COLLEGE OF FINANCIAL MANAGEMENT &

DEVELOPMENT

DEPARTMENT OF PFM, ACCOUNTING & FINANCE

COURSE: TAX DESIGN AND ADMINSTRATION (PFM-5041)

ARTICLE REVIEW ON

Determinants of Turnover Tax (ToT) Collection

Effectives in Ethiopia: The Case of Hosanna Town

Authors: Dereje Lemma Lalisho, Mulugeta Abuye

Prepared By: Abel Meharu &

Asrar Helil

Submitted To: Abdu Mohamed (PhD)

November, 2021
Addis Ababa, Ethiopia
Acknowledgement

I greatly owe my heartfelt gratitude to my dedicated instructor, Abdu Mohamed (PhD) for his
incredible teaching and for letting me gain knowledge by working on this article review.

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Table of Contents

Acknowledgement....................................................................................................................... I

1. SUMMARY OF THE ARTICLE ........................................................................................1

1.1. Purpose of the article .................................................................................................. 1

1.2. Specific objectives it tries to achieve .......................................................................... 1

1.3. Data used & Methods of Data Analysis....................................................................... 1

1.4. Findings, Conclusions, and policy recommendations .................................................. 2

2. EVALUATION OF THE ARTICLE ..................................................................................3

3. COMMENT ......................................................................................................................4

4. THE STRENGTHS & WEAKNESSES OF THE ARTICLE ...............................................5

4.1. Strength of the Article................................................................................................. 5

4.2. Weakness of the Article.............................................................................................. 5

REFERENCE ................................................................................................................................6

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 1. SUMMARY OF THE ARTICLE

1.1. Purpose of the article

The purpose of the article is to explore that factor influencing the effectiveness of Turnover
tax collection in Hosanna Town. The study organized factors into four categories: Tax-
administration related, Tax officers-related, Taxpayers-related and Tax systems related
factors.

1.2. Specific objectives it tries to achieve

The specific objectives of the article are

 To find out if there is a relationship between mode of payment and effectiveness of

collection of turnover tax revenue
 To identify if there is a relationship between tax payers knowledge of obligations and
rights and effectiveness of collection of turnover tax revenue.
 To find out if there is relationship between turnover tax rate and effectiveness of
collection of turnover tax revenue.

1.3. Data used & Methods of Data Analysis

The article used primary and secondary sources of data. The study is a survey research type.
Quantitative approach research design enables current description of the phenomena being
studied. Quantitative research is a means for testing objective theories by examining the
relationship among variables

The article employed descriptive and econometrics methods to analyze the data in the present.

 Econometrics Method

Even though, there is no compelling reason to choose ordinal ordered regression model over
the probit, in practice many researchers choose the ordinal model because of its comparative
mathematical simplicity.

 Regression Analysis

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The choice of the type of regression to use is determined by the type of measurement of the
dependent variable. In this case the dependent variable is ordinal hence the choice of
ordinal regression. Ordinal regression is preferred to linear regression as it is more stable and
most suitable for the data.

1.4. Findings, Conclusions, and policy recommendations

In conclusion the authors argued that turnover tax collection effectiveness was affected by
different factors. These factors can be grouped according to the authors into tax
administration, tax officers, taxpayer and tax system (Proclamation). The challenges facing
turnover tax collection in Ethiopia include the mode of payment of the turnover tax was found
to be time consuming and tedious. The turnover tax was found to be prohibitive and higher
than profit margins. Tax officers contributed to the turnover tax collection problem by
accepting bribes when offered to reduce tax liability or by demanding for bribes when they
visited. The government also failed to involve taxpayers when formulating tax policies and
there were no visible improvements in government services. In addition there was poor
political goodwill towards turnover tax. To mitigate against these challenges the suggested
remedies that could improve turnover tax collection included: putting in place tough laws to
check evaders, frequent taxpayer education and sensitization, putting in place mechanisms to
address public misconceptions or inaccuracies and providing information in a customer-
focused way to reduce error.

The authors gave policy recommendation that the government must step up its focus on
improvement of the inefficient supply chain and promotion of formal associations of primary
producers so as to integrate small farmers while creating possibilities of economies of scale.
The implementation of these proposals must be considered alongside measures to improve
the business climate through the creation of small operator retail markets, better
infrastructure and reducing the number of unregistered informal market intermediaries.

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 2. EVALUATION OF THE ARTICLE

The authors discussed Ebrill and others (2010) theory which states, if the tax audit and
verification procedure is very weak, the taxpayers encourage reporting their tax liability by
understating less than which was expected from them. They argue in support of their theory
that tax audit strength can be measured by various variables like number of audit staff, well
defined auditing manual and documents, enhancing auditor’s competence, including all
taxpayers in audit sample without ignoring previously audited taxpayers.

They further support the theory by referring to their analysis that it indicates a more focused
investment by Kenya Revenue authority in reviewing powers and procedures, detection of
non-compliant taxpayers and punishing of those who willfully comply has the potential of
increasing the TOT revenue base (James, 2018). Also the conclusions of the article are directly
aligned with the findings of the study i.e. they are summarized from the details of the finding.

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 3. COMMENT

The government collects revenue from tax to ensure its funding and to finance basic
infrastructures in the nation; however, for the taxpayer also important to be treated in way is
procedurally fair. Tax administration, therefore, covers a wide area of the study, encompassing
aspects such as registration of taxpayers, assessments, returns processing, collection, and
audits

The study is entitled as ‘Determinants of Turnover Tax (ToT) Collection Effectives in Ethiopia’.
The article broaden my insight about Turnover Tax which is directly related to the course I
am taking.

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4. THE STRENGTHS & WEAKNESSES OF THE ARTICLE
4.1. Strength of the Article

 The research finding and discussion of the article is well aligned with the conclusions.
 The design and methodology part is well organized in a way to achieve the objectives
of the article.
 Discussion of result is supported with empirical evidence of different researchers.

4.2. Weakness of the Article

 There is no literature of review in the article to support the case studied which is the
study has used only primary data.
 The data is only collected from tax payers only. It should have been include the data
from the concerned government bodies.
 The authors consider that if other approaches were used, they could have reached
different conclusions. I can’t see why not to use those approaches than to limit the
achievement of the study.

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REFERENCE

Dereje Lemma Lalisho, Muluget Abuye. Determinants of Turnover Tax (ToT) Tax Collection
Effectives in Ethiopia: The Case Hosanna Town. American Journal of Theoretical and Applied
Business. Vol. 6, No. 3, 2020, pp. 28-36. doi: 10.11648/j.ajtab.20200603.13