Abraham Final Comment

ASSESSMENT OF VALUE ADDED TAX IMPLEMENTATION AND ADMINISTRATION
(ARBA MINCH CITY TAX ADMINISTRATION)
ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF ACCOUNTING AND
FINANCE, COLLEGE OF BUSINESS AND ECONOMICS, ARBA MINCH UNIVERSITY,
IN PARTIAL FULFILLMENT FOR THE REQUIREMENT BA DEGREE IN ACCOUNTING
AND FINANCE
BY: ABRAHAM DAGOYE

ID NO: EACF|007|09
UNDER THE GUIDANCE OF
TEWODROSE TEKLEHAWARIAT (MSC)
OCTOBER, 2020
ARBAMINCH ETHIOPIA
DECLARATION OF ORIGINALITY
The researcher, conform that the senior essay titled “ASSESEMENT OF VAT
IMPLIMENTATION AND ADMINISETRATION(THE CASE OF ARBA MINCH
CITYADIMINISTRATION)” is my original work and is being submitted in partial fulfillment for
the award of the BA degree in Accounting and finance in Arbaminch University. This report has
not been submitted earlier either to this University /Institution for the fulfillment of the
requirement of a course of study.
_________________ ______________
Name of student Signature
This student research paper has been submitted for examination with my approval as university
advisor.
__________________ _____________
Name of advisor Signature
___________
Date
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Acknowledgement
First of for most I would like to thanks my Almighty God. Next to this I would like to express
my heart full gratitude for my advisor, TEWODROSE TEKLEHAWARIAT for his rationale
advice, continuous follow up, constant guidance and giving me constructive comment and
correction in the completion of this study. Thirdly I would like to thank the department of
Accounting and Finance for offering the opportunity to undertake this research on this topic is
very interesting and challenging. Fourthly I would like to thanks Arbaminch city tax
administration they can give me the respondent for providing, valuable information, without any
doubt. Finally I would like to thanks all contributes that provided their support on one or the
other way to accomplish this research paper.
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Acronyms and Notations
AMTA----------------------------------------------------------- Arbaminch Tax administration
VAT………………………………………………..…… value added tax
FIRA………………………………………………………Federal Inland Revenue authority
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LIST OF TABLES
LIST OF TABLES Pages

Table 4.1Assessment of the knowledge of VAT registered tax payers about VAT--------------221
Table4.2 the administration efficiency to control non-compliance tax payers in the city----22
Table 4.3 to identify factors that affect VAT implementation and administration practice in the
city --------------------------------------------------------------------------------------------------------22
Table4.4 the performance of tax administrating authority under the control of VAT registered tax
payers in the city---------------------------------------------------------------------------------------------
Error! Bookmark not defined.
Table 4.5 Related to Comparative Questions to know about the knowledge of the VAT registered
taxpayers towards VAT rules, regulations and proclamation -----------------------------------------26
Table 4.6 the administration efficiency to control non-compliance tax payers in the city---------29
Table 4.7 the sector that the VAT tax payers registered -----------------------------------------30
Table 4. 8 Type of business that can be VAT tax payer registered --------------------------------30
Table 4. 9 Awareness of tax payers about VAT ---------------------------------------------------30
Table 4.10 Knowledge of tax payers about VAT rules and proclamations -----------------------31
Table 4.11 Response of VAT registered tax payers about the period of time VAT pay ------32
Table4. 12 Administration efficiency by giving explanation to VAT payers beforeregistration -33
Table 4.13 Factors affecting VAT implementation and administration in the city ---------------
Error! Bookmark not defined.
Table 4.14 Performance of the administration under the control of VAT registered tax payers
-----------------------------------------------------------------------------------------------------34
Table 4.15 Efficiency of the administration under the control of non-compliance tax payers
-----------------------------------------------------------------------------------------------------35
Table 4.16 Response of VAT registered tax payers about quality of service that VAT
administrator gives to tax payers -------------------------------------------------------------------38
Table 4.17Arba Minch Town Revenue administration Office---------------------------------------38
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ABSTRACT
The aim of the study is to assessing the overall VAT implementation and administration practice
of Arbaminch city tax administration. To achieve this objective the researcher used quantitative
and qualitative research methodology as the researcher’ used more of questionnaire and also
interview as a means of enhancing the data that is collected using questionnaires. The total
population of the study is 1559 in VAT registered tax payers and 60employees of the city tax
administration unit, of which 65 VAT register tax payers was selected using random sampling
and 32 employees from the administration by using random Sapling method. Therefore,
researcher used total sample size of 97 both in VAT registered tax payers and employees of the
administration. The researcher also applies questionnaires, interviews and annual report of the
administration to collected both primary and secondary data respectively. The researcher
applied descriptive statistics analysis like mean, Median, and mode to analysis the data that
collected. Finally the research conclude that, there are various contributing factors that affect
VAT implementation and administration in Arbaminch city such as lack of education of the VAT
register tax payers about VAT system, lack of knowledge of VAT register tax payer about the
important of VAT, the tax payer collect VAT from the customer and do not pay to the government
because they need to be rich with in short period of time and lack of attitude of tax payers
towards VAT. So, it is recommendable if the branch tax authority gives awareness for the VAT
register tax payers or business and enhances its administration and implementation mechanism
in order to solve such problem.
Key Words: Value Added Tax Implementation and Administration in Arbaminchcity Tax Administration.
TABLE OF CONTENT
Contents
DECLARATION OF ORIGINALITY........................................................................................I
Acknowledgement.........................................................................................................................II
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Acronyms and Notations............................................................................................................III
LIST OF TABLES......................................................................................................................IV
ABSTRACT...................................................................................................................................V
TABLE OF CONTENT..............................................................................................................VI
CHAPTER ONE............................................................................................................................1
1. INTRDUCTION..............................................................................................................................1
1.1 Background of the Study...................................................................................................................1
1.2 Statement of the Problem...................................................................................................................1
1.3 Research Questions............................................................................................................................2
1.4 Objective of the Study.......................................................................................................................3
1.4.1 General objective........................................................................................................................3
1.4.2 Specific objective........................................................................................................................3
1.5 Significance of the Study...................................................................................................................3

1.6 Scope of the Study.............................................................................................................................3
1.7 Limitation of the Study......................................................................................................................4
1.8 Organization of the Papers.................................................................................................................4
CHAPTER TWO...........................................................................................................................5
2. LITERATURE REVIEW....................................................................................................................5
2.1 History of VAT..................................................................................................................................5
2.2 VAT in Ethiopia................................................................................................................................5
2.3 Nature of VAT...................................................................................................................................6
2.4 VAT Terminology.............................................................................................................................6
2.5 Feature of VAT..................................................................................................................................7
2.6 VAT Collection Method....................................................................................................................8
2.6.1 Accounting method: It is a method that asks a firm to pay its tax on the base those
determined...........................................................................................................................................8
2.6.2 Invoice method:...................................................................................................................8
2.7 VAT Rates.........................................................................................................................................8
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2.7.1 Standard VAT rate:.....................................................................................................................8
2.7.2 Zero VAT rate:...........................................................................................................................8
2.8 VAT Refund......................................................................................................................................9

2.9 Types of VAT....................................................................................................................................9
2.9.1 Consumption VAT....................................................................................................................10
2.9.2 Production VAT.......................................................................................................................10
2.9.3 Income VAT.............................................................................................................................10
2.9.4 Wage VAT................................................................................................................................10
2.10 VAT Implementation.....................................................................................................................10

2.11 Registration for VAT.....................................................................................................................11
2.12 Benefit of Voluntary Registration................................................................................................12
2.13 Registration Procedure...................................................................................................................12
2.14 Time of Application.......................................................................................................................13
2.15 Time of Registration......................................................................................................................13
2.16 Cancellation of Registration..........................................................................................................14
2.17 Advantage and Disadvantage of VAT...........................................................................................14
2.17.1 Advantage of VAT..................................................................................................................14
2.17.2 Disadvantage of VAT.............................................................................................................16
CHAPTER THREE.....................................................................................................................18
3. RESEARCH METHODOLOGY...................................................................................................18
3.1 Research Design..............................................................................................................................18
3.2 Research approach...........................................................................................................................18
3.3 Sampling design..............................................................................................................................18
3.4 Target population and sapling size...................................................................................................18
3.5 Sapling techniques...........................................................................................................................19
3.6 Data types and Data sources............................................................................................................19
3.7 Data Analysis techniques.................................................................................................................20
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CHAPTER FOUR.......................................................................................................................21
4. DATA PRESENTATION AND ANALYSIS................................................................................21
CHAPER FIVE............................................................................................................................40
5. CONCLUSION AND RECOMMENDATION.....................................................................40
5.1 CONCLUSIONS.............................................................................................................................40
5.2 RECOMMENDATIONS.................................................................................................................41
APPENDIXES I..............................................................................................................................i
Back grounds of the respondent...................................................................................................ii
APPENDIXES II...........................................................................................................................iv
APPENDIXES III.......................................................................................................................viii
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CHAPTER ONE: INTRDUCTION
This chapter discusses the background information on the study. The chapter is organized as
follows. The first section sets out problem statement. The second section provides the research
objective. The research question is presented in section three. Significance of the study and
scope of the study are presented in section four, and five.
1.1 Background of the Study

Value added tax belongs to the family of sales tax. It was introduced in 1954 in France. VAT in
Ethiopia is at its infant stag since 1979. VAT has been adapted as main forms of in direct tax by
many countries in world ( Misrak 2008 ) VAT rate is15/% Nigeria and Algeria have minimum
and maximum standard VAT rate in Africa with 5% and 21%respectively (Misrak 2008). It
comes in to realization in January 2003,( proclamation number 285/2002), reforms sale tax
systems. Tax is added to the products price each time it changes hands until delivery to the
customer takes place, when the final tax is paid. It falls under the general category of
consumption tax, meaning are pays on what people buy rather than on their earnings savings, or
investments. VAT is a tax to pay by the manufacturer or trader of good and service on the basis
of value added tax by them. VAT is indirect tax imposes on each sale at each stage of production
on collect VAT from buyer then deducts any VAT it has pay in buying inputs. It is some time
called national sales because it is receive on every transaction as both intermediate and final
products are to sales. VAT is a tax levies on all sales of goods and services at each stage of
production (Musgrave, 2008).
The starts way to implement a VAT involves assuming a business owns some fraction on the
price of product minus all taxes previously period on the good. On the basis of above
background, this study would initiate to examine the assess VAT implementation and
administration in Arbaminch city tax administration. The objectives would assess and analyze
VAT implementation and the related administration practice in Arbaminch city revenue
administration.
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1.2 Statement of the Problem
In Ethiopia VAT was introduced in 2003 to replace sales tax with the objectives to minimize
tax evasion and avoidance, investment and saving since it does not tax capital, and
generally to foster growth and development. Abdulla and Clifford (2010) also uncover that
VAT contributes more than 40% to revenue generated in2008 and 2009G.C. Despite
It contribution, there are many problems that encounter tax authority in the country to raise
adequate revenue from VAT.
The main areas where there are gaps and problems include taxpayers identification and
registration, VAT filing and payment, VAT refunds, VAT audits, penalties and VAT
invoicing. In addition to this, a paucity of tax awareness among the society and strong
education programs as well as lack of trust between taxpayers and administrators as
major problems to the VAT system in the country Yesegat, (2008). HailemariamMamo
(2011) identifies that, the implementation of VAT and its related problems in Ethiopia such
as , difficult due to, low level of taxpayer awareness regarding concept, advantage roles of
VAT rules and regulation; ineffective collection and assessments of VAT, weak performance
and lack of awareness regarding taxpayer. Therefore, the aim of this study would be mainly
emphasis on find out major problems associates with VAT implementation and administration
in Arbaminch city tax administration particularly, problems in VAT registration and
collection, tax payer’s attitude toward value added tax, public reaction toward value added tax,
inefficiency to control noncompliance tax payer’s, and weak follow-up and controlling
mechanism against the registered tax payer’s. So, this research would have two gaps, area gap
and problem gap related with VAT implementation and administration.
1.3 Research Questions
1. What are the problems that VAT registration and VAT collections in Arbaminch city tax
administration?
2. Does VAT registered tax payers have enough knowledge about VAT rules and
regulations?
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3. Does performance of tax administrating authority under the control of VAT registered tax
payers in the city?
4. What are the controlling mechanisms of weak follows-up VAT registered tax payers?
1.4 Objective of the Study
1.4.1 General objective
The general objective study is to assess VAT implementation and administration practice in the
Arbaminch city tax administration.
1.4.2 Specific objective
 To assess the problems of VAT registration and VAT collection in Arbaminch city
tax Administration
 To assess the VAT registration tax payers have enough knowledge about VAT rule
and regulation
 To identify the performance of tax administrating authority under the control of VAT
registered tax payers in the city
 To identify the controlling mechanism of weak follows-up VAT registered tax payers
1.5 Significance of the Study
This study would expect to assess the VAT implementation and administration that is known for
an individual living condition with in the country. For the researcher it is an opportunity of
relating academic knowledge with that of what is practiced with real world. For the administrator
give a way it would raise the employees awareness towards VAT and show them the role they
have to play. It would be paves way for other researcher and contribute some to those tax want to
make further research and necessary for the identification of the obstacle at the collection of
VAT. Finally this study would help to raise the awareness or create awareness of administration
and specially help for change and improvement VAT implementation and administration in
Arbaminch city tax Administration.
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1.6 Scope of the Study
This study gives to limit geographically, conceptual and methodological. The study would not
cover all VAT implementation and administration office in Ethiopia rather than its emphasis
only in Arbaminch city tax administration. The collection of relevant data may with a short
period or only one year of time at once. This study would concern on VAT implementation and
administration and the study would indented to use descriptive design along with data collection
method of questionnaire and interview
1.7 Limitation of the Study

In conducting this study there are several limitations, that the researcher will be faces. Some of
these are shortage of clear information from different respondents during the data collection and
lack of experience on conducting research on the side of researcher, addition to time, budget and
covid 19 is the major impact not to gather relevant information of the study.
1.8 Organization of the Papers

This paper would include five chapters. chapter one deals with introduction part, which contains,
background of the study, statement of the problem, research questions, objectives of the study,
significance of study, scope of study and limitation of study. Chapter two deals with Literature
review. Chapter three deal with the research methodology. The fourth Chapter deals with data
analysis and presentation and Fifth Chapter about Conclusion and recommendation.
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CHAPTER TWO
2. LITERATURE REVIEW
2.1 History of VAT

Emergence and rapid spread of VAT is among the most important tax development of the later
20th c VAT invested in 1954 by a French economist Maurice Laurie who was joint director of the
French tax authority. The theory is that the end consumer carries the burden of VAT, not the
business, which is merely collecting the VAT on behalf of tax authority. According to
international monetary fund report 2004, more than 4 billion, 70% of the world population new
live in countries with VAT, raise about 18 trillion in tax revenue, roughly one quarterly of all
government revenue over 136 (72%) of them have made VAT part of their tax system, and
from 53 member of countries of African union 33(60%) of them are introduced VAT (Gebrie,
2008, pp.186-187).
2.2 VAT in Ethiopia

VAT is a new tax system introduced in Ethiopia this tax system is not new to other countries.
The modern concept of VAT was truly introduction in France in 1954. The concept of VAT was
propounded first by American experts by 1920’s. But at that time Americans failed to implement
it. In Ethiopia, VAT was introduced since January 1/2003 designed to replace the cut dated sales
tax which was served for more than four decades, which was collected at manufacturing level.
VAT is taken as dispensable components of tax reforms in developing countries such as Ethiopia
by considering it a miracle tax to replace direct and indirect taxes entirely. Since 1993 the
Ethiopia government has made major economic shift from central planning to market oriented
economic system (Yohanes and Sissy, 2009, pp. 186-187).
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2.3 Nature of VAT
VAT has the following nature according to (Ram swami, 2005) VAT is not generally intended to
be a tax on the value added but rather it is usually a tax on consumption. It is charged at- all of
population. VAT is on customer expenditure. It is collected on business transaction and imports.
VAT is a broad tax levied on commodity sales up to and including at least each purchase is
deducted from tax collection from sales and the net tax remitted to the tax authority with our
cascading.
2.4 VAT Terminology

Input VAT
Input VAT is the VAT payable by a taxable person on goods and services supplied to him and
on goods which he imports for the purposes of a business carried on by him and for
which registered for VAT. Viewing the concept from the other angle, it is the VAT payable on
purchase of taxable supply including capital goods and operating and administrative
expenditures. For a VAT registered person (taxable person) input VAT is not a component of
the cost of purchase/import rather the registered person is entitled to take input VAT
deduction against the VAT charge on sales or is recoverable from the Tax Authority. Hence,
input VAT is a receivable for a registered person.
Output VAT
Output VAT is the VAT collectible by a taxable person at the time of sale of taxable goods and
services (supply). It is the VAT chargeable on sales of taxable goods and services
whenever a taxable person supplies taxable goods or services to other person. VAT must be
included in the price charged for those taxable goods or services. This is the output VAT for the
supplier. Output VAT is not a component of the sales price rather it is a liability to the Taxable
person which is collected on behalf of the Tax Authority. The logic of VAT is that during a
VAT accounting period, a VAT registered person pays VAT on its purchases, which is
called input VAT; and the person charges VAT on its sales, which is called output VAT. At
the end of the VAT accounting period, the difference between the amount of output tax and
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input tax represents either VAT payable to the Tax Authority or VAT Refundable from the
Tax Authority.
If the output VAT exceeds the input VAT, the VAT registered person has collected more tax
from its sales and, thus, the excess VAT collected (net VAT) must be paid to the Tax
Authority, say ERCA, at the end of the VAT accounting period.
VAT payables
This is the VAT to be paid the FIRA by the taxable person it is arrived by its formula.
VAT payable =output tax –input tax
VAT refundable: the net VAT that taxable person expected from FIRA when input VAT exceed
output VAT in Ethiopia.
Zero rating: the supply changed with VAT at zero percent but credit can be taken for VAT paid
on purchase use to make supplies.
Positive rate: the supply changed with the rate of 15 %
Exemption rate: the supply is exempted from VAT. No VAT is changed on the credit can be
taken to VAT paid on purchase used to make supply (Misrak, 2008 p: 312, 314)
2.5 Feature of VAT

VAT is an indirect tax that it is levied and charged by government on consumers expenditure,
which is directly collected from business transaction and from imports on their imports it is
invented because very high sales tax and tariff it encourage and smuggling .Hence VAT is
characterized by the following features
 General or comprehensive tax
VAT is ‘’a general or comprehensive tax “that applies in the principle of all commercial
activities involving the import production and distribution of good and the process on service.
 Broad base tax
VAT is abroad base tax since the government collects such tax from all sectors that is from
import, manufacturing, wholesale and retail sectors as well as service sectors.
 Percentage of price
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VAT is a percentage of a price which means the actual tax burden is visible at each stage in the
import production and distribution chain.
 Collected fictionally
VAT is collected fractionally because each time the item changes hands in the process of import,
production and distribution, the VAT is assessed and collected on the increment value of the
product the total tax leaved at each stage in the economic chain of supply is accountant fraction
of the value added by business to it is production.
 The principle of tax credit system
Hence , VAT is multi-point tax, it works on the principle of tax credit system there is it proceeds
for granting set off (credit) of the tax paid at the earlier stage (misraktesfaye 2011.p. 465)
2.6 VAT Collection Method
2.6.1 Accounting method: It is a method that asks a firm to pay its tax on the base those
determined.
2.6.2 Invoice method: is to have the firm computes its growth tax by applying tax rate
total sales (Musgrave, 2004 p: 400-402).
2.7 VAT Rates

The value added tax charged and collected by VAT registered person on behalf of the
government is generally the product the selling price of the taxable product and the applicable
VAT rate. There are the two type of VAT rate to charge VAT on taxable supplies
2.7.1 Standard VAT rate:

is appositive rate (>0%>)set by country tax low to charge VAT on taxable goods and service.
Ethiopia uses a single standard VAT rate of 15%.
2.7.2 Zero VAT rate:

Is a VAT rate of zero which is also set by a country tax low to charge VAT on the taxable
goods and services.
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2.8 VAT Refund
VAT registered person shall got refund if at least 25% of the value of a registered person in a
single transaction of substantially all of the asset of a taxable activity provide a notice in writing
signet by the transferred is finished with 21 days after the supply taken place is taxed at a zero
rate the authority shall refund the amount of VAT applied as a credit in excess of the amount of
VAT charged for the accounting period within a period of two months after the registered person
files an application for refund accompanied by documentary proof of payment of the excess
amount. In the case of other registered persons the amount of VAT charged for the accounting
period is to be carried for word the next five accounting period is to be carried for word to the
next five accounting periods and credited against payment for these period and any unused
excess remaining after the end of this five month period shall be refunded by the authority with a
period of two months after the registered person files an application for refund accompanied by
documentary proof of payment of the excess amounts. Where the tax authority satisfied for
refund application in over paid tax the tax authority shall:
First, apply the amount of the excess in reduction of any tax levy interest of penalty payable by
the person under the customs proclamation the income tell proclamation and excise tax
proclamation.
The repay any amount remaining to the person amount to be refunded is more than 50 by:
When registered person is entitled to refund and the tax authority is satisfied but does not pay the
refund within specified date the authority shall pay the person the refund plus interest set at 25%
over and above the highest cam mercies lending interest rate that prevailed during the preceding
quarter (Gebrie, 2008, p. 119).
2.9 Types of VAT

In the modern world there are four types of VAT, namely, consumption, production, income and
wage VAT.
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2.9.1 Consumption VAT
In this type of VAT, the firm is allowed to deduct from the gross value of its product
not only the non-capital input purchased from other firms but also the capital equipment
Purchased. Thus, in consumption type VAT, tax base is the difference between gross value and
total value of inputs purchased (capital and non-capital).
2.9.2 Production VAT

In the production type VAT, the value of the inputs purchased by the firm from other firms is not
deducted in full. Only the value of non-capital purchase is deducted. Furthermore, no
depreciation is permitted on the purchase of capital goods even in subsequent years.
Thus, the tax base in production type VAT is equal to gross value less value of non-capital goods
Purchased.
2.9.3 Income VAT

According to income type VAT, the firm is allowed to deduct the depreciation on the capital
goods (during the year) apart from the full value of its non-capital purchases. Here, firms
cannot deduct the entire value of the capital goods purchased during the year but they
can deduct the respective amount of depreciation attributable to that year.
2.9.4 Wage VAT

In wage type VAT, the firm is able to deduct the net earnings from its capital in order
to arrive at the tax base. It is unlikely to be used for taxation by any government.
2.10 VAT Implementation

The standard way to implement value added tax involves assuming a business owes same
fraction on the price of the product mines all taxes previously paid on the good. By the method
of collection VAT can be account based or invoice based. Under the invoice method of
collection each seller charges VAT rate on his output and passes the buyer a special invoice that
indicates the amount of tax charged. Buyers who are subject to VAT on their own sales (output
tax ) consider the tax on the purchase invoice as input tax and can deduct the same from their
own VAT liability. The deference between output tax and input tax paid to the government (or a
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refund is claimed, in the case of negative liability). Ander the accounts based method no such
specific invoiced are used. Instead the tax is calculated on the value added, measured as a
deference between revenue and allowable purchases. By the time of collection VAT can be
collected either accrual or cash base accounting. Cash base accounting is a very simple form of
accounting, when payment is received from the sales of goods and service, deposit is made and
the revenue is recorded as of the date of the receipt funds –no matter when the sale had been
made. Accrual base accounting matches revenues to the time period in which they are earned and
matches expense to the time period in which they are incurred. The accrual base allows you to
track receivables (amounts due from customers on credit sales) and payables (amounts due to
vendors on credit purchase). (www.wikipeedia.org/value added tax)
2.11 Registration for VAT

In Ethiopia, registration for VAT is categorized in to two:-
I Obligatory registration
II voluntary registration
I Obligatory registration
Any person conducting a commercial enterprise or instancing to conduct commercial enterprises

or intending to conduct a commercial enterprise may apply to be registered for VAT. However
if the taxable turnover of the enterprise, which is gross income for 12 calendar monthly
exceeds or is likely to exceeds birr 500,000, the person conducting the enterprise must be
register for VAT with FIRA . If the turnover is below birr 500,000 of business activity one may
apply for voluntary registration (Gebrie, 2008, pp.201-2002).
II Voluntary registration
A person, who carried on taxable activity and is not required to be register for VAT, may
voluntarily apply to the authority for such registration. If he/she regularly is supplying or
rendering at least 75% of his good and services to registered persons (Gebrie , 2008, pp. 202-
203).
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2.12 Benefit of Voluntary Registration
Input VAT can be recovered if a person is registered. It would therefore be beneficial to
voluntarily register where the person makes mainly zero - rated supplies. The term any person
for purposes of VAT registration includes: - Sale proprietor, company, incorporated body or
unincorporated body, club or association.
A commercial enterprise: - this refers to any business of whatever nature and includes such as
 Ordinary business, example, shop, contractors, manufacture wholesaler etc.
 Trades and profession, example builders, engineers, accountants, lawyers etc.
 Activities of non- profit making bodies example societies, association (Gebrie,
2008, pp.202-203).
2.13 Registration Procedure

Application for compulsory as well as voluntary registration must be made on application form
called “application for VAT registration” on application for sale and the authority is required to
register the person in the VAT register and issue a certificate of registration within 30 days of the
registration containing details of.
 The full name and other relevant details of the registered person
 The date of issuance of the certificate
 The data from which the registration takes effect and
 The registered person’s tax payer identification number
If registration is disallowed FIRA would have to notify the applicator and the reasons for the
refusal. The tax authority many deny the application for voluntary registration if the person:
 Has no fixed place of residence or business
 Does not keep proper accounting records
 Has no bank account
 Has previously been registered for VAT purposes but failed to perform his
duties under the VAT law (Gebrie, 2008, p.203).
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2.14 Time of Application
A person who carries on taxable activity and is not registered is required to file an application for
VAT registration it shall fill an application for registration on later than the last day of the month
after the end of the period if:
1. At the end of any period of 12 calendar months the person made during that period, taxable
transactions with a total value exceeding 500,000.00 birr or the last day of the month of the
period if taxable transactions with a total value exceeding 500,000.00 birr.

2. At the beginning of any period of 12 calendar months when there is reasonable around to
expect that the total value of taxable transactions to be made by the person during that period
would exceed 500.000 birr (Gabrie, 2008, p. 203).
2.15 Time of Registration

Registration takes place on one of the following dates depending up on which date comes first.
· In case of obligatory registration on the first day of the accounting period following the
month in which the obligation to apply for registration arose.
· In case of voluntary registration on the first day of the accounting period following the
month in which the person applied for registration or
· On the date selected by the registered person on his application for a registration person
who conducts taxable activity in a branch or division shall be registered only in the name of the
registered person to register one ormore of its branchesor divisions as separate registered person.
The tax authority allows when it’s satisfied on such case that divisions or branches maintains and
independent accounting system and can be identified by the nature of its activities or location
(Gebrie, 2008, p. 204).
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2.16 Cancellation of Registration
VAT registered person can apply for cancellation of registration

· If tax payer ceased to make taxable transactions.
· At any time after a period of 3 years of the date of his most recent registration for VAT if
the registration persons total taxable transactions in the period of 12 months then beginning
reasonable are expected to be not more than 500,000.00 birr. The cancellation of VAT
registration takes effect
· At the time the registration person ceased to make taxable translation for example, if one
close down or sell his business. However, if one has more than one business and is not closing
down or selling them all he may not be able to cancel it would depend on the level of taxable
turn of remaining businesses.
· If the registered person has not ceased to do so at the end of the accounting period during
which the person applies to the authority for cancellation of VAT registration. When registered
of VAT is cancelled, the authority is required to remove the person’s name and all other details
from the VAT register and the person is required to return back the issued certificate of
registration. VAT registered person cannot charge VAT or issue tax invoices for any supplies
made and cannot claim are fund of VAT incurred on any goods or services purchased from the
date of the registration is cancelled (Gebrie, 2008, p. 209).
2.17 Advantage and Disadvantage of VAT
2.17.1 Advantage of VAT

The following are some of the advantages of VAT
 It avoids cascading effect of tax (tax on tax)
VAT works on the principle of that when the raw material passes through various manufacturing
stages and manufactured products through various distribution stages, tax should be levied on the
incremental value at each stage and not on the gross sale price. This insures that some
commodity does not get taxed again and again, and this there is no cascading effect. Putting the
concept in simple terms, in VAT system, each input is taxed only once (Misrak, 2008, p. 310).
14 | P a g e
 It is major comprehensive and equitable tax system
Even though the ultimate burden of VAT full on the final customer, VAT is collected by the
government from all sectors that is from import manufacturing, whole sale and retail sectors.
Therefore, it is a more compressive and equitable taxes system. On the contrary, sales tax is
normally levied at one stage of whole marketing (Misrak, 2008, p. 310).
 It reduces the possibility of the tax evasion
In the case of VAT the taxes are divided into several parts depending on the number of stage of
production and sales. In each stage every transaction is made using VAT invoice approved by tax
authority. In addition each VAT registered person (supplier) has to maintain appropriate records
on their sale and purchase transaction. Those obligations make tax evasion difficult (Misrak,
2008, p. 310).
 It has less tax burden
Under VAT system, the tax is collected is small fragments at different stage of production and
sale. Hence, the VAT payers feel the burden of the less (Misrak, 2008, p. 310).
 It is neutral
Regardless of the number of stage of production and distribution, VAT is collected in each stage,
therefore; VAT is expected to be perfectly neutral in the location of resources in the form of
production and commercialization (Misrak, 2008, p. 310).
 It improves productivity
In VAT system, a firm has to par tax even though it van in to loss. The firm cannot claim any
exception for loss because it pats taxes on the value produced and not on profits. So, firms would
always try to improve their performance and reduce the cost of production. As a result, the
overall productivity of the country would be improved (Misrak, 2008, p. 310).
 It promotes capital investment and saving
VAT is a consumption tax since one pays VAT on its expenditure and has the option to sure so
as not to be taxed. Furthermore, relief from tax on capital goods may encourage investment.
Potential investors also consider tax legislation as one of the factors in making investment
decision (Misrak, 2008, p. 311).
h. It enhances exports
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Exports of goods and services in most countries that implement VAT are liable to VAT. At zero
rates this may make exports internationally competitive and thus encourage exports (Misrak
2008, p. 311).
2.17.2 Disadvantage of VAT

The following are some of the main disadvantages of
 It is regressive in nature
A straight forward single rate VAT with few exemptions would tax lower income groups (the
poor) more heavily than the higher income groups (the rich). It is thus incongruent with the
basic.
Principles of taxation which states that reason should be taxed according to his ability to par.
This makes VAT regressive tax system.
In order to compensate for its regressive effect a number of countries have expected basic goods
particularly food items from VAT (Misrak, 2008, p.311).
 It require advanced economic structure
The proper implementation of VAT system required organization and advanced financial and
economic structure as it complicated system. VAT system also requires proper record keeping of
invoice at each stage of production and sale by both the seller and buyer. Hence, it becomes,
difficult to implement the system in all types of economy (Misrak, 2008, p. 312).
 It put additional burden to tax authority
In VAT system, the manufactures whole sellers and retailers have to fulfill various legal
formalities in the form of manufactures various records, accounts, books, etc. the verification of
those formalities put additional burden to the enforcing authorities (Misrak, 2008, p. 312).
 It is uneconomical
VAT system involves high of administration, assessment, verification collection, etc. hence; it is
highly uneconomical (Misrak, 2008, p. 312).
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 It has reams loopholes for tax evasion
Although VAT system requires proper record keeping of invoices at each stage of
production and distribution by both the buyer and seller, it has ream loopholes for tax
evasion. This may include the following:
 Tax payers could over report sales of zero rated goods.
 Tax payers could use invoices they received for personal purchase to claim tax
credits.
 It enables buyers and sellers to strike secret deals with regards the issuance of
receipts.
 It could lead to the formulation of forged ponies’ recipients to claim tax credit
on input VAT, etc (Misrak, 2008, p. 312).
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CHAPTER THREE: RESEARCH METHODOLOGY
This chapter presents the research design, research approach, Sampling design, Target
population and Sampling size, Sampling techniques, Data types and data sources and Data
analysis techniques.
3.1 Research Design

In order to study this research, the researcher was used descriptive research design, because it
can clarify the research more appropriately and, also quietly able provide adequate discussion for
readers. It also helps them to understand more about the issue under investigation of the study,
because it has different descriptive variable with it.
3.2 Research approach

For the purposes of the study the researcher would use more of qualitative and quantitative
research approach or mixed approach in order to have relevant a data and use to explain the
problem that associated with VAT implementation and administration in Arbaminch city tax
Administration.
3.3 Sampling design

The researcher would use random sampling methods for the employees form revenue office of
tax administration authority and VAT registered tax payers of Arbaminch city tax administration.
3.4 Target population and sapling size

The data would collects from different groups such as employees in tax authority and VAT
registered tax payers in engages tax authority of revenue in Arbaminch city tax Administration.
From the total of 60 employees only 32 employees are selected as sample size in the employees
of revenue office and from the total of 1559 VAT registered tax payers the sample size is
determined by following sapling technique formulas.
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3.5 Sapling techniques
The sample would be selected by using random sampling technique as the following using 90%
level of confidence. Kothari, (2004)
n= Z2pqN
E2 (N-1) +Z2pq
Where
n = sample size
Z = from table of using confidence level
P = probability to be selected
q = probability not be selected
N = total population
e= error of level confidence
The sample sizes of the researcher in total VAT registered taxpayers are
n= (1.64)2 (0.5X0.5) 1559 1048.2716 =65

(0.1)2 (1559-1) + 1.642 (0.5x0.5) 16.2524
The sample size of the researcher in total on tax officers are:-
n= (1.64)2 (0.5X0.5) 60 40.344 = 32

(0.1)2 (60-1) + 1.642 (0.5x0.5) 1.2624
Therefore the total sample sizes of the researcher are 97
3.6 Data types and Data sources
There are two types of data used by the researcher for this study. These are primary data and
secondary data. Primary data is to obtain from primary sources which include the actual
information receive from employees, tax payers directly concerning the study through
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questionnaire and interview. Secondary data would collects from secondary sources such as
extensive review of available literature on the subject, books, published materials and annual
report by revenue authority.
3.7 Data Analysis techniques

The data to collect in this study would analyze using descriptive statics like mean, median and
mode. When necessary the researcher use percentage and tables to analyze and this describes the
basic features of the data that is collected in the study and provides simple summaries about the
response of the respondents which would collect by using the primary and secondary data.
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CHAPTER FOUR
3. DATA PRESENTATION AND ANALYSIS
This section focuses on the presentation and analysis of data collected from primary and
secondary sources. The primary data were collected through the use of questionnaires and
interview. The questionnaires are collected from both vat registered tax payers and employees of
revenue administration office. The collected data has been edited and complied as well as the
results are presented using more of qualitative research design method. First the data are
collected through questionnaires and interview and then analyzed by using mean, median and
mode .when necessary analyzed by using percentages. Secondary data collected from the annual
report of the Arbaminch town revenue administration office (2008-2012).
From the total 32 questionnaires that distributed to employees of the administration 30

questionnaires are returned and fully answered and also 65 questionnaires were distributed to
VAT registered tax payers out of this 60 questionnaires were returned and answered .
First researcher analysis the questionnaire on the side of vat administration due to distributed
Different questioner on the side of the administration and vat registered tax payers
Table4.1 Assessment of the knowledge of VAT registered tax payers about VAT
QUESTIO Response Percent (%)
Item
N Yes No Total Yes No Total
Do you believe that VAT registered
100
1 tax payers and the society at large 10 20 30 33% 67%
%
know much about VAT
If your answer is No what factors affect them to know Respons Percen
much about VAT e t (%)
 the practice is newly introduced and apply
6 30%
in Ethiopia
 lack of awareness creation of the revenue 14 70%
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off
ice to the VAT registered tax payers
 The implementation of VAT in the city is at
0 0
lowest levels
Total 20 100%
Source: questionnaires, 2012
The objective of the question is to know the knowledge of VAT registered tax payers about
VAT. as the researcher can see in the table 1, 33%of the respondents implies that vat registered
tax payers have knowledge about value added tax and 67% of the respondents said that VAT
registered tax payers do not have knowledge about VAT because of 30% of the respondents says
the practice is newly introduced and apply in Ethiopia and 70% of the respondents says due to
lack of awareness creation of the revenue office to VAT registered tax payers. Based this
analysis the majority of respondents said vat registered tax payers do not have knowledge about
VAT due to lack of awareness creation of the revenue office to VAT registered tax payers
Table 4. 2 the administration of VAT is efficiency practice in the city
QUESTION Item Response Percent (%)
Yes No Total Yes No Total
2 Does the administration 9 21 30 30% 70% 100%
of VAT is efficiently
practice in the city
3 If your answer is Yes at what degree is efficient Good Better Best
Response 5 3 0
Percent (%) 62.5% 37.5% 0
4 If your choice is No at what level is not efficient Low Very low
Response 15 7
Percent (%) 68% 32%
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This question assess the administration efficiency under the practice of VAT in the city .based
on the above table 27% of the respondents said that the administration of VAT is efficiently
practice in the city while 73% of the respondents said the administration of VAT is not
efficiently practice in the city .
As indicated in the above table 27% of the respondents said the administration of VAT is
efficiently practice in the city out of this37.5 % of the respondents said the administration of
VAT is efficiently practice at a degree of better, 62.5% of the respondents vat is efficiently
practice at a degree of good and 0% of the administration is efficiently practice at a degree of
best.
From the above table 73% of the respondents said the administration of VAT is not efficiently
practice in the city. Out of this 68% of the respondents said the administration is not efficient at
low level and 32% of the respondents say not efficient at very low. As shown from the above
analysis the researcher concluded that the administration of VAT is not efficiently practice in the
city.
Table 4.3 to identify factors that affect VAT implementation and administration practice in
the city
QUESTI Response Percent (%)
Item
ON Yes No Tota Yes No Total
Do you think there is factors that l
5 24 6 30 80% 20% 100%
affect VAT implementation
If your choice isin Yes
aadministration which factors affect to implementation Respons
the city Percent
administer  Lack of educations of tax payers about VAT e8 (%)
33.3%
 lack of knowledge of tax payer about the 12 50%
important
 Lack of of VAT
experience of the administrator to 4 16.7%
Total administer and implement the VAT 24 100%
If your answer is yes which administration problem is arise Respons Percent
due to this 
factors
High need of tax fraud of tax payers e7 (%)
29.2%
 No specific tax enforcement mechanism 3 12.5%
especially to those who registered in VAT
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 Lack of awareness of tax payers 8 33.3%
 The VAT collectors cheats the collected VAT 6 25%
Total 24 100%
If your answer Yes which implementation problem arise due Respons Percent
to this factors
 Lack of awareness of the society 8e (%)
33.3%
 Lack of profession of administrator 7 29.2%
 Tax exempted items are not well specified 6 25%
 No single mechanism to punish tax payers 3 12.5%
Total 24 100%
Item Respons Percent
Which mechanism is used the administrator to solve this e (%)
implementation and administration problem
 Creation of awareness to the tax payer about 7 29.2%
6 VATday
 By system
to day follow up , by monitoring and 5 20.83%
 evaluating VATteaching
Learning and system process must be used 8 33.3%
doorproviding
 By media trial
simple measurement to maximum 4 16.67%
that means from awareness to penalty
Total 24 100%
Source: questionnaire, 2012
The aim of this question is to identify factors that affect VAT implementation and administration
and to know problems that arise due to these factors. From the above table 80% of the
respondents said that there are factors that affect VAT implementation and administration in the
city while 20% of the respondents said there are no factors that affect vat implementation and
administration .based on the above analysis 80% of the respondents says there is factor that
affect VAT implementation and administration. Out of this 33.3%of the respondents said
factors that affect VAT implementation and administration in the city is lack of education of
tax payers about the VAT system, 50% of the respondents says lack of knowledge the tax payer
about the important of vat and 16.7% of the respondents says lack of experience of the
administrator to administer and implement the VAT system. based on the above table
administration problem arise due to this factor 29.2% of the respondents says high need of tax
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frauds of tax payer,12.5% no specific tax enforcement mechanism especially those who
registered in VAT,33.3% lack of awareness of tax payer and 25% of the respondents says the
VAT collector cheats the collected VAT .Therefore researcher can concluded that almost all
factors can affect VAT implementation and administration in the city and almost all
administration problems arise due to this factors.
Based on the above table implementation problem arise due to this factor33.3% of the
respondents said lack of awareness of the tax payers ,29.2.3% lack of profession of the
administrator ,25% tax exempted items are not well specified and 12.5% no single mechanism
to punish tax payers. So conclude that the major implementation problem arise due to these
factors are lack of awareness of tax payers and lack of professional administration. To solve both
the administration and implementation problems arise due to different factors, 29.2% of the
respondents said that the administrator uses creation of awareness to the tax payer about VAT
system, 20.83% use day today follow up, monitoring and evaluating VAT system, 33.3% use
learning and teaching process must be used door media train and 16.67% providing simple
measurement to maximum i.e. from awareness to penalty. From this analysis we concluded that
administrator uses creation of awareness to the tax payer about VAT, use day to day follow up,
monitoring and evaluating VAT system and use learning and teaching process in door media
train.
The major problem of VAT implementation and administration in the city are lack of
information of the tax payers about VAT ,tax evasion ,lack of awareness of tax payers and the
tax payers ask illegal VAT refund .This problems arise because of lack of education of the
administration to tax payers about VAT and the major cause behind this problems are the tax
payers collect VAT from their customer and did not pay to the government because they want to
be rich with in short period of time .the managers said the best solution to solve this
implementation and administration problems are the office must improve learning and teaching
process to tax payers, the office must hard work that the tax payers to obey the laws (source:
interview ). The administration has good efficiency under the control of non-compliance tax
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payers in the city especially in constructions which are very easy to gather sufficient evidence
(source: interview)
Table 4.4 the performance of tax administrating authority under the control of VAT
registered tax payers in the city
QESTIO Item Response Percent (%)
N Yes No Total Yes No Total
7 Do you believe there is a 23 7 30 76.7% 23.3 100%
good performance of tax %
administrating authority under
the control of VAT registered
tax payers in the city
As can be observed from the above table, out of 30 respondents in the employees of the
administration the majority (76.7%) of the respondents says there is a good performance of tax
administrating authority under the control of vat registered tax payers&23.3% are not believes
that one So concluded that the authorities have high level of performance under the control of
VAT registered tax payers in the city.
The performance of the administration under the control of VAT registered tax payers shows an
incremental change from year to year but not shows radical change due to tax evasion of the tax
payer(source :interview)
Table 4.5 Related to Comparative Questions to know about the knowledge of the VAT
registered taxpayers towards VAT rules, regulations and proclamation
QUESTIO Item High Medium Low
N
1 How far is the VAT registered tax payers
knowledge about VAT rules and regulations
Response 7 18 5
Percent (%) 23.3% 60% 16.67%
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2 To what extent the tax payers are familiar with
Ethiopian VAT proclamation
Response 0 19
11
Percent (%) 0 63.3%
36.7%
The main target of this question is to know about the knowledge of the VAT registered
taxpayers towards VAT rules, regulations and proclamation. the above table shows that16.67%of
the respondents says VAT registered tax payers have low knowledge about VAT rules and
regulations 60% of the respondents the tax payers have medium about VAT rules and regulations
and 23.3%of the respondents the VAT registered tax payers have high knowledge about the rules
and regulations of VAT. To assess the VAT registered tax payers familiarity towards the
Ethiopia vat proclamation 63.3% of the respondents says VAT registered tax payers have low
knowledge about the Ethiopia VAT proclamation ,36.7%of respondents VAT registered tax
payers have medium knowledge about the proclamation and the VAT registered tax payers do
not have high knowledge about VAT proclamation .So we can say that as the table shows most
of VAT registered tax payers have low knowledge about VAT rules and proclamation .
1+ 2+ 3 N +1
Population mean ( μ) = =2median = mode =highest frequency where,
3 2
N=30 (sample size) 1=high, 2=medium, 3=low
Mean Median Mode
How far is the VAT registered tax payers knowledge about 2.5 3 3
VAT rules and regulations
To what extent the tax payers are familiar with Ethiopian VAT 2.5 3 3
proclamation.
The above table shows that the mean of 2.5 in that VAT registered tax payers knowledge about
VAT rules and regulations is tend to low which implies most of the respondents of the
27 | P a g e
employees of VAT administration said VAT registered tax payers have low knowledge about
VAT rules ,regulations and the Ethiopian VAT proclamation.
We also assess the knowledge of VAT registered tax payers about VAT.As the manager of the
administration said VAT registered tax payers lacks knowledge of VAT due to the tax payers do
not have attitude change towards VAT and tax payers are not willing to accept VAT(source:
interview).
Table 4.6 the administration efficiency to control non compliance tax payers in the city.
QUESTION Item High Medium Low
3 How far is the administration efficiency to
control non-compliance tax payers in the
city?
Response 6 15 9
Percent (%) 20% 50% 30%
The main objective this question is to assess the administration efficiency to control
noncompliance tax payers in the city .as shown in the above table 30% of the respondents of the
employees of the administration said that there is low administration efficiency towards the
control of non-compliance tax payers,50%of the respondents said the administration have
medium efficiency to control non-compliance tax payers and 20% of the respondents said that
the administration of VAT is high under the control of non-compliance tax payers. This implies
that the administrations are efficient under the control of non-compliance tax payer’s means
more of the respondents said the administration is medium and low under the control of non
compliance tax payers.
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1+ 2+ 3 N +1
Population mean ( μ) = =2 median = mode =highest frequency where,
3 2
N=19 (sample size) 1=high, 2=medium, 3=low
Mean Median Mode

How far is the administration efficiency to control non
compliance tax payers in the city 2.26 2 2
From the above table the mean of 2.26, Medan of 2 and mode of 2 represents that the efficiency
of the administration under the control of non compliance tax payers in the city is at a level of
good. This implies that most of respondents said the administration have good efficiency under
the control of non compliance tax payers in the city.
The Researcher Also Distributed Questionnaires for Vat Registered Tax Payers
Table4.7 the sector that the VAT tax payers registered

Question Item Response Percent (%)
Public Private Public Private
1 In what sector do you registered 16 44 26.7% 73.3%
The aim of this question is to know the sector that the VAT payers registered .out of 60VAT
registered tax payers 73.3% of the tax payers registered at private sector and 26.7% registered
at public sector .this implies that most of the VAT payers registered at private sector.
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Table 4.8 type of business that can be VAT tax payer registered
2 In what type of trade do you registered
 Production 10 16.7%
 Service 32 53.3%
 Retailer 11 18.3%
 Other 7 11.7%
Total 60 100%
The objective of this question is to know the type of business trade that VAT payer registered.
from the total VAT registered tax payers 53.3% of VAT payers registered in service trade ,
18.3% in retailer ,16.7% in production and 11.7% registered in other type of trade .this shows
that majority of VAT registered tax payers are registered in service trade.
Table4.9 Awareness of tax payers about VAT

3 Do you have awareness during the Yes No Tota Yes No Tota
registration time l l
28 32 60 46. 53. 100

7% 3% %
4 If your answer is no in what case Based on Based on Based on the motivation
do you registered voluntaril obligation of others
y
Response 9 11 12
Percent 28.125% 34.375% 37.5%
The objective of this question is to assess the awareness of VAT registered tax payers during
registration time .The above table shows that 46.7% of the respondents(VAT payer) said that
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there is awareness during registration time while 53.3% of the respondents of VAT registered
tax payers said no awareness during registration time .out of this 28.125% of the respondents
said they are registered based on voluntarily ,34.375% 0f the respondents based on obligation
and 37.5% of the respondents said that they are registered based on the motivation of other users
From this analysis the researcher concluded that more of the respondents have No, awareness at
the time of registration.
Table4.10 Knowledge of tax payers about VAT rules and proclamations
Question Item High Medium Low Total
5 To what extent do you have knowledge
about VAT rules and proclamations
Response 11 16 33 60
Percent (%) 18.3% 26.7% 55% 100%
The main target of this question is to know about the knowledge of VAT registered tax payers
about VAT rules and proclamations. As presented in the above table the majority (55%) of the
respondent from VAT registered tax payers have low knowledge about VAT rules and
proclamation.
Population mean ( μ) =1+2+3/3=2
Median =n/2
Mode=highest frequency
Mean Median Mode
To what extent do you have knowledge about VAT rules and 2.48 3 3
regulations
The above table shows the mean of 2.48, median =3 and mode=3 from the analysis the
arithmetic mean greater than the population mean this implies most of the respondents said VAT
registered tax payers have low knowledge about VAT rules and regulations
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Table 4.11 Response of VAT registered tax payers about the period of time VAT pay
6 Do you pay your vat within a given time period Yes No Yes No
Total 60 0 100% 0%
7 If you do not pay within a given time period what Response Percent (%)
penalties is imposed
 financial penalty 44 73.3%
 prison 0 0%
 closing of your business 10 16.7%
 other penalty 6 10%
Total 60 100%
The aim of this question is to assess the time to report the money in relation to payment payable.
This table shows all of the respondents said that they pay VAT within the given period of time.
The respondents said if they do not pay VAT within a given period: 73.3% of the respondents
said financial penalty imposed, 16.7%of the respondents said closing of the business imposed,
10% of the respondents said other penalty imposed and the respondents said no prison when you
do not pay within a given period of time. Therefore the researcher concluded that the majority of
VAT registered tax payers imposed financial penalty when they do not pay VAT within a given
period of time.
The researcher also assess the knowledge of VAT registered tax payers about VAT.As the
manager of the administration said VAT registered tax payers lacks knowledge of VAT due to
the tax payers do not have attitude change towards VAT and tax payers are not willing to accept
VAT(source: interview)
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Table 4.12 Administration efficiency by giving explanation to VAT payers before
registration
Yes No Total Yes No Tota
l
8 Do you think the administration gives 27 33 60 45 55 100
efficient explanation to VAT before % % %
registration
The objective of this questionnaire is to know that the administration gives efficient explanation
to VAT registered tax payers about VAT before registration. From the above table 55% of the
VAT registered tax payers said that the administrations do not give efficient explanation about
VAT before registration while 45% of the respondents said the administration gives efficient
explanation about VAT before registered. From this analysis concluded that more of the
respondents said the administration lacks efficient explanations to VAT registered tax payers
about VAT before registration.
The administration has good efficiency under the control of non-compliance tax payers in the
city especially in constructions which are very easy to gather sufficient evidence (source:
interview)
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Table 4.13 Factors affecting VAT implementation and administration in the city
Questio Item Response of tax Percent (%)
n payers
Ye N Tota Yes No Total
s o l
9 As a tax payer do you think there is 38 22 60 63.3 37.7 100
factors that affect VAT implementation % % %
and administration in the city
10 If your choice yes which factors affect Response Percent (%)
VAT implementation and the
administration in the city.
Lack of attitude of the tax payer towards 12 31.6%
VAT
Lack of experienced administrator 9 23.7%
Lack of education of the tax payers 17 44.7%
towards VAT
Total response 38
Total percent 100%
As indicated in the above table majority (63.3%) of the respondents of VAT registered tax payers
said there are factors that affect VAT implementation and administration in the city. Out of this
31.6% of the respondents said lack of attitude of the tax payers towards VAT 23.7% of the
respondents said lack of experienced administrator and 44.7% of the respondents said lack of
education of the tax payers towards VAT. Therefore this implies that lack of attitude and
educations of the tax payers towards VAT were the major factors that affect VAT
implementation and administration.
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Table 4.14 Performance of the administration under the control of VAT registered tax
payers
11 Question Strongl Agre Neutra Disagre Strongl Total
y agree e l e y
disagree
VAT administrators have
good performance under the
control of VAT registered tax
payers
Response 12 27 7 9 5 60
Percent (%) 20% 45% 11.7% 15% 8.3% 100
%
The above tables’ shows that 20% of VAT registered tax payers said strongly agrees, 45% agree,
11.7% neutral, 15% disagree and 8.3% strongly disagree about the performance of the
administration under the control of VAT registered tax payers.
Population mean =1+2+3+4+5/5=3 where: 1=strongly agree 2=agree 3=neutral 4=disagree
5=strongly disagree
Median= n/2 where: n=sample size
Mode=highest frequency (highest number of response)
Mean Median Mode

VAT administrators have good performance under 2.3 2 2
the control of VAT registered tax payers
This analysis shows that mean of 2.3 means that most of the respondents said VAT
administrators have good performance under the control of VAT registered tax payers since the
arithmetic mean is less than the population mean.
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The performance of the administration under the control of VAT registered tax payers shows an
incremental change from year to year but not shows radical change due to tax evasion of the tax
payer(source :interview )
Table 4.15 Efficiency of the administration under the control of non-compliance tax payers
Strongl
Questio Strongly y
Item Neutral Disagree Total
n agree Agree disagre
ed
Vat administrators
efficiently control
12
noncompliance tax
payers in the city
Response 17 22 5 12 4 60
100
Percent (%) 28.3% 36.7% 8.3% 20% 6.7%
%
The objective of this question is to assess the administrator’s efficiency under the control of non
–compliance tax payers in the city. The above table shows 36.7% of the respondents agree that
VAT administrators efficiently control non-compliance tax payers, 28.3% strongly agree,
20%disagree, and 8.3% neutral and 6.7% of the respondents strongly disagree. This implies that
VAT administrators efficiently control noncompliance tax payers in the city.
Mean Median Mode

VAT administrators efficiently control noncompliance tax payer 2.28 2 2
in the city
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This table shows that the population mean greater than the arithmetic mean (3>2.28) implies
more of the respondents averagely agree that VAT administrators efficiently control
noncompliance tax payers in the city.
Table 4.16 Response of VAT registered tax payers about quality of service that VAT
administrator gives to tax payers
Question Item Strongly Agree Neutral Disagree Strongly Total
agree ` disagree
13 VAT
administrators
gives quality
service to tax
payers
Response 10 18 0 24 8 60
Percent (%) 16.7% 30% 0% 40% 13.3% 100%
The objective of this questionnaire is to know the quality of service that VAT administration
gives to VAT registered tax payers. The above tables shows that 16.7% of the respondents
strongly agree,30% agree ,neutral 0% ,40% disagree and 13.3% strongly disagree .this implies
that averagely the administration of VAT do not give quality service to VAT registered tax
payers.
Population mean=1+2+3+4+5/5=3 10=strongly agree, 18=agree , 0=neutral 24=disagree
Median=n/2, where n=60 8=strongly disagree
Mode=highest frequency
Mean Median Mode

VAT administrators gives quality service to tax payers 3.08 4 4
37 | P a g e
The above table shows that mean of 3.08, median=4, mode=4 implies that averagely more of the
respondents disagree means VAT administrators do not give quality service to VAT registered
tax payers.
Secondary Data Analysis

The secondary data was obtained from the revenue administration of Arbaminch city. This
secondary data shows the performance, efficiency and the problem of VAT implementation and
administration in the city. This data obtained from (2008-2012 years) and this data analysis
based on tables and percentage.
Table 4.17Arba Minch Town Revenue administration Office
Year TAX Expected amount of VAT Actual VAT collection Percentage(ac

to be collected tual/expected)
2008 VAT 36,403,979 36,181,802 99.38%
2009 VAT 53,968,566 49,494,558 91.7%
2010 VAT 63,729,818 45,186,301 70.903%
2011 VAT 100,646,552 79,320,244 78.81%
2012 VAT 87,800,323 69,305,466 78.94%
Total VAT 342,549,238 279,488,371 81.59%
Source: revenue office annual report
This table shows the performance of Arbaminch city VAT administration and implementation
As shown in the above table in the year of 2008 the expected amount of VAT to be collect
greater than the actual VAT collection by 222,177, this implies that the administration do not
collect value of the expected VAT to be collect. Therefore the researcher concludes that at this
year the administration have no good performance and efficiency. In 2009 the expected amount
of VAT is also greater than the actual VAT collection by 4,474,008 and this gap implies the
weakness of the performance of the VAT administration in the city and lack of awareness of the
38 | P a g e
tax payer towards VAT and the tax payer do not pay VAT with in a period due to having
necessity to be rich with in short period of time. The implementation and administration system
shows decreasing performance from 2008 to 2009 by 53.7%. In 2010 the office of VAT shows
slightly exchange from2008 and 2009 because the amount to be collected in this year is decline
more than the previous year. At this year the administration shows less performance as compare
to the previous years and this implies the administration does not gives learning and teaching
process to tax payers towards VAT. At 2011 Arbaminch city VAT administration shows a
decrement from 2009 and 2008, but it is better than 2010 by percentage collected as expected
value. Therefore at this year the administration shows an incremental change as compared to the
previous one year. In 2012 the administration collects less than the expected amount by amount
of Birr. 949857 or the administration collect 78.94% of the expected amount of the year. So, this
implies that the administration should have to work as its plan or expected amount and the
administration also has the problem of forecasting at the time of planning the amount of VAT to
be collected or estimated. At this year the administration shows less performance as compared
the expected and the actual collection of VAT but the administration has planning problem at all
year.
39 | P a g e
CHAPER FIVE
5. CONCLUSION AND RECOMMENDATION
5.1 CONCLUSIONS
Based on the analysis presented in chapter four the following conclusions are drawn:
- The majority of VAT registered tax payers registered at private sector and registered in
service business.
- Most of VAT registered tax payers do not have knowledge about VAT rules, regulation
and proclamations due to lack of awareness creation of the revenue office to tax payers
about VAT
- VAT administration in Arbaminch city efficiently control noncompliance tax payers
- as indicated in the analysis the office of VAT administration in Arbaminch city do not
gives a quality service to tax payers
- There are various contributing factors that affect VAT implementation and administration
in Arbaminch city such as lack of education of the tax payers about VAT system, lack of
knowledge of tax payer about the important of VAT, the tax payer collect VAT from the
customer and do not pay to the government because they need to be rich with in short
period of time and lack of attitude of tax payers towards VAT. Based on this, problems
arise due to this factors are lack of awareness of the tax payer, tax evasion ,the VAT
collector cheats the collected VAT, tax exempted items are not well specified and the
need of tax fraud of tax payers are the major problems of VAT implementation and
administration in Arbaminch city.
- As researcher show from the analysis the revenue office shows a good performance under
the implementation and administration of VAT in Arbaminch city especially under the
control of VAT registered tax payers.
40 | P a g e
5.2 RECOMMENDATIONS
As to the study conducted there are certain problems to VAT implementation and administration
in Arbaminch city. Based on the research findings the following points can be forwarded as
recommendation.
 As indicated from the conclusion most of VAT registered tax payers do not have
sufficient knowledge about VAT rules and regulations, so researcher
recommended that to increase the knowledge of tax payers about VAT rules and
regulations the administration shall increase the awareness of tax payers about
the rule and regulation of VAT buy using different awareness creating program
like media ,workshop and training
 In order to decrease or reduce the problem of high need of tax fraud of tax payers
and cheats the collected VAT the authority shall work day to day follow up by
monitoring or evaluation of the method.
 To minimize or avoided the VAT registered business not understand a benefit of
VAT, and look a VAT is only as an obligation the Arbaminch city revenue office
would arrange a seminars, meeting to bring a challenge towards VAT and
understand a benefit of VAT like not pay a turn over tax, the preparation financial
statements made them not afraid to incur loss and it is used for to control their
business since it is supported by document, and it increase the investment
opportunity and so on.
 Each registered business should display the certificate of VAT in clear and visible
place. If this is done it is easy to identify the businesses that are registered or not.
 In order give quality service to the VAT registered tax payers the revenue office
better to increase the number of skilled employees and open a number of branches
that facilitate the payment and revenue collection.
 The recommendations forwarded towards the taxpayers and the public are:
In addition to the tasks performed by the tax authority, the business
communities should also obey the current VAT rules and regulations, develop the
41 | P a g e
culture of taxpaying as a sign of modern thinking, pay attentions towards the
government’s effort to collect and fund the long run projects carrying out all through the
country, take into account as the government’s main source of income to fund to the
social and public affairs is the wealth collected and accumulated from taxes,
consider paying tax as a means of directly or indirectly putting one’s own contribution
on changing the life of each citizen and they perform their activities according to
the current VAT laws as well as start to work in cooperation with the authority in fighting
against those enterprises that are violating the rules and regulations of VAT.
42 | P a g e
REFERENCES
Abdulla ,A and Clifford,(2010), The impacts of taxes reform on private sector development,,
Hub/Addis Ababa chamber and scrotal association view as2/8/2015 as http://
www.ethiochamber.com /data/sites/1/psd-hub-publication/ the impact-of tax reform-on-private-
sector-development.
Federal NegaritGazette, (2002), Value added tax proclamation Addis Ababa proclamation No,
285/2005.
HailemariamMamo (2011) identifies that the implementation of VAT and its related problems
inEthiopia, as the case of ERCA viewed 1/9/2015, ashttp://www.etd.aau.edu/dspace/handle.
Kothari, C.R ,( 2004), research methodology and technique of 2 nd edition management ,New Age
international (P) Ltd, Publisher published by New Age international (P) Ltd New Delhi.
MisrakTesfay, (2008).Ethiopia tax accounting theory and practice 1rst edition Addis Ababa
Sampatmukherjee, Amstar& Ricardo Musgrave, (2008), analytical public finance
Yesgat,W.A (2008) Value added tax Administration in Ethiopia a Reflection of problems journal
of tax research (2008),vol,6,no,2 PP 245-168 viewed 1/9/2015 as http//www paper ssrn.com.
i|Page
Back grounds of the respondent
No Characteristics Employees of administration VAT Registered tax
, payers in the city
Number of Percent (%) Number of Percent
respondent respondent (%)
1 Sex Male 21 70% 42 70%
Female 9 30% 18 30%

Total 30 100% 60 100%
2 Age 20-29 Years 9 30% 26 43.3%
30-39 Years 11 36.7% 21 35%
40-49 Years 7 23.3% 13 21.7%
50 Above 3 10% 0 0%
Total 30 100% 60 100%
3 Educational MA and above 3 10% 0 0%
status Degree 23 76.7% 18 30%
Diploma 4 13.3% 29 48.3%
Certification 0 0% 13 21.7%
Total 30 100% 60 100%
4 Experience Below 5 years 9 30% 31 51.7%
5-10 years 15 50% 17 28.3%
10-20 years 5 16.7% 8 13.3%
Above 1 3.3% 4 6.7%
Total 30 100% 60 100%
The above table shows the researcher distributed 32 copies of questioners for employees of the
administration among this only 30 copies of questioners where reasonably answered and
returned by the respondents .the researcher also distributed 65 copies of questioners to VAT
registered tax payers from this questioners 60 copies of questioners are answered and returned
ii | P a g e
by the respondents .from researcher observe in the sample that 70 % of the total respondents of
the employees of the administration are male while the remaining 30% are female . This
analyses shows that more of the respondents are male. On the side of vat registered tax payers
70%of the total respondents are male and the remaining 30% are females. This implies that
most of the respondents are male.
As shown in table number of respondent in VAT administration ( 9 ) 30% are in the range of
20-29 years and with the range of 30-39 years are (11) 36.7% , 40-49 years are (7) 23.3% and
above 50 years (3) 10% . This shows that the large portions of respondent are young. On the side
of VAT registered tax payers (26) 43.3% are 20-29 years and years of 30-39 total respondents
are (21) 35% , in the range of 40-49 years total respondents are (13) 21.7% and above 50 years
total respondents are (0) 0% . This implies that more of the respondents are at the age young.
As indicated in the above tables (23) 76.7% of respondents in VAT administration have
educational status of degree, (4) 13.3% have a qualification of diploma,(3) 10% have educational
status of master and above and the analysis shows that the respondents have no certificate that
means no respondents which have certificate (0%). This indicated that the employees are well
educated about 50% of the employees have 5-10 years experienced, about 30% have below 5
years’ experience and 3.3% of the employees have experience of above 20 years16.7% employee
have 10-20 experience This result shows that almost 95% employees are qualified and have
enough experience to create awareness to VAT registered tax payers.
As indicated in the above table, the analysis shows that 48.3% of the respondents in VAT
registered tax payers have educational status of diploma, 30% have educational status of degree ,
0% have educational status of master and above and 21.7% have educational status of certificate.
This indicated that more of the respondents have better educational status. About 51.7% of VAT
registered tax payers have below 5 years’ experience, 28.3% of the VAT payers have 5-10 years
of experience, 13.3% of VAT payers have 10-20 years of experience and 6.7% of VAT
registered tax payers have above 20 years of experience. This implies that most of VAT
registered tax payers are well experienced and educated.
iii | P a g e
APPENDIXES II
ARBA MINCH UNIVERSITY
COLLAGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE
Questionnaires
Dear respondent, you are being ask to participate in a survey that intends assess VAT
implementation and administration Arbaminch city. Especially in the revenue administration
office. I would like to emphasis that your response are extremely valuable for the successful
Completing of this paper and I would immediately appreciate your response for all questions
genuinely. I can assure that the information you provide will be completely anonymous and will
not be used for any other purpose it will use only for academic purpose. I thank you very much
in advance for your cooperation and for sacrificing your invaluable time.
GENERAL INSTRUCTION
 No need of write your name
 Mark ( √ ) boxes which contains your choice
 Thank you in advance for devoting your time and completing this
questioner
PART I PERSONAL DATA
1. Age
A. 25-29 years B. 30-39 C. 40-49 D. 50 and above
2. SEX
Male Female
3. Qualification
A, Master B, Degree C, Diploma D, Other
4. Experience
A. Below 5 years B. 5-10 years C. 10-20 years D. above
iv | P a g e
PART II: VAT RELATED QUESTION
1. Do you believe that VAT registered tax payers and society at large know much about
VAT?
YES NO
If your answer for question number 1 is NO what factors affects them to know much
about
VAT?----------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
-----------------------------------------
2. Does the administration of VAT is efficiently practice in the city?

YES NO
3. If your answer for question number 2 is yes at what degree is efficient?
Good better best
4. If your answer for question number 2 is no at what level is not efficient?
Low very low
5. Does the administrator give a quality service to the VAT registered tax payers?
YES NO
If your answer is NO, justifies the reason that affects quality services
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------
6. Do you think there are factors that affect VAT implementation and administration in the city?
v|Page
YES NO
If your answer is yes, specify the factors affect implementation and administration, and which
administration and implementation problem arise due to this factors?
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
7. Which mechanisms is use the administrator to solve this implementation and administration
problem?
Creation of awareness to the tax payer about vat system
By day to day follow-up, by monitoring and evaluating VAT system
Learning and teaching process must be used door media train
By providing simple measurement to maximum that means from awareness to
penalty
Other mechanism use the administration to solve this implementation &
administration
problem-----------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
8. Do you believe there is a good performance of tax administering authority under the control
of VAT registered tax payers in the city?
YES NO
How-------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------
9. If your answer Question number 8 is No, which problem is related among the followings
- lack of knowledge about VAT in the town
- Insufficient implementation in tax authority of employee
- miss implementation of the tax law
vi | P a g e
Other
specifies--------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------
PART III:
Very high High medium low Very low
1. At what level of performance
does the tax administering
authority located?
2. How far is the VAT registered tax
payers’ knowledge about VAT
rules and regulations?
3. To what extent the tax payers are

familiar with Ethiopian VAT law
and proclamation?
4. How far is the administration
efficiency to control non-
compliance tax payers in the city?
Strongly Agree Neutral Disagree Strongly

agree disagree
5. The government believed that
administrative weakness of the
VAT authority is a key factor for
poor vat collection in the town
6. If your answer strongly agrees for
vii | P a g e
the above question a good
collection system is direct
outcome of effective VAT
administration
7. Does the time given for VAT
register tax payer is sufficient?
8. Does the awareness of VAT
registered tax payers in the city is
low?
APPENDIXES III
Interview questions
1. Is there a problem of VAT implementation and administration in the city? What is the factor
for this problem and what mechanism uses the administration to solve this problem?
2. What looks like the efficiency of the administration under the control of non-compliance tax
a payer?
3. What looks like the performance of the administration under the control of VAT registered
tax payers?
4. What looks like the knowledge of VAT registered tax payers about VAT?
viii | P a g e
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ASSESSMENT OF VALUE ADDED TAX IMPLEMENTATION AND ADMINISTRATION

(ARBA MINCH CITY TAX ADMINISTRATION)

ARBA MINCH UNIVERSITY

BY: ABRAHAM DAGOYE

Name of student Signature

Name of advisor Signature

LIST OF TABLES Pages

1.4.2 Specific objective........................................................................................................................3

1.5 Significance of the Study...................................................................................................................3

2.6.2 Invoice method:...................................................................................................................8

2.7 VAT Rates.........................................................................................................................................8

2.7.2 Zero VAT rate:...........................................................................................................................8

2.8 VAT Refund......................................................................................................................................9

2.9.2 Production VAT.......................................................................................................................10

2.9.3 Income VAT.............................................................................................................................10

2.9.4 Wage VAT................................................................................................................................10

2.10 VAT Implementation.....................................................................................................................10

2.17.2 Disadvantage of VAT.............................................................................................................16

1.1 Background of the Study

1.4.2 Specific objective

1.5 Significance of the Study

1.7 Limitation of the Study

1.8 Organization of the Papers

2.1 History of VAT

2.2 VAT in Ethiopia

2.4 VAT Terminology

2.5 Feature of VAT

2.6 VAT Collection Method

2.7 VAT Rates

2.7.1 Standard VAT rate:

2.7.2 Zero VAT rate:

2.9 Types of VAT

2.9.2 Production VAT

2.9.3 Income VAT

2.9.4 Wage VAT

2.10 VAT Implementation

2.11 Registration for VAT

Any person conducting a commercial enterprise or instancing to conduct commercial enterprises

2.13 Registration Procedure

2.15 Time of Registration

VAT registered person can apply for cancellation of registration

2.17 Advantage and Disadvantage of VAT

2.17.1 Advantage of VAT

2.17.2 Disadvantage of VAT

3.1 Research Design

3.2 Research approach

3.3 Sampling design

3.4 Target population and sapling size

n= (1.64)2 (0.5X0.5) 1559 1048.2716 =65

n= (1.64)2 (0.5X0.5) 60 40.344 = 32

3.6 Data types and Data sources

3.7 Data Analysis techniques

3. DATA PRESENTATION AND ANALYSIS

From the total 32 questionnaires that distributed to employees of the administration 30

 lack of awareness creation of the revenue 14 70%

Mean Median Mode

Table4.7 the sector that the VAT tax payers registered

2 In what type of trade do you registered

Table4.9 Awareness of tax payers about VAT

28 32 60 46. 53. 100

Mean Median Mode

Mean Median Mode

Mean Median Mode