WOLLO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
POSTGRADUATE PROGRAM
ADVANCED TAXATION ARTICLE REVIEW ASSIGNMENT
Title: - A Study on Tax Evasion and Avoidance in Ethiopia: The Case of
Ethiopian Revenue and Custom Authority Bahir Dar Branch

Reviewed by: - Andargachew Zewdu

ID NO: - SGSE/008/11
Name of Journal: Research Journal of finance and Accounting
Name of Author: Abate Gashaw Ayele, Lecturer at Debre Markos University
Year of publication: December 31st 2019
Volume: Vol.10, No.23, 2019

Submitted to: - Instructor: Kinfe.Y (Phd)

Submission Date: January, 2021 G.C

January, 2021
Dessie-Ethiopia

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Generally the purpose of the article wants to have
The author is focusing on Tax Evasion and Avoidance in Ethiopia: The Case of
Ethiopian Revenue and Custom Authority Bahir Dar Branch. Taxes are important sources of
public revenue. Tax avoidance and tax evasion are widely believed to be significant factors
limiting revenue mobilization. In Ethiopia, tax evasions and avoidances are pervasive
features in tax collection process. The author assessed the level of Tax Evasion and
Avoidance in Bahir Dar city and analyzed the controlling mechanisms of tax evasion and tax
avoidance and he used both qualitative and quantitative data obtained from both primary and
secondary data sources using collection tools such as interviews, questionnaires and from
different books & reports. The result showed that there is tax evasion and avoidance in Bahir
Dar city and the major methods used by taxpayers to evade and avoid tax are non- declaration
and under reporting of income, overstating business expense and deductions, overstating and
understating trading stock, deduct personal expenses as business expenses to hide the exact
tax liability. The author is recommended to that: database for tax administration at all levels
of government should be promptly computerized, it is better for the taxing authority to fulfil
the required number of experienced personnel with the required qualifications and there
should be continuous training for tax officers on how to provide rapid and courteous service,
continuous education for citizenry has to be embarked upon and step has to be taken to
convince the tax payers that the money collected in form of taxes are judiciously spent and
the tax department should adopt scientific procedures in collecting data and selecting
taxpayers for further audit and perform risk based tax audit.

Introduction
Taxes are very important tools of governments’ fiscal policy. That is why Zolt (2003) stated
that the main purpose of taxation is to generate sufficient revenue to finance public sector
activities in a non-inflationary way. Similarly, taxes are important sources of public revenue
(Ethiopian Chamber of Commerce and Ethiopian Business Development Services Network,
2005).The provision of public infrastructure and government services are a key factor for
economic development. In many developing countries, a lack of public service provision
slows down economic growth and undermines efforts to improve the living standard of the
population. There are a number of reasons for the failure of many governments in developing
countries to provide sufficient public services.
Tax avoidance and tax evasion are widely believed to be important factors limiting revenue
mobilization (Riedel, 2009). They are terms so frequently referred to in economic and
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business relationships that they constitute part of our conversational language and people in
general use these terms even without knowing their exact meaning and difference. Whereas
tax avoidance implies a situation in which the taxpayer reduces the tax liability by taking
advantage of the loop-holes and ambiguities in the legal provisions, in the case of tax
evasion, facts are deliberately misinterpreted and the tax liability is understated. Thus, while
tax avoidance is perfectly legal and is, at times, referred to as 'tax planning', tax evasion is
illegal and, therefore, carries with it the risk of penalties and prosecutions under the tax laws.
The subsequent taxing system in Ethiopia can be divided into three broad categories: (i) taxes
on income and profits, (ii) taxes on goods and services and (iii) taxes on international trade.
Objectives of The study

Authors have list the following general and specific objectives. The main objective of this
research is to study the level of Tax Evasion and Avoidance in Bahir Dar city and to analyze
the controlling mechanisms of tax evasion and tax avoidance and the specific objectives is to
assess whether there is reliable report of income by tax payer’s to the tax authority, To
analyze whether the tax payers report the exact tax liability, To examine the degree of tax
evasion and avoidance and To assess the tax administration environment of tax evasion &
avoidance.

Literature review
Authors have used theoretical and empirical evidences as follows.
Theoretical Review
A tax is a compulsory payment or contribution by the people to the Government for which
there is no direct return to the taxpayers. Tax imposes a personal obligation on the people to
pay the tax if they are liable to pay it.
The main theoretical principle is that the general public shall be taxed according to their
ability to pay, which considered as their fair share and the people in the same financial
position should be taxed in the same way without any discrimination. However, the ability to
pay is left for vague base.
Tax classified into direct and indirect tax. This classification relates to the method of payment
and collection, rather than the purpose, since in practice taxes may have more than one
purpose. Direct taxes are taxes levied on incomes, to which the persons concerned make
direct payment to the Board of Internal Revenue or Local Authorities. These include income
tax, taxes levied on total spending, company taxes, capital taxes where they apply, and local
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rates. Indirect taxes are those taxes levied on goods and services, so called because the Board
of Customs and Excise does not usually collect them from the consumers directly but from
importers, manufacturers and intermediaries. The duty paid by these people is reflected in the
prices that consumers subsequently pay.
Major types of taxes existing in Ethiopia
1. Direct Taxes: includes tax on income from employment /personal income tax, business
profit tax, tax on income from rental of buildings, tax on interest income on deposits,
dividend income tax, tax on income from royalties, tax on income from games of chance, tax
on gains of transfer of certain investment property, tax on income from rental of property,
rendering of technical services outside Ethiopia, agricultural income tax and land use tax.
2. Indirect Taxes: including turnover tax, excise tax, value added tax (vat), custom duty and
stump duty
Empirical literatures on tax evasion and avoidance

Assessed Tax Evasion and Avoidance in Mobilizing Tax Revenue by using descriptive way
of research. The result shows that the government is losing a significant amount of revenue
due to tax evasion and avoidance. Only from taxpayers who are audited and assessed there
are a huge amount of money (Birr 87,359,749) that had not been collected yet. The existence
of other unaudited taxpayers and informal sectors, which have not been audited yet, makes
the government a loser in generating more revenue. In addition to the revenue losses, the
existence of tax evaders and avoiders in trade markets are also making the legal taxpayers a
loser and creating a negative impact on legal taxpayers to change their behaviour from
compliance to noncompliance and the study recommend the necessary measures for creating
compliance include: creating optimal legitimates and enforcement practices to deter the effect
of tax evasion and avoidance; educating, following and handling taxpayers; and identifying,
investigating and prosecuting of tax evaders and avoiders.
Research design & methodology
Authors have designed a descriptive research method with qualitative and quantitative data
analysis approaches. Primary and secondary data related to the reporting trend of tax payers
income and tax liability, the level of tax evasion and avoidance in Bahir Dar city.
Author addressed the population that is employees of ERCA at Bahir Dar branch specifically
the audit section, tax collection and enforcement section and customer handling section and
private auditors and accountants in Bahir Dar city and he used the population size is 81 for
this study, all are used to calculate the sample size.

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Conclusion and recommendation
The author said that Tax payers overstate business expense and deductions, overstate and
understate trading stock, deduct personal expenses as business expenses, have the tendency of
assuming minimizing tax liability is morally right and didn’t declare their tax liability
honestly. These all are symptoms of tax evasion and avoidance practices. the result found
from the analysis of both primary and secondary data have been approved that the level of tax
evasion and avoidance is high. There are factors that lead tax payer’s tax evasion and
avoidance practices. Some of these are: the system of tax administration in Ethiopia is
inefficient and in effective, the non-availability of the database of all taxable individuals by
the revenue authority provides an opportunity for people to evade tax.
The authors have given the following recommendation of the article, the tax department
should adopt scientific procedures in collecting data and selecting taxpayers for further audit
and perform risk based tax audit. For example, tax assessors should audit prominent high
profile taxpayers than relatively small taxpayers who are not providing much revenue. The
level of punishment should be stricter and the legal provisions for doing this should be clearly
stated,. The government should create tax compliance culture through education by creating
for example pamphlets, newspapers, television
In Generally, the conclusions and recommendations of the article aligned with the finding of
the study.
The author used APA reference style and all inside text citations are references on the
reference page.
Strengths and weakens
Generally the strength of author is better awareness about the tax evasion and avoidance in
Ethiopia: the case of Ethiopian revenue and custom authority bahir dar branch, and to show in
detail with different author’s perspective also he has done clearly and also I appreciate data
sample technique is better attempted. Generally this paper has attempted to evaluate the
extent to which the introduction of tax evasion and avoidance in Ethiopia.
Finally ,the weakens of the author the main thought are not orderly mentioned & stated in
addition to this writing format is different also font size are in some extent unique in some
paragraph, each page left and right indents are different in case of this it is difficult to
understand it is boride to read. The sample size is in each comparison under expected and
also the author has taken 81 respondents. Also weakens of author is that the some findings
are not meet the result to put on question. There are possible gaps of information, logical

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inconsistencies, the contradiction of ideas, unanswered questions, etc. Pass your judgment as
to whether the given facts are sufficient for supporting the author's main argument.