CHAPTER ONE

INTRODUCTION

1.1 Back ground of the study

Tax is one of the most important sources of revenue to the government.It is

compulsory payable to the economic unit to the government without any
corresponding entitlement to receive definite direct and direct guide from
the government. Tax is main income for the state finding public expenditure
and other cost of public good. Tax revenue is collected from the whole
society with differentiated intensity inspired by the consideration of justice
efficiency and effectiveness (Gabriel, 2006).

Like any other economic unit government need funds to financing its
activities such fund are complete list of all the source of public receipt but
the important one includes too income from currency market borrowing sales
of the public asset income from under taking fee, gifts and donation
(Bhatia,2006).

Currently the government of Ethiopia has understand comprehensive tax

form. The reform measures takes are intended to encourage trade,
investment and development on tax base and to increase government
revenue so as to support social and economic development program and to
alleviate poverty and strengthen enforcement capacity of tax and customer
authority and promoting equality in the tax system (manual of federal
revenue authority).

Tax is back bone of any political, economic regimes constraints on the

government policy to tax are constraints on its power to act. The levying and
collecting tax are the central function of the government in all countries. The
levying and collection system and method obliviously, vary widely according

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to political, economic and social character tics of individual countries (Misrak
Abate Tesfaye 2003).

In Ethiopia development of collecting tax from various activities comes in to effect since the
emergency of non-monarchical government of country. This would be supported by the
various activities taken during the past decade.

At the beginning residents were forced to supply from their products and
also give service to their local administration. But the statutory base for tax
was developed after 1931 constitution of Ethiopia come into practice during
the past two regimes. Tangibly expressing the economic effort of community
(Gabriel, 2006). Tax is mandatory payment imposed by law which is good
way for financing in the Haile sillasie regimes and Derg regimes. Tax
collection and regulation were made by central government. After EPRDF
comes to power in 1931 it structured and theadministrative regions
according to their geographical locations and decentralized this taxing
authority accordingly to as regional government and its federal state. As to
proclamation number 33/85 of the FGE taxes were divided into three broad
categories in terms of the autonomy. These are:- A, central government
state

B, federal state income

C, common to federal and central state

1.2 Statement of the problem

In fact, it’s obvious that tax is compulsory payment, in sense nonpayment

lead to claim by government from those who do not pay some individual do
not obliged to pay the proper amount of on its their income as we know the
main source of government revenue is from tax. Therefore, it is better to the
government to have plans and study in order to have effective collection
system. Government collects an appropriate amount of tax in order to
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perform necessary or essential service to publics. Such as, infrastructure,
health care service, transportation service and defense service (Misrake
Abate Tesfaye, 2003).

However, there are some factor that will affects the effectiveness of tax
collection and I will try to measure each factor attentively that listed in my
study by taking questionnaires and interview for employee of tax and
revenue administration and I will measure it from the response of employee
that due to the questionnaires and interviews. More in developing countries
like our countries Ethiopia such as contraband trade, corruption, tax evasion,
tax avoidance fever collection period during financial plans (smith, 1776).
Thus study would be to access these factors affecting the effectiveness of
tax collection.

1.3 Objective of the study

1.3.1 General objective

The general objective of the study were to assess the factor that affects the
effectiveness of tax collection.

1.3.2 Specific objective

 To examine tax administration policy that affects the tax collection.

 To absorb the individuals and organizations that pays the appropriate

amount of tax.

1.4 Research questions

This study addresses the stated difficult in successful collection of tax from
different units through the following research questions.

 What are the main factors which affect effectiveness of tax

collection?
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  Is the individual and organization is paying proper and
appropriate amount of tax from their earning?

 Is the customer handling systems influence government policies?

1.5 Scope of the study

This study has conducted in Yigalem Town in case of tax office to assess
the effectiveness of tax collection in broad area which needs due to the
consideration in attesting the organizational success to clearly show the
purpose of tax collection in the achievement of determined organizational
goals the tax collection area shall be investigated. The scope of the study
geographically limited in Yirgalem Town tax office and the study
conceptually to assess the factors affecting the tax collection in Yirgalem
Town tax office. We have rely on some factors which associate mainly with
study area. Specifically, the factor are corruption, tax avoidance, tax
evasion, fever collection period etc.

1.6 Significance of the study

It is expected that the result of the study helps the office of tax in
Yirgalem Town tax office to understand the weakness and the strength of its
operation in relation with collecting tax from the registered enterprise and
individuals. It also helps the office to take necessary measurement and
overcome the problem of tax. For other scholars for adding value to the
existing theory

1.7 Limitation of the study

Conducting the movement of this study certain limitation where seen in

the study. Some of the limitation of the study are like: -lack of financial
support, shortage of time on conducting the study and other factors related
4
with the study and shortage of availability of data in organization are the
main factors. In the data collection period not have a chance to get the full
information because of unwillingness of some employee of the case office.
Finally, some of the most critical limitation conducting the study were
shortage of time, availability of financial support and other related limit the
researcher to cover all of those factors affecting the tax collection and
discourage the researcher.

1.8 organization of the study

This study would contain five chapters the first chapter contains back
ground of the study, statement of problem and objective of study. The
second chapter contains an over view of the related literature review.
Chapter three contains research methodology and Chapter four contain data
analysis, presentation and interpretations. The fifth chapter deal with
conclusion and recommendation.

CHAPTER TWO

RELATED LITERATURE REVIEW

2.1 Meaning of tax and an over view of taxation

Tax is one of the most important source of revenue to the government. Itis a
compulsory payable by economic unit to the government without any

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corresponding entitlement to receive definite direct and indirect guide from
the government. A tax is a generalized exaction which may be levied on all
or more criteria up on individuals, group of individuals or other legal entity
(Bhatia, 2003). Tax is compulsory contribution imposed by public authority
irrespective of that exact amount of service rendered to the tax per interim
and non-imposed penalty for any legal offence (Daltons 1920). Tax is
compulsory payment levied by the government on individual or companies
to meet the expenditure which is required for the public welfare (Smith,
1776).

Taxation is compulsory payment made by tax payers. As, broadly defines it

constitutes asset of rules determining command and over resource to the
government (Bird, 1992). Tax is one of the components of public finance,
most government activities by virtue of their public good nature must be
financed by taxation rather by sale to users (Dues, 1959). The government
determines the tax structure with presence of public representation which
includes the private sector. But one of the tax structure is set the public
cannot do anything and commonly with law the tax structure has significant
bearing on the behavior of economic agents and the function of economy as
a whole (Due,1959). Tax should be chosen so as to minimize interface with
the economic decision in other wise efficient market the time takes may be
used to correct in efficiencies in the private sector provided they are a
suitable instrument for doing so. Tax structure should facilitate the use of
scale policy for stabilization and growth objectives. The tax system should
permit efficient and non-arbitrary administration and it should be
understandable to the tax payers. Tax should be based on minimum
consideration and it should not interface with economic behavior unless it
desired to influence the economy (Musgrave, 1973).

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2.2 Objective of taxation

Tax objectives are goals which are expected to be achieved through the
taxation system. Tax are the most important source of revenue for modern
government. They account for 90% or more of their revenue from tax
sources and the remainder from borrowing and non-tax revenue sources
(Misrak, 2003). Countries now a day raise considerable amount of tax from
the following objectives.

Raising revenue by government to finance its expenditure

 To minimize income and wealth in equalities

 To insure economic stability and stabilize economy
 To discourage the consumption of harm full product
 To reduce regional imbalance
 To enhance capital formation and accumulation
 To utilize scarce resources of production of more essential goods or
beneficially of the diversities.
 To encourage the import and export
 To minimize unemployment and create more employment
opportunities.
2.3 Principle of taxation

2.3.1 Canon principles of taxation

Canon of equity: - is one of the basic criteria for tax structure design the
tax system shall be equitable that each tax payer shall be made to pay his
favor share to government expenditure. Means different people. These
principle takes two form horizontal and vertical equity

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Horizontal equity: - states that tax payer should be in equal position or with
equal ability to pay should be pools the same amount of tax

Vertical equity: - implies that tax pays with greater ability to pay more
amount of tax.

Canon of certainty: - states that taxes should not be arbitrary and based
relationship rather it should be based on statuary basis.

Canon of convenience: - it is also called convenient for payment principles

states the tax should be due at time and in which is the most likely
convenient for tax payers. Other words the period of tax payment should be
appropriate for the tax payers and must be collected, but not through
unnecessary harassment by the authority on the tax payers. Convenient tax
will encourage people to pay tax and will increase tax revenue

Canon of efficiency or economy: - is state that there should economy in

tax administration efficiency or economy principle state that the cost to
collect the tax should be economically efficient

2.3.2 Other canon principle of taxation

Canon of simplicity: - is state of complex results in error due to failure to

understand the tax law that evasion disrespect for the system. Tax law
should be simple and clear to understand by the tax payers and they should
not be confronted with accounting administration and other difficulties
(smith, 1776).

Canon of productivity: - according to the S. Bastable the tax system

should be productive enough for the productivity activity encouraging people
to work shared and invest (Misrak, 2003).

Canon of elasticity: - states that tax should be flexible. It should be levied

up on the need. For example: during certain unforeseen situation like, flood,
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war, famine, drought and the government can raise adequate funds without
any extra cost of collection (Smith,1776)

Canon of diversity: - according to this principle there should be diversity in

the tax system of the country. The burden of tax should distribute widely on
the entire people of the country (Misrak Abate Tesfaye, 2008).

Canon of expediency: - according to this principle of tax should believe

after considering all favorable and unfavorable factors from different angles.
Such as, economic, political, social and environmental.

Canon of neutrality: - this principle stresses that the tax should not have
any adverse effect that shouldn’t create any deflationary effect in the
economy. Tax system should be free from bias.

2.4 Taxes in Ethiopia

In Ethiopia through taxation comes into being with emergency of state and
governments, there is no reliable documentary evidence as to when exactly
taxation was introduced. Early day, people used to contribute from cattle and
agricultural product to the government of state. Tax was first whiter to
attempt general statement of the principle based on briefly above listed
canons.

2.4.1 Classification of tax in Ethiopia

Tax in Ethiopia can be classified as direct tax and indirect taxes.

Direct tax: - are those taxes that are levied directly from the person or the
tax payers receiving income from and paid either directly by tax payers to
the Inland Revenue authority. Tax income under direct tax categorized into
four schedules.

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Schedule "A" payroll employment tax: - it is a tax levied on revenue
generated from employment activities which include all payments in cash
and in kind by the employees.

Schedule "B" rental income tax: - is income tax levied on and collected on
income from rent of building income tax proclamation number 286/2003.

Schedule "C" business income tax: - paid by those individual or bodies

engaged on generating income from business activities such as, industries,
commercial banking and transportation activities.

Schedule "D" tax: - include the income generated from different activities
and the tax collected from the service provided. Such businesses are tax on
capital gain. Income from technical activities, tax on lottery and chance
swimming such as, gambling and lottery income tax proclamation number
286/2002.

Indirect tax: - indirect taxes are those the incidences of which are based on
the other (consumers). They are referred as to commodity tax and include
excise tax, value added tax and turn over taxes

Excise tax: - are taxes levied on certain type of consumption activities, it is

imposed on goods imported and produced locally.

Turn over tax: - those value added proclamation provided for imposing VAT
on those people whose annual transaction exceed Birr 500.00 However, to
enhance fairness. Turn over tax imposed on those person who are not
registered for VAT.

Value added tax: - general sale tax on consumption that are levied on the
value added on each stages of production is difference between these are
cost of the material return of purchase and selling price (value added
proclamation number 79/2002).

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2.5 Categories of tax payer under business

Category "A" tax payer: - include a. Business that have separate legal
personality PLC. Public enterprise and public finance agency regardless of
their annual sales revenue. Other business having annual sales revenue of
more than 500,000

Category "B" tax payer: - include unless already classified in category "A".
Business with no legal imposed on income from employment, income from
rent of land building, income from business activities, income from interest
and from exploitation of wood and forest used for lumbering purpose.

And also include unless already classified in category "A" business with no
legal personality and whose annual sale revenue is between 100,000 and
500,000. Category "B" tax payer like Category "A" shall maintains proper
book of accounts and they required to prepare the financial statement
(misrak, 2006).

2.6 Burden of taxes

The burden of tax refers to the amount of money that an individual, or a

body or association must pay in tax. An important theory in public finance is
the question of who ultimately bears money burden of tax. Burden of tax
may not always lies on the person from whom tax is initial collected by the
government. When a tax is imposed on a person it is quite possible that it
may be transferred to another by him to a second system and this tax may
be ultimately borne by this second person (Misrak, 2003).

2.7 Impact of tax

Impact of tax refers to the immediate / initial burden of tax on the person
who pays the tax in first instance. In other words the person who pays the
tax to the government in the first instance bears its impact.

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2.8 The incidence of tax

Incidence of 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 or where
the tax burden is ultimately settled. If a person who pay the tax in the first
instance finds that cannot transfer the tax burden to anybody else, then the
incidence as well as the impact of the tax is on the same person.

2.9 Effects of taxation

Allocation function, distribution function and stabilization function are the

primary economic function of modern government. The allocation function is
design to bring about the re allocation of the resources. There are goods and
service that could not be provided by the people themselves such as defense
and police that could be provided but only at high cost such as education
and medicine. In recent decades a substantial portion of governmentally
activity has been under taken for the purpose of increasing the relative
economic wellbeing of certain group in the economy.

2.9.1 Tax and administration procedure

Tax administration proceeded are guide line in the form of manuals or

documents that show the detail form at procedure for the operation and
further development of the tax administration. Registration manuals, tax
revenue collection manuals, tax audit manuals grievance and appeal
manuals are good example of tax administration

2.9.2 Factor affecting tax administration

Tax administration is difficult tax even at the best time and in the best place
and condition. The majors that affects the administration of the tax
efficiently and effectively

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a. Tax policy: - the tax policy and procedure of a nation have determinant
role in having in a successful tax administration in the nation

b. Legal environment: - The legal environment of a country such as public

sector government rules is also crucial to efficient and effective tax
administration.

c. Economic environment: - the economic environment such as the level of

economy and financial development also has an important bearing on the
effectiveness of tax administration.

d. Availability of the administration input: - tax administration inputs such as

finance, human resource and physical infrastructure are important tool to
improve the tax administration efficiency and effectiveness

e. Accounting and processing system: - the use of accounting and processing

system manuals and automated also has an important bearing on efficiency
and effectiveness of tax administration.

CHAPTER THREE

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 RESEARCH METHODOLOGY

3.1 Research design

The study used descriptive research design method. The reason behind to describe the situation
of the factor affecting the effectiveness of tax collection.

3.2 Source of data

The researcher used both primary and secondary source data the primary data were obtained
from targeted individuals i.e., staff of organization or employees. The secondary source of data
were include documents and related reports and findings that resemble tax collection patterns of
the organization.

3.3 Method of data collection

The researcher had used both questionnaires and interview to collect primary data. The primary
data were collected by using open ended and close ended questionnaires. Open ended
questionnaires help respondents to write their opinion about the factor affecting the effectiveness
of tax collection. Close ended questionnaires important to that it requires relatively short period
of time to collect data. Secondary data obtained by reviewing organizations documents and
related financial reports or findings.

3.4 Sampling technique

The researcher used non probability or judgmental sampling to target group involved in all
section of the organization employee. Non probability or judgmental sampling i.e., it is
convenience sampling method to find the forget group of the study. This method was used due to
the reason that it is, the most important technique to find convenient peoples that provide the
necessary data for the researchers. Because the researcher gets fact, full, reliable information
from organization manager, and other experienced employees. It is also less costly and less time.

3.5 The sample size

14
The sample size would be determined based on the consideration of the target group involved in
all section of the organization employee through non probability or judgmental sampling. The
number of employees in the organization were 21 and from the total population of the
organization 14 employees would be chosen as sample size.

3.6 Method of data analysis and presentation

The data collected from employee would be presented and analyzed by using the descriptive
statics such as, percentage and tabulation. On other hand the interview would developed for
management bodies analyzed based on their objectives.

CHAPTER FOUR
15
 DATA PRESENTATION AND ANALYSIS

4.1 Response Rate of analysis

As researcher analyses among sample out population 10(71%) give possible answer to the
researcher and 4(29%) if fail to give possible answer. The data was also analyzed with the help
of those answer gathered from respondents.
This chapter comprises the major findings and interpretation of the data collected from the study
area. The paper discuses and analysis the data that is gathered from the employee of Yirgalem
town tax and revenue administration office. The sample of the population of employee was 14
employee are taken non probability or judgmental sampling method from the population of 21
the information or data was collected with the help of questionnaire interview. The
questionnaires was distributed to 14 regular employees of them 10 were possible answered to
researcher to get response on the required questions.
Researcher was taken 14 employees as sample out of 21 employees by used statically to
determine the sampling of the given population by nonprobability or judgmental sampling
method.
4.2Analysis of personal information

4.2.1 Sex distribution of the respondents

Sex Number of respondents Percentage %

Male 7 70

Female 3 40

Total 10 100

(Source: own survey) Table 4.1

According to above table 4.1 indicate that the 7(70%) of respondents are male and 3(30%) of
them were female. The organization create favorable condition for female and revise its hiring
policy to facilitate attract new females in the organization from the graduates

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 4.2.2Age distribution of the respondent
No Age category No of respondent Percentage

1 18-25 1 10%

2 26-35 3 30%

3 36-40 4 40%

4 Above 40 2 20%

Total 10 100%

(Source own survey) Table 4.2

As indicated in the above table 4.1.2 the researcher divided the age of the respondent in to four
subsections. Hence, the age between 18-25, 26-35, 36-40 and above 40.From the total
respondent 40% of the respondents are found in age between 36-40, 30% of the respondents are
found between the age 26-35, 20% of respondents are found in between age above 40 and
10%the respondents are found between the age 18-25. The researcher concluded that majority of
the office employees are found in the age interval of 36-40.

4.2.3 Education level of the employee

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 Educational level Number of respondent Percentage %

Certificate 0

Diploma 4 40

Degree 6 60

Total 10 100

(Source own survey) Table 4.3

From the above table 4.3 the researcher concludes that 4(40%) of them has been diploma holders
and 6(60%) of them were the first degree holders and there is no employee who have the
certificate holder in the organization. From this the researcher finding assessed that there is a
well-educated and performed employee in the organization.

4.2.4 Position of the employee in the organization

Employee working Frequency Percentage %
No position
1. Manager 2 20

2. Employee 6 60

3. Supervisor 2 20

Total 10 100

(Source: own survey) Table 4.4

From the table 4.4 above it can be easily seen that the majority of the respondents working under
employee position and the remaining 20% and 20% of the organization were under the manager
and supervisor position respectively. Generally from this the researcher understood that the

18
manager play a significant role in controlling, directing and by passing necessary decision
regarding how the overall objectives of the organization to be successful in every aspect.
4.2.5 Year of service in your organization

Year of service No. of respondents Percentage

Below 2 years 2 20%

3-5 years 7 70%

6-10 years 1 10%

11-15 years 0 0%

Total 10 100%

(Sources: own survey.) Table 4.5

From the above table, 7(70%) of the respondents have 3-5 years’ work experience; 2(20%) of the
respondents have below 2 years work experience; and the remaining 1(10%) of them had 6-
10years’ work experience. The researcher concluded that most of the respondents in the
organization had 3-5 years, 2 years and 6-10 years’ work experience. This helps the organization
to do its work better with rival organization.

4.3 Analysis of questionnaire on tax system

4.3.1 Tax registration in the organization

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 Item Frequency Percentage %

What type of tax registration does the

organization uses?
Obligatory 4 40

Voluntary 6 60

Total 10 100

(Source: own survey) Table 4.6

As indicated on the above table 4 and 6 respondents replied that the organization uses obligatory
and voluntary tax registration respectively. Regarding this the researcher finding conclude that
voluntary registration. So researcher conclude that voluntary registration is the most important
for the efficient and effective tax collection in the organization.

4.3.2 Information providing system

Item Number of respondent Percentage %

How is your organization
information providing system
to the tax payer?
Very good 6 60
Good 4 40

Poor 0 0

Total 10 100
(Source own: survey) Table 4.7

From the above table 4.7 indicate that the 6(60%) of the respondents replied that the organization
provides information to tax payers in a good manner and 4(40%) of respondents replied that

20
organization provides information to tax payers were very good. From this the researcher can
conclude that without information there is no way in which the customer create contact among
themselves. Therefore, information is the most important in every aspect of any organization.

4.3.3 Performance evaluation

Performance evaluation Respondents Percentage (%)

system
Supervisor 9 90

Self-evaluator 1 10

Peer worker 0 0

Immediate subordinate 0 0

(Source own: survey) Table 4.8

As indicated on the above table all of the respondents replied that 9 of the respondents and 1 of
the respondents that the evaluation was given by supervisor and self-evaluator respectively. This
indicates that the supervisor evaluate the overall performance of the employee according to their
responsibility and position that have in organization except that only I respond that evaluation
give to the self-evaluator. Accordingly the researcher can conclude that adequate evaluations of
the workers are great contribution to implement good tax administration in the country.

4.3.4 Delivery service

Item Frequency Percentage (%)

21
 Does your organization set
clear standard to deliver
80
Yes 8
No 2 20

10 100
Total
(Source: own survey) Table 4.9

According to the above information must of the respondents 80% replied that the organization
set clear standards for tax collection and other service. This implies that the delivery of service is
needed for the effective collection of tax and for success of organizational growth and
standardization of the company. On the other hand 20% of the respondents replied that there is
no set of clear standard to deliver service to the customer. These show that there is no effective
collection system in the organization due to their in adequacy to deliver service to the customers.
4.3.5factor that hinder the tax collection performance
Percentage %
Item Frequency

10 100
Yes
No 0 0

10 100
Total
(Source: own survey) Table 4.10
According to the above table 100% of the respondents replied that there is factor that affect the
collection of tax by tax payers. Some of those factors are lack of awareness delay on payment,
lack of loyalty and un willing ness of the payers during the payment period perfectly a affects the

22
tax collection effectiveness. This implies that the factor could affect the success of the
organization and the government of the country in general.

4.3.6 The timely collection of tax

Frequency Percentage %
Item
Do you believe that collection
of tax is made on time

0 0
Yes

10 100
No
10 100
Total
(Source: own survey) Table 4.11
According to the above table4.9 as far as the timely non collectable of the tax is concerned those
100% of the respondents forwarded their response in full manner that there is no timely
collection of tax in the office made by them. They also mention the reason for the existence of
such cause, such as lack of locality, delay on payment, tax payers are not willing to perform their
duties in well manner, the tax payers are not pay tax in the tax payment period , tax payer not
remember it. This implies that a timely collection of tax is directly affects the collection system
of tax and effectiveness of tax collection by diminishing annual gross amount of the organization
on the other hand it affects the government of the country also suitable time range given to tax
payers.
According to the above table suitable time range or interval is given for the tax payers to pay
their tax on time. The time range given to the tax payer according to the slogan or its different by
level. Category “A” tax payers July 1 up to 10 category “B” Tax payers from July 11 up to 20

23
and category “C” tax payers from 21 up to 30 according to these implies that the suitable time
range is given to tax payers to pay their tax on time

4.3.7 Effectiveness of tax collection

Item Frequency Percentage %

Effectiveness of tax collection
Yes 2 20
No 8 80
Total 10 100
(Source: own survey) Table 4.12

According to the above table most of respondents 80% are responses that the collection system
of the organization is not efficient. This implies that in efficiency affects the effectiveness of tax
collection. On the other hand there is only 20 % of the respondent’s responses that the
organization was effective in tax collection system. This shows that there is very little efficient
collection in the organization.

4.3.8 Ways of giving awareness to the tax payers

Item Frequency Percentage %

Ways of giving awareness to tax payers
Panel discussion 4 40
work shop 4 40
Pamphlet and filter 2 20
Total 10 100
(Source: own survey) Table 4. 13

According to the above table shows that the way that the organization inform its customer about
before undertaking the tax collection activities 40% and 40% and 40% respectively of the
respondent replied panel discussion, workshop and pamphlet and filter the all above mentioned
method the organization uses to inform its awareness to the customer about the tax before

24
undertaking the collection activities respectively. Generally researcher concludes that according
to the respondent’s reflection the organization uses those all above mentioned to give awareness
to thee tax collection system to the tax payers.

4.3.9 Legal action in the organization who fail to pay the tax on the stated time

Item Frequency Percentage %

Does your organization take

legal action taken against
those who does not pay the
tax

Yes 10 100

No 0 0

Total 10 100

(Source: own survey) Table 4. 14

According to the table 4.12 above 10(100%) of the respondent replied as yes regarding action
taken by the organization for those who fail to pay the tax on time, of course it is the response of
the all of the respondents even if the office does not provide suitable to the tax payers, the payers
are almost try to expand the time of payment by different reasons as far as the law is concerned
the office will punish any tax payer who fail to pay tax on the stated time or schedule given
according to the office. The type of punishment given by the organization are punishment by
fine. And financial punishment are the major action taken by the organization in the office who
fail to pay the tax on the stated time range.

4.3.10 the customer handling system

Item Frequency Percentage %

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 How is you organization customer handling ability

Very good 0 0

Good 2 20

Medium 5 50

Poor 3 30

10 100
Total
(Source: own survey) Table 4.15

According to the above table 2(20%) and 5(50%) of the respondent replied that the organizations
employee customer handling ability is good and medium respectively. The remaining 3(30%) of
the respondent revealed that the organization was poor in customer handling ability from this
researcher conclude that employees customer handling ability is positively influence the
collection system. If the employee’s customer handling ability is good the collection system does
not influence the collection system on the other hand they fails to handle the customer the
collection system may be influenced indirectly.

4.3.11 the objective of collecting tax

Item Frequency Percentage %

What are the general objective of collecting the tax

To raise public revenue 7 70%

To deliver health facilities 2 20%

To encourage import and export 1 10%

(Source: own survey) Table 4.16

According to the above table 4.16 the general objective of collecting tax to raise public revenue,
to encourage import and export and to deliver health facilities to the customers. From this

26
researcher conclude that according to the respondent’s response the objective of collecting tax is
for all above mentioned activities only but according to the respondent 70% objective of
collecting tax is to raise the public revenue.

4.3.12 Measuring rate of taxation

Item Frequency Percentage %

What is major measuring rate of the taxation
Progressive 6 60
Regressive 2 20
Proportional 2 20
Total 10 100
(Source: own survey) Table 4. 17

According to the above table 4.17 6(60%) of the respondent replied that measuring rate of
taxation is progressive and 2(20%) of the respondent response that regressive and remaining
2(20%) of the respondent replied that proportional rate of taxation which is more preferable for
the tax payers. The payer of progressive and regressive rate of taxation unfortunately confuse the
public debate; confusion arises because some people think progressiveness in terms of marginal
rate. That is the change in tax paid with in change in income. From this the researcher concludes
that the progressive tax is the most important for the organization to measure the measure of the
taxation of the company growth or performance of the collectability of the tax.
4.4 Interview analysis from manager of tax office

To conduct the study the researcher prepared personal interview to the tax office to support the
data collected by using questionnaires.

As the information gathered from the tax office through interview, there are many challenges
that faced them to collect the tax in the Yirgalem tax office. There is no full sufficient skillful
and initiated officers to do the intended work efficiently and effectively. In the office there is an
evasion of tax revenue by tax payers. The cause for evading of tax revenue was high rate of
taxation lack of efficiency tax system and collection procedure, lack of awareness about tax law

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and uses of tax over assessment of business tax payers income and lack of understanding in the
idea of “tax is the value paid for development and civilization” are the main cause that leads tax
payers to evade the tax revenue.

Tax payers use different techniques to evade tax revenue, but as a response of respondents
mostly tax payers used the following techniques. These are failure to income timely, adding false
expenses shifting of income from one period and intentional omission of some incomes from the
report.

In order to reduce the evasion of tax revenue in the office, the tax officer takes different
remedies. Such as giving training to the tax payers regarding to the tax law and declaration.
Create awareness to guiltiness of evasion and prepared book of account by educated personnel
are some of remedies taken by office.

Generally, as review the organizational documents and finding with the help of interview the
respondent state their suggestion about the tax in the following manner

This are:-

 Tax is voluntary contribution made directly on individual income and they suggested that failure to
pay the tax leads to the breakdown of the rules and regulation of ones the organization and
government action. Therefore, all of the society must pay it on a given time interval
 Furthermore, they forward their suggestion on tax that tax is one of the source of public finance and it
gives great emphasize one once country economic stabilization, social stabilization and political
stabilization of the country.
 Failure to pay tax may hunger or affect the organizational success and other infrastructural
development process.
 Finally it is important to note that one’s individual should think carelessness of tax payment shows
the breakdown of rules and regulation of the organization in specifically and the government rile in
generally.

4.4.1 Other factor that affect the effectiveness of tax collection in the organization according
the employees response of tax office with help of interview

The main factor facing to the organization during the collection of tax are:
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 Cost of running the tax system: an assumption in the models in the researcher finding is that
collecting the tax involves no cost. This is clearly false. The authority requires the resourced
to their job. Tax payers incur the cost as well.
 The cost of administrating the income tax in the organization is fairly law. For example the
internal revenue service spends only about 58 cents to raise each birr 100 in tax however, the
compliance cost personal income taxation are quite substantial.
 More over an argument could be made that tax differently on the basis of the choice of work
place violate the some notion of horizontal equity.

The difficulties involved in valuing house hold production would create such huge administrative
cost the idea is infeasible.

 Tax evasion: we know to turn to one of the most important problems facing any tax
administration, cheating tax evasion is failing to pay legally due taxes. Tax avoidance refers
to changing your behavior so as to reduce your tax liability. Over and over courts have said
that there is nothing sinister in so arranging ones affair so as keep taxes as law as possible.
According to the organizational estimate people commit tat frauds in a variety of ways.
 Keep two sets of the book to record business transaction. One record for actual business and
other show to the tax authority and using the two cash register can affect the effectiveness of
tax collection.
 Working an extra job, is perfectively legal. However, the income received on such job if
often paid in cash rather than by check. Hence, no legal record exist and income is not
reported to tax authority.

Paying for goods and service with cash and check made cash out to make it very difficult for the
internal revenue authority to track transaction. Regarding the above briefly discussed factor and
other can affect the success of the organizational goal in generally.

CHAPTER FIVE

SUMMARY CONCLUSION AND RECOMMENDATION

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Tax is one of the most important sources of revenue to the government for the delivering of
different facility to the society. The main objective of the taxation is delivering of service to its
customers such as health facility, educational facility, defense and other different infrastructural
service to the customers and etc. This chapter presents the summary of finding from the chapter
four, conclusion and recommendation of the study based on the objective of the study.

5.1 Conclusions

The stud also asses there is good performance evaluation in the organization which includes self-
evaluation, coworkers and supervisors.

The organization uses different method to inform its customer about tax before undertaking tax
collection activities. These includes panel discussion, workshop and pamphlets and filter.
Educating the tax payer is one of the factor that have positively influence on the effectiveness of
tax collection. The organization used different method to handling its customers. Good customer
handling makes the office to achieve its main objective and mission easily. This shows that there
is good customer handling system in the organization

The organization sets clear standard for delivery services in different aspect such service
includes health facility, social service and different infrastructural activities of the country. It is
also needed for effective tax collection in the organization.

The organization gives suitable time range to tax payers according to the slogan given by the
government bodies. a category “ A “ tax payer from July 1 up to 10 to complete its payment ,
category “B ” tax payers from July 10 up to 30 and category “C” tax payer from July 30 up to
September 30 to complete their payment on time according to the given schedule.

5.2 Recommendations

Finally the researcher wants to give some recommendation on the possible solution which the
researchers believe to avoid or minimizing problems and weakness of the organization.

30
  Provide better educational understanding to those who pay the tax. And give awareness
for who do not pay tax and to be aware about tax collection and paying tax is as an
obligation.
 They should be using adequate information technology to accelerate their speed tax
processing and giving service to the customers.
 The office should adjust suitable time for the tax payers to pay tax on proper manner even
if it might be somewhat difficult and complex job burden to the office but as far as the
customer service and satisfaction is concerned.
 The organization of tax office should implement good and effective tax collection and
administration policy to increase the government revenue from tax that helps the country
to rely only on domestic source of revenue.
 Put strong limit and a form of slight penalty on those who are not paying their tax on the
tax payment date that stated by the tax office.
 The tax office is better to prepare adequate training, session and create awareness towards
taxation and tax payment and increasing the number of tax payers that participate in the
training session.
 To improve efficiency and effectiveness of the office operation the revenue office should
do the assessment by using computerized technology and better to strength their
relationship with tax payers.
 High rate of taxation is the main cause for evading the tax revenue. So to avoid this guilty
activity, the revenue office should widen the tax base and reduce tax rate. The
organization should give awareness to the customer in order to manifest the usefulness of
collection tax.

REFERANCE
Adam smith, 1776 the wealth of nation 7th edition
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Council of minister, 2002 income tax proclamation number, 286/2002 negarit Gazettes
Dr HL Bhatia, 2006 public finance, 24th edition
Due john F, 1959 the introduction of value added tax
Gebriel work,2006 tax accounting in Ethiopian context
MisrakAbate Tesfaye,2008 Ethiopian tax accounting theory and practice Addis Ababa 1st edition
Richard. M, 1992 Improving tax administration in developing countries
Richard Musgrave,1993 public finance in the theory and practice. 5th edition

APPENDICE 1

WOLAITA SODO UNIVERSTY

32
 COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Questionnaires:

Dear respondents: these questionnaires have been prepared to collect data to

conduct a research on the assessment of the factor that affect effectiveness of tax
collection in yirgalem town administration tax office for the fulfillment of
requirement on BA degree in accounting and finance. It is prepared only for
academic purpose frankly fills the appropriate answer in the space provided. The
information provided will not be used for other purpose of which you should be
confident enough.

Thanks in advance.

Instruction

 No need to write your name.

 Put sign (√) mark in the box provide for objective question.
 Please fill in the spaces provided for specific question.
 Please try to compare all the question.

PART I PERSONAL INFORMATION

1. Sex: Male Female

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2. Age: 18 – 25 26 –35 36-40 40>

GENERAL INFORMATION

1.Your position: Manager Employee Supervisor

2. Year of service in your organization : below 2 years 3 – 5

6 – 10 11-15

SPECIFIC QUESTION

1. How your organization provide information to tax payers?

Very good Good Poor

2. What type of register action does the organization use?

Obligatory Voluntary

3. Is mere any performance evaluation in your organization?

Yes No

4. If your answer to question #3 above is yes who evaluate?

5. Supervisor peer worker Self evaluator
Immediate subordinator
If any specify…………………
6. Does your organization set clear standard to deliver service to the
customers?
Yes No

7. Are there factors that affect the collection of tax?

Yes No

8. If your answer #6 is yes, what are those factors?

Lack of loyalty Delay on payment

9. Do you believe that the collection of tax made on time?

Yes No

10. If your answer for question #7 above is yes at what time interval
of the collection is made?
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 1-10 days 11-20 Days 21- 30 Days

11. Is your tax collection in your organization is efficient?

Yes No

12. If your answer #10 is yes, the collection of tax is?

Excellent Very good Medium Poor

13. In what way your organization gives awareness to the customer

about the tax before undertaking collection activities?
Panel discussions

Workshop

Pump lets and filter

If any specify

14. Is there customer who are not paying tax?

Yes No

15. Does your organization take legal action for those who are not
paying tax on time?
Yes No

16. If your answer for #14 above is yes, what type of action that
your organization takes?
Punishment by fine Prison Other

17. What are the factor that hinders the tax collection performance?
Unwillingness DishonestLack of awareness other

18.How your organization customer handling system?

19.Very good Good medium poor
20.What are the general objective of collecting tax?
To raise public revenue to encourage import and export

To deliver health facilities

21.What are the major measuring rate of the taxation?

Regressive Progressive Proportional

22.Please mention below if you have suggestion on the tax.

……………………………………………………
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 ……………………………………………………

……………………………………………………

……………………………………………………

APPENDICE 2
Interview

Structured interview to the tax authority

1. Do you think that the tax office have sufficient, motivated and competent
employee?
2. Is there any tax evasion in your office? If these what is the possible cause
that lead to evade tax revenue?

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 3. What are the major procedural complications facing in tax office?
4. What are the factors that affect business profit tax?
5. How do you evaluate the business profit tax in your office?
6. What do you think the tax payers are not willing to pay their tax liability?
7. What are factors that affect the effectiveness of tax collection in your office?

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