ASSESSMENT OF FACTORS AFFECTING TAX COLLECTION:

THE CASE OF MINISTRY OF REVENUES OF ETHIOPIA FEDERAL

LARGE TAXPAYERS BRANCH

BY: ABIY AYENACHEW

A THESIS SUBMITTED TO ADDIS ABABA UNIVERSITY IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE OF
MASTER OF SCIENCE IN INTERNATIONAL BUSINESS

JUNE, 2023
ADDIS ABABA

i
 ASSESSMENT OF FACTORS AFFECTING TAX COLLECTION:
THE CASE OF MINISTRY OF REVENUES OF ETHIOPIA FEDERAL
LARGE TAXPAYERS BRANCH

BY: ABIY AYENACHEW

ID: GSE/7665/13
Advisor: Habtamu Endris (PhD)

A THESIS SUBMITTED TO ADDIS ABABA UNIVERSITY IN PARTIAL

FULFILLMENT OF THE REQUIREMENTS OF THE DEGREE OF
MASTER OF SCIENCE IN INTERNATIONAL BUSINESS

JUNE, 2023
ADDIS ABABA
ii
 DECLARATION
I, the undersigned, declare that this research thesis is my novel work, organized under the
supervision of Habtamu Endris. All sources of materials used for this proposal thesis have been
dually acknowledged. I further confirm that the proposal has not been submitted either in part or
in full to any other higher learning institutions for the purpose of any degree.

Declared by
Name________________________________
Signature_____________________________
Department___________________________
Date_________________________________

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 ADVISOR’S APPROVAL

This is to certify that the work contained in Abiy Ayenachew’s (GSE/7665/13) thesis,
" Assessment Of Factors Affecting Tax Collection: The Case Of Ministry Of Revenues Of
Ethiopia Large Taxpayers Branch" submitted for the award of a Master’s of Science in
International Business to the College of Business and Economics at Addis Ababa University.
His study was conducted under my direct supervision and guidance, and his thesis was
submitted for examination to Addis Ababa University's College of Business and Economics'
School of Graduate Studies with my consent as a university advisor.

__________________________ ________________ _________________

Advisor’s Name Signature Date

iv
 STATEMENT OF CERTIFICATE
This is to confirm that the thesis organized by ABIY AYENACHEW, entitled “Assessment of
Factors affecting Revenue Collection: The Case of Ministry of Revenues of Ethiopia Large
Taxpayers Branch” submitted in partial fulfilment of the necessities for the degree of Master of
accounting and encounters the recognized standards with respect to originality and quality.

Approved By
Approved by board of examiners

--------------------------------------------- ----------------------
Dean Graduate Studies Signature

--------------------------------------------- ----------------------
Advisor Signature

--------------------------------------------- ----------------------
External Examiner Signature

--------------------------------------------- ----------------------
Internal Examiner Signature

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 ACKNOWLEDGMENT
My stimulating gratefulness goes to Habtamu Endris (Ph.D) my thesis advisor, who has given
to me the essential academic guidance and constructive comments in all stages of the study with
honesty. I would like to thank my family and friends they were extremely essential in this
journey I would also like to thank the staff and management of all Ministry of Revenue and
organizations that participate on providing data for the research. Finally, I would like to extend
my gratitude to those who provided direct and indirect support to help me complete my research.

vi
 ACKNOWLEDGMENT
My stimulating gratefulness goes to Habtamu Endris (Ph.D) my thesis advisor, who has given
to me the essential academic guidance and constructive comments in all stages of the study with
honesty. I would like to thank also Dr. Zelalem G/tsadik, Head of graduate programs of
Management department, my family and friends who were extremely essential in this journey. I
would also like to thank the staff and management of all Ministry of Revenue and organizations
that participate on providing data for the research. Finally, I would like to extend my gratitude to
those who provided direct and indirect support to help me complete my research.

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Contents
DECLARATION .......................................................................................................................... iii

ADVISOR’S APPROVAL ........................................................................................................... iv

STATEMENT OF CERTIFICATE ............................................................................................. v

ACKNOWLEDGMENT ............................................................................................................. vi

ACKNOWLEDGMENT ............................................................................................................ vii

List of Figures .............................................................................................................................. xii

ACCRONYMS ........................................................................................................................... xiv

ABSTRACT ................................................................................................................................. xv

CHAPTER ONE ........................................................................................................................... 1

1. INTRODUCTION................................................................................................................. 1

1.1 Background of the Study ............................................................................................... 1

1.2 Statement of the Problem .............................................................................................. 3

1.3 Research Questions ........................................................................................................ 4

1.4 Objective of the Study .................................................................................................... 5

1.4.1 Specific Objective of the Study ................................................................................ 5

1.5 Significance of the Study................................................................................................ 5

1.6 Scope of the Study .......................................................................................................... 5

1.7 Limitations of the Study ................................................................................................ 6

1.8 Operational Definition of Terms ................................................................................... 7

1.9 Organization of the Paper ............................................................................................. 7

CHAPTER TWO .......................................................................................................................... 8

2. REVIEW OF RELATED LITERATURE .......................................................................... 8

2.1 Introduction .................................................................................................................... 8

2.2 Prevailing political Conditions Impact on the tax collecting process ........................ 9

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 2.3 Political instability and Tax non-compliance ............................................................. 10

2.4 The Relationship between Steadiness in Politics and Exchange-Rate System ....... 12

2.5 Political Instability and Efficiency of Taxation.......................................................... 13

2.6 Government Policies' Impact on Tax Collection ....................................................... 15

2.6.1 Revenue................................................................................................................... 18

2.6.2 Redistribution.......................................................................................................... 18

2.6.3 Representation......................................................................................................... 18

2.6.4 Re-pricing Economic Alternatives .......................................................................... 19

2.7 Structural Support Systems Role on Tax Collection ................................................. 20

2.7.1 ICT Infrastructure ................................................................................................... 20

2.8 Electronic Taxation Facilitates Tax Compliance ....................................................... 22

2.8.1 Tax Collection and Manpower (Workforce) of the Tax Authorities ....................... 24

2.9 Empirical Literature Review ....................................................................................... 25

2.10 Conceptual Framework of the Study ......................................................................... 28

CHAPTER THREE .................................................................................................................... 29

3 RESEARCH METHODOLOGY ...................................................................................... 29

3.1 Introduction .................................................................................................................. 29

3.2 Research Design............................................................................................................ 29

3.3 Target Population and Sampling Strategy ................................................................. 29

3.3.1 Target Population .................................................................................................... 29

3.3.2 Sampling Design ..................................................................................................... 29

3.3.3 Sample Frame ......................................................................................................... 30

3.3.4 Sampling Method .................................................................................................... 30

3.3.5 Sample Size............................................................................................................. 30

3.4 Method of Data Collection ........................................................................................... 30

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 3.5 Method of Data Analysis .............................................................................................. 31

3.6 Validity and Reliability ................................................................................................ 31

3.7 Ethical Considerations ................................................................................................. 32

CHAPTER FOUR ....................................................................................................................... 33

4 DATA PRESENTATIONS DISCUSSION AND ANALYSIS .......................................... 33

4.1 Introduction .................................................................................................................. 33

4.2 General Information .................................................................................................... 33

4.2.1 Main Industry area of Businesses ........................................................................... 33

4.2.2 Operational Duration within the Company ............................................................. 34

4.2.3 Position in the Company ......................................................................................... 34

4.3 Political Stability Impact on Tax Collection .............................................................. 34

4.4 The Impact of government rules and regulations on collecting taxes ..................... 37

4.5 Impact of ICT infrastructure and Manpower on Tax Collection ............................ 40

4.6 Discussions .................................................................................................................... 42

4.6.1 Effects of Political Situation on Revenue Collection.............................................. 42

4.6.2 Tax policies effect on tax collection ....................................................................... 43

4.6.3 Impact of Organizational Support systems on Tax Collection................................ 44

CHAPTER FIVE......................................................................................................................... 45

5 SUMMARY, CONSLUSIONS AND RECOMMENDATIONS ...................................... 45

5.1 Introduction .................................................................................................................. 45

5.2 Summary ....................................................................................................................... 45

5.3 Conclusion ..................................................................................................................... 45

5.3.1 Effects of Political Situation on Revenue Collection.............................................. 45

5.3.2 Impact of rules and regulations on Tax Collection ................................................. 46

5.3.3 Impacts of organizational Support Systems on Tax Collection .............................. 46

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 5.4 Recommendations ........................................................................................................ 47

5.5 Recommendations for future Researches ................................................................... 47

6 REFERENCE ...................................................................................................................... 49

Introduction ............................................................................................................................. 53

PART A: BACKGROUND INFORMATION ................................................................. 53

6.1 II: Impact of Information Technology and Human Resources on Revenue

Collection. ................................................................................................................................ 54

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 List of Figures

Figure 4.1: - Effects of closeness of general elections on company’s operations 23

Figure 4.2: - Effects of political stability on taxation 24
Figure 4.3: - Taxation laws difficulty 25
Figure 4.4: - Taxation as a source of pride being part of nation building 28

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List of Tables

Table 3.1: -Reliability 19

Table 4.1: -General Information 20
Table 4.2: -Political Stability is Characterized by Improved Investments 21
Table 4.3: -Table of level of Concurrence to the Characteristics of Political Instability 22
Table 4.4: -Effect of Political Situation on Business 22
Table 4.5: -Tax laws make administration of organization easier 25
Table 4.6: -Taxation laws as a means of redistribution of wealth 26
Table 4.7: - Laws and Regulations set enhance protection of the environment 26
Table 4.8: - Effects of information technology and human resources on revenue collection 28
Table 4.10: -Correlation between the year under observation and the amount of tax
collected Correlations 30

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 ACCRONYMS
MoR Ministry of Revenues
E-Tax Electronic taxation
ICT Information Communication Technology
CEE Community Engagement Exchange
ERCA Ethiopia Revenue and Custom Authority
GDP Gross Domestic Product
GMM Generalized Method of moments
ICT Information Communication Technology
LTO Large Tax Payer
MOFED Ministry of Finance and Economic Development
TASS Tax Administration Support Systems
OECD Organization for Economic Co-operation and Development
RARMP Revenue Administration Reforms and Modernization Program
RPIM Real Property Information Model
SPSS Statistical Packages for Social Science
TRA Tanzania Revenue Authority
SSA Sub-Saharan Africa
IRS Internal Revenue Service
EFDs Electronic Fiscal Devices
VAT Value Added Tax
LMICs low- and middle-income countries

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 ABSTRACT
The goal of this study was to look at the elements that influenced favorably and adversely tax
collection in Ministry of revenues of Ethiopia, Federal large taxpayers. Particularly, it
investigated the effects of the prevailing political situation on revenue collection, the
implications of tax policies implemented by incumbent politicians, and the effects of ICT
infrastructure and qualified workforce on revenue collection. A descriptive research design has
been selected due to the way it addressed the study areas empirically through numerical
measurement and statistical analysis. The target population consisted of federal taxpayers who
were classified as ‘large taxpayers’. Despite there were 794 taxpayers who fit this description, a
sample of these was chosen for the study. A sample of 266 taxpayers was chosen using a simple
random sampling technique. A total sample of 240 was obtained after 266 questionnaires were
distributed, with 26 of them—or 10%—not being returned and as secondary data five years
revenue collection of the federal large taxpayer’s branch data was taken. SPSS, a statistical tool
for social scientists, was used to analyze the data. The associations between the independent
and dependent variables were investigated using descriptive statistics. The analysis results
demonstrated that the prevailing political climate actually, have an impact on business
operations, people's security, resource availability and distribution, and, as a result, tax
collection and tax compliance have been hindered. It also indicated that the rule and
regulations that were in effect at that particular point had an impact on tax collection and, was
difficult to understand and analyze. The study claims that the MoR support system, which
included, among other things, information technology systems like Electronic taxation (E-tax),
the workforce, and major stakeholders, all played an important part in the Revenue Collection
process in MoR. The study suggests additional investigation to figure out the level of
independence or interdependence of the political situation and revenue collection. It also
suggests more research into existing tax laws and regulations, as well as how appropriate those
who they rule. Additionally the study suggests more research on taxpayers as MoR’s
stakeholders in order to devise methods of assuring adherence to rules and contentment for
stakeholders
Keywords: - Revenue, Taxpayers, MoR, Tax, ICT, politics

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 CHAPTER ONE

1. INTRODUCTION
1.1 Background of the Study

For both developed and developing economies, generating revenue is a crucial source of survival
and a problem. Because it is a factor in economic development, every nation in the globe is
interested in the quantity of revenue that will be earned today and in the future. Taxation, which
includes personal income tax, value added tax, and corporation income tax, has historically been
one of the primary means by which governments around the world generate revenue as they
attempt to address the problem of revenue creation (OECD, 2017). Tax revenue has made a
significant contribution to the development and prosperity of numerous nations worldwide
(Coccia, 2018).

In order to boost tax revenue to fund public spending, the majority of African nations, including
Ethiopia, have undertaken reforms and transformations (Guliya et al., 2018). The Ethiopian
government has been enacting tax reforms to raise tax revenue, which is essential to satisfy the
residents' rising needs for basic services. The potential benefits of taxation for nations like
Ethiopia on nation building, long-term independence from overseas assistance, trade facilitation
and cover up the continued severe financial requirements to deliver infrastructures and public
facilities are massive. Hence, with the aim of financing these doings, government gathers
revenue from various sources of finance such as; internal and external source of funding.
Amongst internal sources of financing, the tax system had contributed a lion share. A way to
mobilize one's nation's domestic revenue resources is to develop an efficient tax policy (Wawire,
2017). Ethiopia's budget, like those of the majority of developing nations, is highly dependent on
tax collection. Raising enough money to pay for the country's budget and promote economic
growth is becoming challenging. The majority of empirical work has, up to this point,
concentrated on the key global drivers of the tax-to-GDP ratio. For instance, Chaudhry & Munir
(2010) examined the elements that affect revenue from taxes and discovered that inflation, the
service sector, political stability, manufacturing, and agriculture all have a positive impact on the
tax-to-GDP proportion. The impact of the exchange rate, literacy rate, and urbanization

1
negatively affect tax revenues. Many governments in Sub-Saharan Africa (SSA) have been great
problems in collecting tax revenue for public purposes. Furthermore, institutional quality, with
some taxes being more affected than others, is the main cause of the low tax revenue collection
as a percentage of GDP in these nations (Imam & Jacobs, 2014). The economic structure,
institutional capability, political setup, and underdeveloped economies continue to be the most
challenging problems in these nations, despite efforts to construct an efficient tax system to raise
fiscal income (Dioda, 2012).

The tax law, in contrast to the criminal law, is characterized by ambiguity and uncertainty
(Graetz and Wilde, 1985). A 1988 survey of taxpayers reports that a significant portion of
noncompliance can be attributed to tax code complexity and ambiguity (Krause, 2000).
Uncertainty about the eligibility of a deduction or a credit may force uninformed taxpayers to
underpay or overpay taxes. Alternatively, taxpayers may seek professional advice to resolve
uncertainty about their tax liabilities. Kaplow (1998) estimates that taxpayers spend US$75
billion per year on tax advice. Although both tax complexity and tax ambiguity can create
taxpayer uncertainty, they can be differentiated between the two based on whether competent
experts can eliminate the uncertainty after a thorough analysis. If related tax rules are ambiguous,
however, then experts may reach different conclusions about the tax consequence of a
transaction. Krause (2000) notes that the distinction between compliance and noncompliance is
not always clear; the Internal Revenue Service (IRS) and taxpayers will genuinely disagree in
many instances.

Following the end of the 'Socialist' regime in Ethiopia in 1983, the EPRDF government took
several policy measures following the country's transition from central planning to market-based,
with declining export earnings, rising debt, and declining economic growth. Among them is a
comprehensive overhaul of the tax system, including exchange rates, interest rates, the trading
system, and domestic production and distribution. Since 2008, the government has undergone
various tax policies and administrative reforms to enhance revenue performance, rationalize the
legal system, expand tax bases and improve fairness and consistency in administration and tax
laws.

2
1.2 Statement of the Problem

The revenue from taxes is a crucial source of funding for public services such as judicial
systems, schools, infrastructure, and education. Strong, long-term inclusive economic growth
demands an effective revenue-generating system (Carnahan, 2015). Various empirical studies
have looked at the crucial role that revenue from taxes plays in funding development,
particularly in developing nations. However, these nations face significant difficulties in
establishing effective tax structures and collecting tax revenues. Building an effective tax
administration requires personnel that are well-educated and trained. In developing countries,
inadequate tax collection is attributed to both instable political environment and institutional
quality (Lien, 2015). According to Rocha Menocal & Sharma (2009), one of the most significant
elements affecting the prospects of poor countries is the quality of governance. Any economy
with improved governance will have stable governments, order and security, and little internal
and external conflict. Higher levels of governance may be a sign of successful economic activity
and tax revenue collection (Hassan et al., 2021).
The level of efficiency in revenue collection is impacted by a number of factors, including the
following: low levels of information penetration and communication barriers, high levels of
illiteracy, and lack of sufficient workforce to improve compliance of the entire taxable
population. These obstacles to revenue collection lead to: taxpayer debt, high costs of collection,
including taxpayer education, occasionally high risks for tax collectors, and deficits in meeting
treasury target amounts, which over time prevents money from being available to pay off the
nation's debts or finance the national budget (Waweru, 2005). Technology may increase tax
collection in three ways: by identifying the tax base, keeping track of compliance, and making
compliance easier. However, without a foundational infrastructure and a reliable internet
connection, even the most user-friendly technology cannot function. Any authority will find it
difficult to obtain an accurate picture of how enterprises and individuals are complying with tax
laws. Technology can enhance the ability to identify the tax base through extensive databases of
taxable individuals and legal companies, as well as their activities and assets, by utilizing third-
party information and digitizing the registration of taxpayers. Through automated cross-checks
of self-reported tax liabilities against other data sources, modern analytic techniques can assist
tax authorities in monitoring and enforcing compliance. By enhancing interaction with taxpayers,

3
technology like EFD (Electronic Fiscal devices), e-filing, and e-payment can enhance the
taxpayer experience and lower compliance costs (World Bank).
Huselid (1995) made the case that high performance work practices, such as accurate and
thorough employee selection and recruitment procedures, practical and incentive compensation,
performance monitoring and management systems, and extensive employee involvement in
decision-making and training, can enhance the knowledge, skills, and abilities of a firm's current
and potential workforce, increase their motivation, and decrease employee turnover while at the
same time improving the firm's knowledge, skills, and abilities. The Taxpayer program was also
created to enhance information penetration, ensure strict adherence to the Taxpayer Charter's
provisions, and modernize customer service desks and call center programs. It also aimed to
deliver targeted education outreach and alternative services. A key factor in improving revenue
collection would be having a motivated and productive workforce (Waweru, 2005).
According to empirical evidence, there hasn't been much research on the factors that affect tax
revenue collection in Ethiopia. Previous studies have concentrated on structural factors, like
those by Gobachew et al. (2017) and Ayenew (2016). Additionally, (Daniel, 2021) tried to
include some institutional quality factors, like control of corruption and government
effectiveness, but found an insignificant correlation with tax revenue. Thus, by merging several
factors (government policies, political stability, ICT, and qualified workforce), the researcher was
inspired to carry out this study. Therefore, the purpose of this study is to provide an Assessment
of factors affecting tax revenue collection.

1.3 Research Questions

The purpose of this investigation was to address the study's subsequent questions:
1. What is the effect of political instability on tax collection of MoR?
2. What is the effect of government tax policies on tax collection of MoR?
3. What is the effect of ICT advancement on tax collection of MoR?
4. What is the effect of qualified workforces of MoR on tax collection?

4
1.4 Objective of the Study
The goal of this investigation is to assess the factors that affect tax collection at the Ethiopian
Ministry of Revenues.
1.4.1 Specific Objective of the Study
The investigation has the subsequent specific aims
1. To examine to what extent the prevailing political conditions affect tax collection?
2. To detect how government policies (rules and regulations) implemented affect the tax
collection?
3. To detect the effects of ICT advancement and qualified workforce have on tax
collection?
4. To examine how the availability of qualified workforces affect the revenue
collection?

1.5 Significance of the Study

The study is essential for a number of stakeholders. The study may serve the government by
giving information on the factors influencing the on tax revenue collection, in addition to
being a learning experience to complete the requirement of the post-graduate study program
in International business. The study will also help the government of Ethiopia in the creation
of suitable legislation and regulations that would close the gaps that obstruct effective and
efficient tax collection. Additionally, it helps taxpayers to promote information penetration
among tax payers and increase literacy in areas relating to taxes and tax obligations.
Additionally, it would lessen the impact of any penalties imposed on them, resulting in the
development of a culture of tax compliance.

1.6 Scope of the Study

The focus of the investigation is on the Ethiopian Ministry of Revenues Federal large taxpayers'
branch office (LTO). This was due to the fact that large taxpayers account for roughly 70% of all
the money the Ministry of Revenues collects. Due to their huge revenue turnover and the fact
that they recruit a lot of people, they are also acknowledged to be powerful members of society.

5
1.7 Limitations of the Study
The elements described and reported in this article are not the only independent variables that
have influenced tax income. Other areas were not covered by this study due to budget and
time constraints, as well as a lack of data for a given setting. It would be ideal if it were
feasible to undertake a research on the impact of several factors on tax revenues from all
various taxpayers. However, due to a lack of data, the study was confined to large taxpayers.
Furthermore, because the study is a case study, the findings were not the outcome of a
generalized conclusion. To be sure, the study encountered difficulties in gathering sufficient
background knowledge regarding the topic matter that may be so useful for the job.

6
1.8 Operational Definition of Terms
Taxes
A compulsory payment required by a government (OECD). Taxes are mandatory contributions
levied on individuals or corporations by a government entity—whether local, regional, or
national. Tax revenues finance government activities, including public works and services such
as roads and schools, or programs such as Social Security and Medicare (Investopedia).
Tax Revenue
Tax revenue is defined as the revenues collected from taxes on income and profits, social
security contributions, taxes levied on goods and services, payroll taxes, taxes on the ownership
and transfer of property, and other taxes. Total tax revenue as a percentage of GDP indicates the
share of a country's output that is collected by the government through taxes. It can be regarded
as one measure of the degree to which the government controls the economy's resources
(OECD).
Political Instability
The standard definition of political instability is the propensity of a government collapse either
because of conflicts or rampant competition between various political parties. Also, the
occurrence of a government change increases the likelihood of subsequent changes. Political
instability tends to be persistent (World Bank 2014). It is a crisis situation within the country
that can be caused by a variety of reasons: government incompetence, economic problems, high
crime rates, and so on. Political instability can also be caused by conflict or, conversely, to
become the basis of the conflict itself (Burak (2021).
Tax Policies
Tax policy refers to the guidelines and principles established by a government for the imposition
and collection of taxes. It encompasses both microeconomic and macroeconomic aspects, with
the former focusing on issues of fairness and efficiency in tax collection, and the latter focusing
on the overall quantity of taxes to be collected and its impact on economic activity.

1.9 Organization of the Paper

The paper is organized in such a manner that the first chapter expressed the foundation of the
investigation, declaration of the problem, purposes of the investigation, investigation questions,

7
implication of the study, scope of the investigation, and definition of terms. The second chapter
presents the assessment of related works and the third section is about the investigation method.
Discussion and analysis of the statistics gathered are offered in chapter four and finally the latter
chapter (chapter five) delivers the conclusion and recommendations.

CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1 Introduction
This chapter reviewed the research on the elements that affect tax revenue collection. The
scholarly precondition for any research that is being conducted must include a literature review

8
(Kabiru & Njenga, 2009). Three elements that underwrote the effectiveness of tax collection in
Ethiopia were to be narrowed down in the literature review for this study. These three factors
include the country’s prevailing political climate, tax laws and regulation, and MoR support
systems like ICT and qualified workforce. In this part assessment of all the research collected
works that were relevant for the study's goals as well as for the actual research topic included. It
went into great depth about how each of these elements affected Ethiopia's ability to collect
revenue, either favorably or unfavorably. The review has been prearranged based on the
considerations stated and a summarized section decided.

2.2 Prevailing political Conditions Impact on the tax collecting process

Estrada et al. (2012) examined the link between GDP, government performance, and
corruption as well as the relationship between tax rates and political stability using a number
of economic control variables. The results show that tax revenue and political stability are
positively correlated. When the government is stable, tax revenue is collected more
effectively; yet, when the government is unstable, tax revenue collection is constrained.
There is no question that any modification to the political system will have a considerable
impact on the socioeconomic system.
Elbahnasawy (2020) provides empirical data on the connections between the political climate
and governmental tax initiatives and revenues in hydrocarbon-dependent nations. The results
demonstrate a relationship between growing tax effort and non-hydrocarbon revenue,
democratic power systems, and political stability. When democracy is well-established, it has
the greatest long-term beneficial effect. Furthermore, the non-hydrocarbon tax offset
resulting from hydrocarbon revenue is less than previously stated in the literature when
political structural considerations are taken into account. Political unrest has an impact on the
relationship between hydrocarbon and non-hydrocarbon revenue streams.
Some studies find a substantial relationship between political issues and taxation levels. For
instance, Melo (2011) lists a number of factors that affect taxation, including political
regimes, tax handles, tax morale, and levels of economic growth and GDP per capita.
Instability in politics can be classified normally the following dual extents, these are:
I. Unrest caused by social discontent in politics, such as Politics-related murders,
uprisings, and revolutions, as well as widespread ferocity. Those types of in
secureness are linked to disputes among ideas or brought on by racial or religious
divisions.

9
 II. The alternative dimension comprises unavoidable circumstances, such that, the
downfall a regime, voting-related issues, and failures (Mutascu, Estrada, and
Tiwari, 2011).
Both of these factors create uncertainty regarding the future direction of tax rates, the
provision/availability of products and services, exchange rate policies, inflation policies,
financial aid, and other defining economic laws and policies. The political environment reflects a
country's level of stability or instability in its political situation, and any change in a region's
political environment has significant ramifications for its socioeconomic systems (Mutascu,
Estrada, and Tiwari, 2011). Hendry (2001) noticed that unanticipated modifications of the
economic policy and dangerous political distress caused tremors/disruptions in the economy and
unreachability of public properties and thus, inadequacy in providing of government facilities
and effort in collecting taxes.
Cukierman et al. (1992) stated that Countries with more volatile and polarized political systems have
inefficient tax structures. Furthermore, political instability is positively related to seigniorage.
Aizenmana and Jinjarak (2008) in their study, they focused on the efficiency of tax collection and
discovered that increased polarization and political instability affect the efficiency of tax collection.
More specifically, low political stability determines low tax collecting efficiency. Azzimonti (2010)
investigated the impact of political volatility. The author emphasized that an increase in the degree of
political instability reduces the level of resources (i.e., taxes) available to the next period's
policymaker, hence limiting the spending of local public goods. Jonathan and et, al (2020) stated
that elections also can be a source of economic uncertainty since they can create major shocks to
policy and the investment climate. This is especially true for elections held in a politically
polarized environment. Uncertainties relating to elections may or may not be resolved promptly
after the election. Legal challenges, recounts, lingering doubts about party control of legislatures
and parliaments, and issues about crucial appointments in a new administration can all prolong
uncertainty for weeks or months.

2.3 Political instability and Tax non-compliance

Political instability in the country is caused by frequent changes in the government. As a result,
governments' political, social, and economic policies endure rapid change. Political instability in
the country is caused by frequent changes in the government. As a result, governments' political,
social, and economic policies endure rapid change. There is evidence that changes in economic
policy have an influence on company decision makers. According to Grossman (1994), each

10
taxpayer is obliged to make economic decisions based on the knowledge of which government
will be formed or changes in existing government policy. To compensate for the uncertainty, a
taxpayer must decide whether to keep certain cash out of the reach of the tax authorities.
A taxpayer need certain facts in order to decide whether or not to conceal cash from taxes and
how much to conceal. Furthermore, political stability may help to increase taxpayers' faith in
government strengthens the relationship with the government. A taxpayer must understand,
among other things, the likelihood that each government will exist and what each government
will do if it does exist. Knowing these facts, each taxpayer takes economic decisions, which
collectively result in both tax income for the subsequent government and the extent of tax
noncompliance behavior. In this setting, the role of uncertainty becomes especially crucial for
taxpayers in transition economies. The ambiguity surrounding the government's numerous
probable future policy options influenced not just taxpayers' economic decisions, but also
produced political pressures in support of various regimes. During this period, and as a result of
taxpayers' economic decisions, the economies in transition saw typically increased, albeit
diverse, levels of tax evasion and capital flight. Because of policy uncertainty during this period,
taxpayers were forced to make decisions without knowing whether the next government would
be more or less benevolent, more or less democratic, more or less corrupt, or more or less able
and willing to pursue economic growth and infrastructure development (Katz and Owen, 2009).
Furthermore, Kirchler et al. (2008) highlighted in the Slippery Slope Framework that a
synergistic atmosphere is believed to be an ideal condition in which the tax authority and
taxpayer have a good connection and the taxpayer is eager to pay tax because he has faith in the
government.

Taxpayers who have a high degree of trust are more likely to comply with the law. Political
instability, on the other hand, might reduce faith in tax authorities since it suggests a quick shift
in policy topics, including tax regulations. D'Attoma (2018) stated that people' relationships with
their states impact these behavioral variations in tax compliance, and that if this relationship is
strong, tax payers are more inclined to avoid tax noncompliance. Furthermore, political
instability is likely to impair the ability of governmental institutions to function properly, causing
tax payers to avoid paying taxes. There is a mountain of research proving that the quality of
institutions matters, and taxpayers will be more eager to pay their taxes if they believe their
institutions are efficient and effective (Filippin et al., 2013).

11
 2.4 The Relationship between Steadiness in Politics and Exchange-Rate
System
Many researches demonstrate that the static conversation rate government permits
administrations to conduct a monetary strategy that evades the tricky of time discrepancy,
upsurges trustworthiness, and upholds a low or reasonable rate of rise (Giavazzi and Pagano,
1988). In this circumstance, the fixed conversation rate government can be considered as a
gorgeous result for nations with frail institutional dimensions or categorized by low political
steadiness and looking for to preserve little inflation rates. In other words, the reception of a
static administration in the occasion of political randomness reductions investor uncertainty
advances the investment environment of the state concerned and is a subject inspirational
economic growth.

Drazen (2002) and Frieden (2002) invited that the safe conversation system licenses
managements in states with frail institutional backgrounds to be less susceptible to burden
from interested clusters. This permits decision-makers to be more mobile with regard to attaining
developing objectives and development of the economy instead of allotting civic incomes in
non-profitable commerce in the form of rent. Thus, in terms of credibility, a secure conversation
rate administration is an easy commitment to audit and the government would not be able to deal
with the problem of limited public trust. The drawback for this type of administration is, it
restricts the adaptability of financial policy and, therefore, in this situation, adaptability and
trustworthiness are being bargained off. This contrast would be confronted by the state of affairs
that might be tough for the governing body categorized by recognized breakability to assist a
permanent system. Consequently, better authority, by dropping bribery and endorsing steadiness
in politics and authorization of those in politics, could reinforce the dimensions of community
establishments to preserve static exchange-rates. As an outcome, authority (political constancy)
decreases the likelihood of hypothetical outbreaks on the local currency, which can lead to
continued and enhanced economic development.

Rising prices and economic strategies must affect the excellence and constancy of the
conversation rate regime (Tornell and Velasco, 2000). Both recommended that the secure
conversation rate regime could protect nations against taxation shockwaves that necessitate
augmented expenses. On the opposing, they propose that the elastic conversation level system
levies better fiscal persuasion, quarreling that secure conversation rate regimes suspend the cost

12
of shortfalls and prime to fiscal and political rashness. Thus, we trust that political steadiness can
decrease the opposing properties related with a fixed government leading to further fast
economic development. So, political constancy can arouse economic development in the
circumstance of a secure exchange rate rule by imposing more limitations on public expenditure
and dropping budget shortfalls. On the other way, in the case of a pliable regime, the delinquent
of political uncertainty can be resolved (replaced) by greater connected budgetary correction.

Rodriguez (2017) investigated 20 Latin American nations in the period dated 1985-2010 by
a well-ordered probity model. He settles that the secure government is further extensively
approved by slight liberal economy whereby trading and economical movements are soundly
managed in steady and well-built organizational and controlling surroundings. In the situation of
a secure conversation rate administration, the upright excellence of the political organizations
and the trustworthiness of the subsequent monetary authority inspire economic action by
encouraging the reserves and self-assurance of the agents, which has a beneficial encouragement
on the volume investment. It additionally demonstrated self-governing organizations help to
safeguard enduring steadiness in politics, hopeful the acceptance of a movable exchange-rate
administration for motives of longstanding economic development.

2.5 Political Instability and Efficiency of Taxation

Regarding context of the politics and the capacity of competence of collecting taxes, there are
numerous schools of thought: According to Barro (1991), existences of socio-politic
turbulence, like, incidence of unrests and takeovers in count to the quantity of assassinations
mainly distract the economic development of a nation and consequently, it creels collecting
taxes and so that, growth of government facilities and providing of unrestricted services is
halting. Alesina et al., (1996) showed, for nations by higher tendency of régime failures, how
quickly they are developing economically and competence of régime rules is implicitly lower
compare to with better constant administrations. They initiate, regular incidence of
administration failures caused in additional letdowns inside the economic environment; a
wrinkle consequence. Cukierman, Edwards and Tabellini, in investigation they made in 1992
summarized, nations which contained a supplementary differentiated socio- politics scheme
were higher probable to have an unproductive taxation organization and advanced leverage of

13
seignorage, which is, gains acquired through the administration by printing of notes at a
greater fee that of the fee of acquisition. Alesina et al (1996) noticed that, a greater tendency
in regime downfall, could direct to a different regime which probably to levy taxation on
goods and other services, meaning, replace local financial inflows with spending and
investment fleeing, thus foremost to reduced degree of local manufacture. Volerink and De-
Haan (1999) relied statistics 1965 to 1995 to examine the association among the socio-
politics sanity and revenue collection. The investigation displayed that an indecisive political
management caused in an increased taxation load.

According to Bohn (2002), socio-political unsteadiness consequences in lower tax collecting

capability levels in régime because of narrow view in an effort to amend disasters. It’s
outcome is sky-rocketed public credits together with increased disobedience of fiscal rules
implemented. Carmignani (2003) stated it, socio-politics unpredictability adversely relates to
socio-economic development and competence in collecting taxes, and delivery of unrestricted
services. Aizenman and Jinjarak (2005) stated Political stability was a byproduct of tax
collection expertise. . In other words, decrease in political unsteadiness and divisiveness lead
to lower levels of revenue collecting efficiency. Aizenman and Jinjarak(2005) carried out an
investigation which had results that; a single deviation upsurges in the strength of the
political regime augmented tax collecting competence by 3.1%, though a single deviation
upsurges in the effortlessness of contribution of the community in political activities
amplified tax collecting competency by 3.6 %.

Azzimonti (2010) stated an upsurge in unpredictability of the politics condensed the wealth
obtainable, in relation to income and societal benefits. Which in turn directed to limitations
and dissimilarity in the way decision-makers allocate wealth. Elgin (2010) initiated it, states
with significant shift in politics had low taxation load. This was by means of a significance of
periodic but smooth alterations in government supervision, so that strategies continually
confronted as well as reviewed. Mello (2011) again inspected the association with the
taxation levels and political steadiness in Argentina. He Summarized, unsteadiness in politics
was an influence to tax behaviors of the government. Rieth (2011) confirmed thirteen affiliate
states of the OECD for the period 1964-1983 for a premise that, progressive unpredictability
in politics brings about in rising of taxation levels on earnings. The conclusions stated, socio-
politic unpredictability actually upsurge the level of revenue from taxation.

14
Devereux and Wen, (1998) conducted a study focused on the relationship across
sociopolitical unpredictability; development of the economy and how big is the government.
Some of their conclusions suggested that greater levels of capital taxation were related to
greater amounts of turmoil in politics. Carmignani (2003) assessed issues those exaggerated
unpredictability in politics. It involved: development in the economy, creation of spending
plans, and hyperinflation, financial administration and levying taxes issues. The discoveries
shows, an upsurge taxes on capitalized items led to less capital investment, plus
unpredictability in politics and ambiguity are consequence of designation of quick-term
strategies. Palan (2002) initiate that successful taxation systems have a better socio-economic
constancy; which suggests, advantageous taxation regulations improve steadiness of the
regime. Ghura and Mercereau (2004) inspected the connotation among commerce with tax
system, and socio-political situation. The discoveries tell us disorder in the stage of trade and
small amount of taxes convey about socio-political volatility. This suggests that, socio-
politics unpredictability is activated by, including several factors, lower levels of income
from taxes.

2.6 Government Policies' Impact on Tax Collection

The increased sophistication of business dealings and the globalization of markets have given
rise to more complex and refined mechanisms of tax evasion. Furthermore, tax authorities
have passed more complex anti-abuse regulations. However, tax complexity, which was
intended to serve as a deterrent to tax fraud, evasion, and other methods of reducing or
completely avoiding one's commitment to pay taxes, frequently serves as a springboard for
the realization of the same schemes of tax noncompliance, by exploiting the ambiguities and
loopholes that tax complexity provides. The implementation of the self-assessment system in
several nations has also increased the sense of tax complexity (Loo,McKerchar,&
Hansford,2009). This method delegated tax compliance obligations to taxpayers rather than
tax administrations. In general, this development develops without the taxpayers' prior
preparation, indicating an increasing impression of tax complexity and its repercussions in
terms of tax compliance (Evans & Tran-Nam, 2010; McKerchar, Meyer, & Karlinsky, 2008).
According to the worldwide literature, despite the fact that tax complexity has been studied in
various researches, a consensus definition is still required. According to Tran Nam (2004),

15
there is no specific theoretical basis for tax complexity. There is also no agreement on the
best approach to measure it and its perception.
Tax complexity, which was intended to serve as a deterrent to tax fraud, evasion, and other
methods of reducing or completely avoiding one's obligation to pay taxes, frequently serves
as a springboard for the realization of these same schemes of tax noncompliance, by
exploiting the ambiguities and loopholes that tax complexity provides. This is a vicious spiral
in which tax noncompliance and tax complexity usually seem as cause and effect. The tax
issues most studied in international tax literature have been the complexity of tax systems
and their perception of it, the use of tax knowledge, the burden and effect of penalties on
their activity, and the consequences of tax complexity for their tax compliance tasks (Ayres et
al., 1989).
The table below shows the main areas of tax complexity perceived by those tax professionals
in the US, UK and Australia.

Source: Borrego, A. C., & Cruz, M. M. (2016)

According to Borrego, A. C., & Cruz, M. M. (2016) the Portuguese tax system is perceived
as difficult by tax experts (89.1%). The main determinants of tax complexity identified by
Portuguese tax professionals are: (i) ''volatility'' of tax laws (88%); (ii) tax laws dispersion
(86%); (iii) preparation of accounting information for fiscal purposes (83%); (iv) many
exceptions to the rules and transitional arrangements (82%); and (v) ambiguous language
(80%). Using the principal component analysis (PCA) approach the study split tax
complexity into distinct dimensions by grouping the 14 drivers of tax complexity. The three
aspects (indices) are (i) the ''Legislative tax complexity index''; (ii) the ''Compliance tax

16
complexity index in the context of tax professionals''; and (iii) the ''Compliance tax
complexity index in the context of tax administration''.

Figure areas of tax laws complexity in portugal

Source: Borrego, A. C., & Cruz, M. M. (2016)

In terms of the impact of tax complexity, particularly in its legislative dimension, on tax
professionals' unintentional tax noncompliance and tax aggressiveness, tax system
complexity appears to be a critical issue, increasing tax professionals' propensity to
involuntary tax noncompliance and aggressive tax behaviors. This merits policymakers', the
tax authority's, the regulating authority of tax professionals', and academia's attention in order
to coordinate efforts to reduce the negative consequences on tax professionals' compliance
activities, behaviors, choices, and recommendations (Borrego, A. C., & Cruz, M. M. (2016).

The period of colonialism, people in Britain applied an implicit mechanism of regulation, by

which, they artfully implement tax rules to achievement with overpower the native citizens
and guarantee that they were needy and couldn’t produce beyond themselves poorness
(Afolabi, 2010). Oliver Wendell, a US citizen specified that tax was the cost that the public
had to reward in order to have a respectable social order. Cobham (2005) argues, in the
context of democracy, taxation strategies are the institutional instruments used by the
government and its agencies to levy, regulate, and collect revenues. As Cobham witnessed,
for strategies and programs to be expressed, the decision-makers needed to establish the

17
determination of tax policies, which is, in order to precisely specify whatever, the strategy is
intended to do to realize and then prepare the ways of operation of the told strategy. Cobham
outline objectives of the strategies going to be:

2.6.1 Revenue
This conferring to Cobham (2005) is the principal and utmost straight aim of taxation. The
necessity for income is to accommodate to:
• Crucial requirements, such as resolving catastrophes and addressing sudden issues
including conflicts, starvation, drought, flooding along with being poor and
alternative health facilities;
• Instant wants: these comprise instantaneous requirements which not yet disasters,
however, are requirements might lead to an emergency unless adequately and
resourcefully lectured, for example, poverty eradication, provision of education and
preventative medicine and healthcare;
• Long-standing essentials: they comprise the necessity to enhance public infrastructure
and services, and establish favorable economic settings
2.6.2 Redistribution
Cobham (2005) labelled it as necessity for attain benefit of growth in humanity for
community by freeing fellows over a position of destitution caused by unequal resource
allocation. The government strives to achieve resource allocation by levying greater tax
charges on individuals who can afford it, along with on corporations and business, and using
the income generated to develop societal and civic facilities.
2.6.3 Representation
It’s essential to residents to sensation pretending they possess a position in authority and
construction of the self-governing state (Cobham, 2005). It is significant for tax-payers to
recognize that the construction, upgrading and renewal of health facilities, educational
institutions, transportation infrastructure and other community services are made likely
primarily through the income composed from tax-payers. To mean, the entire tax-payers back
the progress and provisions of the state as well as their society.

18
 2.6.4 Re-pricing Economic Alternatives

Cobham (2005) distinguished that re-pricing of cost-effective replacements occurred when

the public administration employed strategies for the encouragement of its national’s
conduct, such as, by generating encouragements of saving or by cumulative the cost of
discarding so as to defend the atmosphere and curb the badness. Once the objective of the
strategy recognized, the decision-makers are able to move and sort suitable strategies to
achieve the planned objective. This leads to reliable strategies that improve gathering for the
proposed goal.

Afterwards 1992/93, the Ethiopian regime completed key economic strategies change from
Dominant Organization to market centered with financial scheme. With regard to this alteration,
a consecutive of price and taxation improvement actions were occupied. Their explanations for
these were: old-fashioned tariffs and taxation rules; frail levies and taxation management;
disappointment of the tariff and tax administration to appeal financial inflow, to simplify
commerce as well as to create tolerable income to shelter existing and money spending, and
hence funding growth and dropping destitution programs.

A number of charges and taxation improvement projects aided to upsurge the central
authority and regional state income. According to the publications of the Ethiopian Ministry of
Revenues, the Federal tax Income has enlarged to Birr 6.7 billion in 2002/2003 from Birr 2.54
billion in 1993/94 as the consequence of which federal tax as share of the GDP amplified from
8.97% in 1993/94 to 11.87% in 2002/03 (RPIM, 2004).

The upsurge in tax income largely features to the modest rise in mutually direct and indirect
taxations, mostly the foreign trade taxes. As well, nationwide tax revenue as fraction of GDP has
enlarged to 15.1% in 2002/03 from10.9 in 1993/94. Contempt, the succession of improvements
and upsurge in income, the general budget discrepancy with and deprived of funding was
growing. To mention some, the general budget shortfall deprived of contributions as share of
GDP has enlarged from -5.2% in 1996/97 to -14.5%in 2002/03(NBE, 2003). It indicated the tax
collecting works in Ethiopia has been low in contrary to the rest of Sub-Saharan African nations
which is over 23% of the GDP.

Therefore, combined by a sequence of deterioration in the overview tariff, excise due and income
duty and delivery of the budgetary shortage, announcing a neutral and actual tax, i.e., the VAT

19
with extensive levy base was well-thought-out. Value Added Tax (VAT) earnings developed a
major levy tool in global. The international inclination to announce VAT in more nations is
persistent. VAT has also become vital constituent of tax improvements in emerging nations
(Goode, Richard 1993). Ethiopia's tax improvement program has announced VAT meanwhile
January, 2003.

VAT income potential and the issue impartiality and effectiveness are as well the motives for
preeminence of this levy in dissimilarity to other shared tax tools for instance the sales tax (turn
over tax). The developing conservative wisdom, grounded principally on practice and several
nation case studies, suggests that a single rate VAT (with the rate between 10 and 20%),with very
few liberties and, hence, a complete base is higher to a VAT with numerous rates and many
releases which reduction its base and complicate managements. Ethiopia’s ordinary VAT rate of
15% and turn over tax 10% for services and 2% for goods have to be investigated in the medium
term whether or not they could extend the tax base and register high income efficiency (Zeliko
Bogetic and Fareed Hassan ,1995).

2.7 Structural Support Systems Role on Tax Collection

Structural supporting systems are as an arrangement of independent components combined
interdependently to simplify the seamless productivity of a whole system (Fjeldstad and
Rakner, 2003). The income gathering agent in Tanzania, TRA had subsequently 2004 been
performing the Revenue Administration Reforms and Modernization Program (RARMP). This
program was proclaimed for the reason for handling the jobs that held in reserve fulfilment of
whole combination, and a contemporary and unified taxation management. Support
arrangements comprise the people, that is, the human resources elaborate, besides stakeholders
who consist of the administration, investors, the board of executives, creditors between others
who have conferred interests in the organization; the procedures; the technology used in addition
the equipment that facilitate proper function of the whole business.

2.7.1 ICT Infrastructure

Increasing tax revenue is an important policy goal in many low- and middle-income
countries (LMICs). On average, low-income countries collect 11 percent of GDP as taxes
compared to 22 percent in high-income countries (UNU-WIDER Government Revenue
Dataset, 2021). Beyond funding public investments such as infrastructure, health and
education, taxation is also important for providing redistribution, and reducing reliance on

20
foreign aid and natural resource revenues. However, with high levels of informality and
limited state capacity in LMICs (Besley and Persson, 2009), many tax authorities have
difficulty determining the true tax base and collecting taxes efficiently and equitably.
Over the last several decades, tax systems throughout the world have progressively used
innovative technology to streamline administrative operations, lower taxpayer compliance
costs, and increase overall revenue collection effectiveness. These advances are taking place
in the context of digital transformation in all aspects of life: from government to business to
interpersonal relationships and much more, a growing number of contacts are taking place
virtually due to the fast development and spread of digital infrastructure. For example, by
2020, 51% of the world population would be linked to the internet. Only 20 years ago, this
proportion was at 7% (World Bank). Tax authorities can use proper technological systems to
gather information on taxpayer obligations that taxpayers may otherwise conceal or distort.
Technology can facilitate the efficient submission of huge volumes of data from a reporting
institution (such as an employer or financial business) for third-party information.
Technology may also enable the connection of databases that offer information on a
taxpayer's many sources of taxable income or assets.
Governments and organizations throughout the world are increasingly recognizing the need to
improve access to community services through information sharing via ICT. In the twenty-first
century, the role of ICT in social and economic life has grown. It is now a reality, as evidenced
by developments in many nations, that ICT contributes significantly to a country's GDP and that
ICT has improved the market competitiveness of a country's products, production, and services
(Uvaneswaran & Mellese, 2016). ICT drive can be viewed in a variety of ways, which includes
reduced workforce needs, reduced tax compliance costs, reduced collection and administrative
costs; saved time for taxpayers due to transparency in assessment, fast processing, collection, and
related processes; reduced communication costs; and prompt contact with information, which
ultimately leads to improved revenue collections and efficiency, including revenue loss blockage.
The growing globalization of ICT has led businesses, people, business groups, and government
parastatals to shift from manual to automated communication methods. Tax administrators have
taken use of the opportunities presented by the advent of ICT to improve tax administration.
Worldwide, tax authorities are using e-tax administration systems to interact with taxpayers in
compliance settings, administration, and tax collection in order to improve efficiency and
effectiveness in tax administration (Dowe, 2008). For many years, tax administration has failed

21
due to a lack of certainty, poor motivation and enthusiasm of tax personnel, equity, convenience
in Nigeria, and other factors such as ineffective monitoring, improper planning, fraudulent
practices, weak control, ill equipped and unqualified manpower, and public dissuasion due to
government misappropriation of tax revenue (Ogbonna & Appah, 2012). ICT improves revenue
collection and administration performance by lowering processing times and human error,
making data more accessible to tax staff, increasing voluntary compliance, which invariably
reduces tax evasion and avoidance, and facilitating strong decision making.

ICT allows business to significantly increase its efficiency and efficacy while lowering
production costs and improving process transparency, efficacy, and productivity. Although, this
could be hampered by users' resistance to adapt to change and use existing systems, as well as by
their lack of adequate training and the lack of financing for instructional materials on both fresh
and existing technologies. (Davis,1989). As globe becomes more "technologized" and smaller, it
is crucial to accept change and cope alongside the technology development for the sake of
increasing effectiveness of collecting taxes. (Miyahira, 2008). Additionally, he emphasized, as a
result of new business-enhancing capabilities made possible by modern technologies, enterprises
now pay higher taxes. Therefore, in order to take advantage of the new opportunities produced in
order to boost revenue collecting, the revenue gathering agency must continue with the technical
developments.

2.8 Electronic Taxation Facilitates Tax Compliance

A major application of technology in taxes is making it easier for taxpayers to get
information and perform their tax responsibilities. Many tax authorities are increasingly
emphasizing customer service to taxpayers (OECD, 2021). One initial step done by tax
authorities is to publish full instructions, forms, and information on the compliance stages
and requirements for each sort of tax on their website. A next step would be to enable
taxpayers to execute transactions online, such as filing and paying taxes. Individual taxpayer
accounts including the taxpayer's transaction history with the tax authority may then be
maintained by tax authorities. The tax authorities may also communicate with taxpayers via
technological means such as SMS and email reminders, payment confirmation, and
notifications. One significant effect of these technologically driven tools is that they enable
taxpayers to deal with the tax system in an impersonal manner. In their absence, taxpayers
would most likely be at the mercy of tax authorities in charge of supplying information,

22
performing transactions, and monitoring them in person. And there are three specific
technologies: e-filing and e-payment, electronic billing machines, and online communication.
Electronic filing and payment refers to digital services that allow taxpayers to (i) file their
taxes electronically - along with a variety of other tax-related activities (attach annexures,
claim refunds, make appeals, update their personal details, get assistance online, check their
filing history, etc.), usually through a web portal to which they have access or through similar
phone applications, and (ii) pay tax liabilities online, through digital platforms (mobile
money, credit card or similar electronic transfers) which efficiently connect the revenue
authority, private banks or digital financial service providers, and the central bank. The basic
promise of e-filing and e-payment is that they allow taxpayers to execute such tasks in a less
cumbersome and more transparent manner, saving money on travel and queue, avoiding
error-prone manual entering, and avoiding direct confrontations with tax officers who may
want bribes.
Electronic Tax System in Ethiopia

The electronic tax system is one in which the appropriate authorities collect taxes from taxpayers
electronically via the internet. It is an online policy that allows taxpayers to access service
porters over the internet and view all of the tax administration's services, such as registration for
creating a personal identification number, filing returns, and applying for a compliance
certificate. One of the the devices that are used to enhance tax collection and administration is
Electronic fiscal devices (EFDs). They are gadgets that automatically record transactions as they
occur and transmit this data to the tax administration through a mobile network or the internet.
These devices can also print receipts in some circumstances. This enormous flood of data has the
potential to help the tax administration learn more about the taxpayer population. Ali et al.
(2021) use the phased introduction of EFDs throughout VAT-registered enterprises in Ethiopia
over a 12-year period to assess the impact of such technology on both VAT tax payments and tax
base proxies. They demonstrate that EFDs considerably enhance reported sales and tax payments
while also having a beneficial influence on real production - as measured by employment rates.
Importantly, the tax base does not appear to be harmed, since the report finds no significant
association between EFD adoption and firm net entry rate.

Mascagni, Mengistu, and Woldeyes (2021) present more evidence from Ethiopia's adoption of
EFDs. The paper considers the fact that EFDs may have compliance effects across other tax

23
types other than VAT using a difference-in-differences approach, following the recent shift
toward studying compliance spillovers across taxes for a complete evaluation of any policy
intervention (L'opez-Luzuriaga and Scartascini, 2019). The report, like Ali et al. (2021), reveals a
large rise in both VAT and income tax payments. Furthermore, the article shows that EFDs
considerably increase company reporting accuracy, as evaluated by disparities in reported sales
between VAT and income tax returns. From 2010 to 2014, 60 percent of enterprises reported
turnover irregularities in their filings. As a result of enhanced record-keeping processes and
higher sense of identification of misreporting, such inconsistencies more than halved after the
implementation of EFDs. Ethiopia's computerized tax system is still in its infancy and is very
young.

2.8.1 Tax Collection and Manpower (Workforce) of the Tax Authorities

As tax administration gets more complicated and the demand for a variety of taxpayer services
grows, tax authorities are constantly confronted with the responsibility of maintaining a
workforce with diversified, sophisticated skill sets. Long-term success depends on properly
executing succession planning and deploying knowledge management solutions, as well as
recruiting and keeping the next generation of tax authority personnel. Achieving effective tax
compliance requires a number of things, including the tax administration's image, the
trustworthiness of its workers, their eagerness to assist, and so on. Tax administration
necessitates a significant number of people with strong academic credentials, and much effort is
expended in training them. However, the problems in managing these human resources result in
a continual movement of brilliant people to the private sector, where they may raise the value
and level of their talents. These considerations explain the meager outcomes of initiatives aimed
at attracting and developing young professionals. These programs must be based on genuine
opportunities for inspiring work, and applicants must be put in jobs that match their existing and
projected talents. Schlemenson, A. (1992)

According to Afuberoh and Emmanuel (2014), factors that impede effective tax administration in
Nigeria include inadequate staffing, inadequate salary payment for tax officials, insufficient
training of tax officials, and tax officials' inability to discharge their assigned duties and
responsibilities. Inadequate revenue generation from taxpayers by the government is due to
insufficient motivational incentives provided to tax personnel to perform their expected tasks,

24
insufficient training programs offered to tax personnel, poor tax audit, low tax compliance from
taxpayers, and an ineffective tax administration system in internal revenue service firms across
the country. Taxpayers have filed various complaints alleging that taxes paid to the government
are not utilized to develop adequate infrastructure to meet the demands of Nigerian residents.
The high level of corruption and other social vices prevalent in Nigerian civil service prevents
the government from using the funds generated by tax payments to serve the actual purpose of
collecting such taxes from Nigerian workers (Abata, 2014; Afuberoh & Emmanuel, 2014;
Guruma & Mansor, 2015; Oyedokun, 2016; Soetan, 2017; Eja, Idaka, & Ogar-Abang, 2018).

Huselid (1995) arguing the using highly efficient workplace techniques such as accurate and
proper and exhaustive personnel attraction and hiring process, practical and incentive based
benefit packages, and productivity tracking and control mechanisms, and substantial
participation by workers in managerial decisions and development can boost an organizations
present and prospective personnel’s expertise, competencies and capacities, motivate them, and
lower layoff rates whilst improving preservation of competent staff.

The Taxpayer package was also recognized so as to promote facility options to provide fixated
education outreach and replace services besides improve information dissemination and secure
strict devotion to the distribution of the Taxpayer Charter and revamp the client care bureaus and
call center programs owning a fruitful and enthusiastic staff members could contribute an
important part on improvement in collecting taxes (Waweru, 2005).

2.9 Empirical Literature Review

Generally, there are few studies have been undertaken on factors affecting tax collection in
Ethiopia to the best of the knowledge of the researcher. However, there are few researches on
the each factors that affect the tax collection of MoR, Large Tax Payers Office in Ethiopia
discussed in the section hereunder.
According to the MoR 2022 report, because of the civil war in northern Ethiopia, the MoR
two federal branches which are located at Mekelle and Kombolcha, have been out of
operations for the third consecutive years. Both branches were capable of collecting annual
taxes around 4.2 billion. This is a clear evidence of how political instability affects the tax
collection performance of the government. Additionally, the ministry lifted penalties and
interest for taxpayers who were unable to obeyed their operations timely because they were
affected by political instability of the area they are operating.

25
Picture: MoR collection report of 2019/20 fiscal year

Hassan et al., (2021) investigated the impact of governance on tax revenue in Pakistan by
employing the Autoregressive Distributed Lag (ARDL) co-integration technique from 1976
to 2019. Their findings show that government stability, law and order, and internal and
external conflicts have positive and significant long-term and short-term impacts on tax
revenue. Using the panel autoregressive distributed lag, (Rehema et al., 2019) examine the
impact of governance quality on tax revenue in East African countries from 1996 to 2016.
According to their results, improved governance has a positive long-run impact on tax
revenue but has a negative short-run impact.
Using time-series data from 1980 to 2010, Amin et al. (2014) empirically reveal numerous
factors involved in direct and indirect tax collection in Pakistan. They examined the
relationship between the tax-to-GDP ratio, corruption, political instability, trade openness,
real per capita income, and inflation using empirical data. According to their findings, tax
collection decreases as corruption, inflation, and political instability increases, while trade
openness and real per capita income increase tax revenue.

26
Johnson and Omodero (2021) investigate the impact of political (political stability),
institutional (corruption), and bad governance on tax revenue mobilization in Nigeria.
According to their findings, corruption and political insecurity have a positive and significant
impact on tax revenue mobilization. Surprisingly, the impacts of institutional quality are quite
heterogeneous, with corruption control and the rule of law having a significant negative
impact in the short run, and political stability having a significant negative impact in the
long-run (Canh et al., 2021). Furthermore, Arora and Chong (2018) found that a greater level
of institutional quality increases positive perceptions of the quality of public services while
moderating the view of taxes as a barrier to growth.
Nazarawit (2022) investigated the effect of e-tax system on tax revenue collection by
collecting secondary data from MoR, the results show that the introduction and use of an e-
tax system had a considerable and favorable influence on the collection of tax income from
large tax payers in Ethiopia. The study's findings confirm that the use of the e-tax system has
an impact on tax revenue collection.
Olaoye and Kehinde (2017) investigated the influence of information technology on tax
administration in Nigeria's south west. It thoroughly examined the impact of IT on tax
productivity as well as the interaction between IT and tax strategy and execution. To collect
data, descriptive research was done, and a questionnaire was used as a tool. To analyze the
data obtained by the questionnaire, Pearson product moment correlation (PPMC) and
multiple regressions were used. The findings revealed that IT, namely Online Tax
Registration, Online Tax Remittance, and Online Tax Filing, had an impact on tax collection.
Tahir (2022) analyzed the impacts of institutional quality (political stability, corruption,
government effectiveness, rule of law, voice and accountability, and regulatory quality) on
the collection of tax revenue in Ethiopia, using a time-series data set from 1996 through
2020. All estimates are based on the autoregressive distributed lag (ARDL) bound test
approach. This study employed an ex post facto research design to investigate the effects of
institutional quality on tax revenue collection in Ethiopia.
In their analysis, Meles and Tesfahun (2016) highlighted the main instances of poor revenue
collection and recommended that the tax authority be strengthened and given the necessary
resources to effectively and efficiently administer the tax code. According to Tiwari, P. (2017)
cited in Gondo T et al (2010), studies on fiscal management conducted in Ethiopia in the case of
Dangila Municipality revealed that Municipality revenue collection is affected by inadequate

27
assessment of taxable sources, lack of awareness of taxpayers, inadequate accounting system, and
lack of skilled manpower are identified as factors affecting revenue collection.

2.10 Conceptual Framework of the Study

Conceptual framework is a group of concepts that are broadly defined and systematically
organized to provide a focus, a rationale, and a tool for the integration and interpretation of
information, usually expressed abstractly through word models Kothari (2004). Conceptual
framework of this study also explains the relationship between independent variables and
dependent variable. Independent variables in this study are political instability, information
technology, human resources and support systems. Dependent variable of this study is Revenue
Collections performance.

Figure 2.1: - Conceptual framework of the Study

Source: - Own formulation

28
 CHAPTER THREE

3 RESEARCH METHODOLOGY
3.1 Introduction
The investigation tries to determine the degree to which shifts in the prevailing political
conditions, government tax policies, ICT infrastructure and qualified workforce of the
organization affect collecting taxes competently. The section surely depicts the method that was
selected to carry out the intended investigation. It contains the research approach (design), the
intended audience, electing sample strategy, data gathering tools and techniques, the statistical
scrutiny techniques used, research integrity of the research, and moral principles that were taken
into account.

3.2 Research Design

Bryman and Bell (2007) define research design as "a master plan that specifies the methods and
procedures framework for collecting and analyzing the required data." This means that it
explains how to collect the knowledge required addressing the research questions. There are
various sorts of research designs that can be used to explore business problems (Hair et al.,
2011). The research design for this was descriptive and involved statistical (quantitative)
analysis.

3.3 Target Population and Sampling Strategy

3.3.1 Target Population
A target population, according to Louise Barnsbee (2018), is a group of people who have been
investigated as part of the intervention and from whom findings drawn. Taxpayers from Ethiopia
made up the research's target population. These tax payers were those that Ethiopia's ministry of
revenue had classified as heavy taxpayers. These huge tax payers made a significant contribution
to the nation's GDP. Despite making up only around 2% of all taxpayers and the MoR's tax base,
they account for roughly 70% of the country of Ethiopia's annual tax revenue. The database
presently lists 794 individuals who are important taxpayers in Ethiopia.
3.3.2 Sampling Design
For the purpose of this investigation, probabilistic sampling method (randomly select the
organization name list obtained from MoR) has to be used to create the desired sample. As a

29
result, sampling imperfections and mistakes were minimized, and the sample served as an
accurate representation of the population as whole.
3.3.3 Sample Frame
It is where the candidates for the survey were chosen from the list. For the purpose of this
research, a sample of taxpayers from MoR large taxpayers branch served as the sampling frame.
3.3.4 Sampling Method
Simple random sampling selection method was utilized to create the group of participants
because everyone in a population has an equal chance of being selected into a sample. It is
considered a fair and unbiased sample selection method.. (Mugenda & Mugenda, 1999). This
ensured less sampling bias and errors.
3.3.5 Sample Size
According to the organization data, in 2023 there are around 794 large taxpayers currently doing
commercial activities; By using (Yamane, 1967) formula the sample size designated as:
𝑁
Sample Size (n) = 1+𝑁(𝑒)2 where: n = the sample size,

N = the population size

e = the degree of precision (0.05)
794
Sample Size (n) = 1+794(0.05)2 = 266

Therefore, the total numbers of samples of this study are 266.

3.4 Method of Data Collection

According to Mugenda & Mugenda (2003), data sources are categorized into two types: primary
and secondary sources. Primary data is all of the information obtained throughout the study that
is directly relevant to the study's objective, including personally gathered information and
information gathered from a third party with the same objective. Secondary data, on the other
hand, includes pertinent data that was obtained for a different reason but whose conclusion is
useful for the goal.
Data were primarily gathered from original sources. It was accomplished by utilizing an
organized questionnaire A brief outline, straightforward directions for the participants and
queries geared at answering every single one of the study’s requests were all included in the
survey. Data was gathered from principal sources. First-hand data were utilized to fulfill the

30
required research inquiries. Because they are simple to compose and manage, questionnaires
were employed. The questions included as well five-point Likert scales. The variables are
measured by ratio analysis. Data other than primary sources were collected from secondary
sources basically from MoR data warehouse for the revenues collected throughout various time
periods.

3.5 Method of Data Analysis

After data had been gathered, it had been examined and put into an easily readable, interpretable
format. It is the method of systematically using rational and/or empirical methods to explain and
demonstrate, summarize and assess, and analyze facts. To meet the objective of the study, the
researcher used descriptive analysis. Descriptive analysis was used to create general awareness
about the variables in the study. For this purpose, statistical software package called SPSS (for
descriptive part) were employed.

3.6 Validity and Reliability

Reliability is steps of internal consistency that is disturbed with item replies reliable across
concepts and designates scores are steady over time when the device is managed (Creswell,
2009). In order to ration the steadiness of the instrument, the investigator used a 0.70 Cronbach’s
coefficient alpha to quantify the constancy of the tool. And the nearer Cronbach’s alpha figure is
to 1.0, the greater the internal reliability of the items in the measure.

N.B the detailed reliability tests of each variable is presented in Appendix 2.

Table 3.1: -Reliability

Cronbach's Alpha N of Items
.969 15
Source: - Survey result, 2023

For the purpose of testing the internal reliability of variables in this research tool Cronbach’s
alpha coefficient has been determined. A questionnaire modified and erected from s studies
tested by Cronbach’s alpha coefficient through SPSS v.25 was found to be 0.969. This designates
the data is recognized or reliable for more analysis.

31
 Scale Scale Cronbach's
Mean if Variance Corrected Alpha if
Item if Item Item-Total Item
Variables Deleted Deleted Correlation Deleted

Impact of Political instability on Revenue Collection 7.76 11.92 0.81 0.91

Effects of Policies on Revenue Collection 7.67 14.32 0.91 0.96

Impact of Information Technology and Human Resources on
Revenue Collection. 7.31 12.19 0.90 0.96
Table 3.2.Reliability Statistics

3.7 Ethical Considerations

In the process of conducting the study, there are various ethical considerations that were
considered by the researcher. The first element considered was originality of the data
collected. Secondly, the researcher ensured that the findings and conclusions of different
authors were correctly cited and referenced accordingly using APA referencing system. This
helped the researcher to eliminate any plagiarism which is a major academic offence. The
researcher assured the originality of the study and ensures views of other scholars are
separated from those of the researcher’s in the study.

32
 CHAPTER FOUR

4 DATA PRESENTATIONS DISCUSSION AND ANALYSIS

4.1 Introduction
This section covers the results and analysis of the research investigation based on explanation of
the data composed. The researcher disseminated questionnaires to large taxpayers’ companies;
266 questionnaires were circulated to participants and 240 (90%) of them properly filled and
refunded. In this chapter, both descriptive and implications on the data analysis and events are
presented.

4.2 General Information

Participants had asked to offer a little universal personal facts including detailed sector belonging
to them, a spectrum of their length of service in the company, and their position within the
company. This statistic was important since it provided a description of the desired participants
collection and which could make it easier to collect data for the purpose of the research.

4.2.1 Main Industry area of Businesses

Out of the respondents, 56 of them are whole-sellers, 49 were in the construction Industry, 47 are
manufacturers whereas those who are in agriculture were 31 etc. Companies that conducted
operations in numerous sectors were also taken into account.
Item Category Frequency Percent
Food manufacturers 17 7.1%
Government 30 12.5%
Agriculture 31 12.9%
Core Business of the Wholesalers 56 23.3%
Organization Construction 49 20.4%
Oil Mining and exploration Services 4 1.7%
Banking 6 2.5%
Manufacturers 47 19.6%
Over 20 Years 62 25.8%
16-20 years 102 42.5%
How long your organization
11-15 years 54 22.5%
stay in this business
6-10 years 15 6.3%
5 and below 5 years 7 2.9%
Senior Management 13 5.4%
Management 104 43.3%
Level of Employment
Supervisory 106 44.2%
Employee 17 7.1%

Table: -4.1 General Information Source: - Own Survey result, 2023

33
 4.2.2 Operational Duration within the Company
The length of time that a person has worked for the company determines how knowledgeable
they are with the companies’ activities with regard to financial situation, and also its tax
responsibilities and tax rules, as a result, 42.5% of the organization has an age of 16-20 years of
foundation and the second largest year of formation is over 20 years of establishment it includes
25.8% years.

4.2.3 Position in the Company

The participant’s level of position in the company provides a measure of validity of the details
that were provided. For instance, some details, particularly which related to organizational
management, cannot be accessible to employees at less senior positions. Out of the entire replies
gathered, 44.2% were of supervisory level, 43.3% management level and above,7.1% were
employees and 5.4% were senior management. This suggests a high stage of honesty as most
respondents are conscious of managerial facts that may be supposed private to the organization.
The discoveries are as shown in the above table 4.1.

4.3 Political Stability Impact on Tax Collection

Participants were invited to share their opinions on the effects of political situations on the
collection of taxes. In order to respond to the study demands as outlined in part 1.4 of this
investigation. It is also explained on section 2.2 of the literature about the impact of political
unpredictability on collecting taxes.

Participants have been inquired about their opinion on the nation’s unpredictability of politics
had an impact on the process of collecting taxes. The responses were summarized on a scale that
was from ‘strongly disagree’ to ‘strongly agree’.

Graph 4.1 displays the replies underneath.

34
 Effects of Political Stability on Taxation

100%

100% 38.3% 45.4% 0.8% 12.5% 2.9%

100%

99% 92 109 2 30 7

99%
Strongly Agree Agree Neutral Disagree Strongly Disagree

Frequency Percent

Figure 4.1: - Effects of political steadiness on taxation

Source: - survey result, 2023

From figure 4.1 above, more than 83% of participants were of their view that steady political
environment have positive outcome on collecting taxes. Roughly less than 15% of the
participants view that political stability had no effect on business actions or have no impact on
collecting taxes. This show that because of political instability government may be enforced to
relief tax debt of taxpayers that affected by the instability which in normal circumstances should
be paid. This in turn affects the tax collection performance of the ministry.

The respondents were inquired about their degree of agreement on the country's prevailing
political climate has any impact on their company's regular activities. The replies are shown in
tableau 4.4 below.

Table 4.1: - Effect of political situation on business

Frequency Percent
Strongly Agree 88 36.7%
Agree 111 46.3%
Neutral 19 7.9%
Disagree 15 6.3%
Strongly Disagree 7 2.9%
Source: - Survey result,2023

35
From the above table 4.1, 36.7% of participants were strongly agree and 46.3% were agree about
of the opinion that the predominant political situation at a specific time in the country have an
impact on their business operations and their processes for that and even for successive periods.
About 9.2 % of the participants were reply as the political state did not affect business actions.
From the results we learned the prevailing political condition of the country has impact on
businesses operations which in turn has effect on the performance of collecting taxes.

There was a nationwide election held in the country in between the previous five years tax
collection periods. Participants were asked if the impending general elections particularly the
June, 2021, general elections, had any effect on the business as usual. Results ranged from
"completely disagree" to "completely agree" on a rating system.

The proximity of General Elections on Companies operations

120 107

100 88

80

60

40 26
13
20 6
36.7% 44.6% 10.8% 5.4% 2.5%
0
Strongly Agree Agree Neutral Disagree Strongly Disagree

Frequency Percent

Figure 4.1: - Effects of closeness of general elections on organization

Source: - survey result, 2023

The results are shown in the graph 4.1 above. Less than 10% of those were disagreed with the
findings that general elections had an impact on company practices. More than 80% of
participants were proven to be in agreement with this statement. Which shows, when elections
are approached, held and even after the event businesses are affected by the unrest, protests,
demonstrations and turmoil following the election which make business unable to operate
smoothly, which in turn halts their revenue. As the result, the tax collection process will be
affected.

36
4.4 The Impact of government rules and regulations on collecting taxes
The question of whether the tax regulations were complicated and difficult to grasp was put to
the participants. Results ranged from "completely disagree" to "completely agree" on a rating
system. The results are presented in the Figure 4.3 that follows.

Taxation laws difficulty

111
120

100 90

80

60
33
40

20 37.5% 2 4
46.3% 0.8% 13.8% 1.7%
0
Strongly Agree Agree Neutral Disagree Strongly Disagree

Frequency Percent

Figure 4.3: - Taxation laws difficulty

Source: - survey result, 2023

From the above figure 4.3, above 83% of participants felt that it was difficult to figure out or
comprehend the existing tax legislation. About 15% of participants have the view that the legal
framework of taxes are simple to comprehend as well as to infer while this may be lack of
delivering suitable training for their customers. Results show that, as taxpayers easily understand
the rules and regulations they will obey their tax duties accordingly so that contribute to the
collection performance of the authority.
When questioned about whether taxes rules aided to simplify managing a company, A rating
system ranging from "completely disapprove" to "completely approve" was used to rate the
replies. The results are presented in table 4.5 below.

37
Table 4.5: - Tax rules facilitate more efficient management of companies

Frequency Percent
Strongly Agree 30 12.5 %
Agree 6 2.5%
Neutral 111 46.3%
Disagree 90 37.5%
Strongly Disagree 3 1.3%
Source: - survey result, 2023

According to tableau 4.5 beforehand, 15% of respondents said the tax laws in place made
administration of the organization easier. This meant that these respondents found that the laws
gave direction to the organization, in terms of making declarations in the form of returns and
other related matters. About half of the participants were not definite about the opinion that
taxation laws resulted on efficient management of the companies.
When asked if they believed that the goal of wealth allocation had been attained by effective tax
legislation. A rating system ranging from "strongly agree" to "strongly disagree" were used to
rate the replies. The outcomes appear in the illustration 4.6 below.
Table 4.6: - Tax regulations as a tool of equitable Reallocation of resources
Frequency Percent
Strongly Agree 90 37.5%
Agree 110 45.8%
Neutral 8 3.3%
Disagree 30 12.5%
Strongly Disagree 2 0.8%
Source: - survey result, 2023
According to the data shown aforementioned, 83.3% of those surveyed said that revenues
collected in the form of tax, contribute to building or improving public facilities including
educational and health care institutions, achieving the goal of equitable allocation of income.
Around 13% of respondents were allocation of wealth not affected by the taxation laws.
Participants had been invited if they believed the taxation laws put in force by MoR as an
administration agency improve safety of the environment for example Anti-dumping legislation
and rules governing the environment. A rating system ranging from "completely agree" to
"completely agree" was used to rate the replies. The outcomes appear in the tableau 4.7 below.

38
Table 4.7: - The Legal Framework of the Taxation helps in Enhancing Environmental Protection

Frequency Percent
Strongly Agree 90 37.5%
Agree 113 47.1%
Neutral 7 2.9%
Disagree 27 11.3%
Strongly Disagree 3 1.3%
Source: - survey result, 2023
From table 4.7, 15% of participants did not believe the regulations imposed safeguard of the
surroundings, while 85 percent of respondents said that stricter rules have impact to protect the
environment.
Participants asked if they experienced a feeling of satisfaction and success in contributing to the
development of their country when they obeyed taxation duties. Results included "yes," "no," or
"not sure." The results are displayed in figure 4.4 down beneath.

Tax promotes a sense of achievement and pleasure in contributing to national

development

Strongly Disagree 3 1.3%

Disagree 25 10.4%

Neutral 3 1.3%

Agree 110 45.8%

Strongly Agree 99 41.3%

99% 99% 100% 100% 100%

Frequency Percent

Figure 4.4: - Tax promotes a sense of achievement and pleasure in contributing to national development
Source: - survey result, 2023
According to the graph 4.4 aforementioned, 86% of respondents felt proud and accomplished for
contributing to the development of their country by paying taxes, whereas fewer than 12% felt
the opposite way.

39
 4.5 Impact of ICT infrastructure and Manpower on Tax Collection
Table 4.8(a): - Effects ICT infrastructure and Manpower on collecting taxes
Frequency Percent
Strongly Agree 96 40.0%
Agree 112 46.7%
ICT has enhanced prospects for Growth and Profitability Neutral 6 2.5%
Disagree 23 9.6%
Strongly Disagree 3 1.3%
Strongly Agree 101 42.1%
Agree 108 45.0%
Technologies makes enforcing regulations simpler. Neutral 7 2.9%
Disagree 21 8.8%
Strongly Disagree 3 1.3%
Strongly Agree 99 41.3%
Agree 112 46.7%
MoR online and portal service has enhanced convenience of
Neutral 4 1.7%
compliance
Disagree 23 9.6%
Strongly Disagree 2 0.8%
Strongly Agree 3 1.3%
Agree 110 45.8%
Personnel that are educated and have been properly skilled
Neutral 102 42.5%
improve adherence to taxation legislations
Disagree 24 10.0%
Strongly Disagree 1 0.4%
Strongly Agree 6 2.5%
Agree 94 39.2%
Level of excellence in customer services accessible by MoR
Neutral 116 48.3%
staff is a determinant in collecting taxes
Disagree 23 9.6%
Strongly Disagree 1 0.4%
Source: - Survey result,2023

Table :4.8(b) Effects ICT infrastructure and Manpower on collecting taxes

Std.
N Mean Deviation
ICT has enhanced prospects for Growth and Profitability 240 1.85 .950

Technologies makes enforcing regulations simpler. 240 1.82 .940

MoR online and portal service has enhanced convenience of
240 1.82 .927
compliance
Personnel that are educated and have been properly skilled
240 1.80 .928
improve adherence to taxation legislations
Level of excellence in customer services accessible by MoR
240 1.84 .902
staff is a determinant in collecting taxes
Overall Average of Effects ICT infrastructure and
240 1.83 0.930
Manpower on collecting taxes
Scale: < 1.80 Strongly Agree, Between 1.81 and 2.60 Agree, Between 2.61 to 3.40 Neutral, Between 3.41 to
4.20 Disagree and > 4.21 Strongly Disagree
Source: - Survey result,2023

40
The respondents were asked if they thought technological advancement had provided their
company the potential to boost production and efficiency while subsequently cutting
production costs. In accordance with the information shown in the aforementioned table
4.8(a), over 86% of respondents agreed that technology innovation and development had
boosted production and efficiency in their organizations, with only 10% disagreeing. The
mean result and standard deviation are 1.85 and 0.950, respectively, as shown in table 4.8(b),
and this result suggests that the when taxpayers productivity and efficiency increased
because of the development of ICT subsequently it has a positive impact on government tax
collection performance.
When asked if they thought ICT platforms of MoR had made it easier for the businesses to
follow current taxation requirements and processes. In accordance with the information shown in
table 4.8(a) above, over 87% of participants thought ICT platforms had made it easier for their
company to follow existing taxation requirements and processes, while only about 10% did not
agree. According to table 4.8(b), the mean result and standard deviation are 1.82 and 0.940,
respectively. This result indicates that the ICT platforms provided by MoR has significant impact
on the tax collection process.

I asked respondents if they thought that the development of the MoR Tax administration support
systems (TASS) and E-Tax facilities had made it easier for taxpayers to abide by the tax laws
from the comfort of their homes or places of employment.

Results using a scoring system varied from "completely disagree" to "completely agree." The
results are shown in the aforementioned tableau 4.8(a). According to table 4.8, almost 88% of
those polled thinks that the creation of the MoR Tax administration support systems (TASS) and
E-Tax facilities has increased taxpayers' capacity to adhere to the law. 10.4% of respondents
disagree that the creation of the MoR's Tax Administration Support Systems (TASS) and E-Tax
facilities has increased taxpayers' ability to comply with the law. Table 4.8(b) shows the mean
result and standard deviation to be 1.82 and 0.927, respectively. This result demonstrates that the
online services provided by MoR have helped them in adhering to tax rules and regulations.

Participants were asked if they thought MoR staff members were knowledgeable, well-trained,
and capable of responding to any questions concerning taxes and making compliance with the
tax laws straightforward. Results using a scoring system varied from "completely disagree" to
"completely agree." The results are shown in the aforementioned table 4.8(a). The finding

41
suggests that nearly 47% of respondents think that knowledgeable, trained staff increases
adherence by explaining and addressing any questions that clients may have about the taxation
regulations. The apathy rate is about 42.5%, and the remaining 10% don't think the workforce's
skill or education levels influence how strictly they follow tax laws. The mean score and
standard deviation are 1.80 and 0.928, respectively, according to Table 4.8(b). This outcome
shows that MoR’s skilled and well equipped staff have a positive impact on the collection of
taxes.

Participants had been asked if they thought that the MoR staff's level of good service had a
substantial impact on tax collection. Results using a scoring system varied from "completely
disagree" to "completely agree." The results are shown in the aforementioned tableau 4.8(a). The
majority of respondents (41.7%) believed that the level of quality service rendered by the MoR
staff's had a substantial impact on tax collection. About 48.3% of respondents are neutral, while
the remaining 10% do not share the belief that the MoR staff's great service has an impact on tax
collection. The mean score and standard deviation are 1.84 and 0.902, respectively, according to
table 4.8(b). This outcome shows that, although MoR has a qualified personnel, it is not enough
without rendering an excellent service, which increases taxpayers customer satisfaction which in
turn positively affects the tax collection process.

4.6 Discussions
4.6.1 Effects of Political Situation on Revenue Collection

The findings from the 240 respondents show that the prevailing political situations have an
impact on the general operations of a business. Be it from heightened insecurity for its
workforce, to shortage or lack of resources, business operations highly depend on a stable
government and stable political environment. This was shown by 83 percent of the responses
being that the political situation does affect business operations. 36.7% of participants were
strongly agreed and 46.3% were agreed about of the opinion that the prevailing political situation
at a certain time in the country affected business functionality and their operations for that and
even consecutive periods which led to businesses halt operations that in turn negatively affect the
tax collections performance of the authority.

More than 80% of the respondents were shown their agreement about the influence of general
election in their normal operations of the business and less than 10% of the respondents were

42
disagree about the influence of election on normal operation of business. Which shows, if
business unable to operate freely, in this case, because of tensions, protests and unrest which
affected their revenue. Since tax collection is appreciated when taxpayers productivity increased,
decreased in their productivity also affects the tax collection performance of the Ministry.

The finding of the research shows that political stability has an impact on government tax
collection; as indicated in the empirical literature review two federal branches of MoR were out
of operations for three years because of the civil war in northern part of the country which
approximately lost annual tax revenue of 4.2 billion from two branches. Additionally,
governments may be forced give tax relief packages to taxpayers which are affected by turmoil,
unrest and civil war. This significantly hinders the performance of the tax collection process. As
the results show, more than 83% of participants were of their opinion that political stability had
an effect on taxation of individuals and organizations. About less than 15% of the participants
opinion that political stability had no effect on business operations or had an effect on taxation of
individuals and organizations.

4.6.2 Tax policies effect on tax collection

The legal frameworks of the tax authorities have a big part in smoothing of tax collection
process. It is described by easily understandability, free from ambiguity, free from bias and one-
sidedness. As per the findings of this study, 83% of respondents were of the opinion that the tax
laws in place were hard to understand or interpret which negatively affects obedience of
taxpayers to their tax duties. Nearly15% of respondents were of the opinion that taxation laws
were easy to understand and interpret while This may be lack of providing appropriate awareness
for their customers. Generally, the more tax laws are free from ambiguity, bias and complexity,
the more taxpayers able to obey their tax duties which in turn impact the tax collection of the
ministry.

One of the purposes of taxes is fair distribution of resources. This can be achieved by enforcing
strong and fair rules and regulations. The fair distribution of resources can be implemented by in
the form of providing basic infrastructural facilities to societies. The respondents believe strict
tax laws and regulations have concrete contribution for the fair distribution of resources. The
research shows that above 37.5% of respondents were strongly agree, 45.8% were agree about
taxes collected helped in creation/development of social amenities like hospitals and schools and

43
thus accomplished the intent of wealth distribution. About 13% of respondents were
redistribution of wealth not impacted by the laws on taxation.

The finding illustrated more than 86% of the respondents were sense of pride and
accomplishment that they are part of nation building when they pay taxes, while less than 12%
were of the opposing feelings.

4.6.3 Impact of Organizational Support systems on Tax Collection

Organizational support systems like ICT and human resources have their say in the process of
collecting taxes. As the tax authorities more advanced in ICT, it enables the taxpayers easily
obeyed the tax duties. The MoR have platforms like E-tax, TASS, to facilitate the smooth
collection of tax revenue. Likewise, a skilled, knowledgeable and well educated staff facilitates
the tax collection process by providing quality service for taxpayers and also by fulfilling the
taxpayers’ needs and queries. In general respondents’ response about the effects of information
technology and human resources results have positive contribution to revenue collection.

44
 CHAPTER FIVE

5 SUMMARY, CONSLUSIONS AND RECOMMENDATIONS

5.1 Introduction
This chapter highpoints the conclusions and recommendations based on the findings of this
study. More specifically, the chapter explains the summary of the research questions that guided
the research, the methodology that was used to study those objectives and the findings resulting
from the study. Finally, based on the research finding this section highlighted implication and
recommendation.

5.2 Summary
This research has contributed to the conceptual and empirical understanding of the factors that
affect tax collection in MoR of Ethiopia. This research precisely sought to analyze the factors
that affect revenue collection in the context of the Federal large taxpayers in Ethiopia.

Descriptive research designs were applied and primary data was obtained by use of
questionnaires. Questionnaires were directed mainly to representatives of 240 federal large
taxpayers in Addis Ababa. Questions asked were closed ended and were mainly of a five-point
Likert-type scale. Data obtained was analyzed by use of descriptive statistics and accessible in
frequency tables and bar graphs.

5.3 Conclusion
5.3.1 Effects of Political Situation on Revenue Collection
The research revealed that political stability has a significant impact on the tax collection
performance. When the country’s political environment is steady, it allows businesses run
smoothly and can their productivity level. This in turn positively affects governments’ tax
collection performance. In contrary, in unstable, volatile political environment, businesses

45
operations are halted which directly affects their revenue and in turn affects the amount of tax
they would pay to government. On the other hand the tax authorities obligated to give tax reliefs
for taxpayers who are their operations affected by unrest, protests and civil wars, which could
have been collected if those political instability indicators were not happened. The characteristics
of political conditions that can impact on tax collection are enhanced investments due to investor
confidence, expansion of the economy, security for employees and the general population, lower
levels of inflation and confidence in the government and the policies it puts in place. Whereas
political instability is characterized by pulling out of investors and high inflation levels, reduced
confidence in the government and its policies, high levels of insecurity for the whole society,
reduced capital in the economy. The study also revealed that when the nation’s general election
taking place, business operations will be affected by the tensions and protests as well as
demonstrations. As the result it will negatively impact tax collection performance. This confirms
the studies stated previously in related literature part by different scholars who all defined
political stability and gave different impacts of the political environment on revenue collection.
5.3.2 Impact of rules and regulations on Tax Collection
Tax laws are the major tools to enable the effective collection of tax revenue. They should be
easily understandable free from ambiguity, free from bias. Further, the research exposed that the
tax laws in place supported their businesses administration helping them by filing the tax returns
accordingly, by paying their tax duties on time and in avoiding unnecessary penalties. In
contrary, significant part of the respondents felt that the policies in place were not very easy to
understand or interpret. It has also revealed that the laws can enhance protection of the
environment by imposing penalties, as a result of non-compliance with the set of laws. This
affirms to the stand of Moyi and Ronge (2006); Muriithi & Moyi., (2003); Institute of Economic
Affairs., (2012) who elaborated on the importance of laws, regulations and policies to revenue
collection. The study also revealed that strict implementation of rules and regulations can
contribute to the fair distribution of the nation’s resources
5.3.3 Impacts of organizational Support Systems on Tax Collection
This research showed that ICT had created chances for organizations to intensify their
productivity and efficiency while cultivating quality and cutting costs of production in the long
run, which in turn contribute to tax collection emanates from businesses profitability. The study
also revealed that information technology had made it easier for organizations to obey their tax
duties. The introduction of e-tax, e-payment and TASS (Tax Administration Support Systems)

46
services had helped taxpayers to easily declare pay and upload documents online. In general, ICT
advancement has significant impact on tax collection process of MoR. Additionally, the research
revealed that the levels of quality of services provided by MoR staff as well as their level of
knowledge and information are significant factors to revenue collection.

5.4 Recommendations
Based on the findings of this study, tax collection processes and performance in federal large
taxpayers branch in Ethiopia is affected by political stability, implemented policies and better
organizational support systems. Given the finding of this study, it is imperative to design and
implement appropriate interventions to enhance and smooth revenue collection. The
interventions may focus on the following areas:
 Politicians, executive bodies and policy makers should work on to widen the political
sphere of the country, which can accommodate people with different political views.
The government should make arrangements which helps to resolve political
indifferences by dialogues and national consensus. The ruling party should guarantee
the citizens fair and free elections. Which all lead to smooth operations businesses as
the result the tax collection performance will be enhanced.
 Since tax laws are the major components of the taxation process, they should be
easily understandable by taxpayers. Hence, MoR and MoFED should issue
clarifications on the existing tax laws that are ambiguous and hard to understand.
MoR should provide sequential trainings to taxpayers on new and existing tax laws.
 The findings stated that organizational support systems like ICT platforms and
qualified, skilled workforce have impact on the taxation process and performance.
Hence, MoR should continue train, educate its staffs in order to make them capable to
handle taxpayers queries and to provide qualified services. Additionally, online
platforms should be implemented intensively to facilitate taxpayers’ compliance to
tax duties.

5.5 Recommendations for future Researches

This study adds on the body of knowledge by examining factors affecting tax collection.
However, there is a need for further researches as well. The present study examined the
factors affecting tax revenue collection by focusing on federal large taxpayers in Addis

47
Ababa. There are several factors that could affect tax revenue, the researcher select only three
factors namely, political condition, tax policies and organizational support systems, hence
future researchers should investigate more factors that affect the tax collection process.
Additionally, the study applied on federal taxpayers, so that it lacks insight on the general tax
revenue process of the country, future researchers can study by taking account also the
regional taxpayers to give more realistic picture on the topic.

48
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 APPENDIX 1: QUESTIONNAIRE

Introduction

This questionnaire aims at collecting primary data on the factors that affect revenue
collection in MoR, federal large taxpayers branch office. The respondents are requested to
answer the questions as honestly as possible in-order to have a true representation for the
purpose of decision making and drawing of conclusions.

PART A: BACKGROUND INFORMATION

1.Please indicate your Organization’s Primary Industry affiliation (multiple selections

allowed)
1. Food manufacturers 5. Insurance
2. Government 6. Construction
3. Agriculture 7. Oil Mining and exploration Services
4. Wholesalers 8. Banking 9. Manufacturers

2. How long have you worked in your organization?

[a] Over 20 years [b] 16– 20 years [c]11 – 15 years

[d] 5 – 10 years [e] below 5 years

3. Level of employment?

[a] Senior Management [b] Management [c] Supervisory [d] Employee

PART B: FACTORS AFFECTING REVENUE COLLECTION

I: Effect of Political Stability on Revenue Collection

1. The political situation of the country affects normal business operations

1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

53
2. Closeness to general elections affect normal business operations
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree
3. In your opinion, the political stability of a country affects taxation of individuals and
organizations
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

II. Effect of Tax Policies on Revenue Collection

4. In your opinion, the laws on taxation hard to understand and interpret
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

5. In your opinion, the laws on taxation make administration of the organization easier
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

6. In your opinion, the laws set accomplish redistribution of revenue, that is, from the
businesses’ profits and individuals’ incomes to social development amenities
(development of public resources)?
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

7. In your opinion, the laws set to enhance protection of the environment e.g. antidumping
laws and the environmental protection regulations?
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

8. When you pay taxes, you achieve the feeling of accomplishment as you are part of nation
building
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

6.1 II: Impact of Information Technology and Human Resources on Revenue Collection.

11. Information Technology has created opportunities for the organization to amplify its
productivity and effectiveness while cutting costs of production in the long run.
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

12. Information technology systems have made it easier for the organization to comply with
the tax laws and policies in place
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

54
13. The introduction of the MoR Online Portal and do-it-yourself services has made it easier
for taxpayers to comply with the tax laws at the comfort of their offices or homes
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

14. Trained and well informed and knowledgeable MoR personnel clarify all questions
regarding taxation and make compliance with the tax laws easier
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

15. The level of quality of service offered by MoR personnel is an important factor to
revenue collection
1. Strongly Agree 2. Agree 3. Neutral 4. Disagree 5. Strongly Disagree

55
 Appendix-2: Reliability Statistics

Scale Corrected Cronbach's

Scale Mean if Variance if Item-Total Alpha if
Item Deleted Item Deleted Correlation Item Deleted
In your opinion, the political stability of a country
affect taxation of individuals and organizations 18.73 77.646 .839 .978
In your opinion, the laws on taxation hard to
understand and interpret 18.73 77.535 .876 .977
In your opinion, the laws on taxation make
administration of the organization easier 18.75 77.651 .905 .976
In your opinion, the laws set accomplish
redistribution of revenue, that is, from the
businesses? profits and individuals? incomes to 18.76 77.858 .907 .976
social development amenities (development of
public resources)?
In your opinion, the laws set to enhance protection
of the environment e.g. antidumping laws and 18.78 77.690 .928 .975
regulations?
When you pay taxes, you achieve the feeling of
accomplishment as you are part of nation building 18.85 77.863 .933 .975
Information Technology has created opportunities
for the organization to amplify its productivity and
effectiveness while cutting costs of production in 18.84 78.220 .927 .975
the long run.
Information technology systems have made it
easier for the organization to comply with the tax 18.87 78.297 .933 .975
laws and policies in place
The introduction of the MoE Online Portal and
do-it-yourself services has made it easier for
taxpayers to comply with the tax laws at the 18.87 79.803 .848 .977
comfort of their offices or homes
Trained and well informed and knowledgeable
MoR personnel clarify all questions regarding
18.89 79.958 .837 .978
taxation and make compliance with the tax laws
easier
The level of quality of service offered by MoE
personnel is an important factor to revenue 18.85 80.309 .840 .978
collection

56