RIFT VALLY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

A RESEARCH PROPOSAL SUBMITTED TO DEPARTMENT OF

ACCOUNTING AND FINANCE IN PARTIAL FULFILLMENT OF THE
REQUIREMENT OF BACHELOR ART DEGREE (BA) IN ACCOUNTING
AND FINANCE

PREPARED BY. DIANA TAMESGEN

ADVISOR: TOMAS AMANTE (MSC)

JULY 26, 2022

DAMBI DOLLO: ETHIOPIA

 ACKNOWLEDGEMENT
Before everything we would like to thank God for everything He has done in our life because he
makes us alive and helps us to understand what is good for us. And then, we would like to
acknowledge those people who helped us during the research of our paper.

First, we would like to acknowledge our advisor tomas amante (MSc), who is correcting and
guiding us to write this paper. In the same way, we would like to thank our families who are
helping us financially. Finally, we would like to acknowledge rift vally University Lecturers,
Librarians, and all classmates; among our classmates for they were borrowing us some materials
and encouraging us and helping us during our studies. May God help them in their life as they
have helped us!

Table of Contents
ACKNOWLEDGEMENT............................................................................................................................i

i
LIST OF ACRONYMS..............................................................................................................................iii
ABSTRACT...............................................................................................................................................iv
CHAPTER ONE..........................................................................................................................................1
INTRODUCTION.......................................................................................................................................1
1.1 Background of the study....................................................................................................................1
1.2. Statement of the problems................................................................................................................2
1.3. Objective of the Study......................................................................................................................4
1.3.2. Specific objectives.....................................................................................................................4
1.4. Significance of the study...................................................................................................................4
1.5. Scope of the study.............................................................................................................................4
1.7. Organization of the paper.................................................................................................................5
CHAPTER TWO.........................................................................................................................................6
2. REVIEW OF RELATED LITERATURE...............................................................................................6
2.1 Theoretical Review............................................................................................................................6
2.1.1. Application of Tax Principles during VAT Collection...............................................................6
2.1.2. Compliance of Taxpayer.....................................................................................................6

2.2. Empirical Review.............................................................................................................................8

CHAPTER THREE...................................................................................................................................14
3. Research Methodology..........................................................................................................................14
3.1. Research approach..........................................................................................................................14
3.2. Research design..............................................................................................................................14
3.3. Source of Data and Collection Method...........................................................................................14
3.5. Target population............................................................................................................................14
3.6. Sampling design and techniques.....................................................................................................15
3.7.1. Sample size determination.......................................................................................................15
3.8. Methods of data analysis and Interpretation....................................................................................15
Chapter four...............................................................................................................................................16
4. Work plan and Budget breakdown........................................................................................................16
4.1 Work plan........................................................................................................................................16
4.2 Budget breakdown...........................................................................................................................17
REFERENCES..........................................................................................................................................18
APPENDIX I.............................................................................................................................................20

ii
 LIST OF ACRONYMS
ERCA Ethiopian Revenue and Customs Authority

ETB Ethiopian Birr

GDP Growth Domestic Product

GST Goods and Service Tax

IMF International Monetary Fund

Proc. No. Proclamation Number

SIGTAS Standards Integrated Government Tax Administration System

VAT Value Added Tax

iii
 ABSTRACT
The general objective of this research will be to assess the current VAT Administration problems
in Dambi Dollo town revenue authority office. The study will also emphasize the need to
strengthen the administration capacity in general and the VAT administration system in
particular as efficiently as possible. To achieve the objective of study, the researchers will adopt
descriptive method of research approach. The sample of VAT Registered taxpayers in Dambi
Dollo town will be selected through using probability sampling technique; simple random
sampling technique and the sample of employees of Dambi Dollo town revenue authority office
will be selected through using non- probability sampling techniques. In this study both
quantitative and qualitative data will be used. For the quantitative data, there will be
questionnaire for both taxpayers and tax officials. The collected data will be analyzed through
using descriptive type of research design.

Key word: Value added tax, Value added tax administration, Value added tax revenue and
compliance.

iv
 CHAPTER ONE

INTRODUCTION
1.1 Background of the study
The emergence and rapid spread of value added tax is among the most important tax
development of the 20th century. It is a type of indirect tax, nowadays found in more than 130
countries and has become the principal source of revenue for many countries. (Keen and
Lockwood. 2007). According to IMF report in the year 2004, about 136 countries have made
Value Added Tax part of their tax system, and from 53 members of African Union 33 of them
introduced VAT as their tax system (Worku, 2008). Value Added Tax is indirect tax because it is
collected from someone other than the person who actually bears the cost of the tax directly, as it
is a tax on the supply of goods and services that is ultimately borne by the final consumer, but
collected at each stage of production and distribution chain, it is a tax on what people buy rather
than their savings or earnings or investments (Olatunji, 2009). The modern variation of VAT was
first implemented by France in 1954 in Ivory Coast (Cote devoir) colony. Recognizing the
experiment as successful, the French introduced it in 1958. Cote d’ivore was the first African
country to implement VAT in 1960 (Jaleta, 2014).

1
Ethiopia adopted New Zealand’s model of VAT which is a standard rate of 15 % broad based
and minimum exemption on January 1st, 2003 by replacing the outdated sales tax. Bogale (2009)
stated the major reasons behind introducing VAT in Ethiopia was because it is more
advantageous than sales tax in that:- it allows collection on the added value created wherever
sales transaction is conducted, it also permits refund on tax that businesses paid for inputs (raw
materials) which decreases evasion that is not true in sales tax as it is collected only at one stage,
it increases saving and investment by changing the extravagant way of life imposed form custom
on the part of final consumers and the incapability of sales tax in generating adequate revenue
(James, 2011) stated because of being the best method of taxing the general consumption, its
neutral treatment of exports, and its revenue-raising capacity currently VAT become popular and
acceptable by many countries (Le, 2003) also underlined the usefulness of VAT in that the
presence of VAT has been associated with a higher ratio of general government revenue
compared with alternatives in indirect taxation; the VAT has more revenue potential: it is
generally more broad-based and entails a trail of invoices that helps improve tax compliance and
enforcement. In many countries, it is regarded as one of the main source of government revenue.

The government uses the tax revenue to build dams, to operate schools and Hospitals to provide
food and medical care for the poor and also for other purposes. Value added tax is modified sale
tax based on the net value added at each stage rather than gross receipts it is principle means of
the indirect taxation.Net output tax minus input tax. Output tax is a tax collected when firm sell
its product whereas input tax is tax paid when the firm buys goods from registered one can
collect value added tax without registration for value Added tax (Misrak, 2008).

According to Yesegat (2008), VAT is a percentage tax on a value added applied at each stage of
production. In VAT administration, there should be a concern for small businesses; the cost of
administrating VAT is proportionally high for small business. To that effect, many countries
adopt simplified procedures for small and medium businesses like, allowing accounting for VAT
on a cash basis rather than accrual basis and filling within reasonable accounting period,
however this is not the case in Ethiopia.

2
A good tax administration is essential in fully administrating the design features of VAT and
achieving government’s policy objectives at large. Therefore improving tax administration,
particularly VAT administration activities helps the Dambi Dollo town to improve its revenue
through voluntary compliance. In general, this study assesses VAT administrative problems in
Dambi Dollo town revenue authority office.

1.2. Statement of the problems

Value added tax is the principal source of revenue for the Ethiopian government (Yesegat, 2008).
Ebrill et al. (2002) stated that VAT is a good means to raise government revenue and they found
that countries that have adopted VAT revenue from this source accounted on average 27 percent
of the total tax revenue or 5 percent of the GDP. Moreover, 70 percent of the world’s populations
now live in countries with a VAT. This implies that it is a key source of government revenue in
more than 126 nations. Most of African countries are currently dependent on external financial
resources to fund their development activities. To change this situation, these nations should
exploit and strengthen their domestic financial resources base in order to bring about sustainable
development. Otherwise, it is difficult to achieve profound growth with dependence on external
sources. External sources are instable and outside investment cannot be a reliable major source
of income to support the nation. Generating revenue from VAT in Ethiopia is frequently lower
than expected. So, the government resolves to increase VAT revenue and to improve tax
administration system on one side and taxpayer compliance on the other side. The study of
Markos (2010), discusses VAT administration and revenue performance in the case of Mekelle
City. It seems that there are gaps in understanding the efforts exerted in awareness creation in the
taxpayers. In general, one can clearly observe that attitudinal problem on the side of the
taxpayers and low awareness creation on the side of the revenue authority office and the main
constraints and challenges for the smooth administration of VAT. The study of Henok (2014)
also stands the issue of assessment on VAT administration impact on revenue performance.
Recently Kassu (2015), discuss on assessment and evaluation of VAT administration; the case of
Merkato No 1 medium taxpayers’ branch office, most of the tax payers are unregistered for
Value Added Tax. These previous studies result reveals that there are people and companies who
are VAT registered but are not declaring with payments and not issue invoice properly. This
number is increasing from time to time. This needs serious attention by the administering body.
Generally, one can clearly observe that attitudinal problems on the side of the taxpayers and the

3
poor administration on the side of the revenue authority office. And also the same problems are
motivated the researchers of this research to do their study on this topic. In our daily life we can
observe many things on both side of taxpayers and revenue authority office. Like, most of
taxpayers in our country don’t have enough understanding of why they pay tax to the
government. On other side, most of government employees in revenue authority office lack
knowledge on overall tax systems of the government. And also those who have enough
knowledge on overall tax system of the government lack to create awareness on side of
taxpayers. Therefore, in addition to examining the above already identified gaps, this study will
be designed to examine value added tax administration regarding current problems of value
added tax assessment at DambiDollo town revenue authority office.

The researchers raise the following question that was answered in this course of study:-
1. Does the VAT registered taxpayers work in compliance with current tax law?
2. What problems does Dambi Dollo town Revenue Authority Office encountered in
administrating the Value Added Tax?
3. How are the extents of VAT registered taxpayers` awareness towards Value Added Tax?

1.3. Objective of the Study

1.3.1. General objective
The general objective of this study is to assess VAT administration activities and its challenges
in Dambi Dollo Town Revenue Authority Office.

1.3.2. Specific objectives

The specific objective of the study is:

1. To assess whether the VAT registered taxpayers work in compliance with current tax law.

2. To examine the problems of VAT administration in Dambi Dollo town Revenue Authority
office.

3. To give the possible suggestions for the identified problems and discuss the opportunities for
the administration of VAT.

4
1.4. Significance of the study
This proposed study may help the value added tax administration office to know the problem of
VAT administration that is known and individual living condition with in the countries. In
addition to this the study may be used for the administrator, give a way it will raise the
employees’ awareness towards value added tax and show them the role they have to play. For the
society, to effectively collect and administer value added tax and satisfy the community social
wants. For the researchers it is an opportunity of relating to academic knowledge with that of
what is practiced with real world. It may help other researchers and contribute some to those tax
want to make further research and necessary for the identification of the obstacle at the collection
of value added tax.

1.5. Scope of the study

This proposed study will cover the assessment of value added tax administration problem in case
of Dambi Dollo town revenue office. This proposed study is restricted to Dambi Dollo town
value added tax registered business those who have annual sales turnover of birr 1000,000 and
above. This proposed study is better, if the study would be conducted overall the countries, but
due to financial and time constraints, the scope of the study would be extended to assess the main
problem relating to value added tax administration in Dambi Dollo town revenue office.

1.7. Organization of the paper

This proposed study includes five chapters. The first chapter will present the introduction part
which reflecting the background, statement of the problem, objective of the study, significance of
the study, scope of the study, and organization of the study. The second chapter will discuss
with review of related literature. The third chapter will deal with methodology and design of the
study. The fourth chapter will deal with data analysis and interpretation and the fifth chapter
consists of conclusion and recommendation

5
6
 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1 Theoretical Review

VAT is a general consumption tax assessed on the value added to goods and services. It is a
broad based tax because it is charged in different stage of the production and distribution of
goods and the provision of services. It is a consumption tax because it is borne ultimately by the
final consumer. It is charged as a percentage of prices, which means that the actual tax burden is
visible at each stage in the production and distribution chain. It is collected fractionally, via a
system of deductions whereby taxable persons (i.e., VAT-registered businesses) can deduct from
their VAT liability the amount of tax they have paid to other taxable persons on purchases for
their business activities. This mechanism ensures that the tax is neutral regardless of how many
transactions are involved (Herouy, 2004). Value Added Tax has also become an indispensable
component of tax reform in developing countries. It is the most important tax innovation of the
second half of twentieths century. In line with this perception, an increasing number of
developing countries have converting their sales tax to value added tax. Continuing introduction
and evolution of general sales taxes, especially of the value added tax has been the outstanding
feature in development taxation in recent years (Yesegat, W. 2008). In Nwanyanwu (2015) on
his behalf state that, value added tax administration refers to the proc.ess, adopted in registering,
assessing, collecting, and accounting for value added tax revenue. If encompasses penalties and
cases of appeal associated with the making of returns arising from failure to register in line with
the value added tax act. Therefore a good value added tax administration means fully
implementing the design attribute of tax and reducing gab between effective taxation and what it
is implied to be in legislation (Abay, 2013). According to Wollela (2008), value added tax
administration is concerned not only with administrative activities but also about administrative
organs (who should administer the tax) and their mood of organization

2.1.1. Application of Tax Principles during VAT Collection

According to Makedonskiy (2005), the ability of the tax system to adequately perform its
functions is to a large extent determined by its correspondence to the economic environment
along with certain principles and requirements. Specifically, tax burden should be fairly

7
distributed among all the economic entities depending on their taxable capacity. For example,
the role of VAT within broader strategies will have for alleviating poverty and achieving fairness
(Keen, 2005). However, the implementation of this principle is hampered by the informal
(unregistered) economic activity and active tax evasion by a significant part of the taxpayers.

2.1.2. Compliance of the Taxpayer

According to Shahroodi (2010), stated that for a tax system to be efficient, the tax policy needs
to be designed such that the tax rates are appropriate and rational, the exemptions are lower in
amount, the tax collection organization are more efficient, the tax burden of the indigent people
should be lighter and the fight against corruption and tax evasion should be much more intense.

Pro-business Tax regimes and enforcement should be simple, consistent and predictable should
to lower compliance and administrative costs, and hence reduce uncertainty faced by taxpayers
as well as improve the levels of voluntary compliance (Kasipillai, 2005).

Even though VAT is less vulnerable than other form of taxations, like any other tax, it is
vulnerable to evasion and fraud (Keen and Smith, 2007). It is widely accepted that the goal of an
efficient tax administration is to foster voluntary tax compliance using all possible methods
including penalties.

Penalizing tax evaders or going after delinquent taxpayers are not in themselves the object of tax
administration, although it would serve to encourage voluntary compliance if the taxpayers
believe that the tax administration can effectively detect and punish noncompliance.

It is difficult to get an accurate picture; it is clear from the few studies that, VAT evasion is
widespread and involves significant revenue losses, though the extent varies considerably across
countries (Webley et al., 2002:1). For instance, a study on VAT Compliance in the United
Kingdom identifies four forms of noncompliance: -

A. Engage in taxable transactions without having registered with the tax authority

B. Fail to file their tax return by the statutory filling deadlines

C. Underreporting their tax liability or illicit claim of tax refunds, or

D. Underpay the amount of taxes due (tax arrears).

8
2.2. Empirical Review
The study conducted by Bird (2005), reveals VAT as the ‘money machine’ tax which necessarily
adopted by both developed and developing countries that allow the government to collect
sufficient amount of revenue. Hence, the majority of economists as well as experts of political
scientists think that VAT is the best preferable general consumption tax recently available that
enhances economic growth.

A research about The Administration and Problems of Value Added Tax in Nigeria by Aruwa
(2008), mainly examines the relevance and problems hindering efficiency of VAT. In order to
get the necessary and adequate information the researcher collected various data from VAT able
Nigerian organizations, FIRS staff and the public. He also used descriptive statistics such as
percentages, mean and combined mean for data analysis. The survey result generally shows that
majority of the FIRS staff perceive that they are not adequately equipped technically and
administratively to handle VAT operations. VAT able organizations have inappropriate
knowledge of VAT operations because as per the in-depth interviews with a few of the VAT able
organizations indicate that input VAT is wrongly treated as production costs. The responding
organizations do claim that input VAT actually caused their working capital requirements to
increase. Therefore, the argument that the system is not properly understood by the VAT
organizations remains. Even if the governments have raised substantial revenue from VAT it is
presently perceived as been underutilized due to high rate of tax evasion, lack of record keeping
by business enterprises. This needs ERCA to provide continuous training.

In 2008, Yesegat’s study about Value Added Tax Administration in Ethiopia: A reflection of
problems - had the objective of how VAT administrators in Ethiopia perform their duties and
how the effective taxation requirements differ from the legislation (focusing on the key
administration tasks) and also identify key problem areas that deserve the government’s due
attention. The study was conducted by using interviews with tax officials and distributing semi-
structured questionnaires to taxpayers and tax practitioners (mainly accountants in private
practice). The researcher raised the following issues that are related to VAT administration
practices help to achieve the research objective - Taxpayer identification and registration, VAT
filing and payment, Control of filing and payment, VAT Invoicing, VAT Audit, Penalties and
VAT Refund. Generally, the outcomes of the survey shows lack of tax awareness among the

9
society and strong education programs as well as lack of trust between taxpayers and
administrators as major challenges to the VAT system in the country. The gaps and problems
identified in the study were partly because of under staffing of the tax authority which confirms
the existence of limited tax administration resources. The researcher therefore suggested that
enhancing tax education and follow–up programs are valuable and designing a strategy that can
encourage consumers to ask for VAT invoices could be helpful although this is likely to increase
the administrative costs of the tax. It is also advisable for the authority to consider the possibility
of recruiting and retaining sufficient number of qualified VAT administrators, auditors in
particular.

A study on Challenges of Value Added Tax Administration: The Case of East Wollega Zone by
Dheressa, Reddy, and Yadeta (2015) investigated the challenges of VAT administration in
relation with assessment, collection and implementation and they also evaluate the main
problems related to VAT administration activities performance and service delivery of tax office
and voluntary compliance of taxpayers in the case of Eastern Wollega Zone specifically
Nekemte town. Their samples were composed of VAT registrants, Auditors, Tax Collectors,
Audit and Assessment and Process Owners/ Team leaders they used stratified and judgmental
sampling methods to select the samples. Descriptive statistics method and charts, figures,
percentages and statistical package for social science (SPSS) were used for data analysis. Based
on the results of their findings, the researchers noted that the authority is facing the following
problems that have an effect on collecting sufficient amount of revenue:- Resistance against
Value Added Tax registration, low level of tax awareness, weak audit and enforcement capacity
of the tax authority, selling goods and service without using value added tax invoices by
registrants, weak culture of taxpayers, lack of fairness, lack of experience of Value Added Tax
registrants, weak follow-ups and controlling mechanisms against those unregistered and
registered Value Added Taxpayers generally majority of the respondents stated that there is poor
Value Added Tax Administration in the East Wollega Zone.

These forms of noncompliance give rise to tax gap representing forgone government revenue and
unfair competitive advantage to noncompliant businesses. According to Tompson and Green
(1988), one of the shortfalls in VAT administration is lack- of registering those who should be
registered.

10
According to Atawodi and Ojeka (2012), various opinions exist about the best ways to improve
tax compliance. Given the chance, a lot of businesses will not pay taxes unless there is a
motivation to do so. Some believe that the best way is to increase incentives others believe the
best way is to increase penalties. Tax compliance theories can be broadly classified into two.
They are; economics based theories and psychology based theories.

Economic based theories are also known as deterrence theory and they place emphasis on
incentives. The theory suggests that taxpayers are amoral utility maximizes. They are influenced
by economic motives such as profit maximization and probability of detection. As such they
analyze alternative compliance paths for instance whether or not to evade tax, the likelihood of
being detected and the resulting effect and then select the alternative that maximizes their
expected after tax returns after adjusting for risk. Therefore, according to the theory, in order to
improve compliance, audits and penalties for non-compliance should be increased.

Psychology theories on the other hand posit that taxpayers are influenced to comply with their
tax obligations by psychological factors. They focus on the taxpayers’ morals and ethics. The
theories suggest that a taxpayer may comply even when the probability of detection is low. As
opposed to the economic theories that emphasize increased audits and penalties as solutions to
compliance issues, psychology theories lay emphasis on changing individual attitudes towards
tax systems.

As Ebrill et.al (2002), the introduction of a VAT can facilitate substantial improvements in
overall tax administration, particularly the establishment of more integrated tax administration
organizations and the development of modern procedures based on voluntary compliance. But
there have been some significant weaknesses in the VAT's implementation in developing and
transition countries. Some of these are the difficulty of implementing workable self-assessment
systems, under which taxpayers declare and pay taxes on the basis of their own calculations,
subject to the possibility of later audit by the tax Authorities.

According to Keen (2005), a review of experience in 31 developing countries found that VAT
administration is based on the concept of self-assessment in 26 of them. But further analysis of
the data indicated that there has been less progress than would appear. Under a system of
voluntary compliance (meaning that taxpayers comply with their basic tax obligations without

11
the intervention of a tax official) taxpayers self-assess: that is, they calculate and pay their own
tax liabilities. They must complete their returns and submit them with their payments to the tax
administration. One way to appreciate why self-assessment is important to an effective VAT
administration is to consider the impact of not having self-assessment.

According to Dekan (2003), the tax assessment sometimes can be unclear to the tax payers.
Regarding to the complexity of tax assessment system (not simple and clear) may result in
unintentional non-compliance if taxpayers have problems with filling the tax form. Furthermore,
such noncompliance differs from other crimes. Because, it can be concluding that the errors
occurred unintentionally due to the misinterpretation of the rules. Results from a survey shown
that only 55% of the taxpayers were certain, that they had neither overstated a deduction nor
understated taxable income on their return. Thus, by enhancing complexity, it is difficult to
distinguish honest from dishonest taxpayers. By this virtue, tax examiners in the tax
administration will have greater problems to identify a case of noncompliance and comparing
whether the violation was deliberate or unintentional. And this can be increased tax collection
costs.

Besides, the Kwabena (2011), findings on the knowledge of tax systems revealed that most self-
employed are not knowledgeable of the tax system in Ghana. To affirm this internal revenue -
service organizes educational programmers, for the self-employed category of the taxpayers and
find out the possible impact on revenue mobilization from the informal sector. The analyses on
education the research shown that, only 27 out of 189 respondents representing 14.3% have
received some tax education while the remaining 85.7% have never received any form of income
tax education.

According to Hastuti (2014), self-assessment system requires taxpayers to calculate, pay, and
report their own tax payable. Having full understanding of this kind of obligation helps the
government indeed to have complied taxpayers. The complied taxpayers pay tax with the right
amount with the right procedure. This is good since government revenue will be earned. For the
potential taxpayers, it is also good to be informed with his kind of obligation. Tax is something
unquestionable for every citizen, their awareness of taxation will be important in pursuing tax
compliance.

12
Asamenew (2012), found that the major causes are there exist inefficiency and insufficient
number of tax assessment and collection officers, most taxpayers lack sufficient knowledge of
tax assessment and collection Procedures. Thus, most of taxpayers do not know why they are
paying taxes; what types of taxes are expected from them; and the applicable rules and
regulations. Due to this he recommends that negligence, delay in tax payment and evasion are
taken by taxpayers as solution to escape from payment of taxes.

According to Hagos (2011) and lemessa (2007), awareness creation by the authority on taxpayers
were rated about 87.8% and 74% of the respondents responded that below enough and poor and
this shows that the awareness creation activities of the tax authority were ineffective and
inefficient in according to awareness creation. Therefore, they established that the awareness
creation problem was a series and the root cause of all problems relating to the tax collection and
assessment. Due to this, the authority may not achieve the expected future voluntary compliance
in the absence of services along with the taxpayer’s lack of tax awareness. Without educating
taxpayers and creating tax awareness, making power visible to the community might detect the
deliberate evasions and frauds but not be a solution to create a compliant taxpayer those does not
comply unknowingly (Mihret, 2011).

Markos (2010) found that different problems were observed, the main one is being attitudinal
problem of the tax payers and implementation capacity of the government employees. As a
result, the data show that there are many business men and companies that should be registered
for VAT but are not. As a result, the branch office is losing millions of birr per year. And he
recommended changing the attitude of the taxpayers and building the implementationcapacity of
the employees.

Dheressa et.al, (2015), the study was particularly focused on challenges of VAT Administration
regarding the assessment, collection and implementation of VAT Their survey result showed
that, most of the business entities have not comply with the laws and regulations of VAT and
they committed illegal activities by preparing fake invoices and they remitted the tax income for
themselves rather than to pay the government. Concerning the side of the Authority, it is
incapable to identify and control business enterprises that are noncompliance with the laws and
regulations of VAT. They recommended in their study that the Authority should strengthen its
follow-up, appraise the performance of existing, recruit qualified new employees, strengthen its

13
controlling mechanisms, improve its administrative systems and prepare programs to provide
intensive education to the society about the benefits, rules and regulations of taxes specifically
VAT.

Bizualem (2015), indicated that the major challenges delay ERCA from generating what was
initially planned are: lack of sufficient number of skilled personnel, limited staff capacity, non-
responsiveness by the management, limited awareness creation, problems related with invoicing,
unfair competition, and control centered management tendency. And he recommended that the
need to strengthen the administration capacity in general and the VAT collection system in
particular as efficiently as possible.

According to Jebessa (2005), many business owners do not keep their books properly, which
invited to general estimations, which are often arbitrary. So training is necessary on the one hand
and on the other hand, national standards for bookkeeping, which would be respected in all
taxation offices nationwide, need to be defined and introduced.

To summarize, the empirical findings found that the determinants of the VAT administration
problems were limited awareness creation, lack of equity and fairness of the tax system,
ineffectiveness and inefficiency of the Tax Authority, problems related with invoicing, total
distrust between the tax administration and taxpayers and lack of simplified procedures.

14
 CHAPTER THREE

3. Research Methodology
3.1. Research approach
The researchers will use both qualitative and quantitative research approach to analyze the data
gathered. Both qualitative and quantitative data analysis techniques or mixed methods approach
will have used. Since both approaches have their own strength and weakness, the usage of mixed
approach in this study helps to utilize the strength and offset with weaknesses of one approach to
the other which gave a better understanding of the research questions. However, it is not easy to
address issues which cannot be quantified. So that, qualitative approach to research is concerned
with subjective assessment of attitudes, opinions, and behavior and attempts to get an in depth
opinion from participants. In this case study, in order to achieve the research questions we state
both qualitative and quantitative approaches will use through questionnaire and interview.

3.2. Research design

To conduct the study the researchers will use descriptive type of research design in order to
undertake the study by describing the existing facts and truth. The purpose of using this method
is to describe VAT administration problem in the case of Dambi Dollo town revenue authority
office as it exists and focusing explaining the existing phenomena and state of affairs regarding
VAT administration problem.

3.3. Source of Data and Collection Method

The researchers will use primary data to get full information in conducting this study. This
primary data will be collected through using closed and open ended questionnaires which will be
distributed to the tax payers as well as tax officials of Dambi Dollo town revenue authority
office.

3.5. Target population

The target population of this study will be VAT registered taxpayers in Dambi Dollo town and
employees of Dambi Dollo revenue authority office.

15
3.6. Sampling design and techniques
In order to select the appropriate representative of the total population and to make the research
findings more relevant and accurate, the sample design is well structured. The researchers will
collect the data by using probability sampling technique; simple random sampling technique
from VAT registered taxpayers and will use non- probability sampling techniques which is
judgmental sample technique to collect data from tax officials.

3.7.1. Sample size determination

In purposive sampling, the sample is determined in according to the knowledge of the
researchers about the group to be sample.

For tax payers, the researcher was used simple random sampling.
n=N/1+N (e) 2

Where: n=sample size

N=Total population

e=Errors

3.8. Methods of data analysis and Interpretation

To conduct this study, the researchers will use descriptive statistics method of data analysis.
Under this method includes tabulation and percentage. Having this goal of the study in mind, the
raw data will be processed by tabulating that identifying and classifying each response of the
selected employees and tax payers. The data will be analyzed and interpreted the finding by
descriptive statistics method with table and percentage.

16
 Chapter four

4. Work plan and Budget breakdown

4.1 Work plan
The time needed to conduct the study is presented as below

No Activities to be done May June July Aug. Sept. Oct. Nov.

1. The selection of title and approval by 

the advisor

2. Proposal prepare 

3. Review literature 

4. The preparation of questionnaire 

5. Discussion with advisor on prepared 

questions

6. Questionnaire distribution and data 

collection

7. Data analyzing and interpreting 

8. Recommendation on the analyzed and 

interpreted data

9. Writing of the report 

10. Submission of the final research 

11. Final research finding presentation 

17
 4.2 Budget breakdown
The cost needed for the study will be estimated as below

No Descriptions of terms Unite Quantity Unite price Total Remark

principal

1. Typing and printing Page Birr cents Birr cents

the research proposal
40 5 00 200 00

2. Photo copy the In 6 20 00 120 00

proposal number

3. Binding the proposal - - - - 120 00

4. Internet service and - - - - 300 00

phone call

5. Typing and printing Page 6 5 00 30 00

the questionnaires

6. Photocopying the Page 200 1 00 200 00

questionnaires

7. Typing and printing Page 46 5 00 230 00

all the chapter to be
submitted to the
advisor

8. Printing the finalized Page 46 5 00 230 00

18
 research work

9. Binding of the paper In num 6 20 00 120

10. Transportation cost - - - - 200 00

11. Stationary materials - - - - 400 00

Total budget 2150 00

REFERENCES
Administration: The case of East Wollega Zone. Research Journal of Finance and Accounting
6(2),

Aruwa, D. and Suleiman, A.S. (2008). The administration and problems of value added tax in
Nigeria. Finance and Accounting Research Monitor2 (2).

Asamenew, G. (2012). Tax assessment and collection problems of Category “A” taxpayers: A
case of Yeka Sub City.

Bird, R., Martínez-Vázquez, J. and Torgler . B.( 2005). Value-added taxes in developing
and transitional countries: lessons and questions..

Bizualem.B .( 2015). Practices and Challenges of VAT Implementation in Ethiopia Post

January 2003 Assessment (Doctoral dissertation, AAU).

Bogale, Y. M. (2009). Tax Law, Teaching Material. Addis Ababa.

Dekan .D.(2003).Theory and empirical analysis of tax compliance. University of Base

Dheressa, H., Reddy, K.K. and Yadeta .D.( 2015). Challenges of Value Added Tax
Administration: The Case of East Wollega Zone.

Ebrill. L., Keen .M.,Bodin .J.P. and summers . V. (2002).The allure of the value-added
tax.Financeand Development-English Edition, 39(2), pp.44-47.

19
Federal Democratic Republic of Ethiopia.(2002). Proclamation No. 285/2002; Value Added Tax
Proclamation. Addis Ababa.

Hagos.G.( 2011). Assessment on the challenges of business income collection process: A case
study in Aksum town, Tigray, Ethiopia. Mekelle University.

Hastuti .R.(2014).Tax awareness and tax education: a perception of potential taxpayers.

Henok, B. (2014). Assessment on VAT Administration impact on Revenue Performance in yeka

sub city branch of Addis Ababa

IMF. (2003). Social Impacts of Tax Reform: The case of Ethiopia. Washington.

Jaleta,D. (2014). The Role of Value Added Tax on Economic Growth of Ethiopia. Science,
Technology and Arts Research Journal. 3(1): 156-161.

Jebessa .J.( 2005). Taxation in Ethiopia: Direct and Indirect Taxes: Categories of Tax Payers

Kassu, T. (2011). Challenges of Tax Administration in Merkato no.1 branch of Addis Ababa
City Administration. Thesis submitted to the School of Graduate studies.

Keen & Lockwood, (2007): The Value Added Tax: Its Causes and Consequences Liam
Ebrill,City Administration. Thesis submitted to the School of Graduate studies.

Keen .M. (2005). The VAT experience. In Presentation to the International Tax Dialogue VAT
Conference, Rome (pp. 15-16).

Keen .M. and Smith. S.C.(2007). VAT Fraud and Evasion: What do we know, and What Can be
Done? (No. 7-31). International Monetary Fund.

Kothari C.R, (2004). Research methodology 2nd edition New Delhi

Leedy PD and Ormrod JE. ( 2005). Practical research: planning and design. 8th edition. Upper
Saddle River, NJ: Pearson.

Lemessa .T. (2007). A research project on determinants of taxpayers’ voluntary compliance with
taxation: The case study of Dire Dawa City. Addis Ababa University.

Makedonskiy .S. (2005). Taxation mechanisms based on simplified and indirect evaluation of tax
liabilities. Russian and European Centre for Economic Policy (RECEP).

Markos, A. (2010). VAT Administration and Revenue Performance in Mekelle branch of

Mekelle City Administration. Thesis submitted to the School of Graduate studies.

Marti . L.O.( 2010). Taxpayers’ attitudes and tax compliance behavior in Kenya.African Journal
of Business & Management, 1, pp.112-122.

20
Mihret .G. (2011). Tax Audit Practice in Ethiopia: The Case of the Federal government
(Doctoral dissertation, AAU).

Misrak, T. (2008). Ethiopian Tax Accounting Theory and Practice (1st ed.)Addis Ababa,
Ethiopia.

Shahroodi . S.M.M.(2010). Investigation of the effective factors in the efficiency of tax system.

Tait .M.A.A.(1988). Value added tax: International practice and problems. International
MonetaryFund.

Tesfaye .M.( 2014). Ethiopian Tax Accounting Theory and Practice, (2sted). Addis Ababa.

Tesfaye .M.(2008).Ethiopian Tax Accounting Theory and Practice, Addis Ababa.

Webley .P.Adams .C. and Elffers.H.(2002). VAT compliance in the United Kingdom.

Yesegat, W .A. (2008) ‘Estimating VAT administrative costs in Ethiopia’, Paper presented at the
8th International Conference on Tax Administration, A tax, Sydney.

APPENDIX I
RIFT VALLY UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARMENT OF ACCOUTNING AND FINANCE
Questionnaire for the employees of tax official

Researchers: It’s by group

Research topic: Assessment of Value-added Tax administration problem in case of Dambi

Dollo town revenue authority office

Dear respondents

We would like to express our sincere appreciation and deepest thanks for gave us your precious
time and responses our research questions. The Purpose of the study is to conduct research for
the requirement of BA degree in Accounting and Finance. We respectfully request your kind
cooperation in answering the questions that follow a clearly and frankly as possible and your
response will be highly confidential. If you have any questions or concerns, please contact us
through: +251 917657891

21
General Instructions for Respondents

• There is no need of writing your name

• In all cases where answer options available place tick (√) in the appropriate space

• Please try to honestly describe as per the questions on the space provided

Part I: Questions related to study objective

1. Is the business Community paying VAT regularly?

Yes No

2. Do you believe that all eligible business traders get registered as VAT payer?

Yes No

If your answer is “no”, please put your rationalities

----------------------------------------------------------------

3. Do you think that all register tax payers maintain cash register machine?

Yes No

If “No”, what are the reasons please explain:

--------------------------------------------------------------------

4. What do you think the understanding level of VAT registered taxpayers on the importance of
VAT?

Very High High Average low Very low

5. Do you think that tax administrations are strong enough to control non-registered?

Yes No I have no idea

If your answer is no, put your reasons here

-----------------------------------------------------------------------

6. Do you think that tax administrations are strong enough to control illegal activities of VAT
registered taxpayers? Yes No I have no
idea

7. Do you think that the VAT assessment and collection mechanism is effective and efficient?

Yes No

22
8. Do you know that some VAT registered business people collect the tax with illegal invoice?

Yes No

If your answer for question no.8 is “yes “what do you think about the problem?

---------------------------------------------------------------------------------------------------------------------

-----------------------------------------------------------------------------------------------

9. Do you know that some business people do not properly maintain records of their transactions
in accordance with the VAT law?

Yes No I have no information

10. What are overall constraints you face in administrating VAT?

-------------------------------------------------------------------------------------------------------

I thank you for gave us your time and contributed in conducting this research work and sharing
us your feedbacks honestly.

APPENDIX II

RIFT VALLY UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
DEPARMENT OF ACCOUTNING AND FINANCE
Questionnaire for VAT registered taxpayers.

Researchers: It’s by group

Research topic: Assessment of Value-added Tax administration problem in case of Dambi

Dollo town revenue authority office

Dear respondents

We would like to express our sincere appreciation and deepest thanks for gave us your precious
time and responses our research questions. The Purpose of the study is to conduct research for
the requirement of BA degree in Accounting and Finance. We respectfully request your kind

23
cooperation in answering the questions that follow a clearly and frankly as possible and your
response will be highly confidential. If you have any questions or concerns, please contact us
through: +251 917657891

General Instructions for Respondents

• There is no need of writing your name

• In all cases where answer options available place tick (√) in the appropriate space

• Please try to honestly describe as per the questions on the space provided

Part I: Questions

1. Do you know why you are paying VAT? Yes No

If your answer is no, put here your reason ------------------------------------------------------------------

2. Are you issuing VAT receipts to all buyers without fail?

Yes not at all some times

If you answer is either “not at all” or “sometimes”, please indicate your rationales.
---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------

3. What is your experience in declaring and depositing VAT liability to the government account
every month?

Poor Good Very good Excellent

4. What is your understanding level about the importance of VAT?

Very high High Average Poor Very poor

5. Did you get any information about the importance of VAT? Yes No

6. If your answer is ‘Yes’ on question number 5; how is your understanding level on overall
about VAT?

24
 Very good Good Average Low Very

7. Are consumers willing to transact with a proper VAT receipt?

Yes No

If your answer is “No” what do you think is their reasons?

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------

8. How do you express the number of voluntary VAT payers in your town?

Very high High Average Low Very low

25