DECLARATION

This is to certify that the research essay prepared by Group, entitled: The Assessment of
Tax Collection Problems (In Case of Haromaya Woreda) is ours original work
submitted for the award of the fulfillment of requirement for Bachelor of Art (BA) Degree
within Department of Accounting and Finance in Rift Valley University. It has not been
presented for the award of any degree or other similar titles in any other institution of
higher learning to the best of ours knowledge and all resources used have been duly
acknowledged.

Students Name: sign: Date:

[1] Ayantu Sufiyan ___________ ___________
[2] Hikma Sukar ___________ ___________
[3] Ikram Abdukadir ___________ ___________
[4] Masno Jemal ___________ ___________

Advisor Name: Shibashi Sida sign: _________ Date: __________

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 ABSTRACT
This study focus on problems relates with tax collection in Haromaya woreda it is known
that the existence of state without tax is unthinkable because, government raises fund from
tax collection. So studies of problems associate with tax collection and finding appropriate
solution may help to contend with development constraints success fully through detailed
investigation, because of this, this study design and look at the problems relate with tax
collection in Haromaya woreda. With the key objective of assessing problems relate with
tax collection. This may help the woreda’s revenue and tax office to look at originated
problems.

II
 ACKNOWLEDGMENTS
First and for most we would like to thanks the almightily God for his forgiveness, charity
and kindness he has given to us form beginning up to the end of ours work. Next to God we
would like to express ours deepest sincerity and great full gratitude to ours advisor for ours
extensive scholarly and knowledgeable advice as well as for his patience assistance support
throughout the work of the essay. Finally, we would like to thanks ours families, friends,
and ours relatives further strong support in providing all the financial and moral support.

III
 TABLE OF CONTENTS
DECLARATION................................................................................................................... I
ABSTRACT ......................................................................................................................... II
ACKNOWLEDGMENTS ................................................................................................. III
TABLE OF CONTENTS .................................................................................................. IV
LIST OF TABLES ............................................................................................................. VI
ACRONOMY ................................................................................................................... VII
CHAPTER ONE .................................................................................................................. 1
INTRODUCTION................................................................................................................ 1
1.1 Back Ground of Study ..................................................................................................... 1
1.2 Back Ground of the Organization .................................................................................... 2
1.3 Statement of the Problem ................................................................................................. 2
1.4 Objectives of the Study .................................................................................................... 3
1.4.1 General Objective ..................................................................................................... 3
1.5 Significance of the Study ................................................................................................. 4
1.6 Scope and Limitation of the Study................................................................................... 4
1.7 Organization of the Paper ................................................................................................ 4
CHAPTER TWO ................................................................................................................. 6
LITERATURE REVIEW ................................................................................................... 6
2.1 Introduction ...................................................................................................................... 6
2.2 Role of Taxation in Development Strategy ..................................................................... 7
2.3 Characters of Good Tax System ...................................................................................... 8
2.4 Taxation Principles .......................................................................................................... 8
2.5 Canons of Taxation .......................................................................................................... 9
2.5.1 Additional Canons of Taxation by Other. ............................................................... 10
2.6 Major Types of Taxes in Ethiopia ................................................................................. 11
2.7 Classification of Taxes Based on Their Effect on Income ............................................ 14
2.7.1 progressive Taxes.................................................................................................... 14
2.7.2 Proportional Taxes ................................................................................................. 15

IV
 2.7.3 Regressive Taxes ..................................................................................................... 15
2.8 Categories of Tax Payers ............................................................................................... 16
2.9 Procedures of Tax Collection......................................................................................... 17
CHAPTER THREE ........................................................................................................... 18
RESEARCH DESIGN AND METHODOLOGY ........................................................... 18
3.1 Research Design............................................................................................................. 18
3.2 Source of Data and Collection Method .......................................................................... 18
3.3 Target Population and Sampling Methods ..................................................................... 18
3.4 Data Analysis Method and Presentation ........................................................................ 19
CHAPTER FOUR .............................................................................................................. 20
RESULTS AND DISCUSSION ........................................................................................ 20
4.1 Data Analysis, Interpretation and Presentation .............................................................. 20
4.2 Analysis of Data Gathered from Tax payers.................................................................. 20
4.3 Analysis of Data Gathered from Employees ................................................................. 24
4.4 Analysis and Presentation of Secondary Data ............................................................... 27
CHAPTER FIVE ............................................................................................................... 29
CONCLUSION AND RECOMMENDATION ............................................................... 29
5.1 Conclusion ..................................................................................................................... 29
5.2 Recommendation ........................................................................................................... 30
References ........................................................................................................................... 31
APPENDIX ......................................................................................................................... 32

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 LIST OF TABLES
Table 4. 1 General Profile of tax Payers .............................................................................. 20
Table 4. 2 Types of taxpayers take parts in responding the questionnaires ......................... 21
Table 4. 3 Do you face any problem when you pay your tax liability? ............................... 21
Table 4. 4 Is your annual tax liability based on your in come? ........................................... 21
Table 4. 5 When do you pay tax? ........................................................................................ 22
Table 4. 6 Does the tax rate imposed by government is fair? .............................................. 22
Table 4. 7 Is the payment period enough? ........................................................................... 22
Table 4. 8 Do you know why tax is compulsory?................................................................ 23
Table 4. 9 How do you see present taxation system? .......................................................... 23
Table 4. 10 How do you feel about taxation? ...................................................................... 23
Table 4. 11 Are you satisfied with the method of assessment? ........................................... 24
Table 4. 12 General profiles of the employees .................................................................... 24
Table 4. 13 Do most taxpayer pay their tax liability on time .............................................. 25
Table 4. 14 How do you evaluate the coordination of your office with others ................... 25
Table 4. 15 what do you think about the bureaus structural adjustment? ............................ 26
Table 4. 16 how do you evaluate the knowledge of taxpayer about taxation. ..................... 26
Table 4. 17 what do you feel about the position you have assigned? .................................. 26
Table 4. 18 what is your idea about present tax collection and assessment system?........... 27
Table 4. 19 five years budget actual amount of tax collected in Haromaya woreda. .......... 27

VI
ACRONOMY
CIF………….cost of insurance and freight
FDI..................foreign direct investment
VAT…………..Value Added Tax

VII
 CHAPTER ONE
INTRODUCTION

1.1 Back Ground of Study

Typically taxes are the primary source of government revenues. Taxation policies depend
of the socio economic and political structure of a country. In Ethiopia though taxation came
into being with the emergence of state and government, but there is no reliable
documentary evidence exists as to when exactly taxation introduced. In the 15th century
written stories of indicates that taxation introduced previously in Ethiopia. In these
different social groups to government, feudal lords and priests paid era tax. Besides, these
documents approve that had for the first time enacted regulation can be taken as an
evidence for the presence of taxation system

In general a kind of traditional tax system practiced on those days this traditional tax
system was expresses in two forms of payment in kind and unstructured tax system. In
traditional tax system, much burden was laid on farmers. Towards the end of the Imperial
period the majority of the population living at subsistence level. There limited opportunity
to increase taxes on personal or agricultural income. Consequently, the imperial
government relied on individual taxes (customs, excise and sales to generate revenue for
instance in the early 1970s taxes on foreign trade accounts for close to 2/5th of the tax
revenue, and one third of all government revenues. At the same time, direct taxes
accounted for less than one third of tax revenue. During the “Dergue” regime the taxes
were similar to those imposed during regime except that wider tax base and increase tax
rates. The “Dergue” regime partially alleviate the tax collection problems that existed
during the imperial period by delegating the responsibility for collecting the fee and tax on
agriculture to peasant association that received a small percentage of revenue as payments.
The main purpose of generating revenue from various sources is to finance public
expenditures. The governments generate are revenue from tax and other non-sustainable
sources. The collection of money from available sources of revenue by government needs
the availability of democratic government, foreign and domestic creditors and donors,

1
efficient tax system and awareness of the society regarding the use of tax payment for
government and its contribution for the development of the country’s economy.

In our country payment of tax is considered by the society as a debt impose from
government to increase the wealth of the government officials. To avoid the negative
attitude of the taxpayer a well-designed tax system is necessary. In addition educate the
society regarding its obligation and the purpose of tax collection minimizes the wrong
attitude of the taxpayer. So, this study is designed to minimize problems that face during
assessment and collection and to minimize wrong attitudes of taxpayers.

1.2 Back Ground of the Organization

Haromaya is one of the large woreda in the Oromia region. This woreda is named after the
former awraja of the same name, and covering much of the same territory as the current
woreda, as well as its administrative center, Haromaya, part of East Hararge zone. Other
towns in this woreda include; Bate town, Dawa, Bile, Iressa, and Adele Mul’ata based on
figures published by the central statistics agency in 2005, this woreda has an estimated total
population of 157,552. 19676 or 12.49% of its population are urban dwellers.

Haromaya has an estimated population density of 170 people per 𝐾𝑚! that is greater than
the zone average of 150.6. Afan Oromo is spoken as a first language by 99.74%, Amharic
spoken 1.62%. The majority of the in habitants are; Muslims with 97.23%, Wakefata
”Waaqa Uumaa“ believers with 0.5%, Orthodox believers with 1.2%.

1.3 Statement of the Problem

The role of taxation in well functioning governmental operation is so high development of
infrastructures, basic social services institution are apparently build by government.
Moreover, the public servants, defense forces and police forces are employee of the state,
to cover these and other developmental costs the states uses tax as principal source of
revenue.

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The need to build speedy economic progresses and overall developmental activities call for
strong tax revenue. If no arguments in the above assertion therefore the Ethiopia
government ought to adopt sound taxation policy on collection system and in making
awareness on tax payer societies.

No doubt that the existence of better tax collection system is decisive for the existence of
well-developed and economically strong states. If no complain that better tax collection
system is decisive in one country’s overall capacity, that is the main reason motivate the
researcher to study the constraint of tax collection system with title “assessment of problem
related with tax collection in Haromaya woreda.”

In the researcher study area there are some problems of tax collection for instance in 2003
E.C the proposed amount of tax greater than the amount that actually collected and also
some problems related with awareness and willingness of taxpayers. So in this paper the
researchers tried to or answer the following basic questions of tax collection problems. In
the woreda
ü What are the major bottlenecks affecting tax collection system in the woreda?
ü What are the problems and weaknesses in the side of government bodies (tax
collectors) or the system?
ü What are the gap and weakness in the side of taxpayer societies?

1.4 Objectives of the Study

The main objective of study is to assess the accounting information system practice to
identify the real causes of current problems and to recommend some possible solutions.

1.4.1 General Objective

The general objective of this study is to find out the major constraints that affecting the tax
collection system in the woreda.

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1.4.2 Specific Objectives
Specific objective of this study focused on assessment of
ü Internal factors affecting tax collection system.
ü Environmental (external) factors that influencing tax collection system.
ü To put some possible recommendation and to make this study’s result base for
further investigation.

1.5 Significance of the Study

The researcher believe that the followings are the significance of the study
ü Paved the way for improvement of tax collection system.
ü Encourage compliance of tax payers
ü To create fairly clear image how the tax collection and problems with tax collection
are taking place.
ü Enable revenue bureau to find out whether its strategy are effective or not.
ü The result of this study will serve as a reference for further investigation
ü Lack of sufficient secondary data and failure of respondents to return the
questionnaires were the major limiting factors of the study.

1.6 Scope and Limitation of the Study

Though tax is very vast and curial issue, standing its nature of study the tax policy at a
higher level is time consuming and need long term study so, this research paper restricted
only in problems of tax collection in Haromaya woreda. The major limiting factors of the
study were lack of sufficient secondary data and failure of respondents to return the
questionnaires.

1.7 Organization of the Paper

This paper consists of five chapters the first chapter consists the introductory parts, which
includes. Background of the study, back ground of the organization, statement of the
problem objective of the study, significance of the study scope and limitation of the study,
the second chapter consist only the literature review.

4
The third chapter includes the term research design. Sources of data, data collection
techniques, method of data analysis and presentation, target population and sampling
methods. Chapter four of this research deals with analysis of data that gathered from
taxpayers and employees of the revenue bureau. The fifth and the end chapter of this
research deals with summary, conclusion and recommendation, questionnaires and
references that used to conduct this study.

5
 CHAPTER TWO
LITERATURE REVIEW

2.1 Introduction
Taxation is a means by which governments finance their expenditure by imposing charges
on citizens and corporate entities. Government uses taxation to encourage or discourage
certain economic decisions. Tax is a fee charged (levied) by a government on product,
income, or activity tax is levied directly on personal or corporate income, and then it is a
direct tax. If tax is levied on the price of a good or services, then it is named an indirect tax.
One of the most important uses of taxes is to finance public goods and services since public
goods and services don’t allow a non payer to be excluded, or allow exclusion by a
consumer, there cannot be a market in the good or services and so they need to be provided
by the government or quasi government agencies, which tend to finance themselves largely
through taxes (WWW. Investor words.com)

I. Meaning of Tax
Taxes are burdensome thus reduce the economic welfare of individuals and businesses
(public) organization. But activities that are financed from taxes will bring benefits to
individuals or organizations; the net burden of tax then, must take the nature of government
expenditures in to account (www. business dictionary. com)

II. Purpose of Taxation

According to American economist Richard Musgrave. A purpose of tax action is to
distinguish between objectives of resource allocation income redistribution and economic
stability (economic growth) or development and competitiveness listed as separate goals,
but they can generally be subsumed under the other three. The other main function of
taxation is to permit the state to provide services for the population. Infra structure and
services are what we expect from taxation (www. yahoo answers. com).

6
2.2 Role of Taxation in Development Strategy
The role of taxation in fiscal policy and the development strategy has to be viewed in the
background of the function that a taxation system performs, its main function in relation to
economic development are as follows. The primary function of tax system is to raise
revenue for the government for its public expenditure. So the first foal in the development
strategy as regards taxation policy is to ensure that this function is discharged adequately.

The second function of taxation is to reduce inequalities through a policy of redistribution

of income and wealth. Higher rate of income taxes, capital transfer taxes and wealth tax are
some means adopted for achieving these ends.

The 3rd role of taxation is for the social purposes such as discouraging certain activities,
which are considered undesirable. The excise taxes on liquor and tobacco. The special
excises duties on luxury goods. Betting and gamming levy are example of such taxes.
Which apart from being lucrative revenue sources have also goals.

The 4th is to ensure economic goals through the ability of the taxation system to influence
the allocation of resources. This includes.
ü Transferring resource from the private sector to the government to finance the
public investment program.
ü To distribute the direction of private investment in to desired channels through
such measures as regulation or tax rates and the grant of tax incentives etc. this
insides in investment incentive to attract foreign direct investment (FDI) into the
country.
ü Influencing relative factor prices for enhanced use of labor and economic use of the
capital and foreign exchange.

The fifth function of tax action on is to increase saving and capital formation in private
sector party for borrowing by the government and partially for enhancing investment
resources within the private sector for economic development (B.P herber, 1999).

7
2.3 Characters of Good Tax System
ü Tax is compulsory contribution: -it is a compulsory payment from the person to
the government without expectation of any direct returns from it.
ü The government levies taxes: -no one has the right to imposes taxes except the
government. Only the government has the right to impose taxes and collect tax
proceeds from the people.
ü Common benefit to all: - the tax collected by the government is spending for the
common benefits of all people.
ü No direct benefit: - the government compulsorily collects all types of taxes and
does not give any direct benefits to the tax payers for the taxes paid and the tax
payers cannot demand any direct benefits against the payment of taxes.
ü Certain taxes levied for specific objectives: - though taxes are imposed for
collecting revenue for the government to meet its expenditure on social wants and
merit wants for example heavy taxes are levied on luxury goods to reduce their
consumption.
ü Attitude of the taxpayers: - the attitude of the taxpayers is an important variable
determining the contents of good tax system.
ü Good tax system should be in harmony with national objectives: - a good tax
system should run in the same direction with important national objectives.
ü Tax system recognizes basic report of taxpayers: -a good tax system recognizes
the basic rights of taxpayers. The taxpayer is exacted to pay the tax but not undergo
the harassment (Tax system manual by Addis chamber 2004).

2.4 Taxation Principles

Taxation principles are basic concepts by witch government is meant to be guided in
designing and implementing all equitable taxation regime these includes.
ü Adequacy: -taxes should be just enough to generate revenue required for provision
of essential public services.
ü Broad basing: - taxes should be spread over as wide as possible section of the
population or sector of economy to minimize the individual tax burden.

8
 ü Compatibility: - taxes should be coordinated to ensure tax neutrality and over all
objectives of good governance.
ü Convenience: - taxes should be enforced in a manner that facilitates voluntary
compliance to the maximum extent possible.
ü Ear marking: - tax revenue from specific source should be dedicated to a specific
purpose only when there is a direct cost and benefit like between the tax sources
and expenditures such as use of motor fuel tax for road maintenance.
ü Efficiency: -tax collection efforts should not cost an inordinately high percentage
of tax revenues.
ü Neutrality taxes: -should not favors only one group or sector over another and
shouldn’t be designed to interfere with or influence individual decision-making.
ü Equity: -taxes should equally burden all individuals or entities in similar economic
circumstances.
ü Predictability: -collection of taxes should reinforce their inevitability and
regularity.
ü 10. Restricted exemptions
Ø Tax exemptions must only be for
Ø Specific purpose (such as to encourage investment) and for
Ø Limited period.
ü 11. Simplicity: -tax assessments determination should be easy to under stand by an
average tax payers (www. Taxation dictionary.com).

2.5 Canons of Taxation

Canons of taxation are the main basic principles (i.e. rules) set to build a “Good tax
system”. Canon of taxation first originally laid down by economist Adam smith in his
famous book “ the wealth of nations” in this book, Adam smith only gave four canons of
taxation. These original four canons are now known as the “original main canons of
taxation”. As the time changed, governance expanded and became much more complex
than what it was at the Adam smith’s time soon a need was felt by a modern economists to
expand smith’s principles of taxation and as a response they put forward some additional

9
modern canons of taxation. Adam smith gave the following four important canon of
taxation.
Canon of equity: - The principles aim at providing economic justice and social justice to
the society. According to this every person should pay depending on the ability to pay.
The rich should pay higher taxes to the government, because without the protection of the
government authorities. They could not have earned and enjoyed their income. A smith
argued that tax should be proportional to income.

Canon of certainty: - according to Adam smith the tax w/c an individual has to pay should
be certain, not arbitrary. The tax payer should know in advance how much, at what time
and in what form the tax to be paid to the government. at the same time a good tax system
also ensure that the government is also certain about the amount that will be collected by
way of tax.

Canon of convenience: - The mode and timing of tax payment should be as far as possible,
convenient to the taxpayers for example and revenue is convenient tax located at time of
harvest income tax is deducted at source. System will encourage people to pay tax and will
increase tax revenue.

Canon of economy: - this canon implies that the administration cost of tax collection
should be minimum, i.e. the difference between the money, which come, out of the pockets
of people and that which is deposited in the public treasury should be as small as possible.
(H. Gebrie Worku Mengesha, 2008).

2.5.1 Additional Canons of Taxation by Other.

Canon of productivity: - it is also known as the canon of fiscal adequacy according to this
principle, the tax system should be able to yield enough revenue for the treasury and the
government should have no need to resort to deficit financing. This is a good principle to
fellow in developing country (economy).

Canon of elasticity: - according to this country, every tax imposed by the government
should be elastic in nature. In other words the income from tax should be capable of

10
increasing or decreasing according to the requirement of the canary. For example, if the
government needs more income at time of crises, the tax should be capable of yielding
more income through increase in its rate.

Canon of flexibility: - It showed be easily possible for the authorities to revise the tax
structure both with respect to its coverage and rates, to suit the changing requirements of
the economy with changing time and conditions the tax system needs to be engaged
without much difficulty. The tax system must be flexible and not rigid.

Canon of simplicity: - the tax system should be complicated, that makes it difficult to
understand and administer and results in problems of interpretation and disputes.

Canon of diversity: - this principle states that the government should collect taxes from
different sources rather than concentrating on assignee source of tax. It is not advisable for
the government to depend up on single source of tax. It may result inequality to certain
section of the society, and uncertainty for the government to raise nudes. If the tax revenue
comes from diversified source then any rendition in tax revenue on account of any one
cause is bound to be small (IBID).

2.6 Major Types of Taxes in Ethiopia

I. Direct taxes
Direct taxes are those that are paid entirely by that person whom they are imposed. A direct
tax is one paid directly to the government by the persons on whom it is imposed. Examples
include some income taxes, some corporate taxes and transfer taxes such as estate
(inheritance) tax and gift tax. There are different types of direct tax.

Employment Personal Income Tax: - every person deriving income from employment is
liable to pay tax on that income at the rate specified in schedule. Employment income shall
be includes any payment origins in cash or in kind received from employment by an
individual. Employees have an obligation to with hold the tax from cash payment to an
employee, and pay the tax authority the amount with hold during cash calendar month in

11
applying the procedure, income attributable to the month of and Pagume shall be
aggregated and treated as the income of one month If the tax on income from employment,
instead of being deducted from the salary or wage of the employee is paid the employer in
whole or in part, the amount so paid shall be added to the taxable income and shall be
considered as part there of (Gebrie Worku Mengesha, 2008).

Business Profit Tax: -This is the tax imposed on the taxable business income /net profit
realized from entrepreneurial activity. Taxable business income would be determined per
tax period on the basis of the profit and loss accounting standard corporate business are
required to pay 30% of fiat rate of business income tax. For with incorporated or an
individual business are taxed in accordance with the determined schedule and rate. In the
determination of business income subject tax in Ethiopia, deductions would be allowed for
expense incurred for the purpose of earning, securing and maintaining that business income
to the extent that the taxpayer can prove the expenses. The following expenses calculating
shall be deductible from gross income in calculating taxable income.
ü The direct cost of producing the income such as the direct cost manufacturing,
purchasing, importation, saving and such other similar cost.
ü General and administrative expense connected with the business activity.
ü Premium payable on insurance directly connected with the business activity.
ü Expenses incurred on connection with the promotion of the business inside and
outside the country. Subject to the limits get by the directive issued by the minister
of revenue (IBID).

II. Indirect taxes

A direct computed indirectly in the cost of goods or service you purchase such as taxes
imposed on companies for doing business. A good example of indirect tax would be
shipping cost that are included in the cost of merchandise you buy at the store. Cost on
commodities like custom duties, sale taxes, excise taxes etc. Included in types of in direct
taxes (Gebrie worku mengesha, 2004). There different are types of Indirect Taxes

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 I. Turn over Tax
The turn over tax would persons not registered for value added tax render payable on good
sold and services. The rate of turn of over tax is
ü 2% on good sold locally.
ü For service rendered locally.
ü 2% on contractors, grain mills, tractors and combine harvesters.
ü 0-50% on other.

II. Value Added Tax

Value added tax is tax on consumer expenditure: it is collected on business transactions and
imports. A taxable person can be an individual firms company, as long as such a person is
required to be registered for VAT most of transactions, inviolable supplies of goods or
services, VAT is payable if they are:
ü Supplies made in Ethiopia.
ü Made by a taxable person
ü Made in the course or further once of business.
ü Every import of goods, other than an example import and import of service.
The registered person is required to issue the VAT invoices to the purchaser of goods or
services up on the supply or rendering, but not later than 5 days after the transaction (Tax
system Manual by Addis Chamber, 2004).

III. Excise Tax

Excise tax in Ethiopia is imposed and payable on selected goods, such as luxury goods and
on goods that are hazardous to health witch are cause social problems, so excise tax will
reduce the consumption of such goods. Rate of excise tax shall be paid on goods mentioned
under the schedule of the proclamation
ü When it is imported and
ü When produced locally at prescribed in the schedule

13
Base o computation of exercise tax
ü In respect of goods, produced locally the cost of production.
ü In respect of goods imported cost of insurance and freight (CIF)

IV. Payment of excise tax

The excise tax shall be paid with in the time prescribed according to proclamation no 307-
sub article 12).
ü In respect of goods produced locally, by the producer.
ü In respect of goods imported by the importer (www.Addis chamber. Com).

V. Time of payment
According to the proclamation, excise tax on goods shall be paid under the schedule.
ü When imported at the time of clearing the goods from customs area.
ü When produced locally, not late than 30 days from the date of production.

2.7 Classification of Taxes Based on Their Effect on Income

Taxes, based on their impact on income can be classified as progressive proportional and
regressive.

2.7.1 progressive Taxes

If the tax system is progressive, the proportion of income taken in tax (the tax rate) rises
with income or spending power, here as the income or spending incase, the marginal rate of
tax for the increased income or spending also rises.

It is also possible to have a progressive expenditure tax where the rate of tax rises with
increment to consumption expenditure. There is some empirical evidence that the UK
Value Added Tax (VAT) is actually progressive: people with higher incomes tend to
increase their spending on items subject to the tax to such an extent that the payment
becomes a bigger proportion of income (Pearce; 1984, 358).

14
In developed countries they use a progressive income tax, for example the USA income tax
is the most progressive tax in the world Progressive taxes the most equitable than
repressive or proportional taxes in the sense that they are lived according to the ability to
pay. Some criticize progressive taxes that too much degree of progression discourages
work effort and risk taking, but some egalitarian economists and politicians tend to favors
progressive taxes.

In Ethiopia some of the progressive taxes are personal income taxes of proclamation
30/1992 and 107/1994 and the rental income taxes of proclamation 64/1993. The income
level will be categorized in different income brackets and taxed by progressive rate.

2.7.2 Proportional Taxes

This kind of tax is a tax whose rate remains constant as the size of the base increases. A
proportional tax rate is usually stared as a flat percentage of the base regardless of its size.
For example, the property tax usually operates with proportional rates, and the tax might be
expressed as 1% of the assessed property. Sales and excise taxes, payroll taxes, and most
customs duties are also levied on the basis of proportional rates (Douglas and Green Wald;
1983; 275). These kinds of taxes in Ethiopia are seen in the mining income tax
proclamation 23/1996, which states that both large and small – scale miners shall pay 35%
of their mining income.

2.7.3 Regressive Taxes

In these kinds of taxes the marginal rate of tax decreased, as the income or consumption
increases. This taxes a larger share of income from the low –income tax payer than from
the high income tax payer. A tax, which is technically proportional in terms of the tax base,
can often be considered regressive in teems of taxpayer’s income. Common examples of
such regressive taxes are sales taxes, excise taxes and property taxes. For example an
excise tax on cigarettes is based on the number of cigarettes sold and thus by definition is
proportional since the number of cigarettes consume may rise as income rises, as income
rises, however, the rate of the tax decreases with increasing income and thus can be called

15
regressive. The effect of regressive tax is to increase inequalities of income, by placing a
larger burden on the poor than of the rich (Green Wald; 1983,1127).

Most of the indirect taxes are regressive, for example excises and sales taxes, the same
amount of tax is paid per unit purchases. This amount of tax represents a higher
proportional of income to the poor. Some people argue that regressive taxes encourage
people to work harder to be elevated above the lower income group. As stated in the above
illustration taxes can be progressive, proportional or regressive.

They can be used for different objectives, to achieve their own goals. As Green Wald put
as a diagram the relationship between tax rates and tax base as follows.

Progressive
Proportional
The rate

Regressive
Tax base
Figure 2. 1 relationship between tax rates and tax base

2.8 Categories of Tax Payers

Taxpayers are classified in to three major categories;
Category “A” tax payers: - this category taxpayers are include; these category taxpayers
are required to submit to the tax authority, at the end of the year.
ü Any company incorporated under the laws of Ethiopia or in a foreign country.
ü Any other business having an annual turnover of birr 500,000 or above.

Category “B” payers: - Unless already classified in category ‘A’ any business having on
annual turnover of 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.

16
Category “C” tax payers: - unless classified in category “A” and ‘B’ those businesses as
whose annual turnover is estimated up to birr 100,000 are classified in category “C” of tax
payers (IBID).

2.9 Procedures of Tax Collection

Tax from category “A” and “B”, taxpayer is collected based on taxpayers declaration of the
annual, sales / income to the tax authority. Based on this the authorized official approves
the declaration. Following this approved, tax is collected from taxpayers and they will be
delivered receipt and clearance letter. District assessment committee for category “C” tax
payers makes the tax assessment based on the subjective estimation of daily sales. After
the assessment was made, the committee will decide on the daily or annual sales of the
taxes payers while considering different factors which will inters provide a basic in
determining the amount to be paid by the tax payer (Ministry of finance and economic
development; Addis Ababa 1996).

17
 CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY

3.1 Research Design

The study focused on the problem associated with tax collection problem in Haromaya
woreda, which is found in Oromia region and East Hararge Zone. The study is conduct, by
using both qualitative and quantitative research approach.

3.2 Source of Data and Collection Method

To conduct this study both primary and secondary data was collected. Using questionnaires
from taxpayers, employees of revenues bureau and personal interview with the manager of
the bureau collected the primary data. The secondary data was collected from the previous
year reports of the bureau, from different books, and related published materials.

3.3 Target Population and Sampling Methods

There are different tax base and taxpayers in the woreda such as employees, traders and
farmers. From 8000 registered taxpayers in the woreda the study was conducted, on 100-
registered taxpayer of all sector from its kebeles of the woreda. Among different sampling
techniques the researcher selects simple random sampling technique. The sample size (100)
is determined by using the following formula that came from statistics subject, as following
using 90% confidence level. (Source kottari 2004)
N=Z2pqn
2
E2 (N-1) Z PQ where

N= = sample size
Z2 = from table of using confidence level
P = probability to be selected
q = probability not to be selected
N= Total population in woreda
e = error of confidence level
Therefore the sample size of the researchers is

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 N= (1.6) 2 (0.5x0.5) 8000
(0.1) 2 (8000-1)+1.642 (0.5 x0.5)
= 5379.2 =100
53.785

3.4 Data Analysis Method and Presentation

After gathering all required qualitative and quantitative information data analysis was
performed and presented through table, percentage and frequencies. Then the data was
analyzed by using descriptive analysis method.

19
 CHAPTER FOUR
RESULTS AND DISCUSSION

4.1 Data Analysis, Interpretation and Presentation

This chapter deals with analysis and interpretations on the base of data gather through
questionnaires and interview. In order to acquire information for the study many
questionnaires we distribute to tax payers and employees of tax bureau. From randomly
selected 100 tax payers only 87 were correctly filled and returned the questionnaires. From
some employees of the revenues bureau all are correctly and actively participated in
responding the questionnaires.

4.2 Analysis of Data Gathered from Tax payers

The data collected through questionnaires indicate that almost about 53% of the
respondents are male and 47% are female all respondents age lie above 20 years. The age
group from 41- 50 covers the highest ration with 34.5%. With regard to educational bock
ground 40.2% of the sampled respondents learned primary schools, 22.9% secondary
school, 16% have certificate, 12.6% have diploma and 8.2% have degree.
Table 4. 1 General profile of taxpayers
Gender Male Female Total
No of respondents 46 41 87
Percentage 52.9% 47.1% 100%
Age group 20.30 32-41 41-50 Above Total
No of respondents 18 24 30 15 87
Percentages 20.7% 27.6% 34.5% 17.2% 100%
Educational back 1-6 6-12 Certificate Diploma Degree Total
ground
No of respondents 35 20 14 15 7 87
Percentage 40.2% 22.9% 16.1% 12.6% 8.2% 100%

20
Table 4. 2 Types of taxpayers take parts in responding the questionnaires
Types of tax payers No of respondent Percentage
Employment in come tax payer 15 17.2%
Business income tax payers 55 63.2%
Agricultural in come tax payers 17 19.6%
Total 87 100%

From the whole respondents 63.2% are engaged in different types business, 19.6% engaged
on agricultural activity and 17.2% are public servants.

Table 4. 3 Do you face any problem when you pay your tax liability?
Response Total No of respondent Percentage
Yes 59 67.8%
No 28 32.2%
Total 87 100%

For the above question 67.8% of the taxpayer tell us that a problems when they pay their
tax liability. As the data gathered from questionnaires indicate major problems mentioned
by taxpayers are in efficiency of tax collectors (by 60%), the existence of over taxation
(22.8%) and problem of procedure of tax collection with 17.2% of respondents.

Table 4. 4 Is your annual tax liability based on your in come?

Response Total No of respondent Percentage
Yes 59 17.2%
No 72 82.8%
Total 87 100%

As tried to show in above table above 82.8% of the taxpayers have complain on tax amount
imposed on them because the tax they paid is not based on their income.

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Table 4. 5 When do you pay tax?
Response Total No of Respondent Percentage
When receive assessment 14 16.5%
notification
Before due date 42 48.3%
After due date 32 35.6%
Total 87 100%

As the data gathered implies that 51.7% (16.5% + 35.6%) of the taxpayers are not paid
their tax liability on time for the same question the response of revenues bureau employees
was almost nearest to this percentage with 53.3%. The late payers reason out some
problems for the late payment like of cash on hand on exact time of payment and etc.

Table 4. 6 Does the tax rate imposed by government is fair?

Response Total No of respondent Percentage

Yes 31 35.6%
No 56 64.4%
Total 87 100%

From the total sample respondents 64.4% have complain on the tax rate imposed on them
because they feel it is above their capacity

Table 4. 7 Is the payment period enough?

Response Total No of respondent Percentage
Yes 77 88.5%
No 10 11.5%
Total 87 100%

Among the respondents 88.5 of the taxpayers answers indicate that the payment period is
enough. The remaining 11.5% say the payment period is not enough. This realizes that
range of time that given for payment is enough.

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 Table 4. 8 Do you know why tax is compulsory?
Response Total No of respondent Percentage
Yes 40 45.9%
No 47 54.1%
Total 87 100%

Knowledge of taxpayers about taxation is still not adequate about 54.1% of taxpayers have
no idea why they pay tax. Some tax payers when ask why they pay tax they reply that only
they pay tax because it is obligatory.

Table 4. 9 How do you see present taxation system?

Response Total No of respondent Percentage
Good 35 40.2%
Not bad 27 31%
Need restatement 25 28.8%
Total 87 100%

From all respondents 71.2% (40.2% + 31%) almost have positive about present taxation
system and the remaining 28.8% feel not good. For the same question submitted for
employees the majority of them have good feeling.

Table 4. 10 How do you feel about taxation?

Response Total No of respondent Percentage
As an obligation 30 34.4%
As a debt 37 42.5%
As useful 20 23.1%
Total 87 100%

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As indicated in above table only 23.1% of taxpayer see taxation as useful about 76.9% the
tax payer considered tax as debt and obligation this implies that the knowledge of tax payer
is poor.

Table 4. 11 Are you satisfied with the method of assessment?

Response Total No of respondent Percentage
Yes 47 54.1%
No 40 45.9%
Total 87 100%

Based on the above table 45.9% of the respondents are not satisfied with the method of
assessment. The following are some of the reasons mentioned by the tax payers are the tax
system are not modernized; the appointed tax collectors are not feel responsible or have no
interest on their position.

4.3 Analysis of Data Gathered from Employees

This part of the analysis discussed with question that offered for the employees of revenues
bureau and their answers 15 employees of the bureau and their manger were actively
participated in answering the questionnaires and stringy assist me by giving all necessary
data for my study.

Table 4. 12 General profiles of the employees

No of employees Percentage Educational qualification
diploma Percentage

9 60% Degree 46.7%

6 40% M.A -
15 100% Total 100%

As it is shown in the above chart the total of employees in so Haromaya woreda revenues
bureau are only 15. 9 are males and the remaining 6 are females. Educational bank ground

24
of the employees tell us that about 54.3% of them have diploma and 46.7 of the employees
graduated from college by degree.

Table 4. 13 Do most taxpayer pay their tax liability on time

Response Total No of respondents Percentage
The policy 2 13.3%
Tax payers - -
Tax office 4 26.7%
All 9 60%
Total 15 100%

Only 60% of the respondents answered that tax collection and assessment is the
responsibility of all the remaining 40% answered different answer.

Table 4. 14 How do you evaluate the coordination of your office with others
Response Total No of respondents Percentage
Excellent 2 13.4%
Very Good 3 20%
Good 5 33.3%
Hess 5 33.3%
Total 15 100%

For the question above about 66.7% of the respondents to tally answered excellent good
and very good only 33.3% said less this averagely implies us the offices coordination with
others office is good.

25
Table 4. 15 what do you think about the bureaus structural adjustment?

Response Total No of respondents Percentage

Complete the work quickly 9 60%
Complete the work moderately 5 33.3%
Complete the work excessively 1 6.7%
Total 15 100%

According to data gathered from the respondents about bureaus structural adjustment 60%
of the employees believe that it is good and complete the work quickly, 33.3 of respondents
feel that its complete the work moderately and the remaining 6.7% believe it’s complete the
work excessively.

Table 4. 16 how do you evaluate the knowledge of taxpayer about taxation.

Response Total No of respondents Percentage
High - -
Medium 3 20%
Low 12 80 %
Total 15 100%

The response of employees concerning knowledge of tax payers describe that 80% of the
respondents come out with the knowledge of taxpayer is low, and the remaining 20%
respond that their knowledge is medium.

Table 4. 17 what do you feel about the position you have assigned?
Response Total No of respondents Percentage

Is the right position 6 40%

Beyond my capacity - -
Under my capacity 9 60 %
Total 15 100%

26
From total employees only 40% of the employee’s feel the right about their position the
majority of the respondent (60%) feel their position is under their capacity this implies that
they have no satisfaction on their position.

Table 4. 18 what is your idea about present tax collection and assessment system?
Response Total No of respondents Percentage
Is effective 9 60%
Show discrimination 4 26.7
Have in sufficient manpower 2 13.3%
Total 15 100%

Among the respondents 60% of the tax payers approve that the present tax collection and
assessment system is effective 26.7% of the respondents said it shows discrimination while
the remaining 13.3% of the respondents answered have insufficient power of man.

4.4 Analysis and Presentation of Secondary Data

As presented in the above table the actual amount of tax collected in 1999 and 2000 above
budgeted tax amount with 104.68% and 130% respectively. But, this result is reversed for
the next consecutive years of 2001,2003, and 2003 with 94.71%, 89.39% and 78.39%. The
declined amount of tax collected in these three years also resulted in the decreased amount
of actual tax collected for cumulative five years from the budgeted tax by 96.94%.

Table 4. 19 Five years budget actual amount of tax collected in Haromaya woreda.
Year Budgeted amount of tax Actual amount of tax collected Percentage
2000 4,448,000 5,801,536 130%
2001 5,200,000 4,925,234 94.71%
2002 5,620,265 5,024,441 89.39%
2003 6,789,000 5,322,161 78.39%
Total 26,057.265 25,260,924 96.94%

Source: Haromaya woreda revenues Bureau

27
The data gathered via interview with the manager of the revenues bureau indicate that the
two major factors for decreased amount of actual tax collected from the budgeted amount
of tax. The conflict aroused between Oromo and Yem ethnic groups was the major one. As
the manager explained, even after the referendum of 2001 approved Haromaya town for
Oromia, some parties who were not satisfied by the result was not paid the tax until the last
year. How ever, currently with the intervention of federal government every thing is settled.
The other factor that understates the actual tax collected from the budgeted tax is
bankruptcy of the registered taxpayers.

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 CHAPTER FIVE
CONCLUSION AND RECOMMENDATION

5.1 Conclusion
To conduct this study questionnaires were distributed for 100 taxpayers and 15
questionnaires were distributed for employees of revenues bureau. In addition to this,
different opinions were collected from manager of the office and the previous year report of
the office. As the result of the study indicate that the prominent problems of tax collection
in so koru woreda are the following.
ü The other significant problem identified by the study is poor knowledge of
taxpayers concerning tax.
ü The annual tax payment (the tax rate) imposed by government is not fair or not
comparable with their income.
ü Lack of adequate training and education with respect to tax laws and amendment of
tax low which improve knowledge of employees
ü The revenues bureau faced a problem in service delivery by reason of dissatisfied
employees on their position and their working environment.
ü The educational background of employees of tax bureau is diploma and above.
ü Both employees and taxpayers were agreed that the tax payment period is enough.
ü The taxpayers are satisfied on the present tax assessment and collection system.
ü Knowledge of taxpayers about tax is poor.
ü Employees of revenues bureau are not satisfied on their position and on their
working environment.
ü The coordination of revenues bureau with other offices is good.
ü Lack of training and education concerning tax for employees of revenues bureau.

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5.2 Recommendation
To stamp out the distinguished problems and improve (sustain) the strength which shown
in the woreda, with respect to tax collection and assessment, the woreda’s revenues bureau
should take the following measures.
ü The revenues bureau should extend awareness regarding tax to the community by
using different media, flyers, and pamphlets and by face-to-face training.
ü The revenues bureau should try to smooth the way that the annual tax payment (tax
rate) and income of the taxpayers become balanced. By informing complain of
taxpayers to concerned body.
ü It should necessary to create the spheres that upgrade the knowledge of the
employees. And different training relating to tax low and amendment of tax law
must be provided.
ü To reduce dissatisfaction of employees on their position job rotation is one way and
the revenues bureau should try to make the working environment attractive and
comfortable by making the environment green, by providing refreshment center for
worker and by creating duties that improve friendly relation between the workers.

30
References
ü Ministry of finance and economic development Addis Ababa 1996.
ü Gebrie Worku Mengesha (Tax accounting in Ethiopia context 2008. second
edition.)
ü Ministry of revenue Addis Ababa. Dec 2003
ü Ethiopia chamber of commerce. HWK partnership. Addis Ababa 8/2004.
ü Encyclopedia of Americana 1997.
ü Sisay Ayalew (Addis Abeba 1985).
ü www. Business Dictionary.com
ü www.On line dictionary.com
ü Sisay Ayalew (training manual on economics of taxation, Addis Abeba, 1985)

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 APPENDIX
RIFT VALLEY UNIVERSITY
College Business and Economics
Department of Accounting and Finance
This questioner prepared by we on Accounting and Finance student in to gather the reliable
data on the title of gender disparity and its effect on the income generation activities in
Haromaya woreda. So, dear respondents are kindly requested to provide necessary
information carefully for the questions listed below .The secret will be requested for all
information given. First of all I would like to thank for your willingness to respond this
questionnaire form for study of assessment of tax collection problems in case study of
Haromaya woreda.
ü Dear respondent you are not required to write your name to give you freedom, to
respond confidently and to keep your secret safely.
ü Please put √ mark in the place provided for you in box for both open and close
questions.
Questionnaires related to tax payers
I. For yes or no question “ √ “
For descriptive question try to give short answer Questionnaires
1) Age A. 18-30 b. 31-45 c .46- 60
D. Above 60 year
2) Sex: A. male B. female
3) Level of education
A. Illiterate B. Basic education
C, Primary education D. Preparatory
E. Technical and vocational Higher education
4) Types of business:
How do you feel about taxation? A. As an obligation B. As debt
C. As useful
5) Is the tax payment period enough? A. Yes B. No

32
6) Is your annual tax liability based on your in come?
A. Yes B. No
7) Do you face any problem when you pay tax liability?
A. Yes B. No
8) If your answer is “yes” for question number 7 what is your possible reason?
A. Problem of procedure of tax collection system
B. Weakness among tax collector
C. The existence of over taxation
D. If any other specify ________________________________
9) How do you see present tax system? A. Good B. Not bad
C. Need restatement
10) Do you know why tax is compulsory? A. Yes B. No
v v
11) If your answer is “no” for question no 10 what is your reason?
A. No awareness creation by concerned body v
B. Because tax is not so far contribute for one’s country’s development
v
C. I am not obliged to pay tax because it is not my responsibility.
v
D. If any other specify ________________________________
12) Does the tax rate imposed by government is fair? A. Yes v B. No v
II. Questionnaires related to revenues bureau employees personal information
1) Who is responsible for tax collection and assessment?
A. A. the policy B. Taxpayer
v v
C. Tax office D. All
v v
2) How do you evaluate the coordination of your office with the other office?
A. Excellent v B. very good v
C. Good D. Less
v v
3) How do you feel about the position you have assigned?
A. Is the right position v B. beyond my capacity? v
C. Under may capacity
v
4) What do you think about the bureau’s structural adjustment?
A. Will complete the work quickly B. Will work excessively
v v

33
C. Will work moderately v
5) What is your idea about the present tax collection and assessment?
A. Effective B. shows discrimination
v v
C. Have in sufficient manpower v
6) How do you evaluate the knowledge taxpayer about taxation?
A. High B. Low C. Medium
v v v
7) Do most tax payer pay their tax liability on time?
A. Yes B. No
v v

34