TAX ASSESSMENT AND COLLECTION RELATED

PROBLEM (A CASE STUDY IN SEBETA TOWN

REVENUE AUTHORITY)

A RESEARCH PAPER SUBMITTED IN PARTIAL

FULFILLMENT OF THE REQUIREMENT
FOR BACHELOR OF ARTS DEGREE IN ACCOUNTING

BY:
RETA ABERA
ADVISOR:
ABIY GETAHUN

JIMMA UNIVERSITY
BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING

MAY 2012
Jimma, Ethiopia
 Abstract

The study was conducted tax assessment and collection problem in sebeta town revenue
authority. The general objective is to examine the tax assessment and collection
according to the established regulation of sebeta town authority and problem encountered
by tax payers and collecting authority. To achieve the objective necessary data were used.
Primary and secondary source of data to be collected in order there gatherer information,
which help fall for the study. Primary data was collected through unstructured
interviewer and questionnaires distribution to employees and tax payers. Secondary data
collected from review the documents, manuals of sebeta town revenue authority report
issued to their employees and research has been judgment sampling for it advantage of
convent to use all less time consuming. This payer is descriptive types of research.
Finally the collected data were processed, analyzed and interpret by using different table,
percentage, and recommendation and conclusion were forwarded bases on the identified
problems.

I
 Acknowledgment

First and for most, I would like to thanks the almightily “God ” who help me by every
direction. Secondly I would like to reward my deepest gratitude to my advisor Mr Abiy
Getahun who has provided his wise and intellectuals advice, guidance and directive to
make this paper. Third my appreciation goes to Jimma University, Colleges of Business
and Economics for giving me this chance to prepare a paper on accounting for the
graduation research and some amount of fund. At last but not least I am also appreciating
to W/ro Fitsum Asrat for typing this research.

II
 Table of content
Abstract................................................................................................................................I
Acknowledgment................................................................................................................II
Table of content.................................................................................................................III
List of table.........................................................................................................................V
Chapter One.........................................................................................................................1
1. Introduction......................................................................................................................1
1.1. Background of the study...........................................................................................1
1.2. Back ground of Organization....................................................................................3
1.3. Statement of the problem..........................................................................................4
1.4. Objectives of the Study.............................................................................................5
1.4.1. General objective...............................................................................................5
1.4.2. Specific objectives.............................................................................................5
1.5. Significance of Study................................................................................................6
1.6. Scope and Limitation of Study.................................................................................7
1.6.1. Scope of Study...................................................................................................7
1.6.2. Limitation of Study............................................................................................7
1.7. Organization Paper...................................................................................................7
Chapter Two........................................................................................................................8
2. Literature – Review.........................................................................................................8
2.1. The Review of Taxation (Tax) and Related Problem...............................................8
2.2. Importance of Taxation.............................................................................................9
2.3. Principle of Taxation................................................................................................9
2.3.1. Benefit Principle..............................................................................................10
2.3.2. Ability to Pay Principle...................................................................................10
2.4. Tax evasion and Avoidance....................................................................................10
2.5. Classification of Taxes Based on their Effect on Income.......................................11
2.5.1. Progressive Taxes............................................................................................11
2.5.2. Proportional Taxes...........................................................................................11
2.5.3. Regressive Taxes.............................................................................................12
2.6. Types of Taxes and Categories of Tax Payers........................................................12
2.6.1. Direct tax.........................................................................................................12
2.6.2. Indirect Tax......................................................................................................14
2.6.3. Categories of tax pay’s.....................................................................................15
2.7. Tax administration..................................................................................................15
Chapter Three....................................................................................................................16
3. Research Design and Methodology...............................................................................16
3.1. Research Design.................................................................................................16
3.2. Research Methodology.......................................................................................16
3.3. Source of Data....................................................................................................16

III
 3.4. Method of Data Collection.....................................................................................16
3.5. Target Population and Sampling Method...............................................................17
3.5.1. Data Processing and Analysis..........................................................................17
3.5.2. Data Processing...............................................................................................17
3.5.3. Data Analysis...................................................................................................17
Chapter Four......................................................................................................................18
4. Result analysis and discussion...................................................................................18
Chapter Five.......................................................................................................................30
5. Findings Conclusion and Recommendation..................................................................30
5.1. Summary of Finding...............................................................................................30
5.2.Conclusion...............................................................................................................31
5.3.Recommendation.....................................................................................................33
References..........................................................................................................................34
Appendix............................................................................................................................35

IV
 List of table
Lists

page
Table 4.1: Demographic background
................................................................................................................................................
19
Table 4.2: Educated man power and services period of employees
................................................................................................................................................
21
Table 4.3: Tax payers and awareness about taxation
................................................................................................................................................
22
Table 4.4: Tax payers Feeling and data of tax payment
................................................................................................................................................
24
Table 4.5: Comparison of present taxation system and income of tax payer
................................................................................................................................................
25
Table 4.6: Problems related with tax payment
................................................................................................................................................
26
Table 4.7: The repletion of tax paid amount and the service which referred
................................................................................................................................................
28
Table 4.8: Budget and actual collected amount revenue
................................................................................................................................................
29

V
 Chapter One
1. Introduction
1.1. Background of the study
The taxes are the main sources of government revenues. Taxation policies depends on the
socio-economic and political structure of the country. History of Ethiopia system dates
back to ancient time. For examples. In the Akxumite kingdom there was a practice of
traditional taxation. The traditional taxation provide for taxes on crops, livestock and
livestock product such as wool, butter and milk (Gebrie 2008, page 2-4).
In Zerayacobs Chronicle it is stated there was taxation at ancient times, however, it was
during Zerayacob time that first tax system introduced. The system was set for those
people engaged in livestock production. The first important reform carried out by
Emperor Menelik Towards the end of the 19 th century resulted in the establishment of
fixed tithe rather than the undefined and essentially arbitrary system of agricultural taxes
(Gebrie, 2006, page 4-6).
The most important features of the traditional taxation system continued during the
relatively modern administration of Emperor Haile Selasie I (1942 – 1974). The element
of the tax system of this era comprise personal income tax, business income tax,
agricultural income tax, land tax, education tax, health tax, road tax, salt tax, tobacco tax,
the tithe, Alchol tax. The first income tax of Ethiopia was enact in 1994. The personal
and business tax proclamation No 60 of 1944. Reform income taxation in that it provided
a modern structural and legal frame work to the disorganized primarily system.
Proclamation in 107 replaced the first proclamation in 1994 and this proclamation was
replaced by income tax decree No. 19 in 1956 the fourth income tax low enacted by
income tax proclamation no 173 is 1961 and them Proclamation No 255/ 1967 (Ibid).
Personal business income tax where levied, charged and collected under each of the
schedule.
Schedule A- Applied to the taxation of income from employment.
Schedule B- applied to income from rent of land and building used for other than
agriculture purpose.
Schedule C- applied to income form business professional and vocational occupations,
the exploitation of woods and forests for.
Schedule D- applied to income from agricultural activities (Gebrie, 200 page 4,5,6).

The political up heaves of 1975 brought about the abolition of the feudal land tenure
system and the revoke of land taxes and the tithe. The health and education taxes were
also cancelled and the remaining types of taxes were extensively amended and
restructured by the Dergue and used until the traditional government of Ethiopia amend
anew taxation structure. During regime there was an increase in the coverage of tax bases
and tax rates owing to the need to raise more revenue to support (Ibid).

The income tax proclamation during this period were mainly amendment of the income
tax proclamation No 173/ 1961 and proclamation No 255/1967/ proclamation No
77/1976 and proclamation No 152/1978 were aimed at changing the income tax structure
levied on agricultural activities.
According the tax two proclamation imposed rural and use fee tax on income from
agricultural activity. In line with the socialist ideology of the regime, the rate of rural land
use fee varied for farms and state forms.
Thus, the rate of rural land use fee was as follows.
 Every farmer who was a number of agricultural procedure cooperative paid birr 5.
 An individual peasant who was not a member of an agricultural procedure
cooperative paid birr 10.
 Every state farm paid Birr 12 heat ore under it possession.
To implement the right of nations, nationalist peoples to administrates their affairs the
transaction government of Ethiopia issued proclamation No 7/1992 providing for the
establishment of regional government.
Accordingly, regional government have legislative, executive and judicial power in
respect of all matters within their geographic area except such matter as defense, foreign
affairs,% economic policy conferring of citizenship, declaration of state of emergency
and printing of currently (Ibid).

2
1.2. Back ground of Organization

Establishment and Nomenclature of the Sebeta

The town of Sebeta was established as town in 1936 E.C. Even though, the town was
located near to the capital of the country, its development was retarded because of
different reasons mainly the political status of the past regimes.

Having this, the regional government of Oromia include the town among the 20 selected
for reform strategy and decide Sebeta to be second rank town of “A ” group. As a result,
the town than established as three administrative kebeles. After this the town develop at
an alarming rate and become one of the town which have the high revenue. The
population of the town doubles in the period after reform.

The nomenclature of the town, as it is said by the eldest people in the area, is connected
with the king of Jimma called Abba Jifar, the king, in his Journey from Jimma to finfine
become tired when he arrive around the town of Sebeta and says for his followers and
body guards “sabbata keessan Jabeffadhaa” in afan oromo which is conceptually
translated as “don’t to be tired and be active. The name for sebeta is taken from this
speech of Abba Jifar (from the Oromia versions).

Sebeta town is a town situated around the capital of the country only 24 kms far in south
west on the way from finfinne to Jimma. In relative location sebeta woreda and in north
of sebeta Hawas woreda and in north by Burayu town and Sebeta Hawas. On the other
hand when we can see astronomy Sebeta town has latitude 8053 “N.. 8059058.17” N and
longitude 38035’11.91 … 3809’33.75” E was found. Altitude range meter (2000m up to
2670 above sea level found. Progressively decreasing it altitude from north to south
starting from wochacha and Mogle hills towards the there part of the town.
Based on the Central Statically Agency in 2005 G.C, this town has an estimated total
population of 25143. Ethnically, the population of Sebeta town was composed of
different ethnic groups, the major ones are oromo, Amhara, Gurage, Tigree, silxe, among
the ethnic group Oromo Ethinic group is the largest one from the other.

3
1.3. Statement of the problem
Taxation enables the government to provide administrative and compliance cost.
Therefore the government must guide the tax laws that enables it to collect its revenue
efficiently. Taxes are compulsory payment by every person or organization to the
government because the main source of revenue to government without expectation of
direct return. Taxes are burden some thus reduce the economic welfare of individual and
business (public) organizations. Because activate that are finance from taxation is bring
benefit to individual or organization.

According to this sebeta town revenue authority has responsibility to asses and collect
revenue in order to achieve the goal of developing the economy of the town. But, they
have some weakness and problem relating to tax assessment and collection that the
researcher were found solution.
1. How to tax payer can under stand the rule and regulation of tax?
2. What are the cause for the inadequacy of tax assessment and collection?
3. How can we eliminate tax evasion and avoidance problem by the tax payer?
4. What factors has to be taken to develop ability of tax payers to consider rich and poor
of the revenue authority?

4
1.4. Objectives of the Study
While identifying the problem tax assessment and collection related problem of revenue
authority at Sebeta town the researcher has some general and specific objective.

1.4.1. General objective

The general objective study examine the tax assessment and collection according to
established regulation of sebeta town revenue authority and problem encountered by the
tax payers and collecting authority.

1.4.2. Specific objectives

 To provide standard assessment weather it is in accordance with the capacity and
expectation the tax payer.
 To cheek the existence of tax avoidance and tax evasion.
 To assess the tax payers knowledge and awareness about taxation.
 To assess the opinion of tax payers about taxation.

5
1.5. Significance of Study

To provide positive contribution in finding solution to the focused area.

To develop the researcher experience, how to do another research for future time.
To provide information for employees of the office the area in which their office
faces some problems regarding tax and collection related problem.
To provide awareness to revenue authority and take corrective function for the
problems identifying.
To give awareness to tax payers and encourage compliance of tax payers.
To help the researchers for partial fulfillment of course of seminar in accounting.
To know the tax and collection related problems
It will be used as abases for another researcher who want to make further study on the
area.

6
1.6. Scope and Limitation of Study

1.6.1. Scope of Study

The over all scope of this study is focused on the extent to which the research objectives
are concerned. To avoid discrepancies, ambiguity, misunderstanding and other related
problems, in conducting the research objectives.
The study on taxation is wide and very vast and need long term study so researcher study
is restricted only in problem of tax assessment and related collection problem in sebeta
town revenue authority.

1.6.2. Limitation of Study

As far as limitation is concerned there many constraint which have an impact on the
quality of the study. Most of the constraint are arised from the case of targeted
population. Few employees, tax payers are in doubt to respond neutrally. They hesistate
by manager of organization and government polices. Lack of available organized data
conducting research on the side of the researcher, due to the first undertaking of the
study. Due these constraint they may not be proposed to be acquaint with all detail
information.

1.7. Organization Paper

The study do have five chapters, the first chapter which is an introductory section of the
paper which include background of the study, back ground of the organization, statement
of the problem, objective of study, significance of the study, scope study and limitation of
the study. The second chapter deal with the related literature review. The third chapter
details with the research methodology of the study with the data analysis and presentation
of the findings. Finally the last chapter deals about conclusion are recommendations.

7
 Chapter Two
2. Literature – Review
2.1. The Review of Taxation (Tax) and Related Problem
A tax is a compulsory levy payable by an economic unit to the government without any
corresponding entitlement to receive a definite a direct quid pro quo from the
government. Note the word direct here, is not a price paid by the tax-payer for any
definite service rendered or a commodity supplied by the government. The benefits
received by tax payers from the government are not related to or based upon their tax
payers. A tax is a generalized execution, which may be levied on one or more criteria
upon individuals, groups of individuals or other legal entities (BL-Bhatia, 2003, 37).

Government at all levels, local state and national, requires people and business to pay
taxes. Government use the tax revenue to pay the cost of police and fire protection, health
programs schools, roads, national defense and many other public services. Tax and
taxation are generally regarded as unpleasant subjects. Justice john stated that “the power
to tax is the power to destroy” represents the rhetorical linkage of tax and tax so
inevitable. Taxes are also olds government. The general level of taxes has varied through
the years, depending on the role of the government. In modern times, many governments
as especially in advanced industrial countries have rapidly expanded their roles add taken
on new responsibilities. As a results the need for the tax revenue has become great.
Government can finance their activities by borrowing creating or obtaining technical
assistance from abroad and denotations. Government also secure resources by profit from
public enterprises of from sale of produced on land. But the major services of revenue to
finance public expenditure is taxes (Ibid).
Compulsory contributions by persons or organization to the government with out
expectation of any direct return. Taxes are burden some these reduce the economic
welfare of individuals and business (public) organization. But activities that are financed
from taxes will bring benefits to individuals or organization (Encyclopedia v 1952).

8
2.2. Importance of Taxation
According to Bernard P. two payers in rent in sovereingt government and regions give
the public sector the authority to institute tax laws. These revenue and police powers of
government nicest authoring to sovereign government control persons and properly for
the purpose of promoting the general welfare. Most taxes for both revenue and welfare
propose. All taxes by nature extert on income effect since compel drawal of revenue from
private sector and reduce the level of private sector phasing power. A tax can be define as
a compulsory contribution from an individual for the purpose or goal.
Though a single purpose is typically dominated. All taxes by their nature provide
revenues to the government which imposes the taxes. In most instances this the primary
motive for existence for tax. Tax may exist primary for regulator purpose. Tax may be
regulatory in either micro economic since. A regulatory tax designed to discourage the
consumption of particular item such alcholic beverage or to base of product (Bernard p.
1999).

2.3. Principle of Taxation

The pioneer economist like Adam smith who agrees for “laissze fair” which state that the
government minimal governance intervention. However Adam smith acknowledges the
role of the government in the provision of public. In his well know book” the wealth of
nation” publisher in 1776 has stated four principles which called them as canons of
taxation they are:-
People should pay taxes according to their abilities (principle with modern economist
have subject to two interpretation) they are the benefit principle and to pay principle can
non of equity. The payment of tax should be clear, certain to the tax payers and the tax
collector can not convenience.
The cost of collection in relation to the tax yield should be minimal cannon of economy.
Now days smith’s canons’ get wider perspective and some are added Todaro (1994) tried
to put factors which the tax potential in to five categories there are:-
The level of per capital income
The degree of inequality in the distribution of that income. The industrial structure of the
economic activity of example the importance for foreign trade, the significance of the

9
enterprises, the degree to which the agricultural sector is commercialized as opposed to
subsistence oriented.
The social, political and institutional setting and the relative power of different groups
(for example land lord as opposed to manufactures) organization.
The administration competence, honesty and integrity of the gathering branches of
government (Gebrie, 2006, page 20).
There are two basic principle of taxation.

2.3.1. Benefit Principle

The benefits principle of taxation states that only the beneficiaries of a particular,
government programs should have to pay for it. The benefits principle regards public
service as similar to private goods and regards taxes, as the people must pay for these
services. The practical application of the benefits principle is extremely limited, because
most government services consumed by the community as a whole. For example, one can
not estimate the benefit received by a particular individual for general public services
such as national defense and local police protection, (Gebrie, 2008 page 21,22).

2.3.2. Ability to Pay Principle

The ability to pay principle holds that people, taxes should be based up on their ability to
pay, usually as measured by income or wealth. One implication of this principle is
horizontal equity, which states that people in equal positions should pay the same
amounts of tax. A second requirement of the ability to-pay principle is vertical equity, the
idea that a tax system should distribute the burden fairly across people with different
abilities to pay. This idea implies that a person with higher income pay more in taxes than
one with less income (Grbrie 2008, 20,21).

2.4. Tax evasion and Avoidance

Tax evasion is an illegal method of trying to reduce one’s tax bills. In other word, it is
illegal by redacting tax burden by under reporting income, over stating deduction of using
illegal tax shelters while tax avoidances an attempt to reduce tax liability to minimizing
tax burden through legal means such as tax free municipal bonds, tax shelters because of

10
the loopholes in the tax laws and the inefficient or corrupt tax administration gives rise to
tax avoidance or evasion. It involves choosing legal form and handling affairs in such
away as to taken advantage of legally permissible alternative tax rate or an alternate
method of assessing income. Tax avoidance in contrast to tax evasion is considered by
many to be legitimate aim since it is not illegal but consists of exploiting the
discrepancies and loopholes in the tax law to the further extent. Among the most common
method of tax avoidance are the manipulation of capital gains and losses, the formation
of holding companies to create article deductions and eh creation of multiple trust for
relatives and dependents. Tax avoidance in the case of indirect taxes is high but taxes
avoidance is relatively low because directly taxes, can be easily shifted forward or back
ward (Indigo, 2002 and world book 307 and 308).

2.5. Classification of Taxes Based on their Effect on Income

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

2.5.1. Progressive Taxes

The term progressive refers to the way the rate progresses from low to high. The rate of
taxation increase as the tax bases increases. Here as the income or sending increase the
marginal rate of tax increased, income or spending also rises. It is also possible to have a
progressive expenditure tax where the rate of rises with increment to consumption
expenditure. People with higher income tend to increase their spending on items subject
of the tax to such and extent that the payment becomes bigger portion of income Gebrie,
2006, 33)

2.5.2. Proportional Taxes

This kind of tax is whose rate remains constants as the size of the basic increases. A
proportional tax rate is usually stated as flat percentage of the base regardless of its size.
These kind of tax in Ethiopia are seen in the mining income tax proclamation 23/1996,
which sates that both large scale and small scale miner, shall pay 35% of their mining
income (Gebrie, 2006 p 32).

11
2.5.3. Regressive Taxes
This kinds of taxes the marginal rate decrease as increase income. Tax a larger share
income from the low income tax payer than from the high income tax payer. A tax which
is technically proportional interims of the tax bases, can often be considered regressive
interims of tax payer income common examples, an excise tax on cigarette is based on
the on, of cigarettes sold (Green world, 1993).

To summaries the classification of tax by graphically as follows

Tax rate% Progressive

Proportional

Regressive

Tax base
Tax base (Gebrie, 2006 35).

2.6. Types of Taxes and Categories of Tax Payers

Governments impose many types of taxes. In most developed countries, individual pay
income taxes when they earn money, consumption taxes, when they spend it, property
taxes when they own a home or land, and in some case estate taxes when they die. In
general, interms of the relation ship between the nature of taxes and reason for payment,
taxes classified as direct and indirect taxes (Gebrie, 2008, 28 – 29).

2.6.1. Direct tax

Acceding to dalto, direct taxes are those, which are paid entirely by those persons on
whom they are imposed. Direct taxes are those taxes which can not be shifted to others.
Direct taxes are made up of different individual taxes
personal income tax: are applied to the income of individual and families .
Capital gain tax business profit:- this is tax imposed on the taxable business income or
net profit realized from entrepreneurial activity.

12
Property tax:- are livied on the value of such property as firms houses, stores, factories
and business equipment property tax first become important in ancient time.

Merits and Demerits of Direct Taxes

Merit of Direct Taxes,

Equitable:- direct taxes such as income tax are equitable because it is based on the
principle progression. Certainty direct taxes satisfy the canon of certainty. The tax payer
is certain as to how much he/she is expected to pay and similarly the tax collector is
certain how much it receive.
Elasticity:- elasticity in direct taxes implies that the government collects more revenues
simply by raising the rate of taxation.
Reduce inequalities:- direct taxes are progressive in nature and therefore, rich people are
subject to his/her rate of taxation, while poor people are exempted from direct tax
obligation.
Ensures principle of ability to pay:- direct taxes are based on the principle of ability to
pay. The fall more heavily on the rich than poor. The tax burden is distributed on
different section of the social in just and equitable manner.
Control effect of traded cycles:- direct tax control the effect of trade cycles. They can be
used as tool to mitigate the effect of inflection and deflationary trends by raising or
reducing the tax rate (parameswarn; 2005, p. 77).

Demerits of Direct Taxes

In convenience: tax payer should submit the statement of total income along with the
source of income from which is derived.
Evasion: direct tax are certain and tax payers know the rate of tax they have to pay,
therefore, awareness of tax liability to tempts the tax payer to evade tax.
Arbitrary: there is no logical or scientific principle to determine the degree of progression
in determing tax brackets (Gebrie 2008, 29).

13
2.6.2. Indirect Tax
Indirect tax is often avoidable and not taken from wages. Tax in which the burden may
not necessarily be swallowed by assesses, which means indirect taxes can be shifted on
the other persons (Gebrie worku 2008, 29 and Richard A. Margrave, 2989).
Example indirect taxes areas excise tax, value added tax, turn over tax
Excise taxes levied in respective of goods produced locally and imported good :-
value addied is a tax on customer expenditure. It is broad tax on the consumption of good
and service.
Turn over tax:- would be payable on goods sold and services rendered by persons not
registered for value all tax.

Merits of Indirect Taxes

Convenience:- indirect tax are more convenient to the tax payers.
Wide scope: while the people with income and wealth above a certain limit, are brought
under the levy of direct taxes, indirect taxes are paid by all both poor and rich.
Elastic the revenue from the indirect taxes can be increased or decrease as government
need.
Tax evasion is not possible:- indirect taxes are included in the selling price of the
commodities so, evading of such tax become, very difficult.
Substantial revenue:- indirect taxes yield substantial revenue to both central and states of
government.
Progressive:- indirect taxes can be made progressive by imposing lower rate of taxes or
giving exemption to the necessary article and heavy taxes on luxurious articles
(paramesuarn 005, p 79).

Demerit Indirect Tax

Ability to pay principle violated:- indirect taxes are not directly connected to taxpayer
ability to pay.
Uncertainty:- if indirect taxes are not levied on the commodities of common consumption
and levied only on luxurious articles, they tend to be inelastic. The quality demand will
be affected by imposition of the taxes.

14
Discourages saving:- indirect taxes are included in the selling price of the commodities.
Hence, the people have to spend more on the purchase of the goods. This in turn affect of
the saving of the people.
High cost collection:- indirect taxes are un economical as they involve high cost of
collection.
Civic consciousness is not created:- under indirect taxes, tax payer don’t feel burden the
tax. They are not aware of their contribution to the state.
Inflationary:- the indirect taxes causes an increase in the price all around (Ramaswan;
Nov, 2005, 70,71).

2.6.3. Categories of tax pay’s

Category “A” tax payers whose annual income about 500,000 birr declare and pay tax
after the budgetary years four months. Thy are obligated to keep books of account and
present balance sheet and profit and loss statement to the tax office.
Category “B” tax payer
Tax payers who are under the threshold of annual turn over income between 100,0000 to
500,00 birr maintain records on books of daily revenue and expenditure and should
declare and pay tax after the budgetary year of carry on know months.
Categories “C” taxpayers
Tax payers whose annual turn over income up to 100,000 birr keep recodes and present it
for assessment. It is highly appreciated by the tax offices and pay tax after the budgetary
year of one month (Gebrie 2006, 64 and 65).

2.7. Tax administration

Since taxes are an involuntary payment for governmental services tax payers have a
strong inventive to minimize their tax liability either through avoidance (legal) or though
evasion (illegal). Tax administration has to secure compliance with the laws by applying
an array of registration. The ability to tax payers to keep form doing these procedure and
thus successfully avoid to evade taxation determines the sizes and the nature of
economy’s actual effective tax base. Both evasion and avoidance’s seriously compromise
the demonstration of the tax system, producing a system that departs scientifically in its
operation from the one that is described on the tax legislation (Misrak p. 453).

15
 Chapter Three

3. Research Design and Methodology

3.1. Research Design
So as to put the objectives of the study in to effect, descriptive method has been
conducted to observe tax assessment and collection related problem.

3.2. Research Methodology

The study was conducted in sebeta town particularly of the revenue authority limit to the
tax assessment and collection related problem. The researcher, was utilized different
research methods and materials in taking in to consideration the variables.

3.3. Source of Data

Primary and secondary data source were considered and used in study. Primary sources
are the main source of information for the study. Some information for study has been
collected by researcher, using primary source of data collection through unstructured
interview and questionnaires. The study was conducted by distributing questionnaires to
the sebeta town revenue authority employees and tax payer. Secondary data was collected
data through survey and reviews the document manuals of sebeta town revenue authority
report issued to the employees.

3.4. Method of Data Collection

The study were collected through by using primary and secondary, primary data was
obtain through questionnaires and interview. In order to get required information the
researcher was selected data collectors and give orientation about the method of data
collection and explanation for the purpose of each item. Validity of data collection was
accepted by principal investigator. Secondary data was collected from journal
documentary record, annual reports periodically, magazine and other written materials.

16
3.5. Target Population and Sampling Method
The data was collected from different groups such as employees and tax payers that have
long term experiences in engaged in tax authority of revenue in sebeta town. In order, to
collect the desire data from these group. The sampling techniques used judgment sample
of non-probability techniques. The reason behind selecting this techniques was less tome
consuming to get respondents, it enables the researcher to freely select any respondents
that he/she thinks best files to questions.

Sebeta town revenue authority office has about 67 total employees, from 67 employees,
18 employees were selected from revenue authority office for unstructured interview and
questionnaire and from 4391 tax payer 70 tax were selected as sampling. So, as to save
time and cost efficiency and effectively the researcher was used to tax payer as a sample.

3.5.1. Data Processing and Analysis

3.5.2. Data Processing

Data processing implies editing, coding and classification of collected data so as to make
suitable for further analysis. The research paper is also conducted after the collected data
are edited. Coded and classified as per the techniques.

3.5.3. Data Analysis

After the required data are processed classified, gathered, was analyzed by using methods
of tabulation and percentages description.

17
 Chapter Four

4. Result analysis and discussion

The data was analyzed based on their nature. The result of secondary and primary data
presented below in a precise form by using table and description. The objective of the
chapter is to identify tax assessments collection and factor which cause weakness.
Analysis was made by collecting information from revenue authority office employees
and tax payers. The method of data collection was carried out through questionnaires and
interview. The researcher was taken 88 respondents as sampling from total population.
Researcher taker 18 respondent from employees with in the organization and 70
respondent from the total tax payers. The main objective of data collection is to examine
tax assessment and collection method is according with rule and regulation of sebeta
town revenue authority. The problem related with tax payer and to identify the
responsible bodies to collect tax is sebeta town revenue to evaluate the tax payers
awareness and knowledge about taxation. Connected with collection, the paper try to
measure the tax payers willingness to pay tax to the tax collector of government body
with in sebeta town. Another objective of this study is to asses weather the standard
assessment is accordance with the ability of the tax payers.

18
4.1. Demographic Background

Introduction:- demographic back ground means general detail of personality of people or

it describes feature of personality. People have such kind of personal features such as
gender, age, sex, marital status, education level … etc.

Below table shows demographic back ground of people

4.1. Demographic back ground
Number of Percentage of
No Personal details respondent response
1. Sex
Male 12 67%
Female 6 33%
Total 18 100%
2. Age
21-25 years 6 33%
26-30 years 2 11%
31-38 years 7 39%
39-45 years 3 17%
Total 18 100%
3. Marital status
Single 8 44%
Married 10 56%
Total 18 100%
Source: primary data.

According to table 4.1 above 67% of total employees in the revenue authority in sebeta
town construe makes. This shows that majority of males are educated than female in the
town. While only 33% of female employees are involved in the sebeta town revenue
authority from these we understand that there is variation between male and female in
involvement in higher institution because of absence of educated female in the town.

The reason for absence of educated female is carrying of heavy burden at home and
difficult to continue their education and society and society has poor understanding for
educated female as their do not have ability like male.

19
As we can from table 4.1 39% of employees are found between 31 up to 38 age years.
33% of employees are found between age of 21 up to 25 years, 11% of employees are
found between age 26-30 year. This further indicated that majority of employees are
found in productive age. This means those productive are the main contributor for the
country to increase in production amount. Due to this economic problem of town may be
minimized. As we researcher understand from the table 4.1. There are no employees who
are below 20 years and above 45. Form the table researcher understand that majority of
employees found in productive. Related with this we can understand that there is low
amount of unemployment problem in town.

As indicated that in table 4.1. 56% of respondent are married and 44% of employees are
single (unmarried). From this further understand that majority employees are married in
the organization. Related with this the researcher understand that most of them are
experienced.

4.2. Education man power and their service duration

Introduction:- education is the way changing illiterate people to literate people and tool
of fighting backwardness from people. Education help to develop one country
economically, politically and others. Therefore, education plays a vital role for change of
every country. And also education provide important contribution for people by creating
awareness, by changing attitude and by developing psychologically. Below table describe
educated man power and services duration.

20
Table 4.2 Educated man power and services period of employees
Number of Percentage of
Education level respondent response
Certificate 3 17%
Diploma 11 61%
Degree 4 22%
Total 18 100%
Service year
2 year 6 11%
3 year 2 28%
> 5 year 7 61%
Total 18 100%
Source: primary data.
According to table 4.2 61% of employees in organization are diploma holders, 22% of
employee are degree holders and 17% of employees are certificate holders. From this we
can understand that, an organization has lack of in degree program graduate when
compared with diploma graduate program. As indicated in the table above an
organization has lack of highly skilled human power.

Table 4.2 also show that 61% of respondents have five years and more than five years
experiences, 28% of employees stay in organization for three years up to five years and
11% of employees have two years experience. From this we can understand that
organization has more experienced employees, related with this experienced employees
who performs organization work efficiently and effectively.

21
Table 4.3 Tax Payers and Awareness About Taxation

Tax payers are peoples who engage indifferent business activity and those who pay their
expected tax liability from their own income. Some of them are loyal and awareness
about taxation but most of them are not loyal and awarness about and below show
attitude of tax payers.

Question Response Number Percentage

Do most tax payers pay Yes 13 72%
No 5 28%
their tax liability on
Certificate time?
Total 18 100%
How do you evaluate the Good 15 83%
knowledge of tax payers Bad 3 17%
about taxation? Total 18 100%
How is more responsibly Tax payers 4 22%
Tax office 11 61%
for tax collection and
Any government body 3 17%
assessment? Total 18 100%
Source: primary data.

As we can seen on table 4.3 show that 72% of respondent provides that majority of tax
payers as pay their expected tax liability on time. This indicates that most of tax payers
has good understanding and awareness about taxation. But only 28% of respondents are
not pay their expected tax liability on time. This show that those tax payers has poor
understanding and awareness about taxation. From this we can understand that majority
of tax payers are motivated to pay their expected tax liability by understanding tax
payment will benefit them selves. Further indicate that those tax payers known for what
purpose as they have to pay and to whom as they pay on the other hand, the other have
not motivated for doing this due to carelessness of them.

Table 4.3 further that 83% of employees responses has good knowledge about taxation
from these we can understand that almost all tax payer pay their tax liability in fear of
punishment made by government. Not only that majority employees are develop their

22
understanding about taxation, because they knows as government rendering command
benefit to public. But only 17% of respondent has knowledge about taxation. This means
those employees do not have knowledge about taxation because they do not know the
purpose of taxation.

Table 4.3 further indicates that 61% of respondents said that responsibility of tax
collection should be given to the office and 22% of respondent from employees are
considered as tax payer and also any government body response 17% responsible for tax
collection. Further understand that, tax office was the main responsible body to collect
tax liability because tax office are governmental body and formed for seek of collect
taxation to the government. Due to these most employees considered as tax office is the
most responsible, body than any other government body. And other government body not
considered as the main responsible body, but considered as optional to collect tax
liability.

4.4. Tax Payers Feeling and Payment Period of Taxation

Tax payer are those people who are registered for tax payment to the government and
there is May party to the tax payer like trade and merchants. Tax payers has different
attitude about taxation. Therefore some of tax payer has positive attitude and most of
other has negative attitude about taxation. Because of the tax payers knowledge about
taxation are not equal payment period of taxation means payment schedule of taxation
and the table below describe about tax payer attitude and payment period of taxation.

23
Table 4.4 Tax Payers Feeling and Data of Tax Payment
Question response Number Percentage
How do you feel about taxation? As obligation 20 29 %
As debt 10 14 %
As useful 40 57 %
Total 70 100 %
When do you pay tax liability? When I receive assessment 33 47%
notification
Before due date 10 14%
After due date 27 39%
Total 70 100%
Source: primary data.

Indicate above table most of tax payers feel taxation as useful, by considering the service
reordering from the government for the command benefit of public majority of tax payers
pay their tax liability when they receive assessment notification.

As indicate above table 4.4 57% of respondents was feel the taxation as useful. This show
that majority of tax payers are considering taxation as useful. Further understand from
those, most of tax payer have knowledge and awareness about taxation and they
understand a government render enormous good and service for general and command
benefit to the people as whole. And 29% respondents was feeling the taxation as
obligation this is because some people is lack of understand about taxation, but only 14%
of respondent was feeling the taxation as debt because of these are poor understand about
taxation.

Table 4.4 further indicate that 47% of respondent pay their expected tax liability when
they receive assessment notification, related with this majority of tax payers want to pay
when they receive assessment notification. From these we understand the most of tax
payers are loyal to pay tax collection body of government. And 39% of respondents pay
their tax liability after due date and also only 14% of respondent pay their tax liability
before due date. From these we can understand that those tax payer are not loyal to pay
their tax liability and related with these lack of understand about taxation.

24
4.5 Comparisons of Present Taxation System and Annual Income Tax Payers.
Introduction present taxation system is a system provide by present government which is
acceptable and suitable by majority of tax payers and employees. For example present
taxation consider ability of tax payers. Below table describe about present taxation
system and annual income of tax payment.

Table 4.5 comparison of present taxation system and annual income of tax payers.
Question Response Number Percentage
How do you see the resent taxation system? Good 60 86 %
Need 10 14 %
restatement
Total 70 100 %
Is your annual tax liability based on your Yes 52 74
No 18 26 %
income?
Total 70 100
Is the tax payment is enough? Yes 52 74 %
No 18 26 %
Total 70 100%
Source: primary data.

As show above table 4.5 present taxation system in Ethiopia case considered as good
because most of respondent said that tax liability imposed on tax payers are based on
their annual income. This shows that in town tax office apply equity principle of taxation.

According to the above table 4.5 show 86% of respondents look the presentation system
as a good. This show that tax collection system was considers ability of tax payers.
Further understand from these each tax payers pay their tax liability based on their ability
and has positive understand and awareness about taxation. But only 14% of respondents
are considering the resent taxation system as needed restatement. From this we
understand that tax payers show poor understand about taxation related with these lack of
knowledge and awareness from side of tax payees therefore, they considers as
government impose heavy burden only on them.

Table 4.5 further indicate that 74% of respondent said that as their annual tax liability
based on their annual income. Only 26% of respondents were said annual tax liability not

25
relate with their annual income. Farther understand from these are poor understanding
from side of tax payers about taxation.

Table 4.5 further show that 76% of respondents consider as a given enough period to pay
their expected tax liability. But only 26% respondent were not agreed with the period
given to them to pay their expected tax liability. From these we can understand that,
almost majority tax payers voluntary to pay their expected tax liability with in given
period of time.

4.6. Problems Related With Tax Payment

Introduction tax payers fare such problem when they want to pay their expected tax
liability. Therefore most of tax payers has negative attitude on tax collection body of
government. Below table shows that problem related with tax payment period.

Question Response Number Percentage

Do you face any problem Yes 30 43 %
No 40 57 %
when you got to pay tax
Total 70 100 %
liability?
Is your answer is ‘yes’ for Absence employees in office 44 63%
Waiting for long time 26 37%
question 6 above what
Total 70 100
type of problem?
Source:- primary date

According to the table 4.6 57% of respondents were share their idea to us as not faced
problem related with tax payment when they go to pay their expected tax liability. From
these we can understand that sebeta town revenue authority as provided standard
assessment to collect taxation from tax payers. But only 43% of respondents said that, as
minor problem they would have faced when they go to pay their expected tax liability.
Further indicates on table 4.6 63% of respondent as faced with problem of absence of
employees (tax collector) in the office. This might they went office after an employee had
left the office to have lunch or other purpose and 37% of them faced with waiting

26
problem for long time. It also might be over crowing office with other tax payers. If there
is many tax payers top wait on all them it may take much time.

As researcher personally discussed with some of revenue authority employees there are
the problem of low scale of salary which they get monthly and motivation in the tax
assessment and collection bureau, which lead to carelessness and misstatement of tax
payers. Moreover the tax collector did not have adequate skill.

4.7. The Relation of Tax Paid Amount and the Service Which
Rendered from Government
Introduction most of tax payers are business activity provider and can be known their
annual income by calculating expenditure and revenue which earn their business activity.
Government provide such good and service to public as whole, such as road,
infrastructure, water, electric and health center and school … etc. By considering all these
service which rendered from government tax payers satisfied with those service then
willingness to pay their expected tax liability to government. Below table describe about
relation between amount of tax paid and service of government render to public as whole.

27
Table 4.7 the relation of tax paid amount and the service which rendered
Question Response Number Percentage
Do you know the annual income of your Yes 45 64
No 25 36
business?
Total 70 100 %
How much do you satisfied from service I satisfied 50 71
you receive in return to pay tax?
I slightly satisfied 20 29
Dissatisfied - 0
Total 70 100%
The amount of tax that you pay is related I agree 35 50
with services you receive?
I can’t decide 20 29
I disagree 15 21
strongly
Total 70 100%
Source: primary

As indicates above 4.7 almost majority of tax payers satisfied with these service which
rendered from the government related with the tax paid from them.

As we can table 4.7 64% respondent were known their annual income of their business.
Due to these known the annual income of business is covering large area or absence of
due consideration toward the business income and expenditure computation.

But only 36% of respondent do not know their annual income. That means tax payers has
not knowledge about covering large area or absence of due consideration toward the
business income and expenditure computation. Further understand almost most tax
payers has knowledge about their income by calculate annual business income
expenditure.

Table 4.7 further indicate that 71% of respondents were satisfied from the service is
receive in turn to paid tax to the government. Form these we can understand that,
respondent known service rendered from government as related with the tax liability they
paid. And only 29% of respondent were slightly satisfied from the service is receive in

28
return to pay tax to the government. With regard to the amount of tax payment 50% of
respondent were agreed on amount that majority of respondents has positive from
government. Only 21% of respondents were disagree strongly with rendered service from
government. That means those respondents as lack of awareness about taxation.

Table 4.8. Budget and actually collected amount of revenue

Year Budget Actual %
1999 27833852 29582146 106
2000 82305107 81452248 98
2001 130168803 11869809 91
2002 205316481 13663371 66.5
2003 118696331 104194797 85
Source: secondary

Above table shows that 1999 years budgeted amount revenue less than actual amount of
revenue. But from 2000 up to 2003 year budget amount revenue are greater than actual
amount of revenue.

As we can seen in above table revenue authority collected revenue in 1999 was 29582146
from 27833852 budgeted amount. This show that there is good standard assessment to
collect revenue in this fiscal period. Therefore actual, amount are greater than the
budgeted amount. In the next period or in 2000 collect amount are 81452248 from
82305107 the budget amount of revenue. In generally budget increase from year 1999 up
to 2002 and become decrease at year 2003, but the actual amount of collection from year
1999 2003 become variable means that one year increase next year decrease up to 2003.

29
 Chapter Five

5. Findings Conclusion and Recommendation

5.1. Summary of Finding

The study was designed to assess taxation and related problem in sebeta town revenue
authority. It is also intended to suggest possible solutions to the problem identified on the
basis of the data collected from information that obtained from a written documents and
from respondents, the study has come up with the following findings presented under this
chapter. As shown in the result analysis and discussion section, in sebeta town tax payers
and employees are the main participant by paying their expected tax liability to the tax
office. Therefore, taxations were the main source of revenue to the revenue, authority to
the tax office. Therefore, taxations were the main sources of revenue to the revenue
authority of town. In town most of tax payers feel taxation as useful and their underrated
about taxation was highly developed and has positive awareness to taxation.

Most of tax payers were agreed with the present taxation system. This show that in town
tax office followed equity taxation principles. Due to this in town tax payers paid their
expected liability based on their own capital amount or based on their annual income.
Majority of tax patters satisfied from service received through government based on tax
paid. Revenue authority of town was develop standard assessment about tax collection
due to those able to develop revenue collected amount from 1999 – 2003.

30
4.2. Conclusion
As far as government has existed and performed various activities it should come up with
means of financing its activities. There are four method of financing sale of goods or
service, borrowing, printing paper money and taxation. From these sources, taxation is
the main source to rise necessary fund for payment of expenditures which incurred by the
government. Taxation is the most common way of financing government activities.
Those activities are provided to the community without charge and necessary funds are
collected by requiring person to make payment to the government in accordance with
some established criterion. As the tax payers under the study, majority of them feel
taxation as useful. This indicate that positive understand about the concept of taxation.
Even though, tax imposes a personal obligation on the tax payer the amount of tax
received from the people is issued for the general and common benefit of the people as a
whole. Even if, present taxation system was not fully, good, majority of tax payers
taxation as useful. Therefore, most of tax payers satisfied with the service which rendered
from government return to their tax paid. Therefore majority of tax payers can finish
payment of the tax liability with in given time frame. Tax objectives are ultimately
connected with over all economic and non economic policies of the government. As a
result, the objectives of a tax system in developed country tend to be differs significantly
from those in developing country. In line with generating revenue, taxes used as;
 Discouraging consumption of non-essential goods.
 Discouraging consumption of certain good i.e discouraging the importation of
some good from abroad to encourage domestic product.
 Stabilization function it is during inflation government charge least taxes on the
product. In this way the economy becomes stable.
Tax has multiple objectives to raise sufficient resource of revenue government use
various types of taxes and range of tax rates. The Ethiopian tax structure is composed of
two types of taxes. Direct tax and indirect tax respectively. The current tax proclamation
and related regulation divided tax payers in to three categories, categories “A” category
“B” and category “C” based on the value of sales and from of business organization.
Excessive tax rate, poor quality of tax administration frequently change a policies and
lack of up to date information for tax payer, however, leads to undesirable economic

31
effects. In this connection any taxes tends to discourage society. As tried to shown on the
analysis part of this study a number of problem a rise in the tax assessment and collection
in Sebeta Town Revenue Authority.

32
4.3. Recommendation

In the data presentation data analysis few weakness and problem in tax assessment and
collection office and tax payers were observed. The problem in both office and tax
payers, are mention as conclusion as indicated above here attempt is made to give
recommendations that help to have an efficient and proper of clear and transporting rule
and regulations.
 Man power is the most important resource that should be given special attention.
 The man power structure of revenue authority should be occupied by competent
personnel. Therefore to enhance their capacity and improve their effectiveness,
the employees should get training.
 For effective and proper tax assessment and collection, measure should be taken
to revise and update the existing tax laws.
 Tax payers must receive clear, concise and up- to -date information an describing
what is to be taxable, how to calculate their tax liabilities and procedure for
calculating pay taxes where and when they pay taxes.
 The tax payers should develop positive attitude towards taxation as it is crucial for
country development.
 To improve the tax assessment and collection activities, the existence an active
participation of adequate, qualified and committed personnel is important. To
make the tax assessment and collection process effective and efficient, the office
are expected to initiate tax payers to keep book of account income on time. This
protects the office from unfair tax assessment and helping to prevent tax evading
and avoidance.
 To generalized, based on the existing problems; recommendations has been made
to minimize the weakness of tax assessment and collections of Sebeta town, so the
head the office as well as personnel’s of each department should discharge ethers
responsibility well to get success in tax administration and to achieve the policy
of government.

33
 References
1. Bernand P. Herber modern public finalce (5th edition).
2. Dr BL. Bhatia, 2003 public finance 24th revise edition).
3. Dr Ramaswani parames warn Nov, 2005 public finance
4. Gebrie worku 2008, tax accounting in Ethiopia context 2nd edition.
5. Gebrie Worku (MSc) 2006, tax accounting in Ethiopia context 1st edition
6. Misrake Tesfaye, 2008, 1st edition. Ethiopia tax accounting theory and practice.
7. World, book, encyclopedia, vap 1952.

34
 Appendix
Jimma University
College of Business and Economic
Department Accounting

The purpose of questionnaire is to collect data on tax assessment and collection problem
in sebeta town and regarding confidentiality it is required only for academic purpose and
your respective response will be kept in confidentiality.

Instruction
Put tick mark  in the appropriate box for each question.
1. Sex
Male  Female 
2. Age
18 – 20  26 – 30  39-45 
21 – 25  31 – 38  > 45 
3. Marital status
Single  Divorced  Married  Widowed 
4. Education level
Grade 10th – 12th  Degree  Diploma
Certificate  Above degree 
5. Years of services
1. year  3-5 year 
2. year  > 5 year 
6. Do most tax payers pay their tax liability on time? Yes  No
7. How do you evaluate the knowledge of tax payers about taxation?
High  Medium Low
8. Who is more responsible for tax collection and assessment?
Tax payers  Any Governmental body Tax office 

35
Questionnaires to tax payers
1. How do you feel about taxation?
As an obligation 
As debt 
As useful 
2. When do you pay tax liability?
When I receive assessment notification
Before due date 
After due date 
3. How do you see the present taxation system?
Good  Need restatement  No bad 
4. Is your annals tax liability based on your income?
Yes  No 
5. Is the tax payment period enough?
Yes  No 
6. Do you face any problem when you got to pay tax liability?
Yes  No 
7. If you answer is yes for question 6 above what types of problem?
Absence of employee in the office 
Waiting for long time 
Cost of money in packed 
8. Do you know the annual income of your business?
Yes  No
9. How much do you satisfied from service you receive in turn to pay tax?
satisfied more  slightly satisfied  satisfied  dissatisfied
10. The amount of tax that you pay is related with service you receive.
I agree very much  I don’t agree 
I agree  I disagree strongly 
I can’t decide 
Questionnaires to tax payers
1. How do you feel about taxation?
As an obligation 
As debt 
As useful 
2. When do you pay tax liability?
When I receive assessment unitization 
Before due date 
After due date 
3. How do you see the present taxation system?
Good  Need restatement  No bad 
4. Is your annals tax liability based on your income?
Yes  No 
5. Is the tax payment period enough?
Yes  No 
6. Do you face any problem when you got to pay tax liability?
Yes  No 
7. If you answer is yes for question 6 above what types of problem?
Absence of employee in the office 
Waiting for long time 
Cost money in packed
8. Do you know the annual income of your business?
Yes  No 
9. How much do you stratified from service you receive in turn to pay tax?
Scarification more  slightly satisfied 
Satisfied  disserted 
10. The amount of tax that you pay is related with service you receive?
I agree very much  I don’t agree 
I agree  I disagree strongly
I can’t decide 