THE IMPACT OF TAXATION ON THE DEVELOPMENT OF

SMALL BUSINESS

DEBRE MARKOS UNIVERSITY BURIE CAMPUS

DEPARTMENT OF ECONOMICS

A RESEARCH PROPOSAL SUBMITTED TO THE DEPARTMENT OF

ECONOMICS DEBRE MARKOS UNIVERSITY BURIE CAMPUS IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR BACHELAR
OF ARTS DEGREE IN ECONOMICS.
PREPARED BY:
NAME ID NO:
1. ALEMAYEHUWOLDIE BER 789/11
2.DEMEKFRIEW BER 800/11
3. TADESSE MELASH BER826/11
4.HIBST BRIHAN BER810/11

ADVISOR: MESSENBET(MSC)
BURIE, ETHIOPIA
APRIL,2021

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Contents
CHAPTER ONE..............................................................................................................................................1
1. Introduction.............................................................................................................................................1
1.1Background of the Study.........................................................................................................1
1.3 Research Questions................................................................................................................3
1.4 Objective of the Study............................................................................................................3
1.4.1 General Objective.......................................................................................................................3
1.4.2Specific Objective................................................................................................................3
1.5 Significance of the Study.......................................................................................................4
1.6Scope of the study...................................................................................................................4
CHAPTER TWO.............................................................................................................................................6
2.1Theoretical Review of Literature............................................................................................6
2.2 Introduction to taxation..........................................................................................................6
2.3 Historical development of Taxation.......................................................................................7
2.3 History of taxation in Ethiopia...............................................................................................7
2.4 Taxes during the transitional government of Ethiopia...........................................................8
2.4.1Taxes during the Federal Democratic republic of Ethiopia (Current)...........................................8
2.5 Tax system on small business................................................................................................8
2.6 Tax rate..................................................................................................................................9
2.7Classification of tax in Ethiopia..............................................................................................9
2.7.1Direct tax.....................................................................................................................................9
2.7.2Indirect tax.................................................................................................................................10
2.8 Classification of taxes based on their affect on income.......................................................10
2.9Canons of taxation................................................................................................................11
2.10Taxation in Ethiopia............................................................................................................12
2.10.1 Categories of tax payers.........................................................................................................12
2.11 Empirical Review...............................................................................................................15
CHAPTER THREE........................................................................................................................................17
3. Research methodology..........................................................................................................................17

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 3.1. Description of the Studying area.........................................................................................17
3.1.1Source and type of data......................................................................................................17
3.2Methods of data Collection...................................................................................................17
3.3 Sampling Technique............................................................................................................18
3.4Method of data analyzing and Presentation..........................................................................20
4 Chapter Four...........................................................................................................................................21
4.1 Budget plan..........................................................................................................................21
4.2.Budgeting.............................................................................................................................22
Reference..................................................................................................................................................23

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 CHAPTER ONE

1. Introduction

1.1Background of the Study

The development small business enterprise is greatly affected by the level of taxation, its
administration and compliance; the higher the task risk of the greater the efforts to fulfill taxation
requirements are met, the lower initiatives for small business enterprise to work hard. Thus,
maintaining the tricky balance between tax rate, compliance cost, tax administration and
economic growth should be a measure goal of every tax policy.(Burie Town Administration
Enterprise Office, 2021).

The relationship between taxation and the level of growth of small business enterprise has been a
debatable issue over the year. The perceived relationship can be either positive or negative
depend on the types of tax policy adopted by the government. However , it is generally agreed
that high tax rate can lead to decrease the activities of small business enterprise while lower tax
rate, on the other hand, tend to increase the growth of small business enterprise as profit are
increase which lead to further expansions of small business enterprise.(Palacio and
Harischadra,2014).

Therefore, if the government is want to promote growth, equity, environmental protection,

social security service, It should develop an acceptable tax policy that the people seem to be
more willing to pay. If they think that the fund raised for their own benefits and it feel fairly
treated relative to the individuals and groups with whom they compare themselves. A good tax
system will bring equitable economic growth and prevent tax evasion and avoidances shall be
develop (Gebrie.2006)

The tax payers were composed of two groups. The first group is that those tax payers whose
annual turnover for a single year is 500.000 or of Ethiopia irrespective of their annual turnover.
The rational for incorporating companies irrespective of their annual turnover seems to dwell

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(taking) upon the idea that give the present local & international business environment by the
time companies are established they must have at least 500.000 as a starting capita ,l(Burie town
Administration Enterprise Office,2021)

Tax on business profit has complex matter. The profit goes partly to meet the interest liability
and the rest is retained by the employer as a surplus. When a tax is imposed on profit the
employer tries to shift its incidence. If the capital invested is in agriculture he/she would reduce

If none of those two avenues is a viable to the producer, he/she would reduce the interest to be
paid to the supplier of capital funds. In the same way if a direct tax is imposed up in interest like
a tax on land rent it sticks where it is levied and cannot be shifted one possible effect of a tax on
interest. However, is that it is not easy to administer it. It is not a very suitable subject for
taxation since it might cause capital out flow from the taming country. In general the rent, which
is to be paid to the land owner & the incidence will lie upon land rent. But if the capital
employed is in trade, the employer would raise the price to compensate himself for the fax
liability of the incidence will fall up on the consumer.

“Smith” is against taking profits since that discourages investment employment and therefore
economic growth of the country. (H.L Bhatia, 2006)

1.2 Statement of the Problem

The significance of small business enterprise in their contribution to job creation and out put
generation now a day is being widely accepted in the world. Small businesses are found in the
advanced economy of as well as developing countries. The contribution of those enterprises to
income and employment are very much considerable particularly in the economy of many
developing countries. Because the success of an economy especially for developing countries
start from the indigenous knowledge and resources base of a countries since small business play
great role in mobilizing these resources.

The tax assessment on the small business organization or enterprises in Burie town as common
throughout the country, are assess through estimation technique. This method of assessment may
result in person as well as business, which is expected to be creating the problem of under or
over estimation of their capital accumulation; more over this estimation is based on the past

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performance of those small business enterprises, rather than to refract the prevailing
performance of the assessment.

Now a day complaining for unfair payment of taxation in Burie town is reveling tax payer’s
awareness to tax evasion

With this background the study was made use of data from the taxable small business
enterprise in Burie town and also tries to find remedies for the biasness of estimation
technique.As it is explained before, the study focus on the taxation and its impact on the
growth of small business, such as service, manufacture, construction, urban agriculture, and
trade.There may be academic researchers that exeunt a number of works to identify the impact
of taxation on the small business. In some studies taxations was tested as the duty for the
owner of small business enterprise and revenue for the government itself those are mostly
focus on the mere of data collection and interpretations, rather than give solution for the
drawbacks of taxation system. But in this study, the researcher will tries to give essential
solution for the drawbacks of tax levying system.

Generally the study will try to provide better knowledge for the owners of small business about
the benefits of taxation on their business operations and it could give information to the
government about the drawbacks of the tax levying system.

1.3 Research Questions

The researcher will wants to answer the following questions, which have relations with taxation
system.

1. How tax is estimated and imposes on small business?

2. How taxation affects small business and eventually leads them to shut down

3. Why income tax is need on small business?

1.4 Objective of the Study

1.4.1 General Objective

The general objective of the study is to explore the impact of taxation on the growth of small
business enterprises in Burie town.

1.4.2Specific Objective
1. To identify the implication of taxation on the owners of small business, such as service,

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Manufacture, construction, urban agriculture, and trade .

2. To identify the impact of taxation on the development of small business in Burie town.

3. To recommend feasible solution for the improvement of small business, tax estimation on
small business.

1.5 Significance of the Study

The focus of the study would be on taxation and its impact on small business. Therefore, the
study would have the following benefits.

It provides information for small business owners about the impact of taxation on their business
operation.

It informs concerned government body about the drawback of the system on their policy of
expansion of small business to reduce unemployment and poverties. Therefore, the researcher
would obligate or encourage to conduct this research and to search effectively through the impact
of taxation on small business development. The main significance of this research is to get BA
degree in Economics and also serve as a review for future researchers.

1.6Scope of the study

The study would be limit to only the impact of taxation imposes on small business with the
particular area of Burie town. Means it would not focus on the other determinants of the growth
of small business.

The study would have five chapters. The first chapter is introduction part which includes
background, statements of the problem, objective, significance of the study, scope of the study,
the research question methodology, data source, limitation of the study, sampling size and
technique, organization and work plan as well as table of content.

Chapter two includes literature review; chapter three embodies methodology of the study.
Chapter four consists analysis and discussion and chapter five includes conclusion.

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 CHAPTER TWO
2.1Theoretical Review of Literature

2.2 Introduction to taxation

Taxes are the primary sources of government revenue though the proportion of tax revenues to
total government varies considerably. Tax can be also defined as financing government function.
Tax burdens are ultimately borne by individual even though they may be formally paid by
business entity such as corporation which is owned by single individuals. Taxes can be impose
on any of the four primary tax basis, with hybrid, combination is also possible. The primarily
basis consists of income, wealth, sales transaction and people (Federal Income Tax
Regulation,2017).

Tax is a compulsory contribution imposed on the individuals by the state to meet the expenses
which are incurred for a common use. In context of SMEs, basically Tax can be classified into
two major categories basing on the incidence of tax as well as ‘tax to income’ ratio. According to
the final resting (incidence) of tax there is direct tax and indirect tax. The direct taxes include
corporate income tax, property tax and tariffs whereas the indirect tax comprises of sales tax and
Value Added Tax (VAT) (Tax Types, 2017).

When we come to the case of Ethiopia under the Federal Urban Job Creation and Food Security Agency
Establishment Council of Ministers Regulation No.374/2014 small and micro enterprises are defined as
an enterprise having a total capital of up to 500,000 in the case of service sector up to 1,500.000 in the
case of urban agriculture, artisanal mining and construction sector engages from 5 to

30 workers including the owner, his family members and other employees (Federal Urban Job Creation
and Food Security Agency Establishment Council of Ministers Regulation , 2016, Federal Negarit
Gazeta, Reg. No. 374, 22nd year, No. 41, Article 2 (3) and (4). [Here in after Regulation No. 374/2016).

This proclamation employed size criterion and economic criterion of number of employees and annual
turnover respectively. Coming to the Ethiopian income tax Journal of Public Administration, Finance and
Law Issue 17/2020 331 proclamation (Federal Income Tax Proclamation, 2016, Federal Negarit Gazeta,
Pro. No.979, 22nd Year, No.104. [Here in after Proclamation Number 979/2016), there is no any single
provision which directly define as to what is small business and small business tax payers. Rather the law
divided business tax payers in to categories as category“A”,“B” and “C.” Category “C” taxpayer is
contextualized as small business tax payers. Accordingly, as per the recent income tax proclamation
(Ibidem )of Ethiopia, sole proprietor whose annual turnover is below five hundred thousand (Ibid, Article
3) and small and micro enterprise whose annual turnover is below five hundred thousand birr are

6
regarded as small business tax payer (Ibid. Article 48). In fact, small business is very important economic
sector in every nation ranging from developing to developed countries and common only they are
considered as the socio-economic indicators of a given country.

According to Burie Town Administration Enterprise Office (202), Taxation is defined as follow.
Taxation is a system of rising money to finance governmental expenditure all governmental
agency require payment of money taxes from people. Government use tax revenues to pay
soldiers and police to build dames and roads, to operate schools, hospitals, to provide food to
the poor and medical care to the elders and for hundreds of other purposes. Without taxes to
fund its activities a government would cease to exist.

2.3 Historical development of Taxation

Taxes are as old as human civilization in the earlier days. A payment of tax was within option. A
choice was given to the people to pay tax and to avail the benefit of social amenities in the form
of education health and sanitation utilities and p prevention facilities etc. but the option in
payment of tax created a lot of problems for the government in fulfilling their obligation to the
society. (Ramaswamin, 2005).

Hence the modern time, option was withdrawn and tax becomes a compulsory contribution by
every citizen to the government to enable the government to fulfill its commitments towards
the society in Sumerian civilization (in to days Iraq). Around 6000 years ago the inliabitants used
to Pay tax to finance war. In Palestine.Egyptian and Babylonian civilization to individual to work
for them. Poll tax were a major sources of revenues in Egyptian in the period 323 BC to 30 B C.
more than 100 years later, emperor Augusta’s introduced and inheritance taxes.
(Ramaswamm’ 2005).

2.3 History of taxation in Ethiopia

The History of tax reveals that their coercive nature is of comparatively recent development. The
original idea of tax was that payment was not obligation upon the subject. But consider rather as
a voluntary contribution towards the expenses of governments as appears from the medieval
Latin term “donum” and the English “be nonviolence”. This conception of relation between the

subject and government was gradually transformed; payment becoming more and more

Obligatory until finally coercive taxation resulted. At the present time payment of taxes are
obligatory in all civilized nations; where the rate is at all dependent up on the tax pays, the tax
takes the form of a fee or payment for contractual services. Resources in Ethiopia were allocated
among the various sectors of the economy differently in the imperial, revolutionary and in the

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current period. Under the emperor the government dedicated about 36% of the annual budget to
national defense and maintenance of internal order.

To words the end of the imperia imperial period the budgets of various ministries increased
steady while tax yields stagnated. With a majority of population living at subsistence level. There
was limited opportunity to increase taxes on personal or agricultural income.

The revolutionary government changed the tax structure in 1976 replacing taxes on agriculture.
Income and rural land with a rural land. Use fee and a new tax on income from agricultural
activity. The government partially alleviated the tax collection problem that existed during the
imperial period by delegating the responsibility for collecting the fee and tax on agriculture to
peasants association which received a small percentage of revenues as payment. Whereas total
revenue increased significantly to about 24% GDP in 1988189. (Yohannesmesfin and
sisayBogale, 2009)

2.4 Taxes during the transitional government of Ethiopia

Taxes during this period were designed in the light of fiscal federalism in order to stimulate
economic growth to overcome vertical and horizontal fiscal balance familiarity. Economic in
efficiencies, inequity and all distortions in the economy in line with the market based economic
orientation (Gebrie, 2006).

Transitional government of Ethiopia amended the previous personal income tax and the first birr
105 monthly personal income was exempted from the payment of income tax for monthly
income tax of birr 106 and above, the marginal tax rated ranged from (0% to 50% for monthly
income of over birr 2005) with income tax brackets proclamation No 30 192. (IBID: 2006)

2.4.1Taxes during the Federal Democratic republic of Ethiopia (Current).

According to the new constitution of Ethiopia, adopted in November 1994, the federal
Democratic republic of Ethiopia could comprise a federal state and member states in which both
organs shall have their respective legislative, executive and judicial power. The federal and
regional government all taxes. The sharing of revenue between the central government and
national or regional government was set with proclamation No 33/1992. (Gebrie, 2006).

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2.5 Tax system on small business
The tax system on small business is among the small business. Because tax system now a day s
increases from year to year. A small business has a vital role in the economy of the country.
Even if taxation is the main sources of revenue generating for the government, it is the most
direct and visible way that affect the small business environment. As the reason the tax system
for the small business, estimation of tax above the tax system for the small business, estimation
of tax above the ability of small business to pay some defect existent and administration
procedure, collection enforcement and administrative penalties are the major problem of that
hampers the life of the small business. (Burners and Moore, 1983).

2.6 Tax rate

According to the proclamation No286 /2002, sub article 19 in Ethiopia bodies (company,
registered partnership entity formed under foreign low resembling a company or registered
partnership or any public enterprise) are taxed at the rate of 30% and the other tax payer shall be
taxed at the rate with respect to their annual taxable income in accordance with schedule.
Basically the existence of right taxation system with right amount of imposition is good to the
tax payers as well as to the governments. Small business are mostly owned and mainly a single
individual. They have less capital and less market share and also they are dependent on their
profit generating activity. Even if taxation is the source of revenues for the government it is the
direct and visible way that affects the small business environment.

Currently the tax system is among the most factor that discourage the development and growth
of small business. Because small business have not deals with complete taxation issues since
they haven’t generate enough profit especially at their in font stage. So that the amount of tax
imposition has need an auditing to identify the abilities of small business to pay (Gorham
Bannock).

2.7Classification of tax in Ethiopia

Government imposes many types of taxes. In most developed countries individuals pay income
taxes when they are earn money. Consumption tax when spent it, property tax when they own
home or land, and in some cases estate tax when they die. In general intermes of relationship
between the nature of tax and the reason for payment of taxes are classified as direct and indirect
taxes. (Gebrie.2006)

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2.7.1Direct tax
According to Dalton (cited in Gebrie and Gupta, 2006) direct tax as those with are paid entirely
by those people on whom they are imposed. Direct taxes are those taxes which cannot be shifted
to others. Thus it is intended to pay by person on whom it is imposed. It is direct tax on
immediately on the property and income of person are called direct tax. It includes tax on income
from employment, business profit tax, tax on income from rental of building, tax on interest
income on deposit. Tax on dividend income and tax on income from royalties.

2.7.2Indirect tax
Indirect tax is the type of that levied by the state consumption, expenditure and privilege but not
on income or property. Customs duties levied on imports, turnover tax, excise duties on
production, sales tax or value added tax at some stage in production distribution process are
included under this category. (WWW. Investopedia.com).

A. Value added tax (VAT) is a sales tax based on the increased involve or price of production at
each stage in its manufacture and distribution. The cost of the tax is added to the final price
and is eventually paid by the consumer. The rate at which tax or VAT taxed is 15% of the
value for every taxable transaction by a registered person. All imported good other them an
exempt import and an import of service. (www.investopedia.com/v/value added tax.asp )
B. Excise tax is imposed and payable on selected goods such as luxury goods and basic goods
which are demand in elastic. In addition it is believed that imposing the tax on goods that are
hazardous to health and which are cause to social problems will reduce the consumption
there of proclamation No 307/2002. (www.freshbook.com)
C. Turn over tax is an equalization tax imposed on persons not registered for value added tax to
fulfill their obligation and also to enhance fairness in commercial relations and to comp let
the coverage of tax system. Administrative feasibility consideration limit the registration of
person; under the value added tax to those with annual transaction to the total value
exceeding 500,000 birr rate of turnover tax is 2% on goods sold locally and 10% on others
under proclamation No 308/2002. (www.2 merkato.com)

2.8 Classification of taxes based on their affect on income

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

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A. Proportional taxes charge the same percentage of income as taxes from all tax payers,
regardless of their income. It applies the same tax rate across low, middle and high – income
tax payers. It stays a fixed percentage of ones income irrespective of how high or low the
income is for example a 10% proportional tax would mean that one making 100 birr pays
10% or 10 birr in taxes, while some one making 500,000 birr pays 50,000 birr in taxes
proportional taxes are also called flat tax. (WWW.Econmentor.com,)

B Progressive tax: - It is a tax in which the tax rate increases as the tax base increase. A
progressive tax takes a larger percentage of income taxes from the high- income group than in
does from the low – income group. It reduces the incidence of taxes on people with lower
income. Thus people with lower ability to pay actually payless. Under progressive taxes, the
lowest in come group including ones below the poverty level would pay little to nothing in taxes.
(www. Econmentor.com)

C, Regressive tax “Regressive” means going from higher to low. It is a tax imposed in such a
manner that the tax rate decrease as the amount of taxable income increase. The high-income
group pays less in taxes than the lower income group people with low income and low ability to
pay will pay higher taxes. (www.Econmentor.com)

Total tax

Progressive tax

Proportional tax

Regressive tax

X INCOME

2.9Canons of taxation
The canons of taxation are the main basic principle (rules) set to build a “Good tax system”.
Canons of taxation were first originally laid down by the economist Adam smith in his famous

11
book “the wealth of nation”. In this book Adam Smith only gave four canons of taxation. Those
are canons of equity, canons of certainty canon of convenience and canons of economy.

A. Canon of equity:- the principal aim at providing economic justice and social justice to the
society. According to this every person should pay depending on the ability to pay.
B. Canon of certainty:- according to Adam Smith the tax, which 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 will be collected by ways of tax. (H.L
Bhatia, 2006)
C. Canons 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 deduced at source. This system will encourage people to pay tax and
will increase tax revenue. ( H.L Bhatia, 2006)
D. Canon of economy: - this canon implies that the administration cost of tax collection should
be minimum. This means the revenue that collected from the people should greater that its
collecting cost. (H.L Bhatia, 2006)

2.10Taxation in Ethiopia

2.10.1 Categories of tax payers

Tax payers are classified in to the following three categories as category A, Category B, category
C and category D tax payers.

A. Category “A” tax Payer

Category “A” tax payer are required to submit to tax authority at the and of the year a balance
sheet as well as profit and loss statements with details of gross profit, general and administrative
expense and provision and reserves. This category of tax payers include any company

Incorporated under the lows of Ethiopia in foreign country having annual turnover of birr

500.000 Or more.

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2.1 Tax rate for schedule “A”

Employment income (Per month) Income tax payable

Over Birr To Birr
0 150
151 650 10%
651 1400 15%
1401 2350 20%
2351 3550 25%
3551 5000 30%
Over 5000 35%
Source Ethiopian revenue & custom authority

B. Category “B” tax payer

Unless already classified in category “A” any business having an annual turnover of over birr
100,000 would be classified under authority “B” tax payer and they submit to the tax authority
profit and loss statement at the end of the year (article (2) of income tax proclamation no
78/2002).

This category mainly includes income from rents of house and other within the following tax
rates table 2.2

Taxable income from rental /year Income tax payable

Over Birr To Birr
0 1800 Exempt threshold
1801 7801 10%
7801 16.800 15%
16.801 28.200 20%
28.201 42.600 25%
42601 60.000 30%
Over 60.000 35%
Source Erca

C Category “C” tax payers

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Those businesses whose annual turnover is estimated up to birr 100.000 are classified under this
category of tax payers. However, the ministry of finance and economic development office may
be directive increase (Article 187income tax regulation no 78/2002).

Tax rate for this is taxable business income of bodies is taxable at the rate of 30% & taxable
business income o other tax payers shall be taxed in accordance with the following schedule.

Table 2.3

Taxable Business income (per year Income tax payable

Over Birr To Birr
0 1.800 Exempt threshold
1.801 7.800 10%
7.801 16.800 15%
16.801 28.200 20%
28.201 42.600 25%
42.601 60.000 30%
Over 60.000 35%
Source Ethiopian revenue & customer authority

C. Category “D” tax payers are includes the following income sources such as royalties, income
paid for services rendered outside of Ethiopia. Income from games of chance, dividends,
income from casual rental of property interest of royalties shall be liable to tax at a flat rate of
five (5%) (procla.No286/2002)

2.11 Empirical Review

A Position of SMEs in the tax system

According to Mammon (2009) pointed out the level of the economy determines the segmentation
of business in to SMEs.

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In Ethiopia all business with annual turnover of less than USD 50.000 are grouped into SMEs.
Moreover this researcher state that the position of registered SMEs in the tax system covers 92%
and only 8% was covered by the large business.

Government focus on the development of strategy of national and regional micro as well as small
business. Business because, SMEs are mainly labor intensive and thus absorbs a large number of
work force and also this small business absorb both skilled and unskilled labor and reduces the
increasing trends of unemployment. Therefore, they play a vital role in the economy in general
(Mammo, 2009).

According to Mammon (2009) the majority of SMEs, pay taxes in presumptive scheme with the
margin of 10%-30% this is the latest reduce maximum rate declined from 76% to 30% in
Ethiopia and the tax rate for corporate is 30%

B Tax system and economics

Furthermore a sound tax system should be, so devised that it should fulfill certain basic
requirements or objectives of economy. Since 1930’s special attention has been giving to the
problems of controlling economic fluctuation, maintaining full employment, preventing
tendencies towards secular stagnation and controlling inflation during war periods or defense
emergencies. While full employment and the economic stability are important objective of public
policy in an advanced economy, economic growth is significant in a backward and under
developed economy. (World bank survey; 1994)

While a country wishes to become. Developed, it needs to collect in taxes an amount of closes to
25-30% of GDP than the 10-15% that found in many developing countries. In poorer countries,
however this threat of disintermediation may be a key fact to both limiting the government
ability to collect tax reargue and shaping governments policy more generally.

The growth however the broadening of the tax base, the increase of the tax rate, and the choice
of exemption will have disentail effects on the income/ expenditures of different groups of the
population)

Most of Ethiopians has poor (lack) of understanding of the rational of taxes and knowledge of
different taxes imposed on them.. As a result, the tax compliance in Ethiopia is still very low.

15
Beside that various surveys conducted on small scale businesses in Ethiopia suggest that most of
them keep no records all, while some of also keep partial records making it difficult to assess
taxes many traders have expressed ignorance about taxes imposed on their business.

They say that this is highly attributed to the poor work being done by the tax authorities; leaving
traders ignorant about issues like the way taxes are assessed, advantages of paying taxes and the
use to which it is put. Therefore, need to sensitize the public especially business owners (World
Bank survey; 1994)

Generally this chapter is analyzed using cross setting of literature dealing with taxation and the
growth or performance of small scale business enterprise (ssbs) however most of the literature
review does not give details about how taxation affects the growth of small scale business. There
was need to carry out a primary research to close the gap between research variable with taxation
and its impact on the growth of small business.

CHAPTER THREE

3. Research methodology

3.1. Description of the Studying area

The study will conduct in Burie town, West Gojam Zone in southern part of Amhara region state
of Ethiopia with the Latitude and Longitude 10', 42’N to 37’, 4’E and 10'700’N 37.067’E
distance North Bahirdar city. it bordered by South of Kirum woreda,SouthWestAmhara ,by

16
North South East Zone, by south, Southeast of Finoteselam.it has an altitude of 2091
meter(masl) and with maximum and minimum temperature 14° 22° as well as rainfall of 845mm
respectively.

Generally ,agroclimate condition of the town from dega (2300to3300)

weynadega(1500to23000),kola(500to1500)masl.the temperature of Burie town is 17°-260° and
annual rainfall ranges from1090mm-1500mm(CSA,2007) accordingly the population census of
Ethiopis,2013,the total population in Burie town 104,051 from this 49786 will be males and
54265 will be females. Amharic is spoken in the town and the majorities of the inhabitants are
Christianity and followed by Muslim.

3.1.1Source and type of data

The study will mainly depending on the informtion that will be gather in several trips including
field survey as well as from review of relevant documents. Both primary and secondary data will
be collect from the sample of people that exist and own small business in Burie town. Secondary
data would be collect from official documents and records that relate to the case to be study.

3.2Methods of data Collection

Different methods of data collection will be use in this research. Such as questionnaire, written
documents proclamations about taxes policies and procedures of the taxes which are experience
by the authority.

Both primary and secondary data will be use in data collection. Primary data will collect through
personal interview and observations in various sections. Reason for using primary data is to get
data that cannot be available to any other source. The secodarydats will be extract through
reviewing various document e.g. text books ,journal , and other peblished information that are
expect to be available.

3.3 Sampling Technique

The total number of small enterprise in Burie town is 154, which contains 262 members
participating in small enterprises. Based on this information samples will be taken from small
enterprises by using Yamane formula (1967).

n=NI/1+NI (e) 2 where,

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 NI=total target of population

n=sample size

e=level of precaution

Accordingly the above formula the sample size will be

n=262/1+262(0.1)2

n=262/3.62=72

From those different sector, the sample has been selected proportionally stratified sampling by
personal judgment decision. This is for purpose of comparsion between different sectors.

Each disproportional stratified samples in different sector can be determined the following
strata.Based on the above data72- respondents are selected.

1.Manufacture=14×72÷262=4

2.Construction =7×72÷262=2

3.Service=172×72÷262=47

4.Urban agriculture =1×72÷262=1

5.Trade=68×72÷262=18

n=n1+n2+n3+n4+n5

n=4+2+47+1+18=72

From total population that the small business employees, the sample that would be selected for
this study will 72 peoples. This sample size will be sufficient and representation of the total
population and stratified probability sampling technique would be use by the researcher to select
the expect sample size. This method will select by the researcher since the population under
consideration is not homogeneous in various aspects. To make them more homogeneous, they
have to be sub divided into their respective groups and they become homogeneous that the total
population and then random sampling method will be applies to each sub groups to obtain the

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representatives from each group. Therefore, this method employee would enable the research or
to generalize about those participants of small business in Burie town..

Stratified random Sampling will be used. This technique will choosing because the sampling
frame could be categorized into relatively homogeneous groups (strata) in their business type.
The stratum designed based on their type of sectors includes; such Manufacture, Construction,
Service, Urban Agriculture, and Trade.

After stratification, random sampling technique from the probability methods will used to draw
the final sampling units which are made to be proportional to the total number of enterprises in
each stratum.

Table 3.1 Sample Size Proportion

No Sector Total enterprise Sample size Samples taken

determination
by proportion
1 Manufacture 14 14×72/262 4
2 Construction 7 7×72/262 2

3 Service 172 172×72/262 47

4 Urban 1 1×72/262 1
Agriculture
5 Trade 68 68×72/262 18

Total 262 72
Source, field Survey(2017)

3.4Method of data analyzing and Presentation

The data collected from the subject to processing for easy interpretation and understanding .Data
collect will check for completness,catagorized,coded,andentered into computer where would be
summarized into frequency table edited and tabulation by the uses of percentage.Quantitatve
data would be represented in form of descriptive statistics using frequency table. Qualitative
data would be stored and grouped into themes. The research evaluated and analyzes the
aduguabcy of information in answering the research guest ion through coding of data, and
identifies catagories.Qualitative data was presented using narrative text.

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Having complete process of data, collections from both sources the research will be plan to use
mixed type of data analyze to draw conclusion and inferences. This data analysis embodies
frequencies, percentages and the likes. The researcher would be used percentages to facilitate
comparison and inferences more easily and finding would be computed manually using pocket
calculate or and also tabulation would be used in order to facilitate easy

4 Chapter Four

4.1 Budget plan

Months

February March April May Jun July

Task

Proposal writing  

Writing literature review 

Data collection 

Data analysis and discussion 

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 Conclusion and   S
recommendation

First draft report 

Final reports  

Typing final report 

4.2.Budgeting
This cost budget helps the researcher to know on the necessary research materials inputs and to
buy
There in the appropriate time. It also helps to control the cost of the materials because it is
already specified on the paper each material prices.

No. Item Unit of Quantity in Cost Total

measurement number (unit cost in
in birr birr
Stationary cost
1 Paper Ream 1 180 180
2 Pen Piece 2 10 20
3 Binding Piece 3 15 45
4 Exercise book Piece 1 20 20
5 Ruler Piece 1 10 10
6 Typing Birr 1 70 70
7 Printing Birr 3 60 180
8 Transportation Birr 4 15 60
9 Mobil card Birr 10 5 50
10 Flash disk Birr 1 120 120
11 Photocopy Birr 4 0.4 16
Total 771

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 Reference
1. Alkagubta, 2001, publice finance & tax planning.
2. Council of ministers, 2002. Income tax proclamation no 78 /2002 brehanna selame
printing enterprise, negaritgazeta, FDRE.
3. Council of ministers, 2002. Income tax proclamation no 286/2002, brhanna Salome
printing
4. Enterprise negaritgazet, FDRE
5. Federal Negarit gazeta of the federal democratic republic of Ethiopia (2017), Income tax
proclamation No. 410/2017.

6, Federal Negarit Gazeta of the federal democratic republic of Ethiopia (2017), Ethiopian 5.
Federal income tax proclamation, N0 .9792017.

7. Gebrie worku. 2006, tax accounting in Ethiopia, Alem printing enterprise 2 nd edition.
8. Groham Bannock R.E Baxter and even evils dictionary of economics

9. H .L Bhatia, 2003. Public finance, university of delhivikas, publishing house putcTD, 24 th

edition

10. H.L Bhatia. 2006, history of economic thought, fourth revised edition, university of Delhi.

11. MammoMuchie, 2009, promoting small and medium Entrprises (SMEs) for sustainable rural
livelihood. Nuguss, M, 2014, the consequences of tax assessment on tax collection of category
‘C’ tax payers in Ethiopia: a case study in Mekelle City,Tigray; Msc thesis, Addis Ababa
University.

12. Ramaswamin, 2005, public finance prince to university, United States.

13, Taxation of small and medium enterprises, (2007). Background paper for the International Tax
Dialogue Conference. 2007

14. Tesfay abate. 2003, Ethiopian tax administration

15. Tyaigi, 2003, taxation and inequality revenue 4th edition.

16. www.researchgate.net/put

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17. nairaproject.com/m/project.

18. www.2 merkato.com/…/ income tax regulation assessment and payment in Ethiopia.

19. Yohannesmesfin and SisayBogale, 2009, Tax low Teaching material.

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