St.

Mary's University
School of BUSINESS
Department of Accounting

Assessment of Tax Collection in Category 'C' Tax Payers of

Arada Sub-City

BY:
HELEN WONDIMU
HAIMANOT G/HIWOT
SELAMAWIT WONDE

June 2016
Addis Ababa
Assessment of Tax collection in Category 'C' Tax Payers of Arada
Sub-City

A Senior Research Submitted to The Department of Accounting

School of Business
St. Mary's University

In Partial Fulfillment of the Requirements For The Degree of

Bachelor of Arts in Accounting

BY:
HELEN WONDIMU
HAIMANOT G/HIWOT
SELAMAWIT WONDE

JUNE 2016
ADDIS ABABA
 St. mary's University

Assessment of Tax Collection in Category 'C' Tax Payers of

arada Sub-city

BY:
HELEN WONDIMU
HAIMANOT G/HIWOT
SELAMAWIT WONDE

School of Business
Department of Accounting

Approved by The Committee of Examiners

____________________ ________________
Department head Signature
____________________ ________________
Advisor Signature
____________________ ________________
external examiner Signature
____________________ ________________
Internal examiner Signature
 Acknowledgement

We have faithfully to thank God for every think he has done for us.

We would like to express our deepest gratitude to Ato Mesert Kinfe, our advisor, for his valuable
comments & advices throughout chapter was very useful in preparing this manuscript.

Last but not list we would like to thank the Arada sub-city & Worda 1, office workers, who
sacrificed their time to help us in providing relevant information to our research.

I
 Table of Contents
Acknowledgement........................................................................................................................................i
Table of Contents.........................................................................................................................................ii
List of Tables................................................................................................................................................ iv
List of Abbreviation.......................................................................................................................................v
CHAPTER ONE. INTRODUCTION ........................................................................................ 1
1.2 Background of the Study ........................................................................................................1
1.2 Statement of the Problem .......................................................................................................3
1.3 Basic Research Questions ......................................................................................................4
1.4 Objective of the Study ............................................................................................................4
1.4.1 General Objective ............................................................................................................4
1.4.2 Specific Objectives ..........................................................................................................4
1.5 Significance of the Study .......................................................................................................4
1.6 Scope of the Study..................................................................................................................5
1.7 Research Design and Methodology........................................................................................5
1.7.1 Research Design ..............................................................................................................5
1.7.2 Population, Sample Size and Sampling Technique .........................................................5
1.7.3 Data Sources ....................................................................................................................5
1.7 Data Collection tools ..........................................................................................................5
1.7.5 Data Analysis Methods ....................................................................................................6
1.8 Limitation of the Study.....................................................................................................................6
1.9 Organization of the Study.................................................................................................................6

CHAPTER TWO. REVIEW OF THE RELATED LITERATURE ....................................... 7

2.1 Tax Administration ................................................................................................................7
2.1.1 Efficiency of Tax Administration ....................................................................................7
2.1.2 Procedures for Tax Collection .........................................................................................8
2.1.3 Service Commitments of Tax Administration .................................................................9
2.1.4 Taxpayer Education .........................................................................................................9
2.1.5 Taxpayer Information ....................................................................................................10
2.1.6 Taxpayer Assistance ......................................................................................................11
2.1.7 Performance Measures to Improve Voluntary Compliance ..........................................11

II
 2.1.8 Behavioral Outcome Measures ......................................................................................12
2.1.9 Quality Measures ...........................................................................................................12
2.1.10 Timeliness Measure .....................................................................................................12
2.1.11 Taxpayer Satisfaction Outcome Measures ..................................................................12
2.2 Factors that Influence Taxpayer Behavior ...........................................................................13
2.2.1 The Risk of Detection and Punishments........................................................................13
2.2.2 The Impact of Norms on Behavior ................................................................................14
2.2.3 Fairness and Trust in Tax Administration .....................................................................14
2.2.4 Opportunity and Complexity in the Tax System ........................................................... 15
2.2.5 Role of Government and Broader Economic Factors ....................................................16
2.3 Conclusion and Knowledge Gap .......................................................................................... 17
CHAPTER THREE. DATA PRESENTATION, ANALYSIS AND INTERPRETATION . 18
3.1 Analysis of the Questionnaire of the Customers Respondents ............................................18
3.2. Analysis of the Questionnaire of Employees Respondent ..................................................23
3.3 Analysis of the Interview .....................................................................................................27
CHAPTER FOUR. SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ......... 28
4.1 Summary .............................................................................................................................. 28
4.2 Conclusions .......................................................................................................................... 30
4.3. Recommendations ...............................................................................................................31
REFERENCE .................................................................................................................................32
APPENDICES

III
 List of Tables

Table 3.1: General Background of the Respondents .................................................................................. 18

Table 3.2: Tax payers’ compliance with the rule and regulations of the sub city ...................................... 19
Table 3.3: The reasons for the insufficiencies in tax collection .................................................................. 20
Table 3.4: The capacity of the sub city in detecting and prosecuting tax violators .................................... 21
Table 3.5 The tax examination techniques of the sub city........................................................................... 21
Table 3.6: The sub city on the audit workforce capabilities and the effective tax audit ............................. 22
Table 3.7: The authority measure for risk detection ................................................................................... 23
Table 3.8: The staff organization of the administration ............................................................................. 24
Table 3.9: Field examination technique of the authority ............................................................................ 25
Table 3.10: Examination of the false accounting........................................................................................ 26

IV
 List of Abbreviations

AOECD According to Organization for Economic Co-operation and Development

AACA Addis Ababa City Administration
BA Bachelor of Art
BSc Bachelor of Science
ERCA Ethiopia Revenue and Customs Authority
EEA Ethiopian Economic Associations
FIRI Federal Inland Revenue Authority
GDP Growth Domestic Product
IRS Internal Revenue Service
MOFED Ministry of Finance and Economic Development

V
 CHAPETR ONE

INTRODUCTION

1.1 Background of the Study

Tax has been defined by various authorities and professionals in various ways. Conceptually,
tax can be defined or seen as a compulsory transfer of resources from the private to the public
sector (Uremadu, 2000:56). According to Adesola (1998:122), tax is a compulsory levy
which a government imposes on its citizens to enable it in obtaining the required revenue to
finance its activities. And the other scholars Lymer and Oats, (2009:172) tax is defined as „a
compulsory levy, imposed by government or other tax raising body, on income, expenditure,
or capital assets, for which the taxpayer receives expenditure, or capital assets, for which the
taxpayer receives nothing specific in return‟.

It is obvious that taxes are important source of government revenue in both developing and
developed countries. But the amount of revenue to be generated by a government from taxes
for its expenditure program depends among other things, on the willingness of the taxpayers
to comply with tax laws of a country (Eshag, 1983:213). According to Organization for
Economic Co-operation and Development (OECD), (2010:27), the primary mandate of most
tax administrations is to ensure compliance with tax laws and improve taxpayers‟
satisfaction. In order to do that and find the most effective treatment, revenue bodies benefit
from knowledge about taxpayer behavior.

In addition, Fjeldstad, Herzenberg and Sjursen (2012:216) suggested that understanding how
citizens perceive and experience taxation may provide an essential diagnostic of the political
realities for tax reform. Consequently, Taxpayers‟ behavior towards tax system has evoked
great attention among many Revenue Authorities in the world especially in developed
countries. However, it is debatable on what has been done towards the study of taxpayers‟
view towards tax system in developing countries.

It is expected that taxpayer‟s tax payments should be in line with their income and they are
required to pay a tax in proportion to their level of income (Parameswaran, 2005:78, Mesfin
& Sisay, 2009:134). On the other part of the tax collectors, according to canon of taxation,
collection of tax should be time conscious and convenient and the cost of collecting the taxes
should not be high to discourage business. Some of the procedures undertaken by tax

1
authority to ensure compliance are; filing return, and return processing of tax, audit
examination and tax collection and enforcement.

Filing returns; taxpayers are required to file returns within specified months of the end of
their tax accounting year. The return should be filed in quadruplicate and should contain all
the particulars of the taxpayer. All documents respecting taxation should be presented to the
tax authority office where the taxpayer has their file. Upon receiving a taxpayer‟s return, the
tax authority officers examine the accuracy of the return by determining whether the return is
properly completed, whether tax has been properly computed, and whether there are any
penalty payments to be made by the taxpayer (Eissa and Jack, 2009:57). Another procedure
under taken by tax administration is Audit and examination. The role of tax audits and
examinations is to check the accuracy of the information that taxpayers provide to tax
authorities. The audits range from simple field and desk audits to comprehensive audits
(Baurer, 2005:(Placeholder1)).

Collection and Enforcement is another procedure in the tax administration. When the
taxpayer has not made payment on the due date, and does not object to the tax assessed, tax
authority can enforce payment in a number of ways. The tax administration may bring a suit
against the taxpayer or request a person owing or holding money for the taxpayer to pay the
money on a specified date or institute distress proceedings against the taxpayer‟s moveable
property. In a wider context, the issue of enforcement includes offences committed by the
taxpayer, and the penalties for these offences (Mesiku, 2011:211).

The Ethiopia Revenue and Customs Authority (ERCA) is the body responsible for collecting
revenue from customs duties and domestic taxes. In addition to rising revenue, the ERCA is
responsible to protect the society from the adverse effects of smuggling. It seizes and takes
legal action on the people and vehicles involved in the act of smuggling while it facilitates the
legitimate movement of goods and people across the border. The ERCA traces its origin to
July 7, 2008 as a result of the Ministry of Revenues, the Ethiopia Customs Authority and the
Federal Inland Revenues in to one giant organization (ERCA, 2008:66).

According to article 3 of the Proclamation No. 587/2008, the Authority is looked up on as “an
autonomous federal agency having its own legal personality”. The Authority comes in to
existence on 14 July 2008, by the merger of the Ministry of Revenues, the Ethiopia Customs
Authority and the Federal Inland Revenues Authority who formerly were responsible to raise

2
revenue for the Federal government and to prevent contraband (illegal import). The reason
for the merge of the foregoing administrations in to a single autonomous.

The Addis Ababa city collects taxes from individual taxpayers and property in its territory.
However, the Proclamation No 285/2002 authorized the Federal Inland Revenue Authority
(FIRA) to administer the tax. For the sack of simplicity, FIRA delegated regions and city
administrations to collect the tax from their own taxpayers started from September 2004
(FIRA, 2004). In Addis Ababa due to administration problems, the City Revenue Authority
cannot collect the potential tax which the city can generate. Starting from January 2011,
based on the agreement concluded between the Addis Ababa City Administration (AACA)
and the Ethiopian Revenue and Customs Authority (ERCA), the ERCA started to administer
all taxes in Addis Ababa (ERCA, 2011). The Arada sub-city is one the sub-city of Addis
Ababa city Administration which is established 2003 E.C. and now this organization knows
as federal Revenue Authority Agency and Economic Development Office.

1.2 Statement of the Problem

As described in Yesegat (2011:221) that a low percentage of tax revenue to GDP ratio will
lead to pressurize the tax administration to increase revenue collection considerably. As a
result of this, unfair practices will be taking place which will violet the rule of law that may
automatically increase the burden of taxes on honest taxpayers. Such pressure on honest
taxpayers would lead to the prevalence of taxpayers‟ resentment. This could be a source of
dissatisfaction in the service given by ERCA.

On the contrary, Oberholze (2007:98) indicated that one of the main reasons for the tax gap is
noncompliance by taxpayers and potential taxpayers with tax legislation and the perception of
taxpayers on tax system. Both gaps of poor perception and taxpayers‟ resentment towards
taxes system will lead to inefficient and ineffective collection of taxes. Unless efforts are
made to narrowing down the gap, in line with knowing the taxpayers‟ perception and how tax
regimes satisfy taxpayers, will help tax administration to mobilize adequate tax revenues.

Based on the preliminary study performed by the student researcher the following factors
identified that contributes to the problems of tax collection in the Arada Sub-city. These are:
compliance with the rule and regulation, insufficiencies in tax collection, weak capacity in
detecting and prosecuting tax violators, examination techniques and audit workforce
capabilities and the effective tax audit program.

3
1.3 Basic Research Questions

The following are basic research questions raised co collect the required dara.
1. How does the tax payers compliance with the rule and regulations of the sub city?
2. What are the reasons for the insufficiencies in tax collection?
3. How does the capacity of the sub city in detecting and prosecuting tax violators?
4. How does the tax examination techniques of the sub city?
5. How does the sub city on the audit workforce capabilities and the effective tax audit
program?

1.4 Objective of the Study

1.4.1 General Objective

The general objective of the study is to assess the tax collection and problems in category „C‟
tax payers in Arada Sub-City.

1.4.2 Specific Objectives

Based on the general objective, the following specific objectives are developed.
 To point out and analyze the tax payers compliance with the rule & regulation of the
sub city.
 To investigate the reasons for the insufficiencies in tax collection.
 To identify the capacity of the sub city in detecting and prosecuting tax violation.
 To assess the tax examination techniques of the sub city.
 To evaluate the sub city on the audit workforce capabilities and the effective tax audit
program.

1.5 Significance of the Study

First and foremost this study will be important to the student researcher in doing the
cross match of the theoretical aspect with the real tax administration practices. It will
also be helpful for other researchers who may be interested to conduct research in
similar topics. In addition to this the study has an importance to Arada sub city as an
input for decision in regarding the tax collection practices.

4
1.6 Scope of the study
This study will be conducted the Addis Ababa Revenue and Customs Authority particularly
Arada Sub-City. The study will focus on the category C tax payer‟s tax collection practices
and problems of the organization 2010 – 2015; the reason for not using the data before 2010
was time and cost constraints.
1.7 Research Design and Methodology

1.7.1. Research Design

In order to answer the above basic research questions, the student researchers will use
descriptive research design. Descriptive research primarily aims on gathering knowledge
about description and explanation of the objectives of the study. Descriptive research
method helps to describe the research setting as it is and also allows the use of both
quantitative and qualitative approach (Malhotra,2007:329).

1.7.2. Population, Sample Size and Sampling Technique

Target population is a specified group of people or object for which questions can be asked or
observed made to develop required data structures and information. Therefore, the target
population of the study will be 30 employees and 1,200 category C tax payers customers of
the Arada sub-city. From the employees population under the study by using particularly
census sampling technique all of them will be selected and from the customer
population under the study by using particularly accidental sampling technique 150 of
them will be included as sample for the study.

1.7.3. Data Sources

The study will use both primary and secondary data. The primary data will be collected by
distributing questionnaires to the employees and category C tax payer customers of the
organization. Also the secondary data will be obtained from the government offices important
time series records.

1.7.4. Data Collection Tools

The primary data will be collected by using questionnaire and interview. Questionnaires will
be distributed to employees and category C tax payer customers. The secondary data source
will be important time series records held by tax authorities of Ethiopian Revenue and
Custom Authority (ERCA), Ministry of Finance and Economic Development (MOFED), and
Ethiopian Economic Associations (EEA). The data basically concentrates on various
documents, annual reports, financial statements, forms, published and unpublished statistical
data from 2010 to 2015 so as to accomplish the objectives of the study.

5
1.7.5. Data Analysis Methods
The data that will be collected from respondents will be analyzed by using both qualitative
and quantitative technique. The data obtained from open ended questionnaire will be
analyzed qualitatively and presented by narration and paragraphs. The data obtained from
close ended questionnaires will be analyzed quantitatively and presented by tabulation and
percentage.

1.8 Limitation of the Study

A shortage of time to deal each point in detail and the behavior of people to give the
information were challenged. However, the researchers try to complete the task within the
given period as soon as possible.

1.9 Organization of the Study

The study will be organized in to four chapters; the first chapter includes an introduction
which includes: background of the study, statement of the problem, basic research questions,
objective of the study, significance of the study, scope of the study, research design and
methodology, and organization of the study. The second chapter will include review of
related literature. The data presentation, analysis and interpretation will be treated in the third
chapter of the study. Finally, on the fourth chapter summary of the major findings,
conclusions, and recommendations will be presented.

6
 CHAPTER TWO

REVIEW OF THE RELATED LITERATURE

2.1. Tax Administration

Tax administration refers to the identification of tax liability based on the existing tax law.
The assessment of tax liability and the collection, prosecution and penalties imposed on
intractable taxpayers. Tax administration, therefore, covers a wide area of study,
encompassing aspects such as registration of taxpayers, assessments, returns processing,
collection and audits (Kangave 2005:124).

The low revenue yield of taxation can only be attributed to the fact that tax provisions are not
properly enforced either on account of the inability of administration to cope with them or on
account of straight forward collusion between the tax administration and taxpayers (World
Bank 1999:67). Since taxes are an involuntary payment for government services
(Parameswaran, 2005:212), taxpayers have a strong inventive to minimize their tax liabilities
either through avoidance (legal) or through evasion (illegal). Tax administration, therefore,
has to secure compliance with the laws by applying an array of registration, assessment and
collection procedures. Based on the discussions so far, the following sub section present the
tax administrative issue in detail.

2.1.1 Efficiency of Tax Administration

The key precondition for efficient tax administration is tax structure with minimizing
distortions, strictly tax exemptions and elimination of the differences in tax treatment of
particular parts of economy. Badly conceived or unnecessarily complicated tax structure
greatly complicates the operating function of the tax administration, while simple and
transparent tax structure could affect it in the opposite way. So, the increase of efficiency of
the tax administration could be attributed mainly to the simplification of the tax system
(Mansfield, 1990:67). In developing countries, tax administration can be organized respecting
the functional principle (collecting, recording, auditing, and enforcement) according to the
type of taxpayers; the type of taxes; and type of enterprises in economy. Tax administration
should develop around activities (such as recording or auditing) rather than according to the
type of tax and taxpayers. More generally, tax payment needs to be assessed, collected and
recorded more efficiently.

7
2.1.2. Procedures for Tax Collection

It is expected that taxpayer‟s tax payments should be in line with their income and they are
required to pay a tax in proportion to their level of income (Parameswaran, 2005:219, Mesfin
& Sisay, 2009:98). On the other part of the tax collectors, according to canon of taxation,
collection of tax should be time conscious and convenient and the cost of collecting the taxes
should not be high to discourage business. Some of the procedures undertaken by tax
authority to ensure compliance are; filing return and return processing of tax, audit
examination and tax collection and enforcement.

Filing returns; taxpayers are required to file returns within specified months of the end of
their tax accounting year. The return should be filed in quadruplicate and should contain all
the particulars of the taxpayer. All documents respecting taxation should be presented to the
tax authority office where the taxpayer has their file. Upon receiving a taxpayer‟s return, the
tax authority officers examine the accuracy of the return by determining whether the return is
properly completed, whether tax has been properly computed, and whether there are any
penalty payments to be made by the taxpayer (Eissa and Jack, 2009:149). Another procedure
undertaken by tax administration is Audit and examination. The role of tax audits and
examinations is to check the accuracy of the information that taxpayers provide to tax
authorities. The audits range from simple field and desk audits to comprehensive audits
(Baurer, 2005:87).

Collection and Enforcement is another procedure in the tax administration. When the
taxpayer has not made payment on the due date, and does not object to the tax assessed, tax
authority can enforce payment in a number of ways. The tax administration may bring a suit
against the taxpayer or request a person owing or holding money for the taxpayer to pay the
money on a specified date or institute distress proceedings against the taxpayer‟s moveable
property. In a wider context, the issue of enforcement includes offences committed by the
taxpayer, and the penalties for these offences (Mesiku, 2011:94).

8
2.1.3. Service Commitments of Tax Administration

The tax administration should provide impartial and professional courteous service and must
keep private and confidential information regarding the individual taxpayers. It should also
offer clear, understandable and current tax information and will make this information
available to tax payer through various media and provide timely, accurate written information
that one can rely on to questions and requests for tax information (Asian Development Bank,
2001:75). Education and information programs on specific tax issues should be arranged with
taxpayers to enhance their awareness and taxpayers should be allowed to voluntarily disclose
their tax situation without incurring a penalty or being prosecuted for tax violations under
certain conditions. The main service commitments of tax administration to taxpayers are
discussed as follows.

A. Taxpayer Education

It is considered that taxpayer education and a better relationship with taxpayers, along with
well thought out taxpayer education programs can go a long way in improving voluntary
compliance and that most common wealth countries currently have some form of taxpayer
education program built into their system (Kuala, 1992:190). With respect to better taxpayer
relationships, it has now become increasingly evident that an effective and efficient tax
system would depend on the consent and willing cooperation of the general body of
taxpayers, employers and consultants.

Countries like Canada, New Zealand and the United Kingdom have given the lead by
publishing Taxpayers Charters which set out for the first time in public the principles which
should be adopted in handling taxpayer‟s affairs, along with the rights and obligations of
taxpayers (United Nation, 2000:63). This is also the experience of some developing countries
for example, in Uganda, Tanzania. Some right to courtesy and consideration, the right to the
presumption of honesty, the right to privacy and confidentiality and the right to every benefit
allowed by the law should not remain as unattainable goals, but as something which both the
tax administrations and the taxpayers should strive to achieve as partners in a common
endeavor. The strategy to improve taxpayer education, information and assistance to enhance
tax collections and reduce compliance costs should be based on a commitment to high quality
and constructive interaction between taxpayers and the tax administration. The approach
should address compliance in the context of correcting system deficiencies; simplifying
cumbersome and complex tax laws and rules, forms and instructions; presenting the tax laws
9
as fair in their intent and administration; and assisting complying taxpayers who are trying
but are unable to meet their obligations.

B. Taxpayer Information

Tax administration should ensure that the tax forms are as simple and few in number as
Possible, the forms should be accompanied by detailed instructions for their completion,
written in a clear and simple style. It may prove beneficial to issue leaflets and booklets on
various aspects of the tax laws, designed for the general public and for different groups of
taxpayers. The public should be informed of the issuance of these publications and of the
places where they can be obtained or consulted. The public should likewise be informed
about the location of tax offices and other places where tax forms can be filed and tax
payments effected; the offices should be strategically located and as numerous as is
consistent with available resources and cost-benefit criteria. On top of the above, taxpayers
must be informed where they can obtain their tax forms (if they are not mailed to them),
where, when and how they are expected to file their return and pay the taxes due, and what
penalties are livable if they fail to fulfill their obligation within the stipulated time limit
(Mesiku, 2011:104).

For both educational and information activities, the mass media can be used to advantage in
reaching large numbers of population at minimum cost. In the specific case of information,
newspapers and magazines can be used to remind taxpayers of filing dates and of addresses
of tax offices, and to highlight penalties imposed on delinquent taxpayers. However, written
materials will not reach taxpayers who are illiterate, either because they have not attended
school or because their education has been inadequate. Radio, on the other hand, can be
understood by all and reaches a very wide audience, and should be used to the maximum;
during the filing season, short spot announcements and advertisements can be inserted in
popular programs. Television too reaches a wide audience and has the advantage of
presenting information both visually and aurally. Some countries have also used mobile units,
which tour towns and villages disseminating tax information. Furthermore, intermediaries,
such as, professional associations, such as lawyers, accountants, etc., trade associations
(businessmen, industrialists, contractors, etc.) and trade unions can be used as a means for
informing their members (Mesiku, 2011:112).

10
C. Taxpayer Assistance

Tax officials should assist taxpayers in an efficient, courteous and considerate manner. Tax
offices should also be made as accessible and comfortable as possible. Taxpayer assistance
involves personal contacts between tax administration staff and taxpayers, and can do much
to enhance the image of the tax administration and promote voluntary compliance (United
Nations, 2000:65). The tax administration can reinforce the idea that its intention is to
provide the best possible service to the taxpayers by making tax offices as accessible and
comfortable as possible, within the limits imposed by financial constraints. The staff at tax
offices can help small taxpayers to complete their returns either in person or by telephone, but
should encourage taxpayers to help themselves, so that they would be able to complete their
tax returns unaided on subsequent occasions. The taxpayer assistance has taken many forms,
namely, on-line enquiries of data base, unloading from website, personalized enquiries,
delivery of returns, elimination of forms, electronic payments, on-line modification of
returns, etc. ( Olaechea 1998:88). For example, a number of developing countries such as,
Barbados, Cyprus, Malaysia, Malta, Mauritius, Swaziland and the United Republic of
Tanzania have established taxpayer assistance centers or units within the tax administration to
provide assistance to taxpayers (United Nations 2000:170).

In general, efforts to improve tax services are generally focused on general tax outreach and
education and measures to reduce compliance costs, including taxpayer support services. One
of the best-documented examples is that of Peru during the 1990s, where improved tax
services and education were a major focus. This included major investment in staff training,
the creation of a central information centre, the development of a free taxpayer bulletin, the
hosting of tax fairs in localities throughout the country and the dissemination of important
information through newspaper ads and brochures (Durand and Thorp 1998 cited in Wilson,
2010:154)

D. Performance Measures to Improve Voluntary Compliance

In any tax administration, quality of services and taxpayer satisfaction are significant
indicators that tax authorities should use (Simon et.al., 2006:57). To provide taxpayers top
quality services by helping taxpayers understand and meet their tax responsibilities and
enforce the law with integrity and fairness to all, for example, the Internal Revenue
Service(IRS) of America, establish strategic goals and strategic foundations in the IRS
Strategic Plan (IRS, 2010). Success in achieving these goals benefits every taxpayer. By
11
making it easier for taxpayers to understand, calculate, and report their tax obligations, and to
remit payment conveniently, the tax administration can reduce the administrative burden
borne by taxpayers. According to Americas‟ Internal Revenue service‟s (IRS), performance
in tax administration can be measured as follows.

E. Behavioral Outcome Measures

Behavioral outcome measures evaluate taxpayer transactions with the tax administration to
determine how effectively the tax administration is influencing taxpayer behaviors, such as
using the web site, filing electronically, or voluntarily fulfilling their tax obligations
Taxpayers can get their questions answered faster by using tax administrations‟ self-assisted
services on the web site (Simon et.al., 2006:59).

F. Quality Measures

Quality measures evaluate key characteristics of taxpayer products and services, such as
completeness, timeliness, consistency, and accuracy. Quality improvements can decrease the
burden associated with erroneous information, and increase the public‟s trust and confidence
in the tax administration. Therefore, Taxpayers should receive accurate information when
asking questions about tax law and should receive accurate responses when asking question
about their account (Simon et.al., 2006:65).

G. Timeliness Measure

Timeliness Measure evaluates how quickly tax administration product or service can be
delivered. The timely execution of activities by the tax administration can help taxpayers
avoid potential burdens resulting from long wait times (such as fees, penalties, and
opportunity cost due to delayed actions). Some studies indicate that timeliness is highly
correlated with taxpayer‟s satisfaction (Simon et.al., 2006:67).

H. Taxpayer Satisfaction Outcome Measures

Taxpayer satisfaction measures evaluate approval levels reported by taxpayers during various
tax administration transactions and identify potential areas for service improvement.
Organizations applying for tax exempt status should experience high levels of satisfaction
with the process and taxpayers should experience high levels of satisfaction in their
transactions with the tax administration (Simon et.al., 2006:72).
12
2.2 Factors that Influence Taxpayer Behavior

The work of a tax administration includes activities that cover both compliance and customer
service. For example, Revenue Authorities‟ range of functions includes: assessment,
collection, debt management, audit and other interventions, anti-smuggling and other customs
functions and anti-avoidance. Many of the functions of tax administration depend to at least
some degree on the voluntary compliance of taxpayers. In addition, large elements of the tax
system in developed countries are based on self-assessment. In this context, there is clearly
potential to influence behavior to improve compliance. The central contribution of behavioral
research to tax administration is to understand why taxpayers are compliant or not. This can
inform the work of tax administrations across a range of their functions. Several factors that
determine the level of compliance in a taxpayer population have been identified. The sections
below present an overview of these factors. The factors are grouped under headings adapted
from research by the OECD Forum of Tax Administration (OECD, 2010:17): deterrence;
norms (personal and social); fairness and trust; opportunity and complexity; and the role of
government and economic factors. (European Commission, 2010:19) also covers similar
topics and Fjeldstad et al, (2012:72) suggest on the theories. Compliance in taxation has a
broad meaning, it covers filing compliance (filing returns on time), reporting compliance
(reporting incomes correctly) and payment compliance (paying tax due on time).

2.2.1 The Risk of Detection and Punishments

The standard model of tax compliance, derived from Becker (1968) assumes that a rational
taxpayer assesses the costs and benefits of evading taxes. If the expected benefits (less
income lost to tax) outweigh the costs (the chances of a non-compliant taxpayer being caught
and the sanctions incurred) then the taxpayer will evade tax. The taxpayer makes a rational
choice after considering the options. Deterrence (the risk of detection and the punishments
incurred) should positively influence taxpayer compliance (Slemrod, 2007:45). However, the
empirical evidence is somewhat mixed. OECD, (2010:14) discusses several studies that
examine the role of deterrence. Some findings are as expected (increases in the probability of
detection improve compliance) but the effects are quite weak. One reason is that auditing
compliant taxpayers is found to sometimes undermine their willingness to comply. While
deterrence is a vital tool (audit, other interventions and sanctions) for any tax administration,
simply increasing the level of deterrence (often an expensive process for the tax

13
administration) is not guaranteed to improve compliance. A targeted approach to deterrence
is likely to be more effective.

2.2.2 The Impact of Norms on Behavior

A key factor in tax compliance is a widespread desire to “do the right thing”. Taxpayers seek
to comply because they believe it the right thing to do, not because of fear of punishment if
they do not comply (Wenzel, 2005:92). The desire of a taxpayer to comply is strongly linked
to behavioral norms, both the personal norms and beliefs of the individual taxpayer and the
social norms that prevail in society at large. Personal norms are the result of a combination of
factors inherent to the individual. These guide a taxpayer‟s posture to the tax administration
(OECD, 2010:21) but are difficult to influence. Tax administrations can try to send messages
that stress the importance of compliance to educate taxpayers and build up positive personal
norms. Engagement by tax administrations with young people (early working age or younger)
can influence their personal norms and this benefits tax compliance in the long-term. There is
evidence from diverse areas (not just tax related) that people seek to conform to social norms
and that the behavior of others strongly influences an individual‟s choices (OECD, 2010:22).
This influence is important though in many cases people do not consciously realize it. This
effect can be heightened when the relationship to the social grouping is stronger or closer
(peers or neighbors may exert greater influence than those more distant to the individual).

Social norms influence taxpayer behavior. If there is a perception that tax evasion is limited
and the majority of the people are compliant, this makes people less willing to evade taxes
themselves. Often people tend to believe that non-compliance is more prevalent than it is in
practice so correcting misperceptions regarding the scale of evasion is also a positive way to
reinforce compliance.

2.2.3 Fairness and Trust in Tax Administration

Whether an outcome is perceived to be fair will often influence behavior. Experiments have
shown that people prefer an option in which they receive no reward to an option in which
they are rewarded but are perceived as unfair. They are rejecting an outcome that would make
them better off (Braithwaite, 2009:34). Often trust and legitimacy are linked to fairness, as
the perceived fairness of an outcome will be contingent upon them. OECD, (2010:28)
discusses three types of fairness in taxation: distributive fairness (the perception that
government acts as a wise spender of tax revenues); procedural fairness (the perception that

14
the tax administration adheres to procedures that are fair in dealing with taxpayers); and
retributive fairness (the perception that the tax administration is fair in applying punishments
when the rules are broken). The latter two are more relevant to (and can be influenced by) tax
administrations. Distributive fairness depends on policy makers. If taxpayers do not trust the
tax administration to collect tax fairly, this will increase non-compliance. By extension, if
there is a lack of trust in the broader government to spend tax revenues wisely (or a lack of
legitimacy in the government), this will also have negative effects on tax compliance) a
perception of fairness and trust are important tools for a tax administration in attempting to
reduce evasion. The key to establishing trust is to frame the collection of taxes to the
population in a transparent manner and emphasize the perceived fairness of the approach
taken. Norms and the motivation to pay taxes are influenced by fairness both in how a person
is treated by the administration individually and perceptions of fairness of the taxation system
in general (whether other people are also paying their fair share). If a tax administration can
demonstrate its commitment in these areas, there should be a compliance benefit (Reeson and
Dunstall, 2009:25).

A service and client approach by the tax administration is more likely to encourage trust than
a cops and robbers approach based on sanctions (Kirchler, 2007:72). The more respectfully
taxpayers are treated by the tax administration, the less likely they are to evade and this
contributes to the desire to do the right thing (New Economic Foundation, (NEF), 2005:73).

2.2.4 Opportunity and Complexity in the Tax System

A key assumption in decision-making is that people are capable of assessing a range of

complex choices, and by correctly evaluating all of the available information, select the
option with the best outcome for them. In reality it is rare to find situations in which people
are fully informed of all their choices and always select the best option. In many cases,
people fail to make the optimal choice. Simpler tax systems should encourage greater
compliance and lower costs through the use of less tax agents. Less complexity should reduce
the scope for tax avoidance and evasion (Almet al., 2010:26). Interactions between Revenue
and tax agents and representative bodies improve communication and compliance. Working
together can help to achieve buy-in and support for changes in the tax system.

Opportunity is a related concept to complexity. Tax administrations seek to reduce the

opportunities for taxpayers to evade or avoid tax. Prominent examples of this in Ethiopia is
withholding tax systems OECD, (2010:17) argues that tax administrations have tended to
15
overlook the lazy non-compliers, taxpayers who would have complied if opportunity for
compliance had been easier. Suggestions to make it easier to comply include the use of plain
language in communications and simplifying forms and tax laws where possible. Targeting
improvements in complexity and opportunity should increase taxpayer compliance. This
should reduce unintentional non-compliance if fewer errors are made completing returns and
make it easier for those seeking to comply.

2.2.5 Role of Government and Broader Economic Factors

There are many other factors that influence the level of compliance in a population. These are
grouped together here, as for the most part they are beyond the control of the tax
administration. Some involve tax policy or public spending, while others relate to the broader
economy.

Section 2.2.3 notes that distributive fairness influences compliance. Taxpayers link the tax
they pay to the ability of the State to fund expenditure on public goods and services
(Baroneand Mocetti, 2009:42). If there is a perception that the government spends tax
revenues wisely, this should encourage tax compliance. If taxes are associated with spending
on goods and services that the taxpayer values (for example, schools or infrastructure), then
the taxpayer is likely to be less reluctant to comply. Economic conditions are important to
compliance. For example, businesses with liquidity problems may be more likely to consider
evading taxes. At a more macroeconomic level, OECD (2010:55) notes that although the
research is limited, factors that promote economic growth also tend to promote tax
compliance. Likewise, economic downturns are often associated with increased tax evasion.
Higher tax rates are often linked with tax evasion if they incentivize taxpayers to move into
the shadow economy. While these issues are clearly important in determining tax compliance
levels they are not discussed further as the focus here is on behavioral insights for tax
administration. In the Ethiopian case, these factors are beyond the control of tax
administration, some are beyond the influence of any policy makers. Tax administrations can
and do attempt to mitigate their impacts as much as possible. In addition to the above
discussion, there is also principle of influence on taxpayers‟ behavior and tax compliance.
For example, Cialdini (2001:67) develops six principles that can be applied to influencing
individuals‟ behavior and decision making which is offer a useful structure. OECD further
develops these including.

16
Moreover, the tax satisfaction to ward perception or view may be defined as positive or
negative views of tax compliance behavior. These views may be explained by Psychology-
based theories which reveal that taxpayers‟ perception may be influenced by the following
factors which eventually influence taxpayers‟ behavior. Taxpayers perceptions of the tax
system and Revenue Authority, taxpayers‟ understanding of a tax system or tax laws, use of
information (Le Baube, 1992:66) motivation such as rewards (Field et al., 2006:78) ethics or
morality of the taxpayer, tax collector; equity of the tax systems (Trivedi & Shehata,
2005:121); Demographic factors such sex, age, education and size of income (Oberholzer,
2007:111)

Perception may also be defined as positive or negative views of a person, behavior or event.
In relation to taxation, taxpayers‟ attitude may be defined as positive or negative views of a
tax compliance behavior and the same true for taxpayers‟ satisfaction. The outcome of
positive views (satisfaction) is tax compliance and negative views (satisfaction) are tax non
compliance (Omweri et al., 2010:76).

2.3 Conclusion and Knowledge Gap

This chapter describes the relevant literature under three major sections. In the first section
the theoretical aspect related to the study was discussed under two sub-sections. The first sub-
section of this section mainly focused on tax administration activities such as efficiency of
tax administration, procedure of tax collection, service commitment of tax administration. In
all these discussion, it may relevant to summarize that ineffective, inefficient or insufficient
administrative or compliance procedures affect maximum collection of tax properly due and
consequently raise the risk of increasing the tax burden for all taxpayers. Hence, there is need
to evolve new methods and strategies to promote greater taxpayer compliance by placing
adequate emphasis on taxpayer education, information and assistance. On the other hand, the
second sub-section of first section presents the five broad factors that influence taxpayers
behavior such as deterrence; norms (both personal and social); fairness and trust (in the tax
administration); opportunity and complexity; and the role of government and the broader
economic environment. The second section of this chapter discussed the considerable
empirical evidence related to the study.

17
 CHAPTER THREE

DATA PRESENTATION, ANALYSIS AND INTERPRETATION

In this part of the research paper, data which were collected from sample respondents and
interview results are presented, analyzed and interpreted. The data have been collected and
then processed in return to the problems posed in the first chapter of the study.

The data were collected through questionnaires and interview. The questionnaires were
distributed to the customers and employees of Arada Sub-City Revenue and Customs Office
and the interview was held with the director of the organization. From the 150 questionnaires
distributed to the customers of the company only 140 questionnaires were filled thoroughly
fully and appropriately and the rate of return for the questionnaire is 140(89%) and from the
30 questionnaires distributed to the employees of the organization all of the questionnaires
were filled thoroughly fully and appropriately and the rate of return is 100%, moreover the
questions asked were close ended. The data collected by close ended questionnaire are
analyzed quantitatively and presented by tabulation and percentage and the data collected by
open ended questionnaire and from the interview are analyzed quantitatively and presented
by paragraphs.

3.1 Analysis of the Questionnaire of the Customers Respondents

Table. 1. General Background of the Respondents

No. Items Alternatives Frequency %
1 Gender Male 49 35
Female 91 65
Total 140 100
2 Age Less than 25 year 60 43
25 - 32 years 42 30
32 - 40 years 17 12
Above 40 years 21 15
Total 140 100
3 For how many years you Less than 5 years 60 43
served in this 5 to 10 years 42 30
organization? 10 to 15 years 17 12
Above 15 years 21 15
Total 140 100
4 Educational Background High School Complete 28 20
Certificate 18 13
Diploma 63 45
BSc or BA 31 22
Masters and above - -
Total 140 100

18
On the table 1 the demographic information regarding sex of the gender of the respondents
shows that 49(35%) of the respondents are male and 91(65%) of them are female. Based on
the data majority of the respondents are female.

On the item 2 of table 2, the age distribution of the respondent 60(43%) of them are below 25
years, 42(30%) of them between 25 and 32 years, 17(12%) of them between 32 and 40 years
and 21(15%) of them are above 40 years. Based on the data majority of the respondents are
found between the age of 25 and 40 years.

On the item 3 of table 1, the experience of the respondent 60(43%) of them are less than 5
years, 42(30%) of them between 5 and 10 years, 17(12%) of them between 10 and 15 and
21(15%) of them are above 15years. Based on the data majority of the respondents have
experience above 5 years.

On the third item of table 1 the educational background of the respondents shows that
28(20%) of the respondents are high school complete, 18(13%) of them have certificate,
63(45%) of them are diploma graduate and 31(22%) of them are graduated by first degree.
Based on the data majority of the respondents are graduated from different higher institutions.
This implies that the respondents can easily understand the ideas of the questionnaire.

Table 2. Tax payers’ compliance with the Rule and Regulations of the Sub-city
No. Items Alternatives Frequency %
1 The expected benefits outweigh the Strongly agree 77 56
costs is the reason the taxpayer to Agree 44 31
evade tax. Neutral _ _
Disagree 19 13
Strongly disagree _ _
Total 140 100
2 Increases in the probability of Strongly agree 18 13
detection improve compliance. Agree 32 23
Neutral 90 64
Disagree _ _
Strongly disagree _ _
Total 140 100
Source: Primary data collection

Item of 1 table 2 shows the extent of respondents‟ agreement to the statement “The expected
benefits outweigh the costs is the reason the taxpayer to evade tax” Out of the total
respondents, 44(31%) agree, 19(13%) disagree, the rest 77(55%) strongly agree. The majority

19
of the respondents strongly disagree to the statement. This indicates that, the expected
benefits outweigh the costs is the reason the taxpayer to evade tax.

Item 2 of table 1 shows, respondents level of agreement to the statement “Increases in the
probability of detection improve compliance.” 18(13%), 32(23%) of the total respondents
chose strongly agree, agree and neutral respectively, the majority i.e. the rest 90(64%)
respondents strongly disagree. This implies that the sub city detection decrease the customers
didn‟t compliant the tax low.

Table 3. The Reasons for the Insufficiencies in Tax Collection

No Items Alternatives Frequency %
1 Complexity in the tax system is the Strongly agree - -
reasons for the insufficiencies in tax Agree - -
collection. Neutral 55 36
Disagree 77 55
Strongly disagree 8 6
Total 140 100
2 Tax administrations seek to the Strongly agree - -
opportunities for taxpayers to evade or Agree 64 46
avoid tax is the reasons for the Neutral 45 32
insufficiencies in tax collection. Disagree 31 22
Strongly disagree - -
Total 140 100
Source: Primary data collection

As it can be seen in items of table 3, 55(36%) choose neutral, 8(6%) strongly disagree, the
majority of the respondents, i.e. 77(55%) disagree to the statement “Complexity in the tax
system is the reasons for the insufficiencies in tax collection.” This implies complexity in the
tax system is not the reasons for the insufficiencies in tax collection.

Item 2 of table 3 shows the extent of respondents‟ agreement to the statement “Tax
administrations seek to the opportunities for taxpayers to evade or avoid tax is the reasons for
the insufficiencies in tax collection” Out of the total respondents, 45(32%) choose neutral,
31(22%) disagree, the rest 64(46%) agree. The majority of the respondents agree to the
statement. This indicates that, tax administrations seek to the opportunities for taxpayers to
evade or avoid tax is the reasons for the insufficiencies in tax collection.

20
 Table 4. The Capacity of the Sub-city in Detecting and Prosecuting
Tax Violators
Items Alternatives Frequency %
The tax administration can be Strongly agree - -
organized respecting the collecting Agree 32 23
according to the type of taxpayers. Neutral 38 27
Disagree 51 37
Strongly disagree 19 13
Total 140 100
Source: Primary data collection
Table 4 shows, respondents level of agreement to the statement “The tax administration can
be organized respecting the collecting according to the type of taxpayers.” 32(23%) and
38(27%) of the total respondents choose agree and neutral respectively, the majority of
respondents i.e. 51(37%) respondents disagree and the rest 19(13%) strongly disagree. This
implies that the tax administration cannot be organized respecting the collecting according to
the type of taxpayers.
Table 5. The Tax Examination Techniques of the Sub-city
No. Items Alternatives Frequency %
1 The authority used field examination Strongly agree - -
technique that include on sight survey of Agree 17 12
the current conditions of the taxpayer‟s Neutral 19 13
business through physical checks. Disagree 32 23
Strongly disagree 72 52
Total 140 100
2 The authority detect false accounting Strongly agree 73 52
include the examination of books and Agree 18 13
documents conducted at the taxpayer‟s Neutral 17 12
business office or branches. Disagree 32 23
Strongly disagree - -
Total 140 100
3 The authority used counterpart Strongly agree - -
examination that performed based on third Agree 23 16
party information where warranted. Neutral 32 23
Disagree 20 14
Strongly disagree 65 47
Total 140 100
Source: Primary data collection

As it can be seen in the table 5, 17(12%) agree, 32(23%) disagree, 72(52%) strongly disagree
to the statement “The authority used field examination technique that include on sight survey

21
of the current conditions of the taxpayer‟s business through physical checks.” The majority of
the respondents strongly disagree. This implies that the authority didn‟t used field
examination technique that include on sight survey of the current conditions of the taxpayer‟s
business through physical checks.

As it can be seen in item 2 of table 5, 18(13%) agree, 17(12%) neutral, 32(23%) disagree, the
majority of the respondents i.e. 73(52%) strongly agree to the statement “The authority detect
false accounting include the examination of books and documents conducted at the taxpayer‟s
business office or branches.” This implies the authority detect false accounting include the
examination of books and documents conducted at the taxpayer‟s business office or branches.

The last item of the table 5 shows the extent of respondents‟ agreement to the statement “The
authority used counterpart examination that performed based on third party information
where warranted.” Out of the total respondents, 23(16%) agree, 32(23%) chose neutral,
20(14%) disagree, the rest 65(47%) strongly disagree. The majority of the respondents
strongly disagree to the statement. This indicates that, the authority didn‟t used counterpart
examination that performed based on third party information where warranted.

Table 6. The Sub-city on the Audit Workforce Capabilities & the Effective Tax Audit
Program
No. Items Alternatives Frequency %
1 The authority tax auditors educating Strongly agree - -
tax payers to improve future Agree 7 5
compliance. Neutral 25 18
Disagree 23 16
Strongly disagree 85 61
Total 140 100
2 The authority tax auditors identify Strongly agree - -
areas of the tax law that require Agree 51 36
clarification. Neutral 46 33
Disagree 43 31
Strongly disagree - -
Total 140 100
Source: Primary data collection

Item 1 of table 6 shows, respondents level of agreement to the statement “The authority tax
auditors educating tax payers to improve future compliance.” 7(5%) and 23(16%) of the total
respondents agree and disagree respectively, the majority i.e. 85(61%) respondents strongly

22
disagree. This implies that the authority tax auditors didn‟t educating tax payers to improve
future compliance.

In table 6 item 2 shows, respondents level of agreement to the statement “The authority tax
auditors identify areas of the tax law that require clarification” 46(33%) and 43(31%) of the
total respondents chose neutral and disagree respectively, the majority of respondents i.e.
51(36%) respondents agree. This implies that the authority tax auditors identify areas of the
tax law that require clarification.

3.2. Analysis of the Questionnaire of Employees Respondent

Table 7. The Authority Measurement Techniques for Risk Detection
No. Items Alternatives Frequency %
1 The risk of detection and the Strongly agree 13 43.3
punishments incurred positively Agree 17 56.7
influence tax compliance. Neutral 0 0
Disagree 0 0
Strongly disagree 0 0
Total 30 100
2 The tax payers didn‟t give necessary Strongly agree 8 26.7
information for the authority. Agree 15 50
Neutral 7 23.3
Disagree 0 0
Strongly disagree 0 0
Total 30 100
3 The commitment of the tax Strongly agree 11 36.7
administrations employees is the Agree 7 23.3
reason for tax evasion. Neutral 12 40
Disagree - -
Strongly disagree - -
Total 30 100
Source: Primary data collection

As shows item 1 on table 7, for the statement “The risk of detection and the punishments
incurred positively influence tax compliance” 17(56.7%) of them agree and 13(43.3%) of
them strongly agree. Based on the data majority of the respondents agree for the statement.
This implies that the risk of detection and the punishments incurred positively influence tax
compliance.

As item 2 of table 7 shows that, 8(26.7%) of the respondents strongly agree, 15(50%) of them
as agree and the rest 7(23.3%) of them neutral for the statement “The tax payers didn‟t give
necessary information for the authority”. Based on the data majority of the respondents agree
23
for the statement. This implies that the tax payers didn‟t give necessary information for the
authority.

As shown in item 3 of table 7, for the statement “The commitment of the tax administrations
employees” 12(40%) of them as neutral, 7(23.3%) of them agree and 11(36.7%) of them
strongly agree. Based on the data majority of the respondents didn‟t agree for the statement.
This implies that the commitment of the tax administrations employees is the reason for tax
evasion.
Table 8.The Staff Organization of the Administration

No. Items Alternatives Frequency %

1 The tax administration can be Strongly agree - -
organized respecting the collecting Agree - -
according to the type of taxpayers. Neutral 14 46.7
Disagree 10 33.3
Strongly disagree 6 20
Total 30 100
2 The tax administration can be Strongly agree 12 40
organized respecting the auditing Agree 12 40
according to the type of taxpayers. Neutral 6 20
Disagree - -
Strongly disagree - -
Total 30 100
3 The tax administration can be Strongly agree - -
organized respecting the Agree 17 53.3.
enforcement according to the type of Neutral - -
taxpayers. Disagree 13 46.7
Strongly disagree - -
Total 30 100
Source: Primary data collection

As shown on item 1 of table 8, for the statement “The tax administration can be organized
respecting the collecting according to the type of taxpayers” 14(46.7%) of the respondent‟s
neutral, 10(33.3%) of them disagree and 6(20%) of them strongly disagree. Based on the data
majority of the respondents didn‟t agree for the statement. This implies that the tax
administration cannot be organized respecting the collecting according to the type of
taxpayers.
As can be seen on item 2 of table 8, for the statement “The tax administration can be
organized respecting the auditing according to the type of taxpayers” 12(40%) of the
respondents strongly agree, 12(40%) agree and 6(20%) of them neutral. Based on the data

24
majority 24(80%) of the respondents agree for the statement. This implies that the tax
administration can be organized respecting the auditing according to the type of taxpayers.
As shown on items 3 of table 8, for the statement “The tax administration can be organized
respecting the enforcement according to the type of taxpayers” 17(53.3%) of them agree and
19 (46.7%) of them disagree. Based on the data majority of the respondents didn‟t agree with
the statement. This implies that the tax administration cannot be organized respecting the
enforcement according to the type of taxpayers.

Table 9. Field Examination Techniques of the Authority

No. Items Alternatives Frequency %

1 The authority used field examination Strongly agree 15 50
technique that include on sight survey Agree 12 40
of the current conditions of the Neutral 3 10
taxpayer‟s business through physical Disagree - -
checks. Strongly disagree - -
Total 30 100
2 The collect the customers complain to Strongly agree - -
an input for decision making. Agree 12 40
Neutral 3 10
Disagree - -
Strongly disagree 15 50
Total 30 100
3 The authority tax auditors educating Strongly agree - -
taxpayers to improve future Agree - -
compliance. Neutral 12 31.7
Disagree 18 68.3
Strongly disagree - -
Total 30 100
Source: Primary data collection

As can be seen on item 1 of table 8, for the statement “The authority used field examination
technique that include on sight survey of the current conditions of the taxpayer‟s business
through physical checks” 15(50%) of them strongly agree, 12(40%) of them agree and the
rest 3(10%) of them neutral. Based on the data majority of the respondents are agree for the
statement. This implies that the authority used field examination technique that include on
sight survey of the current conditions of the taxpayer‟s business through physical checks.

As can be seen in item 2 of table 9, for the statement “The collect the customers complain to
an input for decision making” 15(50%) of them strongly disagree, 12(40%) of them agree and

25
3(10%) of them neutral. Based on the data majority of the respondents agree on the
statement. This implies that the collect the customers complain is not used as an input for
decision making.

The last item on the table 9, for the statement “The authority tax auditors educating taxpayers
to improve future compliance” 12(31.7%) of them as neutral and the rest 18(68.3%) of them
are didn‟t agree. Based on the data majority of the respondents didn‟t agree for the statement.
This implies that the authority tax auditors didn‟t educate taxpayers to improve future
compliance.

Table 10. Examination of the False Accounting

No. Items Alternatives Frequency %
1 The authority tax auditors identify Strongly agree - -
areas of the tax law that require Agree 8 26.7
clarification. Neutral - -
Disagree 12 38.3
Strongly disagree 10 35
Total 30 100
2 The authority continuously builds the Strongly agree - -
capacity of the employees. Agree 10 35
Neutral - -
Disagree 5 15
Strongly disagree 15 50
Total 30 100
3 The authority detect false accounting Strongly agree - -
include the examination of books and Agree 6 20
documents conducted at the Neutral - -
taxpayer‟s business office or Disagree 9 30
branches. Strongly disagree 15 50
Total 30 100
Source: Primary data collection

As can be seen on item 1 of table 10, 8(26.7%) of the respondents agree, 10(35%) of them
strongly disagree and 12(38.3%) of them disagree for the statement “The authority tax
auditors identify areas of the tax law that require clarification”. Based on the data majority of
the respondents didn‟t agree with the statement. This implies that the authority tax auditors
didn‟t identify areas of the tax law that require clarification.

On the item 2 of table 10, for the statement “The authority continuously build the capacity of
the employees” 10(35%) of the respondents agree, 50(50%) of them strongly disagree and
26
5(15%) of them disagree. Based on the data majority of the respondents are not agree for the
statement. This implies that the authority didn‟t continuously build the capacity of the
employees.

As can be seen on the last item of table 10, for the statement “The authority detect false
accounting include the examination of books and documents conducted at the taxpayer‟s
business office or branches” 6(20%) of them agree, 15(50%) of them strongly disagree and
the rest 9(30%) of them disagree. Based on the data majority of the respondents are neutral.
This implies that the authority didn‟t detect false accounting include the examination of
books and documents conducted at the taxpayer‟s business office or branches as expected.

3.3 Analysis of the Interview

There are many other factors that influence the level of compliance in a population. These are
grouped together here, as for the most part they are beyond the control of the tax
administration. Some involve tax policy or public spending, while others relate to the broader
economy.

Tax payers link the tax they pay to the ability of the state to fund expenditure on public goods
and services. If there is a perception that the government spends tax revenues wisely, this
should encourage tax compliance. If taxes are associated with spending on goods and services
that the tax payer values (for example, schools or infrastructure), then the taxpayer is likely to
be less reluctant to comply. Economic conditions are important to compliance.

Factors that promote economic growth also tend to promote tax compliance. Likewise,
economic downturns are often associated with increased tax evasion. Higher tax rates are
often linked with tax evasion if they incentivize taxpayers to move into the shadow economy.

While these issues are clearly important in determining tax compliance levels they are not
discussed further as the focus here is on behavioral insights for tax administration. In the
Ethiopian case, these factors are beyond the control of tax administration, some are beyond
the influence of any policy makers. Tax administrations can and do attempt to mitigate their
impacts as much as possible. In addition to the above discussion, there is also principle of
influence on taxpayers‟ behavior and tax compliance. Six principles that can be applied to
influencing individuals‟ behavior and decision making which is offer a useful structure.

27
 CHAPTER FOUR

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

This research was undertaken on assessment of tax collection and problems in category "C"
tax payers in Arada sub-city. In order to the necessary data the student researchers were the
following basic questions.
 How does the tax payers compliance with the rule and regulations of the sub-city?
 What are the reasons for the insufficiencies in tax collection?
 How does the capacity of the sub-city in detecting and prosecuting tax violators?
 How does the tax examination techniques of the sub-city?
 How does the sub-city on the audit workforce capabilities and the effective tax audit
program?
The data was collected from the employees under the study by using particularly census
method which is to mean all of them (30 employees)were selected and from the
customer population under the study by using particularly accidental sampling
technique150 of them were selected.
Finally in this chapter the major finding of analyzed data summarized, concluded and
recommendations were given for the gaps in the study undertaken.

4.1 Summary

From data presentation, analysis and interpretation made in chapter three, the following
summary of the findings.
 The majority that is 77(56%) of the respondent indicates that, the expected benefits
outweigh the costs is the reason the taxpayer to evade tax.
 The majority i.e. 90(64%) respondents strongly disagree to the statement implying
increases in the probability of detection improve compliance.
 The majority of the respondents i.e. 77(55%) implies complexity in the tax system is
not the reasons for the insufficiencies in tax collection,
 The majority i.e. 64(46%) tax administrations seek to the opportunities for taxpayers
to evade or avoid tax is the reasons for the insufficiencies in tax collection.
 The majority of the respondents 51(37%) tax administration cannot be organized
respecting the collecting according to the type of taxpayers.

28
 The authority i.e. 72(52%)didn't used field examination technique that include on
sight survey of the current conditions of the taxpayer‟s business through physical
checks.
 The majority of the respondents i.e. 73(52%) implies the authority detect false
accounting include the examination of books and documents conducted at the
taxpayer‟s business office or branches.
 The majority of the respondents 65(47%) indicates that, the authority used counterpart
examination that performed based on third party information where warranted.
 The majority i.e. 85(61%) implies that the authority tax auditors didn‟t educating
taxpayers to improve future compliance.
 The majority of respondents i.e. 51(36%) respondents agree. This implies that the
authority tax auditors identify areas of the tax law that require clarification.
 Majority of the respondents that is 17 (56.7%) implies that the risk of detection and
the punishments incurred positively influence tax compliance.
 Majority i.e. 8(26.7%) of the respondents agree for the statement. This implies that
the tax payers didn‟t give necessary information for the authority
 Majority that is 14(46.7%) of the respondent implies that the tax administration be
organized respecting the collecting according to the type of taxpayers.
 As the majority i.e. 24 (80%) of the respondent implies that the tax administration can
be organized respecting the auditing according to the type of taxpayers.
 Majority that is 18(68.3%) of the respondent are disagree for the statement implies
that the authority used field examination technique that include on sight survey of the
current conditions of the taxpayer‟s business through physical checks.
 As the majority i.e. 15(50%)the collect the customers complain is not used as an input
for decision making.
 Majority i.e. 18(68.3%) of the respondent implies that the authority tax auditors didn‟t
educate taxpayers to improve future compliance.
 Based on the data majority of the respondent implies that 12(38.3%) the authority
identify areas of the tax law that require clarification.
 As 15(50%) of the respondent implies that the authority didn‟t continuously build the
capacity of the employees.
 Majority that is 15(50%)of the respondents implies that the authority didn‟t detect
false accounting include the examination of books and documents conducted at the
taxpayer‟s business office or branches.

29
4.2. Conclusions

Based on summary of the finding the following conclusions were drawn

For the tax payers compliance with the rule and regulations of the sub city:
 The risk of detection and the punishments incurred positively influence tax
compliance. The tax payers didn‟t give necessary information for the authority and
the commitment of the tax administrations employees is the reason for tax evasion.
The expected benefits outweigh the costs is the reason the taxpayer to evade tax and
increases in the probability of detection improve compliance.

The reasons for the insufficiencies in tax collection:

 Complexity in the tax system is the reasons for the insufficiencies in tax collection
and tax administrations seek to the opportunities for taxpayers to evade or avoid tax is
the reasons for the insufficiencies in tax collection. The tax administration can not be
organized respecting the collecting according to the type of taxpayers.

The capacity of the sub-city in detecting and prosecuting tax violators:

 The authority didn‟t used counterpart examination that performed based on third party
information where warranted and auditors didn‟t educating taxpayers to improve
future compliance. The authority tax auditors identify areas of the tax law that require
clarification.
The tax examination techniques of the sub-city:
 The authority used field examination technique that include on sight survey of the
current conditions of the taxpayer‟s business through physical checks and the collect
the customers complain is not used as an input for decision making. The tax auditors
didn‟t educate taxpayers to improve future compliance and didn‟t identify areas of the
tax law that require clarification and it didn‟t detect false accounting include the
examination of books and documents conducted at the taxpayer‟s business office or
branches as expected.

The audit workforce capabilities and the effective tax audit program:
 The tax administration cannot be organized respecting the collecting according to the
type of taxpayers and can be organized respecting the auditing according to the type
of taxpayers and the tax administration cannot be organized respecting the
enforcement according to the type of taxpayers.

30
4.3. Recommendations

From summary of the finding & conclusions made the student research forwarded the
following recommendations.
 The risk of detection and the punishments should incur positively influence tax
compliance. The tax payers should give necessary information for the authority and
the tax administration employees should have commitment the control the tax
evasion. The expected benefits outweigh the costs is the reason the taxpayer to evade
tax so the sub-city should increases in the probability of detection improve
compliance.
 The tax system of the sub-city should not be complex and tax administrations should
not seek to the opportunities for taxpayers to evade or avoid tax because these are the
reasons for the insufficiencies in tax collection.
 The authority should use field examination technique that include on sight survey of
the current conditions of the taxpayer‟s business through physical checks and collect
customers complain should be used as an input for decision making. The tax auditors
should detect false accounting reports including the examination of books and
documents conducted at the taxpayer‟s business office or branches as expected.
 The tax administration should be organized respecting the collecting according to the
type of taxpayers and should be organized respecting the auditing according to the
type of taxpayers and the tax administration cannot be organized respecting the
enforcement according to the type of taxpayers.

31
 BIBLOGRAPHY

Fjeldstad, O. H, Herzenberg C. and Sjursen I. (2012). Peoples‟ View of Taxation in Africa,

Research on determinants of Tax Compliance‟, International Centre for Tax and
Development (ICTD), CHR-michelsen Institution. Baurer, I.(2005). „Tax
Administrations and Small and Medium Enterprises (SMEs) in Developing Countries‟
Consultant Small and Medium Enterprise Department, World Bank Group.

Fjeldstad, OH.,(2005). Corruption in Tax Administration: Lessons from Institutional

Reforms in Uganda’ Working Paper WP2005:10, CHR Michelsen Institution.

Kangave, F.(2005). Improving Tax Administration: A Case Study Of the Uganda

Revenue Authority; Journal of African Law, 145–176.

Mesiku, G. (2008). Tax Administration, Procedural Justice, Tax Payers’ Attitude and
Tax Compliance among Small Business Income Earners in Arua District‟, MSc
Thesis, Makerere University.

New Economics Foundation (NEF) (2005). Behavioural Economics: Seven Principles for
Policy-Makers, UK: NEF.

Parameswaran, R. (2005). Public Finance and Taxation. Addis Ababa University.

Simon, J. Thamrongsak S, Brian W. (2006). Tax Officials‟ Attitudes and Perceptions,

Performance Indicators and the Efficiency Tax Collection; University of Exeter,
Discussion Papers in Management Paper Number 06/01, ISSN 1472-2939.

32
 APPNDICES
ST. MARY’S UNIVERSITY

School OF BUSINESS
DEPARTMENT OF ACCOUNTING
Questionnaire to be Filled by the Employees of the Ethiopia Revenue and
Customs Authority Arada Sub-City
Dear Respondent,

The purpose of this questionnaire is to collect primary data for conducting a study on the
topic, "Tax Collection and Problems in Category ‘C’ Tax Payers in the Case of Ethiopia
Revenue and Customs Authority Arada Sub-City" as partial fulfillment to the completion
of Bachelor Degree in Accounting at St Mary‟s University. In this regard we kindly request
you to provide us reliable information that is to the best of your knowledge so that the
findings from the study would meet the intended purpose. We strongly assure you of
confidential treatment of your answers and would like to extend our deep-heart thanks in
advance for being a volunteer to devote your valuable time in filling this form.

Directions
 No need to write your name
 Answer by making a √ mark, by circling or in writing wherever appropriate

PART I. PERSONAL PROFILE

1. sex:
A. Male B. Female
2.Age:
A. Less than 25 years B. 25-32 years
B. 32-40 years D. Above 40 years
3. For how many years you served in this organization?
A. Less than 5 years B. 10 to 16 years
C. 5 to 10 years D. Above 16 years
4. Educational Background:
A. High school complete B. Certificate C. Diploma
D. First Degree E. Masters & above
PART II. QUESTIONS DIRECTLY RELATED TO THE STUDY

Strongly Disagree = 1, Disagree = 2, Neutral = 3, Agree = 4, Strongly Agree = 5

Items 1 2 3 4 5
1 The risk of detection and the punishments incurred positively
influence tax compliance.
2 The tax payers didn‟t give necessary information for the
authority.
3 The commitment of the tax administrations employees.
4 The tax administration can be organized respecting the
collecting according to the type of taxpayers.
5 The tax administration can be organized respecting the auditing
according to the type of taxpayers.
6 The tax administration can be organized respecting the
enforcement according to the type of taxpayers.
7 The authority used field examination technique that include on
sight survey of the current conditions of the taxpayer‟s business
through physical checks.
8 The collect the customers complain to an input for decision
making.
9 The authority tax auditors educating taxpayers to improve
future compliance.
10 The authority tax auditors identify areas of the tax law that
require clarification.
11 The authority continuously build the capacity of the
employees.
12 The authority detect false accounting include the examination
of books and documents conducted at the taxpayer‟s business
office or branches.

13. If you have any comment with the tax collection problem.
--------------------------------------------------------------------------------------------------------------------------

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Thank you very much for your cooperation!

 የቅድስት ማርያም ዩኒቨርስቲ

ቢዝነስ ፋካሉቲ

አካውንቲንግ ዲፓርትመንት

በአራዳ ክፍሇ ከተማ ገቢዎች ዯንበኞች የሚማሊ መጠይቅ

ውድ መሊሽ፡

ይህ መጠይቅ የተዘጋጀው በአራዳ ክፍሇ ከተማ ገቢዎች ዯረጃ ሐ ግብር አሰባሰብ ሊይ

የሚያጋጥሙ ችግሮችን ሇማጥናት የመመረቂያ ጥናታዊ ጽሁፍ ግብዏት እንዲሆን ነው፡፡
የጥናታዊ ጽሁፍ ውጤትም በድርጅቱ አሰራር ዙሪያ ችግሮችን በመፇሇግ የመፍትሄ
ሀሳቦችን ሇመጠቆም ነው፡፡ መጠይቁን ጊዜ ሰጥተው በታማኝነት እንዲሞለ እንጠይቃሇን፡፡
በሚሰጡን መረጃ እነዲተማመኑ እየጠየቅን መረጃውም ሇትምህርታዊ አገልግሎት ብቻ
የሚውል ነው፡፡ በመጨረሻም ስምዎን ወይም ማንነትዎን የሚገልጽ መረጃ መስጠት
አይጠበቅቦትም፡፡

መመሪያ

 ስምዎን መፃፍ አያስፇልግም

 ምሊሽዎን በተሰጠው ሳጥን የራይት ምልክት በማድረግ የግሇጹ
ክፍል አንድ፤ የመሊሽ የግል መግሇጫ

1. ፆታ፣
ሀ. ወንድ ሇ. ሴት

2. እድሜ
ሀ. ከ25 አመት በታች ሇ. ከ25 – 32 አመት

ሐ. ከ32- 40 አመት መ. ከ40 አመት በሊይ

3. ሇምን ያህል ጊዜ ከድርጅቱ ጋር ሰርተዋል?

ሀ. ከ 5 አመት በታች ሇ. 5-10 አመት

ሐ. 10 - አመት መ. ከ 16 አመት በሊይ

4. የትምህርት ዯረጃ፣
ሀ. ሁሇተኛ ዯረጃ ሇ. ሰርተፍኬት ሐ. ዲፕሎማ
መ. የመጀመሪያ ዲግሪ ሠ. ሁሇተኛ ዲግሪና ከዚያ በሊይ
 ክፍል ሁሇት ከጥናቱ ጋር ቀጥታ ተያይዥነት ያሊቸው ጥያቄዎች

1-በጣም እስማማሇሁ 2-እስማማሇሁ 3-ገሇልተኛ 4-አልስማማም 5-በጣም አልስማማም

ተ.ቁ መግለÚ 1 2 3 4 5
1 ግብርን በአግባቡ ካሇመክፇል ተገኝቶ የሚወስድ
እርምጃ ህግና ዯንቡ እንዲከበር አዎንታዊ አስተዋፅኦ
አሇው፡፡
2 ግብርን አጭበርብሮ በመያዝ አጋጣሚ ህግና ዯንብን
እንዲያከብር አውንታዊ አስተዋፅኦ አሇው፡፡
3 የግብር አከፋፇል ሂዯት ውስብስብ ስሇመሆን፡፡
4 የግብር አስተዳዯር አሰራር ግብር ከፋዮች ግብር
እንዲያጭበረብሩ እድል ስሇመስጠቱ፡፡
5 የክፍሇ ከተማው የግብር አስተዳዯር የግብር ምዝገባ
በግብር የተቀናጀ ነው፡፡
6 ክፍሇ ከተማ በመስክ የምርመራ ዘዴ በመጠቀም
የግብር ከፋዮች ወቅታዊ የንግድ ሁኔታን በአካል
የማየት ያረጋግጣል፡፡
7 የግብር ከፋዮች የሶስተኛ ወገንን መረጃ የመውሰድ
ምርመራ ዘዴ በመጠቀም ማረጋገጫዎችን
ይወስዳል፡፡
8 የክፍሇ ከተማው ኦዲተሮች ዯንበኞችን በማስተማር
የታክስ ህግን ያስከብራለ፡፡
9 የክፍሇ ከተማው ኦዲተሮች ማብራርያ የሚፇሇጉ
የታክስ ህጎች ዙሪያ ሇዯንበኞች ገሇፃ ይሰጣለ፡፡
10 የክፍሇ ከተማው በሒሳብ መዝገቡ ምርመራ ዘዴ
በመጠቀም የተጭበረበሩ ሒሳቦችን የግብር ከፋዮች
ቢሮ ወይም ቅርጫፍ ድረስ በመሄድ ያረጋግጣል፡፡

11. ከግብር አከፋፇለ ጋር የለትን ችግሩች ተጨማሪ አስተያየት ካልዎት፡፡

 DECLARATION
The undersigned declared that the senior essay project our original work, prepared under
the Guidance of Ato. Mesret kenefa. All sources of material used for the manuscript have
been acknowledged.

Name Signature

_____________________ ________________

_____________________ ________________

_____________________ ________________

SUBMISSION APPROVAL SHEET

This paper has been submitted for examination with the approval as an advisor.

Name: ______________________

Signature: ______________________

Date: _______________________