PROBLEMS OF VAT ADIMINISTRATION

(CASE STUDY ETHIOPIAN REVENUE AND

CUSTOM AUTHORITY JIMMA BRANCH OFFICE )

A RESARCH PAPER SUBMITTED TO ACCOUNTING

DEPARTMENT IN PARTIAL FULIFILLMENT OF
THE REQUIREMENTS FOR BACHELOR OF ART
(B.A) DEGREE IN ACCOUNTING

SUBMITTED BY: MOHAMMED HUSSEN

ADVISOR: DANIEL TOLESA

DEPARTMENT OF ACCOUNTING
COLLEGE OF BUSINESS AND ECONOMICS
JIMMA UNIVERSITY

MAY 2012
Jimma, Ethiopia
 ABSTRACT
Jimma town face a number of problems in the process of tax revenue collection But the
research concern on the problem of VAT administration in the town specially focus on
identify why most of business organization aren’t register for VA, top identify the VAT
collection problem and other implement ion capacity problem of authority.

The researcher adopted survey design method from 100 total population of VAT payer
and employees take sample 50 person 4 administered.

The result shows most of eligible business organization can’t register for VAT as result a
harms register business organization The VAT payer can’t issue VAT invoice and not
used modern Technology that create tax collection problem and decrease government
revenue, and implantation capacity the employee is low the tax evasion and corruption.
Based on finding recommend that the revenue office worked to hared to create awareness
and to register the eligible business organization develop the employees education status
to solve administrative weakness and increase tax revenue of the country.

I
 Acknowledgment
First and most great thanks are given to almightily ALLAH. He has helped me in every
aspect of life. Next a greatly appreciate my adivisor Ato Daniel Tolesa, for his through
reading of the paper valuable comments suggestion and his kind full appreciation. I
would like to thinks jimma university especially college of business and economics to
design this program through the student their knowledge finally I used like to thanks for
all my friends and family who help me to prepare this research paper.

II
 Table of content
Page
Abstract …………………………………………………………....................................I
Acknowledgment .............................................................................................................II
Table of content…………………………………………………………………………III
List of table………………………………………………………………………………IV
1.1 Back ground of the study …………………………………………………………….1
1.2 Back ground of the organization………………………………………….................. 2
1.3 Statement of the problem…………………………………………………..................2
1.4 Objective of the study ……..........................................................................................3
1.4.1 General objective ……………………………........................................................3
1.4.2 Specific objective …………………………………………………........................3
1.5 Significance of the study ………………………………………………………….….3
1.6 Scope of the study and Limitation of the study ………………………………………4
1.6.1 Scope of the study……………………………………………………………..…4
1.6.2 Limitation of the study …………………………………………………….….…4
2 .1 Literature review…………………………………………………..............................5
2.2 VAT Administration……………………………………………………..................6
2.3 VAT refund ………………………………………………………………..............7
2.4 Registration of VAT………………………………………………………..............8
2.4.1Obligatory registration …………………………………………………….............8
2.4.2 Voluntary registration ……………………………………………………............9
2.4.3 Registration procedure…………………………………………..............……..…9
2.4.4 Time of Registration ………………………………………………………….....10
2.4.5Benefits of voluntary resist ration………………………………………………...10
2.5 Recorded keeping………………………………………………………………........11
2.6Administrative penalties ………………………………………………………......12
2.7VAT Regime in Ethiopia…………………………………………………………..13
2.8 l Empirical evidence ...............................................................................................14
CHAPTER THREE
3.1 Research deign and methodology ……………………………………………16
3.2 Method of Data collection……………………………………………….….…16..
3.3 Sampling method …………………………………………………………....16
3.4 Sample size ……………………………………………………………..….…17
Method of data interpretation………………………………………………......... .17
CHAPTER FOUR
4. Data analysis and Discussion……………………………………………………18
4.1 Overview…………………………………………………………………….....18
4.2 Education level respondent……………………………………………………..18
4.3 Descriptive analysis for primary data………………………………………..…19
CHAPTER FIVE
5.1 Summery and contulsion……………………………………………………..….27
5.2. Recommendation……………………………………………………………….28
Refrenance ………………………………………………………………….........…29
Appendix ……………………………………………………………………..........30

III
 List of table Page
Table 4.1 Status of education……………………………………………………….. …19
Table 4.2 Tax official and Tax payer views about VAT Collection system……….……20
Table 4.3 Respondent views on problem of VAT administration……………………… 22
Table 4.4. Respondents View on Registration of VAT…………………………………24
Table 4.5 Respondent Views on tax system…………………………………………..…25

IV
 CHAPTER ONE
1. Introduction
1.1 Back ground of the study
One of the mechanisms is which countries rise revenue to finance government spending
on the goods and service that most of us demand is taxation,
Value added tax (VAT) is a tax on value added to good and services by enterprises at
each stage of the production and distribution process(Gebrie, 2003). value added tax is a
tax not on the total value of the good being sold but only on the value added to it by the
last seller (Bhatia, 2003).
Value added is one of taxing system that were introduced for the first time in the world
in france in 1954 by franch economist Maurice laurel director of the franc tax authority
(Gebrie, 2006). It was gradually has adopted for it consumption variety and selected on it
own exception area and multiple rate schedules (Bhatia, 2003). late it was gradually
expand to African countries especially countries which were colonies of france like cot-
devour, Senegal, mail and other western country which were under colony of franc.
The development of this tax system is fast it has now employed by large umber of Latin
America Asia ,Africa and pacific countries value added tax (vat has become a major tax
instrument world wide The global trend to introduced VAT I more countries is
countersuing. Ethiopian tax reform program has introduced VAT since January, 2003
(Gebrie, 2008).

The Ethiopian government has introduced ,VAT as part proceeded by tax reform program
,the tax reform program is preceded by establishment of anew ministry of renewed as the
first step to improve tax collections and to combat fiscal frond , The need for value added
tax (VAT) tenements from the very wackiness of the sale tax that is intended to replace
(Purhot ,2000).

1
value added tax is an in direct tax that is charged when ever a taxable person make
taxable supply of good and services in course of his business
Although it is finally borne by consumer (Hancock, 1998) service while other summit
their VAT their VAT returns without payments. There is also deliberate submission of nil
returns non issuance of VAT in voices and enter trainmen provides and operations refuse
to use the VAT coupons (Alemayehu, 2009).

1.2 Back ground of the organization

The federal in land revenue authority was opened jimma branch office in 1995 E.C with
small number of employees in 1996. It was herds the linearity Gradates and develops its
performance in the year of 200E.C. Its was high performed and colleted vat in small
amount compare that of expected (plan). The FIRA jimma Brach administer sole
proprietor plc shore companies and micro enterprise. In 2003 E.C the register sole
proprietor was transferred their file to the regional govermnt tax authority. Since 2003E.C
ECRA administer private limited company shore company micro enterprise which are
ordered by the government.
1.3 Statement of the problems
VAT administration pertains to how tax authorities discharge the responsibilities
entrusted them. The major activates in VAT administration are identifying tax payers,
processing returns, controlling collections, making refund, auditing tax payer and levy
penalties and performed activities mentioned on the VAT administration proclamation
(285/2002). Even if value added tax system is accepted by many countries and that in
traduced in our country some problem is exited in Ethiopian Reunite and custom
authority (ERCA) jimma branch thus the proposed research will try to answer the
following
Basic research questions.
1. Do all businesses register for VAT in accordance with existing criteria?
2. What are major problem related to VAT collection?
3. Are there problems related to misunderstanding of the existing tax law?

2
 1.4 Objective of the study
1.4.1 General objective
Primarily this study wiled interned with assessment of value added tax administration in
Ethiopian revenue and custom authority in jimma branch office.
1.4 .2 Specific objective
In addition to the General objective the research specify try:
 To identify the reasons for not registor for VAT in accordance with the existing
criteria.
 To asses weather tax payer and tax authority implemented value added tax in
compliane with rules and regulation of tax proclamation.
 To asses what are major problems related to value added tax collection.

1.5 Significance of the study

This research was conduct to indicate the existing operation of value added tax and its
challenge therefore the result of the research would be assets policy makers and tax payer
in understanding the need of value added tax the nature and the mechanism to determine
value added tax, understanding value added tax administration problem and create
awareness to the tax payer and decision maker to contribute their own shore for
developing of the county And to initiate other individual and organization for further
study.

3
1.6 Scope of the study and LIMITATION OF THE STUDY
1.6.1 Scope of the study
This study is delimited to assessing the problem of VAT administration in Jimma town
The variable that are considered as the base of the study were classified in cultural
variable (awareness) institutional variable (corruption and implementation capacity tax
law variable
Structural variable which include the tax law (system) and tax administration produres
the data were gathered from interview of the tax official based on significance and
variability of data and questionnaire from VAT payer and tax official.
1.6.2 LIMITATION OF THE STUDY
limitation are those beyond the control of the researcher that may place restriction on the
conclusion of the study and their application for other situations as well as probing area
for future study to be conduct to current study.
In General term limitations are what hinder the perfection of the study. As result lick
most studies the finding of this research may have been limited by some factors
some of which are , It does not fully assess all factors involved in the determination of
VAT revenue more specifically/ issue such as all VAT payers and regional office of VAT
authority are not examined un willingness of some respondents to give information
related VAT that help[s the study was also cited as limitation of study.

However effort has been to ensure that this situation doesn’t the completion and quality
of the research work. As, a result the effect of this limitation would be reduce barest
minimum.

4
 CHAPTER TWO
LITERATURE REVIEW
2. Value added tax (VAT)
VAT is a tax eh the value added tax to good services by enterprises at each stage of
the production and distribution processes. It arises when ever a taxable person make
as apply of goods or services in the course of his business. Thus in some countries it
is called good and services tax. VAT was in vented by French economist in 1954 by
Maurice lour director of the French tax authority. VAT was insulted because very
high sales takes and tariffs encourage cheating and struggling (Gebrie, 2008).

Unlike the turn over tax which is applied to the full value of a product every time the
item changes hands in the processes of production and distribution the VAT is
assessed at each stage on increment in value acquired by the product since the test
taxable transaction. At the end of the chain the total amount of tax paid on good and
commodity is determined only by the tax rate and the final price of the commodity
required less of the number of stages through which is passed what has been collected
in fractional payments is equivalent to single stage tax on the value of final product
the theory is that the end consumer carves the burden of VAT not the business which
is merely collecting the VAT on behalf of tax all history. But the reality is not offsite
so simple (Gebrie, 2008). For fully taxable businesses VAT is not cast but is merely
an accounting headache whatever you collect in out put tax must be handed over the
tax authority when ever you pay in put tax can be recovered from tax authority (apart
from the in put VAT on personal passenger vehicle and entertainment but on has
taken car full on purchase and sale of taxable supplies otherwise VAT will affect
his/her cash flow (Gebrie, 2008).

5
 Computation of VAT
In modern taxation there are for types of value added taxation system there are
a) Gross product value added tax
b) I come type value added tax
c) Capital exemption type value added tax
d) Consumption type value added tax (Gebrie, 2008).

2.2 VAT Administration in Ethiopia

The VAT replaced the sales tax on manufactured and imported goods and services
can January 1,2003. The responsibility for the correct calculation and timely
payment of VAT rests on the taxpayer himself. The VAT is a broad vase tax on the
consumption of good and services. It is collected at all stages in production and
substitution processor beginning with importers and producers of raw materials and
ending with the retailers cascading of the tax (i.e tax on tax ) is avoided by providing
for accredit for the tax paid only to raw material used directly in the production of
goods under a VAT. Relief Is granted for goods are not subject to the VAT.
Removing that tax content on in puts from exported goods makes the goods more
competitive in international market. VAT is a tax on consumer expenditure. It is
collected on vastness transaction and import
Most business transaction involved supplies of goods or services and VAT is payable
If they are.
supplies made in Ethiopia, made by a taxable person, made in course or furtherance of
a business , are not specially exempted or zero rated.
supplies are outside the scope of tax if they are
Made by some one who is not a taxable person . not made in the course or furtherance
of business .
Course or furtherance the way tax able person has to carry out its activity to develop
advance and progress the taxable activity anything done in connection with the
commencement or termination of a taxable activity is treated as curried out in the
course or fur Terrance of that taxable activity (Gebrie, 2008).

6
2.3 VAT refund
VAT registered person shall got refund
If at least 25% of the value of registered persons taxable transaction for the accounting
period other registered person is aging transaction of substantially all of asset of a taxable
activity provide a notice In writing sing net by the transferred is finished with 21 days
after the supply taken place is taxed at zero rat. The authority shall refund the amount of
Vat applied as a credit in excess of the amount of VAT charged for the accounting period
with in a period of two moths after the registered person files an application for refund
accompanied by documentary proof of payment of excess amounts. In the case of other
registers persons the amount of VAT charged for the accounting period is to be corried
for word for the next five accounting periods and credited against payment for these peril
and any unused excess reaming after the end of this five month period shall be refunded
by the authority with period of two months. After the registered person files an
application for refund accompanied by documentary proof of payment of the excess
amounts where the tax authority satisfied for refund application in over paid tax the tax
authority shall
- First apply the amount of the excess in reproduction of any tax levy in test of penalty
payable by the person under the customs proclamation the income tell proclamation
and excise tax proclamation.
- The repay any amount remaining to person if the amount to be refunded is more than
50 birr.
When registered person is entitled to refund and the tax authority is satisfied but doesn’t
pay the refund which in satisfied data the authority shall pay the person the refund plus in
test set at 25% over and above the highest commercial lending in test rate that prevailed
during the preceding of over (Gebrie, 2008).

7
2.4 Registration of VAT
In Ethiopia registration for VAT is categorized in to two
I. Obligatory Registration
II. Voluntary registration
2. 4.1 Obligatory Registration
Any person conducting a commercial enterprise or intending to conduct a commercial
enterprise may apply to be registered for VAT. However of the taxable turnover of the
enterprise, which is gross income for 12 calendar months exceeds or is likely to exceed
birr 500,000 the person conducting the enterprise must register for VAT with FIRA
(present ECRA) Turin over exempt supplies are not to be inclouded total for deciding if
VAT registration is compulsory (Gebrie, 2008).
The tem any person for purposes of VAT registration include
- sole propriety
- Company
- patenreships
- Estate of the deceased
- Trust
- Incorporated body or unincorporated body
- Club or association
A commercial enterprise:- refuse to any business of whatever nature and includes
- Ordinary business example, shop contractors, manufactures wholesaler
- Trades and professions example, builders, engineer’s accountant’s lawyers etc
- Activities of non profit making bodies example, societies association sporting clubs, etc
The turn is calculated on ongoing basis two periods need to be considered the past 12
calendar moths and the next 12 calendar months on month’s basis.
There is need to estimate at the end of each month trading colander month the total value
of taxable goods and services supplied by all business for the past 12 months where the
total exceeds birr 500,000 then there is the requirement to register for VAT if the turn
over is below Birr 500,000 business activity one may apply for voluntary registration
(Gebrie, 2008).
8
2.4.2 Voluntary registration
A person, who curried on taxable activity and is not required to be registered for VAT
may voluntary apply to the authority for such registration if he/she regularly is supplying
or reading at leas 75% of his goods and services to registered person.
2.4.3 Registration procedure
Application for compulsory as will as voluntary registration must be made on application
from called application for VAT registration in the VAT register and issue a certificate of
registration with in bodes of the registration contain derails of
- The full name and other relevant details of the registered person
- The data of issuance of certificate
- The registered person’s tax payer identification number if registration is disallowed
FIRA( ERCA) will have to notify the applicator and the reason for the refusal. The
tax authority may deny the application voluntary registration if the person
- Has no fixed place of residence or business
- Doesn’t keep proper accounting records
- Has previously beech registered for VAT purposes but tailed to perform his duty
under the VAT law (Gebrie, 2008).
2.4.4 Time of application
A person who curries on taxable activity and is not registered is required to file an
application for VAT registration it shall fill an application for registration on later
than the last day of the month after the end of the period if
1. At the end of any period of 12 colander month the person made during that period
taxable transactions with a total value exuding 500,000 birr or the last day of the
month of the period if
2. At the beginning of any period 12 calendar months when there is reasonable
around to expect that the total value of taxable transaction to be made by person
during that period will exceed 500,000 birr (Gebrie, 2008).

9
 2.4.5 Time of registration
Registration takes place on one of the following depending on which date comes first
 on the case of obligatory registration on the first day of accounting period following
the month in which the obligation to apply for registration arose
 in the case of voltmeter registration on the first day of the accounting period
following in the month which the person applied for registration.
 On the date selected by registered person on his appreciation for registration
A registered person who conduct taxable activity in breach or division shall be
registered only in the name of the registered person however up on application the tax
authority may allow the registered person to register one or more of its branches or
divisions as separate registered persons the tax authority allow when it is satisfied on
such case that divisions or branches maintains an independent accounting system and can
be identified by the nature of its activity or location (Gebrie, 2008).
Benefits of voluntary registration
In put VAT can be recovered if person registered it will therefore be beneficial to
voluntary register where the person makes mainly zero rated supplies in case in put VAT
will be recover and ho VAT will be charged on zero rated out puts (Gebrie, 2008).
Cancellation of VAT Registration
A person who has registered for VAT may cancel his/her registration by arrangement
with FERA (present day ECRA) deportment of VAT the reason for deregistration
includes
1. If he/she has ceased or stopped to make taxable transaction
2. If the registered person’s to tally taxable transactions in the period of twelve months
then beginning reasonable are not expected to be more than birr 500,000
3. If the business in sold
4. If the authority is required to remove the person’s name who register for VAT and all
other details from VAT register and persons is required to retune the issued certificate of
registration

10
 5. If he/she has been registered or he/she stopped to taxable (VAT proclamation no
285/2002)
A VAT invoice a document executed in containing from stipulated by ministry of
revenue and containing the following information.
a) Full name of the register person and purchaser and the registered preson trade name if
different from legal name
b) Tax payer identification number of the register person and purchaser
c) Number and date of VAT registration certificate
d) Name of the good shipped or service rendered
e) Amount of taxable transaction
f) Amount of exercise on excisable goods
g) Sum of the VAT due on the taxable transaction
h) The issue date if the VAT invoice and
i) Serial number of the VAT invoice the register person is required to issue the VAT
invoice to purchase of good or serves up on the supply or rendering but not later than
5 days after the transaction (VAT proclamation no 285/2002, Article 22).
j) Recorded keeping requirement
The registered person or any other person liable for VAT under the proclamation shall
main taint 10 year in Ethiopia
- Original tax invoice deceived by the person
- Copy of all tax invoices issued by the person
- Custom do cementation relation to imports and exports
- Accounting record records and
- Any other records and may be prescribed by ministry of tenure (VAT proclamation,
285/2002, article, 37).

11
2.6 Administrative penalties
Penalties the following penalties are imposed for violations’ of the VAT proclamation a
a. where any person engages in taxable transactions with out VAT registration where
VAT registration is required 100 percent of the amount of tax payable for the enter period
of operation with VAT registration.
b. where any person issued in correct tax invoices resulting in decrease in the amount of
tax or increases in accreted or in the event of on the event of the failure to issue a tax
invoice 100 percent of the amount tax for the invoice or on the transaction
c. where person who is not registered for VAT issues tax invoice apenity of 100% of the
tax which is in decanted in the tax invoices and for transfer to budget but has not been
transferred and
d. where ape son feels to maintain records required under article 37, 2,000 birr for each
month or portion thereof that the failure continues.
(VAT proclamation no 285/ 2002, article 45).
1. Except as other use provided in this proclamation a person who fails to file a timely
return is liable for penalty equal to 5% of the amount of tax under payment for each
month (or apportion thereof ) during which the failure continues up to 25% of such
amount
2. The penalty under sub article (1) of this article is limited to 50,000 birr for the fires
month (or porting thereof ) in which no return is filed
3. For purpose of this article an underpayment of tax is the different between the tax
required to be shown on the return and amount of tax paid by the due date
4. In any event the penalty may not belles than smaller of the two amount a, 10,000 birr
b, 100% of the amount of tax required to be shown on the retune (VAT proclamation
285)2002, article, 46).
 12
2.7 The VAT Regime in Ethiopia
The Federal Democratic republic of Ethiopia (FDRE) has adopted. VAT in to its
tax system in 2003. It has been introduced on January 1, 2003, replacing the
former sales tax system. The VAT proclamation NO 285/2002/ (VAT law) has
been ratified by the house of peoples Representatives six months before VAT
implementation (July, 2002).
This VAT proclamation has thirteen sections (130 and sixty-six (66) articles In
December, 2002 the VAT regulation No 79/2002 has also been issued by council
of ministers pursuant to the Value add tax proclamation for the implementation
and regulation of VAT. The VAT regulation has three chapters (3) and forty (40)
articles.
VAT is introduced in Ethiopia by proclamation NO 285/2002, replacing sales tax
with the following objectives:
a. To collect tax on the added value whenever a sales transaction is conducted
since the former sales tax system already replaced did not allow collection of
the tax on the added value created whenever sales transaction is conducted
b. To minimize the Damage that may be caused by attempts to avoid and evade the
tax and to ascertain the profit obtained by the tax taxpayers
c. To enhance saving and investment as it is a consumption tax and does not tax
capital and.
d. To enhance economic growth and improver the ration relationship between
gross Domestic product and gross revenue According to the newly
implementation VAT law supply of goods and rendition of services in Ethiopia
are subject to VAT at a standard VAT of 15% is applied only to imports and
domestically manufactured goods. (misrak Tesfaye, 2008, p 320)
 13
Unlike the sales tax, VAT provides the relief of the tax on all business in puts (taxable
supply) including capital goods operating and administrative
expenditures. The relied of the tax and zero rating also encourages investment and
exports. the VAT system that Ethiopia has implemented also gives exemption to basics
and necessities such education medical service electricity water kerosene, basic foods,
transportation service fertilizers books and printed materials the supply of goods or
services in the form of humanitarian aid etc. (Misrak Tesfaye, 2008, p.320).
2.8 Empirical Evidence

Assessing the relation between administrative effort and revenue outcome is by no

means simple: it is important, for example to distinguish the extent to which revenue is
attributable to the active intervention of the administration rather than its relatively
passive role as recipient of revenue generated by other feature s of the system There are
three main elements in order to build a good tax system, which includes state legimancy,
tax payers’ willingness to pay tax, and the effectiveness of the tax administration As Bird
and Gendron (2005) cited in yesgat, 2008) noted that low tax morale and large informal
sector are among the factors of weak tax administration in developing countries Apart
from weak tax administration tax payers’ dislike to words tax in another factors that
Creates difficulty in the tax system of many countries (Agapitos, 2005)
 14

Late payment interest

1. If any amount of tax is not paid by the due date the person liable is objected to pay
interest on such amount for the period from the due date to the date the tax is paid
2. The interest rate under sub article (1) of this article is set at 25% over and above the
highest commercial lending interest rate that prevailed during the preceding quarter.
 15
CHAPTER THREE
3.1 Research design and Methodology
Research design
This study would be designed to evaluate the problem of VAT administration ERCA
jimma branch. The study will be expected take 4-6 Months it compulsory for
researcher went to the area to collect information required to answer the major
problem in VAT administration.
Source of data
Primary data and secondary data source.
3.2 Method of Data collection
Primary data would be collected by the researcher through interview and
questionnaire prepared for employee of VAT collector department and VAT payers
secondary data collected from book, magazine. Internet and VAT proclamation
285/2002 and other international proclamation.
3.3 Sampling method
The researcher would be used simple random sampling because of each and every
sample of population was give and have equal charge being chose and also freeform
personal basis because researcher did not exercise his dictionary preference in
choosing of population subject to questionnaire and interview
 16

3.4 Sample size

It would be l timely and financially in feasible to engage all the population from the
total plc and shore company business and service organization and forty two
employees out that nine employee are exists for preparation. The researcher used 50%
of the total population as sample. According to Dr. Assefa Dmassie
N total populations have 100 business and service organization
N= sample size 50 (100x50% )
Kth = tax payer
Kth = N/n = 100/50 =2
The number 2 indicates interval of unit of sample size and after selecting one sample
from first 100 element using random sampling that is Lottery method system. There
fore first you select on tax payer from the first interval randomly them add the
interval on the number picked from the first interval.

3.4 Method of data analysis and interpretation

Data interpretation is logical way to data processing and analysis is therefore at this
case great care will be taken to make inferences draw conclusion and to arrive at
feasible findings.
 17

CHAPTER FOUR
Data Analysis and Discussion
Overview
In this chapter an attempt is made to identify or see problem of VAT administration
to attains this adjective the researcher to collect information from revenue offices
employees, kebeles and VAT payer in the town. The ministry of finance collection of
tax with other institution The task of revenue administration ration 1937 e.c in name of
institution. The task of revenue administration establish indepently and expand to
Rural area up to 1966 e.c .After Derg government came to power there were changes in
stump duty, agriculture tax and other unit of tax.
In 1983 there was basic changes in administration structure and economic policy As a
result of this October 1985 e.c. proclamation No 33/85 was proclaimed to provide fiscal
federalism by the tax revenue sharing between central and regional state administration,
formation of federal revenue collection and regional state revenue collection costumes
authority organized in 1997 by proclamation No 60, 1993. The Ethiopian costumes and
revenues authority in Jimma branch operates in 1995 E.C. At that time there is small
number of employees and there is No facility and renting a house in around frengearada.
Tt developed it administration from 1991 e.c and hired the frist dgree student from
university worked efficiently to achieve long run objective of the government policy.

4.2 Educational status tax payer.

A awareness a direct relation with education also one of increase mat of tax revenues of
the government and improve the administration of tax in the town and the main factor for
successful collection of VAT and their tax revenues in the town study made in devolving
countries shows that the is strong linck between tax revenues performances and education
level of tax payeer and administration employs (gupta,2004). people with quality
education means better know how about business market, tax system and anther
business related issue.
 18

Table 4.1 status of education

item male % Fmale %

Illustration 4 8% 2 48%
Read and write 5 10% 2 48%
th
1-8 grade 8 165 6 14.6%
10+1 7 14% 13 31.7%
10+2 11 22% 40 24.3%
First degree 5 10% 4 9.7%
Diploma 10 20% 2 4.8
Total 50 100 41 100%
Source, Survey questioner
As indicate the above table from the 8% male is illustrate and 4.8% in female is
Illustration. 10% of male is Read and write and 9.7 of female as well read and write
Generally majority of the VAT payer were 10+2 and below .The education level of VAT
payer in both first degree and diploma is very low in the town. This creates a problem of
misunderstanding of the tax system from the VAT payer direction

Literacy by for most important element in success of VAT collection while the
backbone of effective tax system is the documentation of Economy. Literacy does not
only being able to keep record on the books but also include knowledge of information
technology and its usage. Tax yield less revenues less litrate economies (chaudhry, and
manir, 2010).
4.3 Descriptive analyses for primary data (Questionnaires)
This section deal with analyzing and discussing the data collected from tax payer
especially Focus on VAT payer and tax official respondent through questioner and
interviews. The questioner is close ended with that open ended which are designed
identify( selected) the problem of VAT administration.

19
 To supplement the data obtained through questioner and interviews were administer
official employee and management. In this study emphasis is given primary data from tax
payer 50 copies of questionnaires ware distributed to VAT payer in the town by selecting
sample and their would returned the questionnaires and 50 questionnaires to tax
administer employees and interview and question is prepared to collected the fulfilled
questioner from tax payer and VAT administered employees.
Table4. 2 Tax official and Tax payers views about VAT collection system

Item No response
Lack of strong education program for tax payer not issue 16 27%
sale invoice not signed and used cash register machine
Have inefficient man power 15 25%
Not supported technology 13 22%
Not organized data 4 7%
Existence of in Equitable trading system in the town 11 19%
Total 59 100%

(Source, Survey questioner)

As the research observe from the table 7 above 27% (16) the respondent response were
lake of strong education program from tax payer, not issues VAT invoice and not used
cash registration problem, 15 (25%) are said that there is scarcity of skill man power in
tax authority. 13 (22%) not supported technology or that soft ware solution and Existence
of an Equitable trading system in the town is the other problem. There for the
organization or tax authority take response give Education for tax payer and advise for
used cash register machine and controlled illegal trader that can’t issue the VAT invoices
The researcher forward the statement tax official to know VAT official and tax payers

20

respondents indicate that Agreed with the statement lack of awareness about from the tax
payer a key factor for poor VAT collection and the tax officially agreed with statement
that creating awareness to tax payer and other concerned bodies help to increases the tax
revenue and number VAT register business organization.

This implies creating awareness to tax payers and other concerned body help to increase
tax revenue by solving the problem of collection of VAT in addition the above result the
respondent put the following major reason for the problem of VAT collection in the study
area the level of awareness among the tax payer and cities whole before laying and
colleting VAT lake of organized management weakness of then tax authority on taking
legal measurement against those who can’t comply the low (especially before
2002)..interview from tax official for the question what factor for poor VAT revenue
collection / problem of VAT collection in jimma town also the lake of awareness of tax
payer about revenue of input vat& know their contribution for the country development
that is most of the people that are found in town do not have any knowledge about tax
systems specially the advantage of registration of VAT due to this the attitude of the
society to words the tax system is negative and some not issued the sale invoice to evade
the government. Therefore the result show that lack of awareness is a major problem of
VAT collection problem due to try to get high profit without paying expected VAT for
the government .There is no awareness creation form or activity also by tax authority to
VAT payers and citizen as whole to receive the sale invoice in they punches goods and
services.
From this one can understand that since awareness creation on the existence tax law and
regulation and in forcibility are very poor it is one of serious cause of constraint for the
performance of VAT collection in study area. This finding consider with what has been
found by (Abed and Gupta) 2002).
They state that lack of awareness and enforcement of existing legislative and by low the
main problem for law VAT collation (revenue) of the government in many developing
country.
21
Table 4.3 Respondents views on problem of Vat administration

Item No response
 Lack of capacity from tax authority employees to 20 24%
understand tax law
Administrative weakness of tax authority key problem 23 28%
for VAT collection and administration
Existence of is Equitable trading 7 8%
Lack organized office 9 13%
Insufficient man powered in administration employee 11 11%
Un clear response 4 7%
No problem in administration 3 5%
Lake of understanding of the tax law 6 40%
TOAL 83 100

(Sourc, Survey questioner)

from the above table understand that administration weakness is the main problem that 23
(28%%) from the samples administrative weakness key problem for VAT collection and
administration In addition to lack of capacity from the tax authority is one of the other
problem that to under stands and implementation problem of the other problem that to
understand and implementation problem of the tax authority to collect sufficient VAT
revenue to the government.
In addition to this the respondent response from the interview also confirms
implementation problem of the tax authority is of one of the problem of administration.

22
That forward following point as reason for lack of capacity from administration are
enforcing the tax payer to respect the tax payer they are enforcing the tax payer to respect
the tax low and regulation. Because of lack of sufficient salary and other benefit to tax
official Thus the negotiate from tax payer to get benefit Example their employment can’t
property audit the tax payer this lead to corruption and has adverse effect on VAT
collection and Generating of revenue from VAT. Tax system and VAT administration
problem was also problem of VAT collection and administration was also a problem of
VAT collection and registration for VAT voluntary.
The researcher also forwarded the question what aspects the current trading system and
administrate produces are problematic for you comply with the tax system to tax payers.

The question Was forwarded to VAT payer about the problem of current trading system
and administration problem are one tax payer business That not register for VAT
activities and if it exists may be come cause of lower number because understand their
Income and increase of the prices of goods and service by the name of VAT this is on
cause of problem of VAT Administration.
According to tax payers respondents responses for the above question VAT
administrators are not enough lack politeness and confidences to make decisions and
willingness to help tax payers some tax partitions are not ethical and unfair all tax payers
that means they do not given respect to clients they try to get some benefit from someone
by considers t their power try to give benefit to the other on the other hand at the time of
assessing and levied tax on tax payer is not based on the evidence provided by tax payer.
Therefore for the amount of tax lived by the tax official are not consider the capacity of
the tax payers. The majority of the respondents replied by saying the government is not
out of suspect guess you property or not high administrative burden even if no taxable
(The amount of tax levied by authority) are not fair means high tax rate especially our
concern VAT not considered the capacity of tax payers that is un reasonable valuation of
the tax amount next to this the survey reasonable valuation of the tax amount) Next to
this the survey result show that administrative weakness of the tax authority.

23
The existence of unregistered business (existence of illegal business) because of lack of
hard and fast rule force them create unfair computation in the market and marketing
registered business loss their market share and profitability.
The public servant or the tax authority are not taking proper action on those who don’t
pay tax according to the tax proclamation and the tax authority didn’t encourage proper
tax payers (there is no incentive). This also affects the government’s revenue from
taxation the tax system s not uniform (activities done by the tax authorities (administrator
) is not the same and clear for all tax payers This findings are consistent with view of
Tanzi and pellechio (1995) a weakenss vat administration could be contribute
significantly decrease in tax revenue generation performance.
Table 4.4 Respondent views on Registration of VAT

Item No %
Registration for VAT 22 44%
Not Registration for VAT 26 52%
Total 50 100
(Source, Survey questioner)
Then about table shows briefly 22 (44% ) of business from the sample is registration for
VAT and 26 (52% ) are Not Registration for VAT a business cant register for VAT in
the town in two case that voluntary and obligatory Registration for VAT.
As indict the about table information obtained from official interview and VAT that 52%
of are not registration for VAT. The main cause of unregistration for VAT is lack of
awareness the advantage of VAT. lack of strong education program and lake of trust to
pay VAT (issue of invoices)
Generally unregistration for VAT is one of the problem of VAT administration due to the
above reason in two criteria that is voluntary and obligatory registration for VAT.

24

Table 4.5 Respondent views on the tax system

Item No %
1. The current tax system gives sufficient contribution 10 20%

to revenue performance problem

2 A country with good tax system is more likely to improve VAT 9 18%
 revenue collection problem and easy to understand and
3 The government should make adjustment on the current trading 20 40%
system (increase the price of good and services) and tax system of the
country to increase the performance of administrator employee and
VAT registration business organization
4 The tax low is not simple understandable for both tax payer and 11 22%
administrator employee.
Total 50 100%
(Source, Survey questioner)
From the above table question was for words to tax officials to know their agreement that
20% of the tax survey respondent indicated that the current tax system gives sufficient
contribution to revenue performance.

As per tax official interview agreed the tax system is one of problem of Vat collection
This implies that tax system problem some of the problem of VAT revenue collection and
VAT Registration of un register business organization Because it is difficult to
understand easily by the payers and there is no moderate tax and trading system that is
lack of soft ware solution.
The response of tax payer and administrator agreed that 40% from the above table
indicate that the current trading system and tax system of the country are required
ascertain adjustment to increase the performance of administrator.
25
According to the tax official & tax payer respond tax evasion also one of the problem of
in study area.This interview result from the tax official for question how tax payer evade
tax different to respondent to respondent the ways, How to cheat tax by tax payers
majority of respondents responded that tax payer evade tax by not providing for trading
activity and unregister business is issued the invoices by holding multiple account. By
claiming improper deduction or under reporting income or sale ( holding their revenues
by increasing expense and decreasing revenues) by using illegal stamp not giving receipt
not customers by not using cash register machines and not using invoices
the above statement indicate the administrator is not know the voluntary and obligatory
registration of VAT in the study area.
To compare response of tax official with that of tax payers about tax evasion the same
question again forward to tax payer by saying How tax payer evade tax and to check
whether tax evasion is a problem of Vat collection in study area.
The respondent replied their responses by saying tax payer evade tax by hiding the exact
amount of capital by hiding revenue (increasing Expense and decreasing rate) and by
making false agreement b/n wholesaler and retailer VAT Register tax payers
This funding results support the idea of (Romanov, 2003) that is tax payer refuse to pay
their taxes in many shape, size and guise from this we can infer that tax evasion was one
of the problem of VAT collection and registration of VAT by the criteria of tax low.

26
CHAPTER FIVE
5.1 Summary and Conclusion
Based on the data analysis and Discussion on made in Chapter four the following
points Can be In chapter four the following points Can be summarized and conclusion are
drawn
 The education back ground of employees of the tax office is said to be good which
has positive impact on VAT administration and collection practice of the tax office
by translating the tax laws and regulations properly. Tax collection requires
consistency in implementation of the tax Low and order. A country with stable low
and order situation brought in more job has been created (solve unemployment rate)
 result in greater purchasing power on parts of customers who effective have to enter
the business organization in the tax neat and minimize VAT collection problem
 Most eligible business organization in Jimma town should have not registered for
VAT as result VAT register business organization have been harmed.
 Most of VAT registered business Could not issued VAT in vice or use cash register
due to Lack of educated man power in the organization which in trun affect the VAT
administration activates of the revenue office in Jimma town.
 Most of the employees of the tax office are working with good professionals ethies.
So as to insure the application of the tax law and regulations But there are some
unethical employee who open their door for corruption which harms the revenue of
the government losing the administrative weakness of tax office in jimma branch.

27

5.2 RECOMMENDATION

Based on the researches findings and conclusions set in the last section the researcher
forwards the following recommendation to the concerned bodies
 In order to make easy the administrative activities the tax office should strength it ‘s
profile with educated younger graduates.
 The Jimma town tax revenue offices should work hard to bring all legible business
organization in the tax neat by awaring for VAT through different mechanisms such
as news paper, radio, TV, puplet and workshop. etc.
 It is better for the tax office about their duties and responsibilities professional
ethics and the punishment for any illegal act they perform.
 awareness to the people on the benefit of paying tax which in areas the tax moral of
the people should be brought as long run policy implication.

28

Reference
 Abraham Tesfaye (2003) problem and prospects of implementation of
VAT in Ethiopia
 Dr wollella (2009) problems of vat administration reflection of problems
 Gebrie worku Mengesha,2008 Tax accounting in Ethiopa: and 2 nd , Addis
Ababa,Alem printing enterprise
 H.L Bhatia (2003) public finance 24th edition
 Internet http://www;mor gov kt / tira web power htm (date 2011/12/14)
  Misrak Tesfaye, 2008,Ethiopa Tax accounting Theary and practice, Addis
Ababa:Mega printing enterprise
 Negrit Gazzeta, proclamation No 285/2002,Addis Ababa :BSPp

29

Appendix
JIMMA UNIVERSITY
College of business and Economics
This of questionnaire is designed to collect information requiring the problem of VAT
administration at Jimma Town.
Dear respondent
 This study is conducted in partial fulfillment of the requirement for BA degree in
Accounting. The researcher request You to answer the question truly all information
You provide will be kept with Confidential and will not be used for other purpose
except for intended research purpose. So please answer the question as honestly and
objectively as possible.
Part I personnel Information plase provide some information about your self and
your organization by putting a tick mark in the provide box?
1 Gender male Female
2. Age 18-25 26 -33 34-41
42-59 above 60
3. Status of education
Less than 12 grade Certificate
Diploma first degree
post graduate degree (Master and above)

1. Work experience
Less than one year one- three year
Three- six year More than six year
Part II Question related to respondent general knowledge about problem of VAT
admonition for and more than four scale chooses with reasonable question. Please
choice the one which is related cause and related problem if they choice other give
reason space provided.

1. What is the advantage of VAT registration?

- Increment of the gov’t revenue
- Controlled of inflation
- stablization of the price goods and service
Under state of the Net in come of business organization
Other reason
 2. If question NO 1 is select” other “ please explain
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
3. All business organization can’t be registrar for VAT ?
- lack of strong education program
- lack of awareness of about advantage of VAT
- lack of implement capacity of tax authority
- Lack of organized data
- Others.
4. If the questions NO 3 is select answer” other” please Express your suggestion.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
5. What are main problem related to VAT collection produce dure
- locating of tax payer
- unqualified collection information statement
- lack of planning interview
- lack of trust VAT payer to pay
- other reason

2
5. If the No “5” question select answer “other” please explain the reason.
__________________________________________________________________
__________________________________________________________________
__________________________________________________________________
6. Majority of the people belived that awarness of VAT Payers in the town is low?
- lack of knowledge about VAT in the town
- Insufficient tax authority employee
 - mis implementation of the tax law
- Other reason
8 If the question No 7 is “other” please explain in the reason?
______________________________________________________________________
________________________________________________________________________
_____________________________________________________________________
9 What is the reason for all business organization is not register for VAT
- don’t known the advantage of registration
- fairs of increment of the price of good and service
- lake of under standing the tax low among tax payer
- evaded of the tax authority
- other
10 place explain the resion you choice answer “others “question No “9”
_______________________________________________________________________
________________________________________________________________________
____________________________________________________________

Part III the following question is closed end question

11 The government believed that administrative weakness of the VAT authority is a key
factor for poor vat collection in the town,
Strongly Agree neutral
Disagree strongly disagree
If your answer strongly agrees for the above question a good collection system is direct
out come of effective VAT administration?
Strongy agree agree neutral
Disagree strongly Disagree

12 based on question No 11 what do you think the possible solution for these problem
_____________________________________________________________
13 lack of implementation capacity from tax authority is a problem of tax collection?
Strongly agree agree neutral
Disagree strongly disagree
If you answer is strongly agree /agree what areasources of these problem?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

6. Based on question No 13 what do you think the possible solution for the above
problem?
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________

Interview Questions
1. Do you think that our society is fully awareness of VAT?
2. What are the problem do you identifies in the VAT administration?
3. Is there a problem that lack of understanding the VAT (tax proclamation)?
4. Do you think that the time given for VAT payer is sufficient?
5. What are the main problems that face you on collection of VAT and administer it?
6. Is all VAT register is prepared accounting recorded properly?
7. Is there problem related in corruption?
5