ADMAS UNIVERSITY DEPARTMENT OF ACCOUNTING AND

FINANCE
TAX ASSESSMENT AND COLLECTION PROBLEMS OF
CATEGORY ‘’A’’

BY ID
1. MINTESNOT ALEBACHEW ……………………..0309/17
2. REMEDAN SHAMIL ……... ……………………..0653/17
3. EPHREM HAILU …………....……………………..0422/17
4. SAHLE BELACHEW …………………………….0860/17
5. WINTANA MISGINA …………………………….0805/17

JAN, 2022

ADDIS ABABA, ETHIOPIA

 TAX ASSESSMENT AND COLLECTION PROBLEMS OF
CATEGORY ‘’A’’

BY ID
1. MINTESNOT ALEBACHEW ……………………..0309/17
2. REMEDAN SHAMIL ……... ……………………..0653/17
3. EPHREM HAILU …………....……………………..0422/17
4. SAHLE BELACHEW …………………………….0860/17
5. WINTANA MISGINA …………………………….0805/17

ADVISOR
Mr. WORKAGEGNEH T.

THESIS SUBMITTED TO ADMAS UNIVERSITY IN PARTIAL

FULFILLMENT OF THE REQUIREMENT BA DEGREE IN ACCOUNTING
AND FINANCE

JAN, 2022
ADDIS ABABA, ETHIOPIA
ACKNOWLEDGEMENTS
First of all we would like to praise the almighty God for initiating to begin and who able to
accomplish everything and strength to advance our dream to the end of this research.

Secondly, we show our deepest gratitude to our advisor Mr. WORKAGEGNEH T. for his
constructive ideas, in determination advice, giving necessary constructive comments and
suggestions from the early beginning up of the end of his research. And we would like to thank
our department of accounting and finance and all member of the department for giving this
success. .

Finally, our deepest gratitude goes to our families who support us by fulfilling all the necessities.
 ABSTRACT
Tax is the only sustainable source of the government revenue. Tax can be direct tax on
employment in come, business income, rent income and other incomes such as royalties and
chances etc. However, limiting the collection of tax only from direct incomes narrows the tax
revenue of the government. As a result of this, taxes should be collected from indirect sources as
well. The collection of indirect taxes such as value added tax, excise tax and customs duties
increase the revenue of the government. This enables the government to achieve its objectives
and programs and reduces the country’s dependability on loans and donations. To avoid the
negative attitude of the society on tax payment, a well-designed tax system is necessary. The
general objective of the study is to assess the tax assessment and collection problems of category
‘’A’’ in the case of Bole Sub City Revenues and Customs Authority Branch Office. In order to
attain the objective of the study and answer the research questions, the researcher was
adopted mixed research approach. The sampling method was simple random sampling and
purposive sampling technique. A sample of 130 tax payers and 55 tax office works from the
sample Sub-city were selected and participated is used on the study. In this study both primary
and secondary data collection is used. The primary source has been done using the quantitative
approach, with the help of survey instrument, based on a survey questionnaire. The secondary
source has been done through the review of previously established literature for achieving the
research objectives. Descriptive statistics presented by using tables and charts were used to
analyze information generated from respondents with the help of SPSS v20 software. The finding
shows that The study indicated that lack of awareness creation programs for taxpayers, failure
of most of the taxpayers to maintain books of account to control their operations, lack of
adequately qualified personnel, lack of objective tax estimation procedures and the resultant tax
under- and over-statement, lack of taxpayers awareness about tax procedures and calculations
are some of the major problems on category “A” tax assessment and collection of we believe this
problems will be simplified if not eliminated. The findings indicated that most taxpayers lack
sufficient knowledge of tax assessment and collection Procedures, rules and regulations. There is
lack of clear, transparent and up-to- date information and training. Moreover, tax assessment
and collection officers are inefficient and insufficient in relation to number of tax payers in the
sub city, tax officers are non-motivated, lack adequate skills. Due to this and other factors
mentioned in the analysis of this study, negligence, delay in tax payment and evasion are taken
by taxpayers as solution to escape from payment. Finally the study recommends that tax
authority should provide continuous training both for tax payers and tax office employees, use
advanced information technology (IT), make the collection procedures simple and transparent,
and strengthen legal enforcement and penalties. In general, the tax authority should try to ensure
tax fairness and equity so as to encourage voluntary compliance behavior.

LIST OF ACRONYMS
ERCA………………………………………….Ethiopian Revenues and Customs Authority
GTP……………………………………………Growth and transformation Plan

IMF…………………………………………….International Monetary Fund

IT……………………………………………….Information Technology

SPSS …………………………………….…… Statistical Package for Social Science

TIN ……………………………………………Tax Identification Number

Contents
ACKNOWLEDGEMENTS....................................................................................................................................................... i
ABSTRACT..................................................................................................................................................................................... ii
LIST OF ACRONYMS................................................................................................................................................................. iii
List of table................................................................................................................................................................................... vi
CHAPTER ONE........................................................................................................................................................................... 1
1. INTRODUCTION................................................................................................................................................................... 1
1.1 Background of the Study............................................................................................................................................... 1
1.1.1 Back ground of the organization.....................................................................................................................6
1.2 Statement of the problem...............................................................................................................................................8
1.3 Objective of the Study..................................................................................................................................................10
1.3.1 General Objectives............................................................................................................................................... 10
1.3.2 Specific Objective.................................................................................................................................................10
1.4 Research Questions....................................................................................................................................................... 10
1.5 Significance of the study.............................................................................................................................................10
1.6 Scope and Limitation of the study...........................................................................................................................10
1.6.1 Scope of the study.................................................................................................................................................10
1.6.2 Limitation of the study........................................................................................................................................ 11
CHAPTER TWO....................................................................................................................................................................... 11
2. Review of Related Literature............................................................................................................................................ 11
2.1 Theoretical Literature................................................................................................................................................... 12
2.1.1 The Meaning and Concept of Tax.................................................................................................................12
2.1.2 Theoretical Review of Tax Administration..............................................................................................13
2.1.2 Importance of Tax Administration..............................................................................................................13
2.1.3 Tax Administration Challenges.....................................................................................................................15
2.1.4. Efficiency of Tax Administration.................................................................................................................17
2.2. Category of Taxpayers..............................................................................................................................................18
2.3. Objectives of Taxation.............................................................................................................................................. 19
2.4. Tax system or structure...........................................................................................................................................19
2.5. Tax compliance............................................................................................................................................................ 20
2.6. Characteristics of an Effective Tax System......................................................................................................21
2.7 Impact, Incidence, and Shifting of Taxes...........................................................................................................22
2.7.1 Impact of Tax........................................................................................................................................................ 22
 2.7.2 Incidence of Tax...................................................................................................................................................22
2.8. Procedures for Tax Collection...............................................................................................................................23
2.8.1. Filing Returns...................................................................................................................................................... 23
2.8.2. Audit and Examination....................................................................................................................................23
2.8.3. Tax Collection and Enforcement.................................................................................................................23
2.8.4 Identification and Registration of Taxpayers.........................................................................................24
2.9 Empirical literature review.....................................................................................................................................24
CHAPTER THREE..................................................................................................................................................................... 27
RESEARCH DESIGN AND METHODOLOGY...................................................................................................................27
3.1. Introduction.................................................................................................................................................................. 27
3.2 Research Approach..................................................................................................................................................... 27
3.3 Research Design........................................................................................................................................................... 28
3.4 Target population of the Study..............................................................................................................................28
3.5 Sampling technique.................................................................................................................................................... 28
3.5.1 Sample Size Determination............................................................................................................................29
3.6 Data Types and Sources............................................................................................................................................30
3.6.1 Questionnaire design.........................................................................................................................................30
3.6.2. Interview................................................................................................................................................................30
3.7. Methods of Data Analysis........................................................................................................................................31
3.8 Ethical consideration................................................................................................................................................. 31
Chapter Four.............................................................................................................................................................................. 32
4. Data Presentation, Analysis and Interpretations..................................................................................................32
4.1. Introduction.................................................................................................................................................................. 32
4.2 Demographic characteristics` of the respondents........................................................................................32
4.3 Awareness/Knowledge about taxation.............................................................................................................35
4.4 How effective and efficient are tax assessment and collection procedures......................................37
4.5 Major causes of tax collection problems...........................................................................................................42
4.6 Data analysis.................................................................................................................................................................. 45
4.6.1 Tax assessment and collection challenges...............................................................................................46
Chapter Five............................................................................................................................................................................... 48
5. Summary, Conclusion and Recommendations.......................................................................................................48
5.1 Summary......................................................................................................................................................................... 48
5.2. Conclusion..................................................................................................................................................................... 49
 5.3 Recommendations.......................................................................................................................................................50
6. References.............................................................................................................................................................................. 52
APPENDIX1. Questionnaire................................................................................................................................................. 54

List of table
Table 4. 1 Demographic characteristics` of the respondents.........................................................32
Table4. 2 Awareness/Knowledge about taxation..........................................................................34
Table 4. 3 How effective and efficient are tax assessment and collection procedures..................36
Table 4. 4 Major causes of tax collection problems......................................................................41

Figure 4. 1 sex of respondent …………………………………………………………………………………………………..31

 CHAPTER ONE
1. INTRODUCTION
1.1 Background of the Study
Tax is a compulsory contribution payable by economic units to a government without
expectation of direct and equivalent return from the government for the contribution made. Taxes
have both micro and macroeconomic effects in a modern economy. Taxes have good as well as
bad effect in the production, distribution of income and stabilization of the economy (Misrak,
2008).
A tax is a fee charged or levied by a government on a product, income, or activity. The purpose
of taxation is to finance government expenditure (Gupta, 2001). One of the most important uses
of taxes is to finance public goods and services, public goods like roads, power, municipal
services, street cleaning and other public infrastructures. Since public goods and services do not
allow a non-payer to be excluded, or allow exclusion by a consumer, there cannot be a market in
the good or service, and so they need to be provided by the government or a quasi-government
agency, which tend to finance themselves largely through taxes. Despite the fact that taxation is
not favored by many, it is vital that it is understood because it forms a critical element of how a
government affects the lives of its citizens (Oberholzer, 2008). If tax is levied directly on
personal or corporate income, then it is a direct tax. If tax is levied on the price of a good or
service, then it is called an indirect tax. A tax payer doesn’t expect direct and equivalent return
from the government for the compulsory contribution made (Ethiopia Trade and Investment,
2015).
According to Lee and Richard (1998), in different tax regimes of many countries, taxes are
levied on different sources of income classified in to some number of segments. Largely,
countries set their source of income tax taxpayers in to small, medium, and large taxpayers
mainly depending on the amount of income derived by the taxpayers. Tax law frameworks of
different countries including Ethiopia provide specific rules governing the assessment method,
tax rate, accounting period, deduction, exemption, and other related guidelines for each of the
above listed group of taxpayers. Tax administration refers to the identification of tax liability
based on the existing tax law, the assessment of this liability, and the collection, prosecution and
penalties imposed on recalcitrant taxpayers. Tax administration, therefore, covers a wide area of
study, encompassing aspects such as registration of taxpayers, assessments, returns processing,
collection, and audits (Kangave, 2005). Business income, or business profit, includes any income
which is derived essentially from business activity or activity recognized as trade. Business profit
tax is the tax imposed on the taxable business income / net profit realized from entrepreneurial
activity. Taxable business income would be determined per tax period on the basis of the profit
and loss account or income statement, which shall be drawn in compliance with the generally
accepted accounting standards. Corporate businesses are required to pay 30% flat rate of
business income tax. For unincorporated or individual businesses the business income tax ranges
from 10% - 35% (ECC and EBDSN, 2005).
With the aim of broadening the tax base and facilitating the overall development of the economy,
the government of Ethiopia has undertaken a comprehensive tax reform program. The reform
measures are intended to encourage trade, investment and development through transparent and
stable functioning of the tax system and to increase government revenue to support social and
economic development programs and thereby alleviate poverty, strengthen the enforcement
capacity of the taxes and custom authorities, and promoting equity in the tax system (Derartu,
2007).
Ethiopian Revenues and Customs Authority (ERCA) have its headquarters in Addis Ababa. It is
led by a Director General who reports to the Prime Minister and is assisted by five Deputy
Director Generals. ERCA is the body responsible for collecting revenue from customs duties and
domestic taxes. In addition to raising revenue, the ERCA is responsible to protect the society
from adverse effects of smuggling. It seizes and takes legal action on the people and vehicles
involved in the act of smuggling while it facilitates the legitimate movement of goods and people
across the border.
In Ethiopia, taxation comes in to being with the emergence of state and government but there is
no concrete documentary evidence as to when taxation was exactly introduced. In the 15th
century written stories of Atse Zeryacob indicates that taxation was introduced previously in
Ethiopia. In those eras tax was paid by different social groups to government, feudal lords and
priests. Besides these documents approve that Atse Zerayacob had for the first time enacted
regulation for the collection of tax from those persons who bread cattle. This regulation can be
taken as evidence for the presence of taxation system on and before the government of Atse
Zarayaecob (Addis Ababa Chamber of commerce, History of tax in Ethiopia, September 1996,
un published Handout).
For most of the people who lived before Ats Zarayaecob era, agriculture, hunting and handcraft
were means of live hood. Hence, people used their cattle and agricultural products to contribute
as tax. Farmers were required to pay one-tenth of their products (as called Asrat). In addition to
their products, they were forced to give services. The tax revenue was spent for government
works, feudal lords, priests, and military purposes (Addis Ababa Chamber of commerce, History
of tax in Ethiopia, September 1996, un published Handout).
In general, a kind of traditional tax system was practiced at that era. This traditional tax system
can be explained in two forms: There were payments in kind and unstructured tax systems. As
we have seen above, in this traditional tax system burden was laid on farmers. Though such
burden was tried to lessen by emperor Tewodros’s government, strong change had been taken
place by emperor Menelik (Addis Ababa Chamber of commerce, History of tax in Ethiopia,
September 1996, un published Handout).
Menelik, in 1904, had put a regulation that requires farmers to pay only one –tenth of their
products and service taxation was excluded. Keeping this improvement taken by emperor
Menelik, other improvements on tax and tax system were made by emperor Haileselassie. Under
the emperor, aimed at achieving the fiscal control of collection of all revenues and financing of
every program by central government, a legal and institutional mechanism of taxation was
established. There were a number of proclamations and legal notices as statutory bases for
income taxes during that regime. Tax on land, employment, and business taxes were also
introduced. Personal and business income taxes were levied, charged and collected under four
schedules.
I. Income from employment.
II. Income from agricultural activities.
III. Income from rent of land buildings used for other than agricultural purposes.
IV. Income from businesses, professional and vocational occupation, the exploitation of
woods &forests for lumbering purposes, and from interest.
Towards the end of the imperial period, with a majority of the population living at subsistence
level, there was limited opportunity to increase taxes on personal or agricultural income.
Consequently, the imperial government relied on individual taxes (customs, excise and sales) to
generate revenue. For instance, in the early 1970s taxes on foreign trade accounted for close to
two- fifths of the tax revenues and about one-third of all government revenue. At the same time,
direct taxes accounted for less than one-third of tax revenues. (Addis Ababa Chamber of
commerce, History of tax in Ethiopia, September 1996, un published Handout.) During the"
Dergue” regime, the taxes were similar to those imposed during the Haileselassie regime except
that wider tax bases and increased tax rates. The proclamations related to different components
of taxes were the amendments of the previous proclamations or regulations or decrees. The
Dergue regime partially alleviated the tax assessment & collection problems that existed during
the imperial period by delegating the responsibility for collecting the fee and tax on agriculture
to peasant association which received a small percentage of revenue as payment. Despite the
1976 changes in the tax structure, the government believed that the agriculture income tax was
being under paid, largely because of under assessment by peasant association (Addis Ababa
Chamber of commerce, History of tax in Ethiopia, September 1996, un published Handout).
After Dergue regime, in the period of transitional government with the establishment of the
regional governments; major changes took place in the taxation policy of the country.
Accordingly, regional governments have legislative, executive and judicial powers. They are
given tax and expenditure assignment powers in order to accomplish their duties and
responsibilities. During this period, tax bases such as tax on mining activities and on capital
gains were introduced.
In most developing countries, like Ethiopia, the revenue generated by the government is quite
less than the expenditures spent. This low revenue yield of taxation can only be attributed to the
fact that tax provisions are not properly enforced either on account of the inability of
administration or on account of straight forward collusion between the tax administration and
taxpayers (Addis Ababa Chamber of commerce, History of tax in Ethiopia, September 1996, un
published Handout).
According to the new constitution of Ethiopia, the Federal Democratic Republic of Ethiopia
would comprise a federal state and member states, in which both organs shall have their
respective legislative, executive and judicial powers. A number of changes have been made in
the tax policy of the country pursuant to the structural changes. The new tax reform program and
restricting hand two broad categories aimed at over having the tax legislation and improving the
tax administration. In line with this, the proclamation and regulation that cover tax payables on
business undertaking are the statutory bases for income tax assessment and collection. As
compared to the previous ones, the current proclamation reduced tax rates on business income as
a measure of the tax reform program in progress. The reduced tax rate is believed to serve as an
investment incentive.
The main purpose of generating revenue from various sources is to finance public expenditures.
The government generates revenue from tax and other non-sustainable sources. Taxes, public
borrowing, sale of public assets, income from public undertakings, gifts and donation, fines, fees
etc… are the sources of public revenue to finance expenditures of the government. The
collection of money by government from the available sources of revenue needs the availability
of government, foreign and domestic creditors and donors, efficient tax system and awareness of
the society regarding the use of tax payment for government and its contribution for the
development of the country’s economy.
From sources of revenue explained above, tax is the only sustainable source of the government
revenue. Tax can be direct tax on employment in come, business income, rent income and other
incomes such as royalties and chances etc. However, limiting the collection of tax only from
direct incomes narrows the tax revenue of the government. As a result of this, taxes should be
collected from indirect sources as well. The collection of indirect taxes such as value added tax,
excise tax and customs duties increase the revenue of the government. This enables the
government to achieve its objectives and programs and reduces the country’s dependability on
loans and donations. To avoid the negative attitude of the society on tax payment, a well-
designed tax system is necessary. In addition, educating the society regarding its obligation and
the purpose of tax collection minimizes the wrong attitude of the tax payers. The tax payers do
not get information on how the government spends the money collected from tax and the works
that are performed by their tax payment (Addis Ababa Chamber of commerce, History of tax in
Ethiopia, September 1996, un published Handout). To increase the revenue of the government
and to manage appropriately as well as levy fair tax, business income tax payers are classified
in the categories of ‘’A’’, ‘’B’’ and ‘’C’’ based on the volume of their annual sales and form of
business (Addis Ababa Chamber of commerce, History of tax in Ethiopia, September 1996, un
published Handout). Ethiopian Revenue and Customs Authority (ERCA) is the body responsible
with taxes at federal level. In Addis Ababa, there are different tax administrators at each sub city,
in which Bole sub city is one. ERCA focuses on those people and vehicles that may involve in
the act of bringing into or taking out of goods, which customs duty and taxes are not paid and
whose importation or exportation are prohibited by law. The authority conducts investigation,
audit and prosecutes offenders. In the attempt to discharge its responsibility, the authority closely
works with the Federal Police, Standardization Authority, Ministry of Health and Immigration
Service and with other stakeholders. Category "A”, shall include any company incorporated
under the laws of Ethiopia or in a foreign country, for example Private Limited Companies Share
Companies and any other business having an annual turnover of Birr 500,000 (Five hundred
thousand Birr) or more. There are 11 sub cities in Addis Ababa that are engaged in
administering taxes from Category “A” and Category “B” taxpayers. Besides the different
Woredas found in each sub city are also dealing with taxes on Category “C” taxpayers. The
study focus is on category “A” taxpayers that are found in Bole sub city. This category is
required to maintain proper books of account and other necessary documents for tax purpose
(council of Ministers, 2002). On the basis of the above background, this study is initiated to
examine the challenges of Category “A” taxpayers found in Bole sub city.

1.1.1 Back ground of the organization

In the City Government legislation and procedures used by the Addis Ababa Revenue Authority
for all major taxes are comprehensive and clear. This is also the opinion of civil society
representatives. The City relies on federal tax legislation mainly on Federal Proclamation
286/199432. Some are available on Authority’s web site (www.aarevenue.gov.et). The
discretionary power of the government entities involved is in theory fairly limited.

The Bole sub city Revenue Authority issues brochures in Amharic and English on VAT,
Turnover Tax, and Income Tax. Tax information in Amharic and English are also available on
the Addis Ababa Revenue Authority’s web site (www.aarevenue.gov.et). Despite the above,
representatives of civil society believe this is not enough and more should be done as far as
access to tax information is concerned.

An administrative appeal at the Bole sub city Revenue Authority examines and decides on all
applications submitted by tax payers for compromise of penalty, interest, and waiver of tax
liability. The appeal is carried out by a committee which reviews determination made by tax
authority for accuracy, completeness, and compliance with the proclamation. Any taxpayer who
objects to an assessment shall deposit of 50% of the disputed amount and the appeal lodged with
the Appeal Commission within thirty days following the day of receipt of the assessment notice
or from the date of decision of the review committee otherwise the tax assessment notice will be
acceptable and payable.

A tax payer data base, the System Integrated Revenue Management (SIRM), is accessible at the
Bole sub-cities and Kebeles. It is connected with the database at the Federal level but there is no
full linkage to other databases. There have been information exchange (manually) with
manufacturing companies and financial institutions mainly banks.

There are no penalties for non-compliance with registration. For late filing or non-filing, the
income tax which shall be declared and paid by the employers or the employees within thirty
days of the end of each calendar month are liable for a penalty equal to:

a) 1,ooo ETB for the first thirty days (or part thereof) if the declaration remains unfulfilled;

b) 2,000 ETB for the next thirty days (or part thereof) if the declaration remains unfulfilled;

c) 1,500 ETB for each thirty days (or part thereof) if the declaration remains unfulfilled.

For understatement of taxes,

a) As per the new proclamation of Income Tax No.286/2002, if the amount of tax figured out in
the declaration understates the amount of tax required to be shown, the taxpayer is liable for a
penalty at the amount of 10% of the understatement or 50% if the understatement is considered
substantial;

b) The understatement is considered substantial if it exceeds the smaller of the following two
amounts: 25% of the tax required to be shown on the return; or 20,000 ETB.

For late payment a tax payer who fails to pay tax liability on the due date is subject to: a penalty
of 5% (five percent) of the amount unpaid tax on the first day after the due date has passed; and
an additional 2% (two percent) of the amount of the tax that remains unpaid on the first day of
each month thereafter. From the above it should be emphasized that penalties have been applied
in most cases and criminal cases have been brought against those who failed to meet their
obligations.
Taxpayers pay their taxes (with cash pay order) at sub-city and kebeles levels and post offices.
Each sub city has an account at the Commercial Bank of Ethiopia. Every week, the tax collected
by sub cities, kebeles and post offices goes to the City Central BOFED Treasury account at the
Commercial Bank of Ethiopia.

1.2 Statement of the problem

From all sources of finance, tax is the major source of finance for the government; however, in
most developing countries, it is a common phenomenon to notice serious problems in developing
adequate tax systems that permits a government to sufficiently finance its expenditures (World
Bank, 1999).
Along with the growth in the overall Ethiopian economy, it has been observed that there has
been an increased government spending and deficit financing. In principle, government could use
both domestic and external sources of finance that a country can tap to finance the deficit. The
government collect significant amount of revenue including grants, which could not fully finance
the total expenditure. Without grants, the deficit could have been also about significant. This
makes the borrowing and grant element of government’s total expenditure counts too much. Of
the external grant that constitute part of government revenue, almost half comes in the form of
grants in kind and the remaining comes in the form of untied cash (IMF, 2006).
However, in most developing countries, it is a common phenomenon to notice serious problems
in developing adequate tax systems that permits a government to sufficiently finance its
expenditures. Ethiopia has both medium and long term visions. Its medium term vision is to
achieve the Millennium Development Goals (MDGs). This should be achieved at the end of the
implementation of the five year plan, named as the Growth and Transformation Plan (GTP). The
planning period for the GTP spans the period 2010/11-2014/15. Its long term vision, on the other
hand, is to build on the achievements of the GTP and become a middle income country in the
coming ten years. Following Growth and transformation Plan (GTP) government of Ethiopia
introduce a new era in social and economic relations and institutions in the country. Along with
this growth, it has been observed that there has been an increased government spending and
deficit financing. It is believed that modernizing the tax system and broadening the tax bases
promotes economic growth by encouraging saving and investment. Furthermore, due to the
great encouragement and conducive environments like investment opportunities created by
the Ethiopian government, new firms are emerging surprisingly, As a result of these
developments, the existing system of income tax needs to be adjusted to the basic principles of
fiscal treatment in a free market economy. ERCA Bole sub city small tax payers branch office is
one of the organs of the government which is given the power to decide assess and collect
government revenue. Tax administration has to secure compliance with the laws by applying an
array of registration, assessment and collection procedures. Tax administration should aim at
improving on laws regarding the registration, assessment, collection revenue, and exploiting
fully taxation potential of a country.
Furthermore, due to the great encouragement and conducive environments like investment
opportunities created by the Ethiopian government, new firms are emerging surprisingly,
however, the amount of tax revenue for the government is not increasing proportionately even
every so often a decreasing trend was observed. Accordingly, huge unfavorable variance is
observed in the performance report. Consequently, huge amount of money that should have been
paid is not really given to the government, which in turn can be used to meet the various
objectives of a government.
In order to raise adequate revenue to minimize revenue shortfall, ERCA and the different sub
cities are working together. Bole sub city tax authority has mandate to look into tax assessment,
periodic declarations, records and books of accounts to be maintained and submitted by
taxpayers. The authority conducts pre-audit assessment by the time these documents are
submitted so as to perform timely collection. This low revenue yield of taxation can be attributed
to the fact that tax provisions are not properly enforced either on account of the inability of
administration to cope with them or on account of straight forward collusion between the tax
administration and taxpayers (World Bank, 1999).
Tax administration has to secure compliance with the laws by applying an array of registration,
assessment and collection procedures. A government can keep taxpayers from doing these
activities, and thus successfully avid tax evasion depends on the nature of economy’s actual tax
base. Tax administration therefore, should aim at improving on laws regarding the registration,
assessment, collection revenue, and exploiting fully taxation potential of a country.
Therefore, identifying the problems on tax assessment and collection at each tax office and
taking corrective measures need attention since they have adverse effects on the overall revenue
of the government. Accordingly, this study tries to identify tax assessment and collection
problems of the Bole Sub-city Revenue and Customs Authority Branch Office.
1.3 Objective of the Study
1.3.1 General Objectives
The general objective of the study is to assess the tax assessment and collection problems of
category ‘’A’’ in the case of Bole Sub City Revenues and Customs Authority Branch Office.
1.3.2 Specific Objective
The problems explained in the statement of the problem leads to describe the following specific
objectives.
1. To assess the efficiency of tax assessment and collection procedure of Bole sub city
Revenues and Customs Authority Branch Office.
2. To identify main problems and causes on tax assessment and collection in Bole sub city.
3. To understand the status of tax payer’s knowledge and awareness about taxation.
1.4 Research Questions
This study will answer the following research questions based on the above research objectives:
1. How effective and efficient is tax assessment and collection procedure for category ’A’
tax payers in Bole Sub-city Customs and Revenue Authority Branch Office?
2. What problem or challenges are there which impede tax assessment and collection at
Bole sub city?
3. Do Tax payers have enough knowledge and awareness about taxation?
1.5 Significance of the study
The findings of this study may give clear understanding of what type of tax assessment and
collection procedures are there, what problems are there and how those problems were handled
by both tax payers and Administrators. Thus, all the concerned body will be able to strength the
tax collection and try to adopt a comprehensive strategy, and minimize the observed tax
administration problems to increase tax revenue. The Sub-city revenue& customs bureau may
use this finding to revise its strategies concerning tax assessment and collection. Furthermore the
results of finding will serve as a reference for other researchers on this area.
1.6 Scope and Limitation of the study
1.6.1 Scope of the study
The researcher has found that it is very important to limit the scope of the study to a manageable
size in order to investigate the issue thoroughly. Therefore, this research is confined to Bole Sub
City Revenues and Customs Authority Branch Office for the sake of in-depth analysis with
genuine investigation on tax assessment and collection problems. Addis Ababa is classified in to
ten sub-cities; out of these sub cities the researcher select Bole Sub-city.
1.6.2 Limitation of the study
It is impossible and difficult to conduct a research on tax assessment and collection problems
across citywide within such a short period of time together with limited financial resource owned
by student researcher. Hence the focuses of this study is “Tax assessment and collection
problems in Bole Sub City Revenues and Customs Authority Branch Office”.
 CHAPTER TWO
2. Review of Related Literature
This chapter review literature that have relevance to the study so as to have an insight into the
research topic and to briefly expose the readers to some of the major areas of the subject matter
under consideration. In line with this, this chapter will discuss the meaning and concept of tax,
category of taxpayers, Objectives of Taxation, characteristics of an effective tax system, the base
of tax, impact, incidence, and shifting of taxes, Tax saving, Tax implementation and
administration, Procedures for tax collection, Importance of tax administration, tax
administration challenges, Efficiency of tax Administration, tax administration in Ethiopia, and
the present tax reform in Ethiopia. Finally this section presents a brief review of existing
theoretical and empirical literature of tax administration. At the end of the review, an attempt is
made to summarize the major drawbacks of the existing empirical studies and to identify the
knowledge gap to be filled in by further investigation.
2.1 Theoretical Literature
2.1.1 The Meaning and Concept of Tax
A tax is “a compulsory charge imposed by the Government without any expectation of direct
return in benefit”. In other words, a tax is a compulsory payment or contribution by the people to
the government for which there is no direct return to the taxpayers (Bhatia, 2003). Tax imposes
a personal obligation on the people to pay if they are liable to pay it. The general public should
be taxed according to their ability to pay, i.e., the people in the same financial position should be
taxed in the same way without any discrimination. Thus, tax can be defined as, "an involuntary
fee or more precisely, "unrequited payment", paid by individuals or businesses to a government
(Richard, 2005). Tax has been defined by various authors and professionals in various ways.
Taxes are the major source of the public revenues. Government needs financial resources to act
as a government and play a role that is expected from it by the public. So what the government
gives, it must first take away. Conceptually, tax can be defined or seen as a compulsory transfer
of resources from the private to the public sector (James, S., and Nobes, C. 2000). According to
these authors, tax is a compulsory levy which a government imposes on its citizens to enable it to
obtain the required revenue to finance its activities. And the other scholars Lymer and Oats
(2009) tax is defined as ‘a compulsory levy, imposed by government or other tax raising body,
on income, expenditure, or capital assets, for which the taxpayer receives nothing specific in
return’. Throughout history, people have debated on the amount and kinds of taxes that a
government should impose, as well as on how it should distribute the burden of those taxes
across society. Unpopular taxes have caused public protests, riots, and even revolutions. For
instance in Ethiopia there was the Gojjam peasant rebellion, in 1968 (Gebru Tareke 1991).The
immediate cause of the rebellion was the introduction of a new agricultural income tax, which
peasants opposed. In political campaigns candidates’ views on taxation may partly determine
their popularity with voters. Although countries differ considerably in the amount of taxes they
collect, yet the most important source of revenue for modern government remains to be tax. The
remainder of government revenue comes from charging fees for services, borrowing and from
other related sources. Governments may raise or lower taxes to achieve social and economic
objectives, or to achieve political popularity with certain groups. Some economists consider
taxation an important tool for maintaining the stability of a country’s economy. This is because
taxation can redistribute a society wealth by imposing a heavier tax burden on one group in order
to fund services for another (Gebrie, 2006).
2.1.2 Theoretical Review of Tax Administration
Tax administration refers to the identification of tax liability based on the existing tax law, the
assessment of this liability, and the collection, prosecution and penalties imposed on recalcitrant
taxpayers. Tax administration, therefore, covers a wide area of study, encompassing aspects such
as registration of taxpayers, assessments, returns processing, collection, and audits (Kangave,
2005). The low revenue yield of taxation can only be attributed to the fact that tax provisions are
not properly enforced either on account of the inability of administration to cope with them or on
account of straight forward collusion between the tax administration and taxpayers.(World
Bank, 1999). Since taxes are an involuntary payment for government services, taxpayers have a
strong inventive to minimize their tax liabilities either through avoidance (legal) or through
evasion (illegal). Tax administration has to secure compliance with the laws by applying an array
of registration, assessment and collection procedures. How a government can keep taxpayers
from doing these activities, and thus successfully avoid tax evasion depends on the nature of
economy’s actual tax base. Tax administration therefore, should aim at improving on laws
regarding the registration, assessment, collection revenue, and exploiting fully taxation potential
of a country (World Bank, 1999).
2.1.2 Importance of Tax Administration
According to Asian Development Bank, 2001, tax administration dictates tax policy. Indeed, tax
administration and compliance issues determine the broad evolution of tax systems. The shift in
industrialized countries over a century ago from reliance on excise, customs and property taxes
to corporate income and progressive income taxes can be explained, in large part, by the relative
decline in the rural sector, the concentration of employment in large corporations and the
growing literacy of the population. In recent years, the shift away from these taxes - corporate
income and progressive individual income tax - and toward tax systems that rely more on broad-
based consumption taxes such as the value-added tax, flatter rate structures, and the adoption of
“dual income taxes,” in which a progressive tax on labor income is accompanied with a low flat-
rate tax on capital income, as adopted in certain Scandinavian countries, can be explained, in
large part, by the forces of globalization and developments in financial innovation and the
inability of tax administrators to develop technologies to cope with these forces and
developments (Asian Development Bank, 2001). In tax reforms there is a close correlation
between successful tax policy and efficient tax administration. In other words, there is no good
tax policy without efficient tax administration (Jenkins, 1994). Over the past century, changes in
the size of governments themselves, and differences in the relative size of governments around
the world, can be explained by changes and differences in the environment, resources and
technologies available to the country’s tax administrators (Asian Development Bank, 2001).
Aside from the role of tax compliance and administrative issues on the evolution and general
features of the tax system, there is no question that administrative considerations influence, and
often impose decisive limits, on particular tax laws. Most obviously, the failure to tax all sources
of economic power, such as the imputed rental value of homes or accruing capital gains, are
often justified by reference to practical concerns of administer ability. It is futile to design a
complex and sophisticated response to a tax policy problem if the rules to implement the regime
cannot be administered (Asian Development Bank, 2001). Ensuring that taxes are collected from
those who owed them has always been an elusive challenge for tax departments. It has never
been easy to collect taxes from lawyers who take cash for a Saturday office visit; waiters who
receive most of their income as tips; landlords who collect rent in cash; small business people
who skim part of their profits or hire people off the books; cash-only window cleaners, roofers
and painters; or large corporations that contract out to sweatshops. It has been even more
difficult to collect taxes from crack cocaine dealers, smugglers, hit men and hit-women, and
those who make their living defrauding and extorting their clients. The underground economy
has always been diverse and even vaster than these examples suggest (Asian Development Bank,
2001).
However, as if these traditional forms of tax evasion were not challenge enough, the combined
effects of information technology and globalization is now alleged to allow those who have been
able to hide in the shadow economy to evade paying their fair share of tax to disappear
altogether. Many individuals are no longer tied to one national jurisdiction; those that are
increasingly receive payments from work and investment abroad; anyone can have access to an
over sea’s bank; anyone with access to a computer can transact business anywhere in the
world; property is becoming increasingly intangible and consumption difficult to locate; and,
capital is becoming increasingly fungible and can be shifted relatively easily between
jurisdictions. These and other developments are said to call into question governments’
continued ability to levy taxes in a world in which companies, assets and people are
infinitely mobile (Asian Development Bank, 2001).
As a preliminary step to developing a successful strategy for the reform of a revenue agency, the
“Tax Policy and Administration Thematic Group” of the World Bank has developed a useful
diagnostic framework for revenue administration. It includes a description of quantitative
indicators and indicators of effectiveness and efficiency that might be used to get a general idea
of the physical dimensions of the revenue administration and how effectively and efficiently it is
currently performing its functions and where performance problems might be acute. It also
provides a framework and checklist of questions relating to all aspects of revenue departments
operations, environment, resources, history, organization and management functions and
informal culture that can be used to assess its operations and diagnose its failings (Asian
Development Bank, 2001).
2.1.3 Tax Administration Challenges
The efficiency of a tax system is not determined only by appropriate legal regulation but also by
the efficiency and integrity of the tax administration. In many countries, especially in developing
countries, small amounts of collected public revenue can be explained by either incapability of
the tax administration in realization of its duty, or with some degree of corruption. Regardless of
how carefully tax laws have been made, they could not eliminate conflict between tax
administration and tax payers. Tax administration with a skilled and responsible staff is
almost the most important precondition for realization of "tax potential" of the state. It is
generally known that tax laws and tax policy are as good as good is the tax administration
(Kaldor, 1980). Tax administrators face a formidable number of challenges in every country. In
many developing countries tax administration reforms are needed simply to achieve
macroeconomic stability. In countries with economies in transition there is a need to establish a
tax administration that can respond to the demands of a growing market economy and the
resulting increase in the number of taxpayers. Human resource is essential in tax administration.
Trained personnel are what actually most developing countries lack and this forced them, for
instance, to organize their activities under the existing tax administration structure. During the
past decade, diverse developing countries have introduced radical reforms in their collection of
taxes. In more than 15 countries, traditional tax departments have been granted the status of
semiautonomous revenue authorities, which are designed with a number of autonomy-enhancing
features, including self-financing mechanisms, boards of directors with high-ranking public and
private sector representatives, and generic personnel systems (Robert 2003).
All transition countries had a very huge fall of GDP, which, with serious limitation of tax
administration, resulted in an alarming revenue gap. Moreover, in all countries, revenues from
taxes collected from big, mostly state firms, declined, and were not replaced with increased taxes
collected from private, mostly small enterprise. This has created pressure to increase tax rates
and introduce new, very often ad hoc taxes. These diversities, which are called "patches" in the
tax system, are to a great extent a result of the inefficiency of the tax administration in collecting
the existing taxes (Kornai, 1990). This situation would lead to a permanent need for new taxes,
changes in the tax system and almost never-ending tax reforms. In transition countries income
tax is gaining on importance. Taxpayers are not used to this form of taxation and when they are
faced with it for the first time; they will obviously regard it as a burden. As Kornai (1990)
explained the citizens in these countries are not used to paying taxes at all. The tax
administration and bodies which produce political decisions have to foresee the attempts to
evade taxes and have to design a tax system that will not question the loyalty of its citizens.
Most developing countries continue to face serious problems in developing adequate and
responsive tax systems (Richard, 2008). No matter what any country may want to do with its tax
system, or what anyone might think it should do from one perspective or another (ethical,
political, or developmental), what it does do is always constrained by what it can do. Economic
structure, administrative capacity and political institutions all limit the range of tax policy
options (IMF 2006).
Heavy tax distortions in transition economies come from various sources. First, base rates are
often high. In transition economies with many fledgling small enterprises and weak tax
administration, high tax rates are likely to encourage already widespread tax evasion and
participation in informal economy. Second, many countries still rely heavily on payroll taxes to
finance social expenditures. If payroll taxes are levied mainly on employers (as is the case in the
great number of transitional economies) this can discourage entrepreneurial efforts, disincentive
formal hiring and push economic activity underground. Third, and as World Bank estimations as
the most important, the many exemptions and special tax rates in parts of the economy often
coexist with higher tax rates on other activities, undermine revenue performance, complicate tax
administration and distort revenue allocation. The key precondition for efficient tax
administration is tax structure with minimizing distortions, strictly tax exemptions and
elimination of the differences in tax treatment of particular parts of economy. This will mean
extending the VAT to all but a few goods and services (notably export, which should be zero -
rated, and banking and insurance services, where it may be difficult to determine the amount of
value added to be taxed).
2.1.4. Efficiency of Tax Administration
The key precondition for efficient tax administration is tax structure with minimizing distortions,
strictly tax exemptions and elimination of the differences in tax treatment of particular parts of
economy. This will mean extending the VAT to all but a few goods and services (notably export,
which should be zero - rated, and banking and insurance services, where it may be difficult to
determine the amount of value added to be taxed) (Hesse, 1993). Badly conceived or
unnecessarily complicated tax structure greatly complicates the operating function of the tax
administration, while simple and transparent tax structure could affect it in the opposite way. So,
the increase of efficiency of the tax administration could be attributed mainly to the
simplification of the tax system. Tax administration cannot change legislation as a means for
improvement of tax structure, but could propose necessary changes in laws that can improve tax
structure and / or could aid in application of the law (Mansfield, 1990).
Effective tax administration in a market economy is based on voluntary compliance by a large
number of decentralized taxpayers. Most transition economies have only recently started to
address compliance issues and build up a modern tax administration with better overall revenue
performance. A first step is restructuring how the work is organized. In transitional countries, tax
administration can be organized respecting the functional principle (collecting, recording,
auditing, and enforcement) according to the type of taxpayers; the type of taxes; and type of
enterprises in economy. Tax administration should develop around activities (such as recording
or auditing), as in Hungary, rather than according to the type of tax and taxpayers. More
generally, tax payment needs to be assessed, collected and recorded more efficiently. Current
procedures are rarely up to the job of dealing with a growing number of taxpayers, many of
which - particularly private businesses and service enterprises are tricky to tax at best. The
government might start by assigning an identification number to all taxpayers, focusing its
efforts on large taxpayers who generate the bulk of revenue, and withholding wage tax at the
source. This, however, does not mean that results of successful monitoring of large taxpayers can
be excused for neglecting medium and small taxpayers. This can lead to the decrease of their
compliance, resulting with lower total revenue. Next should be improved auditing and follow-up
actions against those who fail to file returns or make payment. Latvia, for example, has issued
regulations for an improved taxpayers' register: every taxpayer must register with the State
Revenue Service; financial institutions will not be allowed to open accounts for any business or
individuals without a taxpayer code (Hesse, 1993).
Most transitional economies are in the midst of a comprehensive reform of their government
(that include the tax administration) and tailor them to the changing needs of a market
environment. In that task they can use the experiences from West European countries and from
countries that have recently realized tax reforms as a stepping stone to further development
and/or as a challenge and incentive for reaching a higher level of efficiency and success
(Musgrave, 1991). The reform of tax administration in these countries is a part of a complete
transformation of public administration, so there are no reasons to be too optimistic about the
speed of change and about expected results (Hesse, 1993).
2.2. Category of Taxpayers
According to the federal income tax proclamation no.979/2016, source of income has classified
into five schedules: Schedules A (income from employment), Schedule B (income from rental of
buildings), Schedule C (income earned from business) and Schedule D (other income not
categorized in any of the three, e.g. Income from royalties). Schedule E (exempt
income).Schedule C type of tax system, which is the topic of this study, is further divided into
three major categories, namely Category “A”, “B”, and “C” based on the volume of their sales,
form of their business and annual turnover. Category “A” Taxpayers: Ethiopian Tax
proclamation 979/2016 describes category ‘A’ taxpayers as any company incorporated under the
laws of Ethiopia or in a foreign country and any business having an annual turnover of Birr
1,000,000 or more. They are required to submit Balance sheet, profit and loss statement,
incorporate gross profit and the manner in which it is computed, general and administrative
expense depreciation expenses and provisions and reserves to Revenue Authority at the end of
the year. Category “B” Taxpayers: Category B taxpayers falls under the income range between
500,000 birr and one million. This category of taxpayers should submit to the Revenue Authority
profit and loss statement at the end of the year similar to category ‘A’ taxpayers. Category “C”
taxpayers: are taxpayers that are not classified under Categories “A” and “B”, and businesses
whose annual turnover is estimated up to Birr 500, 000 are classified under this category of
taxpayers. A standard assessment method should be used to determine the income tax liability of
category “C” taxpayers. The taxpayer should pay the tax determined in accordance with standard
assessment.
2.3. Objectives of Taxation
The main objectives of taxation are rising of revenue with which governments can drive human
development by providing systems of health, education and social security and the provision of a
successful economy through regulation, administration and investment infrastructure.
Additionally reduction of poverty and inequality to ensure that benefits for development are felt
by all, and appropriate utilization of taxes and subsidies to ensure that all social costs and
benefits of production or consumption of a particular good are reflected in the market price, for
example, the taxation of tobacco to limit damage to the health of citizens. Moreover strengthen
and protection of channels of political representation (Cobham, 2007).
2.4. Tax system or structure
The complexity of tax systems, probability of detection and penalties and tax rates affect the
effectiveness of a tax system. The more tax laws become complex the lower the compliance
levels. Simple, understandable and clear tax rules enhance tax compliance (Chau & Leung,
2009). The complexity of tax laws makes it difficult for ordinary taxpayers to understand.
Although taxes are not part of everyday conversations, people will normally try and make sense
of the contributions that they make to the government through the payment of taxes. When trying
to makes such sense, they will evaluate the fiscal policy, the tax rates, the provision of public
goods and services and the interaction between themselves as taxpayers and the tax authorities.
At the end of it all, the motivation to comply or not comply develops and this shapes their
subsequent tax behavior (Kirchler, 2009).
Complex tax laws are a concern worldwide. Tax laws have become so complex that even experts
such as accountants, lawyers and tax officers have difficulty in interpreting many of the
legislative provisions. Research conducted on the linguistic analysis of tax laws found that high
level abstraction in the written language combined with long and complex sentences resulted in
unnecessary complexities, making it difficult for taxpayers to understand the laws. Several
countries have attempted to simplify their tax laws but to no avail, for example, New Zealand’s
tax laws were written in simplified English, but they still faced the same administrative and
compliance problems as before the simplification (Kirchler, 2009).
2.5. Tax compliance
Tax compliance is the willingness of taxpayers' to obey tax laws by true reporting of tax bases,
correct computation of the tax liability, timely filing of returns and timely payment of the amount
due (Ahmed and Kedir ,2015). It is therefore an important factor for the collection of tax
revenue. Taxpayers make conscious decisions on whether or not to comply with tax laws. An
assumption can be made that taxpayers’ knowledge and concepts of taxation form the basis of
their judgments, evaluations and perceptions of fairness, willingness and ability to comply with
the law. Nevertheless, it is important to gain an understanding of taxpayers’ behaviors as they
will most probably behave in accordance with the subjective knowledge that they have.
Subjective knowledge does not focus on whether the knowledge is correct or not, but instead
focuses on the knowledge that taxpayers have and how such knowledge is organized to form a
meaningful representation (Kirchler, 2009).
The critical ingredient for revenue collection for any government is the attainment of a sufficient
level of tax compliance on the part of taxpayers. Ideally any government would want one
hundred percent compliance which would mean optimal tax collection. Tax compliance is
influenced by the behaviors of taxpayers which are shaped by their attitudes, and such attitudes
are influenced by various factors. Understanding taxpayers’ behaviors in terms of factors that
influence their attitudes towards tax compliance is therefore important in encouraging higher
levels of compliance and minimization of noncompliance (Berenson, 2007). It is important for
any government and revenue collecting authority to understand the reasons why taxpayers
choose not to comply with tax laws as such understanding will have an impact on both the equity
and efficiency of the economy (Devos, 2005).
Tax compliance may be seen in terms of tax avoidance and tax evasion (Tulu 2007). The two
activities are conventionally distinguished in terms of legality, with avoidance referring to legal
measures to reduce tax liability and evasion to illegal measures. In the contrary, tax
noncompliance is individual failure to comply with their tax obligation. Tax noncompliance
consists of three distinct types: Filing noncompliance: refers to non-filing of returns to the tax
authority which will lead to tax gap i.e. the amount of unpaid taxes due foregone.
Nonpayment compliance: refers to untimely taxes paid, that means payment not made on a
timely manner to the tax authority. Timely tax payment is important to the tax authority. The
dues received now will used for the government’s expenditure otherwise, the insufficient fund
needs to borrowed and incur additional cost. Tax underreporting; considered a criminal offence
that imposes severe penalty. The taxpayer practices no reporting by way of evasion and
avoidance; both are same except that the latter is legal while the former is illegal. This area of
noncompliance poses a serious problem to tax authority because these taxpayers' escape tax and
their burden pushed to the other complying taxpayers'. This is where the fair and equitable tax
system is questionable. According to James et al (2003), the degree of non-compliance measured
in terms of the net tax gap (the difference between „true‟ individual income tax liability and that
finally collected on a voluntary basis or by enforcement action) which happens by means of both
tax avoidance and tax evasion. Most tax administrators and taxpayers believed that, the growing
dissatisfaction with the fairness of tax system is the major causes for increasing tax
noncompliance (Chau and Leung, 2009). Tax noncompliance can reduce revenue, distort labor
market and weaken state stability by feeding perception of cheating and fraud (Ahmed and Kedir
2015).
2.6. Characteristics of an Effective Tax System
A good tax system should meet five basic conditions: fairness, adequacy, simplicity,
transparency and administrative ease. Although opinions about what makes a good tax system
will vary; there is general consensus that these five basic conditions should be maximized to the
greatest extent possible.
1. Fairness, or equity, means that everybody should pay a fair share of taxes. There are two
important concepts of equity: horizontal equity and vertical equity. Horizontal equity means that
taxpayers in similar financial condition should pay similar amounts in taxes. Vertical equity
means that taxpayers who are better off should pay at least the same proportion of income in
taxes as those who are less well off. Vertical equity involves classifying taxes as regressive,
proportional, or progressive.
2. Adequacy means that taxes must provide enough revenue to meet the basic needs of society. A
tax system meets the test of adequacy if it provides enough revenue to meet the demand for
public services, if revenue growth each year is enough to fund the growth in cost of services, and
if there is enough economic activity of the type being taxed so rates can be kept relatively low.
3. Simplicity means that taxpayers can avoid a maze of taxes, forms and filing requirements. A
simpler tax system helps taxpayers better understand the system and reduces the costs of
compliance.
4. Transparency means that taxpayers and leaders can easily find information about the tax
system and how tax money is used. With a transparent tax system, we know who is being taxed,
how much they are paying, and what is being done with the money. We also can find out who (in
broad terms) pays the tax and who benefits from tax exemptions, deductions, and credits.
5. Administrative ease means that the tax system is not too complicated or costly for either
taxpayers or tax collectors. Rules are well known and fairly simple, forms are not too
complicated, it is easy to comply voluntarily, the state can tell if taxes are paid on time and
correctly, and the state can conduct audits in a fair and efficient manner. The cost of collecting a
tax should be very small in relation to the amount collected.
2.7 Impact, Incidence, and Shifting of Taxes
The burden of a tax does not always lie on the person from whom it is collected by government.
When a tax is imposed on a person, it is quite possible that it may be transferred by him to a
second person, and this tax may be ultimately borne by this second person or transferred to other
by whom it is finally borne. Thus, a person who originally pays the tax may not be actually
bearing its money burden as such. Hence, it is necessary to know who bears the immediate
burden of tax and who bears the ultimate burden of tax.
2.7.1 Impact of Tax
Impact of a tax refers to the immediate/initial burden of a tax on the person who pays it in the
first instance. In other words, the person who pays it in the tax to the government in the first
instance bears its impact. Hence, impact of the tax is always on the person who is responsible by
law to pay the tax amount to the government in the first instance (Fullerton and Rogers, 1993).
2.7.2 Incidence of Tax
Incidence of a tax refers to the final or ultimate resting place of the burden of the tax payment. It
is the place where the tax is finally collected. The person who has the legal obligation to make a
tax payment may not be the person whose welfare is reduced by the presence of the tax. If a
person who pays the burden of the tax to anybody else, then the incidence as well as the impact
of the tax is on the same person. However, if the original or the first taxpayer is able to transfer
the tax burden (tax paid by him) to a second person who cannot shift the burden of tax to any
other person, then the incidence of the tax rests on the second person (Fullerton and Rogers,
1993).
2.8. Procedures for Tax Collection
It is expected that taxpayer’s tax payments should be in line with their income and they are
required to pay a tax in proportion to their level of income (Damme, L, T. Misrahi and Orel
2008). On the other part of the tax collectors, according to canon of taxation, collection of tax
should be time conscious and convenient and the cost of collecting the taxes should not be high
to discourage business. Some of the procedures undertaken by tax authority to ensure compliance
such as Filing return, return processing of tax, audit and examination, tax collection and tax
enforcement.
2.8.1. Filing Returns
Taxpayers are required to file returns within specified months of the end of their tax accounting
year. The return should be filed in quadruplicate and should contain all the particulars of the
taxpayer. All documents respecting taxation should be presented to the tax authority office where
the taxpayers have their file. Upon receiving a taxpayer’s return, the tax authority officers
examine the accuracy of the return by determining whether the return is properly completed,
whether tax has been properly computed, and whether there are any penalty payments to be made
by the taxpayer (James, S. and Nobes, C. 2000).
2.8.2. Audit and Examination
The role of tax audits and examinations is to check the accuracy of the information that taxpayers
provide to tax authorities. The audits range from simple field and desk audits to comprehensive
audits (James, S. and Nobes, C. 2000).
2.8.3. Tax Collection and Enforcement
Tax collection and enforcements another procedure in the tax administration. When the taxpayer
has not made payment on the due date, and does not object to the tax assessed, tax authority can
enforce payment in a number of ways. The tax administration may bring a suit against the
taxpayer or request a person owing or holding money for the taxpayer to pay the money on a
specified date or institute distress proceedings against the taxpayer’s moveable property. In a
wider context, the issue of enforcement includes offences committed by the taxpayer, and the
penalties for these offences (James, S. and Nobes, C. 2000).
2.8.4 Identification and Registration of Taxpayers
Tax Identification Number (TIN) is used to identify taxpayers. Every taxpayer has a unique TIN,
which he or she is supposed to use in all his or her correspondence with the tax authority, and no
taxpayer should have more than one TIN. In countries like Uganda, they issue TIN free of charge
upon the taxpayer completing a TIN application form (Kangave, 2005).
2.9 Empirical literature review
Kangave (2005) discussed tax administration in Uganda’s context. It then discussed Uganda’s
tax structure, the problems faced in administering taxes, and it gave possible solutions to the
problems the author identified in his research. The author, in his research, identified corruption,
tax evasion, and inadequate resources for tax administration poor quality of audits and
inadequate support for tax administration as problems or challenges of tax administration that
have weakened the ability to achieve desired revenue targets. The author did not purport to
address all of the problems. Neither does it set out to address in detail the causes of these
problems. Instead, it points out the problems. Besides, the author recommendations for solving
the tax administration problems were adopted from the Canadian tax administration system.
The researcher do not believe that the tax Canadian tax administration system should not be
taken as standard for measuring the performance of tax administration system. In addition to this,
the author used interview with the tax officials and relied on secondary sources. However, author
could have also gathered responses from the target taxpayers to get additional information for his
research.
James (1999) examined issues affecting the formulation of tax policy through the development
of actual proposals by tax policy-makers. This was done taking account of the possibility that too
narrow an approach to this process can produce misleading conclusions and that proposals for
tax reform may be inappropriate when the wider context of the tax system as a whole and the
environment in which it has to operate are considered. Two issues ware used to illustrate the
situation - tax compliance and tax simplification. The paper concluded that in developing tax
policy it is important to ensure that the wider context is taken into account and it also outlines a
practical approach to achieve this aim. Jenkins (1991) emphasized that the tax system can never
work better than its tax administration, but even the best tax administration would certainly fail
to turn a bad tax system into a well-operating one. The researcher also warned that many
ambitious tax reforms failed because of the inefficient tax administration. Without the permanent
reorganization of the tax administration and almost daily improvements in methods of its
management, it is impossible to expect that tax reforms could be realized successfully. The
removal of exemptions, loopholes, and concessions can simplify administration and reduce
evasion. Taking a systematic view of the tax system, rationalization, simplification, and the
removal of anomalies should have the effect of reducing the administrative costs of
identification, assessment, auditing and enforcement. The administrative simplicity of "tax
handles", however, while influencing tax policy, should not be allowed to dictate it.
Concentrating on just a few handles can lead to highly distortion structures (Burges and Stern,
1993). Kussi (1994) tried to show the effect of tax reforms of 1983 on the revenue productivity
of the tax system in Ghana. To this end, two separate regressions for the preform period (1970-
82) and the reform period (1983-1993) were fitted for some major tax types. It was found out
that there was a progress of both buoyancy and elasticity for personal income tax, company
income tax, sales tax and import tax. The study attributed the improvements to growth in GDP
and general improvement of the tax administration. This study on the other hand showed that
there was a fall in buoyancy and elasticity for excise duty whose cause was stated to be abolition
of all excise duties on products other than beverages and tobacco in 1987 and the successive
reduction in the duty rates of the affected goods.
A study performed by Debere (2014) on Addis Ababa federal business taxpayers' satisfactions
with the tax system also show dissatisfaction of the taxpayers'. The findings identified high
compliance costs, a lack of clarity and access to information about tax regulations, arbitrary
behavior of tax officials and a lack of transparency in the tax authority makes taxpayers unaware
of their rights and exposes them to discretionary treatment by corrupt officers. In addition, the
study found that taxpayer are encountered a lot of inconveniences, including from misconduct of
the tax officers like an impersonal, insensitive and heartless bureaucracy and imbalance between
location and accessibility of the tax office with number of taxpayer. The study performed by
Tulu (2007) on Dire Dawa City taxpayers’ voluntary tax compliance finds out that, tax fairness
and equity, organizational strength of the tax authority, awareness level of the taxpayers, socio-
cultural factors, and provision of social services by the government as the main determinant of
voluntary compliance in the city. A study performed by Belay &Viswanadham
(Belay&Viswanadham2016) to evaluate the business income taxpayers' level of tax knowledge,
perceived complexity of the income tax system and tax compliance issues in Amhara regional
state of Ethiopia show taxpayers have inadequate technical knowledge and perceive the income
tax system as complex. The result also revealed that tax knowledge and tax complexity as
important factors towards noncompliance behavior among business income taxpayers'. One
study was performed on taxpayers' perception towards the fairness of business profit tax system
through considering various tax fairness dimensions and other influencing factors in the case of
Addis Ababa City Administration Business profit taxpayers’ fairness perception
(G/Meskel2011).The researcher commented no single study on such issues especially in the case
of business profit tax system. The study considered all business category business profit tax
payers and lack presentation of the result per each sub-city and per each taxpayer’s category.
Revenue generated from taxation has got the attention of governments as a major source of funds
necessary for the countries overall development. According to (Brautigam et al. 2008), taxation
is the new frontier for those concerned with state building in developing countries. But revenue
come from tax are not sufficient to finance the government expenditures because the tax revenue
performance is low in developing countries due to various problems. As per Crandall and Bodin
(2005), the developing countries tax revenue is in a weak position because of both a complex tax
system and widespread corruption. Complex and fragmented tax administration has its source in
part in developing countries.
The study by Wogene (1983) showed that for the period 1975-81 tax reforms had enabled an
increase in tax collection. This study employed the constant rate of adjustment method to
estimate elasticity of the tax system. Likewise, the study by Eshetu compared tax productivity in
the pre revolution, post revolution periods of Ethiopia, and found out that there was certain
improvement in the tax collection of the government in post revolution Ethiopia. Zelalem (1999)
studied the productivity of the Ethiopian tax system for the period 1961 - 1998.Thtimated the
buoyancy and elasticity of the overall and major individual tax categories p using the method of
division index. The results of this study showed that the Ethiopian system was inefficient for
most of the coefficients were found to be less than one. The exrlirrion given for the low
productivity of the tax system was that the system suffered from the problems of weak
administration and extensive tax evasion.
Generally, one can see that the empirical studies undertaken thus far for developing countries,
particularly for Ethiopia, bothered little or no to see the potential challenges faced by taxpayers
and the tax authorities in administering different tax activities such as tax assessment and
collection. The performance of the tax administration will have a bearing on the capacity to raise
revenue for a country since it includes primarily the assessment and collection activities.
Therefore, this research will not only identify the problems of the Bole sub city tax
administration and tax payers, but also the cause of these problems. Because the researcher
believes that identifying the root cause of the problems is the best ground to provide appropriate
solutions.
 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1. Introduction
This chapter focused on the research methods used to find answers to the research objectives.
The research methodology and design, target population, sampling procedures and sample size,
data collection methods, reliability and validity of the data collection instruments and
procedures, and finally, the data analysis and ethical considerations is presented in the chapter.
3.2 Research Approach
In order to attain the objective of the study and answer the research questions, the
researcher was adopted mixed research approach. The rationale of using a mixed approach is to
gather data that could not be obtained by adopting a single method (Creswell, 2003). Hence, the
basis of such approach helps to neutralize the limitations of applying a single approach in
connection with the qualitative and quantitative nature of the research questions.
3.3 Research Design
Descriptive survey method was employed in this study with the assumption that it is appropriate
because it helps in obtaining large variety of data related to the problem under the study. The
research methods have quantitative and qualitative nature. For the quantitative approach, the
study use self-administered survey. The sampling design for this population is random sampling.
The participants are Category “A” tax payers in Bole sub city. Under this category, there are
importers and exporters; wholesalers and retailers; manufacturers; and service providers. For
qualitative approach, the researcher use in-depth interview with executives of Bole sub city
Revenues and Customs Authority Branch Office employees. The nature of this research is
exploratory and open-ended. This research use both primary and secondary data sources. The
primary data was collected through interview and self-administered semi structured
questionnaires. The questionnaire was distributed to the selected tax payers and tax officers. To
get primary data the questionnaire was comprised of both closed and open ended questions. Most
of the closed ended questions were designed as ‘yes’ or ‘no’ questions. The secondary data was
generated from tax related policies and guideline documents, reports of Ethiopian Revenues and
Customs Authority’s (ERCA’s) web-site, books, Internet , handouts, other unpublished
materials, and from the data base of the sub city’s tax authority.
3.4 Target population of the Study
Population defines statistically as the totally of all subjects having a certain common
characteristic that are being studied. It is the collection of all units or elements under
investigation, which consists of a specified type of a person or subject over a given space and
time. In this research, the population is the total numbers of tax payers and tax office works are
addressed by the study.
3.5 Sampling technique
According to Kumar, R. (1999;148) sampling is the process of selecting a few(sample) from a
bigger group the sampling population to become the basis for estimating or predicting a fact,
situation or overcome regarding the bigger group. Walliman (2005) indicated that sample should
be free from bias. Otherwise, the type of selected sample will greatly affect the reliability of
subsequent generalization. Sampling strategies are categorized into main groups, namely
probably and non-probably sampling (Blaxter,et,al) both sampling strategies will be used in the
study.
To conduct the research; the researcher used two sampling techniques. These are purposive and
simple random sampling (SRS) techniques. This sampling technique was selected because it
gives equal and independent chance for all tax payers and tax office workers in the define
population of being select as a sample.
3.5.1 Sample Size Determination
There are several approaches to determining the sample size. These include using a census for
small populations, imitating a sample size of similar studies, using published tables, and applying
formulas to calculate a sample size and this is preferred by the researcher. In the case of the
research population, it does not mean that all members of stakeholders are possible respondents
for the questionnaire. Rather the questionnaire was distributed to tax payers and tax office
workers during the specified time. Yamane (1967), cited in Glenn (2012) provides a simplified
formula to calculate sample sizes. This formula was used to calculate the sample sizes, the
formula is: Simple random sampling was used for selecting samples within the group of tax
payers and tax office workers. However, in the context of this study, the total Category A Tax
Payers in Bole sub city are 22,531 as of September, 2021. Out of which only 3284 were
Category A Service Giving Tax Payers Business owners while the rest are sellers.
Due to their large size, tax payers were selected randomly and tax administration office workers
were also selected on the basis of availability sampling techniques. Accordingly, 130 tax payers,
55 tax office works from the sample Sub-city were selected and participated in the study. In sum,
the study has 185 sample respondents. Furthermore, three independent focus group discussions
were formed and conducted.
A level of confidence of 95% and a margin of error of 0.05 were used in selecting a sample size
of 185 for a population size of 3284.

N
n= 2
1+ N (e)
3284
n= 2
1+3284 (0.05)
n=356
Where
n is the sample size
N is the population size 6284, and
e is the level of precision. When this formula is applied to the above sample with 95%
confidence level.
A total of 356 questionnaires were sent to tax payers and tax office works from the sample Sub-
city were selected and participated in the study 185 (51.57%) responses were collected, whereas
171(48.43%) questionnaires were not responded and this small number of unreturned
questionnaires does not affect the data required for the analysis of the study.
A total of 185 respondents were used for the research, out of which 130 tax payers and 55 tax
office works were used for the research.
3.6 Data Types and Sources
There are two types of data sources namely primary and secondary data (Kothari, 2004). The
primary data are those which are collected afresh and for the first time, and thus happen to be
original in character (e.g. interview and questionnaire). Secondary data is defined as data that
have been previously collected for some other purpose. Hence, for this study, both primary and
secondary data sources are proposed. As regards primary data, information will be obtained
through the administration of different data gathering tools such as interview and survey
questionnaire to the respondents that will be selected using purposive sampling technique.
Regarding secondary data, documents available will be analyzed and reviewed in line with
literature pertinent to the study. Tax payers and Tax Office Worker in one hand treated through
questionnaire and executives of the branch office were treated through interview. The rationale
behind selecting such variety respondents is perhaps to consolidate the reliability of information.
3.6.1 Questionnaire design
Both close and open ended questions were asked in the questionnaire. The close ended questions
had a number of choices of possible answers and the respondents selected whatever they feel was
most appropriate. The closed ended questions were selected because they are easier to assess and
answer considering how busy the respondents were. Open ended questions were used only in few
places where the response options were relatively wide and not known but unfortunately none of
the respondent used these parts to specify their answers.
3.6.2. Interview
Before conducting an interview, the researcher prepared an interview schedule consisting of semi
structured questions. Based on these questions, some probing questions were also asked to obtain
an in depth information from the participants. The willingness of the participants was assured
before the interview was conducted to address ethical considerations. Four of the interviews took
place in the respondents ‘site office; the interview was conducted via translation. Since there was
only one translator, it was difficult to address each interviewee separately. So, the interview was
held with all respondents at a time as though it were focus group discussion. Whereas two of the
interviews done at respondents ‘office. Five allowed the interviewer to record the interview
while one allowed only notes to be taken.
3.7. Methods of Data Analysis
Descriptive statistics is the most famous for describing the characteristics of the sample and
major study variable through frequency distribution and consists of method of organizing,
displaying and describing the characteristics of the sample and major study unviable through
frequency distribution and consists of method of organizing displaying and describing data by
tables, graphs and summary measurement for the study we used histogram and frequency table to
describe the data collected through questionnaire, semi structured interview and document
analysis from the study representative sample were processed and subjected to a variety of
analysis techniques. Simple arithmetic calculations and descriptive statistics were deployed to
analyze and interpret the data. Summaries are presented as counts, and percentages in tables. The
researcher use both qualitative and quantitative analysis in this study. Besides, the data gathered
through interview and document review were analyzed in the form of narration or telling.
Finally, the researcher enhances the reliability of the findings.
3.8 Ethical consideration
An ethical concern is one of the most important things in a research. It is related mostly with
confidentiality as well as with efforts to guarantee and to reduce possible risks and dangers for
the participants in the time of field work research to the respondents. All the study participants
were informed about the purpose of the study and finally their permission was obtained before
the actual data collection process started. The researcher also were try to make the respondents at
ease when they feel stress and did not want answer questions by omit the question for later time
consumption, these stances played a significant role to the development of trustful relationships
and to the collection of rich and meaningful data from the field. Above all, the researcher was
made an attempt to develop a sense of trust and gain the genuine permission of all of the
participants of the study including confidentiality of their information, the information provided
by each respondent had been confidential in order to safeguard them from different difficulties.
 Chapter Four
4. Data Presentation, Analysis and Interpretations

4.1. Introduction
This chapter has two parts: the first part deals with the characteristics of the respondents and the
second part presents the analysis and interpretation of the main data. Objective of this study is to
assess the Tax Assessment and Collection Problems: The Case of Bole Sub-City Revenue and
Customs Authority Branch Office. To this end, both quantitative and qualitative data obtained
through questionnaire and individual interviews were used to answer the basic research
questions. Besides, document analysis also used in order to get insight about the whole picture of
the sample Revenue and Customs Authority Branch Office. Due to their large size, tax payers
were selected randomly whereas tax office workers and tax office management body’s
availability sampling techniques were used.

4.2 Demographic characteristics` of the respondents

The following table presents respondent’s characteristics and deals with their sex, age, martial
status, experience and qualification.

Figure 4. 1 sex of respondent

 Table 4. 1 Demographic characteristics` of the respondents

Frequency Percent Valid Percent Cumulative Percent

Sex Male 124 67.0 67.0 67.0
Female 61 33.0 33.0 100.0
Age less 30 73 38.5 38.5 38.5
31 – 45 92 50.9 50.9 89.3
45 - 60 17 8.9 8.9 98.2
above 60 3 1.8 1.8 100.0
Martial status Married 92 49.7 49.7 49.7
Single 63 34.1 34.1 83.8
Divorced 20 10.8 10.8 94.6
Widowed 10 5.4 5.4 100.0
Educational status Illiterate 21 11.4 11.4 11.4
grade 1 -12 38 20.5 20.5 31.9
Diploma and TVET 44 23.8 23.8 55.7
First degree 74 40.0 40.0 95.7
Master’s degree and above 8 4.3 4.3 100.0
Years of experience below 2 years 21 6.8 6.8 6.8
3 – 5 years 47 20.8 20.8 27.6
6 – 10 years 52 28.1 28.1 55.7
Above 10 years 65 44.3 44.3 100.0
As it is shown on the above table 4.1, in order to show the distribution of sex of respondent is
described and the composition of the respondents is somehow proportional in that 124 (67%) of
the respondents are male whereas 61 (33%) of the respondents are women. Based on the data
indicated above the student researchers can deduce that more male respondents participated in
filling out the questionnaire compared to female respondents.

Regarding to age structure of respondents, 73 respondents, representing 38.5% of respondents

were in the age group less than 30 years. 92 respondents, representing 50.9% are their age
between 31- 45 years. About 17 respondents, representing 8.9% of respondents were in the age
group between 45 – 60. And insignificant amount of the respondents 3 (1.8%) are above 60
years. The above figure clearly shows that most of the study participants were in the age of 31-
45 years. That means they were relatively energetic, matured and fit to take responsibilities.
Having reasonably matured age significantly impacts on the courage and efficiency of them
because these people are ready and fit to take their responsibilities as per needed.
Regarding with marital status, the descriptive analysis indicated that there were also different gap
in demographic sizes among the four studying sites. The largest group of respondents were
Married (49.7%), while the remaining 34.1%, 10.8% and 5.4% of them were categorized in
single, widowed and divorce respectively.

With regard to educational level of respondents, the table shows that 74 respondents,
representing 40% of the tax payers are degree holders, 44 respondents, representing 23.8% of the
tax payers are diploma and TVET holders, 38 respondents, representing 20.5% of the tax payers
are grade 1 up to 12 holders and the remaining 21 tax payers are there is no educational level it is
illiterate. From this result one can realize that a significant number of respondents have degree
holders. The low level in academic qualification yields poor and irresponsible practices in tax
related matters.

In the above table 4.1, items related to the involvements years of the participants in the tax
payers Work experiences and sources of problems were designed, responses were collected,
analyzed in the above table and discussed. 6.8%, 20.8%, 28.1% and 44.3% of the responses of
respondents had indicated as the work experiences of the respondents had been ranged between
less than two years and more than 10 years. The highest percentage of the respondents working
experiences was greater than 10 years and the second highest range of working experiences was
between 6 and 10 years and the least range of working experiences of the respondents were
ranged less than two years. This implies that respondents’ different working experiences had
provided their responses for this study. Regarding the tax payers experience in the business, a
significant number of the tax payers had the work experience of more than 10 years in the
current business that they are engaged in. This figure clearly indicated that that most of the tax
payers have reasonably adequate experience to carry out responsibility and to provide sufficient
information about what is going on in their businesses. Having relevant and adequate work
experience defiantly attracts and contributes a lot for the delivery of quality work to their
respective business enterprise.

4.3 Awareness/Knowledge about taxation

The following discussions were prepared based on the research questions number one.
Accordingly, each items forwarded to sample respondents were discussed independently.

Table4. 2 Awareness/Knowledge about taxation

Awareness/Knowledge about taxation Frequency Valid Percent
Does your office provide regular information to category “A” Yes 151 81.6
taxpayers to create tax awareness? No 34 18.4
What is your perception towards tax Payment? as debt 40 21.6
as Obligation 37 20.0
as Development 103 55.7
Others 5 2.7
The education and awareness creation program through media, Strongly Disagree 49 26.5
brushers and others means is not sufficient to improve tax Disagree 29 15.7
compliance. Neutral 6 3.2
Agree 54 29.2
Strongly Agree 47 25.4
Adequate Awareness creation training has been given to the Strongly Disagree 53 28.6
VAT registered organization regarding use of cash register Disagree 48 25.9
machine. Neutral 6 3.2
Agree 49 26.5
Strongly Agree 29 15.7
What are the benefits you get by paying your tax liability? get bank loan 92 49.7
participate in bid 81 43.8
Guarantor 4 2.2
Others 8 4.3
When do you pay your tax Liability? on time 33 17.8
When time is over 152 82.2
Table 4.2 demonstrates that, we can understand that 81.6% of the respondent in the tax office
clearly stated that, the tax authority provides regular information to category “A” taxpayers to
create tax awareness. This helps to inculcate in taxpayers a sense of responsibility towards
taxation and ultimately promotes a positive view to voluntary compliance.

In the above Table 4.2, respondents were asked about tax payer’s awareness the reason why they
pay taxes. 103, (55.7%) taxpayers believe that paying tax to government contributes to national
development. 40, (21.6%) of them believe tax as debt and the remaining 37 (20%) respondents
perceived tax as an obligation. Based on this result one can possibly concluded that almost all
respondents in the sample sub-city are well informed about the reason of paying taxes.

The result indicates that Out of 185 of the respondents, 101 who used cash register machine,
54.5% complained that they did not receive adequate training regarding the use of the cash
 register machine. They believe that they do not have knowledge of operating the machine.
Whereas, the remaining, 45.5%, are comfortable in using the machine.

From the above Table 4.2, 92 (49.7%) respondents perceived that they can get bank loan if they
pay tax, 81 (43.8%) can participate in bid, 4 (2.2%) believed that right to be guarantor and 8
(4.3%) can get other benefits. This implies that taxpayers know the advantages of paying taxes.

And from the above Table 4.2, 152 (82.2%) taxpayers respond as they pay tax on time and 33
(17.8%) of them pay their tax after the due date. It is necessary to increase the culture of paying
tax on time and introduce attractive approaches to welcome the tax payers that paying tax means
developing the entire nation by contributing their side. In order to supplement the qualitative
data analysis and interview was also conducted. Based on the items raised to the interview
participants the following summarized findings were explained. Respondents stated that tax
payers appeared to have inadequate knowledge on the technical aspects of the income tax. The
absence of tax knowledge may lead to noncompliance behavior among taxpayers. In addition,
small business taxpayers are not even aware of their tax knowledge shortfall and this may lead to
unintentional non-compliance behavior. Concerning the perception of the people on paying tax,
it has two faces; the first group believes that paying tax is totally obligatory and mandatory
whereas the second group perceived that paying tax has to be voluntary because there is no
development without having proper tax collection procedure.

4.4 How effective and efficient are tax assessment and collection procedures
The following discussions were prepared based on the research questions number one.
Accordingly, each items forwarded to sample respondents were discussed independently.

Table 4. 3 How effective and efficient are tax assessment and collection procedures

How effective and efficient are tax assessment and collection Frequenc Valid
procedures y Percent
Would you agree that tax office managers are skilled enough to lead Yes 28 15.1
their fellow tax collection officers according to the law and existing No 120 64.9
procedure? Neutral 37 20.0
Is the Tax rate fair? Yes 22 11.9
No 126 68.1
Neutral 37 20.0
Would you agree that laws and procedures about taxation are Yes 6 3.2
understandable? No 154 83.2
Neutral 25 13.5
Would you agree that tax collection officers are skilled enough to Yes 7 3.8
assess and collect taxes? No 158 85.4
Neutral 20 10.8
Would you agree that tax collection officers are transparent, genuine Yes 7 3.8
and properly follow the right tax collection procedure? No 138 74.6
Neutral 40 21.6
The Chance of being detected is relatively low if an official is engage Yes 123 66.5
in corrupt activity? No 47 25.4
Neutral 15 8.1
What is your view on the fairness of the tax assessment procedure? it is fair 8 4.3
it is not
177 95.7
fair
Do you receive any briefing on tax assessment and collection from the Yes 101 54.6
tax authority? No 84 45.4
Do you have book of records for your business transactions? Yes 127 68.6
No 58 31.4
Do you believe the tax office is staffed with adequate number of Yes 37 20.0
sufficiently qualified personnel No 148 80.0
Are you clear with the concept and procedures for the computation of Clear 21 11.4
category “A” tax? somewhat
133 71.9
clear
not clear 31 16.8
Would you agree that tax authorities’ enforcement actions in the Sub- Yes 49 26.5
city are effective? No 112 60.5
Neutral 24 13.0

From the above table 4.3, respondents were asked about the tax office managers’ skill and the
ability to lead their fellow tax collection officers according to the law and the existing procedure.
Accordingly, 28(15.1%) agree that the tax office managers in their sub city leading their fellow
tax collection officers according to the law and the existing procedure. Whereas 120(64.9%) of
them disagree. And only 37 (20%) of them were neural. This implies respondents think that
managers have no the required skill to lead tax collection officers and activities.

Concerning to present tax rate in table 4.3, 22(11.9%) of the respondent believe that they are
made to pay as balanced as their ability to pay and concluded that the tax payment is made fair to
them. However, 126 (68.1%) of taxpayers believe the opposite and they believe that they are
forced to pay beyond their capacity and unfair tax. The remaining 37 (20 %) percent assumed
that the tax payment neither more than their capacity nor it is as balanced as the capacity or
ability they have. They simply responded as being neutral not to say something about the fairness
with regard their ability to pay. This implies that the tax rate is not fair.

Tax laws and procedures need to be easily understandable as far as possible. As it is indicted in
in Table 4.3, 6(3.2%) of the participants agreed that laws and procedures about taxation are
understandable whereas 154 (83.2%) of the respondents have perceived that laws and procedures
about taxation are too complicated which does not easy to understand it. And only 25(13.5%)
participants were neutral. This implies that tax laws are not easy to understand by the majority of
the tax payers. This show the understandability issues are main constraint for tax assessment and
collection and this may lead to unintentional non-compliance behavior.

As shown on the above Table 4.3, 158(85.4%) respondents were disagreed that tax collection
officers are skilled enough to assess and collect taxes. 20(10.8%) of them were neutral and only
7 (3.8%) agree that tax officers are skilled enough. From this one can infer that the respondents
believe that the officers were not skilled enough to assess and collect taxes. Thus whenever the
taxpayers have this understanding about the tax officials, then it is likely it will affect their
intention to pay tax on time and honestly and could result in tax evasion.

In the above Table 4.3, respondents were asked whether tax collection officers are transparent,
genuine and properly follow the right tax collection procedure or not. Accordingly, 138 (74.6%)
respondents confirmed that tax collection officers are not transparent, genuine and properly
follow the right tax collection procedure. Whereas 40(21.6%) respondents were neutral and
7(3.8%) said the opposite. From this one can infer that tax collection officers are not transparent,
genuine and properly follow the right tax collection procedure. In this case customers will lose
confidence and reliability of the service tax officers give.
In addition, table 4.3 also presents the response of the tax payers when they were asked if the tax
authority gives them any briefing on tax assessment and collection. While the majority 101
(54.6%) of them indicated that they do receive briefing, 84(45.4%) of them answered the
opposite. Since poor tax education practice and lack of consultation sessions between the tax
authority and taxpayers result in poor tax collection, the office should strengthen the provision of
sufficient education to taxpayers to boost awareness. Though it is not obligatory for category
“A” taxpayers, maintaining books of accounts and supporting documents in accordance with
proper accounting principles and in a manner acceptable to the Tax Authority is a commendable
practice.

Table 4.3 also depicts the response of category “A” tax payers on having book of records. While
68.6% of them indicated that they have book of records, the remaining 31.4% said they do not
have book of records for their financial transactions. This means that a quite a significant
proportion of the category “A” tax payers don’t have any formal means to control their revenues
and expense. Tax payers who do not maintain books of account were asked how they can
manage their profit and loss in the absence of any record; their responses were simply by selling
items at a price higher than they were purchased based on mere estimation by comparing their
daily revenue and expense. The fact that many business owners do not keep their books
properly invites to general estimations, which are often arbitrary. So training is necessary on the
one hand and on the other hand, national standards for bookkeeping, which would be respected
in all taxation offices nationwide need to be defined and introduced (ECC and EBDSN, 2005).

Moreover, table 4.3 indicates that majority (80%) of the tax payers do not believe the tax office
is staffed with adequate number of sufficiently qualified personnel. In contrast 20% of the tax
payers indicated that they do believe the tax office is staffed with adequate number of
sufficiently qualified personnel.

From the above table 4.3, taxpayers were asked if the concept and procedures for the
computation of category “A” tax is clear to them, only 11.4% of the tax payers said that it is
clear for them. While above half (71.9%) of the tax payers indicated it is somewhat clear, the rest
16.8% indicated the concept is not at all clear for them. A good tax system is one which is
designed on the basis of an appropriate set of principles, such as equality or fairness and
certainty.
Taxes must be fair and equitable, i.e., citizens should be taxed in proportion to their abilities to
pay and in proportion to the benefit they derive from the government. According to James and
Nobes (2000), the most obvious requirement of equity or fairness is to treat equal people in equal
circumstances in an equal way. Furthermore, tax payers were asked whether the tax they are
paying is based on their ability-to pay or not. For voluntary system to work successfully, tax
payers must be assured that taxes are levied fairly and that everyone pays his share. If the
feeling that the tax system has collection loopholes and evasions becomes widespread, if
taxpayers learn their neighbors earning comparable income pay substantially less or enjoy tax
free living, their morale to pay tax declines. Once such attitude prevailed among the public it will
be difficult to rectify it and demands authorities huge compliance and collection costs.

From the above Table 4.3, 123 (66.5%) respondents agree that the chance of being detected is
relatively low if an official is engage in corrupt activity. Whereas 47 (25.4%) of them said no,
and only 15 (8.1%) are neutral. This implies that taxpayers don’t trust tax officers that they are
free of corruption.

With regard to Table 4.3, respondents were asked about the tax authorities enforcement actions
in the Sub-city is effective or not. Accordingly, 49(26.5%) tax payers confirmed that tax
authorities’ enforcement actions in the Sub-city is effective and oppositely more than half of the
study participants that is 112(60.5%), confirmed that tax authorities’ enforcement actions in the
Sub-city is not effective and not welcomed by the tax payers. 24(13%) study participants
underlined that, they are neutral with the current tax authorities’ enforcement actions in the
Subcity. From this we can understand that the Authority usually takes aggressive effort instead
of teaching in various ways to implement its sophisticated taxation system.

Based on the items raised to the interview participants the following summarized findings were
explained. Taxpayers don’t meet deadlines. Some of the reasons are economic difficulties,
tradition of rush hour payment. Be it for these or other reasons, according to James and Nobes
(2000), though a tax payer might eventually pay his/her full liability, since the payment is
late, the taxpayer cannot be considered to have been compliant. Furthermore, rush hour show
up of taxpayers result in work overload of tax office personnel on the top of inadequate man
power. Respondents also imply that tax laws and procedures are slightly violated with tax
officers and tax payers.
 The amount of tax liability tax payers have paid is overstated. Keeping tax rates at a reasonable
level can encourage the development of the private sector and the formalization of businesses.
This is particularly important for small and medium-size enterprises, which contribute to growth
and job creation but do not add significantly to tax revenue. Also it is indicated that tax payers
complain frequently about the way the tax is assessed and collected. Major complaints raised by
the taxpayers were unfair tax rate, Double taxation on imported items, rejection of purchase
invoices by tax officers.

Respondents were asked whether they receive trainings or not. Accordingly, Tax officers
indicate that they get regular training relevant to their duties and responsibilities. As they have
listed they have received short term trainings on tax audit, tax assessment, tax regulations and
guidelines, estimating daily income, computer applications and data encoding, other trainings
based on respective job position. This undoubtedly enables the tax personnel to develop simple
and user friendly tax administrative systems and procedures as well as to have sufficient powers
to effectively enforce them.

Moreover it is indicated that there are many citizens in Addis Ababa city Administration in
general running their business without legal trade license and the tax authority has poor law
enforcement on such type of business persons.

4.5 Major causes of tax collection problems

The following discussions were prepared based on the research questions number three.
Accordingly, each items forwarded to sample respondents were discussed independently.

Table 4. 4 Major causes of tax collection problems

Major causes of tax collection Problems Frequency Valid

Percent
Is the number and qualification of the employees Yes 28 15.1
at your office sufficient to assess and collect
category “A” tax efficiently? No 157 84.9
Did you receive any training relevant to your Yes 127 68.6
duties and responsibilities? No 58 31.4
Is there a clear policy and regulation for Yes 160 86.5
assessment and collection of category “A” tax? No 25 13.5
Absence of willingness and poor understanding Strongly Disagree 11 5.9
about tax proclamations, rules and regulations byDisagree 13 7.0
taxpayers? Neutral 7 3.8
Agree 63 34.1
Strongly Agree 91 49.2
Inefficiency and ineffective computerized system Strongly Disagree 11 5.9
in tax administration Disagree 13 7.0
Neutral 7 3.8
Agree 63 34.1
Strongly Agree 91 49.2
Do you think there is redundant Electric power Yes 165 89.2
interruption? No 20 10.8
Do you think Tax evasion in category “A” tax Yes 152 82.2
payers is Significant? No 14 7.6
Neutral 19 10.3
Sometimes Tax Officials cooperate with tax Disagree 15 8.1
payers who intend to evade tax and engage in Neutral 6 3.2
bribery activity.
Agree 22 11.9
Strongly Agree 142 76.8
What problem(s) are there during tax collection? Inefficiency of the
113 61.1
tax collectors
ill - treatment 18 9.7
Tax
22 11.9
underreporting
There is no
32 17.3
problem
The following paragraphs present the responses of the tax office personnel. Table 4.4
demonstrates that 15.1% of the respondents believe that their office assigned sufficient number
of adequately qualified personnel who are able to assess and collect tax efficiently. The majority
(84.9%) of tax officers, however, did not agree with this assertion. This inevitably affects the
operations and effectiveness of the tax office. Further, Oldman (1967), the tax authorities can be
perceived weak by taxpayers and this could might result in tax evasion. Respondents who said
that their office did not respect the principle of right person at the right position to assess and
collect category “A” tax efficiently mentioned the following as reasons for the assignment of less
appropriate personnel: - as a short term solution to address the shortage of manpower assignment
by political affiliation loose recruitment procedures.
In addition, Table 4.4 also shows that 68.6% of the tax officers indicate that they get regular
training relevant to their duties and responsibilities. The remaining 31.4% of the respondents
indicated that they did not get any training. The respondents who gave an affirmative response
were also asked to list the type of training they received. They indicated that they have received
short term trainings on areas such as tax audit, Tax assessment, tax regulations and guidelines,
estimating daily income, computer applications and data encoding and other trainings based on
respective job position. This undoubtedly enables the tax personnel to develop simple and user
friendly tax administrative systems and procedures as well as to have sufficient powers to
effectively enforce them. Moreover, table 4.4 indicates that tax officer respondents
unequivocally (86.5%) replied that there is a clear policy and regulation for assessment and
collection of category “A” tax but 13.5% of the respondents replied that there is no clear policy
and regulation for assessment and collection of category “A” tax.

As we can see in table 4.4 above, 91 (49.2 %) of respondents strongly agree and 63 (34.1%) of
them agree that there is absence of willingness and poor understanding about tax proclamations,
rules and regulations by taxpayers. However 13 (7 %) disagree, and 11 (5.9 %) respondents
strongly disagree with this assertion. Only 7(3.8%) of them were neutral. This implies that
taxpayers have poor understanding about tax proclamations, rules and regulations and they are
not willing to know it.

And from the above Table 4.4, indicates that taxpayers were asked if there is inefficient and
ineffective computerized system in tax administration. 91 (49.2%) of them strongly agree and 63
(34.1%) agree on the issue. only 24 (12.9%) of the tax payers said that it is effective and efficient
computerized system. This shows that having ineffective and inefficient computerized system in
branch offices wastes their valuable time and gives them burden.

As it is discussed in the above Table 4.4 Majority, 165 (89.2%) of respondents agree that there is
electric power failure Only 20 (10.8%) of them disagree with the issue. This implies that there is
redundant electric power interruption and it would result decreased employee productivity,
damaged equipment, unnecessary delay and work overload during deadlines.

In the above table 4.4 above, 152 (82.2%) of the respondents indicated that Tax evasion in
category “A” tax payers is Significant and 14(7.6%) indicated as not significant whereas
19(10.3%) kept silent. The respondents’ response implies that there is significant tax evasion in
the branch office. Significant amount of Tax evasion diminish the earnings of the government.
Due to this the government could spend less, had to borrow more money or hire more people to
combat the tax evasion.

In table 4.4 above, more than half of the respondents 142(76.8%) strongly agree and agree that
sometimes tax officials cooperate with tax evaders. But tax officers are employed to combat tax
evasion. Whereas 15(8.1%) of respondents’ disagreed the tax officials’ cooperation with tax
evaders and only 6(3.2%) kept silent. The respondents indicated in their response that there is
gap in identifying and controlling the corrupted tax officers in the branch office.

According to Table 4.4, respondents face problem during tax collection. 113 (61.1%)
respondents were perceived inefficiency of the tax collectors while 18(9.7%) of the respondents
perceived ill-treatment and 22 (11.9) said there is Tax underreporting. While 32 (17.3%) of tax
payer respondents replied as there is no problem. This implies that there are different problems in
both tax payers and tax officers’ side during tax collection.

Based on the items raised to the interview participants it is stated that, the tax authority provides
regular information to category “A” taxpayers to create tax awareness through mass media such
as television, radio, newspaper, brochure, poster (banner). Creating awareness helps to inculcate
in taxpayers a sense of responsibility towards tax and ultimately promotes a positive view to
voluntary compliance. On the other hand, the branch office did not assign sufficient number of
adequately qualified personnel who are able to assess and collect tax efficiently. This inevitably
affects the operations and effectiveness of the tax office. They mentioned the following as
reasons for the assignment of less appropriate personnel, short term solution to address the
shortage of manpower, assignment by political affiliation, loose recruitment procedures.
Moreover there is very frequent employees turn over in their office. Frequent employees turn
over will drop productivity, It costs a company money to deal with turnover. Every time they
have to spend resources on recruiting, hiring and training a new employee. Gaps in staff mean
there aren't the correct number of team members to do the job, this means productivity simply
drops. Add burden on the other employees, and dissatisfy other employees. In general, it can be
noted that the key challenges and their causes identified among both tax authority and tax payers.
These are lack of tax education, the taxpayers’ culture to evade and avoid taxes , tax rates are too
high, great resistance to take or attend the tax awareness training or panel discussion arranged by
the tax authority, hiding their actual taxable income intentionally and not to pay the true amount
of tax to the government, lack of understanding the tax authority’s employees work burden at the
time of taking the tax authority’s service, gossiping, running their business illegally, undesired
communication of tax officers with taxpayers, tax revenues are not spent on public services.

4.6 Data analysis

The previous section presented the background information and the outcome of the survey result.
This parts focus on the analysis of the outcome of survey along with outcome of the interview
with tax officers and secondary data in the context of the literature review.

4.6.1 Tax assessment and collection challenges

Since there is no specific plan for category ‘’A’’ taxpayers, the tax officers were faced with
problems of identifying problems while budget implementation. The fact sighted by tax officers
as being the reason for not having a specific plan for each category of taxpayers is the frequent
turnover of staff of the core process . From the interview made with the tax officers, one of the
biggest challenges faced by the authority is solving the pervasive problem of corruption.
Undesired communication of tax auditors with taxpayers was the major challenge that the tax
administration is facing. For one thing, there is constant interaction between taxpayers and tax
officials since taxpayers have to file returns physically. This interaction encouraged the two
parties to negotiate tax liability. They also are facing problems in identifying corrupted tax
officers since corruption networks develop and go undetected. Moreover, the lack of close and
unreserved follow up by law accomplisher and controlling process in connection with different
tax related activities are the main problems. Besides, some of category ‘’A’’ taxpayers' financial
assessment result done by the auditors ultimately fall to the category ‘’B’’ or ‘’C’’. This
indicates failure of the tax authority to make continuous follow-up of the taxpayers’ profile.
Taxpayers do not timely keep adequate record for the purpose of assessment. There is
inconsistency in record keeping by category “A” taxpayers. Taxpayers have limited ability
regarding tax knowledge and competent accountants to keep accounts. Due to lack of manpower,
Bole sub city tax officers are not able to follow up whether all taxpayers declared and paid tax
for each tax period since they have registered. In addition, they are not able to make sure that
whether all taxpayers that must be registered were really registered. Regarding rental income tax,
the taxpayers submitted unreliable signed document to the tax authority. They produce two
documents signed by both the lessor and lessee and submit the one with the reduced amount of
agreement. Due to this there exist taxpayers, who collect tax from customers but not identified
properly.

When the taxpayer presents income that is understated, the taxpayers will be penalized.
However, the tax officers are facing challenges due to the absence of any stated parameter to say
a certain understated amount as substantial or not. Therefore, this created a loophole for some
undesired bargaining and behavior between taxpayer and tax officer. There were lack of
competency, degree of satisfaction of employees and unwillingness to delegate responsibility.
The quality of audits made by the officers of the tax office is affected by lack of sufficient
comprehensive audits due to shortage of man power. Furthermore, tax audits in most cases have
been conducted manually. Manual verification of taxpayer information is not only susceptible to
mistakes by revenue officers, but also slows down the auditing process.

Moreover, the tax collectors did not have adequate skills. The prevalence of poorly trained
employees accompanied by perceived low remuneration packages and corruption have affected
the tax administration.

From the interview made with tax officers, the decision-making process within the core process
show that it is not participatory. This may force the subordinates not to take part in the core
process activities and lack of willingness to implement decision. It also creates conflict within
the core process, which hinders the effectiveness of the core process. The organization also gives
less attention on employee training and personal development as it is seen on table 4.1 there are
small Employees who have qualification above first degree. There exist lack of identification of
documents and shortage of strict assessment system. This failure has an impact on collection The
registered taxpayers are required to use cash register machine, which is very expensive and
difficult to use. Due to this, they complain about high cost of tax compliance and knowledge of
operating the machine. The training given regarding the use of cash register machine was not
adequately sufficient. Due to this, taxpayers are facing big problems in respect of the way how to
use the machine. The other problem is when there is electric power failure, they are obligated to
inform the tax authority; unfortunately, they usually face problems when calling to the tax
authority no reply by tax authority. Due to these, they are saying that they are exposed to a high
compliance cost.
Furthermore, if there are technical problems regarding of the cash register machine, they are
supposed to get support from the suppliers of the machine, unfortunately, they are not getting
quick and adequate support from the sole suppliers and high charge for the service. Taxpayers
continuously complain on the bureaucratic civil service procedures existing in the tax office,
when they went there for getting support or complain about different situations at their hand.

The major causes for the aforementioned challenges or problems on profit tax administration are:

 Absence of willingness and poor understanding about tax proclamations, rules and
regulations by taxpayers and Complexity in understanding tax laws and proclamation.
 Lack of paying attention to follow up the frequent government policies Confusion due to
frequent change of policies.
 Delayed tax assessment process by the authority due to lack of sufficient assessors.
 Lack of sustainable educative and clear promotion by the government
 Lack of sufficient, incompetent and motivated tax officers and Very frequent employee
turnover.
 The bureaucracy of offices in giving service to the tax payers.
 Lack of close follow up by law accomplisher and controlling process
 Unwillingness to give clear information by taxpayers
 Lack of willingness to provide information by third party to the office.
 Inefficiency and ineffective organized computerized system in tax administration
 Electric power failure and Inflexibility of the software in use
 Frequent change of taxpayers address without acknowledgement of the office

Chapter Five
5. Summary, Conclusion and Recommendations
The previous chapter presented the data analyses of the study. Based on the presentation and
analysis of the data obtained, the main conclusions and recommendations are summarized in this
chapter.

5.1 Summary
This study was conducted aiming at the Tax Assessment and Collection Problems of category A
tax payers: The Case of Bole Sub-City Revenue and Customs Authority Branch Office with the
intension to understand the issue from taxpayers, tax office workers, and tax office management
bodies’ perspectives. The study employed both qualitative and quantitative research design with
the assumption that reality is socially constructed by participants and there are many truths. This
research approach was appropriate as the researcher was trying to understand the complexity of
the issue under investigation through the lived experience, perceptions and perspectives from a
holistic standpoint.

For the purpose of this study, a descriptive survey method was employed to disclose the
understanding of respondents on the issue under study. This method was chosen with the
assumption that it helps to conduct data as it exists and to gather several data related to the
problem under study. Both primary and secondary sources of data were used. Data were gathered
via questionnaire, interview and document analysis. The collected data were analyzed by
descriptive statistics such as frequency count and percentage. The data secured through
questionnaire are analyzed quantitatively and data secured through interview was thematically
analyzed and organized in to themes to answer the research questions.

5.2. Conclusion
Since tax is the main source of public expenditure, the assessment and collection of tax at any
category should be effective to generate adequate amount of funds that can cover all the capital
that the government needs. The following conclusions were made based on analyzed data of
quantitative and qualitative part of the study. Bole sub-city tax office has faced different
financial, operational and administrative problems and challenges. Tax payers have inadequate
knowledge on the technical aspects of the income tax. Furthermore, the tax office does not offer
sustainable training to create tax awareness for taxpayers. Most of them do not know the
rules and regulations of taxes they pay. Due to this, negligence, delay in tax payment and
evasion are taken by taxpayers as solution to escape from payment of taxes. Moreover, the tax
collectors did not have adequate skills. The tax office does not offer sustainable training for
employees. Training was not considered as vital activity. The emphasis of staff training is on
teaching the contents of tax laws as opposed to applying the laws. Lack of clarity in tax law left
room for interpretation. Little or no attention is paid to skills, techniques, procedures, customer
relations, or managerial training. The prevalence of poorly trained employees accompanied by
perceived low remuneration packages and corruption have affected the tax administration. There
exists inefficient and insufficient number of tax assessment and collection officers in the sub
city. Farther more some tax authority’s employees lack integrity, honesties, transparency and
professional ethics at the time of tax assessment. Besides, there are problems in relation to
treating each and every taxpayer equally and fairly and bringing non taxpayers to tax system.
Taxpayers continuously complain on challenges existing in the tax office, The major causes
for the aforementioned challenges on tax administration are poor understanding about tax
proclamations, rules and regulations by taxpayers , Complexity of tax laws and proclamation,
delayed tax assessment process by the authority due to lack of sufficient assessors, Lack of
skilled and motivated management bodies and very frequent employee turnover , Inefficiency
and ineffective computerized system in tax administration, redundant Electric power failure and
inflexibility of the software in use, unfair tax rate. Generally, taxpayers and tax offices have tax
administration problems of different natures. The following section presents different
recommendations as to which these observed tax administration problems can be solved.

5.3 Recommendations
Based on the study conducted it would be reasonable to give the following recommendations that
may help tax payers, the tax authority and other policy makers to improve the problems
associated with assessment and collection of category “A” tax in general and at Bole sub city in
particular.

 It suggests that the authority should continuously work on tax awareness creation and tax
knowledge by giving adequate tax training and education to tax payers. The role of tax
awareness and perception of tax payers towards the tax system is pivotal for voluntary tax
compliance decision. If tax payers perceive the tax rate is high, their tax compliance level
will decrease and vice versa. Fair and equitable tax system can encourage taxpayers to
voluntarily obey with the tax system.
 The manner of tax payment needs to be fully convenient to taxpayers. Otherwise severity
of penalty imposed on any tax evasion has negative impact on the level of voluntary tax
compliance.
 There is a problem in service delivery and transparency in the sub-city. If this remained
unchecked, this will demolish the performance of the tax authority. Therefore the tax
authority needs to avoid these issues by using extensive trainings. Employees need
 broader range of knowledge than customers do. This includes extended subject matter
knowledge that is employees need to have additional knowledge that an agency makes
available to its customers. This is essential for serving customers effectively. And also
tax office employees should have customer knowledge. This means employees should
have as much knowledge as possible about the customers they are assisting.
 Tax payers should keep necessary source documents and prepare different financial
statements in order to minimize complains with the tax authority.
 It suggests that taxpayers should get incentives for their true tax amount and on time
payment.
 The authority should advance the information technology (IT), system like filling,
payment system, recording system, registration and others related issues to improve
revenue collection, accounting for taxes paid, monitoring of taxpayers, service delivery to
taxpayers and compliance, and also to reduce the administration cost.
 The management should work towards bringing the team spirit. Team members enhance
the skills, knowledge and abilities while working in teams. Organizations which
emphasize more on teams have results in increased employee performance, greater
productivity and better problem solving at work. The core process must also give high
attention on employee training and personal development, to cop up the new science and
technology.
 The tax authority should make alliance with institutions like universities, external
auditors ,audit firms, tax agents ,chamber of commerce, investment office, minister of
trade, international tax advisors and like can conduct joint programs such as capacity
building and researches that enable solve the tax administration problems and others.
 The tax authority should provide continuous training, building an efficient system of
operation that does not only focus on announcing about tax issues it should rather depict
the benefits and impacts in a practical examples through different medias can solve the
existing problem.
 The last but not the least, Bole sub city tax administration can achieve its goals if it
allows taxpayers to give their genuine feedback on the process. Feedback gives all sorts
of insights into what customers want. Here are some ways how to get feedback from
customers. Feedback boxes, setting up a customer panel and explain how the feedback
 will be used, reaching out directly, putting a feedback button on website, responding to
everyday feedback. Then customers problems will be taken due attention in order to have
voluntary compliance.

6. References
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Creswell, J W 2003, “Research design: qualitative, quantitative and mixed methods
Approaches”, 2nd ed.,Sage Publications, California.
C.R. Kothari. (2004), Research methodology, second revised edition.
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<http://visar.csustan.edu/aaba/LaurenDamme.pdf>, accessed on January14.
Gebru Tareke 1991, A History of Modern Ethiopia, 1855–1991: Second Edition
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University.

APPENDIX1. Questionnaire
ADMAS UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Research Questionnaire
Dear respondent:
We are student of bachelor art of accounting and finance, at Admas University. As partial
fulfillment of the program; we are carrying out a research on the tax assessment and collection
problems of category ‘’a’’ in bole sub city taxpayers. You have been selected to participate in
this survey, and i would appreciate you for answering all the questions. The research result could
be used as an input for decision makers, professionals, academician and other interested groups
to play their respective role for the achievement of project objectives.
It is believed that your participation in this research will contribute in achieving the objectives of
the research. Thus, the quality of your response towards the question items determines the
quality of the research results. Therefore, please answer the questions as thoroughly, objectively
and honestly as possible according to the instructions contained in the body of the questionnaire.
Finally, we want to assure you that all information provided in this survey will be treated with
strict confidentiality and allowed to serve only for the purpose of the research under
consideration.
Interested participant of this study will be given feedback on the overall research results after the
completion of the research work.
Thank you for your assistance in providing this valuable information.
PART ONE: DEMOGRAPHIC INFORMATION
Please give us your answer for the following questions and tell us what you feel about the
statements. Tick only one answer from the given alternative.
1. Sex Male  Female
2. Age 18-30  31-40  41-50  above 50 
3. Marital status Married  Single  Divorced  Widowed 
4. Education level primary level  Secondary level  Diploma 
Degree  Master and above 
5. Year of service less than 2 year  3-5  6-10  Above 10years 
PART TWO
Please give us your answer for the following questions and tell us what you feel about the
statements. Circle only one answer from the given alternative.
i. Awareness/Knowledge about taxation
1. What is your perception towards tax Payment?
A. As debt B. as Obligation C. Others
2. Does your office provide regular information to category “A” taxpayers to create tax
awareness?
 A. Yes B. No
3. Adequate Awareness creation training has been given to the VAT registered organization
regarding use of cash register machine.
A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree
4. The education and awareness creation program through media, brushers and others means
is not sufficient to improve tax compliance.
A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree
5. What are the benefits you get by paying your tax liability?
A. Get Bank loan B. Participate in Bid C. Guarantor D. Others
6. When do you pay your tax Liability?
A. On time B. When time is over
ii. How effective and efficient are tax assessment and collection procedures
1) Would you agree that tax office managers are skilled enough to lead their fellow tax
collection officers according to the law and existing procedure?
A. yes B. No C. Neutral
2) Is the Tax rate fair?
A. Yes B. No C. Neutral
3) Would you agree that laws and procedures about taxation are understandable?
A. Yes B. No C. Neutral
4) Would you agree that tax collection officers are skilled enough to assess and collect
taxes?
A. Yes B. No C. Neutral
5) Would you agree that tax collection officers are transparent, genuine and properly follow
the right tax collection procedure?
A. Yes B. No C. Neutral
6) The Chance of being detected is relatively low if an official is engage in corrupt activity?
A. Yes C. No C. Neutral
7) What is your view on the fairness of the tax assessment procedure?
A. Is it fair B. It is not fair
8) Do you receive any briefing on tax assessment and collection from the tax authority?
A. Yes B. No
9) Do you have book of records for your business transactions?
A. Yes B. No
 10) Do you believe the tax office is staffed with adequate number of sufficiently qualified
personnel?
A. Yes B. No C. Indifferent
11) Are you clear with the concept and procedures for the computation of category “A” tax?
A. Clear B. Somewhat clear C. Not clear
12) Would you agree that tax authorities’ enforcement actions in the Sub-city are effective ?
A. Yes B. No C. Neutral
iii. Major causes of tax collection Problems
1. Is the number and qualification of the employees at your office sufficient to assess and
collect category “A” tax efficiently?
A. Yes B. No
2. Did you receive any training relevant to your duties and responsibilities?
A. Yes B. No
3. Is there a clear policy and regulation for assessment and collection of category “C” tax?
A. Yes B. No
4. Absence of willingness and poor understanding about tax proclamations, rules and
regulations by taxpayers
A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree
5. Inefficiency and ineffective computerized system in tax administration
A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree
6. Do you think there is redundant Electric power interruption?
A. Yes B. No C. Neutral
7. Do you think Tax evasion in category “A” tax payers is Significant?
A. Yes B. No C. Neutral
8. Sometimes Tax Officials cooperate with tax payers who intend to evade tax and engage
in bribery activity.
A. Strongly Agree B. Agree C. Neutral D. Disagree E. Strongly Disagree
9. What problem(s) are there during tax collection?
A. Inefficiency of the tax collectors B. ill - treatment
C. Tax underreporting D. There is no problem