also asked tax payer tax
collection period is convenient, most of tax payer responds that strongly disagree from this
researcher can understand even if tax collector know tax collection period, category B tax
payer is not agree with this period this limits tax payer to pay specifiedperiod
4.2 .6Problem of assessment of category B tax payer
Table 4.2.3 what problem do you face during assessment

No Item Frequency Percentage

1 submitting false statement to office 4 25%/
2 over statement of expanse 5 31.25%
3 failure to keep book account 2 12.50%
4 all are problems 4 25%
5 if other please specify 1 6.25%
Total 16 100%
Source primary data
From table 4.23 depict that 4(25%), 5(31.25%),2(12.5%) and 4(25%) respondent responds
that submitting false statement to office, over statement of expense, failure to keep book of
account, all are problem of during assessment of category B tax payer and remaining
1(6.25%) respondent responds that shifting of on shifting income one period to on other
period are also problem of assessment .
4.2.7 Evasion of tax by tax payer
Tax evasion is major factor that reduce actual collection of tax in revenue of office researcher
asked question to employee.
Table 4.24 is there any tax evasion by tax payer your office?

No Item Frequency percentage

YES 14 87.50%
NO 2 12.50%
Total 16 100%
Source primary data
As indicated in table 4.24 tax collector are asked about the presence of tax evasion by tax
payer the result shows that 14(87.5%) respondent replies that there is tax evasion. As
researcher get from open ended question of respondent which says there is tax evasions, the
cause for tax evasion are high rate of taxation, lack of efficient
administration, lack of awareness about tax and its purpose while remaining 2(12.5%)
respondent responds that there is no tax evasion of tax payer and researcher rises question
onopen ended what possible solution to reduce chance of evasion, creating awareness about
tax purpose and use of tax, expanding the government tax base and panelizing them are
possible solution of revenue office use to reduce tax evasion by tax payer
4.2.8. Sufficiency, Motivation and Competency Of Employee
Sufficiency, motivation and competency of employee are critical factor that helps revenue
office collect taxes as expected, to know this researcher raises question to revenue employees
and manager for interview
Table 4.25 do you think that your office has sufficient, motivate and competent employee?

No Item frequency Percentage

YES 11 68.75%
NO 5 31.25%
Total 16 100%
Source primary data(2016)
As indicated in table 4.25 tax collector are asked, tax office have motivated and competent
tax officer? 11(68.75%) of respondent are responds YES and 5(31.25%) respondent respond
NO as researcher get from open ended questions respondent which say no because of there
is work over load of job to make employee less motivated and busy, lack of better incentive,
lack of responsibility sharing.
What Assessment method do you use collectiontax from category B tax payer as research
obtained from open ended question most of respondent responds that based on income
declared by tax payer tax officer collect and levy taxes and also answer respondent responds
that using proper valuation method by specialized employee .By getting information from
their neighbors about their sales and production capacity
4.4 Analysis of Unstructured Interview form Revenue Office Manager
To conduct this study the researcher prepare personal interview to tax office manager to
support data collected by using questionnaires’ As information gathered from manager
through interview, there are many problems that faced them to collect business income tax in
category “B” the tax office. there is no fully sufficient, skillful and self-initiated officer to do
intend work effectively and efficiently, in dire revenue office there is an evasion of tax
revenue by tax payer .the cause for evading of tax revenue is high rate of taxation, luck of
efficient tax collection procedure, luck of awareness toward of tax payer about purpose and
use of tax. Also
Lack of sufficient man power in the office. Tax payer use different technique to evade tax
revenue but as response of respondent mostly tax payer use following technique this is to
submitting false income statement to office , adding false expanse, shifting income form one
period to another period and intentional omission of some income form report, and lack of
experienced and responsible employee in office in order to reduce tax evasion revenue office
takes different remedies, such as giving training to tax payer regarding to tax law at
declaration, crate awareness for tax payer regarding to guiltiness of evasion and preparing
book of account educated person are some of remedies taken by revenue office.
Based on information gathered from manager, there are many problem exists in Daye revenue
office authority increasing number of tax payer who did not maintain book of account. And
some activity are performed in hidden way are problem exists Daye city administration
revenue office.
Accordingly the above stated problem in the researcher can summaries in to two sides these
are Problem that exist in the side of category B tax payer and problem that exist on the side
of revenue office.
1Problem that exist in the side of category B tax payer
2 Problem that exist on side Daye city administration revenue authority office
1. Problem that exist in the side of category B tax payer
 Poor awareness of tax payer toward of taxation
 Not willing to pay their tax liability.
  Doing business activity in hidden way to reduce liability
 Poor habit of maintain book account
 Low participation during training session
 Negligence of tax payer towards the existing tax system
 Increasing number of tax payer who are not willing to pay their tax liability
 Unable to pay their tax liability specific period are some of the problem exists
in the side of category B tax payer
2. Problem that exists in DIRE DEWA CITY administration revenue office
 Poor record keeping documentation system and assessment changed. from
manual to computerized but lack of experienced employee
 Lack of sufficiently motivated man powerin office
 Follow weak and tedious business profit tax collection
 Lack of experienced employee in office.

4.5 Analysis Of Secondary Data

Table 4.26Budget and actually collected amount of revenue

Year Budget Actual %
2003 48,919,000 53,793,000 110
2004 63,982,000 63895,599 100
2005 83,982000 77,403,609 92
2006 104,398,395 83,746,941.46 80
2007 150,760,454 122,464,335.83 81
 Source: secondary data

Table 4.16 shows that 2003 years budgeted revenue is less than actual collection of revenue,
and 2004 year budget amount revenue is mach with actual amount of revenue. When we see
from 2005-2007 consecutive years, the expected revenue greater than the actual revenue
collected continuously.

As we can see in the table the revenue authority collects revenue of 53,793,000 in 2003 from
budgeted amount of48, 919,000. This shows that there is good standard assessment to collect
revenue in this fiscal period. Therefore actual, amount is greater than the budgeted amount. In
the next period or in 2004 collected amount are 63,895,599 from 63, 982,000 the budget
amount of revenue and the actual collection mach with the budgeted amount. But, the actual
collection starts to less than the budgeted amount from 2005 year and continue up to 2007
year. In general, budget increase from year to year but the actual amount of collection
becomes variable means that one year increase next year decries.
 CHAPER FIVE
5 SUMMERY, CONCLUSIONS AND RECOMMEDATON
This study present important information ,justification and finding concerning tax assessment
and collection problem in respect to category “B” tax payer found in Daye city
administration revenue authority. this study design to identify the major problem that exists
in both side of tax payer (while paying) and revenue office(while collecting from tax payer)
and providing a possible corrective action roe those problem in the way achieving the
revenue office designed objective and goal

5.1 SUMMERY
Major finding of the study
 Most of tax payer are unwilling to pay their tax liability this un willingness comes
from their low level of awareness about tax, lack of ability to pay and, because of
weak and tedious tax collection system
 Most of tax payer did not take training given by tax office because lack of attention
from both sides of tax payer and tax office
 Most of tax payer does not maintain book of account properly because thinking of
reduce tax liability
 Major problem that tax payer faced are tax above tax payers income, uncomfortable
tax payment period, forcing of tax payer to pay while incurring loss.
 Increasing number of tax payer to evade tax revenue due to high rate of
taxation,complicity of tax law
 Most of employee are not sufficiently motivated and responsible because of lack of
incentives and their is work over load in office
 Tax collection period is not comfortable to tax payer because of most of respondent
response strongly dis agree with convenience of tax collection period
 Complexity of tax system absenceof suitable environment to implement tax system
successfully, poor habit of maintaining b ook of account especially in business men .
in adequate record keeping a nd documentation by tax office due to lack of
experienced employee

5.1 CONCLUSION
Based on data analysis and findingresearcher draws following conclusion:
 Tax payer are un willing to pay their tax liability , this unwillingness comes from
their law level of awareness about use and purpose tax ,lack ability to pay, weak and
tedious collection system
 Even though tax office prepare sufficient training session to tax payer , tax payer that
take training is low this affects the operation of tax officer in
 There is disparity of level of income and amount tax liability, tax are not asked based
their level of income this indicates an over assessment tax payer annul income due to
this majority of tax payers are not willing to pay
 Majority of respondent responds that ,they are strongly disagree regarding to the
convenient of tax collection period and determination of amount of tax liability
certainly this influence tax payer to pay their tax liability specified period.
 High rate of taxation is main cause tax evasion this leads to tax payer to evade tax
revenue.
  Most of tax payer was not agree with knowing what expected from them regarding to
their business or business tax obligation. from this the researcher thinks that if tax
payer were not know what expected from them regarding tax obligation the
government will not get enough revenue in order to fulfill public infrastructure such
as education ,health center and etc.
 Tax officer do not follow continuous law based on tax collection procedure, this
creates suitable environment to illegal trader to do their business in hidden way,
increasing number of tax payers that evade tax revenue .
 Majority dire dawa city administration revenue authority employee are degree
holder additionally the bureau have more female with experience 1-5
 Majority employee response that there are many problem that affect tax collection
from category “B|” tax payer some this are intentional omission income , tax
evasion , late payment and lack of sufficient man power in office
 Major factor that affect employee during tax assessment from category “B” tax
payer are late declaration of income ,setting of multiple set account , submitting false
statement to the office ,over statement of expense.
 All employee states that the measures the office to control tax evasion are preparing
training program , by levying additional penalty and by taking other corrective action
like revoking trade license from this most important control mechanisms is
preparing training program because if tax payer knows the rules and regulation , the
advantage tax to society and its purpose they pay their tax willingly base.
 Majority of employee response that most of category “B” payer are not maintain book
account properly, this because of intentional evasion of tax , carelessness.

5.2 RECOMMENDATION
Finally based on findings and conclusion of the study, the researcher recommends the
following points for Daye city administration revenue authority office.
 To bring tax payer to pay their tax liability in willingness base the researcher
recommended that the tax office should determine the annual income and their tax
liability based on real evidence, should ask their tax liability based on their level of
income and create awareness through training to tax payers.
 Furthermore, to avoid tax evasion and illegal activity of office shall to create
awareness for those evadingperson regarding to guiltiness of evasion tax and use of
tax.
 Higher rate of taxation is main cause for tax evasion of tax revenue. so , to avoid this
guilty activity the revenue office should wider tax base and reduce tax rate.
 To collect expected amount of tax revenue. the revenue office must provide
adequate training to tax payer and revenue office employee regarding to what
expected from them in business tax obligation office should determine the amount
of tax liability certainly, and make convenient tax collection period to tax payer.
 Although Employee of Daye city administration are degree holder office should
plan and recruit master holder employee in near future to improve the tax collection
 system because of tax collection is more complex and needs depth knowledge and
experienced employee.
 To implement business income tax collection system successfully office is better to
convert tax law in simple and understandable to tax payer, create suitable
environment , improve relation or communication between tax payer andtax
officer .avoid weak and tedious tax collection system and motivate and train
employee of organization through providing different incentive.
 Tax payer should have good habit of maintaining book account and also tax officer
should keep records and document in systematic manner.
REFERENCE
Bahita H.L, 1998,public Sinance. Vikas publkhing 19th ed .1998 Ramas wami parames
Encyclopedia of Americana 1997.
Ethiopia chamber of commerce. HWK partnership. Daye
Gebrie Worku Mengesha (Tax accounting in Ethiopia context 2008.
Gebrie worku, 2008 Ministry of finance and economic development
Daye 1996.
IMF.Org.
Ministry of revenue Daye. Dec 2003
Misrak Tesaye (mse), 2011, , Ethiopia Tax Accounting: Theory and Practice,first edition
Purhot,Mahesh 2000, value added Tax: the need of the new millennium.
second edition.)
Sisay Ayalew (Addis Abeba 1985) .
Sisay Ayalew (training manual on economics of taxation, Addis
Tanzivito and Howell Zee, 2001, Tax policy for developing countries. IMF.WWW.
waran (Dr), 2005
WWW. Business Dictionary. Com
WWW. On line dictionary. Com.
www.Addis chamber.com
WWW.start.Com.
 APPENDIX-1
ZION COLLEGE OF TECHNOLOGY AND BUSINESS
DEPARTMENT OF ACCOUNTING AND FINANCE
Appendix I
1.1. Questionnaires prepared to be filled by the government employees.
Dear respondent, I would like to thank you in advance for your cooperation in filling the
questionnaires. The purpose of these questionnaires is designed to gather information about
the Assessment Of Of The Factors Affecting Value Added Tax (Vat) Collection System.The
result of this study intended to serve for academic purpose only .Wherever there is alternative
answer tick in the box. If the question require open ended answers write briefly .So you are
kindly requested to give reliable information as the quality of the result of paper is based on
the accuracy of the information you provide.
INSTRACTION
No need of writing your name
Indicate your answer with check mark// in the space provided
SECTION № 1PERSONAL INFORMATION OF RESPONDENT
1, demographic
1 sex: Male female
2 Age 18-25 B 26-40 -41 and above

SECTIN №2 GENRAL QUESTIONS

1 Do you have willingness to pay business income tax
Yes No
2 If your answer is no in question №1why?
- lack of awareness - due to carelessness
- lack ability to pay - if you have other please
sepacfy.......................................................
3 what problem do you face while you paying tax?
- Enforcement for payment by law - short period of tax payment
- Tax above tax payer’s income - if you have other sepacfy........................
4 from question№3which problem affect you more?
- Enforcement for payment by law -short period for tax payment
- Tax above the tax payment income - if additional.........
5 Does the tax office prepare sufficient time to create awarnce to you?
Yes No
6 If your answer is yes now many times do you take?
- Once a year - twice a year
- Three and above a year - not all
7 As a tax payer do you believe tax payers tries to avoid tax
Yes No
8 If your answer is yes in question 7 what are the use that leads tax
- High rate taxation - complication of tax law
- ineffective tax enforcement - lack of awareness
- if you have additional....
queston number 9-13 please state your opinion by using the f/f five point liker scale to
express your degree of agreement and disagreement this responisive liker scale is strongly
agree ,agree not certain; dis agree, strongly disagree
9. know all required from you in respect of business income tax obligation?
strongly agree agree not certain disagree strongly disagree
10 amount tax obligation is determind with certainly by tax officer?
Strongly agree agree not certain -disagree -strongly disagree
11 tax collection period is convenient to you?
-Strongly agree -agree -not certain -disagree -strongly disagree
12 high rate of taxation is main cause tax evasion?
Strongly agree -agree not certain -disagree -strongly dis agree
13 Procedure of tax collection is complex?
Strongly agree -agree -not certain - disagree -strongly disagree

be sure that shard information is not exposed any one it is used ONLY
Academic purpose
“Thank you for your kind cooperation and dedicating your time,”