A RESARCH PAPER SUBMITTED TO ACCOUNTING

DEPARTMENT IN PARTIAL FULIFILLMENT OF THE

REQUIREMENTS FOR BACHELOR OF ART (B.A)
DEGREE IN ACCOUNTING

VAT ASSESSMENT AND COLLECTION PROBLEMS

(A CASE STUDY IN AYDER SUB CITY REVENUE AGENCY)

SUBMITTED BY: ABRAHIM NURU ABDU

ID.NO: ADE/233/07

ADVISOR: HAILEMICAEL TETEMKE (MBA)

NEW MILENNIUM UNIVERSITY COLLEGE

FACULTY OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING

AUGEST 2017
MEKELLE TIGRAY, ETHIOPIA
 ABSTRACT
Taxation is a system of raising money to finance government activities. VAT is levied on
most business transactions on many goods and services.
The study focused on VAT assessment and collection problem that was conducted in
ayder sub city Administration which is found mekelle.
The data needed for these studies were both primary and secondary data was obtained
from annual report of VAT and documentary analysis of the organization.
The study used different methods of analysis ratio, percentage and tabulation to disclose
the facts .
Finally based on the discussion and analysis of the study, Conclusion and
recommendation is given for future implementation of VAT system of the organization.

I
 ACKNOWLEDGMENT

Above all I would like to thank the almighty ALLAH for helping in my duties. It would
have been impossible to overcome the challenges. my special thank goes to Ato
Hailemicael Tetemke who has provide his wise and intellectual advise, guidance and
directives to make the research effective. I would also like to tank VAT supervisor of
Ayder sub city and other department heads who province me necessary material and my
family who provide financially and moral support while doing this research.

II
 Table of content
Title page
Abstract................................................................................................................................I
Acknowledgment................................................................................................................II
Table content. III
List of tableIV
CHAPTER ONE
Introduction1
1.1 Back ground of the study ..1
1.2 Statement of the problem...........3
1.3 Objective of the study ...........................................................................................3
1.3.1 General objective ........................................................3
1.3.2 Specific objective .......................3
1.4 Significance of the study............3
1.5 Scope and Limitation of the study ........4
1.5.1 Scope of the study4
1.5.2 Limitation of the study 4
CHAPTER TWO
2 Literature review...............................5
2.1. Tax....5
2.1.1 Direct Taxes5
2.1.2 Indirect Taxes..5
2.2. Value Added Tax..6
2.3 Types of VAT ...6
2.4 Value Added Tax terminology..7
2.5 Registration....8
2.5 .1 Benefits of voluntary registered...9
2.5.2 Register from procedure....9
2.5.3 Time of application .10
III
2.5.4 Time of Registration ........10
2.5.5 Cancellation of registration.......11
2.6. VAT Invoice.. 11
2.7VAT refund ................................ 12
2.8VAT Regime in Ethiopia..13
2.9 Assessment of Tax...14

CHAPTER THREE
3. Research deign and methodology .15
3.1 Research Design...15
3.2 Source of Data......15
3.3 Method of Data collection...15
3.4 Sampling Method.15
3.5 Sample size..15
3.6 Method of data Analysis and interpretation.....16
CHAPTER FOUR
4 Analyses and Interpretation of Data...17
4.1 Personal attributes of respondents...18
4.2 The type business and there registration .19
4.3 The service given by the Revenue Agency .22
4.4 The revenue agency facilities and Availability of branches to collect VAT...23
4.5 Accounting recording problem24
4.6 Number of VAT Payers ..24
4.7 Actual amount of VAT collected for year 2001-2003.25
CHAPTER FIVE
5. Summary, Conclusion and Recommendation....26
5.1 Summary and conclusion.26
5.2 Recommendation 27
Reference
Appendix
IV
 List of Tables

Table Page
1. Questionnaires Collection..........19
2. Age and sex Characteristics of Respondents.....20
3. Education Qualification.20
4. Business Type21
5. The type of Business and the Registration time.21
6. Impact of register for VAT on Loyal customers22
7. Reason for impact of Register for VAT on loyal customers.23
8. Registration for VAT is Advantageous..23
9. Reason for registration for VAT is disadvantageous.....24
10. The Services give by the tax Authority..24
11. The reason that the service given by Tax Authority becomes bad25
12. Availability of Branch to collect25
13. VAT create Accounting Recording problem.26
14. Number of VAT payers in Ayder sub city.26
15. Actual amount VAT collected for year 2006-2008...27

V
 CHAPTER ONE
Introduction
1.1 Background of the study

Emergence and rapid spread of VAT is one among the most important tax developments
of the latter twentieth century. VAT was invented in 1954 by a French economist
Maurice Laurie who was Joint director of the French Tax Authority. French was the first
country to introduce VAT effective from April 10, 1954. By 1969. Only eight nations had
adopted VAT, out of this Cote Devoir was the first country in Africa to introduce VAT in
19 60. since 1979, VAT has been adopted as the main form of an indirect tax by many
countries in different parts of the world According to international monetary fund (IMF)
report (2004) more than 4 billion , 70% of the worlds population now live in counties
with VAT and VAT raises about $18 trillion in tax revenue, roughly one of quarter of all
government revenue, Nowadays, among 190 countries of the world, over 136 (72%) of
them have made VAT part of their tax system and from 53 members f countries of
African union, 33 (60%) of them have introduced VAT. (mistrak Tesfaye. 2008,p.310).

The VAT Regime in Ethiopia

The Federal Democratic republic of Ethiopia (FDRE) has adopted. VAT in to its
tax system in 2003. It has been introduced on January 1, 2003, replacing the
former sales tax system. The VAT proclamation NO 285/2002/ (VAT law) has
been ratified by the house of peoples Representatives six months before VAT
implementation (July, 2002).
This VAT proclamation has thirteen sections (130 and sixty-six (66) articles In
December, 2002 the VAT regulation No 79/2002 has also been issued by council
of ministers pursuant to the Value add tax proclamation for the implementation
and regulation of VAT. The VAT regulation has three chapters (3) and forty (40)
articles.
1
VAT is introduced in Ethiopia by proclamation NO 285/2002, replacing sales tax
with the following objectives:
a. To collect tax on the added value whenever a sales transaction is conducted
since the former sales tax system already replaced did not allow collection of
the tax on the added value created whenever sales transaction is conducted
b. To minimize the Damage that may be caused by attempts to avoid and evade
the tax and to ascertain the profit obtained by the tax taxpayers
c. To enhance saving and investment as it is a consumption tax and does not tax
capital and.
d. To enhance economic growth and improver the ration relationship between
gross Domestic product and gross revenue According to the newly
implemenented VAT law supply of goods and rendition of services in
Ethiopia are subject to VAT at a standard VAT of 15% is applied only to
imports and domestically manufactured goods. (misrak Tesfaye, 2008, p 320)

Unlike the sales tax, VAT provides the relief of the tax on all business in puts
(taxable supply) including capital goods operating and administrative
expenditures. The relied of the tax and zero rating also encourages investment and
exports. The VAT system that Ethiopia has implemented also gives exemption to
basics and necessities such education medical service electricity water kerosene,
basic foods, transportation service fertilizers books and printed materials the
supply of goods or services in the form of humanitarian aid etc. (Misrak Tesfaye,
2008, p.320).

2
 1.2 Statement of the problem
Value added Tax (VAT) is abroad based tax imposed on consumption of goods and
services. It is collected at all stage in the production and distribution process. In ayder sub
city finance and economy development office has responsibility to assess and collect
revenue in order to achieve the goal of developing the city economy. The office assesses
and collects value added tax by structuring in revenue agency.
Therefore, the paper was make an attempt to answer the following questions
1. Are there efficient VAT assessment and collection in ayder sub city?
2. Dose the VAT payers use has proper accounting records?
3. Do the VAT payers have good knowledge and awareness about VAT?
4. What are major problems of VAT Collection?
1.3 Objectives of the study
1.3.1 General Objective
The general objective of this study is VAT assessment and collection problem in
ayder sub city revenue agency.
1.3.2 Specific objective
Beside the above general objectives the study will incorporate the following specific
objectives:-
To assess ayder sub city administration to implement and collect VAT effectively
To assess the VAT payers knowledge and awareness about VAT
To evaluate the impact of VAT on accounting and recording of the tax payers.
To assess the attitude of tax payer towards the VAT policy.
1.4 Significance of the study
The significance of the study is:-
Improve tax administration
Enhance the research skill of the student researcher
Encourage compliance of tax payers.
A fairly clear picture will emerge of how the VAT collection and assessment are
taking place
3
 It could be used as major reference /secondary source / for those who want to
perform further study on the same subject matter.

1.5 Scope and Limitation of the study

1.5.1 Scope of the study
The scope of the study would be limited to emphasize in Ayder sub city finance
and economic development office

1.5.2 Limitation of The study

Major limitation of this study is lack of sufficient of financial and the time to
allow for data collection is not sufficient. During the data collection some tax
payers were not willing to fill the questionnaire due to different reason such as
less awareness of the tax payers about the research benefit for the organization
and the over loaded task that make them busy.

4
 CHAPTER TWO
Literature review
2.1 Tax
Tax is contributed without expectation of direct and equivalent return for the contribution
made .This means. there is no direct relationship between the compulsory contribution to
a government and the amount of the service received from the government for the
compulsory contribution made Rather, the benefits of government expenditures may go
to any one irrespective of the taxes paid taxes are broadly classified in to two These are
direct and indirect taxes (Misrak Tesfaye, 2008, p, 2)
2.1.1 Direct Taxes
Direct taxes are those taxes whose impact (immediate burden) and incidence (ultimate
burden) fall on the same person. such taxes are entirely paid to the government by those
persons on whom the taxes are imposed .they cannot be shifted (passed on) to other some
economists also define direct taxes as taxes whose burden are borne by the persons on
whom they are levied. professor shivras also define direct taxes as taxes based on income
or wealth (property) of persons some examples of direct taxes are employment income
tax, business income tax, rental income tax, interest income tax, royalty tax ,capital gain
tax ,property tax ,agriculture tax gift tax etc (misrak Tesfeye 2008, p. 29)
2.1.2 Indirect Taxes
Indirect Taxes are those taxes whose impact (immediate burden) and incidence (ultimate
burden) fall on different persons. That is the impact of the tax falls on the person who
pays it to the government in the first instance but the incidence of the tax falls on the
person who finally bears the burden of tax. for instance the import duty on vehicles is
paid in the first instance by the importer of cars but ultimately the importer transfers the
burden of this duty (tax) to the purchaser of the vehicle in the form of price The importer
includes the import duty paid by him in the price of car which is charged from the
customer In direct taxes can be shifted on to others so that the burden of indirect tax is on
ultimate customer .indirect tax can also be defined as taxes bases on consumption or

5
Expenditure of persons Some examples of indirect taxes are value Added Tax (VAT)
Turnover tax (TOT) excise Tax and custom duty. (Misrak Tsfaye 2008, p31).

2.2 Value Added tax (VAT)

VAT is tax on the value added to goods and service by enterprises at each stage of
the production and distribution processes. It arises whenever a taxable person makes a
supply of goods or services in the course of his business. Thus in some countries it
culled goods and services tax or GST VAT was invented by a French economist in 1994
by Maurice laurel, director of French tax authority VAT was invented because very high
sales taxes and tariffs encourage cheating and smuggling
Unlike the turn over tax which is applied to the full value of a product every time the
item changes hands in the process of production and distribution the VAT is assessed
attach stage on only the increment in value acquired by the product since the last taxable
transaction. At the end of the chain the total amount of tax paid on a given commodity is
determined only by tax rate and final price of the commodity regardless of the number
stages through which it has passed what has been collected in fractional payments is
equivalent to a single stage tax on the value of the final product (Gebrie worku 2008
P.186)
The VAT belongings to the family of sales tax. AVAT may be defined as a tax to be
paid by the manufactures or traders of goods and services on the basis of value added by
them it is not tax a total value of the commodity being sold but on the value added to pay
the tax only on the net value added by them in the process of production or distribution
(Rama swami 2005. p 105)
2.3 Types of VAT
In modern taxation world there are four types of VAT, namely, consumption, production,
income and wage VAT.
1 consumption VAT
In this type of VAT of the firm, is allowed to deduct from the gross Value of its product n
the non capital in puts purchased from other firms but also the capital equipment
purchased Thus, in consumption type VAT, tax based in the difference between gross
value and total value of inputs purchased (capital and non capital)
6
 2 Productions VAT
In production type VAT, the value of the inputs purchased by the firm from other firms is
not deducted in full only the value of non capital purchase is deducted furthermore, no
deprecation is permitted on the purchased of capital goods even in subsequent years,
Thus the tax base in production type VAT is equal to gross value less value of non capital
goods purchased.
3 Income VAT
According to income type VAT, the firm is allowed deduct the depreciation on the capital
goods (during the year) apart from the full value of its non capital purchases .Here, firms
cam not deduct the entire value of the capital goods purchased during the year but they
can deduct the respective amount of deprecation attributable to that year.
4 Wages VAT
In wage VAT the firm is able to deduct the net earnings from its capital in order to arrive
at the tax base .it is unlikely to be used for taxation by any government. (mistrak Tesfaye.
2008. p.309-310).
2.4 Value Added tax terminology
Some of the terms that are in VAT literate are:
A. In put VAT :- the VAT that your business pay over on taxable supplies made (VAT
paid on purchase ) and can be recovered only in so far as your business is VAT
registered and makes taxable out puts
B. Output VAT:- the VAT that you business collects over on taxable supplies (VAT
paid on sales )
C. VAT payable:- this is the net VAT to be paid to the FIRA by taxable person it is
arrived at by the formula: VAT payable= output in put tax
D. VAT Re fundable:- the net VAT that taxable person expected from FIRA when input
VAT exceeds output VAT in Ethiopia cases FIRA deed note fund up on declaration
date rather taxable person shall carry forward the balance for months until it offset
by output VAT. It taxable person doesnt sell taxable supplies within these months
he/she is entitled for refund.

7
 E. Zero Rating: - the supply is charged with VAT at 0% but credit can be taken for
VAT paid on purchase used to make the supply.
F. Positive rate (Standard rate ) the supply is charged with at the react of 15%
G. Exemption: the supply is exempted from VAT No VAT is charged on the supply and
noncredit can be taken for VAT paid on purchases used to make the supply.
H. Exempt supplies : supplies which are not liable to VAT Exempt supplies are not
taxable supplied and do not form part of taxable turnover to VAT purposes A person
making only exempt supplies cannot be registered for VAT.
I. Threshold : this is the level of turnover of taxable supplies prescribed by the law at
or above which a person must register for VAT
J. Taxable person: is legal entity such as company partnership sole proprietor who is
liable to be registered for VAT.ITIS the person not the business that is register for
VAT.
K. Taxable supplies: these are business transactions which are liable to VAT at the zero
or standard rate (Gebrie worku 2008,189-190)
2.5 Registration
In Ethiopia registration for VAT is categorized in two
A. Obligatory registration
Any person conducting a commercial enterprise or intending to conduct a commercial
enterprise may apply to be registered for VAT. However if the taxable turnover of the
enterprise which is gross income for 12 calendar month exceeds birr 500,000 the person
conduction the enterprise must register for VAT with FIRA.
The term any person for proposes of VAT registration includes.
- sole proprietorship
- company
- partner ship
- estate of the decease
- trust
- in corporate body or un in corporate body
- club or association
8
A commercial enterprise refers to any business of whatever natural and include.
- Ordinary business example shop, contractors manufacture, wholesaler etc
- Trades and professions example builders engineers accountant, lawyers etc - Activities
of non-profit making bodies example societies association sporting club etc
The turn is calculated on all ongoing bases two periods need to be considered the past 12
calendar months and the next 12 calendar mother by month basis. There is the need to
estimate at the end of each trading calendar month the total values of taxable goods and
services supplies by all business for the past 12 months where the total exceeds birr
500,000 the then there is the requirement to register for VAT (Gebrie worku, 2008 P 201-
202)
B. Voluntary Registration
A person who carried on taxable activity and is not required to be register for VAT max
voluntary apply to the authority for such registration if he/she regularly is supplying or
rendering least 75% of his goods and services to registered persons (Gebrie worku 2008 P
202- 203)
2.5.1 Benefits of voluntary registered
In put VAT can be recovered if a person registered it will therefore be beneficial to
voluntarily resister where the person makes many zero rated supplies in such a case in put
VAT will be recovered on VAT will be charged on zero rated out puts (Gebrie worku
2008 P 203)

2.5.2 Register from procedure

Application for compulsory as well as voluntary registration must be made on
application from caused application for VAT registration on application for calve and
the alltroity is required to register the person in the VAT register and issue a certificate of
registration within 3 0 days of the registration containing details of
- The full name and other relevant details of the registered person.
- The date of issuance of the certificate.
- The data from which the registration takes effect and

9
- The registered persons tax payer identification number if registration is disallowed
FIRA will have to notify the application and the reasons for the refusal the tax
authority many deny the application for voluntary registration if the person.
- Has no fixed place of residence or business
- Does not keep proper accenting records and has no bank account
- Has previously been registered for VAT purposes but failed to perform his duties
under the VAT law (Gebrie worku 2008 P 203)

2.5.3 Time of application

A person who carries on taxable activity and is not registered is requires to file in
application for VAT registration on later than the last day of the month after the end of
the period if (Gebrie worku 2008 P 204)
1. At the end of any period of 12 calendar months the person made during those period
taxable transactions with a total value exceeding 500.000 birr or the last day of the
month of the period if.
2. At the beginning of any period of 12 calendar months when there is reasonable
around to expect that the total value of taxable transaction to be made by the person
during that period will exceed 500,000 birr
2.5.4 Time of registration
Registration takes place on one of the following depending on which date come first
- In case of obligatory registration on the first day of the accounting period following
the month in which the obligation to apply for registration arose.
- In the case of voluntary registration on the first day of the accounting period
following the month which the person applied for registration or
- On the date selected by the registered person on his application for a registration
person who conducts taxable activity in a branch or division shall be registered only
in the name of the registered person to register one or more of its branches or
divisions as separate registered person.
- The tax authority allow when its satisfied on such case that divisions or drenches
maintains and independent accounting system and can be identified by the nature of
its activities or location (Gebrie worku 2008, P 204)
10
2.5.5 Cancellation of registration
VAT resisted person can apply for can cancellation of registration
- If tax payer ceased to make taxable transactions
- At any time after a period of 3 years of the date of his most recent registration for
VAT if the registration persons total taxable transactions in the period of 12 month
then beginning reasonable are expected to be not more than 500,000 birr the
cancellation VAT registration takes effect
- At the time the registration person ceased to male taxable translation for example if
one close down or his business. However if one has more than one business and is not
closing down or saving them all he may not be able to mantel it will depend on the
level of taxable turn of remaining businesses.
- If the registered person has not ceased to do so at the end of the accounting period
during which the person applies to the authority for can collation of VAT registration
when registered for VAT is canceled the authority is required to remove the persons
name and all other detail from the VAT
register and the person is required to return back the rescued certificate of vegetation
VAT registered person cannot charge VAT or issue tax invoices for any supplies made
and cannot claim are fund of VAT in curried on any goods or services purchased from the
date office registration is canceled.(Gebrie worku 2008 P 209)
2.6 VAT invoice
The registered person is required to issue VAT invoice to the purchase of goods or
services up on the supply or rendering, but not later than 5day after the transaction
however the ministry of revenue may wave a registered persons obligation to issue
receipt or tax invoice for cash sales if the total consideration for the entire supply does
not exceed birr 10.
A person who is not registered for VAT Dees not have the right to issue a tax invoice
VAT invoice is prepared by ministry of revenue and shall contain the following
information:-

11
a) Full name of the registered person and purchaser and the registered persons trade
name if different from the legal name
b) Tax payer identification number of the registered person and the purchaser
c) Number and date of the VAT registration certificate
d) Name of the goods shipped or services rendered
e) Amount of the excise on excisable goods
f) Amount of the taxable transaction.
g) Sum of the VAT due on the given taxable transaction
h) The issue date if the VAT invoice and
i) Serial number of the VAT invoice (Gebrie worku 2008 P 206)
A registered person shall keep the following document for minimum of 10 years
- Original tax invoice received by the person
- A copy of all tax invoice issued by the person
- Customs documentation relating to imports and exports by the person
- Accounting records and
- Any other records that may be issued in directions by MoR (Gebrie worku 2008. P
2007)

2.7 VAT refund

1. Article 27, sub- Article (5) (b) of the proclamation provides the Authority is not
obliged to refund excess credits if the amount to be re funded is not more than 50 birr or
less this amount can be carried forward and credited against tax due in the subsequent
accounting period
2. Where a registered person applying for a tax refund has failed to furnish a required
return the authority may with hold payment of any amount refundable under article 27 of
the proclamation until the registered person furnishes such return
3. If the authority does not pay the refund in timely manner as provided under article 27
sub-article (6) the authority shall pay interest calculated from the date on which the
payment of the refund in made (Federal Negarit Gazeta 2002 P 1988)

12
 2.8 The VAT Regime in Ethiopia
The Federal Democratic republic of Ethiopia (FDRE) has adopted. VAT in to its
tax system in 2003. It has been introduced on January 1, 2003, replacing the
former sales tax system. The VAT proclamation NO 285/2002/ (VAT law) has
been ratified by the house of peoples Representatives six months before VAT
implementation (July, 2002).
This VAT proclamation has thirteen sections (130 and sixty-six (66) articles In
December, 2002 the VAT regulation No 79/2002 has also been issued by council
of ministers pursuant to the Value add tax proclamation for the implementation
and regulation of VAT. The VAT regulation has three chapters (3) and forty (40)
articles.
VAT is introduced in Ethiopia by proclamation NO 285/2002, replacing sales tax
with the following objectives:
a. To collect tax on the added value whenever a sales transaction is conducted
since the former sales tax system already replaced did not allow collection of
the tax on the added value created whenever sales transaction is conducted
b. To minimize the Damage that may be caused by attempts to avoid and evade
the tax and to ascertain the profit obtained by the tax taxpayers
c. To enhance saving and investment as it is a consumption tax and does not tax
capital and.
d. To enhance economic growth and improver the ration relationship between
gross Domestic product and gross revenue According to the newly
implemenented` VAT law supply of goods and rendition of services in
Ethiopia are subject to VAT at a standard VAT of 15% is applied only to
imports and domestically manufactured goods. (misrak Tesfaye, 2008, p 320)
Unlike the sales tax, VAT provides the relief of the tax on all business in puts
(taxable supply) including capital goods operating and administrative
Expenditures. The relied of the tax and zero rating also encourages investment
and exports.

13
 The VAT system that Ethiopia has implemented also gives exemption to basics
and necessities such as education medical service electricity water kerosene, basic
foods, transportation service fertilizers books and printed materials the supply of
goods or services in the form of humanitarian aid etc. (Misrak Tesfaye, 2008,
p.320).
2.9 Assessment of tax
The authority may issue an additional assessment in a variety of circumstances in
including the case where
a. A person fails to furnish return as required by article 26 of the proclamation fails of
furnish an import decal ration as required by article 5 of the regulations
b. The authority is not sat is field with are turn or which a tern of import declaration
furnished by a person
c. The authority has reason to believe that a person has became liable for the payment
of an amount for the payment tantamount of tax but has not paid such amount
d. A person, other than a registered person supplies goods or services and represents
that tax is charged on the supply
e. A registered person supplied goods or services and the supply is not a taxable
transaction or is a taxable transaction charged which tax at the rate of zero per cent
and, in either neither case the registered person represents that a positive rate of tax
is charged on the transaction or
f. The authority has determined the liability of any person in terms of article 60 sub-
article (2) of the proclamation (Federal Negarit Gazeta 2002 P 1989)

14
 CHAPTER THREE
METHODOLOGY
Research design and Methodology
3.1 The research design
The study is conducted at Ayder sub city administration which is found in Mekelle
town.

3.2 Source of data

The study would be conducted by using both primary and secondary source of data.
Primary data was collected through questionnaire and secondary data was collected from
report, records, of the office.

3.3 Methods of data collection

To collect data both primary and secondary data would be used. The student research
would be use questionnaire, data collection method to primary data and secondary data
would be gathering from document in tax administration.

3.4 Sampling method

The researcher would be used simple random sampling because of the each and every
item of population is given and have equal chance being chose and also free from
personal bias because researchers does not exercise his dictionary preference choosing of
population subject to questionnaire.

3.5 Sample size

The total population of the tax payers is 1884 peoples the sample size is determined by
the following formula which is come from statics subjects as the following using 90%
level of confidence. (kotari, 2004)

15
 n= Z2pqN

e (N-1)+Z2pq
Where
n = sample size
Z = from table of using confidence level
P = probability to be selected
q = probability not be selected
N = total population
e= error of level confidence
There for the sample size of the researchers is

n= (1.64)2 (0.5X0.5) 1884 1267 = 65

(0.1)2 (1884-1) + 1.642 (0.5x0,.5) 19.5

3.6 Method of data analysis and interpretation

The collected data would be analyzed by using both descriptive and inferential method
of analysis. Thus, tools like frequency tables, ratios and percentages.

16
 CHAPTER FOUR
Analysis and Interpretation of Data

The fundamental Objectives of the study is VAT assessment and Collection problem in
ayder sub city
To meet this target two weeks field work has been conducted in the ayder sub city.
To attain this objective both primary and secondary data were collected so as to present
the analysis in more coherent and sequential way the results are to be present orderly
under the following heading.

Table 1 Questionnaires collection.

Item No questionnaires Percentage%
Returned questionnaires 57 88%
Unreturned questionnaires 8 12%
Total 65 100%

Primary source
In the survey from the total questionnaires distrusted (57) 88% where returned the rest
(8) 12% are not returned due to different reason such as
Less awareness of the Employee about the research benefit for the organization.
The over loaded task that make them busy.

17
4.1 Personal attributes of respondents
Table 2 Age and sex Characteristics of Respondents.

Age group and sex No of respondents Percentage %

18- 30 7 13%
31- 45 19 33%
46- 60 28 49%
Above 61 3 5%
Male 36 63%
Female 21 37%

Primary Source
As indicated in the above table, (7) 13% of the respondent in the range of 18-30 ,(19)
33% of them are in the rage of 31-45, (3)5 % of them above 61 years, The above table
indicated that most of the respondents (28) 49% of them are in the rage of 46-60 year old.
The majority of the respondents whose age is between 46-60.In additions most of the tax
payer (36) 63% are male. As compared to female tax payers are (21) 37%.

Table 3 Educational qualification

Educational level No of respondents Percentage%

Ma/MSC 1 2%
Degree 3 5%
Diploma 12 21%
Other 41 72%
Total 57 100%

18
 Primary source
As indicated in the above table, (12) 21% of the respondents have qualification in
diploma, (3) 5% have first degree, (1) 2% have above first degree and the remaining, (41)
72% of have less than college diploma. The Education qualification most of respondents
are below diploma.
4.2 Type of Business and there registries
Table 4 Business type
.
Business type No of respondents Percentage%
Manufacturing 9 16%
Trade 31 54%
Service 17 30%
Total 57 100%

Primary source
As the table show business type contribute (31) 54% from trade sector, (17) 30% is from
service sector and only (9) 16% of manufacturing companies. Generally seen trade sector
covers (31) 54% of the total targeted population that is 57 .This due to the fact that VAT
is more applicable to it.
Tables 5 the types of business and there registration time.

Business type During implement 3 month after 6 month after currently

on implementation implementation
NO Percentage No Percentage No Percentage NO percentage
Manufacturing 4 45% 2 22% 2 22% 1 11%
Trade 5 16% 7 23% 8 26% 11 35%
Service 2 12% 3 18% 5 29% 7 41%

Primary source

19
 As the table shows (4) 45% of manufacturing Companies, (5) 16% of trade sector, and
only (2) 12% of service sector registered during first month of implementation VAT, (2)
22% of manufacturing companies, (7)23%of trade sector and only (3)18%of service
sector registered 3 month after implementation. (2) 22% of manufacturing, (8) 26% of
trade sector and (5) 29% of service sector registered 6 month after implementation.
(1)11% of manufacturing companies, (11) 35% of trade sector and (7) 41% of service
Sector registered currently.

The above result shows that (11) 35% of trade sector and (7) 41% of service sector
registered currently, whereas (4) 45% of manufacturing companies registered during
implementation. These facts shows trade sector and services sector not registered on time
because of
Lack of awareness about tax system.
Lack of hard and fast rule to force them.
Table 6 Impact of register for VAT on loyal customers

Item No respondents percentage%

Very high 0 0%
High 18 32%
Fair 27 47%
Low 12 21%
Very low 0 0%
Total 57 100%

Primary Source
From the above table (18) 32% respondents said the impact of register for VAT on loyal
customers high, (27) 47% of respondents fair and only (12) 21% of respondents said low.
As the result of the above table indicated most of the respondents said that impact of
register for VAT loyal customer is fair.

20
 Table 7 Reason for impact of register for VAT on loyal customers

Item No of respondents Percentage%

Increase the No of customers 6 33%
Decrease the No of customers 12 67%
Total 18 100%

Primary source
From the above table shows (12) 67% of respondents replied that after in implementation
of VAT our number of customer decrease and only (6) 33% of respondents replied that
the number of customer increase. The majority of respondents reason shows that the
VAT is the reason for the reduction of customer since the price of the commodity or the
service is relatively higher than that of commodity and services without VAT.
Table 8 Registration for VAT is advantageous.

Item No of respondents Percentage %

Yes 24 42%
No 33 58%
Total 57 100%

Primary source.
Above table (24) 42% of VAT payers respondents said that registration for VAT is
advantageous, (33) 58% of respondents claimed the opposite. Most of the respondents
said that registration for VAT is disadvantageous.

21
Table 9 Reason for registration for VAT is disadvantageous
Item. No of respondents Percentage %
Shift the customer to 27 66%
unregistered business
sector.
Minimize the amount 14 34%
of sale
Total 41 100%

Primary source
According to the above Table, (27) 66% respondents says that shift the customer to
unregistered business sector and the rest (14) 34% of respondent says minimize the
amount of sales.
As it is indicated in the above table, the shift the customer to unregistered business
sector is the reason of the draw back the VAT.

4.3 The service given by the revenue Agency

Table 10 the services given by the tax authority

Item No of respondent Percentage%

Very good 0 0%
good 12 21%
Fair 16 28%
Bad 29 51%
Worst 0 0%
Total 57 100%

Primary source

22
Table reviled that (29) 51% of total respondents were the services given by the tax
authority is bad, (16) 28% of total respondent said fair and only (12) 21% of respondents
said well. From the above result is clear that sub city will not have enough facilities.

Table 11 the reason that the service given by tax authority becomes bad
Item No of respondent Percentage%
Bureaucracy and long 21 57%
process
Lack of waiting area 16 43%
for tax payers
Total 37 100%

Primary source
According to the above table, (21) 57% of respondents said that the bureaucracy and long
process are the reason that the service given by tax authority is bad and only (16) 43% of
respondents said that the lack of waiting area for tax payers are the reason that the service
given by tax authority is bad.
This shows that Bureaucracy and long process is reason of the service given by tax
authority is unsatisfactory.
4.4 The Revenue agency facilities and availability of branches to collect VAT
Table 12 availability of enough branches to collect

Item No respondent Percentage%

Yes 16 28%
NO 41 72%
Total 57 100%

Primary source

23
 The above table shows (41) 72% of respondent repined that branch of akaki kality sub
city will be not enough to collect VAT and only (16) 28% of them replay is enough.
From the above table result it is clear that sub city has not enough office to collect the
VAT is different area.
4.5 Accounting Recording problem.
Table 13 VAT Create Accounting Recording problem.

Business type Yes No

No respondents Percentage % No respondents Percentage%
Manufacturing 6 67% 3 33%
Trade 22 71% 9 29%
service 13 76% 4 24%

Primary source
The above table shows that (6) 67% of manufacturing companies respondents, (22) 71%
trade sector and (13)76% of service sector respondents replied that VAT create
Accounting recording problem.
Only (3) 33% of manufacturing companies, (9) 29% of trade sector and (4) 24% of
service sector respondents replied that it does not create any recording problem. The
above result shows that the tax system creates accounting recording problem on the VAT
payers.
4.6Number of VAT payers
Table 14 Number of VAT payers in Ayder
Year in (e.c) Number of VAT registrants
2006 843
2007 1212
2008 1884
Source Ayder sub city revenue agency.

24
As understand from the above Table the number of VAT registrants increase from 2006
to 2008. In 2007 as the number of VAT registrar 1212 and by the year of 2008 the
number of VAT registrants becomes 1884. The reason behind for such increment is that
the sub city of revenue department gives educational and informational awareness for the
Tax payers and the society.
4.7 Actual amount VAT collected for year 2006-2008
Table 15 Actual amount VAT collected for year 2006, 2007, and 2008.
Yes VAT collection
2006 16,744,373
2007 34,931,483
2008 50,269,750
Total 101,945,606

Source: - Ayder sub city revenue agency

According to the above table is the larger amount VAT was collected in the year 2008
this because many business people registered to pay VAT. The lowest amount was
obtained in the year 2006 this happened because during this time private sector was a few
in number and a few business people registered to pay VAT.

25
 CHAPTER FIVE
Summary, Conclusion and Recommendation
5.1 Summary and Conclusion
VAT is implemented and collected in many developed as well as developing countries. In
the current trend Ethiopia has also implementing this tax primarily to raise more revenue,
modernize its tax administration and to encourage investment and trade. However, after
its implementation, VAT has faced different problems. Thus this paper tried to assess
VAT collection problem in mekelle especially emphasizing in Ayder sub city Revenue
agency and to identify problems encountered during the collection process. It also
identifies some initiative factors as well as the alternative solution problem encountered
by the sub city revenue agency.
The general Objective of this study is VAT assessment and Collection problem in Ayder
sub city revenue agency Based on the analysis and interpretation the researcher based on
this general Objective the following points are concluded.
In general, if the government successfully implements the new tax system and if it is
free well come complains of VAT payers that can overcome the entire problem raised
in the implementation on process.
Revenue Agency tries to create a few awareness among tax payers, but it is not
considers the society.
The system is creating accounting recording problem. This due to lack of knowledge
about how to record and maintain book of account.
The service given by Revenue Agency is unsatisfactory due to lack of parking and
waiting area for tax payers and long bureaucracy.
Revenue agency does not control unregistered business. Motivate them to do
fraudulent activities .This will result in decreasing governments tax revenue.
The collecting braches of Authority are not enough. From this, can conclude that tax
payers need to be opened additional branch.

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 5.2 Recommendation
In order to implements the VAT system successfully and to overcome collection
problem in Ayder sub city revenue Agency is recommended the following point.
To create and improve the awareness of the public it should educate the
society using TV and Radio programs in weekly basis
In addition it has to use some other methods to aware the public such as
giving education on public meeting conducted for some other purpose
distributing broachers.
To solve problems of account recording, revenue agency should train
employee of VAT payers worker how to maintain VAT record.
Revenue agency has to prepare waiting area and parking lot for tax payers.
In order to satisfy the tax payer and its employees FIRA should open a
number of branches that facilitate the payment and revenue collection.
Each registered business should display the certificate of VAT in clear and
visible place. If this is done it is easy to identify the businesses that are
registered or not.

27
 Appendix

Actual amount VAT Collected for selected for goods and services for ye

Types of Good Types of Serv

Year Jewelers Food Leather and Textile and Total Photograph G
leather cloth and Photo
product copy
2001 971173 1505320 1019732 1359643 4855868 3685437 3
2002 2026026 3140341 2127327 2836436 10130130 7688420 6
2003 2868387 4446000 3011806 4015743 14341936 11137624 1

Source Akaki Kality Sub city Revenue Agency

II