Bahirdar University

College of Business and Economics

Individual Assignment: Strategic Management
(MBA741)

INSTRUCTOR: TO: ASSP. Woldetsadik K.

Submitted: BY SALEAMLAK AFIRE ID- 1109908
 TABLE OF CONTENTS

Introduction ……………………………………………………..………. 1

Vision, Mission and values……………………………………………… 4

Objective of Authority………………………………………………........ 5

General SWOT analysis of ERCA ……………………………………….. 6

The External Factor Evaluation (EFE) Matrix........................................ 8

The Competitive Profile Matrix (CPM)………………………………..… 9

The Internal Factor Evaluation (IFE) Matrix ……… …..……………… 10

Strategies of ERCA …………………..…………..…….………………….. 12

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Introduction
The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for
collecting revenue from Customs duties and Domestic taxes. In addition to raising
revenue, it is responsible to protect the society from adverse effects of smuggling and
contraband. It seizes and takes legal action on the people and vehicles involved in the
act of smuggling, any tax evasion and avoidance while it facilitates the legitimate
movement of goods and people across the border.

Establishment of ERCA
The Ethiopian Revenues and Customs Authority (ERCA) was established by the
proclamation No .587/2008 on 14 July 2008, by the merger of the Ministry of Revenue,
Ethiopian Customs Authority and the Federal Inland Revenue Authority for the
purpose of enhancing the mobilization of government revenues, while providing
effective tax and Customs administration and sustainability in revenue collection. The
main objective of the establishment of ERCA was to streamline the public revenue
generation function by bringing the relevant agencies under the umbrella of the central
revenue collector body.

A study called "Business Process Re-engineering" had taken place before the merger of
the foregoing administrations. The study was undertaken for a year and half beginning
from November 2007 by teams of officials selected from within the administration.

The study has looked into the selected key business processes and has come across
inefficient organizational structure and unnecessary complicated procedures that

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permitted insufficient service delivery. The study has also indicated that there was
corruption within the administrations and that smuggling and tax evasion were serious
problems. These problems have depressed the attempt of the foregoing administrations
to be successful in achieving their objectives.

Documents for the import and export goods were processed through the former tax
and customs administration and due to the inefficient procedures, these goods were
subject to delay at exit or entry points of the former customs Authority. Owing to it,
importers or exporters viewed the former customs procedure with disfavor or looks as
an impediment for international trade. The former tax and customs administration also
has long been criticized for lack of efficient and effective system to control tax evasion.

The administration had inefficient system to control taxpayers who fail to declare their
actual income in order to reduce their tax bill and the federal government's revenue.
The former administration was also far behind in protecting investors from adverse
effects of contraband and illegal practices. In its proposal, the team has suggested
merger of the foregoing three administrations. The study team believed that it would
be better if the three administrations merged, forming a single powerful organization to
increase modern and equitable tax and customs administration system, effective
resource utilization and quick service delivery. Presently, the Authority is exercising the
powers and duties that were granted to the Ministry of Revenue, the Federal Inland
Revenue Authority and the Customs Authority by existing laws.

The Addis Ababa City Tax Administration and ERCA have signed a memorandum of
understanding in January 2011 to gain support from ERCA. The main objective of the
agreement is to enhance the capacity of tax administration of the city to collect its
revenue effectively and efficiently. Based on the agreement, the administration part of

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the city tax administration is temporarily merged to ERCA; the revenue collected is to
the Addis Ababa city government administration.

Vision, Mission and values

Vision
ERCA’s vision is being a leading, fair and modern Tax and Customs Administration in
Africa by 2025 that will finance Government expenditure through domestic tax revenue
collection. (Student comment: Good Statement)
Mission

ERCA’s mission is to contribute to economic development and social welfare by

developing a modern Tax and Customs Administration that employs professional and
highly skilled staff who promote voluntary compliance amongst individuals and
businesses, and take swift action against those who do not comply. (Student comment:
Good Statement, It includes Nine Essential Components of a Mission Statement)

Values
ERCA understands its customers and their needs, treat them with trust and respect and
help them meet their obligations. It acts with integrity, transparency, accountability and
professionalism to enforce customs and tax related laws. It works closely with stake
holders and ensures the participation of women.
Business Drivers
The key business drivers have been identified as follows:

 Revenue collection

 Reliable data and statistics

 Trade facilitation

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  Process oriented

 Management

 Enforcement and security

 Good governance

Objective of Authority
The ERCA has the following objectives:

 Establish modern revenue assessment and collection system; and render fair,
efficient and quality service;
 Assess, collect and account for all revenues in accordance with tax and customs
laws set out in legislation;
 Equitably enforce the tax and customs laws by preventing and controlling
contraband as well as tax fraud and evasion;
 Collect timely and effectively all the federal and Addis Ababa tax revenues
generated by economy, and
 Provide the necessary support to the regional states with the objective of
harmonizing federal and regional tax administration systems.

Organizational Structure and Manpower

ERCA is organized as an authority led by a Director General (with the rank of minister)
with direct accountability to the Prime Minister. The Director General assisted by five
Deputy Director Generals, both the director general and deputies are assigned by the
prime minister. There is an advisory board to the Director General for advice on policy
issues. In order to achieve its goals, it has organized itself into divisions, directorates
and work units at head office level based on business process. While, the office of the
Director General serves as a secretariat for the authority and is managed by a Director,

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a management team/council comprising of professionals is also organized within the
secretariat to provide the necessary advice to the Director General. Furthermore, five
of the directorates at the head quarter also directly report to the office of the Director
General.

Apart from the foregoing directorates, the ERCA has 32 field offices, of which two of
them are coordination offices located outside of Ethiopia at the port of Djibouti and at
the port of Burbera, Somalia. The primary function of the foregoing coordination
offices are affording/ providing transit service for the goods imported into or exported
from the country. However, the latter coordination office is presently not operational.
The 30 branch offices in Ethiopia comprise 22 Customs Control stations, 50
Checkpoints and 153 Tax Centers. Tax Center means a tax collection station
administered under a branch office and located in the vicinity of taxpayers while
Customs Control Station means a station administered under a branch office where
customs formalities are complied with and collection of taxes and duties take place on
imported and exported goods; checkpoint is a place where customs examination is
conducted by machine and/or manually for the purpose of ascertaining that there is no
variation between the goods to be imported-exported and the goods specified in the
customs declaration.

General SWOT analysis of ERCA

ERCA’s SWOT analysis highlights the most significant strengths that ERCA can use to
improve its revenue collection performance, as well as the weaknesses and threats that
should be addressed through innovative strategies. ERCA’s SWOT analysis also
identifies the major opportunities that shape the strategic direction of the organization.
Strengths: Weaknesses:

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  Increase in revenue collection
 Implimenting information
communication technology in the tax
offices
 Raising the awareness of the tax payers
through different communication
means
 Modern Tax system
 Customer Service
 Good organizational structure
 Lack of skilled man power
 Lack of Management
Commitment
 Due to the limited coverage of
tax Audit the organization
almost depends on the amount
declared by the customer.
 Poor handling of customer file
 Lack of recognition procedures
for good performers
maintenance system in place
 Lack of attention for research
and development
 Weak enforcement

Opportunities: Threats:

 New Technologies  Infrastructure problems (like

 Tax base expansion the frequent interruption of
 The will of the society to pay tax is power and internet network)
getting better  Tax evasion
 Poletical Stability  Corruption
 Economic Growth  Employee Turnover
 Tax Payers’ loyalty  World economy instability
 Government attention to ERCA  Controband
 Bad image
The External Factor Evaluation (EFE) Matrix
An External Factor Evaluation (EFE) Matrix allows strategists to summarize and
evaluate economic, social, cultural, demographic, environmental, political,
governmental, legal, technological, and competitive information. Illustrated in Table 1,

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Table 1

key external factors Weighted

NO Opportunities Weight Rating score
0.09 3 0.27
1 New Technologies
2 Tax base expansion 0.07 3 0.21
The will of the society to pay tax is getting 0.11 4 0.44
3 better
0.07 2 0.14
4 Poletical Stability
5 Economic Growth 0.12 4 0.48
6 Tax Payers’ loyalty 0.07 3 0.21
7 Government attention to ERCA 0.05 1 0.05
Threats 0
Infrastructure problems (like the frequent 0.12 4 0.48
8 interruption of power and internet network)
9 Tax evasion 0.07 3 0.21
10 Corruption 0.06 2 0.12
11 Employee Turnover 0.04 2 0.08
12 World economy instability 0.04 1 0.04
13 Controband 0.05 2 0.1
14 Bad image 0.04 1 0.04
Total 1 2.87

Regardless of the number of key opportunities and threats included in an EFE Matrix,
the highest possible total weighted score for an organization is 4.0 and the lowest
possible total weighted score is 1.0. The average total weighted score is 2.5. A total
weighted score of 4.0 indicates that an organization is responding in an outstanding way
to existing opportunities and threats in its industry. In other words, the firm’s strategies
effectively take advantage of existing opportunities and minimize the potential adverse
effects of external threats. A total score of 1.0 indicates that the firm’s strategies are not
capitalizing on opportunities or avoiding external threats.
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An example of an EFE Matrix is provided in Table 1 for ERCA. Note that the most
important factor to being successful in this business is “Economic Growth” and
Infrastructure problems (like the frequent interruption of power and internet network)
as indicated by the 0.12 weight.

The Competitive Profile Matrix (CPM)

The Competitive Profile Matrix (CPM) identifies a firm’s major competitors and its
partic- ular strengths and weaknesses in relation to a sample firm’s strategic position.
The weights and total weighted scores in both a CPM and an EFE have the same
meaning. However, critical success factors in a CPM include both internal and external
issues; therefore, the ratings refer to strengths and weaknesses, where 4 = major
strength, 3 = minor strength, 2 = minor weakness, and 1 = major weakness. The critical
success factors in a CPM are not grouped into opportunities and threats as they are in
an EFE. In a CPM, the ratings and total weighted scores for rival firms can be compared
to the sample firm. This comparative analysis provides important internal strategic
information.

Table 2 a Competitive Profile Matrix (CPM).

critical success wieght Competitors
factors
ERCA BOFED Regional Revenue
and Customs
Authority
Rating weighted Rating weighted Rating weighted
score score score
Revenu Collection 0.3 4 1.2 2 0.6 2 0.6
Management 0.18 3 0.54 4 0.72 2 0.36
Communication 0.2 3 0.6 3 0.6 2 0.4

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 Organization 0.14 3 0.42 3 0.42 3 0.42
structure
Customer service 0.18 3 0.54 3 0.54 2 0.36
Total 1 3.3 2.88 2.14

A sample Competitive Profile Matrix is provided in Table 2. In this example, the most
important factor to being successful in the industry is “Revenu Collection” as indicated
by weights of 0.30. If there were no weight column in this analysis, note that each factor
then would be equally important. Thus, having a weight column makes for a more
robust analysis, because it enables the analyst to assign higher and lower numbers to
capture perceived or actual levels of importance. Note in Table 2 that ERCA is
strongest on “Revenu Collection,” as indicated by a rating of 4, whereas BOFED is
strongest on “Management.” Overall, ERCA is strongest, as indicated by the total
weighted score of 3.3.

The Internal Factor Evaluation (IFE) Matrix

A summary step in conducting an internal strategic-management audit is to construct
an Internal Factor Evaluation (IFE) Matrix. This strategy-formulation tool summarizes
and evaluates the major strengths and weaknesses in the functional areas of a business,
and it also provides a basis for identifying and evaluating relationships among those
areas. Intuitive judgments are required in developing an IFE Matrix, so the appearance
of a scientific approach should not be interpreted to mean this is an all-powerful
technique. A thorough understanding of the factors included is more important than
the actual numbers.
Table_3 Internal Factor Evaluation (IFE) Matrix

key Interanl factors

Weighted
NO Strength weight Rating score
1 Increase in revenue collection 0.14 4 0.56

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 Implimenting information communication 0.08 3 0.24
2 technology in the tax offices
Raising the awareness of the tax payers 0.09 3 0.27
3 through different communication means
4 Modern Tax system 0.12 4 0.48
5 Customer Service 0.05 3 0.15
6 Good organizational structure 0.06 3 0.18
Weaknesses 0
1 Lack of skilled man power 0.12 1 0.12
2 Lack of Management Commitment 0.06 2 0.12
Due to the limited coverage of tax Audit the 0.08 1 0.08
organization almost depends on the amount
3 declared by the customer.
4 Poor handling of customer file 0.05 2 0.1
Lack of recognition procedures for good 0.06 2 0.12
5 performers
Lack of attention for research and 0.04 2 0.08
6 development
7 Weak enforcement 0.05 1 0.05
Total 1 2.55

Regardless of how many factors are included in an IFE Matrix, the total weighted
Score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5.
Total weighted scores well below 2.5 characterize organizations that are weak internally,
whereas scores significantly above 2.5 indicate a strong internal position.
As indicated in table 3 the total weighted score is 2.55 that is above 2.5 this indicates
ERCA has a strong internal position.

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Strategies of ERCA
It is commonly understood that every government seeks to raise revenue, mainly
through taxation, in order to pay its expenditure on infrastructure development. In
Ethiopia, the responsibility to collect revenue for the Federal Government rests with
the Ethiopian Revenues and Customs Authority (ERCA). In addition to raising
revenue, ERCA is responsible to facilitate the legitimate movement of people and goods
across the border. Simultaneously, the authority focuses on those people and vehicles
that may involve in the act of smuggling. ERCA conducts investigation, audit and

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prosecutes offender. In the attempt to discharge its responsibility, the authority closely
works with the Federal Police, Standardization Authority, and Ministry of Health
Immigration Service and with other stake holders.
ERCA use the following strategies to achieve organizational objectives:
1. Human Resourse Strategy
2. Management Information system/Authomation
3. Customer Handling and Compliant Managementt
4. Revenue Collection
5. Enforcement
6. Communication Strategy

Strategic Plan
The Board of Directors and Management of the ERCA mapped out the strategic
direction of the Authority for the medium term onto 2017. The strategic plan which
spans from 2013 to 2017 defines the strategic direction of the Authority which is
expressed through four interrelated components/perspectives of how the Authority
will prioritize its attention and resources to achieve its mandate. This strategic vision is
not only reflective of lessons learnt over the past 5 years of tax administration, but is
also closely aligned with the country’s agenda for prosperity. With a modeled shift to
enhanced efficiency and effectiveness through staff development, innovation and
stakeholders’ collaboration, the Strategic Plan provides an integrated strategy that
ensures cohesion of the facets of ERCA’s operation towards effective revenue
mobilisation.
The Authority’s strategic direction will be guided by four strategic goals:
The first strategic goal of the plan is to develop human capital and strengthen
institutional and organizational capacity of the Authority including corporate
governance. This is where ERCA are committed to developing the skills levels and

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competencies of the workforce and motivate them to deliver through improved
conditions of service.
The second goal of this strategic plan is to improve efficiency and effectiveness of
systems through modern technology. The aim here is to simplify the business processes
in order to reduce compliance time and cost and increase the ease of doing business.
Part of the strategy to achieving this goal is to continue with automation and to fully
integrate tax administration systems across the ERCA. The benefit of automation is not
only seen in reducing transaction time and cost, but also in minimizing corruption
through inbuilt audit trails in these systems.
The third strategic goal of the Plan aims to improve customer satisfaction and public
confidence and trust in the Authority in a manner that would yield sustained results.
ERCA consider customers (taxpayers and other stakeholders) most important and key
strategy will be matched towards the provision of timely and quality services, ensuring
collaboration with the public and engaging on information sharing to improve
communication and key external relationships. Being transparent in the operations and
tackling corruption and staff integrity have also been taken into consideration.
The fourth strategic goal is to maximise revenue mobilisation. Dependence on donor
funding to undertake national development is sometimes unpredictability, problematic
and unsustainable. There is Donor aid fatigue. That and the numerous and unrealistic
conditionality’s associated with donor financing have made dependence on foreign
resources less attractive.
With this Strategic Plan, ERCA aim to:
 Improve equity in tax enforcement and administration.
 Improve public awareness, transparency and taxpayer service by continuously
and constructively engaging with all stakeholders. Citizens must be aware of the
taxes they are paying and be educated about the system of taxation and

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 budgeting, while government must be transparent about tax collection and public
spending to increase confidence in the country’s tax system.
 Increase revenue collection and improve ease of compliance
 Broaden and improve direct taxation which is likely to increase awareness,
enhance trust amongst taxpayers and enhance trust between taxpayers and the
government, all of which are likely to make public engagement and tax bargaining
more likely.
Typical strategic goals
 ensure revenue is available to fund government programs through people
meeting payment obligations of their own accord
 improve compliance with the tax laws
 develop a customer centered focus
 foster organizational renewal and an efficient, ethical and adaptive organization
 ensure taxpayers meet their obligations
 maintain community confidence
 improve ease of compliance
 create an environment which promotes compliance
 continually invest in people and technology to deliver future outcomes
Typical Performance Measures
 Total net revenue collected by tax type compared to forecast
 Total expenditures compared to approved budget
 Filing and payment compliance rates
 Income reporting compliance
 Taxpayer satisfaction surveys

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