SHEBA UNIVERSITY COLLEGE

Faculty OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING

ASSESSMENT OF TAX COLLECTION PROBLEMS

(ACASE STUDY ON HDNET Sub CITY REVENUE AUTHORITY
OFFICE)

A RESEARCH PAPER SUBMITTED IN PARTIAL FUILFILLMENT OF

THE REQUIREMENT FOR BACHELOR OF DEGREE IN ACCOUNTING

PREPARED BY: SELAM BEYENE

ADVISOR: G/SLASEGerlibanos (MA)

Feb , 2019Mekelle, ETHIOPIA

 ACKNOWLEDGEMENT
First and for most, I would like to say thanks to God and to our parents whose firm love and
support made me what I am today. Secondly, i would like to thank the School of accounting
department for giving this opportunity to me, since which is more important to my future life. I
would also thanks to mygreat advisor Mr. G/SLASEGerlibanos (MA)for his encouragement and
guidance. I would also thanks to my friends for give me available help or giving me important
information on our thesis title.

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 ABSTRACT

This study focused on problems related with tax collection in HADNET sub city 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 success fully through detailed investigation,
because of this, this study designed and looked at the problems related with tax collection in
Hadnet sub city . With the key objective of assessing problems related with tax collection. This
may help the town’s revenue and tax office to look at originated problems.
The researchers use primary and secondary data collection technique in order to reach the aim of
the study and finally, to reach on some conclusion and recommendation by haring the result.

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 TABLE OF CONTENTS
ACKNOWLEDGEMENT ............................................................................................................. I
ABSTRACT ................................................................................................................................... II
TABLE OF CONTENTS ........................................................................................................... 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
1.3.2. Specific objectives .................................................................................................... 3
1.4 Significance of the study....................................................................................................... 3
1.5 Scope of the study ................................................................................................................. 3
1.6RESEARCH DESIGN AND METHODOLOGY ................................................................. 4
1.6.2 Research design ................................................................................................................. 4
1.6.3. Data source and types ....................................................................................................... 4
1.6.4. Sample and sampling techniques ...................................................................................... 4
1.6.5. Data analysis method and presentation ............................................................................. 5
1.7 Limitation of the study ...................................................................................................... 5
1.8 Organization of the paper...................................................................................................... 5
CHAPTER TWO .......................................................................................................................... 6
LITERATURE REVIEW ........................................................................................................... 6
2.1 Introduction ........................................................................................................................... 6
2.2 Role of taxation in development strategy ............................................................................. 7
2.3 Characters of good tax system .............................................................................................. 8
2.4 Taxation principles................................................................................................................ 9
2.5 Canons of taxation .............................................................................................................. 10
2.6 Major types of taxes in Ethiopia ......................................................................................... 11
2.7 Classification of taxes based on their effect on income ...................................................... 14
2.7.1 Progressive taxes .......................................................................................................... 14
2.7.2 Proportional taxes ........................................................................................................ 15
2.7.3. Regressive taxes .......................................................................................................... 15
2.8 Categories of tax payers ...................................................................................................... 15
2.9 Procedures of tax collection ................................................................................................ 16

III
CHAPTER THREE .................................................................................................................... 17
DATA ANALYSIS, INTERPRETATION AND PRESENTATION ..................................... 17
3.1 Analysis of data gathered from tax payers .......................................................................... 17
3.2 Analysis of data gathered from employees ......................................................................... 21
3.3 Analysis and presentation of secondary data ...................................................................... 25
CHAPTER FOUR ....................................................................................................................... 26
CONCLUSION AND RECOMMENDATION ........................................................................ 26
4.1. Conclusion ......................................................................................................................... 26
4.2 Recommendation ................................................................................................................ 26

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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 ZeraYacob indicates that taxation was introduced
previously in Ethiopia. In this era tax was paid by different social groups to government, feudal
lords and priests. Besides, these documents approve that Atse ZeraYacob had for the first time
enacted regulation can be taken as an evidence for the presence of taxation system before and on
ZeraYacob 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 is 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
2/5thof 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 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

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awareness of the society regarding the use of tax payment for government and its contribution
for the development of the country’s economy.
In our country payment of tax is considered by the society as a debt imposed by government to
increase the wealth of the government officials. To avoid the negative attitude of the taxpayer a
well-designed tax system is necessary. In addition educate the society regarding its obligation
and the purpose of tax collection minimizes the wrong attitude of the taxpayer. So, this study is
designed to minimize problems that face during assessment and collection and to minimize
wrong attitudes of tax payers.

1.2 Statement of the problem

Any government tray to provide publicities or services like defense, health, education water
splay electric splay and administrative facilities financed from different sours such as given by
government, tax loan and donation from all sources of compliance cost. So the governments have
tax that enables to collect its tax revenue that the government by collecting it can achieve its
goals and any other activities (Gebrie 2006).
The efficiency of tax system is not determined only by appropriate legal regulation but also it
depends on the efficiency and integrity of the tax administration. In many countries, especially in
developing countries small amount of collected public revenue can be explained by ether
incapability of the tax administration in realization of its duty or with the sum degree of
corruption. Regardless of how carefully tax law has been made, they could not eliminate confect
between the administration and tax payers (Misrak,2008). How ever in most developing
countries, tax is a common phenomenon that faces many problems to develop adequate tax
system that helps the government to finance its expenditure sufficiently particularly in Ethiopia
it is difficult to the potential challenges faced by tax payers and officers in different tax activities
such as tax collection (Gebrie,20008). Hadnet sub city revenue office have responsibility to
collect business profit tax collection in order to achieve the goal of the town and to satisfy the
people by providing the public service. However, currently there is problem exist in business
profit tax collection in Hadnet sub city . The main problem is that, the tax office doesn’t collect
sufficient amount of money (tax revenue).That means, there is a gap between the amount of
money expected to collect and actual amount of money collected is the major problem that exists
in Hadnet sub city revenue office.

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This study tries to find solution for the following question.
1, Does the tax authority in the study arises effective in crating better awareness to its tax payer?
2, to what extent the tax office in the study arises effective in following and controlling the tax
payers?
3, is there good governance problem in the study area tax office?
4, does the tax rate used by the government consider the ability to pay of the tax payer?

1.3 Objectives of the study

1.3.1 General objective

The overall objective is to identify of tax assessment and collection problem in case of Hadnet
sub city revenue authority

1.3.2. Specific objectives

The specific objective of the study any
 To assess the tax office effort in relation to the tax payers awareness creation.
 Toassess explore tax office effectiveness in following and controlling the tax payer.
 To identify problems in relation to good governance in the study area tax office.
 To identify the fairness of the tax rate lived by the government and the ability to pay of
the tax payers.
 To Identify the factors affecting collection of tax.

1.4 Significance of the study

The researcher believe that the followings are the significance of the study
 Paved the way for improvement of tax collection system.Encourage compliance of tax
payers To create fairly clear image how the tax collection and problems with tax
collection are taking place.Enable revenue bureau to find out whether its strategy are
effective or not. The result of this study was serve as a reference for further investigation.
It was help to create responsible citizen.

1.5 Scope of the study

Though tax is very vast and curial issue, standing its nature of study the tax policy at a higher
level is time consuming and need long term study so, this research paper restricted only in

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problems of tax collection in Hadnet sub city .

1.6RESEARCH DESIGN AND METHODOLOGY

1.6.1 Research methodology
This section was present the research methods employed to conduct this study such as research
design, types and data sources ,the sampling techniques, data gathering tools and data analysis.

1.6.2 Research design

The research design of this study is descripiuet design. In this study both quantitative and
qualitative methods are used. Because the research believes that it is helpful to the overall
strengthen of the study using these approaches to invest get the tax assessment of the revenue
office.

1.6.3. Data source and types

In this study the research was used both primary secondary data sources. The primary and
secondary data collect from revenue office and the primary data are collect using questioner. The
distribution and collection activities was prepaid by the researcher here self. Moreover, the
secondary data are gathered from official report, files records. In addition to this data was
obtained from the published and UN published documents related to the topic.

1.6.4. Sample and sampling techniques

In order to carry out this research effectively and to get enough information the research was
used multistage sampling technique .Tax payers wasrandomly taken from in to three strata
according to their categories: category "A" category "B" and "C" tax payer. Then, a proportional
random sampling method sampling method was employed to select the sample taxpayers from
each stratum. According to 2010 E.C surveyresult there are a total 4448 tax payers there are tax
payers 22 employee in the authority office.
The sample size was calculated by the following formula.
Category C tax payers, 8 employees was select aiming that they are key informants.

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

1.7Limitation of the study

In conducting f this research work the researcher has encountered some limitations.
These are:
 Uncaringness of respondents to give full information.
 Shortage of time.
 Shortage of finance.

1.8 Organization of the paper

The research paper was have four separate chapters. The first chapter contains the introduction
part which includes back ground of the study, statement of the problem, objective of the study,
significance of the study, scope and limitation of the studyresearch methodologies which
includes research design, sampling design and size, data collection instrument and data analysis
technique and tools. The second chapter is deals with literature review. The third chapter is data
presentation and analysis which is the core and main part of the research in which the data
collect was be present and analyze.
The fourth chapter is the summary, conclusion and recommendation

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 CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction
Taxation is a means by which governments finance their expenditure by imposing charges on

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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, which tend to
finance themselves largely through tax.Misrak, T (2009).
Meaning of Tax
Taxes are burdensome thus reduce the economic welfare of individuals and businesses (public)
organization. But activities that are financed from taxes was bring benefits to individuals or
organizations, the net burden of tax then, must take the nature of government expenditures in to
account.Misrak, T (2008)
Purpose of Taxation
According to American economist Richard Musgrave. A purpose of tax action is to distinguish
between objectives of resource allocation income redistribution and economic stability
(economic growth) or development and competitiveness listed as separate goals, but they can
generally be subsumed under the other three. The other main function of taxation is to permit the
state to provide services for the population. Infra-structure and services are what we expect from
taxation.Gebrie, W (2006)

2.2 Role of taxation in development strategy

The role of taxation in fiscal policy and the development strategy has to be viewed in the back
ground of the function which a taxation system performs, its main function in relation to
economic development are as follows. The primary function of tax system is to raise revenue for
the government for its public expenditure. So the first foal in the development strategy as regards
taxation policy is to ensure that this function is discharged adequately.
The second function of taxation is to reduce inequalities through a policy of redistribution of
income and wealth. Higher rate of income taxes, capital transfer taxes and wealth tax are some
means adopted for achieving these ends.

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The 3rd role of taxation is for the social purposes such as discouraging certain activities which are
considered undesirable. The excise taxes on liquor and tobacco. The special excises duties on
luxury goods. Betting and gamming levy are example of such taxes. Which apart from being
lucrative revenue sources have also goals?
The 4th is to ensure economic goals through the ability of the taxation system to influence the
allocation of resources. This includes.
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.Misrak, T (2008).

2.3 Characters of good tax system

1. Tax is compulsory contribution: it is a compulsory payment from the person to the
government without expectation of any direct returns from it.
2. Taxes are levied by the government:-no one has the right to imposes taxes except the
government. Only the government has the right to impose taxes and collect tax proceeds
from the people.
3. Common benefit to all: the tax collected by the government is spending for the common
benefits of all people.
4. No direct benefit: the government compulsorily collects all types of taxes and does not
give any direct benefits to the tax payers for the taxes paid and the tax payers cannot
demand any direct benefits against the payment of taxes.
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.

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 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: good tax system recognizes the basic
rights of tax payers. The tax payer is exacted to pay the tax but not undergo the
harassment. Misrak, T (2008).

2.4 Taxation principles

Taxation principles are basic concepts by witch government is meant to be guided in designing
and implementing all equitable taxation regimes these includes.
1. Adequacy: taxes should be just enough to generate revenue required for provision of
essential public services.
2. Broad basing: taxes should be spread over as wide as possible section of the population
or sector of economy to minimize the individual tax burden.
3. Compatibility: taxes should be coordinated to ensure tax neutrality and over all objectives
of good governance.
4. Convenience: taxes should be enforced in a manner that facilitates voluntary compliance
to the maximum extent possible.
5. Ear marking: tax revenue from specific source should be dedicated to a specific purpose
only when there is a direct cost and benefit like between the tax sources and expenditures
such as use of motor fuel tax for road maintenance.
6. Efficiency: tax collection efforts should not cost an inordinately high percentage of tax
revenues.
7. Neutrality: taxes should not favor only one group or sector over another and shouldn’t be
designed to interfere with or influence individual decision making.
8. Equity: taxes should equally burden all individuals or entities in similar economic
circumstances.
9. Predictability: collection of taxes should reinforce their inevitability and regularity.
10. Restricted exemptions: tax exemptions must only be forspecific purpose (such as to
encourage investment) and for limited period.

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 11. Simplicity: tax assessments determination should be easy to understand by an average tax
payers.Gebrie, w (2008)

2.5 Canons of taxation

Canons of taxation are the main basic principles (rules) set to build a “Good tax system”
canon of taxation were first originally laid down by economist Adam smith in his famous book “
the wealth of nations” in this book, Adam smith only gave four canons of taxation. These
original four canons are now known as the “original main canons of taxation”.
As the time changed, governance expanded and became much more complex than what it was at
the Adam smith’s time soon a need was felt by a modern economists to expand smith’s
principles of taxation and as a response they put forward some additional modern canons of
taxation.
Adam smith gave the following four important canon of taxation
1. Canon of equity: the principles aim at providing economic justice and social justice to the
society. According to this every person should pay depending on the ability to pay. The rich
should pay higher taxes to the government, because without the protection of the government a
authorities (police, defense etc.). They could not have earned and enjoyed their income. A. smith
argued that tax should be proportional to income.
2. Canon of certainty: according to Adam smith the tax w/c an individual has to pay should be
certain, not arbitrary. The tax payer should know in advance how much, at what time and in what
form the tax to be paid to the government. At the same time a good tax system also ensure that
the government is also certain about the amount that was be collected by way of tax.
3. Canon of convenience: the mode and timing of tax payment should be as far as possible,
convenient to the tax payers for example and revenue is convenient tax located at time of harvest
income tax is deducted at source. System was encourage people to pay tax and was increase tax
revenue.
4. Canon of economy: this canon implies that the administration cost of tax collection should be
minimum, i.e. the difference between the money, which come, out of the pockets of people and
that which is deposited in the public treasury should be as small as possible. Gebrie.W (2008)
Additionalcanons of taxation by other:
1. Canon of productivity: it is also known as the canon of fiscal adequacy according to this

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principle, the tax system should be able to yield enough revenue for the treasury and the
government should have no need to resort to deficit financing. This is a good principle to fellow
in developing country (economy).
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. Misrak, T (2008).

2.6 Major types of taxes in Ethiopia

1. Direct taxes: direct taxes are those which are paid entirely by those people whom they are
imposed. A direct tax is one paid directly to the government by the persons on whom it is
imposed. Examples include some income taxes, some corporate taxes and transfer taxes such as
estate (inheritance) tax and gift tax.
2. Indirect taxes are computed indirectly in the cost of goods or service you purchase such as
taxes imposed on companies for doing business. A good example of indirect tax would be
shipping costs which are included in the cost of merchandise you buy at the store. Cost on
commodities like custom duties, sale taxes, excise taxes etc. included in types of in direct
taxes.Gebrie, W (2008).

1. Types of direct Tax

A. Employment Personal Income Tax

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Every person deriving income from employment is liable to pay tax on that income at the rate
specified in schedule. Employment income shall be includes any payment origins in cash or in
kind received from employment by an individual. Employees have an obligation to withhold the
tax from cash payment to an employee, and pay the tax authority the amount withhold during
cash calendar month in applying the procedure , income attributable to the month of Nehassie
and Pagume shall be aggregated and treated as the income of one month If the tax on income
from employment, instead of being deducted from the salary or wage of the employee is paid the
employer in whole or in part, the amount so paid shall be added to the taxable income and shall
be considered as part there of
Gebrie.W, (2008)
B. Business Profit Tax
This is the tax imposed on the taxable business income /net profit realized from entrepreneurial
activity. Taxable business income would be determined per tax period on the basis of the profit
and loss accounting standard corporate business are required to pay 30% of fiat rate of business
income tax. For with incorporated or an individual business are taxed in accordance with the
determined schedule and rate. In the determination of business income subject tax in Ethiopia,
deductions would be allowed for expense incurred for the purpose of earning, securing and
maintaining that business income to the extent that the tax payer can prove the expenses.
The following expenses calculating shall be deductible from gross income in calculating taxable
income.
1. The direct cost of producing the income such as the direct cost manufacturing, purchasing,
importation, saving and such other similar cost.
2. General and administrative expense connected with the business activity.
3. Premium payable on insurance directly connected with the business activity.
4. Expenses incurred on connection with the promotion of the business inside and outside the
country. Subject to the limits get by the directive issued by the minister of revenue. Misrak, T
(2008).

2. Types of Indirect Taxes

A. Turn over Tax

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 The turn over tax would persons not registered for value added tax render payable on good
sold and services. The rate of turn of over tax is
 2% on good sold locally.
 For service rendered locally.
 2% on contractors, grain mills, tractors and combine harvesters.
 0-50% on other.
B. Value Added Tax
Value added tax is tax on consumer expenditure: it is collected on business transactions and
imports. A taxable person can be an individual firms company, as long as such a person is
required to be registered for VAT most of transactions, inviolable supplies of goods or services,
VAT is payable if they are:
1. Supplies made in Ethiopia.
2. Made by a taxable person
3. Made in the course or further once of business.
4. 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. Gebrie, W (2006).
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 which are cause social problems, so excise tax was 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 .Gebrie, W (2008).

Payment of excise tax

The excise tax shall be paid within the time prescribed according to proclamation no 307 sub

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article 12)
1. In respect of goods produced locally, by the producer.
2. In respect of goods imported by the importer.
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 later than 30 days from the date of production.

2.7 Classification of taxes based on their effect on income

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

2.7.1 Progressive taxes

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

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

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

In Ethiopia some of the progressive taxes are personal income taxes of proclamation 30/1992
and 107/1994 and the rental income taxes of proclamation 64/1993. The income level was be
categorized in different income brackets and taxed by progressive rate. Gebrie, W (2008).

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2.7.2 Proportional taxes

This kind of tax is a tax whose rate remains constant as the size of the base increases. A
proportional tax rate is usually stared as a flat percentage of the base regardless of its size. For
example, the property tax usually operates with proportional rates, and the tax might be
expressed as 1% of the assessed property. Sales and excise taxes, payroll taxes, and most
customs duties are also levied on the basis of proportional rates .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. Misrak, T (2008).

2.7.3. Regressive taxes

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

Most of the indirect taxes are regressive, for example excises and sales taxes, the same amount
of tax is paid per unit purchases. This amount of tax represents a higher proportional of income
to the poor. Some people argue that regressive taxes encourage people to work harder to be
elevated above the lower income group. As stated in the above illustration taxes can be
progressive, proportional or regressive. They can be used for different objectives, to achieve
their own goals. As Green wild put as a diagram the relationship between tax rates and tax base
as follows.Gebrie, W (2006).

2.8 Categories of tax payers

Tax payers are classified in to three major categories;

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 2. category “A” tax payers:- this category tax payers are include
A. Any company incorporated under the laws of Ethiopia or in a foreign country.
B. any other business having an annual turnover of birr 500,000 or above.
These category tax payers are required to submit to the tax authority, at the end of the year.
2. Category “B” payers unless already classified in category ‘A’ any business having on
annual turnover of birr 100,000 would be classified under category “B” tax payers.
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. Misrak, T (2008).

2.9 Procedures of tax collection

Tax from category “A” and “B”, tax payer is collected based on tax payers declaration of the
annual, sales / income to the tax authority. Based on this the authorized official approves the
declaration. Following the approved, tax is collected from tax payers and they was be delivered
receipt and clearance letter. The tax assessment for category “C” tax payers is made based on the
subjective estimation of daily sales by district assessment committee. Misrak, T (2008).

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 CHAPTER THREE
DATA ANALYSIS, INTERPRETATION AND PRESENTATION
This chapter deals with analysis and interpretation on the base of data gathered through
questionnaires. In order to acquire information for the study questionnaires were distributed to
tax payers and employees of tax bureau. 22 tax payer and 8 to employ. Most of the respondent
were correctly filled and returned the questionnaire.

3.1 Analysis of data gathered from tax payers

Table3. 1: Demographic background

No Personal details Number of respondent Percentage

1 Gender
Male 9 40.9090%
Female 13 59.90901.%
Total 22 100%
2 Age
18-30 3 13.63%
31-40 12 54.54%
41-50 6 27.27%
51-60 1 4.54%
Above 60
Total 22 100%
Source; own survey data, 2019
Table 3.1 indicates that almost about 40.90% of the respondents were male and 59.90 % was
female. This indicates most respondents are male.
Table 3.1 farther shows 13.63% of respondent between the age of 18 -30, 54.54 % of them are
between the age of31-40, 27.27% of respondent are between the age of 41-50, 4.54% are
between 51-6o.And 0% are above 60.This indicates that most of respondents are between the age
of 31-40.

17
 Table3. 2: Educational level

Educational qualification Number of respondent Percentage

Primary school (5-8) 1 4.5%
Secondary school (9-12) 2 9.1%
Technical school 1 4.5%
Diploma 10 45.5%
Degree 8 36.4%
Total 22 100%

Source; own survey data, 2019

Table 3.2 shows 4.5% of respondent are primary school, 9.1% of them are secondary school, 4.5
% of respondent are technical school, 45.5% are diploma, and 36.4% are degree. This indicates
that almost of the respondent are diploma holders.
Response of tax payers
Table3. 3: The date of tax payment and the ability of tax pairs T to pay tax able

Question Response Respondent percentage

When do you pay tax? When I receive 4.5%
assessment 1
Before due date 19 86.4%
After due date 2 9.1%
Total 22 100%
Is your tax liability based on your income Yes 10 45.5%
No 12 54.5%
Total 22 100%
Source, own survey data, 2019

As summarized above in the table 4.5% of respondent pay their expected tax liability when they

18
receive assessment , 86.4% respondent pay before due date and 9.1% of respondent pays after
due date .This implies that most of the tax payers pay their tax liability before due date. Table
3.3,farther indicates that the annual liability is not based on their annual income. But 45.5% of
them answer is as it is based on their income .This in dictates that for most tax payers the
amount that tax payers contribute to the government is not balanced with their income.
Table3. 4: problem related with tax payment

Question Response Respondent Parentage

Do you face any problem when you Yes 12 54.5%
pay tax liability? No 10 45.5%
Total 22 100%
If your answer is yes for question Problem of procedure 12 54.5%
number 3 what is your possible of tax collocation
reason Weakness among tax collector 8 36.4%
The existence of over taxation 2 9.1%
Total 22 100%
Source, own survey data, 2019
As summarized in Table 3.4 45.5% of responded replied as there is no problem when they went
to pay tax and 54.5 % of them replied as there is a problem. This implies that the revenue
authority office as provided assessment to collect tax from tax payers. The table farther indicates
that 54.5% of respondent’s replayed problem faced is related with procedure of tax collection
system. 36.4 % of them have weakness of tax collector and 9.1% as the existence of over
taxation. This implies that most of the problem is weakness of procedure.

19
table4. 5: comparisons of present taxation system and the knowledge of tax payers about
tax.
Present taxation system is a system provided by present government which is expected to be
acceptable and suitable by majority tax payers and employs.
Question Response Respon Parentage
dent
How do you see present Good 14 63.6%
tax system? Not bad 5 22.7%
Need restatement 3 13.7%
Total 22 100%
Do you know why Yes 20 90.9%
tax is compulsory No 2 8.1%
Total 22 100%
If your answer is no No awareness creation by concerned 15 68.2%
for question number body
6 what is your Because tax is not far contribute any 5 22.7%
reason country development
I’m not obligated to pay tax 2 9.1%
because is not my responsibility
Total 22 100%
Sours, own survey, 2019
As summarized in table 3.5 63.6% of the tax payers replied that present taxation systems as
good, 22.7% of them replied not bad, 13.7% need restatement. This shows that for most tax
payers the presentation system suitable .on other hand present taxation system is not suitable for
all .table 3,5 farther indicates that 90.9% of respondent response is as they know why tax is
compulsory, and 9.1% of them replied as they do not know why tax is compulsory. This
indicates that most tax payers have awareness about why tax is compulsory.
Table 3.5 also describes why tax payers do not know why tax is compulsory.
68.2% of them are because no awareness creation by concerned body 22.7% because tax is not
Contribute any country development, 9.1%of them replied that I am not obligated to pay tax.
From this we can understand that most of tax payers replied that as they don’t know why tax is

20
compulsory. This means tax payers have lack of awareness.
Table3. 6: satisfaction of tax payer in the method of assessment

Question Response Respondent Parentage

Are you satisfied with method Yes 19 86.4%
of assessment
No 3 13.6%
Total 22 100%
If your answer is no for Power to collocation is not 3 13.6%
question number 8 because of delegated on the town
what Tax collation system is not 13 59.1%
modernized one
Appointed tax collector not 6 27.3%
feel responsible
Total 22 100%

Source, own survey data, 2019

Table 3.6 describes that 86.4%of respondent response was satisfied by the method assessment
and 13.6% was not satisfied .this implies most of the respondent accepts the method of
assessment but some are not accepted.
Table 3.6 also show 59.1% of the respondent who are not satisfied was because of the system
is not modernized one13.6% of them because of power to collect is not delegated on the town
and 27.3% of respondent was because of appointed tax collector are not feel responsible. This
implies present taxation system is not modernized and tax collectors are not responsible.

3.2 Analysis of data gathered from employees

This part of the analysis discussed with question that offered for the employees of revenues
bureau and their answers 8 employees of the bureau and their manger were actively participated
in answering the questionnaires and stringy assist me by giving all necessary data for my study

21
Table37: Demographic background

No Personal details Number of respondent Percentage

1 Gender
Male 3 37.5%
Female 5 62.5%
Total 8 100%
2 Age
18-30 1 12.5%
31-40 6 62.5%
41-50 1 12.5%
51-60 12.5%
Above 60
Total 8 100%
Source; own survey data, 2019
Table 3.7 indicates that almost about 37.5% of the respondents were male and % was female.
This indicates most respondents are male.
Table 3.7 farther shows12.5% of respondent between the age of 18 -30, 37.5% of them are
between the age of31-40, 12.5% of respondent are between the age of 41-50, no this pages
between 51-60.
Table3. 9: Educational level

Educational qualification Number of respondent Percentage

Primary school (5-8)
Secondary school (9-12)
Technical school 1 12.5%
Diploma 2 25%
Degree 5 62.5%
Total 8 100%

Source; own survey data, 2019

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Table 3.9 12.5 % of respondent are technical school, 25% are diploma, and 62.5% are degree.
This indicates that almost of the respondent are degree holders.
Table3. 10: Responsibility for tax collection, filling about position and evaluation of the
coordination

Question Response Respondent Parentage

Who is responsible for tax collection and Tax office 4 50%
assessment? Tax payer 1 12.5%
The policy 0 0%
All 3 37.5%
Total 8 100%
How do you feel about your position Is right position 7 87.5%
you have assigned? Be yond my capacity 1 12.5%

Under my capacity 0 0%
total 8 100%
How do you evaluate the Excellent 1 12.5%
coordination your Good 6 50%
Office with the other office? Very good 1 12.5%
Less 0 0%
Total 8 100%
Source, own survey 2019
The table 3.10 shows that 50% of respondent replied that responsibility of tax collection should
be given to the office .12.5% of respondent response is to give to tax payer.37.5% of them, for
all and 0% for policy . This indicates that the tax office is more responsible to collect tax
liability.
Table3.10. Also shows 87.5% of respondent feeling of position was in the right position, 12.5%
beyond capacity and 0% under my capacity.
This indicates most of the employers are in the right position.
Table3.10. Also describes that 50% respondent replied as the coordination of the office is good.
12.5% as excellent, 12.5% as very good and 0% as lees good. That means the office have good
coordination.

23
Table3. 11: The bureaus structural adjustment, ideas of employer about tax collection and
evaluation of know leg of tax payers about taxation.

Question Response Respondent Parentage

What do you thing about the Complete the work 1 12.5%
bureaus structural adjustment quickly
Work excessively 4 50%
Work moderately 3 37.5%
Total 8 100%
What is your idea about present Effective 2 25%
tax collocation and assessment Show discrimination 1 12.5%
Have in sufficient man 5 62.5%
power
Total 8 100%
How do you evaluate the High 1 12.5%
knowledge of tax payer about Low 2 25%
taxation? Medium 5 62.5%
Total 8 100%
Sours, own survey data, 2019
The table 3.11 describes 50% of respondent replied as the bureau works excessively.37.5% of
them replied as it work moderately and 12.5% as it complete the work quickly.
Table 3.11 also shows 12.5% of the respondent replies as present tax collection show
discrimination. 62.5% have in sufficient man power, and 25% as effective. This shows most of
respondent replied as the system have in sufficient man power.
Table 3.11 farther shows 62.5% of respondent replied as tax payer have medium know leg, 25%
as low and 12.5% as high.
This implies that most of the res pendent have medium know leg about taxation.
But some of them have lack of know leg.
The procedures take by employee to create awareness on the tax payer.
The data gathered indicates that the following procedures was taken by the employees
 Identification and registration of tax payer.
 Filing returns and returns processing.

24
  Payment of tax.
 And also they create the awareness of the tax payer by understanding them proclamation
of tax payment system.
Table3. 12 Not taxed you do not need a Mental Impulse?
Not taxed You do not need a respondent Respondent Percentage
Mental Impulse Yes 6 75%
No 2 25%
Total 8 100%

Table 3.12 from the above 75% of the respondent do not need a mental impulse 25% of the
respondent information the result.
Table 3.13Is there an information available on the police?
Is there an information available respondent Respondent Percentage
on the police? Yes 7 87.5%
No 1 12.5%
Total 8 100%
Table 3.13 from the above 8/87.5% of the respondent information available yes result 12.5% of
the respondent information available no result.

3.3 Analysis and presentation of secondary data

Table3.14: The two years budgeted and actual amount of tax collected in HadnetSubcity
Year Budgeted amount of Actual amount of tax Percentage
tax collected
2016 26,057.265 26,260,924 99 %

2017 5,200,000 4,922,234 96.21%

Source, Hadnet sub city Revenues Bureau

In the two years expected and actual amount of tax collection in Hadnet sub city revenue
authority
As presented in the table 3.9 the actual amount of tax collected in 2017 and 2017 was 99%, 96%
respectively. The data gathered indicates that the factor for decreased amount of actual tax
collected from the expected is the bankrupt of the registered tax payers.

25
 CHAPTER FOUR
CONCLUSION AND RECOMMENDATION

4.1. Conclusion
The study was concerned on assessment of tax collection problem in Hadnet sub city revenue
authority. To conduct this study questionnaire were distributed for 22 taxpayers and 8
questionnaires were distributed for employees of revenues bureau. It farther intended to suggest
possible solution to the problem identified based on the data collected from the respondent and
from written document.
The conclusion of this study is as follows:
 The result implies that most of respondent are male.
 The data gathered also indicates most of participants are degree holders. And most of tax
payer accepted present taxation system. But some of the tax payers don’t accepted.
 As shown in the result analysis in Hadnet sub city Tax payer and employees are the
participant by paying their expected tax liability to the tax office .therefore, tax is the
main source of revenue to the tax authority office .In addition most taxpayers have good
understanding about taxation.
 Based on the survey result the study found that there is in sufficient man power. And also
there are tax payers who have lack of knowledge.
 The office does not offer strong training to create tax awareness on the tax payer.

4.2 Recommendation
In the data presented analysis there were few problem and weakness of tax assessment and
collection in both office and tax payer.
Based on the finding and conclusion the researcher forward the following recommendation
Since man power is the most important resource of the office the problems of man power should
be given special attention.
 The man power of revenue authority should be occupied by competent personnel.
 Therefore to enhance their capacity and improve their effectiveness the employee should

26
 get effective training.
 For effective and proper tax assessment and collection, measure should be taken to revise
and update the existing tax laws.
 To improve the knowledge of tax payers the office should extends awareness regarding
tax to the tax payers by different media like television, radio and newspaper.
 At the time when the tax authority arranged tax awareness program, tax payer should
actively attend and get reliable information about current tax rules and procedures.
 It should necessary to create the spheres which upgrade the knowledge of the employees.
And different training relating to tax low and amendment of tax law must be provided.
 To reduce dissatisfaction of employees on their position job rotation is one way and the
revenues bureau should try to make the working environment attractive and comfortable
by making the environment green, by providing refreshment center for worker and by
creating duties that improve friendly relation between the workers

27
 REFERENCE
[1].Gebrie, W (2008).Tax accounting in Ethiopian context; second edition; Addis Ababa,
Ethiopia.
[2] .Gebrie, W (2006).Tax accounting in Ethiopian contex; first edition.
[3].Bernand modern public finance; fifth edition.
[4].misrak, T (2008).Ethiopian tax accounting theory and practice; first edition.
[5]. Ministry of revenue Addis Ababa. Dec 2003
[6]. Ethiopia chamber of commerce. HWK partnership. Addis Ababa 8/2004.
[7]. Encyclopedia of Americana 1997.

28
 QUESTIONNAIRE
SHEBA UNIVERSITY COLLEGE

Faculty OF BUSINESS AND ECONOMICS

Department Accounting
First of all I would like to thank for your wasingress to respond this questionnaire form
for study of assessment of tax collection problems in case study of Hadnet sub city .
I. Dear respondent you are not required to write your name to give you freedom, to
respond confidently and to keep your secret safely.
II. Please put “√” mark in the place provided for you in box for both open and close
questions.
Appendix I
Questionnaires related to tax payers
Part I personal information
1. Age, 18-30 31-40 41-50 51-60 above 60
2. Gender, Male Female
3. Education background:
Primary school (5-8) Secondary school (9-12)
Technical school diploma above degree
Part II Questions related to assessment of tax collection problem.
2.1. When do you pay tax?
When I receive assessment notification before due data after due date
2.2. Is your annual tax liability based on your income?
Yes No
2.3. Do you face any problem when you pay tax liability?
Yes No
2.4. If your answer is “yes” for question number 3 what is your possible reason?
Problem of procedure of tax collection system
Weakness among tax collector

29
 The existence of over taxation
If any other specify ________________________________
2.5. How do you see present tax system? Good not bad Need restatement
2.6. Do you know why tax is compulsory? Yes No
2.7. If your answer is “no” for question No6 what is your reason?
No awareness creation by concerned body
Because tax is not so far contribute for one’s country’s development
I am not obliged to pay tax because it is not my responsibility.
If any other specify ________________________________
2.8. Are you satisfied with the method of assessment? Yes No
2.9. If your answer is “no” for question No 8 because of what?
Power to collect tax is not delegated on the town
Tax collection system is not modernized one
Appointed tax collectors are not feeling responsible
If any other specify ________________________________
2.10Type of business organization you are currently engaged?
Service  Merchandise  Manufacturing 

30
 Appendix II
QUESTIONNAIRE
SHEBA UNIVERSITY COLLEGE

Faculty OF BUSINESS AND ECONOMICS

Department Accounting
First of all I would like to thank for your wasingness to respond this questionnaire form
for study of assessment of tax collection problems in case study of Hadnet sub city .
I. Dear respondent you are not required to write your name to give you freedom, to
respond confidently and to keep your secret safely.
Please put “√” mark in the place provided for you in box for both open and close
questions
Questionnaires related to revenues bureau employer
Part I personal information
1.1. Age 1 8-30 31-40 41-50 51-60 above 60
1.2. Gender Male Female
1.3. Education Qualification:
Technical school College (degree)
College (diploma) Master
Part II Question related to assessment of tax collection problem
2.1. Who is responsible for tax collection and assessment?
The policy Tax payer Tax office All
2.2. How do you evaluate the coordination of your office with the other office?
Excellent very good
Good Less
2.3. How do you feel about the position you have assigned?
Is the right position beyond my capacity under May Capacity?

31
2.4. What do you think about the bureau’s structural adjustment?
Complete the work quickly work excessively work moderately
2.5. What is your idea about the present tax collection and Assessment?
Effective show discrimination
Have in sufficient man power
2.6. How do you evaluate the knowledge tax payer about taxation?
High Low Medium
2.7. Explain what procedures do you take to create better awareness on the tax payer ?

2.8.. Are you eligible for payout?

Yes No
2. 9. Not taxed You do not need a Mental Impulse
Yes No
2.10 Is there an information available on the police?
Yes No

32