CHAPTER FOUR

4. Data Analysis and Interpretation

4.1 Overview of the Study Area

The study was conducted in Dessie town, Amhara region, which is located in the northern
part of Ethiopia. Dessie town is bounded by Bati in the east, Kutaber in the west, Haik
in the north, and Kombolcha in the south. It is about 395 kms far from the capital city
of Ethiopia, Addis Ababa, and it covers an area of 7,200 hectares. It is about 1500-
4200m high above sea level. It has an annual rainfall ranging from 950-1070 mm, and
its temperature ranges from12.37 0c-26.27 0c. Besides this the town is surrounded by
highlands (mountains). Like other towns in the region; most of the people speak
Amharic language. Trade and small business operations are the towns major
economic activities.

4.2 Socio Demographic Characteristics of Participants

Demographic analysis is concerned with the size, composition, and distribution of

populations; their patterns of change over time through births, deaths, ad migration; and the
determinates and consequences of such changes, population studies yield knowledge
important for planning, particularly by governments, in fields such as health, education,
housing, social security, employment, and environmental preservation. Such studies also
provide information needed to formulate government population policies, which seek to
modify demographic trends in order to achieve economic and social objectives.
Demographics can also play a role. Larger populations are associated with lower tax ratios,
reflecting economies of scale in providing public goods (Alesina and Wacziarg, 1998). Faster
population growth is associated with lower revenue, perhaps because of the difficulty of
tracking and administering a rapidly changing tax-payer population and, in more developed
countries at least, aging population is associated with a higher tax effort, presumably to
finance higher social spending. According to the 2007 national population and housing
census, the total population of the town was about 168,642.

Sex is one of the basic characteristics of population. Therefore, Sex composition is very
important for any analysis, as data on sex provides useful information about reproductive

1
potential, human resource, level of school attendance by each sex, and so on. Age is also one
of the basic demographic characteristics of a population. Thus age data are useful for
demographic analysis and for various types of socio economic development planning.

Table 4.1: Ages and Sex Composition of Respondents

Male Female Total

Age group count % count % count %

18-25 7 17.5 1 9 8 15.0

9
26-33 15 36.6 6 45.5 21 39.6
2
34-41 10 25.6 5 40.9 15 28.3
0
42-60 6 15 1 4.6 7 13.2
1
Above 60 2 5 0 0 2 3.7
7
Total 40 100 13 100 53 100
Source: Survey result 2017 and own computation

With regard to age composition of respondents, the majority of the respondents (75%) were
males and the remaining 25% were females. As can be seen from this result there is a huge
gap between number of male and female respondents. But this broad gap between the
number of male and female respondents has no impact on research result on this study.

Table 4.2: Tax Auditors and accountants firms Survey Respondents by Level of
Education and Work Experience

1. Education level Count %

Less than 12 grade 0 0

Certificate 0 0
Diploma 3 6.25
First Degree. 46 87.5
Master or above 3 6.25
Total 53 100.0
2. Work Experience
Less than a year 3 6
1 to 3 years 30 56.25
3 to 6 years 13 24.75
6 to 8 years 2 7 12.5
More than 8 years 0 0
Total 53
 Sources: Tax practitioner survey result 2017 and own computation

In terms of academic qualification 46 (87.5%) of the tax authority respondents are first
degree holders and each of the Diploma and Masters Degree holders represent 3 (6.25%) of
the respondents. None of the respondents participated in this survey were less than Diploma
Level.

Regarding work experience, the majority of respondents 30 (56.25%), have 1 to 3 years of

experience. 24.75% of the respondents were having 3 to 6 years of experience and only
12.5% of the respondents were served 6 to 8 years.

4.3 Descriptive Analysis of Primary Data

This section deals with analyzing and discussing the data collected from accountant firm, tax
auditors and tax revenue committees respondents through questionnaires and interviews. The
questionnaires are closed ended questionnaires with that of open ended which are designed to
indentify the roll of accountant firms for tax evasion and tax avoidance. To supplement the
data obtained through questionnaires interviews were administered to tax revenue
committees. In this study emphasis is given to primary data from accountant firm, tax
auditors, to these effect 56 copies of questionnaires were distributed to the total population.
Out of these, 53 (95%) copies were filled and returned. The information obtained through
interview was used as a complementary data for analysis.

Most of the time in Likert scale data each item responses may be analyzed separately with
descriptive statistics. Therefore, the following tables show the analysis of Likert scale
responses with the descriptive statistics.

4.3: Tax Auditors and accountant firm respondents on Tax Lopoole and Its Impact on Tax
Revenue collections

Q.no N SA A NU SD MIS STD

items D

3
 5 4 3 1
2
53 ( 13) (30) (0) (7) (3) 3.8 1.16
Tax avoidance is the right of an
1 individual as long as it is within
25% 56.2% 0 12.5 6.2%
the framework of law
%
2 The penalties imposed presently 53 (14) (23) (4) (7) (5)
are not enough deterrent to prevent 13
potential tax defaulters? 26.8% 43% 7.9% .2% 9.1% 3.65 1.25

3 53 ( 7) (36) (0) (7) (3) 1.0

Tax policies should be reviewed
12.5 0% 3.68 7
and updated constantly for an
% 68.25 2.5% 6.25%
effective system to be in place.
%
4 53 (0) 0% (20) (0) (17) (17) 2.43 1.31
The loopholes in the tax laws are
37.5% 0% 31.2 31.2%
used to avoid tax.
%
Source: survey result 2017

Where: N=Respondents: SA=strongly agree: A= Agree: NU=neutral: D=Disagree: SD=

strongly disagree: MIS=mean item score: STD=standard deviation. Q.no=question number

About 81.2% of accountant and tax auditor survey respondents indicated that they agreed or
strongly agreed with the statement that tax avoidance is the right of an individual as long as it
is within the framework of law, hence it is legal / not immoral, while about 18.7% of the
respondents disagreed or strongly disagreed to the above statement. There is no uncertain
respondent for the above statement (mean = 3.8 = 1.16 and n =53). This implies that tax
avoidance is the right of an individual as long as it is within the framework of law and it also
implies tax avoidance is one of the reason for poor tax revenue collection.

In the same table the researcher forwarded the statement to accountants and tax auditors to
know their agreement or disagreement on the penalties imposed presently to prevent potential
tax defaulters

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. About 69.8% of accountant and tax auditors survey respondents indicated that they agreed
or strongly agreed with the statement that the penalties imposed presently are not enough
deterrent to prevent potential tax defaulters while about 22.3% of the respondents disagreed
or strongly disagreed to the above statement. The remaining 7.9% is uncertain respondent for
the above statement (mean = 3.65, = 1.25 and n =53). This implies that the penalties
imposed presently are not enough deterrent to prevent potential tax defaulters.

About 80.75% of accountants and tax auditors survey respondents indicated that they agreed
or strongly agreed with the statement that tax policies should be reviewed and updated
constantly for an effective system to be in place, while 18.75% disagreed and there is no
uncertain respondents for the above statement (mean = 3.68, = 1.07 and n =53). This
implies that tax policies should be reviewed and updated constantly for an effective system to
be in place to control, minimize and avoid tax evasion and avoidance and to increases the tax
revenue be collected by the government.

The fourth question (Q.no 4) was forward to accountant and tax auditors to know their
agreement or disagreement on that statement. In view of the above, about 37.5% of to
accountant and tax auditors survey respondents indicated that they agreed or strongly agreed
with the statement that the loopholes in the tax laws are used to avoid tax ,while 62.5% of the
respondents disagreed or strongly disagreed to the above statement. There is no uncertain
respondent for the above statement (mean = 2.43, = 1.31 and n =53). This implies that the
loopholes in the tax laws are not used to avoid tax. Therefore, the tax low itself has a problem
for tax avoidance.

Interview results from tax revenue committee only give the responses about the implication
of tax evasion by tax payers such as the tax payers by not provide clear, fair and true
record (lack of appropriate record for their trading activities and by holding multiple
accounts) by using illegal stamp, not giving receipt to customers, no use cash register
machines, there is no use of invoice, by hiding the exact amount of capitals, by making false
agreement between whole sellers and retailers, hiding their revenues by increasing expenses
and decreasing revenues, This finding result support the idea of Romanov (2003) that is tax
payers refuse to pay their taxes in many shapes, sizes, and guise.

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 Table 4.4 Respondents view roll of accountant firm for tax evasion and Avoidance
Q. N SA A Nu D SD MIS STD
no item
5 4 3 2 1

1 The service rendered by the 53 (9) (28) (2) (13) (2) 3.1 1.1
accountants firm is important
to reduce tax avoidance and 2
evasion 17% 53% 3% 4% 3% 7 5

2 The service provided by 53 (15) (25) (4) (5) (4) 3.0 1.4
accountant firm is not sufficient
and qualified to increase tax 28% 48% 6.8% 10% 6.8% 6 2
revenue by reducing tax
avoidance and evasion.

Source: survey result 2017

The first question (Q.no 1) was forwarded to accountants and tax auditors aiming to know
their agreement or disagreement on the statement that the service rendered by the accountants
firm is important to reduce tax avoidance and evasion. The response of this statement can be
used to measure the roll of accountant firm for tax evasion and Avoidance indirectly.
Therefore, in view of the above, about 70% of accountants and tax auditors survey
respondents indicated that they agreed or strongly agreed with the statement that the service
rendered by the accountants firm is important to reduce tax avoidance and evasion while
27% of the respondents disagreed or strongly disagreed to the above statement. The
remaining 3% uncertain respondent for the above statement (mean = 3.17, = 1.15 and n
=53). This implies that the service rendered by the accountants firm is important to reduce
tax avoidance and evasion. The second question (Q.no2) also forwarded to accountants and
tax auditors aiming to check the service provided by accountant is sufficient and qualified to
increase tax revenue by reducing tax avoidance and evasion or not. Thus, in view of the
above statement, about 76% of taxpayers survey respondents indicated that they agreed or
strongly agreed with the statement that there is no benefit from paying tax to the government,
while 16.8% of the respondents disagreed or strongly disagreed to the above statement. The
remaining 6.8% uncertain respondent for the above statement (mean = 3.06, = 1.42 and n

6
=53). This implies that the service provided by accountant firm is not sufficient and qualified
to increase tax revenue by reducing tax avoidance and evasion.

This roll of accountant firm for tax evasion and Avoidance were confirmed by the
information obtained from accountants and tax revenue committee interviewee.
According to respondent responses regarding the roll of accountant firm for tax evasion and
avoidance are summarized as follows: giving professional quality services and types of
services given by accountant firms

4.4.1 Giving professional quality services

The tax practitioner plays an important part in shaping the tax practices of his clients. He
usually participates in different business and financial activities of his clients. Among the
more one is the practitioner is expected to provide the quality of service that is a credit to the
profession. To know whether accountant firms are in line with the professional expected
quality of services or not, questionnaire was designed and distributed to them and obtained
the following results.

4.4.2 Types of services given by accountant firms

According to the respond of accountant firms about the types of service given by them the
following services types are mentioned
A. Helping clients
B. Recommending other professional clients when they are seen in practicing
nonprofessional services
C. Assisting the government or revenue department
D. Helping courts in investigation
As per responses obtained from accountants the service given to clients are advising and
helping to prepare tax plan in compliance with their business plan, advising their clients to
prepare tax plan and advising clients not to engage in reduction of tax activities, they are also
playing their roles to make their clients monetarily successful includes by designing
appropriate accounting system, better management of sales, expenses and current as well as
fixed assets advising legal affairs etc.

7
This quality of service should not stop when a client is being investigated for fraud. If the
accountant believes that the client has intentionally concealed information necessary to
prepare an accurate return, he may wish to terminate the engagement. The usual practice is
for the accountant to represent the client until the current fraud investigation is complete.
The researcher prepared to know whether accountant firms operating in Dessie are providing
services when their clients are found practicing tax fraud or not accordingly all of them
responded that they continue their services even in this situation. The types of service they
are going to give are
A. Reviewing the accounting reports of the clients.
B. Correcting the mistake and misstatements.
C. Giving professional explanations to concerned government bodies.
This roll of accountant firm for tax evasion and Avoidance were confirmed by the
information obtained from tax revenue committee interviewee.
As per the information from tax revenue committee they also said that accountant firms are
Coordination with concerned government bodies that are tax authority officials reducing tax
avoidance and evasion. According to their respond they help courts by giving professional
suggestions, preparing correct accounting reports showing the correct financial and
operational activities of their clients etc. While the investigation is pending, the practitioner
exercise care in order not to become so involved in the investigation that it appears
appropriate to resort to unethical methods.
The researcher also forwarded a question like, Do you have comments on the members of
professional firms when you found them doing unethical practice?
The respondents stated that they do not give such corrective comments on professional
quality service to their collogues because of the following conditions.
Lack of coordination between them.
Less willingness of their collogues to listen their comments.
Poor habit of correcting practice by each other.
Lack of strong professional associate that can coordinate and bring them for
discussion.
As per the information obtained from accountants and tax revenue committee interviewee
many of them said that We are dealing with the type of services delivered to their clients

8
about the accountants consultancy service to their clients such as they give advice to the
supplier how can offset the VAT paid on purchases (input tax) against the output tax and
the difference is settled with payments/receipts to the Customs. This way the business acts as
a tax collector and the net effect of the tax falls on the ultimate consumer. However, there is a
potential for increasing corporate earnings if companies can claim relief for the input tax
and somehow forego the payment of output tax to the authorities.

Table 4.5: Respondents Views on tax system.

Q.N N SA A NU D SD MIS STD
o item
5 4 3 2 1

The system of tax 53 (10) (20) (0) (16) (7) 3.18 1.42
1 administration in Dessie is
not efficient and effective. 18.5% 37.5% 0 31.2 % 12.5%

9
2 Tax evasion and tax 53 ( 15) (25) (1) (10) (2) 3.21 1.38
avoidance have an adverse
effect on the state
government revenue? 28.3% 47.2% 2% 19% 3.7%
3 Non availability of the data 53 (9) (25) (0) (15) (4) 3.16 1.24
base of all taxable
individuals by the revenue
authority provides an 17% 47.3% 0% 28.2% 7.5%
opportunity for people to
evade tax?

4 There is shortage of 53 (9) (43) (0) (1) (0) 4.3 .72

experienced and highly
motivated personnel for tax
assessment and tax
collection?
5 The procedures for tax 53 (5) (11) (0) 0 (0) 0% (0) 0% 4.3 .47
assessment and tax 31.2% 68.8%
collection are ambiguous.

6 There is need for better 53 (23) (22) (8) (0) 0% (0) 0% 4.3 0.77
mechanisms for assessment 43.4% 41.5% 15.1
and collection of taxes to be %
put in place.

7 The government at all levels 53 ( 6) ( 9) 0 (0) (1) (0) 0% 4.25 .77

should make efforts towards 37.5% 56.2% 6.2%
fighting cases of tax
offences.
8 If the tax rates are reduced 53 (9) (25) (0) (15) (4) 3.16 1.24
for tax payers the level of
tax evasion and avoidance
reduced 17% 47.3% 0% 28.2% 7.5%

Source: survey result 2017

The above questions were forwarded to tax auditors and accountants to know their agreement
or disagreement on their concerned statements. Therefore, in view of the above about 56%
of tax officials survey respondents indicated that they agreed or strongly agreed with the
statement that the system of tax administration in Dessie is not efficient and effective, while
about 44% of the respondents disagreed or strongly disagreed to the above statement. There
is no uncertain respondent for the above statement (mean = 3.18, = 1.42 and n =53).

10
This implies that the system of tax administration in Dessie is not efficient and effective for
tax avoidance and evasion this may also a cause for poor revenue collection. As per tax
revenue committee interviewee results shows that tax system problem a factor for poor tax
revenue collection because it is difficult to understand easily by taxpayers and their is no
modern tax and trading system that is lack of software solution.

In addition to this, the respondents responses from open ended question also confirm the
existence of the problem such as the taxing system is not uniform, that is activities done by
the tax authorities is not the same and clear for all tax payers. They are not in a position to
give appropriate answers on taxpayers requests, there is no consistency in the information
obtained from different personnel on the same case and the tax officials not enforce tax
payers to respect the law.

The responses obtained from tax revenue committee and accountants firm accountants
interviewee to confirm the system of tax administration in Dessie is not efficient and
effective for tax avoidance and evasion by forwarded the question like do you think that the
tax law itself can be taken as a problem for tax invasion and avoidance?

Almost all respondents said that there is complex tax low or tax system because of lack of
software solutions (there is no modern trading system), and there is no equitable trading
system lead to tax evasion and tax avoidance and this also lead to poor tax revenue
performance
About 75.5 % of tax auditors and accountant firm survey respondents indicated that they
agreed or strongly agreed with the statement that tax evasion and tax avoidance have an
adverse effect on the state government revenue, while about 22.7 of the respondents
disagreed or strongly disagreed to the above statement. The remaining 2% respondents no
uncertain respondent for the above statement (mean = 3.21 = 1.38 and n =53). This implies
that tax evasion and tax avoidance have an adverse effect on the state government revenue.
According to the tax revenue committee response on the question is there bad practices of tax
invasion and tax avoidance by the tax payers? There is a tax evasion in the study area. Thus,
interview results from tax revenue committee or the question how tax payers evade tax shows
different from respondent to respondent; the ways how to cheat tax by tax payers, majority of

11
respondents responded that tax payers evade tax; by not provide clear, fair and true record or
lack of appropriate record for their trading activities; by holding multiple accounts; by
claiming improper deductions or under-reporting income or sales, (hiding their revenues by
increasing expenses and decreasing revenues); by using illegal stamp; not giving receipt to
customers; by not using cash register machines and by not using of invoice.

Therefore, the respondents replied their responses for this question by saying tax payers
evade tax by hiding the exact amount of capital, by hiding their revenues (increasing
expenses and decreasing revenues) and by making false agreement between whole sellers and
retailers especially vat register tax payers. This finding result support the idea of Romanov
(2003) that is tax payers refuse to pay their taxes in many shapes, sizes, and guise. From this
we can infer that tax evasion was one of the problems for insufficient tax revenue collection
in the study area.

About 64.3% of tax auditors and accountants firm survey respondents indicated that they
agreed or strongly agreed with the statement that non availability of the data base of all
taxable individuals by the revenue authority provides an opportunity for people to evade tax,
while about 35.7% of the respondents disagreed or strongly disagreed to the above
statement. There is no uncertain respondent for the above statement (mean = 3.16, = 1.24
and n =53). This implies that there is no availability of the data base of all taxable individuals
by the revenue authority provides an opportunity for people to evade tax and it is also a cause
for poor tax revenue collection

The above question (Q.no 4) was forwarded to tax auditors and accountants firms to know
their agreement or disagreement on shortage of experienced and highly motivated personnel
for tax assessment and tax collection. Therefore, In view of the above, 98% of the tax
auditors and accountants respondents strongly agreed and agreed, while 2 % were disagreed.
There is no uncertain respondent for the above statement (mean = 4.25 = .77, and n =53).
This implies that shortage of experienced and highly motivated personnel for tax assessment
and tax collection.

12
In addition to this, the respondents responses from open ended question and information
obtained from interviewee also confirm for the above question there is shortage of
experienced and highly motivated personnel for tax assessment and tax collection by
forwarded reasons such as tax administrators are not qualified enough, lack politeness and
confidence to make decisions and willingness to help tax payers. Some tax practitioners are
not ethical and unfair for all tax payers. That means they do not give respect to clients, they
try to get some benefit from someone by considering their power or try to give benefit to the
others. On the other hand at the time of assessing and levied tax on taxpayers is not based on
the evidence provide by taxpayers. Therefore, the amount of tax lived by the tax officials are
not consider the capacity of the taxpayers. The majority of the respondents replied by saying
the government is not out of suspect (guess) if you pay properly or not, high administrative
burden even if no tax payable (The amount of tax levied by the authority) are not fair means
high tax rate especially for VAT (not considered the capacity of tax payers that is
unreasonable valuation of the tax amount). Next to this the survey result show that
administrative weakness of the tax authority, the existence of unregistered business
(existence of illegal business) because of lack of hard and fast rule to force them, create
unfair computation in the market and making registered business lose their market share and
profitability. The public servants or the tax authority are not taking proper action on those
who do not pay tax according to the tax proclamation and the tax authority did not encourage
proper tax payers (there is no incentive). This also affects the governments revenue from
taxation. The taxing system is not uniform (activities done by the tax authorities is not the
same and clear for all tax payers), they are not in a position to give appropriate solutions for
the request of taxpayers. These findings are consistent with the views of Tanzi and Pellechio
(1995), a weak tax administration could contribute significantly to a decrease in tax revenue
generation performance.

About 100 % of tax auditors and accountant firm survey respondents indicated that they
agreed or strongly agreed with the statement that the procedures for tax assessment and tax
collection are ambiguous. There is no uncertain respondent for the above statement (mean =
4.3, = 0.47 and n =53). This implies that the procedures for tax assessment and tax
collection are ambiguous and it also lead to poor tax revenue collection for the town in

13
addition to tax evasion and avoidance. This also implies that the current trading system and
tax system of the country are required a certain adjustments to increase tax revenue.

The above question (Q.no 6) was forwarded respondents to know their agreement or
disagreement there is need for better mechanisms for assessment and collection of taxes to be
put in place. Therefore, In view of the above, 43.4% of the respondents strongly agreed,
41.5% agreed, while 15.1% is uncertain respondent for the above statement (mean = 4.3 = .
77, and n =53). This implies that there is need for better mechanisms for assessment and
collection of taxes to be put in place.

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15
III