IV.

EVALUATION

Identify the checks and balances in the tax collection and tax spending process

Guiding Questions:

1. What kind of mechanisms that should be included in the evaluation program?

2. Given each mechanism, how should the institution that will carry out the mechanism

be designed?

In the context of the Ethiopian Tax Reform, we define the evaluation process as a

process to ensure that the tax collection and the tax spending process is being done in

the most efficient and law-abiding way while maximizing the people’s confidence

and support to the tax program.

A. EVALUATION MECHANISM FOR THE TAX COLLECTING PROCESS

1. Mechanism to assess and audit the performance of the tax officer

When considering the design of the tax collection evaluation process, one needs to

incorporate the performance assessment function and the audit function. The performance

assessment function is aimed to ensure that the local tax offices could collect the targeted

amount of tax collected and provide the best service for the taxpayer when the taxpayer is

paying their tax. The target level of tax collected by local tax offices needs to be

calculated based on the existing tax assessment and regulation for each area. The audit

function is aimed to ensure that the tax office abides all tax laws and regulations while

the tax office collected the tax money and process the proceedings. The combination of

the performance assessment and the audit function of the tax collection evaluation

program should be designed in a way that incentivize the tax offices to (i) maximize the

ratio of actual tax collected to target tax collected, (ii) maximize taxpayer’s satisfaction,
and (iii) ensure that the tax collection practice is carried out in a way that abide all tax

laws and regulation.

2. Mechanism to accommodate people’s question, comments and concern

regarding the tax collection practice

In order to ensure that the people are confident and supportive to pay the tax, one needs

to consider making a mechanism to accommodate people’s comment, question, and

concern in the tax collection process. This mechanism needs to collect the people’s voice

and precede the voice accordingly; if it is a question, the mechanism needs to answer that

question if they know the appropriate answer or direct the question to the one that could

answer. If it is a comment or concern, the mechanism needs to precede the comment or

concern to the appropriate department. The mechanism should serve as a liaison between

the tax office and the people to have a dialogue regarding the ongoing tax collection

process. Further, the mechanism should also be accessible to the people that want to

voice their thinking and also cost efficient. It is important to note that this mechanism can

only improve people’s satisfaction if the inputs from the people are processed

accordingly and the tax office is responding to all of the inputs even if the respond was

not in line with the input from the people. It is also important to note that the people’s

input regarding the tax collection process must be accessible to all stakeholders under the

tax office, including the tax office auditor, because it is a very important input for the

adjustment of the tax assessment or adjustment of the tax collecting mechanism in the

future.

B. EVALUATION MECHANISM FOR THE TAX SPENDING PROCESS

1.Mechanism to audit the tax spending process

To increase the people’s confidence and support for the program, it is important to

consider the audit function in the tax spending process. The goal of the audit function in

the tax spending evaluation program is analogous to the goal of the auditing process that

is carried out by the Ethiopian Office of the Federal Auditor General in the federal level,

which is to express opinion on financial statements and related issues of legality,

regularity and fraud as well as examining whether the government institutions are

operating efficiently. The audit function in the tax spending evaluation is aimed to ensure

that the decision making process to spend the taxpayer’s money is in line with the

existing law and regulation regarding the local government spending. In addition, the

audit process should also ensure that there is no misappropriation of the tax money. The

audit function in the tax spending evaluation program should not be aimed to judge

whether it is the right decision to spend the tax money to a particular program.

Furthermore, in the case where there are some procedures that was not fulfilled, the audit

agency should have the authority to take necessary action to investigate and, if the case

was not criminal related, settle the case. Furthermore, if there is some indication of

criminal act, the case should be passed into the law enforcement agency.

2. Mechanism to accommodate people’s question, comments and concern

regarding the tax spending practice

The mechanism to accommodate people’s input regarding the tax spending is critical in

order to gain the support and confidence of the people to pay the tax. This process is

aimed to provide channel in which the people could voice their thinking regarding the tax

spending practice while at the same time provide the opportunity for the local

government to explain the rationale on why they choose to spend the tax money on
particular project. The mechanism should be designed in a way to gather the people’s

preference on the tax spending and respond accordingly if they have some concern or

complaints regarding the tax spending. The mechanism should also be accessible to the

people that want to voice their thinking and also cost efficient. It is important to gather

the people’s preference and communicate on why certain project is being pursued

because, if done properly, might reduce people’s resistance on spending the tax money on

particular project that the local government prioritize and might increase the people’s

knowledge on the government’s program. This might increase the public acceptance rate

of the local government and made the local government able to provide necessary public

service that is preferred by the people.

C. THE INSTITUTIONAL ASPECT OF THE AUDIT MECHANISM AND THE

PUBLIC INPUT ACCOMODATION MECHANISM

To ensure that each of the mechanism proposed above is functioned as expected, it is

important to consider how to design the institution that will carry out the process. It is

also important to note that the optimum structure depends on the capability of the local

human resources as well as the dynamics of the local institutional politics. As a

consequence, the optimum structure to carry a particular mechanism might be different

between one local area to another. However, it is important to keep in mind that the ideal

design of the institution that will carry out each mechanism should be (i) incentivized to

carry out the mechanism in an objective manner without any conflict of interest, (ii)

incentivized and capable to carry out the respective mechanism as instructed in the

respective law and regulation, (iii) accepted by most stakeholders without creating strong
opposition from a particular stakeholder, and (iv) efficient in administrative, bureaucratic,

and cost perspective.

Follow up questions:

1. How to establish performance assessment and audit mechanism for the tax officer in

collecting taxes?

2. How to establish audit mechanism for the local government in spending the tax?

3. How to efficiently accommodate people’s questions/complaint/concern regarding the

tax collection and tax revenue spending and responds to the questions or complaint or

concern accordingly?

4. How should the institution that will carry out each mechanism is designed?