HORN INTERNATIONAL UNIVERSITY

DEPARTMENT OF ACCOUNTING AND FINANCE

Challenges Regarding The Problems of Tax Collection, The Implementation

of Value Added Tax: The Case of the Revenue Inland Office for Jigjiga City
Administration.

A Research Project Submitted to the Department of Accounting and

Finance. In Partial Fulfillment of Requirement for the Degree of BA in

Accounting and Finance.

BY:

No. Names ID. No.

1 AbshirAbdullahi Yusuf 149
2 Yasir MuhumedAbdulahi 089
3 Abdulahi Abdi Mohamed 063
4 Ahmed Rashid ShekHussienHassen 154
5 Jamal Bashir Hussein 040
6 Rashid Abdi Dahir
7 Mohamed Rashid Bade Kaas

Advisor: Mr. Abraham Tashale (M.Sc.)

JUNE, 2023

JIGJIGA, ETHIOPIA

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 ACKNOWLEDGEMENT
Frist of all thanks to the Almighty Allah, who has helped us to go through all the period and
accomplish my academic success fully. We would like to extend my gratefulness to my
advisor who will consistently checking up on my research guiding me in every aspect. He had
made several corrections to give strength to the paper. Next our sincere thanks go to the
employees of the VAT department of Jigjiga city revenue customer authority. Our family
deserves my appreciation for their love and care. They coverlet us down in the hardship we
had come through during our studies. We are also thankful to friends and other individuals
who had provided the material which is needed to accomplish this paper.

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 TABLE OF CONTENTS
Acknowledgement ii
LIST OF TABLES v
LIST OF ABBREVIATIONS vi
ABSTRACTm vii
CHAPTER ONE 1

1. INTRODUCTION 1

1.1 Background of the Study....................................................................................................1

1.2 Research Questions………………………………………………………………………….…….………………………........1

1.3 Statement Problem of the Study……………………………………………………. …..…2

1.4 Objectives of the study.......................................................................................................3

1.4.1 General objective...........................................................................................................3
1.4.2 Specific objectives......................................................................................................3

1.5 Significance of the study....................................................................................................3

1.6 Scope of the study..............................................................................................................4

CHAPTER TWO 5,
2. LITERATURE REVIEW……………………………………………….………………..5

2.1. Definition and Concept of VAT…………………………………………………………………………………………………..6

2.1.1 Introduction...............................................................................................................6
2.1.2 Computation of vat....................................................................................................6
2.1.3 VAT Administration in Ethiopia.............................................................................7
2.1.4 VAT Refund...............................................................................................................8
2.1.5 Registration................................................................................................................8
2.1.6 Benefits of voluntary registered...............................................................................9
2.1.7. Registration procedure............................................................................................9
2.1.8 Time of application..................................................................................................10
2.1.9. Time of registration................................................................................................11
2.1.10 Cancellation of registration..................................................................................12

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 2.1.11. Advantage and Disadvantage of VAT.................................................................13

2.2. Theoretical Review.........................................................................................................13

2.3. Empirical Review............................................................................................................13

2.4. Conceptual Framework...................................................................................................14

CHAPTER THREE 15,
3.RESEARCH METHODOLOGY 15

3.1. Description of the Study Area.........................................................................................15

3.2. Research Design..............................................................................................................15

3.3.sources of date………………………….……………………………………………………………………………………………….15

3.3.1 Quantitative and Qualitative Data….……………………………………………………15

3.3.2 primary source and secondary source of date…………………………………………………….16

3.3.3 questioner…………………………………………………………………………………………

3.4. Target Population...............................................................................................................15

3.5. Sample Size and Sampling Technique............................................................................16

3.5.1Sample Size………………………………………………………………………………………………………………………………16

3.5.2 Sampling Technique…………………………………………………………………………………………………………………16

3.6. Method of Data Collection.............................................................................................. 16

3.7. Method of Data Analysis................................................................................................16

4.LOGISTICS AND WORK PLAN………………………………………………………..…18
4.1work plan ………………………………………………………………………..………...18
4.2.Budget breakdown…………………………………………………………………….…..18
4.2.1 stationary cost………………………………………………………………………..….18
4.2.2 personal cost…………………………………………………………………………….19
4.2.3 budget summery……………………………………………………………………………….…19

5. REFERENCE 20
6. APPENDIX 21

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LIST OF ABBREVIATIONS
FTRA------------------------------------------------ Financial Transaction Report Act
UK--------------------------------------------------- United Kingdom
VAT-------------------------------------------------- Value-Added-Tax
GST.................................................................... Good and Service Tax
FIRA…………………………………………… Federal Inland Revenue Authority
FTRA…………………………………………… Federal Tax Revenue Authority

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 ABSTRACT

This study will conducted in Jigjiga city, Fafan Zone, Somali Regional State of Ethiopia. The
objectives of the study were to identify the factors affecting collection of VAT in the study area,
to identify measure taken by Revenue Office of Jigjiga City Administration to control VAT
evasion or avoidance in the study area, to assess whether the collection of VAT has met is
objective in generating the expected level of government revenue in the study area, and to
identify the performance of executive bodies in relation to avoidance and evasion of tax by VAT
payers in the study area. The sample size of this study will 60 and census Method of data
collection will used. The study will limited to revenue office of Jigjiga city administration. The
study adopted a descriptive survey design and data will collected using structured
questionnaires. The study found that there are absence of tax payers and inefficiency of tax
payer. The study also reveals that there is scarcity of human resource. The study recommends to
make the society aware of vat and to prevent tax found mode by the tax payers, education of tax
should be given in schools as a subject. This can be done communicating with the ministry of
education, meaning the revenue office at Jigjiga City has to communicate with ministry of
education for the purpose of formulating curriculum that includes education of tax.

KEY WORDS: Value-Added-Tax, Tax Collection, Revenue

 CHAPTER ONE

1. INTRODUCTION

1.1 Background of the Study

One of the mechanism in which countries raise revenues to finance government spending on the
good and services that most of us demand is taxation. 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 (Purohit, 2006).
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
will gradually been adoption by other countries (Purohit, 2006). 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.
The 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. The need for value Added tax (VAT)
emanates from the very weakness of the sales tax that it is intended to replace (Purohit, 2006).
VAT is an indirect tax that is changed whenever at a taxable person make a taxable supply of
goods and services in the course of his business although it is finally borne by consumer
(Hancock, 1998).Service while other submit their VAT their VAT returns without payments.
There is also deliberate submission of nil returns non-issuance of VAT invoice and entertainment
provides and loaf operators refuse to use the VAT coupons.

1.2. Research Questions

1. What are the factors affecting the collection of VAT in the study area
2. What are the measure taken by Revenue office to control VAT evasion or avoidance in the
study area?
3. Does the collection of VAT met its objective in generating the expected level of government
revenue in the study area?
4. What is the performance of executive bodies in relation to avoidance and evasion of tax by
VAT payers in the study area?

1.3 Statement of Problem

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 problem at hand revolves around the challenges faced in tax collection and the
implementation of value-added tax (VAT) in the Revenue in the Land Office for Jigjiga City
Administration. Despite the significance of tax revenue for funding public services and
infrastructure development, the efficient collection of taxes remains a major concern. The
implementation of VAT brings additional complexities and hurdles that hinder effective tax
collection. It is crucial to address these challenges and understand the underlying factors to
enhance revenue generation and promote fiscal sustainability.

The specific issues that this study will address include:

Low Taxpayer Compliance: The problem of low taxpayer compliance poses a significant
obstacle to successful tax collection. Understanding the reasons behind low compliance rates,
such as inadequate taxpayer education, complex tax laws, and weak enforcement mechanisms, is
essential for improving voluntary compliance and reducing tax evasion.

Tax Evasion and Avoidance: The prevalence of tax evasion and avoidance practices further
exacerbates the problem of tax collection. The ability of taxpayers to exploit loopholes in the tax
system, underreport income, and engage in fraudulent activities undermines revenue generation.
It is crucial to identify the factors contributing to these behaviors and develop strategies to curb
tax evasion and avoidance effectively.

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Administrative Capacity Constraints: The administrative capacity of the Revenue in the Land
Office plays a crucial role in tax collection. Inadequate resources, limited technology
infrastructure, and a shortage of skilled personnel hamper efficient tax administration.
Addressing these capacity constraints and implementing effective administrative measures is
vital for streamlining tax collection processes and enhancing revenue generation.

By addressing these challenges, implementing appropriate reforms, and adopting effective

policies and practices, it is possible to enhance tax collection in the Revenue in the Land Office
for Jigjiga City Administration. This will contribute to sustainable revenue generation, support
economic growth, and enable the provision of essential public services for the welfare and
development of the city and its residents.

1.4 Objectives of the study

1.4.1 General objective

The general objective of the study is to assess the challenges regarding the problems of tax
collection and the implementation of value added in the case of the Revenue office of Jigjiga city
administration
1.4.2 Specific objectives
1. Identify the factors affecting collection of VAT in the study area.
2. Identify measure taken by Revenue Office of Jigjiga City Administration to control VAT
evasion or avoidance in the study area.
3. Assess whether the collection of VAT has met is objective in generating the expected level of
government revenue in the study area.
4. Identify the performance of executive bodies in relation to avoidance and evasion of tax by
VAT payers in the study area.

1.5 Significance of the study

Government organizations like Revenue office of Jigjiga City Administration business enter
price, school and some VAT registered enterprises are expected to be beneficiary from this
study. Accordingly the research has the following benefits.
 The recommendations to be provided may be useful in directing decisions to ward con-
trolling the problem of Ethiopian revenue and customs authority.

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  The issues discussed contribute to filling the literature gap on VAT.
 It adds to poll of data available on VAT thus serves as a secondary source document.
 It might initiate further studies to grate with and depth.
 It will /help to create responsible citizen.
 It helps merchants and other parties to have a better knowledge about VAT.

1.6 Scope of the study

This study is important in other city administration it would have enabled all banks to
stakeholders to know the current position of the VAT system to achievement of their revenue
collection but due to time finance and materials limitation.
This study focus on VAT collection problem of Jigjiga City Administration’s revenue office. In
the investigating the VAT system of the Revenue office of Jigjiga City Administration the study
will compromise along with book, magazine, proclamation newspaper, are the basic points or
source.

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 CHAPTER TWO

2. LITERATURE REVIEW
2.1. Definition and Concept of VAT

2.1.1 Introduction

VAT is a tax on the value added TAX to good services by enterprises at each stage of the
production and distribution processes. It arises whenever a “taxable person” makes a “supply of
goods or services” in the course of his business. Thus in some countries it is called “good and
services tax” or GST VAT will invented by French economist in 1954 by Maurice lour director
of the French tax authority VAT will invented because very high sales taxes and tariffs
encourage cheating and smuggling. (Kassim, 2014).
Unlike the turn over tax which is applied to the full value of a product every time the item
changes hands in the process of production and distribution the VAT is assessed at each stage on
only the increment in value acquired by the product since the last taxable transaction. At the end
of the chain the total amount of tax paid on a given commodity is determined only by the tax rate
and the final price of the commodity, required less of the number of stages through which is has
passed what has been collected in fractional payments is equivalent to a single stage tax on the
value of the final product. The theory is that the end consumer carves the burden of VAT not the
business, which is merely collecting the VAT on behalf of tax all Hority. But the reality is not
quite so simple (Kassim, 2014). For fully taxable businesses VAT is not a cast but is merely an
accounting headache whatever you collect in output tax must be handed over to tax authority
whatever you collect in output tax must be handed over to tax authority whatever you pay in put
tax can be recovered from tax authority (apart from the input VAT on personal passenger vehicle
and entertainment but on has taken care full on purchase and sales of taxable supplies otherwise
VAT will affect his/her cash flow (Kassim, 2014).

2.1.2 Computation of vat

In modern taxation there are four types of value added taxation system there are:
a. Gross product value added tax.
b. Income type value added tax.
c. Capital exemption type value added tax.
 d. Consumption type value added tax. (Kassim, 2014).
2.1.3 VAT Administration in Ethiopia

The VAT replaced the current sales tax on manufactured and imported good and service on
January 1, 2003. The responsibility for the correct calculation and timely payment of VAT rests
on the tax payer himself. The VAT is a broad based tax on the consumption of goods and
services it is collected at all stage in the production and distribution process beginning with the
importers and producers of raw materials and ending with the retailers cascading of the tax (i.e
tax on tax) is avoided by providing for a credit for the tax paid only to raw materials used
directly in the production of good under a VAT. Relief is a granted for goods are not subject to
the VAT. Removing that tax content (on in puts) from exported goods makes the goods more
competitive in international markets.
VAT is at ax consumer expenditure it is collected on business transaction and important most
business transactions involve supplies of good or services and VAT is payable if they are:
 Supplies made in Ethiopia.
 Made by a taxable person
 Made in the course of furtherance of a business
 Are not specifically exempted or zero-rated-
Supplies are outside the scope of the tax if they are
 Made by someone who is not a taxable person or
 Not made in the course or furtherance of business
Curse or furtherance the way a taxable person has to carry out its activity to develop advance and
progress the taxable activity it refers to the normal and expected events or processes to develop
the taxable activity. Anything done in connection with the commencement or termination of a
taxable activity is treated as carried out in the course or furtherance of that taxable activity
(Kassim, 2014).

2.1.4 VAT Refund

VAT registered person shall got refund

If at least 25% of the value of a registered persons taxable transactions for the accounting period
other 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

6
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 with in a period of two
months after the registered person files an application for refund accompanied by documentary
proof of payment of the excess amounts.
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 month 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 if the 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 with in 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 (Kassim, 2014).

2.1.5 Registration

2.1.5.1 An Obligatory registration

Any person conducting a commercial enterprise 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 months exceeds or is likely to exceed birr 500.000 the person
conducting the enterprise must register for VAT with FIRA. Turn registration is compulsory
(Kassim, 2014).
The term any person for proposes of VAT registration includes Sole profiteer, Company,
Partnership, Exmate of the decease, Trust, Incorporated body or unincorporated body, and Club
or association. (Johnson, 1997)

7
A commercial enterprise refers to any business of whatever nature and include Ordinary business
e.g. shop contractors manufacture whole sales etc. Trades and professions e.g. Builders,
Engineers, Accouters laurersete. And Activities of non-profit moving body’s e.g. societies,
Associations, sporting club, etc. (Clegg, 2004). The turn is calculated on an ongoing basis two
periods need to be considered the past 12 calendar months and the next 12 calendar mother-by
month basis. There is the need to estimate at the end of each trading calendar month the total
value of taxable goods and services supplies by all the business for the past 12 months where the
total exceeds birr 500.000 the then there is the real interment to register for VAT.
2.1.5.2 Voluntary Registration

A person who carries on taxable activity and is not required to be registered for VAT may
voluntarily apply to the authority for such registration if they regularly supply or render at least
75% of their goods and services to registered persons. This is known as voluntary VAT
registration, and it gives businesses the right to register for VAT even if their turnover is below
the compulsory VAT registration threshold. (Moodaley, 2015). Voluntary VAT registration can
be beneficial for businesses as it allows them to claim back any VAT they have paid on business
expenses. It can also enhance a company's credibility, trust, and professionalism among potential
customers and other industry players. However, businesses making taxable supplies beneath the
VAT threshold can choose to register voluntarily, and for many small companies, this can be
helpful in greasing the wheels of business with larger VAT registered client. (Liu, 2021). It's
important to note that businesses must register for VAT if their total VAT taxable turnover for
the last 12 months will over £85,000 (the VAT threshold) or if they expect their turnover to go
over £85,000 in the next 30 days. Businesses must also register (regardless of VAT taxable
turnover) if they're based outside the UK, their business is based outside the UK, or they supply
any goods or services to the UK (or expect to in the next 30 days) (Liu, 2021)

2.1.6 Benefits of voluntary registered

In put VAT can be recovered if a person registered it will therefore be beneficial to voluntarily
resister where the person makes mainly zero rated supplies in such a case input VAT will
recovered and on VAT will charged on zero rated out puts (Kassim, 2014).

8
2.1.7. Registration procedure

Application for compulsory as well as voluntary registration must be made on application form
called “application for VAT registration” on application for cale 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 FTRA will 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 accenting records
 Has no bank account
 Has previously been registered for VAT purposes but failed to perform his duties under
the VAT law (Kassim, 2014)
2.1.8 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 month the person made during that period, taxable
transactions with a total value exceeding 500.000 birr or the last day of the month of the pe-
riod if
2. At the beginning of any period of 12 calendar moths when there is reasonable around to ex-
pect that the total value of taxable transactions to be made by the person during that period
will exceed 500.000 birr (Kassim, 2014).
2.1.9. Time of registration

Registration takes place on one of the following dates depending 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.

9
  In the 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 or more of its branches or divisions as separate regis-
tered person. The tax authority allow when its 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 (Kassim, 2014).
2.1.10 Cancellation of registration

VAT registered person can apply for cancelation 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 be-
ginning reasonable are expected to be not more than 500.000 birr.
The cancellation of VAT registration takes effect
 At the time the registration person ceased to male taxable translation for example, if one
close down or sell his business. How over if one has more than one business and is not
closing down or selling them all he max not be able to cancel it will 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 for VAT is canceled 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 con not 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 canceled (Kassim, 2014).
2.1.11. Advantage and Disadvantage of VAT

2.1.11.1 Advantage of VAT

The following are some of the main Advantage of VAT.

A. It Avoids cascading effect of tax (tax on tax)

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VAT works on the principle of that when raw material passes through various manufacturing
stages and manufactured products passes through various distribution stage, 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.
B. 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 the whole marketing (Rajendran, 2016).
C. It reduces the possibility of tax erosion
In the case of VAT. The taxes are divided in to 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
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 tax less (Rajendran, 2016).
D. It us 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. (Rajendran, 2016).
E. 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 pays taxes on the value produced and not on profits. So, firms will
always try to improve their performance and reduce the cost of production. As a result, the
overall productivity of the country will improved (Rajendran, 2016).
F. 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.

11
Potential investors also consider tax legislation as one of the factors in making investment
decision (Rajendran, 2016).
G. It enhances exports
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 (Rajendran,
2016).
2.1.11.2 Disadvantage of VAT

The following are some of the main disadvantage of VAT.

A. 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. (Tesfaye,
2008).
B. 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 (Tesfaye, 2008)
C. It put additional burden to tax authority.
In VAT system, the manufactures, whole sealers 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 tax enforcing authorities. (Tesfaye, 2008).
It is un economical
VAT system involves high of administration, assessment, verification collection, etc., hence, it is
highly uneconomical (Tesfaye, 2008).
D. 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.

12
 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’ receipts to claim tax credit on input VAT, etc
(Tesfaye, 2008).

2.2. Theoretical Review

Tax Compliance Theories: Theoretical frameworks, such as deterrence theory, social norms
theory, and equity theory, provide insights into taxpayer compliance behavior. These theories
help understand the factors that influence taxpayers' decisions to comply or evade taxes and offer
guidance on designing effective compliance strategies (Allingham & Sandmo, 1972; Torgler,
2007).

Tax Administration and Governance: Theoretical frameworks related to tax administration and
governance examine the institutional factors that affect tax collection. These frameworks explore
the role of transparency, accountability, and the quality of governance in fostering effective tax
administration and enhancing revenue collection (Bird, 2004; Moore, 2001).

2.3. Empirical Review

Empirical studies on tax compliance provide insights into the challenges faced in tax collection.
These studies examine factors influencing taxpayer compliance behavior, the effectiveness of
enforcement measures, the impact of taxpayer education campaigns, and the role of fairness
perceptions in compliance (James & Alley, 2002).

Slemrod (2017), and Torgler & Schneider, (2009) investigated the prevalence, forms, and
determinants of these behaviors. And analyzed the strategies employed by taxpayers to evade or
avoid taxes, estimate the revenue losses due to such behaviors, and identify potential
countermeasures.

Empirical studies on tax administration capacity explore the organizational aspects of revenue
authorities. These studies assess the adequacy of resources, technology adoption, human resource

13
management practices, and administrative efficiency in tax collection processes (Djankov et al.,
2010; Martinez-Vazquez et al., 2016).

Empirical research on the informal economy examines its size, characteristics, and tax
compliance behavior. These studies investigate the factors contributing to the existence of the
informal sector, estimate its contribution to the overall economy, and explore strategies for
formalizing informal businesses and improving tax collection (Schneider & Enste, 2000;
Williams et al., 2019).

2.4. Conceptual Framework

Independent Variables

Taxpayer Compliance:

Tax Collection

Tax Evasion and Avoidance:

Fig. 1. Conceptual Framework of the study

14
 CHAPTER THREE

RESEARCH DESIGNED AND METHODOLOGY

3.1. Description of the Study Area

Jigjiga, pinpointing in the semi-desert eastern part of Ethiopia, is the capital city of SRS. Jigjiga
is found in Fafan zone and located at 675km from east of Addis Ababa and at closer distance to
borderline of Ethiopia and Somalia. Jigjiga is especially located at 9 o30’N latitude and 42o50’E
longitude. This town is known for being a center of the contraband and khat trade. Live animals,
coffee, khat, fruits, vegetables, grain, and petroleum are the foremost goods exported to
neighboring countries, while the city particularly and the whole region generally, mainly imports
textiles, shoes, electronics, food items, household products, pharmaceuticals, and cigarettes
(Tegegne and Alemayehu 2002) and many more.

3.2. Research Design

A mixed research approach will used. This is because by combing both qualitative and
quantitative methods, it is possible to obtain desired results and to explore detailed evidence
about the problems. In addition, to better understand a research problem, it is advisable to
combine both numeric values from quantitative research and the details of qualitative research by
eliminating the gap due to applying any one of the approach. A quantitative approach will used
to measure how individuals feel, think or act in a specific way usually using structured
interviews and closed questionnaires. In this study, a cross sectional descriptive research design
will used. This design is particularly important for the study because it helps to describe and
interpret the actual events that exist now and existed in the past and that have influences on the
present tax collection system of the office.
3.3. Types and Sources of Data

3.3.1 Quantitative and Qualitative Data

In the research both Quantitative and Qualitative Data will used to collect. Quantitive data will
described numerical terms where as qualititive data will described attributes of respondents or
behavioral characteristics.
3.3.2 primary source and secondary source of date

The required data of this study will collected both primary and secondary sources The primary
data will obtained through interview schedule making with the sample beneficiaries and none
beneficiaries of the scheme. The secondary data will gathered by careful revised of related
documents, unpublished data sources from Bureau.

3.4. Target Population.

The total population for the study will the entire permanent employees of Revenue office of
Jigjiga City Administration. The office has a total of 60 permanent employees and all of the
questionnaire will distributed to all permanent employees in the office through using census
method of data collection.

3.5. Sample Size and Sampling Technique

3.5.1 Sample Size

In this study, a purposive sampling will used to select the Revenue office of Jigjiga City
Administration. The total sample size will the employees of the Revenue office at Jigiga City
which is the 60 permanent employees of the office. Census Method will used since the number
of employees in the office are small. So, sample size determination formula will not be used in
this study.

3.5.2 Sampling Technique

sampling technique will used for this study; where in the first step; Somali regional state then
fafan zone and jigjiga woreda will selected purposively to address VAT Collection systems, and
VAT Collection problems. this is done by considering proximity being potential in VAT
Collection systems. Then at the second step, a total of office worker. were selected by using
simple random sampling.

3.6. Method of Data Collection

The primary data will collected from the target respondents using structured questionnaires.
Key Interviews will also used to collect data from the office. Where as the secondary data will

16
collected from all possible documented sources which are relevant to our study and certain
proclamations about the VAT. The data that is going to be collected in this study includes: the
profile of the respondents, VAT Collection systems, and VAT Collection problems.

3.7. Method of Data Analysis

For this study both qualitative and quantitative will conducted and descriptive statistical data
analysis will used. For the quantitative data, mean, percentage, and frequency, will used, while
the qualitative data (the data that can’t be measured in number) will collected from both primary
and secondary data sources. The data will carefully analyzed using narration in order to represent
actual words and the analyzed data is presented in the form of tables and graphs.

17
 4. LOGISTICS AND WORK PLAN

4.1 WORK PLAN

Table 1: time schedule

No Main activity Apr 2023 May June July Aug Sept Oct 2023
2023 2023 2023 2023 2023
1 Tattle selection 

2 Proposal 
development
3 Proposal submission 
and defense
4 Preparing questioner 
5 Data collection 
6 Data analysis 
7 Report writing 

8. Report submission 
and defense

4.2 BUDGET AND LOGISTICS

4.2.1 Stationary cost

Table 1: Stationary cost categories

No Item Unit Quantity Unit per price Total

(Birr)
1. Pen Number 2 5 10
2. Paper Rim 1 100 100
3. Pencil Number 2 3 6
4. Note book Number 2 10 20
5. Binder Number 1 20 20
6. Flash Number 1 300 300

7. Printing cost Page 28 3 84

Printing cost for Proposal
writing
Printing cost Page 35 3 105
for Report
writing
Total 645

4.2.2 Personal Costs

Table 3. Personal cost categories

No Activities Description Unit (Quantity) Price/unit (Birr) Total cost

.
1. Transportation cost 1 person (Go &Back) 200 200
2. Tax/City Bus costs 3 persons 30 30

Total 230

4.2.3 Budget summery

Table 4.Budget summery

Stationary cost 645

Personal cost 230

Budget summery (total) 875

19
 5. REFERENCE
Clegg, B., & Page, T. (2004). The Commercial-Financial Perspective of the Extended Enterprise
Matrix''. In 10th International Conference on Concurrent Enterprising, Escuela Superior
de Ingenieros, Seville, Spain.

Goode, R. (1993). Tax advice to developing countries: an historical survey. World

Development, 21(1), 37-53.

Hancock, M. D., Conradt, D. P., Peters, B. G., Safran, W., Zariski, R., Hancock, M.
D., ...&Zariski, R. (1998). Political Processes in the European Union. Politics in Western
Europe: An Introduction to the Politics of the United Kingdom, France, Germany, Italy,
Sweden, and the European Union, 540-556.

Johnson, P., & Conway, C. (1997). How good are the UK VAT registration data at measuring
firm births?. Small Business Economics, 9, 403-409.

Kassim, S., Zegeye, S., & Mahemmed, N. (2014). An Assessment of Problems on Tax
Collection In The Case Of ErcaMerkato Branch Office.

Liu, L., Lockwood, B., Almunia, M., & Tam, E. H. (2021). VAT notches, voluntary registration,
and bunching: Theory and UK evidence. Review of Economics and Statistics, 103(1),
151-164.

Moodaley, V. (2015). Voluntary VAT registration: tax technical-VAT. Tax

Professional, 2015(25), 14-16.

Purohit, M. C. (2006). Tax efforts and taxable capacity of central and state
governments. Economic and Political Weekly, 747-755.

Rajendran, M. R. A., & Nedelea, A. M. (2016). Tax & public finance: Ethiopian system for
promotional activities. The USV Annals of Economics and Public Administration, 16(1
(23)), 173-182.

Tesfaye, M. (2008). Ethiopian tax accounting theory and practice. Addis Ababa, Ethiopia.

20
 1. APPENDIX

HORN INTERNATIONAL UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING

Questionnaire VAT collection problems

Questionnaire prepared to collect for the investigation of vat collection problem of Ethiopian
revenue and customs authority north branch in Addis Ababa

1. Gender status of the employee

Male Female

2. Age

18-30 41-58

30-40 >56

3. Marital status

Single married

4. Educational level

12th completed Diploma

Certificate Degree

2nd Degree and above

5. Service in the commission

0-5 years 11-15 years

6-10 years above 15 years

6. Income level (salary)

450-750 1801-2000

751-1000 2001-3000

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 1001- 1500 above 3000

7. Is there any problem you were facing when you go out to collect VAT?

Yes No

8. If your answer for question number 7 yes what are the problem?

9. How do you see the present VAT collection system?

1. Good 2. bad

10. Is the number of employee of the VAT department sufficient to collect VAT efficiently?

1. Yes No

11. Do you think there are personal cancelled from VAT registered and shifted to other type of
tax?

1. Yes 2. No

12. If you answer for question number 11 is yes what is the reason of shifting from VAT to
other tax?

13. How do you evaluate willingness of tax payers to pay their VAT liability on time?

1. High 2. Low 3. Middle

14. If you answer of question number 13 is low what measures are to be taken to correct the
problem:

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15. Are executive bodies cooperative in preventing avoidance and evasion to tax:

1. Highly cooperative

2. Less cooperative

3. Fairly cooperative

4. Meddle cooperative

16. Is VAT advantages than the replaced sales tax?

1. Yes 2. No

17. Is the time given payment of VAT liability adequate?

1. Yes 2. No

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