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Sherefa Husein Proposal
Sherefa Husein Proposal
I
ABSTRACT
This study will focus on problems related with tax collection in Silti woreda. It is known
that the existence of state without tax is unthinkable because, government raises fund
from tax collection. So studies of problems associated with tax collection and finding
appropriate solution may help to contend with development constraints successfully
through detailed investigation. Because of this, this study will be designed and looked at
the problems related with tax collection in Silti woreda. With the key objective of
assessing problems related with tax collection this may help the woreda’s revenue and
tax office to look at originated problems.
II
ACKNOWLEDGMENTS
First my special thanks go to the almighty Allah for his undeserved support. And
secondly I would like to thank my advisor Ato Abat Abebe ( ) for his special assistance in
providing professional and technical advice.
III
TABLE OF CONTENTS
ABSTRACT....................................................................................................................................II
ACKNOWLEDGMENTS.............................................................................................................III
CHAPTER ONE..............................................................................................................................1
INTRODUCTION...........................................................................................................................1
1.1. Back Ground of the Study....................................................................................................1
1.2. Statement of the Problem......................................................................................................2
1.3. Objectives of the Study.........................................................................................................3
1.3.1 General Objective...........................................................................................................3
General Objective...................................................................................................................3
1.3.2. Specific Objectives........................................................................................................3
1.4. Significance of the Study......................................................................................................3
1.6 Scope limitation of the study.................................................................................................3
1.7. Limitation of the study..........................................................................................................4
1.7 Organization of the Paper......................................................................................................4
CHAPTER TWO.............................................................................................................................5
LITERATURE REVIEW................................................................................................................5
2.2 Role of Taxation in Development Strategy...........................................................................5
2.3 Characters of Good Tax System............................................................................................6
2.4 Taxation Principles................................................................................................................7
2.5 Canons of Taxation................................................................................................................8
2.6 Major Types of Taxes in Ethiopia.........................................................................................9
2.9 Procedures of Tax Collection..............................................................................................14
CHAPTER THREE.......................................................................................................................15
RESEARCH DESIGN AND METHODOLOGY.........................................................................15
3.1 Research Design..................................................................................................................15
3.3 Target Population and Sampling Methods..........................................................................15
3.4 Data analysis Method and Presentation...............................................................................15
CHAPTER FOUR.........................................................................................................................16
TIME AND BUDGET PLAN.......................................................................................................16
4.1 Time Schedule.........................................................................................................................16
4.2. Budget Plan.........................................................................................................................16
REFERENCES..............................................................................................................................17
APPENDIX....................................................................................................................................18
LIST OF TABLES
IV
Table 1. General profile of tax payers ....................................................................24
Table 2. Types of tax payers take parts in responding the questionnaires ............. 25
Table 3. Do you face any problem when you pay your tax liability ...................... 25
Table 4. Is your annual tax liability based on your in come.................................. 26
Table 5. When do you pay tax .............................................................................. 26
Table 6. Does the tax rate impose by government is fair.................................. 27
Table 7. Is the payment period enough ................................................................. 27
Table 8. Do you know why tax is compulsory ..................................................... 28
Table 9. How do you feel about taxation .............................................................. 28
Table 10. Are you satisfied with the method of assessment.................................. 29
Table 11 General profile of the employees............................................................ 29
Table 12 Do most tax payers pay their tax liability on time ................................. 30
Table 13 How do you evaluate the coordination of your office with others ......... 30
Table 14: What do you think about the bureaus structural Adjustment?............... 31
Table 15: How do you evaluate knowledge of tax payer about taxation? ............ 31
Table 16: What do you feel about the position you have assigned? ..................... 32
Table 17: What is your idea about present tax collection and assessment system 32
Table 18: What is your idea about present tax collection and assessment system? ………..33
Table 19: The 5 years budgeted and actual amount of tax collected in Silti Woreda.34
V
CHAPTER ONE
INTRODUCTION
1.1. Back Ground of the 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 was
introduced.
In the 15th century written stories of Atse Zera Yacob indicates that taxation was
introduced previously in Ethiopia. In these era tax was paid by different social
groups to government, feudal lords and priests. Besides, these documents approve
that Atse Zera Yacob had for the first time enacted regulation can be taken as an
evidence for the presence of taxation system before and on Zera Yacob
government.
In general a kind of traditional tax system was 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. Though such burden was tried to lessen by emperor Tewodrosse’s
government, strong change had been taken place by emperor Menilik.
Towards the end of the Imperial period the majority of the population living at
subsistence level. There was 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 2/5 th 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 Haileseassie regime except that wider tax base and increased
tax rates.
The “Dergue” regime partially alleviated 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 which received a small percentage of
revenue as payments.
1
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, 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.
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 Silti
woreda.”
In the researcher study area there are some problems of tax collection for instance
in 2008 E.C the proposed amount of tax was greater than the amount that actually
collected and also some problems related with awareness and willingness of
taxpayers. So in this paper the researcher tried to answer the following basic
questions of tax collection problems in the woreda
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1. What are the major factors affecting tax collection system in the woreda?
2. What are the gap and weakness in the side of tax payer societies?
3. What are the main areas of tax revenue in the woreda?
4. How much is the difference between budgeted and actual revenues for the
past 5 years?
General Objective
The general objective of this study is to find out the major constraints
that affect the tax collection system in the Silte Woreda.
1.3.2. Specific Objectives.
Specific objective of this study are:
To assess the internal factors affecting tax collection system in the woreda.
To assess environmental (external) factors that are influencing tax
collection system.
To assess the motivation made to employees with regard in collecting tax.
To identify the main source (areas) for the tax revenue of Silte Woreda.
To assess service revenue charges and fees potential vs actual for a few
year.
3
1.7. Limitation of the study
The major limiting factors of the study will be lack of sufficient secondary data
and failure of respondents to return the questionnaires.
4
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
Taxation is a means by wich 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, 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, wich
tend to finance themselves largely through taxes. (WWW. Investor words.com)
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)
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 expects from taxation
(WWW.Yahoo Answers.Com).
5
the first foal in the development strategy as regards taxation policy is to ensure
that this function is discharged adequately.
The 4th is to ensure economic goals through the ability of the taxation system to
influence the allocation of resources. This includes.
A. Transferring resource from the private sector to the government to finance
the public investment program.
B. 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.
C. 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
Herbert, 1999).
6
5. 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.
6. Attitude of the taxpayers:- the attitude of the tax payers is an important
variable determining the contents of good tax system.
7. Good tax system should be in harmony with national objectives:- a good
tax system should run in the same direction with important national
objectives.
8. Tax system recognizes basic report of tax payers:-a good tax system
recognizes the basic rights of tax payers. The tax payer is exacted to pay the
tax but not undergo the harassment. (Tax system manual by Addis chamber
2004)
7
11. Simplicity:-tax assessments determination should be easy to understand by
an average tax payers. (www.Taxation dictionary.com)
8
2. 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 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.
3. 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.
4. 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.
5. 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).
9
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)
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- Supplies made in Ethiopia.
- Made by a taxable person
- Made in the course or further once of business.
- 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)
C. 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
The excise tax shall be paid on goods mentioned under the senedule of the
proclamation
1. when it is imported and
2. when produced locally at prescribed in the schedule
Base o computation of exercise tax
1. In respect of goods, produced locally the cost of production.
2. In respect of goods imported cost of insurance and freight (CIF)
Payment of excise tax
The excise tax shall be paid with in the time pres cribbed according to
proclamation no 307 sub article 12)
1. In respect of goods produced locally, by the producer.
2. In respect of goods imported by the importer (www.Addis chamber.eom).
Time of payment
According to the proclamation, excise tax on goods shall be paid under the
schedule.
1. When imported at the time of clearing the goods from customs area.
2. When produced locally, not late than 30 days from the date of production. \
11
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 (W.pearce;1984,
358)
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.
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.
In these kinds of taxes the marginal rate of tax decreased, as the income or
consumption increases. This tax a larger share of income from the low –income
tax payer than from the high income tax payer.
12
A tax which is technically proportional in terms of the tax base, can often be
considered regressive in teems of tax payers 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 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.
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
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category “B” tax payers. This category of tax payers should submit to the
tax authority profit and loss statement at the end of the year.
3. 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)
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CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3.1 Research Design
The study will focus on the problem associated with tax collection problem in Silti
woreda which is found in Silte Zone. The study will be conducted, by using both
qualitative and quantitative research approach.
There are different tax base and tax payers in the woreda such as employees, traders and
farmers. From 8000 registered tax payers in the woreda the study will be conducted, on
100 registered tax payer of all sectors from 18 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 which came from
statistics subject, as following using 90% confidence level. (Source kottari 2004)
n=Z2pqn
2 2
e (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
N= (1.6)2 (0.5x0.5) 8000
(0.1)2 (8000-1)+1.642 (0.5 x0.5)
= 5379.2 =100
53.785
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CHAPTER FOUR
TIME AND BUDGET PLAN
4.1 Time Schedule
16
REFERENCES
Ministry of finance and economic development Addis Ababa 1996.
Gebrie Worku Mengesha (Tax accounting in Ethiopia context 2008. second
edition.)
Ministry of revenue Addis Ababa. Dec 2003
Ethiopia chamber of commerce. HWK partnership. Addis Ababa 8/2004.
Encyclopedia of Americana 1997.
Sisay Ayalew (Addis Abeba 1985) .
WWW. Business Dictionary. Com
WWW. On line dictionary. Com.
www.Addis chamber.com
Sisay Ayalew (training manual on economics of taxation,
Addis Abeba, 1985)
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APPENDIX
ADDIS ABABA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
FACULTY OF BUSINESS AND ECONOMICS
DEPARTMENT OF PUBLIC ADMINISTRATION AND DEVELOPMENT
MANAGEMENT
Dear respondents,
I am graduate student in Addis Ababa University; School of Graduate Studies; Faculty of
Business and Economics; Department of Public Administration and Management; BA
Degree Program in Public Administration and Management .
The purpose of this questionnaire is to collect data on tax collection problem assessment
of Silti Woreda for the partial fulfillment of BA degree in Public Administration and
Development Management. Dear respondents, the information you will provide is very
important for successful accomplishment of this research. Furthermore, the information
you give will be used for only the academic research. Therefore, you are kindly requested
to read all the questions and fill honestly without any hesitation and all the data gathered
will be held confidential.
Thank you in advance!
Sherefa Mehdi
Appendix I
Questionnaires related to tax payers
Personal Information
Age A. 20-30 B. 31-40 C. 41-50 D. above 50
Sex A. Male B. Female
Education background:
A. primary school (5-6) B. Secondary school (7-12)
C. Technical school D. college (diploma)
E. College (degree)
Tax Evasion Related Questionnaire
1. How do you feel about taxation?
A. as an obligation
B. as debt
C. as useful
2. Is the tax payment period enough?
A. Yes
B. No
3. When do you pay tax?
A. when I receive assessment notification
B. before due data
C. after due date
4. Is your annual tax liability based on your in come?
A. yes
18
B. No
5. Do you face any problem when you pay tax liability?
A. yes
B. No
6. If your answer is “yes” for question number 5 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 ________________________________
7. How do you see present tax system?
A. Good
B. Not bad
C. Need restatement
8. Do you know why tax is compulsory?
A. Yes
B. No
9. If your answer is “no” for question no 8 what is your reason?
A. No awareness creation by concerned body
B. Because tax is not so far contribute for one’s country’s development
C. I am not obliged to pay tax because it is not my responsibility.
D. If any other specify ________________________________
10. Are you satisfied with the method of assessment?
A. Yes
B. No
11. If your answer is “no” for question no10 because of what?
A. Power to collect tax is not delegated on the woreda
B. Tax collection system is not modernized one
C. Appointed tax collectors are not feel responsible
D. If any other specify _______________________
12. Does the tax rate imposed by government is fair?
A. Yes
B. No
Appendix II
Questionnaires related to revenues bureau employees personal information
personal information
Age A. 20-30 B. 31-40 C. 41-50 D. above 50
Sex A. Male B. Female
Education Qualification:
A. Technical school C. College (degree)
B. College (diploma) D. MA/MSC
19
1. Who is responsible for tax collection and assessment?
A. the policy B. Tax payer
C. Tax office D. All
2. How do you evaluate the coordination of your office with the other office?
A. Excellent B. very good
C. Good D. Less
3. How do you feel about the position you have assigned?
A. is the right position B. beyond my capacity
C. Under may capacity
4. What do you think about the bureau’s structural adjustment?
A. will complete the work quickly B. will work excessively C. will
work moderately
5. What is your idea about the present tax collection and assessment? A.
Effective B. show discrimination
C. Have in sufficient man power
6. How do you evaluate the knowledge tax payer about taxation?
A. High B. Low C. Medium
7. Do most tax payer pay their tax liability on time?
A. Yes B. No
20