YOHANSE G 1-4
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Transcript of YOHANSE G 1-4
CHAPTER ONE
1. Introduction
1.1 Back Ground of the Study
Taxation is an important instrument for the development of a country. It is one of major revenue
earning sources. Government uses taxes to raise revenue and finances the large of socio-
economic activities to its society. Tax revenue has occupied the most important place in the
revenue system of all the governments (Bhatra, 1976). In fact tax is a major source of revenue to
every developing country.
The Ethiopian government with the new vision of bringing rapid and sustainable development
has introduced tax reform since 2001/02. The tax reform measures are intended to encourage
trade and investment, broaden the tax base, and ensure equity, fairness, consistency and honesty
in the administration of the tax system in the country. The policy reform aspect relates to the
overhaul of the income tax law, introduction of and implementation of VAT and Turnover tax,
and the rationalization of the Excise tax law. The administration reform includes the
implementation of the taxpayer Identification Number System, the introduction of Presumptive
Taxation schemes, Tax Office Reorganization and the automation of the tax system. (Amin,
2010)
In the Ethiopian context based on proclamation No, 286/2002 taxpayers are classified into the
following three major categories. These are Category “A “Taxpayers, Category “B”Taxpayers
and Category “ C” Taxpayers.
Category “A”Taxpayers includes any company incorporated under the laws of Ethiopia or in a
foreign country and any other business having an annual turnover of Birr 500,000 or more.
These taxpayers are required to submit to the Tax Authority, at the end of the year, a balance
sheet and income statement that shows gross profit and the manner in which it is computed;
general and administrative expense; depreciation expense; and provisions and reserves.
Category “B” Taxpayers Unless already classified in category “A”, any business having an
annual turnover of over Birr 100, 000 would be classified under Category “B” taxpayers. This
category of taxpayers should submit to the Tax Authority profit and loss statement at the end of
the year. Category “ C”Taxpayers Unless classified in Categories “A” and “B” , those
businesses whose annual turnover is estimated up to Birr 100, 000 are classified under this
category of taxpayers.
According to the proclamation stated above, the taxpayers should submit the tax declaration to
the Tax Authority at the time of submitting the balance sheet, and income statement for that tax
year within the time prescribed. Pursuant to the proclamation Category “A” taxpayers should
submit within four months from the end of the taxpayers tax year. Category “B” taxpayers should
submit within two months from the end of the taxpayers tax year.
Category “C” business income tax payers unlike category “A” and category “B” tax payers are
not required (Not obligatory) to maintain books and records and prepare and submit any
financial statement to the tax authority. To determine the taxable income and income tax liability
of such tax payers, however, standard assessment presumptive taxation methods is used.
According to Misrak (2011) standard assessment presumptive tax is a fixed amount of a tax
liability determined by the tax authority based on standard estimation. Under such method, the
income tax liability of a tax payers is determined by applying a fixed rate on the tax payers
taxable income estimated by applying a fixed rate authority in order to determine the
estimated amount of the taxable income and the tax liability thereon , the authority
consistencies various factors such as type of business, business size and location of business,
the estimated tax liability of the tax payers may continue years to years until revised by the
authority or his category is changed. In standard assessment taxation method, tax assessors will
be assigned by the tax authority to estimate the daily gross turn over (income) of the tax payers.
The estimated daily gross turn over will be converted in to annual income (turn over) using the
number of working taxes. Then annual income tax is determine on the basis of presumptive
value assigned to aggregate activities, taxable incomes of each tax payer the schedules of
presumptive tax develop by the tax expert and prescribed in schedules ‘1’ and ‘2’ of income
tax regulation No 78/2002 are used for collecting the taxes from the category ‘C’ taxpayers of
schedule ‘C’ in come tax payers (business income tax).
The following three steps summarized the standard assessment presumptive taxation method for
business income tax payers.
Step 1. Information on the daily sales revenue (turnover) of a tax payer is gathered by the tax
assess or taking in to account the various relevant variables.
Steps2. The daily estimated revenue figure is multiplied by the number of a business days in a
year to arrive at estimated annual revenue and taxable income.
Steps 3 the amount of income tax liability of the tax payers is located from the presumptive tax
schedule provided in the income tax regulation no 78/2002.
Back ground of the Study Area
East Estie woreda is one of 113 woradas in Amhara National Regional State South Gonder
Administrative Zone. According to 2007 senses report the population size is estimated
13901(Federal Democratic Republic of Ethiopia Central Statistical Agency 2010).
1.2 Statement of the problemAs stated earlier taxation is an important instrument for the economic growth of a country by
encouraging saving and investment. It is one of the major revenue earning sources. Every
government requires funds for the performance of its various functions. The main sources of
financing government expenditure are taxations. Especially developing countries are used to
raise revenue collection from tax for their economic development. One of the major aims of the
tax system in Ethiopia is to increase domestic revenue by collecting sufficient taxes. In order to
achieve this, the Ethiopian government creates the tax reform programs and the reform improved
the application of Business income tax with a more simplified standard assessment methods of
presumptive taxes (Misrak,2011).
The standard assessment methods of presumptive tax is one part of a reform that has been
conducted in the Amhara Region in the year 2002 and this reform is being implemented in 113
woredas.
Since most of the category ’C” tax payers are reluctant to provide full information for the
purpose of registration, they are recognized as hard tax group. As the result, the tax
administration is becoming more difficult to identify tax payers and assess the correct amount of
tax to be collected. It may be expected that the same problems will be occurred in where this
study will be conducted.
Thus,the aim of this paper is to examine and identify the challenges on the assessment and
collection of presumptive taxation concerning category “C” tax payers by the revenue office of
East Eastie woreda, and the study will try to address the following research questions;
What are those major problems facing Esast-Eastie Woreda revenue office on tax
assessment and collection activities?
Does the Woreda revenue office have adequate skilled man power so as to discharge
their responsibility regarding tax assessment and collection?
What are the basic constraints appears between tax officials of the Woreda and business
persons that negatively affecting the manner of tax assessment and collection of the
Woreda revenue office?
What seems individual and group dedication of official’s employees towards the
achievement of the revenue office tax assessment and collection goals?
What measures have been taken by the Woreda revenue office in terms of creating
compliance of tax payers to the tax law?
1.3 Objective of the StudyThe main objective of this study is to investigate the existing problems in assessment and
collection of presumptive taxation in East Estie woreda. Thus on this respect, the specific
objectives are:
To investigate problems that occurs during tax assessment and collection.
To identify whether the revenue authority has adequate skilled man power and access to
discharge their responsibility.
To examine the activities done by the tax authority in order to encourage compliance of tax
payers.
To assess whether the standard assessment is in accordance with the capacity and expectation
of the tax payer.
To assess whether the tax authority has commitment and integration team spirit work among
tax officers in tax collection process.
To come up with the possible recommendation on the improvement of category “C” business
income tax assessment and collection.
1.4 Significance of the StudyThis study is expected to show the problems in assessment and collection of presumptive
taxation in East Estie woreda and provide the solutions to solve the problems. And the researcher
believes that it would be a good starting point for future researchers in the area and a good
reference for those interested to have basic knowledge of the issue. Moreover, it would provide a
benchmark for the policy makers.
1.5 Research Design and Methodology
1.5.1 Research design
Descriptive types of research have been used in this study. It was chosen because it has been
examined and studying individual attitude. It was also analyzing and evaluating the available
data to draw up the conclusion to arrive at finding.
1.5.2 Data Source and gathering tools
The researcher used both primary and secondary data in gathering the needed information. To
obtain primary data sources, the researcher prepared questionnaires to the tax payers registered
by the revenue office and to the tax employees in addition interview has been conducted to some
tax officials (process owners).On the other hand secondary data was gathered from annual
collection performance reports and written documents of tax assessment and collection in the
revenue office.
1.5.3 Sample and Sampling Techniques
In this study all category “C” tax payers and Tax Authority officers in the East Estie woreda was
the target of population. From 550 of all categories “C” tax payers in the woreda 15% of them
were selected by using simple random sampling techniques and from 14 of all tax employees in
the revenue office 100% of them were selected for the study. The employees of the revenue
office had been selected entirely because their number was very small. For interview purposive
sampling techniques were used in the study.
1.5.4 Data Analysis and Interpretation
The data collected from both primary and secondary sources were processed and analyzed by
using quantitative descriptions: Table, percentages and ratios.
1.6 Scope of the Study
The study has been focused on assessment and collection problems of category “C” business
income tax at East Estie woreda revenue office and covered for five years
(2006/7_2010/11G.C.).Thus it was not covered other income taxes. The researcher was used both
probability and non-probability sampling techniques. Because covering all population in study is
uneconomical and it is impossible to come with concrete generalization.
1.7 Limitation of the study
In this study there were some limitations that were obstacles to get reliable information. One of
this limitations was un availability of relevant data from the revenue office especially number of
tax payers in each year who did not pay their tax liability is not identified and documented.
The other problem that encountered the researcher during this study was lack of experience of
respondents to give their answer in the questionnaire and un willingness of few respondents to
provide necessary information. How ever the researcher tried to create understanding to the
respondents about the aim of study so that they were provided genuine information that sufficient
to achieve the desired goal.
1.8 Organization of the paperThe research paper contains four chapters. The first chapter is the introduction part starting from
back ground of the study up to the limitation of the study.
The second chapter contains theoretical literatures from various text books and research
documents on tax. Chapter three contains analysis of problems on the assessment and collection
based on the collected data. Chapter four contains the final conclusions and recommendations
on the improvement of presumptive tax assessment and collection.
CHAPTER TWO
REVIEW RELATED LITERATURE
2.1 Meaning of TaxationTaxation is a system of coercively collecting revenue from individuals who will tend to resist.
The coercive nature of collecting tax indicates, the resource cost of administrating the tax system
is large (Thompson F. and Green MT., 1998).
Moreover, as it is described above, the concept of tax is the main in our country, the region and
in the town. This is a system of rising revenue (collecting money) by a government or any
revenue rising authority for the purpose of financing the government activity without any direct
return for it.
2.2 Objectives of TaxationAccording to Misrak (2011), tax is collected with the objectives of raising revenue by a
government to finance is expenditure. Tax use as a tool to minimize income and wealth
inequalities, tax is an important instrument for the government to control the market during
inflation and deflation, to discourage the consumption of harmful products, to promote private
investment, to reduce regional imbalance within a country. On the other hand, the government
may give exemption to those of investors who wants to invest in those of less developed areas, to
enhance capital formation, to encourage utilization of scarce resource in more productive area,
discourage use of non-essential and luxurious products by imposing large tax, to encourage
export and the government also use tax as a tool to create employment opportunity.
2.3 Principles of TaxationThese principles are the appropriate criteria to be used in the development and evaluation of a set
of all taxes of country. This is due to the fact that a good tax system maximizes the benefit of
society without levying difficult on tax payers. According to most of the economists of the day,
these principles are a frame for a good tax system or a base for evaluating good or bad tax
system. According to Misrak (2011), the four basic principles of taxation are discussed below.
2.4 Canons of TaxationCanons of taxations are standards or rules or regulations or guidelines that support the principles
of taxation. These canons of taxations serve as guiding rules and regulations for the government
while implementing the principles of taxation. According to Misrak (2011), the canon of
taxations has been discussed below.
2.4.1 Canon of Simplicity
These canon stats that the tax system of a country should simple and clear to be understood by
tax payers and tax administrative authorities. This is due to the fact that complex tax system
resulted in failure of understating tax laws, violation of the laws, and difficult in administration.
2.4.2 Canon of Convenience
This is to mean that tax should be paid or collected at a time and in manner which is convenient
to tax payers. As a result unnecessary trouble and difficulty to tax payers should be avoided or
minimized.
2.4.3 Canon of Economic Growth (Buoyancy)
Tax is one of the tools used by the government to encourage or discourage investment or other
economic issue. So the tax system of a country should not discourage national economic growth,
capital formation and investment etc.
2.4.4 Canon of Transparency and Visibility
ration This canon is to mean that tax system should be transparent and visible to citizens in order
to make them know that, as a tax is compulsory contribution to the government to exist, why tax
exist, and as how tax is imposed on them (income, property, wealth...)
2.4.5 Canon of Productivity
Canon of productivity is one of the rules that suggest the tax system of the country to be free
discouraging the productivity of the country. The tax system should not discourage the
productivity of the economy and also the tax the tax system should be able to produce much
more revenue for the government.
2.4.6 Canon of Flexibility
This canon states that the tax system should not be rigid to revise the tax structure on both of its
base and rate arrangement. This help the taxing authority to make some arrangements on its tax
base and rate based on the situation of its environment.
2.5 Business Income TaxThe term is sometimes defined as business profit tax because the tax is charged up on the profit
of any trade activity. In a taxing system, the term “business” is used in the sense of an
occupation, activity, protection which occupies time, attention and use of labor of a person,
which can be with the objective of making profit. It is that profit which aspire individuals or
corporate to stay in doing business. Moreover, business income tax is also a tax that is imposed
on the flow of business or it depends on the production and sale of goods of a company.
2.5.1 Business Income Tax in Ethiopia
The current income tax proclamation no. 286/2002 article 2 (6) described the term “business” as
any kind industrial, commercial, professional or vocational activities or any activity that can be
considered as trade by the commercial code of Ethiopia and carried on by any person for profit.
Business income tax or business profit tax is the tax which is imposed on taxable business
income (the amount of income or profit from business activity which is subject to business
income tax) realized from entrepreneurial activity. It is a tax which is charged on the profit of
business enterprise on their activities for each tax year.
2.5.2 Business Income Tax Rate
In Ethiopia income from business activities are chargeable to tax based on the rates specified
under article 19 of proclamation No. 286/2002. According to this article, a taxable business
income of “bodies” is taxed at the flat rate of 30% and a taxable business income of “other tax
payers” is taxed based on progressive tax rates stated in schedule “C” of proc. No. 286/2006.
Business Income in birr (per year) Additional
layer
income
Tax rate Adjustment/deduction
(in birr)
0 – 1,800 1,800 Exempted 0
1,801 – 7,800 6,000 10% 180
7,801 – 16,800 9,000 15% 570
16,801 – 28,200 11,400 20% 1,410
28,201 – 42,600 14,400 25% 2,820
42,601 – 60,000 17,400 30% 4,950
Over 60,000 - 35% 7,950
Source: Ethiopian income tax proclamation
2.5.3 Categories of Tax Payers
The federal inland a revenue authority has classified tax payers of business income in to three
major categories. These are category “A”, category “B” and category “C” tax payers. The basis
of categorization of those a tax payer is on the base of their legal personal and annual turnover
(sale revenue amount).
1. Category “A” tax payer
This category includes business tax payers that have separated legal personality (share company,
PLC, public enterprise and public finance agency) regardless of their annual sales revenue or
other business having annual sales revenue of birr 500,000 or more.
2. Category “B” tax payer
Unless already classified in category “A”, businesses with no legal personality and whose annual
sales revenue is between birr 100,000 and 500,000 (i.e. birr 100,000 < sales < birr 500,000) is
considered as category “B” tax payer.
3. Category “C” tax payer
This category includes any other business which are not classified under category “A” or
category “B” which is to mean those business activities that have no legal personality and whose
annual sales revenue is estimated up to birr 100,000. Category “C” tax payers are not required to
maintain book of account and to prepare financial statements. To determine the income tax
liability of such tax payers, standard assessment or presumption method shall be used.
2.6 Tax Administration
Tax is the main source of governments’ revenue for its socio-political and economic functions.
Most of the time tax living system and methods vary widely from one country to the other, while
the requirements for sound tax administration remain the same. Obviously, an administratively
sound and acceptable tax system is the one that meet the principles and cannons of taxation in
one way or another. Modern tax administration is a means of effectiveness and efficiency in tax
system. But, it is fact that, this time tax administration is not given due attentions especially in
developing countries. This is because effectiveness and efficiency is not only matter of collecting
it and others. According to (Mikesel, 1974) stated in Thompson and Green (1998) “tax
administration is the application of the rules of collection to a tax base”. This is a system of cost
distribution to bring government the revenue it needs to purchase the resource to be used in
delivery of public service. But neither economists nor public administration have give due
attention for tax administration. It is fact, that economics focus on a tax to divert the private
response and change resource allocation and public administration also focus on spending what
is being raised.
2.6.1 Meaning of Tax Administration
As most scholars in the field argued, tax administration is derived from the words of “tax” and
“administration”. Tax which is to mean compulsory levy imposed on tax payers without any quid
pro qua and administration is mean that the organization, arrangement and running of any
system.
2.6.2 Objectives of the Tax Administration
The main objectives of tax administration are making the tax system of a nation, region or a state
equitable and fair to everyone in a country and improving the tax collection functions, like
proper registration of tax payers, determination of tax liabilities, the assessment of tax-gaps,
timely collection of the assessed taxes, taking legal action against tax evaders and penalizing the
activities of tax evaders.
Eventually, according to Misrak (2011) the objectives of tax administrations are met by clearly
applying the existing tax laws (rules and regulations) in assessing, collecting and penalties due
from tax payers and evaders; auditing the correctness of tax declarations; educating and a
warring tax payers; providing adequate service to tax payers.
2.6.3 Goals of Tax Administration
According to Wolfson (1979), tax administration is carried out with the goal of maximize the
revenue collected; minimize corruption, or unintended discrepancies in assessment and
collection; and equalize rates of evasion and non-observance of taxes payable among tax payers.
These three dimensions cannot be pursued in isolation. They must be reconciled in trade-offs
between maximum growth through maximum public saving on the one hand, and the pursuit of
equity and an optional use of scarce man power on the other.
Misrak (2008) on the other hand stated that, a good and efficient tax administration need to have
management system which carries the tax activities; tax laws or codes that guide the tax
management system and knowledgeable administration. Not only this he also stated that a
successful and effective tax administration needs to have an explicit and sustainable political
commitment; train staffs (about assessment, estimation); sufficient resource to tax
administration; incentive for both tax payers and administrators; simplified tax procedures;
decentralize tax administration and developing good accounting system.
Eventually, in order to collect the required resource that is spent on public goods and services;
there must be a good tax administration that can able to implement the rules and regulations
formulated by higher officials. Not only this, unless otherwise the tax living and collecting
agency considers the principles of tax system in its taxing process, it may harm the tax payers
and the amount of tax that is going to be collected as well as the economy as a whole.
2.7 Definition of Tax ComplianceTax compliance can be defined as the degree to which a tax payer complies with the tax rules of
their country. It is accepted that the goal of an efficient tax administration is to foster v voluntary
tax compliance using all possible methods including penalties.
Non compliance with the tax laws may take a variety of forms. For example , non- compliance
occurs when individuals and firms under report their income, sales or over-claim defections,
exemptions or credits resulting in a tax evasion or fail to file appropriate tax returns or to make
tax payments in accordance with the tax laws.
In view of these, the tax authority or the government must take actions to ensure compliance
with the tax law. It may there for authorities to rely on harsher enforcement regime t achieve a
certain level of compliance according to Games (2000), tax compliance is expressed in terms of
degree to which tax payers comply with tax law.
The problem of tax compliance characterized by the attitudes of the tax payers (Bahata, 1976) in
this regard are influenced by a host of other factors like the political situation natural
calamities, economic situations, social cultural and son on.
2.8 Definition of Presumptive TaxationsPresumptive taxation involves the use of indirect means to ascertain tax liability, which differ
from the usual rules based on the tax payer’s accounts. The term “presumptive” is used to
indicate that there is a legal presumption that the tax payer’s income is not less than the amount
resulting from application of the indirect method.
As discussed below, this presumption may or may not be resettable. The concept covers a with
variety of alternative means of determining tax base, ranging from methods of reconstructing
income based on administrative practice, which can be rebutted by the tax payer, to true
minimum taxes with tax bases specified in legislation (Victor thoronyi, ed), 1996)
2.8.1, Scope of Application
Presumptive taxation is commonly used in the context of the income tax, some presumptive
methods completely supplant the income tax for particular tax payers. In other cases, the
presumptive method may determine a portion of the tax base, for example, the income from a
particular business or agricultural activity; presumptions are also use for taxes other than the
income tax.
Thus, the forfeit methods for small traders often cover both income tax and VAT liability;
presumptive methods have also been used for the excise tax (Victor thuronyi, ed, 1996).
2.8.2, Advantages of Presumptive Taxation
The main virtue of presumptive taxation is that it may be the only effective way to tax small
businesses in developing countries. Since small business represent the vast majority of
enterprises, this may lead to a substantial increase in the number of taxpayers. In fact, in
Countries where there is a solid presumptive tax tradition, the number of presumptive taxpayers
may be ten to twenty times higher than the number of those subject to self assessment on
recorded transactions, although this ratio declines with the level of economic development.
Presumptive methods may also be effective in cutting audit time and cost, particularly in
countries where accounting illiteracy is wide spread. Nevertheless, enforcement with out
safeguards may lead to harassment of and extortion from tax payers by unscrupulous tax
officials. Although, the participation of citizens in presumptive tax commissions may reduce the
opportunities for abuse by corrupt officials (IMF,1995).
According to IMF (1995),presumptive taxes may also enhance the efficiency and equity of the
tax system. Presumptive taxes generally take the form of a tax on average or “normal” income .
Hence, the marginal tax rate on income above this average income is zero, avoiding the negative
incentives associated with high marginal tax rates. In addition ,by facilitating more effective
taxation of hard-to-tax groups, presumptive taxation may be lead to greater horizontal equity in
the tax system.
2.8.3 Implementation of presumptive tax in Ethiopia the standard assessment methods
Category “C” business income tax payers unlike category “A” and category “B” tax payers are
not required (Not obligatory) to maintain books and records and prepare and submit any
financial statement to the tax authority. To determine the taxable income and income tax liability
of such tax payers, however, standard assessment presumptive taxation methods is used.
Standard assessment presumptive tax is affixed amount of a tax liability determined by the tax
authority based on standard estimation. Under such method, the income tax liability of a tax
payers is determined by applying a fixed rate on the tax payers taxable income estimated by
applying a fixed rate authority in order to determine the estimated amount of the taxable
income and the tax liability thereon , the authority consistencies various factors such as type of
business, business size and location of business, the estimated tax liability of the tax payers may
continue years to years until revised by the authority or his category is changed. In standard
assessment taxation method, tax assessors will be assigned by the tax authority to estimate the
daily gross turn over (income) of the tax payers. The estimated daily gross turn over will be
converted in to annual income (turn over) using the number of working taxes. Then annual
income tax is determine on the basis of presumptive value assigned to aggregate activities,
taxable incomes of each tax payer the schedules of presumptive tax develop by the tax expert
and prescribed in schedules ‘1’ and ‘2’ of income tax regulation No 78/2002 are used for
collecting the taxes from the category ‘C’ taxpayers of schedule ‘C’ in come tax payers
(business income tax).
The following three steps summarized the standard assessment presumptive taxation method for
business income tax payers.
Step 1. Information on the daily sales revenue (turnover) of a tax payer is gathered by the tax
assess or taking in to account the various relevant variables.
Steps 2. The daily estimated revenue figure is multiplied by the number of a business days in a
year to arrive at estimated annual revenue and taxable income.
Steps 3. The amount of income tax liability of the tax payers is located from the presumptive
tax schedule provided in the income tax regulation no 78/2002.
2.8.4. Turn over tax collectionTurn over tax is payable on taxable goods supplied and taxable services rendered with in the
territory of Ethiopia by persons not registered for VAT. This means, those persons who are
engaged in the supply of taxable goods and rendering of taxable services in the country. And
who are not required to register for VAT, have to collect turn over tax on the value of goods they
supply or on the value of services they render in the country. And transfer same to the concerned
tax authority (Gebrie 2006).
2.8.5, Team spirit work and Employees commitment
Tax administration performance is largely depends on revenue yields. Successful standard
assessment systems are based up on fair and impartial administration. That includes transparent
laws and regulations. In order to perform efficient and effective tax administration team spirit
work and employees commitment is necessary.
As per(Marshall Gold Smith,2008) Gaining employee commitment results in greater profits.
Because enthusiastic employees stay, contribute discretionary effort and engage customers
performance. When customers are enthused and stay, and when executives, managers, and
employees are a collaborative team, united in achieving common goals.
2.8.6. The Appeal procedure
Proclamation NO.286/02 states that Appeal is a formal request to a higher appropriate authority
requesting a change in a decision or confirmation or rectification of a decision. A tax payer who
is not satisfied with the decision of the tax assessment/investigation may directly appeal to the
tax appeal commission.
2.8.7.Power and Duties of Appeal commissionThe appeal commission shall have the authority: to confirm, reduce or annual any assessment
appealed against on the basis of established factual grounds and the law, and make such further
consequential order there on as May seen just and necessary for the final disposition of the
matter. To instruct the tax authority or the tax payers to submit facts if any; and to order the tax
authority or the tax payers or any other person or governmental department or agency, as the
case may be, to produce supporting evidence relevant to the tax payer's allegation.
CHAPTER THREE
DATA PRESENTATION, ANALYSIS AND INTERPRETATION
3.1. Introduction
This part of the paper focuses on data presentation, analysis and interpretation.
The researcher attempts to identify research questions in presumptive tax assessment and
collection. Method of data collection was carried out through questionnaires, interview and from
different records ,documents and reports in order to conduct this study, the researcher prepared a
total of 83 questionnaires and distributed to selected tax payers and the total 83 questionnaires 83
(100%) returned to the researcher. In addition, structured interview was also used to conducted
interview with tax official’s head of the revenue office, tax assessment and collection process
owners and tax education process owners. The researcher has taken 83 respondents of tax payers.
All of them are category “C” tax payers. And also the total of 14 employees was taken from East
Estie woreda revenue office.
Based on the collected data, analysis was made and secondary data were presented and analyzed.
In order to make better understanding for the reader, the analysis part of the study was organized
and presented in the following sequential order of discussion.
Performance of tax assessment and collection.
Measures taken to enhance tax payer’s compliance on the rules and regulations.
Competency of employees in tax assessment and collection.
Basic constraints between officials and tax payers.
Evaluation of tax official cooperation to achieve revenue office goals.
3.2. Performance of tax assessment and collection
As per the income tax proclamation 286/2002 article 68 has declared that standard assessment is
to be applied on category “C” tax payers. Sub article 2 specifies the condition for standard
assessment to be type of business, business broadness, and place where the business location.
Accordingly, the assessment is made by the daily income estimation committee in kebele or by
using various criteria obtained from the tax office and third party. The information obtained in
various means is used to determine profit tax and turn over tax of the tax payers.
The standard assessment guide of the region declared that the fairly income estimation was
estimated from 3-5 years with any adjustment, due to this total analysis Performance of tax
assessment is as follows:
Table 3.2.1. Presumptive tax assessment response of tax payers
No Description Alternative No of respondents
Percentage
1 Did you receive annual declaration on time from the tax office?
Yes 67 80.7%
No 15 18.1%
Cannot provide response
1 1.2%
Total 83 100%
2 In what way you declare the annual tax payment?
Full payment 54 65% Partial payment 20 24.1%No payment 3 3.6%Cannot provide response
6 7.3%
Total 83 100%3 Do you think that the tax you are
paying is fair and based on your ability?
Yes 18 21.7%No 65 78.3%
Total 83 100
4 Is your tax liability assessed on time?
Yes 72 86.75%
No 11 13.25%Total 83 100%
5 Are you being asked by the tax employees to give reliable information of your daily income during tax estimation?
Yes 57 68.7%No 25 30.1%Cannot provide response
1 1.2%
Total 83 100%Source: primary data (2012)
As indicated on the table 3.2.1, 67(80.7%) of the respondent said that; they declare honestly the
income concerning about their business to the revenue office, where as 15(18.1%) of the
respondents not declare their income to the revenue office. This implies that almost the majority
of the respondents declare their income to the revue office. In relation to the way of declaration
54(65%) of the respondents declare with the full payment of the annual tax. Whereas 20(24.1%)
of the respondents declare with partial payment of the annual tax. On the other hand 3(3.6%) of
the respondents declare with no payment of the annual tax and also 6(7.3%) of the respondents
cannot provide the response.
From the above information we can conclude that the majority of the respondents declare their
income honestly about their business. Because of they understand the importance of tax for the
development of a country.
In the contrary, according to the response the way of declaration is not totally full payment.
There is a presence of partial payment and no payment. This indicates that Because of different
reasons; like they assumed that payment of tax honestly will increase tax levied by the
government and we paid large amount of tax to the government and tax burden laid down from
US. Because of these reason there is no mutual trust between the tax payers and revenue office
employee. In addition to this tax payers have misunderstanding about tax, and assumed that full
payment of tax on the declaration time honestly implies that they paid large amount of tax
beyond their ability to pay. And tax officers has no trust about taxpayers because of they hide
their income.
In addition to this as indicated on the table 18(21.7%) of respondents only said that the payment
of tax is fair and based on their ability. Whereas 65(78.3) of tax payers are said that: the payment
of tax is not fair and not based on their ability. From this we understand that the majority of tax
payer’s response indicates, there is no fair estimation and assessment of tax in the revenue office.
The reason for such over statement of tax is due to their daily sales estimation over and above
their income, that means the daily sales estimators doesn’t consider the necessary variables like
the type of business, amount of capital and location of the business.
In relation to assessment of tax on time 72(86.75%) of respondents said that: their tax liability is
assessed on time. On the other hand 11(13.25%) of respondents said that their tax liability is not
assessed on time. based on this information we can conclude that the majority of tax payers tax
liability is assessed on time. this implies that the majority of tax employees understand tax is
assessed on time. on the contrary based on the above data some respondents said that their tax
liability is not assessed on time. This indicates that, there is a presence of Lack of full
information on tax payer’s business activities and also lack of skilled manpower in the revenue
office to assess the tax on time. In case of taxpayers are being asked by the tax employees In
order to give reliable information about their daily income during tax estimation 57(68.7%) of
the respondents said that; they are asked by the tax employees to give reliable information. This
shown that most of the tax payers asked by the tax employees in order to give reliable
information before the daily income estimation. From this we conclude that; the way of asking
taxpayers daily income by the tax employee before the dialing income estimation enhances the
tax assessment are fair and based on ability. On the contrary 25(30.1%) of respondents said that
they do not asked by the tax employees on the daily income to give reliable information before
daily income estimation. This shows that, it has an impact of the tax assessment is not fair and
the payment is not based on their ability.
Table 3.2.2. Presumptive tax assessment response of tax employees
No Description Alternative No. of respondents Percentage
1 Does the tax authority has
standard estimation criteria
Yes 13 92.8%
No 1 7.2%
Total 14 100%
2 Do category “C” tax payers
pay a fair tax according to
their income
Yes 8 57%
No 6 43%
Total 14 100%
3 Are the tax officers
assessing frequently the tax
payers potential to pay tax
before deciding the tax?
Yes 13 92.8%
No 1 7.2%
Total 14 100%
Source: primary data: (2012)
As indicated on table 3.2.2, 13 (92.8%) of the respondent of the revenue office employees said
that: the tax authority has standard estimation criteria. Like information gathered from the tax
payers, tax paid by similar unit, third party information and based on sales estimation. This
implies that the revenue office has its own standard estimation criteria. But based on the previous
data information (table 3.2.1) even if the tax authority has its own standard estimation criteria,
practically the tax employees are not fully implemented. Because of this there is no fair
estimation of daily income. in relation to payment of a fair tax 8(57%) of the respondent said
that, category “C” tax payers pay a fair tax based on their income.
On the other hand 6(43%) of the respondent said that category “C” tax payers do not pay a fair
tax based on their income. And also as we have seen in the previous data on table 3.2.1taxpayer’s
response, the majority of category “C” tax payers do not pay a fair tax. Based on this we can
conclude that category “C” tax payers do not pay a fair tax. In case of tax officers frequently
assessment of the tax payers potential, 13 (92.8%) of the respondent said that, the tax officers
assess frequently the tax payers potential to pay tax before deciding the tax. This indicates that,
frequently assessment of tax payers potential to pay tax before deciding the tax supports a fair
estimation of tax. However based on interview response of the tax officials, tax payers hide their
business activity using different techniques like hide sale item from business area during the
study of daily income of tax payers, closing shop and unwillingness of tax payers to provide
information are some of the basic constraints.
To determine and calculate a fair tax liability of the tax payers, the revenue office uses rules,
regulations enacted at Amhara Nation Regional State income tax proclamation No. 74/2002.
Mostly category “C” tax payers paid their tax based on the schedule 2 listed on income tax
regulation No.4/2003. According to the regulation, category “C” tax payers assessed their tax by
estimation of daily income with the standard assessment method and evidence obtained from the
third party. As the researcher observed , even if the tax officers follows and uses methods of tax
assessment, most of the time they did not know the tax payers reliable daily income. Due to this,
the problems of presumptive tax assessment and collection arises. Some of the problems in
relation to assessment and collection of tax are as follows:
Less performance of the assessment committee is one of the main problems on tax assessment
and collection. As the researcher interviewed tax officials, the tax assessment committee was
formed from different sectors based on the Amhara regional state tax assessment directives, rules
and regulations. The committee has not enough knowledge about the taxpayer’s daily income. So
at the time of estimation the assessment committee over state or under states the daily income of
the tax payers and also some of the assessment committee is uncommitted and they gave
information to their friends. Most of the committee does not understand the working procedures
the proclamation and regulation of the government correctly.
On the other hand as explained before tax payers hide actual daily income during the period of
declaration and at the time of estimation. Because taxpayers did not give actual information to
the committee and revenue officers, and they were try to closing business shops and they move
from one place to another place. As the result of this poor participation of tax payers and poor
performance of the assessment committee, lack of fair estimation exists and needed to be solved.
Table 3.2.3. Presumptive tax collection response of tax payers
No Description Alternative No of respondents
Percentage
1 Why do you pay tax? To avoid penalties
6 7.23%
To get benefits of public service
77 92.77%
Total 83 100%2 Is the time of tax
payment convenient?Yes 38 45.8%
NO 44 53%Cannot provide response 1 1.2%Total 83 100%
3 Do you collect turnover tax from the customer?
Yes - -No 83 100%
Total 83 100%4 Are you being penalized
by the tax authority for not paying tax?
Yes 23 27.7%
No 60 72.3%Total 83 100%
Source: primary data: 2010)
As indicated on table 3.2.3, 6(7.23%) of the respondents said that, the reason on payment of tax
is to avoid penalties. This implies that tax payers do not aware the reason of paying a tax
liability. And 77(92.77%) of the respondents said that, the reason on a payment of tax liability is,
to get benefits of public service. This indicates that most of the tax payers have awareness on the
payment of tax liability. On the contrary few number of tax payers have not awareness on the
payment of tax. for efficient and effective tax collection the place and time of tax payment
should be convenient to tax payers. Concerning this idea 38(45.8%) of the respondents said that
time and place of tax payment is convenient. Whereas 44(53%) of the respondent said that time
and place of tax payment did not convenient. From this we can conclude that it is not convenient
for most of tax payers. In relation to collation of turnover tax from customers the total of 83
(100%) respondents said that the tax payers do not collect turn over tax. As per the Ethiopian
proclamation 286/2002 tax payers collect turn over tax from customer and paid to tax authority.
However, tax payers did not collect turn over tax from their customer. This indicates that
collection of turnover tax from a customer practically is not applicable by category “C” tax
payers.
In case of applying law enforcement penalty payment 23(27.7%) of the respondents are
penalized by the tax authority for not paying tax. On the other hand 60(72.3%) of the
respondents are not paying penalty. this shows that the majority of the tax payers do not paying
penalty. form this we understand that implementation of law enforcement on non compliance tax
payers is very less. Coordination among responsible bodies makes tax collection process from
presumptive tax efficient and effective collected as the researcher interviewed and the employee
revealed that, there is no coordination from different responsible body of public authority.
Mainly Woreda Administration did not support transport facility on field work that has placed
fair distant tax payers. In relation to implementation of law enforcement on those tax payers who
do not pay their tax is very low. Because most of the time tax collectors in the office are not
committed to seize and sale the property of tax payers who do not pay their tax on the due date.
Table 3.2.4 presumptive tax collection response of employees.
No Description Alternative Number of respondents
Percentage
1 Do you believe that the revenue office collects the planned amount of tax from the tax payers?
Yes 8 57%No 6 43%100%Total 14 100%
2 What are the major problems encountered in tax collection?
Tax rates are to high - -Lack of commitment of tax collectors
- -
Unwillingness of tax payers
14 100%
3 Is there any enforcement mechanism taken by the tax officers to those taxpayers who do not pay tax on time?
Yes 14 100%No - -
Total 14 100% Source primary data 2012)-100%
As it can be observed on the table 3.2.4 among 8(57%) of respondents said that the revenue
office collects the planned amount of tax from the tax payers. Whereas 6(43%) of respondents
said that the revenue office do not collects the planned amount of tax from the tax pays. Almost
half of the revenue office employee’s response indicates that the revenue office do not collects
the planed amount of tax from the tax payers. from this we can conclude that there is a problem
faced on the revenue office in tax coalition.
In relation to major problems encountered in tax collection the total of 14(100%) respondents
said that: unwillingness of tax payers is the mayor problems encountered in tax collection. from
this we can understand that as we have explained previously the revenue office needs to improve
on the implementation of law enforcement mechanism to those tax payers that are unwillingness
on payment of tax. As we have seen employees response on this idea the total of 14 (100%)
respondents said that there are enforcement mechanisms implemented by the tax officers to those
tax payers who do not pay tax on time. concerning this idea the researcher observed that, some
tax payers may pay penalties on the reason tax payers who do not pay their tax liability on time.
But seizing and sale the property of tax payers is not implemented by the revenue office.
To make it very clear, the following table shows the performance of category “C” business
income tax accomplishment to its plan and to the performance of total revenue.
No Year
in G .C
Performance of
category “C” business
income tax
Percentage
of
accomplish
ment of
category
“C”
business
income tax
to its plan a
birr
Performances of
Total revenue in birr
Performance of
percentage of
category “C”
business income
tax to the total
revenue
Plan in
birr
Accomplis
hment in
birr
Plan in birr Accomplishmen
t in birr
Plan in birr Accomplishment in birr
1 2007/8 221469 211502 95.5% 2,470092 2751160.77 8.96% 7.68%
2 2008/9 161469 274300 169% 3,000,000 3720421.69 5.38% 7.37%
3 2009/1
0
350,000 739512 211.3% 4500000 6135585.13 7.77% 12.%
4 2010/1
1
900,000 658465 73.2% 6776831 6579831.17 13.3% 10%
5 2011/1
2
102549 117898 114.96% 7268261 7041863.94 1.4% 1.67%
Total 1735487 2001677 115.3% 24015184 26228862.7 7.22% 7.63%
Source: secondary data ( 2012)
As it indicated on the table above except year 2007/8 and 2010/11, the percentage of
accomplishment of category “C” business income tax to its plan was greater than 100%. and the
percentage of total accomplishment of category “C” business income tax to the total revenue
(7.63%) was greater than the percentage of total plan of category “C” business income tax to the
total revenue (7.22%).
This implies that there was understatement of planning the collection of business income tax on
category “C” tax payers.
3.3. Measures Taken to Enhance Tax Payer’s Compliance on the Rules and
Regulations.
As per games (2000) tax compliance is the degree to which a tax payer complies with the tax
rules of their country. In other words tax compliance is expressed in terms of degree to which tax
payers comply with tax law.
In view of these, the tax authority or the government must take actions to ensure compliance
with the tax law.
Table 3.3.1 compliance level of tax payer’s response of tax payers.
No Description Alternative No of
respondents
%
1 How do you
evaluate the tax
laws and rules?
Good 28 33.73%
Moderate 49 59.73%
Bad 5 6%
Cannot provide response 1 1.2%
‘2 Do you aware of
the methods of
tax assessment
and collection?
Yes 55 66.27%
No 26 31.33%
Cannot provide response 2 2.4%
Table 3.3.2. Compliance level of tax payer’s response of tax employees.
No Description Yes 12 85.7%
1 Does the non compliance tax
payer have a negative impact
on the compliance of tax
payers?
NO 2 14.3%
As indicated table 3.3.1 in evaluation of understanding the tax laws and rules 28(33.73%) of the
respondents said that; the evaluation on tax laws and rules is good, 49(59.07%) of the
respondents said that the evaluation on tax laws and regulations is moderate where as 5(6%) of
the respondents said that the evaluation on tax laws and regulation is bad. It indicates that most
of the respondents (59.07%) of the respondents said that; the evaluation on tax laws and
regulations is moderate. It implies that the majorities of the tax payers are partially know and
comply with tax law and regulations. And 33.73% of the respondents said that: The evaluation on
tax laws and regulations is good. It implies that some tax payers have awareness on the tax laws
and regulations and they comply with the tax law, where as 6% of the respondents said that the
evaluation on tax laws and regulations is bad. It implies that very small tax payers have not
awareness on the tax laws and regulations and also they do not comply with the tax law. In
relation to the awareness of the methods of tax assessment and collection 55(66.27) of the
respondents said that they have awareness on the methods of tax assessment and collection.
From this we understand that the revenue office give to the tax payers special training on tax
assessment and collection. And also the majority of the tax payers participate in tax awareness
creation. Whereas 26(33%) of the respondents said that they have not awareness on the methods
of tax assessment and collection. From this we understand that some tax payers do not participate
in tax awareness creation.
As indicated table 3.3.2., from the total of 14 employs 12(85.7%) of respondents said that: the
non compliance tax payers have a negative impact on the compliance of tax payers.
Whereas 2(14.3%) of the respondents said that:
The non compliance tax payers do not have a negative impact on the compliance of tax payers.
From this we understand that the majority of the tax payers have understanding of the non
compliance tax payers have a negative impact on the compliance of tax payers.
Table 3.3.3 Education qualification and experience of the revenue office in each position
No Position Required education Required qualification no of employees
Current valuable educational qualifications and experience of employees each
Position
1 Tax assessment and collection process owner
BA degree or college diploma in tax administration, local government accounting, economic business education development administration from recognized academic institutions
For BA Degree Minimum 1year relevant working who has worked in tax assessment, for diploma minimum 5 yeas relevant working experience in tax assessment and collection 12 employees are required
BA degree in management
The office has employee 5 year in tax collection and 3 year in tax assessment. 1 employee present.
2 Tax assessment officer
Diploma in accounting, tax administration, management public finance.
Minimum of 3 years experience who has worked in tax assessment
Diploma in accounting Diploma in management
The officer has employees tax assessment 4 year and 2 year in tax collection 2 employees are present.
3 Tax assessment officer
Diploma in accounting, tax administration, management public finance
Minimum of 3 years experience who has worked in tax assessment
Diploma in accounting Diploma in
management
Tax collection 3 year and 1 month. tax collection 3 year and 5 month. 2 employees are present.
4 Tax education and public relation business process owner
BA degree or college diploma in economics, accounting, business education marketing, tax administration urban faience and
For BA degree 3 years relevant working experience and for diploma 6 years relevant working
Not present Not present
law. experience 5 Plan
preparation and following up and evolution officer
BA Degree 3 years and diploma 8 years relevant working experience who has worked in data collection and planning. 1 employee is required
Diploma in human resource management
Diploma in human resource management
6 years in tax collection and 3 years plan preparation and following up . 1 employees present
For effective and efficient tax assessment and collection, employees of the organization have
appropriate educational qualification, experience, understanding and comply with the rules and
regulations issued at the regional and federal level.
As indicated on the about table, the total number of employees required for tax assessment, tax
collection, tax education and planning were 7 in numbers. But currently they are 6 in numbers.
As the researcher interviewed the tax officers, even if employees of the organization have the
required educational qualification, the performance of the employee complies with rules and
regulation on tax assessment and collection was very poor. They had worked by previous
experience and most of the employees have not confidence when they have assessed the tax
liability of the tax payers, and makes the presumptive tax assessment and collection not comply
with rules and regulation.
As the researcher interviewed tax officials, some of the factors contributed to the presumptive tax
assessment and collection not comply with rules and regulation of tax was:
The revenue office at the regional level did not provide training to employees.
Most of the employees did not understand and differentiate tax payers according to their
ability to pay.
For presumptive taxation estimation was made by committee, so uncommitted commit-
tee, doing by relations and give information to the tax payers to hide information about
their business activity.
Employees of the revenue office do not committed to seize the property of the taxpayers
who did not meet their obligation. Regulations
Table 3.3.4.Presumptive tax collection performance for the last 5 years
Planned and actual collected tax from presumptive tax (2007/8-2011/12)
Year 2007/8 2008/9 2009/10 2010/11 2011/12 Total
Presumptive tax
planned
221469 16/469 359000 900,000 102549 1735,487
Actual collected 2011502 274300 739512 658465 117898 2001677
Over /under
implementation
(9967) 112831 389512 (241535) 15349 266/90
Effectiveness in
percentage actual
collected to
planned
95.5% 169.87% 211.3% 73.16% 115% 115.34%
Source: East ester woreda revenue office annual report)
As it can be observed from the above table in the last 5 years, east Estie woreda revenue office
has planned to generate a total of birr. 1735487 from presumptive tax and actually collected a
total of birr. 2001677. When we have seen the trends of incremental of planed presumptive tax, it
decreases from 2007/8-2008/9 and the actual collection in 2008/9, 2009/10 and 2011/12
increases. In addition to this, the year 2011/12 planned amount is very less as compare to the
year 2010/11. The reason is that as the researcher interviewed head office of the organization,
one reason for declining the planned amount of tax in the year 2011/12 is because of for the
administration purpose East Estie Woreda was broken down in to two woredas and by this reason
a number of category “C” tax payers was taken to the new woreda. Due to this case, the year
2011/12 planned amount is very less. Even if this is a case, when we see the other years, the
planned amount is increased in one year and decreased in the next year. From this we conclude
that in the revenue authority has poor to forecasting the future tax collection. And they did not
take in to account the ability to pay of tax payers.
3.4. Competency of employees in tax assessment and collection
Tax education and public relation business process was established as an autonomous business
process in East Estie woreda revenue office in the year 2009 G.C. when the office implemented
BPR. Duties and responsibilities of the business process was awareness creation about tax to tax
payers and employees of the office and provide training to employees based on this, competency
of employees in tax assessment and collection detail analysis as shown below on the table.
Table 3.4.1. Competency of employees in tax assessment and collection.
No Description Alternative No of respondents
Percentage
1 Are you aware with the standard assessment method of taxation
Yes 12 85.7%No 2 14.3%Total 14 100%
2 Does your office give special training to tax payers?
Yes 14 100%
No - -Total 14 100%
3 If the answer is “Yes” how many times in a year?
Once a year - -
Twice a year 1 7.14%
Three times and above
13 92.86%
Total 14 100%4 Do you get appropriate
training to discharge the assessment and collection of tax very well?
Yes 5 35.7%No 9 64.3%
Total 14 100%
5 Do you think that your office has adequate manpower?
Yes 10 71.4%No 4 28.6%
Total 14 100%(Source primary data 2012)
As indicate on table 3.4.1 ….12(85.7%) of the respondents of the revenue office employees said
that, they have awareness with the standard assessment method of taxation. Whereas 2(14.3%) of
the respondents said that: they have not awareness with the standard assessment and collection.
This implies that the majority of tax employees have awareness on the standard assessment
method of taxation. But some tax employees have not awareness, because one of the reasons is
that less commitment of employees. On the other hand, in order to achieve the objective of the
organization, employees should be active enough and familiar with rules and regulations of tax
through training. As indicated on the above table 5(35.7%) of the respondents said that they have
got appropriate training to discharge the assessment and collection of tax very well. This
indicates that some of tax employees have awareness to discharge the assessment and collection
of tax very well. On the contrary 9(64.3%) of the respondents said that: they do not get
appropriate training to discharge the assessment and collection of tax very well. This rose from
regional and zonal tax authority executives are not committed to prepare and provide training.
and also the revenue office encountered financial constraints to provide training for employees.
From this we can conclude that employees of the organization did not get training about tax and
have limited knowledge and skills about tax. As a result tax assessment and collection done
through rule of thumb and experience. Mainly estimation of daily income of tax and lacks
commitment to collect tax liability of tax payers on time.
As the researcher observed: As indicated on the table the total of 14(100%) employees said that:
the revenue office gives special training to tax payers. Even if the revenue office provide training
to tax payers, tax employees have not got awareness creation program. This resulted employees
and tax payers have poor knowledge about tax and make an obstacle to tax assessment and
collection performance.
On the other hand, in the above table in relation to adequate manpower 10(71.4%) of
respondents said that: the office has adequate man power. On the contrary, 4(28.6%) of
respondents said that the office has not adequate manpower; this implies that the majority of the
revenue office tax employees have adequate skilled man power. However, even if the office has
adequate man power, they were not well informed on the current rules, regulations and
procedures of presumptive tax assessment and collection.
3.5. Basic Constraints between Officials and Tax Payers.
According to the income tax proclamation 286/2002 article 68 has declared that standard
assessment to be applied on category “C” tax payers.
The assessment is made by the daily income estimation committee or by using tangible
information from the tax office and third party.
The standard assessment guide of the region declared that the daily income estimation was
estimated from 3.-5 years with any adjustment. The daily income is estimated by the tax office or
the daily income estimation committee in kebele and representative body and also the committee
consists of tax payers and tax employees.
The committee has various constraints because the representative of the tax payers do not play
decisive role to the required degrees and standards. Most of the times do not contribute a lot in
the process of estimation.
Most of the committee does not understand the working procedure, the proclamation and
regulation of the government correctly.
East Estie Woreda revenue offices have many factors that enhance estimation constraints. Based
on the above ground the basic constraints between officials and tax payers are shown below:
3.5.1. Basic constraints between officials and tax payer’s response of tax payers.
No Description Alternative No of respondents
Percentage
1 How many times you are participating in tax awareness creation?
Twice a year 21 25.3%Once a year 29 34.94%
Not at all 32 38.56%Cannot provide response 1 1.2%
Total 83 100%
2 Is there any problem facing you when you go to the tax authority to pay your tax liability?
Yes 30 36%
No 53 64%
Total 83 100%
3 If the answer is yes what kind of problem?
Absence of tax collector 1 3.3%
lack of treatment 5 16.7%
lack of full information on the payment of tax
11 36.7%
discrimination 8 26.6%
inefficiency of tax collectors
5 16.7%
Total 30 100%
(Source: primary data 2012)
As indicated on the above table 3.5.1, regardless of participation in tax awareness creation
21(25.3%) of the respondents said that: they are participating twice a year and 29(34.94%) of the
respondents said that: they are participating once a year. On the contrary, 32(38.56%) of
respondents said that: they are not participating at all. From this we can understand that the
majority of tax payers do not participate on tax awareness creation. This implies that most of tax
payers have not enough knowledge about the tax laws, rules and regulations.
In relation to problems facing when tax payers go to the tax authority to pay the tax liability
30(36%) of respondents said that there are problem facing when they are go to the tax authority
in order to pay the tax liability on the other hand 53(64%) of the respondents said that they have
not any problems facing when they are go to the tax authority to pay the tax liability. It implies
that the majority of taxes payers have not any problems facing when they are go to the tax
authority. On the contrary, some tax payers have a problem facing when they are go to the tax
authority. Some of the main problems as shown on the above table are:
Absence of tax collectors
Lack of treatment
Lack of full information on the payment o ax
Discrimination
Inefficiency of tax collectors. All these are some of the main problems facing when tax
payers go to the tax authority.
Haw ever, as we have seen on the table, the most dominant problems facing on the tax payers is
lack of full information on the payment of tax. From this, the researcher observed that the
revenue office needs to improve the service delivery of the tax payers.
Table 3.5.2. Basic constraints between officials and tax payers employee response
NO Description Alternative NO of respondents
Percentage
1 How do you evaluate the knowledge of the tax payers about taxation
High - -Low 3 21.4%Moderate 11 78.6%Total 14 100%
2 Do you agree that the standard assessment criteria and collection system of your office are well enough to generate adequate tax revenue
Strongly agree 5 35.7%Moderately agree - 50%Strongly disagree 7 7.15%Moderately disagree
1 4.15%
Cannot provide response
1 100%
Total 14(Source: primary data 2012)
As indicated on the table 3.5.2, 3(21.4%) of respondents said that: The knowledge of the tax
payers about taxation is low. This implies that there are some constraints in the revenue office
that do not implement awareness creation to the tax payers. On the other hand 11(78.6%) of
respondents said that, the knowledge of the tax payers’ about taxation is moderate. This indicates
that the majority of the tax payers have some knowledge about taxation. But this is not enough
because the revenue office needs to provide detail awareness creations on the tax laws, rules and
regulations.
On the other hand, the criteria of standard assessment and collection, 5(35.7%) of respondents
are strongly agree that the standard assessment criteria and collection system of the revenue
office are well enough to generate adequate tax revenue. This implies that almost half of the tax
payers have an idea of the standard assessment criteria and collection system of the revenue
office is not well enough to generate adequate tax revenue.
3.6. Evaluation of tax officials’ cooperation to achieve revenue office goal
As per (marshall gold smooth 2008) in order to implement effective and efficient work on
revenue collection, the main goal is to create an organizational culture that is aligned with the
department’s vision, mission and responsive to the needs of a customer. One way of
accomplishing this goal is to create an environment that fasters the appreciation for the value of
diversity.
The revenue office needs to established a diversity team with a mission to promote an
environment within the department that appreciates the value of diversity by identifying shared
goals which are aligned with the departments values and vision with mangers support guidance
and review team recommendations will enable employees to reach their potential with dignity
and allow them to value their We have to dedicate to maximizing effectiveness in performing
those functions. We seek to continually improve quality and excellence by:
Providing the necessary training to employees enabling competent job performance and
enhancing professional growth.
Encouraging employ self development motivation, participation, and recognizing contri-
butions and performance.
Fostering open communication and team work.
Soliciting input and feedback from the customers we serve.
Providing the necessary resources to meet these goals. based on the above idea, evalua-
tion of tax officials cooperation to achieve revenue office goals is as follows:
Table 3.6.1. Evaluation of tax official’s cooperation to achieve revenue office goals response of
tax payers
No Description Alternative No of respondents
Percentage
1 How do you evaluate the tax assessment and collection
Good 27 32.53%
Bad 56 67.47%
2 Are you getting full service form the tax authority
Yes 44 53%No 33 39.8%Cannot provide response provide
6 7.2%
3.6.2. Evaluation of tax officials cooperation to achieve revenue office goals response of employees
1 How do you evaluate the commitment of the tax employees in the tax collection process?
High 10 71.4%
Low - -Moderate 28.6%
2 Is there team sprit work among the tax officers at the time of revenue collection?
Yes 14 100%
NO - -
3 How do you evaluate the strength of the tax authority with respect to the following parameters?
3.1 Service delivery Excellent 5 35.7%Good 8 57.1%Fair 1 7.2%Poor - -
3.2 Tax collection efficiency Excellent - -Good 11 78.6%Fair 3 21.4%poor - -
3.3 Law enforcement Excellent - -Good 9 64.3%Fair 5 35.7%Poor - -
3.4 Awareness creation Excellent - -good 5 35.7%Fair 9 64.3%Poor - -
As indicated on the table 3.6.1, on the evaluation of tax assessment and collection 27(32.53%) of
respondents satisfied on the tax assessment and collection, where as 56(67.47%) of respondents
are do not satisfied on the tax assessment and collection. This implies that the majority of tax
payers are not satisfied on the assessment and collection performance of presumptive taxes. In
relation to tax payers getting full service from the tax authority 44 (53%) of respondents said that
they are getting full service from the revenue office. Whereas 33(39.8%) of the respondents said
that they are not getting full service from the revenue office. From this we can observed that the
majority of tax payers are getting full service from the revenue office .Based on this we conclude
that some changes were observed after the implementation of BPR that enhanced customers
satisfaction to some extent. By doing so it should be strengthened for further.
As indicated on the table 3.6.2, in relation to the commitment of tax employees 71.4% of
respondents said that employee commitment is high and 28.6% of respondents said that
employee commitment is moderate however conflicting findings are obtained in this research
that majority of tax payers respondents reacted negatively concerning this idea. Since tax payers
are service users, having an agreement with the opinion of the tax payer respondents as indicate
on the table3.6.1, it assures that the commitment of tax employees is very low. From this we
observe that the commitment of tax employees in tax collection process is very less. In relation
to team spirit work among the tax officers 100% of the respondents said that there is team spirit
work among the tax officers at the time of revenue collection.
On the other hand evaluation on the strength of the tax authority with respect to the following
Para meters is:-
On service delivery 5(35.7%) of respondents said that the strength of the service delivery is very
well 8(57%) said that very good and 1(7.2%) said that the service delivery is fair. In relation to
tax collection efficiency 78.6% of respondents said that it is good and 21.4% of respondents said
that tax collection efficiency is fair. From this we observe that even if the tax employee’s
response is positive, as we have seen previously, having an agreement with the opinion of tax
payers response, tax assessment and collection process have many constraints. Due to this the
revenue office needs to improve the tax collection efficiency. In relation to law enforcement
9(64.3%) of respondents said that it is good and (35.7%) of respondents said that law
enforcement is fair and also awareness creation 5(35.7%) of respondents said that it is good and
9(64.3%) of the respondents said that the awareness creation is fair, from this we conclude that
based on tax payers opinion, as we explained in the previous, the revenue office have problems
on service delivery, tax collection and law enforcement.
CHAPTER FOUR
Conclusion and Recommendation
4.1. Conclusion Any government needs to raise revenue through taxation in order to provide public goods and
services to the society. Therefore this study focuses on category “C” business income tax
assessment and collection problems in East Estie woreda revenue office and suggests possible
recommendations that enable the revenue authority to improve the assessment and collection
small size taxation.
Generally, based on the analysis and interpretation of data, the major findings are concluded as
the following
One of the problems of presumptive tax assessment and collection in East Estie woreda is lack of
awareness or weak tax education program about the existence and objectives of tax and how tax
is levied on tax payers. There was an implementation of non fixed, continuous and non-seasonal
training programs. This is result in tax payers have misunderstanding about tax and assumed that
declaration income honestly implies that they paid large amount of tax beyond their ability to pay
and tax officers has not trust about tax payers because of they hide their income and not to pay
the required taxes voluntarily.
Lack of sufficient training to tax authority of this woreda is another problem because when ever
new proclamation and regulation are issued, they should have to be clarified to tax officers, tax
assessment committee and tax payers.
When East Estie Woreda revenue office performs its activity and tried to collect taxes from
presumptive tax: there are some problems in presumptive tax assessment and collection which is
critical to the revenue office. The major problem was related with the weakness of income
estimation committee. The Capacity of income estimation committee was low to make fair and
equitable income estimation. The assessment was limited there is no regular assessment;
assessment was done in one day field study. Members of estimation committee have little
knowledge towards taxation. In addition the revenue office has not proper documentation each
and every business person activity of the business.
The tax collection mechanism in the revenue office is not applied properly. The major attempts
was tax payers not paying their tax by due date, payment process done in the office was
inaccurate and late. The enforcement action was very less.
One of the important inputs to enforce the tax laws is availability of infrastructures. In East Estie
woreda non availability of infrastructures are also the problems in implementing presumptive tax
assessment and collection properly.
In East Estie woreda under study as result of this research indicates each year the total amount of
estimated presumptive tax collection and actual collection shows great difference this is because
of poor estimation by tax authorities to assess exactly identifying tax base and determining the
tax liability of tax payers. On the other hand non-coordination between different responsible
bodies and lack of commitment of the employee to seize the property of tax payers who do not
meet their obligation.
In East Estie woreda revenue office tax assessment and collection was not compliance with rules
and regulations. Some of the problems are: employees of the revenue office did not carry out
their responsibilities compliance with tax laws. Because most of them assessed tax based on
relatives. Tax payers did not pay their tax liability on due date due. Tax payers and employee of
the organization partially know and comply with rules and regulation due to tax authority did not
give training for employees. Even if employees have the required educational qualification, the
performance of the employee complies with rules a regulation on presumptive tax assessment
was poor.
Compliance tax payers are not encouraged by the revenue office. Lack of law enforcement on
non –compliance tax payers are the main constraints of the revenue office.
Tax payers have right claim about the assessed tax and provide complain to review committee
and appeal commission. In East Estie woreda revenue office majority of the respondents did not
satisfied with tax assessment made by the tax authority, and made complain to the revenue office
because of they had imposed and assessed tax beyond their ability to pay, and capacity tax payers
did not know the appeal procedure and even if when they are dissatisfied with the appeal
commission , they did not go to the court and make it complain to it. Only they have stopped the
complain procedure up to the decision the appeal commission.
After the implementation of BPR some changes are observed in the revenue office service
delivery process. How ever the revenue office could not bring remarkable change in service
delivery improvement to satisfy the needs of its tax payers. So, we can evaluate that the extent of
services delivered by tax employees in the revenue office was rated less
The revenue offices have given emphasis to employee’s participation in decision making, in
promoting delegation and team work. But it is less considerate to the importance of employee
training, empowerment, motivation and rewards.
4.2. Recommendations In this section, based on data analysis and interpretation part of this paper, the researcher
suggests certain recommendations as alternative to the area where the gap is identified. So, the
officials of the revenue office supposed to reconsider earlier short comings and under takes
corrective measures for better accomplishment on the basis of finding this study. The researcher
would like to draw the following recommendations as here under respectively to the conclusion
of the paper.
The main purpose of tax payer’s education is to create awareness among tax payers right and
responsibility. In East Estie woreda most of the tax payers’ educational level is low. There
should be regular and frequent training program for tax payers. So, the revenue office needs to
arrange fixed, continuous and seasonal training schedules.
The tax authority at local level should provide training for tax officers before assigning them
in different position and this training program should continue even they are on the job.
Presumptive tax assessment and collection should be performed with the existing tax laws and
regulations and the revenue office has an obligation to provide awareness creation program to
the tax payers, employees, and other responsible bodies who have direct relation on presumptive
tax assessment and collection for generation of revenue through different methods, and
employees should be active enough and familiar with rules and regulations of tax through
training. More over the mechanism used by income estimation committee has to be changed by
a workable system. The committee should have knowledge of data analysis to make accurate
and fair estimation. In general the revenue office needs to bring tax payers who are not on the
tax net, tax liability determination by estimation should be in a fair and equitable manner with
the support of evidences and the revenue office should provide incentive to the estimation
committee in order to perform well estimation of tax.
The revenue office needs to provide educating the tax payers and conducting consultation
sessions. In addition law enforcement measures should be taken to shape the tax payers to
develop positive attitude on the payment of tax. Especially the revenue office needs to
implement the program to identify tax payers who are delinquent in filing declaration or paying
applicable taxes.
The revenue office needs to create coordination among responsible bodies make tax collection
process efficient and effective. Mainly the woreda administration should supports by providing
vehicles and motor cycles on field work that has placed far distant business persons.
The revenue office needs to improve its estimation and it should strength its effort for
generating revenue from presumptive tax and the tax collectors in the revenue office should
seize the property of the tax payers who do not meet their obligation for effective tax collection.
The revenue office should give training to employees to increase the performance of them and
should assessed tax only compliance with rules and regulations. On the other hand the revenue
office needs to identify employees who assessed tax by relative and also tax payers needs to
awareness by educating through arranging seminars and work shops. In addition it is important
to recognize committed tax payers. As a result the performance of the employee complies with
rules and regulations on tax assessment and collection will be efficient and effective.
The revenue office needs to encourage complaint tax payers by strengthening legal
enforcement and penalties on non compliance tax payers.
Tax payers have right claim about the assessed tax and provide complain to review committee
and appeal commission. In East Eastie woreda revenue office tax payers did not know the
appeal procedure. So, the revenue office should provide awareness creation to tax payers on
appeal procedures and should inform right and obligations to tax payers.
Even it BPR has brought some service delivery improvements as compared to the previous
system, the evaluation of extent of services delivered by the tax employees in the revenue office
was rated less. This implies weakness of competency of the tax employees. Hence, it is
recommendable to improve the services that given by tax employees and it should be strengthen
further through bench marking it is better to learn from others best experiences.
The revenue office has given emphasis to employee’s participation in decision making, in
promoting delegation and team spirit work. How ever the revenue office needs to give high
consideration to the importance of employees training, empowerment, motivation and reward
Generally the revenue office can achieve its goals by following the above mentioned points.