ARBAMINCH UNIVERSITY COLLEGE OF BUSINESS AND

ECONOMICS DEPARTMENT OF ACCOUNTING AND

FINANC

ASSESSMENT OF VAT COLLECTION PRACTIES (IN CASE OF

GIDOLE TOWN REVENUE AUTHORITY)

A Research Proposal Submitted to the Department of Accounting and

Finance. Presented in Partial Fulfillment of the Requirements for the
BSC Degree in Accounting and Finance
PREPARED

ADVISOR; - ROBAL BOGALE

SARA ABATE ID EBE/

ARBAMINCH, ETHIOPIA

FEB,2022
Table of Contents

1 INTRODUCTION....................................................................................................................................3
1.2 locations...........................................................................................................................................4
1.3 Objectives of the study..................................................................................................................4
1.3.1 General objective........................................................................................................................4
1.3.2 Specific objectives......................................................................................................................4
1.4 Problem of the study.........................................................................................................................5
1.5 Significance of the study................................................................................................................6
1.6 Scope of the study..........................................................................................................................6
1.7 Research Design and Methodology...................................................................................................6
1.7.1 Research design the research is description...................................................................................6
1.7.2 Population and sampling technique...........................................................................................7
. 1.7.3 Type of data collected...............................................................................................................7
1.7.4 Methods of data collection.........................................................................................................7
1.7.5 Data analysis method.................................................................................................................7
1.8 Limitation Of the study..................................................................................................................7
1.8. Organization of the paper.............................................................................................................7
REFERENCE..............................................................................................................................................8
1 INTRODUCTION
Taxes are important sources of public revenue. Public goods such as roads, power, municipal
services, and other public infrastructures are normally supplied by public agencies due to their
natures of non-rivalry and non-excludability (Joseph, 2008). Government intervention in the
supply of public goods is therefore inevitable and can only be done if the public pays taxes for
the production and supply of such goods (Fjeldstad, 2004). Taxation is one of the important
elements in managing national income, especially in developed countries and has played an
important role in civilized societies since their birth thousands years ago (Lymer and Oats,
2009: ). Tax is defined as „a compulsory levy, imposed by government or other tax raising body,
on income, expenditure, or capital assets, for which the taxpayer receives nothing specific in
return‟ (Lymer andOats, 2009).
As compared to the developing countries, the developed countries have been able to generate
substantial revenue through imposing of taxes one of reasons for this has been the efficient tax
system operating in the developing economies which are characterized by weak monetary and
low development of the formal sectors.
VAT is a tax not on the total value of the good being sold, but only on the value added to it by
the last seller who is liable to pay a tax not on its gross value, but not value, that is the gross
minus the value of inputs. (Bahitia, HL; 1998). VAT is an indirect tax that is charged whenever a
taxable person makes a taxable supply of goods and services in the course of his business
although it is finally born by the consumer. (Hancock; 1995).

Value added tax (VAT) is a new system introduced in Ethiopia. This tax system is not new to
other countries.
Beginning with the adoption of tax sur, lavaliere adopted by France in 1954, it was gradually
been adoption by other countries (purhot,2000). The development this tax system is so fast it has
now been employed by a large number of Latin American, Asian, African and pacific countries
value Added tax (VAT) has become a major tax instrument worldwide. The global trend to
introduced VAT in more countries is continuing (Goode,1993). Ethiopians tax reform program
has introduced VAT since January 2003.

sThe Ethiopian government has introduce, VAT as part of the overall tax reform program. The
tax reform program is preceded by establishment of a new ministry of revenue as a first step to
improve tax collections and to combat fiscal fraud.

1.2 locations
This research is conducted on Gidole Town and which is located in southern part of Ethiopia. the
town is around 323 KM away from Hawassa the capital city of SNNP.

1.3 Objectives of the study

1.3.1 General objective
The general objective of the study is assessment of VAT collection practice in case of Gidole
town Revenue Authority.

1.3.2 Specific objectives

The specific objectives of this paper are:-
1. Identify the factors affecting collection of VAT practice in Gidole town.
2. Identify measures taken by revenue authority to control VAT evasion or avoidance.
3. Assess whether the collection of VAT practice has met is objective in generating the expected
level of government revenue

4. To see the strength and weakness of VAT collection practice in Gidole town

5. To assess the level of VAT payers awareness towards VAT

1.4 Problem of the study

Taxation in developing countries is a challenging topic and has attracted increasing attention in
the last two decades. Many problems observed like poor administration, failing to collect
sufficient tax revenues, tax structures where tax horizontal and vertical equity considerations are
not integrated, lack of government and economic stability. In many developing countries it is
observed that there is low capacity of tax administration to monitor compliance among taxpayers
(Tanzi, 2000). It is known that most of the nations in the world have applied value added tax so
as to develop their economy. Even if VAT is being observed since it is a newly introduced type
of tax, official and tax experts, VAT collectors and VAT payers gave their own suggestions
related to the implementation problems of VAT. The community in the study area suffers from
serious VAT collection practice.

Bearing in mind the above issues, this study largely focused on the accessing of VAT collection
practice of Gidole town Revenue Authority and recommending possible solutions for
sustainable utilization and management of the VAT collection practice and gives the awareness
of VAT practice.
.
Therefore this study tries to answer the following principal questions.

What are the possible reasons that may encourage business enterprise and individual
business persons to evading VAT practice?
What are the strengths and weaknesses of VAT collection in Gidole Town?
Is there any measures taken by Gidole town revenue authority to control VAT
evasion or avoidance?
 What are the major problems of Vat collection practice?
To what extent is VAT payer developed awareness towards VAT?

1.5 Significance of the study

The result of the study work is identity major practice of the VAT collection in Gidole town
revenue and authors from the analysis of data and overlooking of the, registration for VAT.
Government organizations like Gidole town revenue authority business enter price, school and
some VAT registered enterprises are expected to be beneficiary from this study. Accordingly the
research has the following benefits. It has been provide the meaningful information to those
interested in VAT and to explore the problem of VAT administration.

1. The recommendations to be provided may be useful in directing decisions to ward

controlling the problem of Gidole revenue and customs authority.
2. The issues discussed contribute to filling the literature gap on VAT collection practice.
3. It adds to poll of data available on VAT thus serves as a secondary source document.
4. It will help to create responsible citizen that use VAT collection practice.
5. It helps merchants and other parties to have better knowledge about VAT.

1.6 Scope of the study

This study focus on VAT collection practice Gidole revenue and custom authority. In the
investigating the VAT system of Gidole revenue authority the study will compromise along with
book, magazine, proclamation, are the basic points of source.It uses data from 1998 to 2015.

1.7 Research Design and Methodology

1.7.1 Research design the research is description.

This choice was dictated by the purpose of the study being requirements for BSC degree and insufficient
time and logistics.

1.7.2 Population and sampling technique.

The target population considered in this study is large tax payer organizations in Gidole Town
which means among the business people whose annual sales are greater than or and the staffs of
large tax payers office (LTO). These samples have been selected using randomly sampling
techniques. The researchers use sampling because of the shortage of finance and time
constraints. The sample size has been determined by personal judgment

. 1.7.3 Type of data collected.

The valuable information, which is critical for this study, has been obtained from both primary
and secondary sources.

1.7.4 Methods of data collection.

The primary data has been gathered using questionnaires and the secondary data has been
gathered through published and unpublished document such as: journals, conference papers,
books, proclamation and various other sources of data issued by ERCA.

1.7.5 Data analysis method.

The analysis part of the study has been devoted to analyze and interpret the collected data. The
information that gathered through questionnaire is analyzed by using qualitative method and it
has been presented using simple statistical measures such as percentage and tables.

1.8 Limitation Of the study

In conducting this study the researcher faced several problems which have negative impact on
this paper. One of the problems that hinder the researcher objective was un availability of
compiled documents in the office.
 Lack of sufficient time to collect data.
 Absence materials equipment and lack of money.

 Lack of sufficient data in the office.

1.8. Organization of the paper

This paper contains five chapters; chapter one entitled ‘Introduction’ will contain background of
the study, background of the organization, statement of the problem, objective of the study,
limitation of the study and scope of the study, significance of the study and Review of related
literatures will be presented in chapter two. The 3rdchapter was contained research methodology.
Chapter four data analysis and interpretation. Finally, conclusions and possible recommendations
were forwarded in the last chapter.

REFERENCE

Bahita H.L --- 1998, Public finance, Vikas publishing 19th ed, 1998.
Gills Malcolm et al., 1990, value added tax in developing counties, A world bank
Hancock Dore, 1998, Taxation policy and practice. Hapman and Hall, 3 rd, 1998. Misrak Tesfaye
(msc), 2008 first edition.