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.