ADMAS UNIVERSITY

DEPARTEMENT OF ACCOUNTING

Tax Assessment and Collection Problem the Case of Ethiopian Revenue &Customs
Authority Arada Sub-City Small Tax Payers Branch Office

A Research Project Prepared in Partial Fulfillment For the Requirement of BA Degree in

Accounting and Finance

PREPARED BY:
• GEREMEW ABEBE
• MESELE
• MULUYE ASNAKEW

ADVISOR
YENENESH NEGESE (Miss)

MAY, 2018
Addis Ababa Ethiopia
 DECLARATION
The research paper is our own original work and has not been presented for a degree in any other
university and that all sources of material used for the research paper is have been duly
acknowledged.
Name: Signature
1. Geremew Abebe ____________________

2. Muluye Asnakew ____________________

3. Mesele ____________________

Date of Submission ___________________

This research paper has been submitted for examination with my approval.

Name Yeneneshe Negese (MA)

Signature ____________________
Date __________________
 ACKNOWLEDGMENT

First and for most, we would like to thanks the almightily GOD who help us with every path.
Secondly we would like to forward our deepest gratitude to our adviser Mis. Yenenesh Negese
who provided wise and intellectuals‟ advice, guidance and directive to make this paper. We also
would like to forward our special gratitude to Mr. Tewdros Werkayehus by coordinated the
questioner and suggest how to gate the secondary data, to help how to get data and given
valuable suggestion for the study. We also thank to Mr. Mekonnen, Asheafi Hilu who help us by
giving his laptop..

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 TABLE OF CONTENTS
ACKNOWLEDGMENT .......................................................................................................................... i
LIST OF TABLE ................................................................................................................................... iv
ABSTRACT........................................................................................................................................... vi
CHAPTER ONE ..................................................................................................................................... 1
1. INTRODUCTION ............................................................................................................................... 1
1.1. Background of the Study ............................................................................................................... 1
1.2. Back ground of Organization ........................................................................................................ 2
1.3 Statement of the Problem ............................................................................................................... 4
1.4 Objectives of the Study .................................................................................................................. 5
1.4.1 General Objective ................................................................................................................... 5
1.4.2. Specific Objectives................................................................................................................. 5
1.5 Significance of the Study ............................................................................................................... 6
1.6 Scope and limitation of the study ................................................................................................... 6
1.7. Organization Paper ....................................................................................................................... 6
CHAPTER TWO .................................................................................................................................... 7
2. LITERATURE REVIEW .................................................................................................................... 7
2.1. The Review of Taxation (Tax) and Related Problem ..................................................................... 7
2.2. Importance of Taxation ................................................................................................................. 8
2.3. Principle of Taxation..................................................................................................................... 8
2.3.1. Benefit Principle .................................................................................................................... 9
2.3.2. Ability to Pay Principle .......................................................................................................... 9
2.4. Tax evasion and Avoidance ........................................................................................................ 10
2.5.1. Progressive Taxes ................................................................................................................ 10
2.5.2. Proportional Taxes ............................................................................................................... 10
2.5.3. Regressive Taxes ................................................................................................................. 11
2.6 Major Types of Taxes in Ethiopia ................................................................................................ 11
2.6.1. Types of Direct Tax ............................................................................................................. 12
2.6.2 Types of Indirect Taxes ......................................................................................................... 13
2.7 Categories of tax pay‟s ................................................................................................................. 14
2.8 Tax administration ....................................................................................................................... 14

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CHAPTER THREE ............................................................................................................................... 16
3. RESEARCH DESIGN AND METHODOLOGY ............................................................................... 16
3.1. Research Design ......................................................................................................................... 16
3.2. Research Methodology ............................................................................................................... 16
3.4. Method of Data Collection .......................................................................................................... 16
3.5. Target Population and Sampling Technique ................................................................................ 17
3.5.1. Data Processing and Analysis ............................................................................................. 17
3.5.2. Data Processing .................................................................................................................. 17
3.5.3. Data Analysis ..................................................................................................................... 17
3.6. Ethical consideration................................................................................................................... 17
CHAPTER FOUR ................................................................................................................................. 18
4. DATA PRESENTATION AND INTERPRETATION ....................................................................... 18
4.1. Introduction ................................................................................................................................ 18
CHAPTER FIVE ................................................................................................................................... 32
5. FINDINGS, CONCLUSION AND RECOMMENDATION .............................................................. 32
5.1. Summary of Finding ................................................................................................................... 32
5.2. Conclusion.................................................................................................................................. 33
5.3. Recommendation ........................................................................................................................ 35
References............................................................................................................................................. 37

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 List of table

Lists Page
Table 4.2.1: Demographic background ........................................................................................19

Table 4.2.2 Educated man power and services period of employees……………………………20

Table 4.2.3 Tax Payers and Awareness about Taxation…………………………………………21

Table 4.2.4 About Employees Feeling…………………………………………………………...23

Table 4.3.1 Tax Payers Feeling and Data of Tax Payment…………………………………..…..25

Table 4.3.2 comparison of present taxation system and annual income of tax payers…………..27

Table 4.3.3 Problems Related With Tax Payment……………………………………………….28

Table 4.4.1 the relation of tax paid amount and the service which rendered………………..…. 29

Table 4.4.2 Budget and actually collected amount of revenue……………………………..…. 30

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Acronyms
ERCA- Ethiopian revenues and customs authority

MOR- Ministry of revenue

ECA- Ethiopian customs authority

FIRA- Federal inland revenue authority

BIT – Business income tax

VAT – Value added tax

TOT - Turn over tax

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 ABSTRACT

The study was conducted tax assessment and collection problem in Arada sub- city small tax
payers’ branch office revenue authority. The general objective was to examine the tax
assessment and collection according to the established regulations of Arada sub-city small tax
payers branch office authority and problem encountered by tax payers and collecting authority.
To achieve the objective necessary data were used. Primary and secondary sources of data were
collected in order to gatherer information, which helpful for the study. Primary data was
collected through unstructured interview and questionnaires that were distributed to employees
and tax payers. Secondary data were collected from review the documents and manuals of Arada
sub-city small tax payers’ branch office revenue authority report issued to their employees. The
research had been judgment sampling for it advantage of convent to use all the time consuming.
This paper is descriptive types of research. Finally the collected data were processed, analyzed
and interpret by using different table, percentage and finding, conclusion and recommendation
were forwarded based on the identified problems.

Key words

 Revenue
 Tax
 Income

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 CHAPTER ONE

1. INTRODUCTION
1.1. Background of the Study

Typically taxes are the primary source of government revenues. Taxation policies depend of the
socio economic and political structure of a country. In Ethiopia though taxation came into being
with the emergence of state and government, but, there is no reliable documentary evidence
exists as to when exactly taxation was introduced.

In the 15th century written stories of Atse ZeraYacob indicates that taxation was introduced
previously in Ethiopia. In these eras tax was paid by different social groups to government,
feudal lords and priests. Besides, these documents approve that Atse ZeraYacob had for the first
time enacted regulation can be taken as an evidence for the presence of taxation system before
and on Zera Yacob government.

In general a kind of traditional tax system was practiced on those days this traditional tax system
was expresses in two forms of payment in kind and unstructured tax system. In traditional tax
system, much burden was laid on farmers. Though such burden was tried to lessen by Emperor
Tewodrose‟s government, strong change had been taken place by emperor Menilik.

Towards the end of the Imperial period the majority of the population living at subsistence level.
There was limited opportunity to increase taxes on personal or agricultural income.
Consequently, the imperial government relied on individual taxes (customs, excise and sales to
generate revenue for instance in the early 1970s taxes on foreign trade accounts for close to 2/5 th
of the tax revenue, and one third of all government revenues. At the same time, direct taxes
accounted for less than one third of tax revenue. During the “Derg regime” the taxes were similar
to those imposed during Haile Selassie regime except that wider tax base and increased tax rates.

The “Dergregime” partially alleviated the tax collection problems that existed during the
imperial period by delegating the responsibility for collecting the fee and tax on agriculture to
peasant association which received a small percentage of revenue as payments.

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The main purpose of generating revenue from various sources is to finance public expenditures.
The governments generate are revenue from tax and other non-sustainable sources. The
collection of money from available sources of revenue by government needs the availability of
democratic government, foreign and domestic creditors and donors, efficient tax system and
awareness of the society regarding the use of tax payment for government and its contribution
for the development of the country‟s economy.

In our country payment of tax is considered by the society as a debt imposed by government to
increase the wealth of the government officials. To avoid the negative attitude of the taxpayer a
well-designed tax system is necessary. In addition educate the society regarding its obligation
and the purpose of tax collection minimizes the wrong attitude of the taxpayer. So, this study is
designed to minimize problems that face during assessment and collection and to minimize
wrong attitudes of tax payers.

1.2. Back ground of Organization

Establishment of Ethiopian Revenues and Customs Authority (ERCA)

The Ethiopian Revenues and Customs Authority (ERCA) was established by the proclamation
No.587/2008 on 14 July 2008, by the merger of the Ministry of Revenue (MOR), Ethiopian
Customs Authority (ECA) and the Federal Inland Revenue Authority (FIRA) for the purpose of
enhancing the mobilization of government revenues, while providing effective tax and Customs
administration and sustainability in revenue collection. The main objective of the establishment
of ERCA was to streamline the public revenue generation function by bringing the relevant
agencies under the umbrella of the central revenue collector body.

This structuring aimed at improving service delivering, facilitating trade, enforcing the tax and
customs laws and thereby enhancing mobilization of Government revenue in sustainable manner.
A study called "Business Process Re-engineering" had taken place before the merger of the
foregoing administrations. The study was undertaken for a year and half beginning from
November 2007 by teams of officials selected from within the administration.

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The study has looked into the selected key business processes and has come across inefficient
organizational structure and unnecessary complicated procedures that permitted insufficient
service delivery. The study has also indicated that there was corruption within the
administrations and that smuggling and tax evasion were serious problems. These problems have
depressed the attempt of the foregoing administrations to be successful in achieving their
objectives.

Documents for the import and export goods were processed through the former tax and customs
administration and due to the inefficient procedures, these goods were subject to delay at exit or
entry points of the former customs Authority. Owing to it, importers or exporters viewed the
former customs procedure with disfavor or looks as an impediment for international trade. The
former tax and customs administration also has long been criticized for lack of efficient and
effective system to control tax evasion.

The administration had inefficient system to control taxpayers who fail to declare their actual
income in order to reduce their tax bill and the federal government's revenue. The former
administration was also far behind in protecting investors from adverse effects of contraband and
illegal practices. In its proposal, the team has suggested merger of the foregoing three
administrations. The study team believed that it would be better if the three administrations
merged, forming a single powerful organization to increase modern and equitable tax and
customs administration system, effective resource utilization and quick service delivery.
Presently, the Authority is exercising the powers and duties that were granted to the Ministry of
Revenue, the Federal Inland Revenue Authority and the Customs Authority by existing laws.

The Addis Ababa City Tax Administration and ERCA have signed a memorandum of
understanding in January 2011 to gain support from ERCA. The main objective of the agreement
is to enhance the capacity of tax administration of the city to collect its revenue effectively and
efficiently. Based on the agreement, the administration part of the city tax administration is
temporarily merged to ERCA; the revenue collected is to the Addis Ababa city government
administration.

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The ERCA has the following objectives:

 Establish modern revenue assessment and collection system; and render fair, efficient and
quality service;

 Assess, collect and account for all revenues in accordance with tax and customs laws set
out in legislation;

 Equitably enforce the tax and customs laws by preventing and controlling contraband as
well as tax fraud and evasion;

 Collect timely and effectively all the federal and Addis Ababa tax revenues generated by
economy, and

 Provide the necessary support to the regional states with the objective of harmonizing
federal and regional tax administration systems.

1.3 Statement of the Problem

The role of taxation in well-functioning governmental operation is so high Development of

infrastructures; basic social services institution is apparently build by government. Moreover, the
public servants, defense forces and police forces are employee of the state, to cover these and
other developmental costs the states uses tax as principal source of revenue.

The need to build speedy economic progresses and overall developmental activities call for
strong tax revenue. If no arguments in the above assertion therefore the Ethiopia government
ought to adopt sound taxation policy on collection system and in making awareness on tax payer
societies.

No doubt that the existence of better tax collection system is decisive for the existence of well-
developed and economically strong states. If no complain that better tax collection system is
decisive in one Country‟s overall capacity that is the main reason motivate the researcher to
study the constraint of tax collection system with title “assessment of problem related with tax
collection in Arada sub city small tax payers‟ branch office.”

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In the researchers study area there are some problems of tax collection for instance in 2009 E.C
the proposed amount of tax was greater than the amount that actually collected and also some
problems related with awareness and willingness of taxpayers. So in this paper the researchers
tried to or answer the following basic research questions of tax collection problems. In the Arada
sub city small tax payers‟ branch office.

1. What are the major bottlenecks affecting tax collection system in the Arada sub city small
tax payers branch office.

2. What are the problems and weaknesses in the side of government bodies (tax collectors)
or the system?

3. What are the gap and weakness in the side of tax payer societies?

1.4 Objectives of the Study

1.4.1 General Objective

The general objective of this study is to find out the major constraints that affecting the tax
collection system in the Arada sub city small tax payers branch office.

1.4.2. Specific Objectives.

Specific objective of this study focused on:-

- What are the major bottlenecks affecting tax collection system in the Arada sub city small tax
payers branch office.

- What are the problems and weaknesses in the side of government bodies (tax collectors) or the
system?

- What are the gap and weakness in the side of tax payer societies and to put some possible
recommendation and to make this study‟s result base for further investigation?

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1.5 Significance of the Study

The researchers believe that the followings are the significance of the study:-

Paved the way for improvement of tax collection system, Encourage compliance of tax payers,
To create fairly clear image how the tax collection and problems with tax collection are taking
place, Enable revenue bureau to find out whether its strategy are effective or not & The result of
this study will serve as a reference for further investigation it will help to have sufficient
secondary data and avoid failure of respondents.

1.6 Scope and limitation of the study

Though tax is very vast and curial issue, standing its nature of study the tax policy at a higher
level is time consuming and need long term study so, this research paper restricted only in
problems of tax collection Arada sub city small tax payers‟ branch office. The major limiting
factors of the study were lackof willingness to give satisfactory information about the collection
system of the office and reliability of the data, and failure of respondents to return the
questionnaires.

1.7. Organization Paper

The study do have five chapters, the first chapter which is an introductory section of the paper
which include background of the study, back ground of the organization, statement of the
problem, objective of study, significance of the study, scope study and limitation of the study.
The second chapter deals with the related literature review. The third chapter details with the
research design & methodology of the study, the fourth chapter deals with the data analysis and
discussion and the last chapter which is chapter five deals with summary of finding, conclusion
and recommendation .

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 CHAPTER TWO

2. LITERATURE REVIEW

2.1. The Review of Taxation (Tax) and Related Problem

A tax is a compulsory levy payable by an economic unit to the government without any
corresponding entitlement to receive a definite a direct quid pro quo from the government. Note
the word direct here, is not a price paid by the tax-payer for any definite service rendered or a
commodity supplied by the government. The benefits received by tax payers from the
government are not related to or based upon their tax payers. A tax is a generalized execution,
which may be levied on one or more criteria upon individuals, groups of individuals or other
legal entities (BL-Bhatia, 2003, 37).

Government at all levels, local state and national, requires people and business to pay taxes.
Government use the tax revenue to pay the cost of police and fire protection, health programs
schools, roads, national defense and many other public services. Tax and taxation are generally
regarded as unpleasant subjects. Justice John stated that “the power to tax is the power to
destroy” represents the rhetorical linkage of tax and tax so inevitable. Taxes are also olds
government. The general level of taxes has varied through the years, depending on the role of the
government. In modern times, many governments as especially in advanced industrial countries
have rapidly expanded their roles add taken on new responsibilities. As a results the need for the
tax revenue has become great. Government can finance their activities by borrowing creating or
obtaining technical assistance from abroad and denotations. Government also secure resources
by profit from public enterprises of from sale of produced on land. But the major services of
revenue to finance public expenditure is taxes (Ibid).

Compulsory contributions by persons or organization to the government without expectation of

any direct return. Taxes are burdensome these reduce the economic welfare of individuals and
business (public) organization. But activities that are financed from taxes will bring benefits to
individuals or organization (Encyclopedia v 1952).

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2.2. Importance of Taxation

According to Bernard P. two payers in rent in sovereignty government and regions give the
public sector the authority to institute tax laws. These revenue and police powers of government
nicest authoring to sovereign government control persons and properly for the purpose of
promoting the general welfare. Most taxes for both revenue and welfare propose. All taxes by
nature exertion income effect since compel drawl of revenue from private sector and reduce the
level of private sector phasing power. A tax can be define as a compulsory contribution from an
individual for the purpose or goal.

Though a single purpose is typically dominated. All taxes by their nature provide revenues to the
government which imposes the taxes. In most instances this the primary motive for existence for
tax. Tax may exist primary for regulator purpose. Tax may be regulatory in either micro
economic since. A regulatory tax designed to discourage the consumption of particular item such
alcoholic beverage or to base of product (Bernard p. 1999).

2.3. Principle of Taxation

The pioneer economist like Adam smith who agrees for “laissze fair” which state that the
government minimal governance intervention. However Adam smith acknowledges the role of
the government in the provision of public. In his well know book” the wealth of nation”
publisher in 1776 has stated four principles which called them as canons of taxation they are:-

People should pay taxes according to their abilities (principle with modern economist have
subject to two interpretation) they are the benefit principle and to pay principle can non of
equity. The payment of tax should be clear, certain to the tax payers and the tax collector cannot
convenience.

The cost of collection in relation to the tax yield should be minimal cannon of economy. Now
days smith‟s canons‟ get wider perspective and some are added Todaro (1994) tried to put
factors which the tax potential in to five categories there are:-

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The level of per capital income

The degree of inequality in the distribution of that income. The industrial structure of the
economic activity of example the importance for foreign trade, the significance of the
enterprises, the degree to which the agricultural sector is commercialized as opposed to
subsistence oriented.

The social, political and institutional setting and the relative power of different groups (for
example land lord as opposed to manufactures) organization.

The administration competence, honesty and integrity of the gathering branches of government
(Gebrie, 2006, page 20).

There are two basic principle of taxation.

2.3.1. Benefit Principle

The benefits principle of taxation states that only the beneficiaries of a particular, government
programs should have to pay for it. The benefits principle regards public service as similar to
private goods and regards taxes, as the people must pay for these services. The practical
application of the benefits principle is extremely limited, because most government services
consumed by the community as a whole. For example, one can not estimate the benefit received
by a particular individual for general public services such as national defense and local police
protection, (Gebrie, 2008 page 21,22).

2.3.2. Ability to Pay Principle

The ability to pay principle holds that people, taxes should be based up on their ability to pay,
usually as measured by income or wealth. One implication of this principle is horizontal equity,
which states that people in equal positions should pay the same amounts of tax. A second
requirement of the ability to-pay principle is vertical equity, the idea that a tax system should
distribute the burden fairly across people with different abilities to pay. This idea implies that a
person with higher income pay more in taxes than one with less income (Gebrie 2008, 20,21).

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2.4. Tax evasion and Avoidance

Tax evasion is an illegal method of trying to reduce one‟s tax bills. In other word, it is illegal by
redacting tax burden by under reporting income, over stating deduction of using illegal tax
shelters while tax avoidances an attempt to reduce tax liability to minimizing tax burden through
legal means such as tax free municipal bonds, tax shelters because of the loopholes in the tax
laws and the inefficient or corrupt tax administration gives rise to tax avoidance or evasion. It
involves choosing legal form and handling affairs in such a way as to taken advantage of legally
permissible alternative tax rate or an alternate method of assessing income. Tax avoidance in
contrast to tax evasion is considered by many to be legitimate aim since it is not illegal but
consists of exploiting the discrepancies and loopholes in the tax law to the further extent. Among
the most common method of tax avoidance are the manipulation of capital gains and losses, the
formation of holding companies to create article deductions and eh creation of multiple trust for
relatives and dependents. Tax avoidance in the case of indirect taxes is high but taxes avoidance
is relatively low because directly taxes, can be easily shifted forward or back ward (Indigo, 2002
and world book 307 and 308).

2.5. Classification of Taxes Based on their Effect on Income

Taxes based on their impact on income can be classified as progressive; proportional and
regressive.

2.5.1. Progressive Taxes

The term progressive refers to the way the rate progresses from low to high. The rate of taxation
increase as the tax bases increases. Here as the income or sending increase the marginal rate of
tax increased, income or spending also rises. It is also possible to have a progressive expenditure
tax where the rate of rises with increment to consumption expenditure. People with higher
income tend to increase their spending on items subject of the tax to such an extent that the
payment becomes bigger portion of income (Gebrie, 2006, 33)

2.5.2. Proportional Taxes

This kind of tax is whose rate remains constants as the size of the basic increases. A proportional
tax rate is usually stated as flat percentage of the base regardless of its size. These kind of tax in

10
Ethiopia are seen in the mining income tax proclamation 23/1996, which states that both large
scale and small scale miner, shall pay 35% of their mining income (Gebrie, 2006 p 32).

2.5.3. Regressive Taxes

This kinds of taxes the marginal rate decrease as increase income. Tax a larger share income
from the low income tax payer than from the high income tax payer. A tax which is technically
proportional interims of the tax bases, can often be considered regressive interims of tax payer
income common examples, an excise tax on cigarette is based on the on, of cigarettes sold
(Green world, 1993).

To summaries the classification of tax by graphically as follows

Tax rate% Progressive

Proportional

Regressive

Tax base
Fig1 Tax base (Gebrie, 2006 35).
2.6 Major Types of Taxes in Ethiopia

1. Direct taxes: - direct taxes are those which are paid entirely by those people whom they are
imposed. A direct tax is one paid directly to the government by the persons on whom it is
imposed. Examples include some income taxes, some corporate taxes and transfer taxes such as
estate (inheritance) tax and gift tax.

2. Indirect taxes are computed indirectly in the cost of goods or service you purchase such as
taxes imposed on companies for doing business. A good example of indirect tax would be
shipping costs which are included in the cost of merchandise you buy at the store. Cost on
commodities like custom duties, sale taxes, excise taxes etc. included in types of in direct taxes.
(GebrieWorkuMengesha, 2004).

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2.6.1. Types of Direct Tax

A. Employment Personal Income Tax: every person deriving income from employment is liable
to pay tax on that income at the rate specified in schedule. Employment income shall be includes
any payment origins in cash or in kind received from employment by an individual. Employees
have an obligation to withhold the tax from cash payment to an employee, and pay the tax
authority the amount withhold during cash calendar month in applying the procedure , income
attributable to the month of Nehassie and Puagume shall be aggregated and treated as the
income of one month If the tax on income from employment, instead of being deducted from the
salary or wage of the employee is paid the employer in whole or in part, the amount so paid
shall be added to the taxable income and shall be considered as part there of (Gebrie Worku
Mengesha ,2008)

B. Business income Tax (BIT)

This is the tax imposed on the taxable business income /net profit realized from entrepreneurial
activity. Taxable business income would be determined per tax period on the basis of the profit
and loss accounting standard corporate business are required to pay 30% of fiat rate of business
income tax. For with incorporated or an individual business are taxed in accordance with the
determined schedule and rate. In the determination of business income subject tax in Ethiopia,
deductions would be allowed for expense incurred for the purpose of earning, securing and
maintaining that business income to the extent that the tax payer can prove the expenses.

The following expenses calculating shall be deductible from gross income in calculating taxable
income.

 The direct cost of producing the income such as the direct cost manufacturing,
purchasing, importation, saving and such other similar cost.

 General and administrative expense connected with the business activity.

 Premium payable on insurance directly connected with the business activity.

 Expenses incurred on connection with the promotion of the business inside and outside
the country. Subject to the limits get by the directive issued by the minister of revenue.

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2.6.2 Types of Indirect Taxes

A. Turn over Tax (TOT)

The turn over tax would persons not registered for value added tax render payable on good
sold and services. The rate of turn of over tax is

 2% on good sold locally.

 10% for service rendered locally.
 2% on contractors, grain mills, tractors and combine harvesters.
 0-50% on other.
B. Value Added Tax (VAT)

Value added tax is tax on consumer expenditure: it is collected on business transactions and
imports. A taxable person can be an individual firms company, as long as such a person is
required to be registered for VAT most of transactions, inviolable supplies of goods or services,
VAT is payable if they are:

- Supplies made in Ethiopia.

- Made by a taxable person

- Made in the course or further once of business.

- Every import of goods, other than an example import and import of service.

The registered person is required to issue the VAT invoices to the purchaser of goods or services
up on the supply or rendering, but not later than 5 days after the transaction. (Tax system Manual
by Addis Chamber, 2004)

C. Excise Tax

Excise tax in Ethiopia is imposed and payable on selected goods, such as luxury goods and on
goods that are hazardous to health witch are cause social problems, so excise tax will reduce the
consumption of such goods.

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Time of payment

According to the proclamation, excise tax on goods shall be paid under the schedule.

1. When imported at the time of clearing the goods from customsarea.

2. When produced locally, not late than 30 days from the date of production.

2.7 Categories of tax pay’s

Category “A” tax payers whose annual income about 500,000 birr declare and pay tax after the
budgetary years four months. They are obligated to keep books of account and present balance
sheet and profit and loss statement to the tax office.

Category “B” tax payer

Tax payers who are under the threshold of annual turnover income between 100,0000 to 500,00
birr maintain records on books of daily revenue and expenditure and should declare and pay tax
after the budgetary year of carryonknow months.

Categories “C” taxpayers

Tax payers whose annual turnover income up to 100,000 birr keep recodes and present it for
assessment. It is highly appreciated by the tax offices and pay tax after the budgetary year of one
month (Gebrie 2006, 64 and 65).
But in the new Ethiopian proclamation which is starting from Hamle 1,2008
Tax payers who annual income up to 500,000 birr Categories “C” taxpayers
Tax payers who annual income from 500,000 birr up to1,000,000 Categories “B” taxpayers
Tax payers who annual income above1, 000,000 Categories “A” taxpayers

2.8 Tax administration

Since taxes are an involuntary payment for governmental services tax payers have a strong
inventive to minimize their tax liability either through avoidance (legal) or though evasion
(illegal). Tax administration has to secure compliance with the laws by applying an array of
registration. The ability to tax payers to keep form doing these procedures and thus successfully

14
avoid to evade taxation determines the sizes and the nature of economy‟s actual effective tax
base. Both evasion and avoidance‟s seriously compromise the demonstration of the tax system,
producing a system that departs scientifically in its operation from the one that is described on
the tax legislation (Misrak p. 453).

15
 CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

So as to put the objectives of the study in to effect, descriptive method has been conducted to
observe tax assessment and collection related problem.
3.2. Research Methodology
The study was conducted In general. The method of research will be used in study is descriptive
research type, it tries to describe the actual tax assessment management practice of Ethiopian
revenues and customs authority. Both qualitative and quantitative/mixed/ research approach will
be followed to meet the purpose of the research in Arada sub city small tax payer‟s branch office
particularly of the revenue authority limit to the tax assessment and collection related problem.
The researchers, was utilized different research methods and materials in taking in to
consideration the variables.
3.3. Source of Data
Primary and secondary data source were considered and used in study. Primary sources are the
main source of information for the study. Some information for study has been collected by
researcher, using primary source of data collection through unstructured interview and
questionnaires. The study was conducted by distributing questionnaires to the Arada sub city
small tax payers‟ branch office employees and tax payer. Secondary data was collected data
through and reviews the document manuals of Arada sub city small tax payers‟ branch office
revenue authority report issued to the employees.
3.4. Method of Data Collection
The study was collected through by using primary and secondary, primary data was obtained
through questionnaires and interview. In order to get required information the researchers was
selected data collectors and gives orientation about the method of data collection and explanation
for the purpose of each item. Validity of data collection was accepted by principal investigator.
Secondary data was collected from journal documentary record, annual reports periodically,
magazine and other written materials.

16
3.5. Target Population and Sampling Technique

The data was collected from different groups such as employees and tax payers that have long
term experiences in engaged in tax authority of revenue in Arada sub-city small tax payers‟
branch office. In order, to collect the desire data from these group. The sampling techniques used
judgment sample of non-probability techniques. The reason behind selecting this technique was
less time consuming to get respondents; it enables the researcher to freely select any respondents
that he/she thinks best files to questions.

Arada sub city small tax payers branch office revenue authority office has about 304 total
employees, from 304 employees, 50 employees were selected from revenue authority office for
unstructured interview and questionnaire and from 2991 tax payer 150 tax were selected as
sampling. So, as to save time and cost efficiency and effectively the researcher was used to tax
payer as a sample.

3.5.1. Data Processing and Analysis

3.5.2. Data Processing

Data processing implies editing, coding and classification of collected data so as to make suitable
for further analysis. The research paper is also conducted after the collected data are edited.
Coded and classified as per the techniques.

3.5.3. Data Analysis

After the required data was collected from the selected organization, data was processed
classified, gathered, and analyzed by using methods of tabulation and percentages description.

3.6. Ethical consideration

The researchers applied the research ethics and the norms of the scientific community. First of all
we collected official letter from the college to Ethiopian revenues and customs authority Arada
sub-city small tax payers‟ branch office. After receiving the letter the office head ordered and
facilitated us to obtain the desired data from that organization. The researchers were applied and
well informed about the issue of privacy, anonymity and confidentiality of respondents in the
organizations in the data collection process, such as their names and personal information was
not mentioned in the questionnaire.
17
 CHAPTER FOUR

4. DATA PRESENTATION AND INTERPRETATION

4.1. Introduction

The data was analyzed based on their nature. The result of secondary and primary data presented
below in a precise form by using table and description. The objective of the chapter is to identify
tax assessments collection and factor which cause weakness. Analysis was made by collecting
information from revenue authority office employees and tax payers. The method of data
collection was carried out through questionnaires and interview. The researchers distribute 168
questioners from this we are collect 150 questioners the other 18 questioners is not collected due
to different reason and The researchers were taken 150 respondents as sampling from total
population and also the researchers distribute 56 questioners to employees from this we are
taken50respondent from employees within the organization and 150respondent from category
“A” tax payers. The main objective of data collection is to examine tax assessment and collection
method is according with rule and regulation of Arada sub city small tax payers branch office.
The problem related with tax payer and to identify the responsible bodies to collect tax is Arada
sub city small tax payers‟ branch office revenue to evaluate the tax payers‟ awareness and
knowledge about taxation. Connected with collection, the paper try to measure the tax payers‟
willingness to pay tax to the tax collector of government body with in Arada sub city small tax
payers‟ branch office. Another objective of this study is to assess weather the standard
assessment is accordance with the ability of the tax payers.

4.2. Demographic Background

The demographic background means general information and detail of respondents in the
organization such as personal features gender, age, sex, marital status, education level … etc. As
indicated on the table below personal details of the respondents, number of respondents and
percentage of their response have analyzed in detail.
Below table shows demographic back ground of people

18
4.2.1 Demographic back ground
Number of Percentage of
No Personal details respondent response
1. Sex
Male 21 42%
Female 29 58%
Total 50 100%
2. Age
18-30 years 27 54%
31-40 years 18 36%
41-50 years 5 10%
Over 50 years - -
Total 50 100%
3. Marital status
Single 19 38%
Married 31 62%
Total 50 100%
Source: -Own survey, 2018
According to table 4.2.1, above 58% of total employees in the revenue authority in Arada sub
city small tax payer‟s branch office are females; and 42% of the employees are male. This
clearly shows that the progress on the education policy that allows females to join school and be
competent to work as men equally. The reason for the equal or proportional educated genders is
because now a day, handling house responsibility is not the only responsibility of females rather
it has been in the position of being shared by men too. As a result, females could get a change
not only to get an education to school but also to study plenty of time to study at home so that
they can be competent enough to accomplish their education with success.
As we can see from table 4.2.1, about 54% of employees were found between 18 up to 30 age
years. 36% of employees are found between ages of 31 up to 40 years, 10% of employees are
found between ages 41-50 years. This further indicated that majority of employees are found in
productive age. Meaning those productive employees are the main contributor for the country to

19
increase in production amount. Due to this; economic problem of the sub city may be minimized.
As a researchers, we understand from the table 4.1there are no employees who are above 50
years.
Form the table,theresearchers understand that majority of employees found in productive age.
Related with this we can understand that there is low amount of unemployment rate in the sub
city.

As indicated that in table 4.1.1 62% of respondent are married and 38% of employees are single
(unmarried). From this further understand that majority employees are married in the
organization.

4.2.2. Education man power and their service duration

Education is the way changing illiterate people to literate people and tool of fighting
backwardness from people. Education help to develop one country economically, politically and
others. Therefore, education plays a vital role for change of every country. And also education
provide important contribution for people by creating awareness, by changing attitude and by
developing psychologically. Below table describe educated man power and services duration.

Table 4.2.2 Educated man power and services period of employees

Number of Percentage of
Education level respondent response
Diploma 0 -
Degree 46 92%
MA/MSC 4 8%
Total 50 100%
Service year
0-2 year 20 40%
3-5 year 19 38%
> 5 year 11 22%
Total 50 100%
Own survey, 2018

20
 According to table 4.2.2 92% of employees in organization are degree holders, 8% of employee
are MA/MSC holders and there no certificate holders. From this we can understand that, an
organization has lack of in Master‟s degree program graduate when compared with degree
graduate program. As indicated in the table above an organization does not have lack of highly
skilled human power since 92% of the employees have got degree.
Table 4.2.2 also show that 22% of respondents have five and more than five years experiences,
38% of employees stay in organization for three years up to five years and 40% of employees
have up to two years‟ experience. From this we can understand that the organization has less
experienced employees, that could perform performs organization work efficiently and
effectively.
Related with this the researchers understand that 38% of them have meddle level experience
which means less than five year but greater than three years and the company has also employees
who are in the entry level and two years experienced. And these employees have more ratio than
the others.
Table 4.2.3 Tax Payers and Awareness about Taxation
Question Response Number Percentage
Do most tax payers pay their Yes 45 90%
tax liability on Certificate time? No 5 10%

Total 50 100%
How do you evaluate the High 4 8%
knowledge of tax payers about Medium 28 56%
taxation? Low 18 36%
Total 50 100%
Who do you think is responsible Tax payers - -
for tax collection and Tax office 11 22%
assessment? Tax policy - -
All 39 78%
Total 50 100%
Own survey, 2018

21
4.2.3. Tax Payers and Awareness about Taxation
Tax payers are peoples who engage indifferent business activity and those who pay their
expected tax liability from their own income. Some of them are loyal and awareness about
taxation but most of them are not loyal and awareness about and above table show attitude of tax
payers.
As we can see on table 4.2.3 it shows that 90% of respondent provides that majority of tax payers
pay their expected tax liability on time. This indicates that most of tax payers has good
understanding and awareness regarding tax payment period. But only 10% of respondents are not
in the position of paying their expected tax liability on time. This show that those tax payers have
poor understanding and awareness regarding tax payment time limits. In general from the table
we can understand that majority of tax payers are motivated to pay their expected tax liability
within the expected period since fit they failed to do so, there is a clear regulation of punishment
stated by the government in paying outside the time limit.
Table 4.2.3 further clarifies that only 4% of employees think that the tax payers have high/good
knowledge regarding taxation; from these we can understand that almost all tax payers pay their
tax liability in fear of punishment imposed by government but not with the understanding of tax
benefits. But only 56% of respondent do think that the tax payers‟ knowledge taxation is in
medium level. This means that even if there is a time limit regulation that the government
imposed for the tax payment, more than half of the employees‟ thinks that the tax payers do
understand and pay their tax liability with a medium level of understanding.
For those tax payment will benefit themselves both directly and indirectly. Further indicate that
those tax payers known for what purpose as they have to pay and when they pay tax since they
do have an awareness of the benefits of on time payment of tax; on the other hand, the others
have not motivated for doing this due to carelessness of them.
On the other hand further indicates that 36% of respondents commonly agrees that the tax payers
have low level of understanding regarding taxation, and this clearly shows that as stated in the
And most of the tax payers are in the position of paying their tax with less understanding and
with high fear of the imposed regulation made by the tax authority.
And also the table shows that tax collection responsibility is the duty of all and this has been
supported and commonly agreed with 78% of the employees. And only 22% of respondent from
employees have agreed that the responsibility of tax collection is just the duty of the tax office.

22
 We can Further understand that, tax office was the main responsible body to collect tax because
tax office are governmental body and formed for seeking of collect taxation to the government
but it shall not be the only responsibility of a tax office. Due to these most employees considered
as other government body not considered as the main responsible body, but considered as
optional to collect tax liability.
4.2.4. Leadership and Communication
Table 4.2.4. About Employees Feeling
Question Response Number Percentage
How do you feel about the The right position 30 60%
position you have assigned? Beyond my capacity - -
Under my capacity 20 40%
Total 50 100%
What do you think about Excellent 20 40%
Effective Organizational Very good 15 30%
Structure in the company. Good 15 30%
Total 50 100%
How do you evaluate the Excellent 2 4%
coordination of your office with Very good 43 86%
the other office? Good 5 10%
Less - -
Total 50 100%
What is your idea about the Effective 23 46%
present tax collection and show discrimination 24 48%
assessment? Have in sufficient man power 3 6%
Total 50 100%
Own survey, 2018
According to the table 4.2.4;60% of employees are on the right position but 40% of employees
are positioned under their capacity. Empowering employees to decide what tasks are to be
delegated to them and then matching the amount of responsibility with the amount of Authority.
The organization should provide both meaningful work and direction. Otherwise it will

23
demotivate employees and will affect the organization‟s productivity. If employees are not
properly delegated as per their profession and educational level, they cannot be innovative and
also cannot use their full potential which will make them inefficient. Besides, the above reasons
the company will lose senior and professional employees as the turnover rate will be high. With
regard to organizational structural 40% of respondent will complete quickly, 30 % of respondent
said will work excessively and 30% of respondent said Will work moderately this shows that
the structure of an organization sets the hierarchy for responsibility and creates the various levels
of communication within an organization. The manner in which an organizational structure is set
up and administered can have a direct effect on company. If the organizational structure is not set
up properly, information is not able to travel where it is needed. Flows in organizational structure
that causes breakdowns in communication will affect employees‟ productivity. As indicated on
the table above, coordination of the office with other office 43% of employees commonly agrees
that the office coordination with other office is very good and 4% of respondent proved excellent
coordination and 10% of employees agrees the good coordination with other office this clearly
shows the overall team structure is better in this specific organization. And we can conclude that
whenever the team bondage is high, the outcome will be high with a high customer satisfaction.

Teamwork in the workplace offers the company and staffs the ability to become more familiar
with each other and learn how to work together. There are several ways in which teamwork is
important and vital to the success of the company and to the development of each employee.
Understanding those important elements will assist in developing company policies geared
toward encouraging team growth in the workplace. And 46 % of employees agree by present tax
collection and assessment is effective, 48% of respondent agrees there is discrimination in the
present tax collection and assessment and only 6% of employees agreed on there is no adequate
man power in the office. This clearly shows that percent tax system subjected to employees may
give biased decision.

24
4.3. Tax Payers

4.3.1 Feeling and Payment Period of Taxation

Tax payer are those people who are registered for tax payment to the government and there is
May party to the tax payer like trade and merchants. Tax payers has different attitude about
taxation. Therefore some of tax payer has positive attitude and most of other has negative
attitude about taxation. Because of the tax payers knowledge about taxation are not equal
payment period of taxation means payment schedule of taxation and the table below describe
about tax payer attitude and payment period of taxation.

4.3.1 Tax Payers Feeling and Data of Tax Payment

Table 4.3.1 Tax Payers Feeling and Data of Tax Payment

response Number Percentage
Question
How do you feel about taxation? As obligation 74 49 %
As debt 40 27 %
As useful 36 24 %
Others - -
Total 150 100 %
When do you pay tax liability? When the accounting report 78 52%
is finalized
Before due date 72 48%
After due date - -
Others - -
Total 150 100%
Own survey, 2018

As indicated from the above table, most of tax payers feel that taxation should be expected as an
obligation, almost half of the tax payers are in the position of paying tax by considering it as an
obligation, as a researcher we can understand that there is a much more awareness creating
session that has to be prepared by the government for tax payers that shows the tax payment is

25
not an obligation. Again as indicate above table 4.3.1, 27% of respondents do feel that the
taxation as debt. And still here; the researchers thinks the same thing as above, obviously, tax
shall not be taken both as an obligation and as debt.

Finally, almost quarter of the respondent consider taxation as useful. This show that those tax
payers thinks taxation as useful instead of debt and obligation by considering the service
reordering from the government for the command benefit of public majority of tax payers pay
their tax liability when they receive assessment notification. Further understand from those, most
of tax payer has knowledge and awareness about taxation and they understand a government
renders enormous good and service for general and command benefit to the people as whole.

Table 4.3.1 further indicates that 52% of respondent pay their expected tax liability when their
accounting report has finalized. From these we understand that most of tax payers are loyal to
pay tax collection body of government. About 48% of respondents pay their tax liability before
the expected due date and as per the sampling and collected data, there is no respondent that pays
the tax after the due date, but in actual, the researchers have received as response from the tax
authority employees that there are some tax payers who are in the position of paying their tax
liabilities beyond the expected time limit stated by the authority. From these we can understand
that those 48% of tax payers are tax somehow loyal to pay their tax liability within the time limit.

4.3.2 Comparisons of Present Taxation System and Annual Income Tax Payers.

The present taxation system is a system provide by present government which is acceptable and
suitable by majority of tax payers and employees. For example percentage of taxation considers
capability of tax payers. Below table describe about present taxation system and annual income
of tax payment.

26
Table 4.3.2 comparison of present taxation system and annual income of tax payers

Question Response Number Percentage

Good 20 13%
How do you see the recent taxation system?
Not good 37 25%
Needed revised 93 62%
Total 150 100%
Is your annual tax liability based on your Yes 124 83%
income? No 26 17%
others
Total 150 100
Is the tax payment period is enough? Yes 111 74 %
No 39 26 %
Others
Total 150 100%
Own survey, 2018

As shown above table 4.3.2, present taxation system in Ethiopia case considered as needs
revision because most of the tax payers gave a respond the shows the current tax assessment and
collection system needs reformation so as to provide a good and satisfactory level of service.
Only 13% of the respondents gave a response the state good level of tax collection and
assessment system. And of the total sample respondents, 25 % of them gave a response that
shows the current tax collection and tax assessment system is not in good level. From this the
researchers do understand that the government of the tax collection and assessment authority
needs to take this as a home work and work and needs to drive a new system of both tax
collection and assessment system so as to bring satisfactory level of service for the tax pay
payers.

According to table 4.3.2, 83% of respondents are commonly agreed with the amount of tax laid
on them since the liability of tax is based on their annual income. Furthermore as researchers we
understand from these, tax payers pay their tax liability based on their level of income and
category. Only 17% of respondents were said annual tax liability not relate with their annual

27
income. Farther understand from these do poor understanding from side of tax payers about
taxation.

Table 4.3.2 further show that 74% of respondents consider as a given enough period to pay their
expected tax liability, but only 26% respondent was not agreed with the period given to them to
pay their expected tax liability. From these we can understand that, almost majority tax payers
are voluntary to pay their expected tax liability within given period of time.

4.3.3 Problems Related With Tax Payment

Introduction tax payers fare such problem when they want to pay their expected tax liability.
Therefore most of tax payers has negative attitude on tax collection body of government. Below
table shows that problem related with tax payment period.
Question Response No % age
Do you face any problem when you Yes 89 59%
got to pay tax liability? No 61 41%
Total 150 100%
Is your answer is „yes‟ for the above Majority of the tax payers came at the 32 36%
question; what type of problem? same time
Lack of speedy work environment 22 25%
Lack of enough employees 14 16%
Network and system problem 21 23%
Total 89 100
Source:-Own survey, 2018

According to the table 4.3.3,about 59% of respondents have share the existence of a problem on
the tax collection and assessment time, when they go to pay their expected tax liability. From
these we can understand that although, Arada sub city small tax payer‟s branch office has
provided standard assessment to collect taxation from tax payers; still there is a problem when it
is reassessed by the tax payers. But only 41% of respondents said that, there is no any problem
that they have faced when they went to the authority to pay their expected tax liability. Further
indicates on table 4.3.3 among those 89 respondents that faces a problem while they went to pay
their taxes, the below reasons have been stated by them.

28
  Majority of the tax payers came at the same time
 Lack of speedy work environment
 Lack of enough employees
 Network and system problem
As researchers personally discussed with some of revenue authority employees there are the
problem of low scale of salary which they get monthly and motivation in the tax assessment and
collection bureau, which lead to carelessness and misstatement of tax payers. Moreover the tax
collector did not have adequate skill.
4.4 The Relation of Tax Paid Amount and the Service Which Rendered from Government

Introduction most of tax payers are business activity provider and can be known their annual
income by calculating expenditure and revenue which earn their business activity. Government
provide such good and service to public as whole, such as road, infrastructure, water, electric and
health center and school … etc. By considering all these service which rendered from
government tax payers satisfied with those service then willingness to pay their expected tax
liability to government. Below table describe about relation between amount of tax paid and
service of government render to public as whole.

Table 4.4.1 the relation of tax paid amount and the service which rendered

Question Response Number Percentage

I satisfied 42 28%
How much do you satisfied
from service you receive in Dissatisfied 108 72%
return to pay tax? Total 150 100%
Reason for dissatisfaction Because the tax collection system 45 42%
is not modernized
Because the tax collector 41 38%
employees are irresponsible
Others 22 20%

108 100 %

Own survey, 2018

29
As indicated above in table 4.4.1, almost majority of tax payers are dissatisfied with this service
which rendered from the government related with the tax paid from them. Further indicate that
72% of respondents were dissatisfied from the service is receive in turn to paid tax to the
government. Form these we can understand that, respondent known service rendered from
government as related with the tax liability they paid. And only 28% of respondent were satisfied
from the service is receive in return to pay tax to the government. This analysis took the
researchers to the previously described service received from the authority, most of the tax
payers were not in satisfactory level of the system of tax collection and assessment. Here there
respondents gave a reason of this level of dissatisfaction as described below. Among the 150
total research samples 108 of them were dissatisfied and of the 108 dissatisfied tax payers, 42 %
of them are dissatisfied because the tax collection system is not modernized, and they have
suggested that it has to be modernized as much as possible. On the other hand 38 % of them have
a reason of the tax collector employees are irresponsible, the feel that the officers that are
assigned to do so are not fully responsible for their work. And the remaining 20 % of the tax
payers assumes as if the some employees think of the tax payers as a whole as thief.

Table 4.4.2 Budget and actually collected amount of revenue

The branch office budgeted and actual tax revenue collection as follows
Table 4.4.2 Budget and actually collected amount of revenue (in millions)
Budget Actual %

2005 622.8 738.6 118

2006 941.2 1493 158

2007 1998 1901 95

2008 4053 3714 91

2009 5167 4694 90

Source: secondary

30
 6000

5000

4000

3000

2000

1000

0
2005 2006 2007 2008 2009

Budget Actual

Year
Source: secondary data

The above table shows that 2005 & 2006 years budgeted amount revenue less than actual amount
of revenue. But from 2007 up to 2009-year budget amount revenue are greater than actual
amount of revenue.

As we can see in above table revenue authority collected revenue in 2005 was 738.6 million
from 622.8 million budgeted amounts. 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 2006 collect amount are 1493million from 941.2 million the
budget amount of revenue. In generally budget increase from year 2005 up to 2006, but the
actual amount of collection from decrease from time to time from 2007-2009 as compared to the
budgeted amount.

31
 CHAPTER FIVE
5. FINDINGS, CONCLUSION AND RECOMMENDATION
5.1. Summary of Finding

The study was designed to assess taxation and related problem in Arada sub city small tax
payers‟ branch office. It is also intended to suggest possible solutions to the problem identified
on the basis of the data collected from information that obtained from a written documents and
from respondents, the study has come up with the following findings presented under this
chapter. As shown in the result analysis and discussion section, in Arada sub city small tax
payers‟ branch office tax payers are the main participant by paying their expected tax liability to
the tax office. Therefore, taxations were the main source of revenue to the revenue authority too.
In the sub city most of tax payers do not understand that much the taxation as useful.

Most of tax payers are agreed to there is a problem at the time of pay tax liability. This shows the
tax collection methods of the sub city is poor. Due to this in the sub city tax payers paid their
expected tax based on their own capital amount or based on their annual income and on time. But
we can understand that some tax payers are not paid their tax payment on time as per the
response of employees. About 72 % of the tax payers are not satisfied from service. The sub city
revenues of taxes decrease time to time from 2006-2008 as compared to budgeted amount to
actual amount. More than half of the respondent employees were not satisfied on the position
they are placed. Most of the employees identified that their organization has very good
coordination with other organizations or stake holders. Almost of the employees suggested as the
current tax collection and assessment procedure is discriminatory. As evaluated from the
interpretation and presentation chapter the employees stated the knowledge of tax payers about
taxation is in a medium status.

A greater number (62%) of respondent tax payers suggested that the recent taxation system of
the country needs revision. Although most of the tax payers were agreed paying their income tax,
whereas some of the respondent tax payers were stated that the tax they pay is not affordable as
compared to their business income status.

As indicated from the earlier chapter, the tax payment period is sufficient enough to pay their tax
at their convenient time in the branch office.

32
5.2. Conclusion

As far as government has existed and performed various activities it should come up with means
of financing its activities. There are four method of financing sale of goods or service,
borrowing, printing paper money and taxation. From these sources, taxation is the main source to
rise necessary fund for payment of expenditures which incurred by the government. Taxation is
the most common way of financing government activities. Those activities are provided to the
community without charge and necessary funds are collected by requiring person to make
payment to the government in accordance with some established criterion. As the tax payers
under the study, majority of them feel taxation as useful. This indicate that positive understand
about the concept of taxation. Even though, tax imposes a personal obligation on the tax payer
the amount of tax received from the people is issued for the general and common benefit of the
people as a whole. Even if, present taxation system was not fully aware, and majority of tax
payers make them feel that taxation as not useful. Therefore, most of tax payers satisfied with the
service which rendered from government return to their tax paid. Therefore majority of tax
payers can finish payment of the tax liability within given time frame. Tax objectives are
ultimately connected with overall economic and non-economic policies of the government. As a
result, the objectives of a tax system in developed country tend to be differs significantly from
those in developing country. In line with generating revenue, taxes used as;

 Discouraging consumption of non-essential goods.

 Discouraging consumption of certain good i.e. discouraging the importation of some

good from abroad to encourage domestic product.

 Stabilization function it is during inflation government charge least taxes on the product.
In this way the economy becomes stable.

Tax has multiple objectives to raise sufficient resource of revenue government use various types
of taxes and range of tax rates. The Ethiopian tax structure is composed of two types of taxes.
Direct tax and indirect tax respectively.

The current tax proclamation and related regulation divided tax payers in to three categories, categories
“A” category “B” and category “C” based on the value of sales and from of business organization.

33
Excessive tax rate, poor quality of tax administration frequently change a policies and lack of up to date
information for tax payer, however, leads to undesirable economic effects. In this connection any taxes
tends to discourage society. As tried to show on the analysis part of this study a number of problem a rise
in the tax assessment and collection in Arada sub city small tax payer‟s branch office. And we are
observe employees are not properly delegated as per their profession and educational level.

34
5.3 Recommendation
In the data presentation data analysis there are different weakness and problem in tax assessment
and collection office and tax payers were observed. The problem in both office and tax payers,
are mention as conclusion as indicated above here attempt is made to give recommendations that
help to have an efficient and proper of clear and transporting rule and regulations.
 The man power structure of revenue authority should be occupied by competent
personnel. Therefore to enhance their capacity and improve their effectiveness, the
organization should provide training to its employees.
 Employees must respect tax payers because they are important for the branch as well as
the country.
 Additional man power is needed because tax payers are increasing time to time and it
avoid customers‟ dissatisfaction.
 Employees should properly delegated as per their profession and educational level
 The sub-city officials should give orientation, awareness for their employees & customers
about the revised tax law and the necessary topics.
 For effective and proper tax assessment and collection, measure should be taken to apply
the revised tax laws.
 Experience is very important so they should prepare experience sharing program with
other office for better performance and for increasing effectiveness and efficiency.
 Tax payers must receive clear, concise and up- to -date information which describe what
is to be taxable, how to calculate their tax liabilities and procedure for calculating pay
taxes where and when they pay taxes.
 The tax payers should develop positive attitude towards taxation as it is crucial for
country development.
 To increase the efficiency & effectiveness, the office should use the electro banking
system also to avoid lack of speedy work environment. It increase the satisfaction of
customers.
 To improve the tax assessment and collection activities, the existence an active
participation of adequate, qualified and committed personnel is important. To make the
tax assessment and collection process effective and efficient, the office are expected to

35
 initiate tax payers to keep book of account income on time. This protects the office from
unfair tax assessment and helping to prevent tax evading and avoidance.
 To generalized, based on the existing problems; recommendations has been made to
minimize the weakness of tax assessment and collections of Arada sub city small tax
payers branch office, so the head the office as well as personnel‟s of each department
should discharge ether responsibility well to get success in tax administration and to
achieve the policy of government.
 To avoid power fluctuation the office should have UPS, Generator, and other power
choices.
 To improve the networking system the office should select & implement better system.

36
References

- Bernand P. Herber. (1999). Modern public finance,5th edition.

- Dr BL. Bhatia. (2003). Public finance 24th revise edition.

- Dr. Ramaswaniparames warn. (2005). public finance.

- Gebrie Worku (MSC). (2008). Tax accounting in Ethiopia context, 2nd edition.

- Gebrie Worku (MSC).(2006). Tax accounting in Ethiopia context, 1st edition.

- Misrake Tesfaye. (2008). Ethiopia tax accounting theory and practice, 1st edition.

- World Book, encyclopedia, vap 1952.

37