ASSESSMENT OF BUSINESS INCOME TAX COLLECTION PROBLEM

ON CATEGORY "B" TAX PAYERS IN CASE OF FICHE TOWN

.

SALALE UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
ACCOUNTING AND FINANCE DEPARTMENT
A SENIOR RESEARCH SUBMITTED TO DEPARTMENT OF
ACCOUNTING AND FINANCE FOR THE PARTIAL FULFIILLMENT OF
BA DEGREE IN ACCOUNTING AND FINANCE.

NAME ID No:
TALEAMLAK TEREFE RU1175/13

April 2023
ADIVISOR HABITAMU T. (MSc)
FITCHE, ETHIOPIA
Statement of declaration
By my signature below I declare and affirm that this thesis is my original work and prepared
under the guidance of habitamu Getie. This paper is submitted for partial fulfillment of BA
degree at Salale University general Tadesse Biru Campus in Accounting and Finance Department
and complies with the regulation of university and meet accepted standard with respect to
originality and quality.
Declared by
Name: Sewmamen Dagne
Signature
Date

I
 Statement of certification
I the under signed advisor acknowledged and confirmed this study to pass to
presentation.
Confirmed by Advisor
Name
Signature
Date

II
 ACKNOWLEDGMENT
First of all, I would like to praise the almighty God and his mother st. merry intercessor of us for
allowing passing all the handless and arrives at this function.
Next God and his mother st, merry, I would like to express my heartfelt thanks my advisor Mr.
habitamu …. for his encouragement and constructive comments and suggestions.
I am gladly great full thanks to my parents for his there financial and moral support throughout
my school life.
I would like to extend my heart full appreciation for Burie town revenue office employees and
taxpayers for these fledged assistance aid in distributing, answering and collecting questionnaires
and provides the necessary materials for this study. Finally, my sincere and profound gratitude
goes to my friends for their continuous moral support in doing this task.

III
Abstract
The study under the title assessment of business income collection problems in category “B” tax
payers is conducted to assess the factors that affect the business income tax collection problems
in category” B” income tax payers in fiche town. The general objective of the study is assessing
the factors that affect the tax revenue. The scope of the study focused on assessing the tax
revenue collected and budgeted amount from 2013-2015 E.C and the factors that affect the tax
revenue in category “B” income tax payers in fiche town. The sources of data are primary data
and this is collected through questionnaires. This questionnaire contains open ended, close
ended and interview questions filled by the taxpayers, tax officers and manager of the revenue
bureau. The type of sampling used to conduct this study was probability sampling and from this
lottery sampling method. The collected data is then analyzed by using qualitative and
quantitative data analysis, particularly descriptive type of analysis which shows the analysis as
percentage and tabular form. The total number of populations is 223 from these 194 were tax
payers and 29 are tax officers and 95 of the respondents selected as a sample. From this
research some problems are identified in category “B” business income tax payers.

IV
ACRONYEMS
GDP gross domestic product
GTP gross transformation period
MOFED minister of finance an economic development

V
Table of Content page
Statement of declaration........................................................................................................................................I
Statement of certification.....................................................................................................................................II
ACKNOWLEDGMENT....................................................................................................................................III
Abstract..............................................................................................................................................................IV
ACRONYEMS....................................................................................................................................................V
List of tables.........................................................................................................................................................1
CHAPTER ONE...................................................................................................................................................1
1. INTRODUCTION............................................................................................................................................1
1.1Background OF the study................................................................................................................................1
1.2 Statement of the problem................................................................................................................................3
1.3 Objective of the study.....................................................................................................................................5
1.3.1 General objective.........................................................................................................................................5
1.3.2 Specific objectives.......................................................................................................................................5
1.4 Significance of the study................................................................................................................................5
1.5 Scope of the study...........................................................................................................................................5
1.6 Limitation of the study....................................................................................................................................6
CHAPTER TWO..................................................................................................................................................7
2. Literature review...............................................................................................................................................7
2.1 Theoretical and Empirical literature review....................................................................................................7
2.1.1 introduction to tax........................................................................................................................................7
2.1.2 Role of Taxation in Development Strategy..................................................................................................8
2.1.3 Characters of Good Tax System...................................................................................................................9
2.1.4 Taxation Principles....................................................................................................................................10
2.1.5 Canons of Taxation....................................................................................................................................10
2.2 Empirical literature review...........................................................................................................................12
2.2.1 Ethiopian cases..........................................................................................................................................12
2.2 Purposes of tax..............................................................................................................................................13
2.3 Definitions of income tax.............................................................................................................................14
2.3.1 Definitions of business income tax............................................................................................................14
2.3.2 Category” B” business income tax payers.................................................................................................14

VI
2.4 Objective of tax............................................................................................................................................ 14
2.5 Theoretical review of tax administration......................................................................................................15
2.5.1 Tax administration challenges....................................................................................................................15
2.6 Tax evasion...................................................................................................................................................15
2.6.1 Techniques of tax evasion..........................................................................................................................15
2.6.2 Factors cause tax evasion...........................................................................................................................16
2.6.3 Possible remedies for tax evasion..............................................................................................................16
2.7 Tax avoidance...............................................................................................................................................16
2.7.1 Techniques of tax avoidance......................................................................................................................16
CHAPTER THREE............................................................................................................................................18
3. Research Methodology...................................................................................................................................18
3.1 Research Design...........................................................................................................................................18
3.2 Types of data.................................................................................................................................................18
3.3 Source of data...............................................................................................................................................18
3.4 Method of data collection.............................................................................................................................18
3.5 Sampling technique......................................................................................................................................18
3.6 Sample size determination............................................................................................................................19
3.7 Method of data analysis and presentation.....................................................................................................19
CHAPTER FOUR..............................................................................................................................................20
DATA ANALYSIS AND INTERPRETATION...................................................................................................20
4. Introduction................................................................................................................................................ 20
4.1 Demographic profile of respondents.........................................................................................................20
4.2 Analysis regarding to the problem................................................................................................................21
4.3 Analysis regarding to the problem................................................................................................................27
CHAPTER FIVE................................................................................................................................................32
5. CONCLUSION AND RECOMMENDATION...........................................................................................32
5.1 conclusion.................................................................................................................................................32
5.2 Recommendation......................................................................................................................................33
References..........................................................................................................................................................35

VII
List of tables
Table 4.1 Personal background of tax officers………………………………………………13
Table 4.2 Problems inside of category B business income tax payer……………………….14
Table 4.3 Tax evasion……………………………………………………………………. ….14
Table 4.4 Willingness of taxpayers………………………………………………………….15
Table 4.5 Convenance of tax collection period……………………………………………….16
Table 4.6 Dalliance of tax payment………………………………….……………………….16
Table 4.7 Periodic review of the tax obligation……………………………………………...17
Table 4.8 Personal back ground of tax payers………………………………………….…….17
Table 4.9 Purpose of tax……………………………………………….……………………...18
Table 4.10 Willingness of tax payers to pay tax……………………………………………...18
Table 4.11 Problems inside the tax officers……………………………………….………….19
Table 4.12 Program to create awareness…………………….……………………………......20
Table4.13Determination of the tax amount………………………………………………….21

1
i
 CHAPTER ONE

1. INTRODUCTION

1.1Background OF the study

Tax is defined as a compulsory levy which a government imposes on its citizens to enable it to
obtain the required revenue to finance its activities. Tax is a compulsory levy imposed by
government or other Tax raising body on income expenditure or capital asset for which the Tax
payers receive nothing specific in return (Monads, 2010) Tax can be defined as an enforced
contribution, exacted pursuant to legislative authority in the Exercise of the taxing power, and
imposed and collected for the purpose of raising revenue to be used for public or governmental
purposes (Murphy, 2012). Public expenditure has been increased extremely. The main reason is
that the functions of governments have been increased diverse. The governments need income
for the performance of their variety of functions and meeting their expenditure. Public revenue is
one of the branches of public finance. It deals with the various sources from which the state
might derive its income. These sources include incomes from taxes, commercial revenues in the
form of prices of goods and services supplied by public enterprises, administrative revenues in
the form of fees, fines etc. and gifts and grants. The sources of public revenue can be broadly
classified in to two. Tax -source and non-tax source. Taxes are imposed by the government on the
people and it is compulsory on the part of the citizens to pay taxes, without expecting a return
(Abdul-Kareem, 2011). As stated by Murphy (2012) Taxes are not payments for some special
privilege granted or services rendered and are, therefore, distinguishable from various other
charges imposed for particular purposes under particular powers or functions of government. In
other words, a taxpayer does not receive a definite and direct quid pro quo from the government
Eredatie, G. (2012). Developing and transitional governments face financial resource constraints
to expend on basic socio-economic, development, infrastructures. Because of resource
constraints developing countries have not yet delivered basic facilities such as; education, health,
potable water, creation job opportunity, housing, sustain law and public order and other essential
services for their citizens at desired level. This is because the rapid growing of population needs
an equivalent increase of such service in one hand and their financial resource limited in another
hand create additional burden to these governments. Therefore, to tackle such problems
governments seek financial resources from foreign and domestic sources Eredatie, G. (2012).

1
Those Foreign financial sources are not consistent and bind with many obligation governments
focus on domestics’ source (taxation). Taxation has always been an important instrument to
satisfy government expenditure and it is the most important source of government income. In
every country; the government collects a huge income through taxation. Because tax is a
compulsory levy and those who are taxed have to pay the sums irrespective of any corresponding
return of services or goods by government
Tax administration refers to the identification of tax liability based on the existing tax law, the
assessment of this liability, and the collection, prosecution and penalties imposed on recalcitrant
taxpayers. Tax administration, therefore, covers a wide area of study, encompassing aspects such
as registration of taxpayers, assessments, returns processing, collection, and audits (tadesse, n
(2020)). Tax administration therefore, should aim at improving on laws regarding the
registration, assessment, collection revenue, and exploiting fully taxation potential of a country
(World Bank, 1991).
In Ethiopia, tax is administered at federal or central and regional levels. The constitution of
Federal Democratic Republic of Ethiopia (FRDE) has separated the tax revenue to be collected
by federal government, state or regional government and jointly by the federal and state
government (FDRE HPR, 1995). According to Article 96 of the FDRE Constitution the revenues
of the Federal Government include customs duties, taxes and other charges levied on the
importation and exportation of goods; income tax collected from employees of the Federal
Government and international organizations; income, profit, sales and excise taxes collected
from Federal Government owned enterprises; taxes collected from national lotteries and other
games of chance; taxes collected from income generated through air, rail, and sea transport
services; taxes collected from rent of houses and Federal Government owned properties; charges
and fees on licenses issued and services rendered by the Federal Government; taxes on
monopolies; and Federal stamp duties. In a similar manner, Article 97 enumerates the revenue
sources of the regional governments of the country as comprising of income taxes collected from
employees of the States and of private enterprises; fees collected from land us fracture rights;
taxes collected from the income of private farmers and farmers incorporated in cooperative
associations; profit and sales taxes collected from individual traders operating within state
territories; taxes on income from water transportation within state territories;. In Ethiopia,
Ethiopian Revenue and Customs Authority (ERCA) is the authority dealing with taxes at federal

2
level. Taxes levied by central and regional government consist of direct and indirect taxes.
Direct taxes are taxes including employment income taxes, business income tax, and taxes on
royalties and chance winnings while indirect taxes are mainly composed of value added tax
(VAT), excise taxes, and custom duties. Hence, proper assessment and collection of tax is one of
the factors that enable the government to achieve its goals and programs. Besides, it reduces the
country’s dependability on the foreign loan and donations. According to income tax proclamation
number 979/2016, tax on income is categorized in to four schedules. they are named as schedule
“A” tax on income from employment, schedule ’B’ tax on income from rental of building,
schedule” C” business income tax and schedule” D” other income. According to income tax
regulation number 78/2016, schedule “C”, business income taxpayers are categorized in to
category “A” “B” and “C”. Category “A” taxpayers are corporate enterprises which have annual
turnover of birr 500,000.00 or more, category” B” are those which have annual turnover between
birr 100,000.00 and 500,000.00, category” C” taxpayers are those which have annual turnover of
less than birr100,000.00.
Therefore, developing countries receive a very low amount of revenue from taxation because
these countries face a number of problems in the process of revenue generation. The situation of
fiche town is not different from the above situations (as part of Ethiopia). The study town is
currently facing daunting challenges in relation to the overall taxation system, tax assessment,
collection and service delivery of tax authorities. Hence, the town may not able to collect tax
efficiently which is a serious problem that has the possibility to result in the failure of providing
basic social services and infrastructure to the community.

1.2 Statement of the problem

In most developing countries tax is a common phenomenon that faces many problems to develop
adequate tax system that helps the government in order to finance its expenditure sufficiently.
Particularly in Ethiopia it is difficult to see the potential challenges faced by the tax payers and
officers in different tax collection activities. Revenue generated from taxation has got the
attention of governments as a major source of funds necessary for the country’s overall
development. According to (Brautigam et al. 2008), taxation is the new frontier for those
concerned with state building in developing countries. But revenue come from tax are not
sufficient to finance the government expenditures because the tax revenue performance is low in
developing countries due to various problems. As per Crandall and Bodin (2005), the developing

3
countries tax revenue is in a weak position because of both a complex tax system and widespread
corruption. Complex and fragmented tax administration has its source in part in developing
countries. According to Gupta (2007), tax revenue is affected by corruption, political and
economic stability, and structural factors such as tax system, tax administrative procedures,
capacity to collect taxes. (Iman and Jacobs, 2007), also reported that tax revenue is explained by
corruption, share of per capita income to GDP, trade openness and tax system. On the other
hand, Emran and Stiglitz (2005), state that tax revenue is affected by the existence of informal
sector and inflation. Similarly, Phillips and Sandall (2008), reported that tax revenue is explained
by many factors that causes for poor tax revenues generation and they argue that there is
significant difference between developing and advanced economies that must be accounted as a
factor for tax revenue collection (Bird, R. M., Martinez-Vazquez, J., & Torgler, B. (2008).
Because of this, studies made regarding taxation are several all over the world. But most studies
made regarding taxation are, therefore, focused on the effect of corruption, governance, tax
evasion, tax system and tax administration on tax revenue generation in developed and
developing nations of the world (Arif, I., & Rawat, A. S. (2018). It is obvious that the output or
findings of such researches may not help much to our country Ethiopia in general and in fiche
town in particular. Because as pre the findings of (Gupta (2007)), the determinants of tax revenue
efforts in one country may not the determinants of tax revenue for the other country in terms of
source of the factors and level of effect tax revenue. Moreover, most research works focused on
national level, but factors at lower levels get little attention, i.e. minor attention is given to the
cultural background of tax payers, their awareness level, compliance behavior and its
determinants when designing a given tax system, etc.
In fiche Town the progress of tax revenue collected from category "B" income tax payers was
indicate some increment from year 2013 up to 2015. But the increment doesn't fill the gap of
estimated and actual amount. The annually report of fiche revenue office shows from 2013 up to
2015 is that the budgeted amount from this category was 55,410,250.14;78,250.921.88 and
197,715,035 respectively. While the actual collected amount from 2013 upon 2015 was
52,929,596;70,868,260 and 161,636,851 respectively. The tax payers evade tax revenue, makes
tax avoidance, delay to pay on time. The study focus does the business income tax payers
creating awareness about rules and regulations they must fulfill that describe on proclamations
No.979/2008 (yearly manual 2013-2015).

4
The above problem is not studied, the problem continues as it is and leads to borrowing and this
borrowing leads to under development of countries revenue that collected from category "B"
income tax payers and, external debt trap and also further researchers unable to get any
information that initiates to study. The policy makers don’t get valuable input for their policy
making decision. So, the researcher attempts to identify the problems that affect business income
tax payers by answering the following questions.
1, what are the major problems that affect category "B" income tax payers?
2, what are the reasons that tax payers evade tax obligations?
3, what are the major factors that affect tax payers to pay their tax obligations on time?

1.3 Objective of the study

This study has both general and specific objectives.

1.3.1 General objective

The general objective of this study is to assess business income tax problems on category "B" tax
payers in fiche Town.

1.3.2 Specific objectives

The Specific objectives of this study include the following:
1, To identify the major problems that affect category "B" business income tax payers.
2, To assess the reasons that tax payers evade tax obligations.
3, To identify the major factors that affect tax payers to pay their obligations on time.

1.4 Significance of the study

This study may enable to the society to know the benefits of tax revenue for social services like
schools, hospitals, roads and other infrastructure. It may also provide positive insight to increase
the revenue of government and creating awareness to the tax payers for the purpose of collection
tax obligations by the revenue agency committees. On the other hand, this study may relevant for
the government to narrow the gap between the actual and budgeted tax revenue. For policy
makers enables as how to design different strategies to increase tax revenue. For further
researchers use this paper by starting of this outcome to assess all categories of business tax
payers. Generally, to identify the major problems of category "B" tax payers.

5
1.5 Scope of the study
This study limited to identify business income tax payers’ problem with respect to category “B"
tax payers only that found in fiche Town. To analyses the problem in manageable and to evaluate
the problem in detail, the researcher focuses only on category "B" business tax payers. The
researcher evaluates the problem based on past three sequence year annual reports and focus on
the current year situations.

1.6 Limitation of the study

This study faces the following Limitations like the study focus on only category "B" income tax
payers that means the does not contain other categories and the result of the study depends on the
responses of the respondents.

6
 CHAPTER TWO
2. Literature review
2.1 Theoretical and Empirical literature review
2.1.1 introduction to tax
Taxes are a portion of private wealth, exacted from individuals by the State for the purpose of
meeting the expenditure essential to carrying out the functions of government. Taxation in some
form is an invariable attribute of an organized political society, and, under whatever name it
exists, it becomes sooner or later the principal means of raising revenue for public purposes; it is
thus the correlative to the services which government performs for the community (Gebrie,
2008). Also, as it is stated by (Abdul Kareem, 2011) Tax has its own characteristics. Some of
them are: - Tax is compulsory payments to the government from the citizen. This means each
individual irrespective of caste, color or creed, of age or sex has to pay it. The next characteristic
of tax is that refusal to pay it or delay in payment brings punishment. Also, Tax imposes a
personal obligation. It means that it is duty of tax payer to pay it and he/she should in no case
think to evade it. The other character of tax is absence of direct benefit or “quid pro quo”
between the State and people. In other words, the tax payer does get many advantages from the
public authorities but no tax payer can claim direct benefit as a matter of right on the ground that
he is paying a tax. Tax is also payments for meeting the expenses in the common interest of all
citizens. The governments have to provide public utility goods. For this the governments have to
incur huge amounts of expenditure. Therefore, taxes are imposed on all citizens so that all may
share a common burden. Certain taxes are imposed on specific objectives for example, tax on
petrol to reduce consumption and tax on luxuries so as to divert resources for the production of
essential commodities. When we come to the definition of taxation, it is a system of raising
revenue by government through tax. It is a method of collection funds by governments from tax
sources to finance its operations, taxation is also a means by which a government, through its
law-making body, raises internal income through tax for the use and support of the government
and to enable it to discharge its appropriate functions. Every central and state government is

7
expected to fulfill an enormous variety of functions to its citizens. The government has to keep
the sovereignty and integrity of the country so that defense is one of the topmost functions of the
government. The government also has to maintain law and order in the country without which
the country may be exposed to conflict between different social groups and other forces. Socio-
economic development of the society such as the provision of social amenities in the form of
education health of sanitation facilities; the provision of public unities like electricity of water
supplies, transpiration of communication facilities; the provision of recreation facilities;
infrastructure development like roads, dams; social welfare such as support of the incapable and
unemployment insurance, raisin the per capital income stabilization of growth of the country’s
economy, development of commercial function like undertaking public enterprises, are still the
major functions of government, in modern times. All these and other government functions
require expenditure so that government support themselves partly by taking a portion of the
wealth of their citizens. The chief means by which government do this is through tax (Misrack,
2011)

2.1.2 Role of Taxation in Development Strategy

The role of taxation in fiscal policy and the development strategy has to be viewed in the back
ground of the function which a taxation system performs, its main function in relation to
economic development are as follows. The primary function of tax system is to raise revenue for
the government for its public expenditure. So, the first foal in the development strategy as
regards taxation policy is to ensure that this function is discharged adequately.

The second function of taxation is to reduce inequalities through a policy of redistribution of

income and wealth. Higher rate of income taxes, capital transfer taxes and wealth tax are some
means adopted for achieving these ends.
The 3rd role of taxation is for the social purposes such as discouraging certain activities which are
considered undesirable. The excise taxes on liquor and tobacco. The special excises duties on
luxury goods. Betting and gamming levy are example of such taxes. Which apart from being
lucrative revenue sources have also goals.

The 4th is to ensure economic goals through the ability of the taxation system to influence the
allocation of resources. This includes;

8
To distribute the direction of private investment in to desired channels through such measures as
regulation or tax rates and the grant of tax incentives etc. this inside in investment incentive to
attract foreign direct investment (FDI) into the country.
The fifth function of tax action on is to increase saving and capital formation in private sector
party for borrowing by the government and partially for enhancing investment resources within
the private sector for economic development (Negeri, D. D. (2023))

2.1.3 Characters of Good Tax System

Tax is compulsory contribution: -it is a compulsory payment from the person to the government
without expectation of any direct returns from it.
Taxes are levied by the government: -no one has the right to imposes taxes except the
government. Only the government has the right to impose taxes and collect tax proceeds from the
people.
Common benefit to all: - the tax collected by the government is spend for the common benefits
of all people.
No direct benefit: - the government compulsorily collects all types of taxes and does not give any
direct benefits to the tax payers for the taxes paid and the tax payers cannot demand any direct
benefits against the payment of taxes.
Certain taxes levied for specific objectives: - though taxes are imposed for collecting revenue for
the government to meet its expenditure on social wants and merit wants for example heavy taxes
are levied on luxury goods to reduce their consumption.
Attitude of the taxpayers: - the attitude of the tax payers is an important variable determining the
contents of good tax system.
Good tax system should be in harmony with national objectives: - a good tax system should run
in the same direction with important national objectives.
Tax system recognizes basic report of tax payers: -a good tax system recognizes the basic rights
of tax payers. The tax payer is exacted to pay the tax but not undergo the harassment (Getinet,
M. (2019))

9
2.1.4 Taxation Principles
Taxation principles are basic concepts by which government is meant to be guided in designing
and implementing all equitable taxation regimes these includes.
Adequacy: -taxes should be just enough to generate revenue required for provision of essential
public services.
Broad basing: - taxes should be spread over as wide as possible section of the population or
sector of economy to minimize the individual tax burden.
Compatibility- taxes should be coordinated to ensure tax neutrality and over all objectives of
good governance.
Convenience: - taxes should be enforced in a manner that facilitates voluntary compliance to the
maximum extent possible.
Ear marking: - tax revenue from specific source should be dedicated to a specific purpose only
when there is a direct cost and benefit like between the tax sources and expenditures such as use
of motor fuel tax for road maintenance.
Efficiency: -tax collection efforts should not cost an inordinately high percentage of tax
revenues.
Neutrality taxes should not favor only one group or sector over another and shouldn’t be
designed to interfere with or influence individual decision making.
Equity: -taxes should equally burden all individuals or entities in similar economic
circumstances.
Predictability: -collection of taxes should reinforce their inevitability and regularity.
Restricted exemptions: tax exemptions must only be for specific purpose (such as to encourage
investment) and for limited period.
Simplicity: -tax assessments determination should be easy to understand by an average tax
payer.

10
2.1.5 Canons of Taxation
Canons of taxation are the main basic principles (rules) set to build a “Good tax system”
canon of taxation was first originally laid down by economist Adam smith in his famous book
“the wealth of nations” in this book, Adam smith only gave four canons of taxation. These
original four canons are now known as the “original main canons of taxation”.
As the time changed, governance expanded and became much more complex than what it was at
the Adam smith’s time soon a need was felt by a modern economist to expand smith’s principles
of taxation and as a response they put forward some additional modern canons of taxation.
Adam smith gave the following four important canon of taxation.
1. Canon of equity: - the principles aim at providing economic justice and social justice to the
society. According to this every person should pay depending on the ability to pay. The rich
should pay higher taxes to the government, because without the protection of the government a
authorities (police, defense etc.). They could not have earned and enjoyed their income. A. smith
argued that tax should be proportional to income.
2. Canon of certainty: - according to Adam smith the tax w/c an individual has to pay should be
certain, not arbitrary. The tax payer should know in advance how much, at what time and in what
form the tax to be paid to the government. At the same time a good tax system also ensure that
the government is also certain about the amount that will be collected by way of tax.
3. Canon of convenience: the mode and timing of tax payment should be as far as possible,
convenient to the tax payers for example and revenue is convenient tax located at time of harvest
income tax is deducted at source. System will encourage people to pay tax and will increase tax
revenue.
4. Canon of economy: - this canon implies that the administration cost of tax collection should be
minimum, i.e. the difference between the money, which come, out of the pockets of people and
that which is deposited in the public treasury should be as small as possible (H. Gebrieworku
mengesha,2008).
Additional canons of taxation by other
1. Canon of productivity: - it is also known as the canon of fiscal adequacy according to this
principle, the tax system should be able to yield enough revenue for the treasury and the
government should have no need to resort to deficit financing. This is a good principle to fellow
in developing country (economy).

11
2. Canon of elasticity: - according to this country, every tax imposed by the government should
be elastic in nature. In other words, the income from tax should be capable of increasing or
decreasing according to the requirement of the canary. For example, if the government needs
more income at time of crises, the tax should be capable of yielding more income through
increase in its rate.
3. Canon of flexibility: - it should be easily possible for the authorities to revise the tax structure
both with respect to its coverage and rates, to suit the changing requirements of the economy
with changing time and conditions the tax system needs to be engaged without much difficulty.
The tax system must be flexible and not rigid.
4. Canon of simplicity: - the tax system should be complicated. That makes it difficult to
understand and administer and results in problems of interpretation and disputes.
5. Canon of diversity: - this principle states that the government should collect taxes from
different sources rather than concentrating on assignee source of tax. It is not advisable for the
government to depend up on single source of tax. It may result inequality to certain section of the
society and uncertainty for the government to raise nudes. If the tax revenue comes from
diversified source, then any rendition in tax revenue on account of any one cause is bound to be
small.

2.2 Empirical literature review

2.2.1 Ethiopian cases
According to (Hagos, 2011) research was conducted on the case of assessment on challenges of
business income tax collection process in Aksum shown that the respondents of the category “B”
tax payers were more associated with challenges than of the other categories. The respondents
answered that lack of experience of paying tax, problems related tax collectors, a lack of
awareness of tax payers were associated problems of category “B” tax payers during the tax
collection. Awareness creations by the authority on category “B” taxpayers were that below
enough and poor and this shows that the awareness creation activities of the tax authority were
ineffective and inefficient. 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 (Hagos,
2011 and lemessa, 2007). With regard to knowledge of tax payers (Fentahun, 2002) also stated
that Tax payer’s information and knowledge is very essential in promoting compliance. Tax

12
payers must receive clear and concise information or what is taxable, how to calculate their tax
liability and the procedures for calculating and paying taxes and where and when they pay taxes.
In addition, forms and procedures for calculating and paying taxes should be as simple as
possible. Moreover, tax offices are expected to develop programs to inform the business
community the requirement to make declarations and the penalty provisions for noncompliance.
According to (Getaneh, 2011) on his study of tax audit practice in Ethiopia, The Case of the
Federal government, he recommended that, ERCA may not achieve the expected future
voluntary compliance in the absence of awareness creation for taxpayers. 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. The survey result showed the tax authority of the city administration is not
efficient and effective in various aspects such as improving the tax assessment and collection
system, creating awareness, enforcing the tax law, providing services, and information regarding
tax. Similarly Wubshet (2011) on his study of Taxpayers’ perception towards fairness: personal
business profit taxpayers in Addis Ababa, he found that: The absence of adequate training, follow
up, education and limited knowledge on their respective business profit tax systems, the absence
of clear-cut objectives, programs, procedures, rules and regulations which have direct impact
with the taxpayers’ knowledge and awareness, the absence of administration consistency in
respect of the provisions of business profit tax system, estimating tax without considering the
capacity of individual taxpayers (levy beyond the actual capacity of taxpayers) as a problem of
tax compliance. Furthermore, the author recommends awareness is a corner stone as far as
voluntary compliance is concerned and without improving the above problems government
couldn’t collect tax effectively. Also (Temtime, 2014) on his study on Business Taxpayers’
Satisfaction with the Tax System in Addis Ababa, stated that business taxpayers are not satisfied
with the existing tax systems. Because the ways tax authority provides tax information to
taxpayers, tax collection and tax refund, administration capability to solving taxpayers’ problem
and the area of tax audit procedures are found to be the major dissatisfied areas. He also stated
that the tax system is so complex and unfair, discretionary treatment by officers and existent of
lack of monitoring in the tax authority. He recommends solutions like: - improving tax policy
and administration issues; step up their duty of promoting tax awareness, tax officers should be
given intensive and repetitive training to improve their attitude and promoting code of conduct

13
with emphasis on ethical values and finally, tax refund procedure would be improved. When we
come to corruption Hagos (2011) analyzed honesty of the tax collectors.

2.2 Purposes of tax

According to Ethiopian chamber of commerce (2005), tax has many purposes. These include;
promotion of capital investment and trade to support the poor, to modify the pattern of
consumption, to support the operation of the government itself, to encourage exports, to
encourage micro performance of the economy and to encourage private sectors.

2.3 Definitions of income tax

Income tax refers to a tax levied, charged and collected by a government on the amount of
taxable income of a taxpayer. It is also charged by a government on taxable income of the tax
payers and is calculated by applying marginal tax rate prescribed under the income tax laws
(Misirak 2002).

2.3.1 Definitions of business income tax

According to proclamations numbers 979/2008 imperial government business income tax is a tax
imposed on the business income (net profit) realized from entrepreneurial activities. Taxable
business income would be determined per tax period on the basis of the profit and loss account
or income statement which shall be drawn in compliance with the general accepted accounting
principles (Misirak 2007).

2.3.2 Category” B” business income tax payers

Category “B” business income tax payers includes unless and already classified in large size
(category “A”) business income tax payers with no legal personality and whose annual gross
turnover is more than 500,000 and less than 1,000,000. This category taxpayer required to
maintain proper book of account and other supporting documents. They also used type and
quantity of vouchers registered and approved by the concerned tax authority. Category “B”
business income tax payers declare their net income within two months after the end of the tax
year. Unlikely category “A”, category “B” business income tax payers doesn't require preparing
balance sheet statement (Misirak 2008).

14
2.4 Objective of tax
The following are the general objective of tax;
-To raise government revenue.
-To reduce the income inequality in income and wealth.
-To insure economic stability.
-Reduction in regional imbalance.
-For capital accumulation.
-For creation of employment opportunity.
-To reduce harmful consumption.
-To encourage exports.
-For diversion of resources.

2.5 Theoretical review of tax administration

Tax administration refers to the identification of tax liability based on their existing tax laws. The
assessment of this liability and the collection procedure and penalties imposed on calculated tax
payers. Tax administration reform covers wider area of studies, encompassing aspect such as
registration of tax payers, assessment return process, collection and audit (Tadesse n. 2020).

2.5.1 Tax administration challenges

The efficiency of a tax system is not determined only by appropriate legal regulation but also by
the efficiency and integrity of the tax administration. In many countries, especially in developing
countries, small amounts of collected public revenue can be explained by either incapability of
the tax administration in realization of its duty, or with some degree of corruption. Regardless of
how carefully tax laws have been made, they could not eliminate conflict between tax
administration and tax payers. Tax administration with a skilled and responsible staff is almost
the most important precondition for realization of "tax potential" of the state. It is generally
known that tax laws and tax policy are as good as good is the tax administration (Bejaković, P.,
2000,)

2.6 Tax evasion

Tax evasion is a method of saving the true tax liability of a taxpayer but by dishonest and
fraudulent means (actions like omission of income) subject to tax, inflating deductible expense

15
and claiming tax deduction in fictitious transactions. It is an effort by tax payers to avoid or
escape a payment of his legal tax obligations by directly breaking the technical requirement and
legislative intent of tax laws. It usually entails a tax payer deliberately misrepresenting and
canceling the true status of his taxable financial affair (parameswarm, 2000).

2.6.1 Techniques of tax evasion

The following are frequent and practical technique to avoid and minimize legal tax liability by
directly breaking the tax laws.
-Omission of sales transactions from receipts and invoice.
-Under invoicing sales transactions.
-The use of tax invoice unauthorized by the concerned tax authority.
-Claiming tax deduction in fictitious transactions.
-Omission to report taxable revenue in tax return.
-Inflating the tax-deductible expense in the tax return.
-Reporting personal expense as business expense for the tax purposes.
-Keeping multiple set of books of account to record business transactions.

2.6.2 Factors cause tax evasion

The following are factors that the tax payer leads to tax evasion;
-High rate of tax.
-Complexity of tax laws.
-Multiplicity of tax laws.
-Shortage of experienced personal.
-Deterioration of moral standard.

2.6.3 Possible remedies for tax evasion

The following measures may be recharged as possible remedies to prevent or at least to minimize
the tax evasion;
-reduction in tax rate: is the first and foremost reason for tax evasion hence, the rate of tax should
be reduced at reasonable levels.
-through changing of tax laws: redraft the tax laws which have loopholes or weak points.
-through tightening of tax enforcement: that the penalties for violation of tax laws are strictly

16
enforced.
-Maintenance of proper account: proper maintenance of books and accounts by the tax payers.

2.7 Tax avoidance

Tax avoidance is also a method of saving the true tax liability of a taxpayer but by taking
advantage of loopholes in the tax law rather than acting in accordance with legislative intent of
the tax law. It means that tax avoidance attempts to reduce incidence of tax by satisfying the
technical requirement of the tax law but not legislative intent.

2.7.1 Techniques of tax avoidance

The following are the highlights of the common tax avoidance techniques:
-Splitting the business to skip VAT registration.
-Splitting the business transactions or invoice to avoid withholding income tax on payment.
-Paying stock dividend on behalf of cash dividend to avoid dividend income tax.
-Providing for benefits in kind or nontaxable allowance for employees to skip employment
income tax.

17
CHAPTER THREE

3. Research Methodology
3.1 Research Design
In order to meet our objective, we will use a descriptive research design. This is so because
descriptive research involves gathering data that describe events and then organizes, tabulates
and percentage describes the data collection. Thus, it often uses descriptive statistics to aid the
reader in understanding the data distribution.

3.2 Types of data

The researcher uses both qualitative and quantitative data to assess business income tax problems
on category "B" income tax payers in fiche town. The data were collected in the form of semi-
structured interview and questioners.

3.3 Source of data

The type of data was used in this research is primary data. The primary data were collected by
using questionnaires and interviews from the tax payers and tax officials.

3.4 Method of data collection

The primary data were collected through questionnaires which includes both close and open-
ended question for the business income tax payers as well as tax authority officials. The close
ended question contains yes |no alternatives.

18
 3.5 Sampling technique
The researcher used random Sampling because the lists of population on category “B” income
tax payers sample size. After computing the sample size, the researcher uses simple random
Sampling technique to get relevant and reliable information.

3.6 Sample size determination

The target population of the study in category "B" business income tax payers who are subjected
to business income tax payers. In this study there are 194 category “B” business income tax
payers and 29 employees in fiche Town. In this regard by taking the available resources, time,
budget and geographic distance the researcher selected 95 respondents that 66 are from tax
payers while 29 are from tax officials. The tax payers are selected by using 90% confidence level
by the following formula. So, the researcher uses lottery sampling to distribute the questioners.

n=N/1+N (e) ^2
n=194/1+194(0.1) ^2
n =65.58
=66

Where n= the Sample size

e= level of error
N=Total population
Yamane’s (1967)

3.7 Method of data analysis and presentation

After applying different tools data were collected and organized in the form of row data. The
collected data is analyzed and organized in Exile Method in the form of descriptive way. This
descriptive analysis is showing the category "B" business income tax payers problem in the form
of tables and percentage.

19
 CHAPTER FOUR

DATA ANALYSIS AND INTERPRETATION

4. Introduction
This chapter shows the presentation of the finding, analysis and interpretation of collected data
from fiche town revenue office officials and from the tax payers that performed in category “B”
business income tax payers as a tax payer and a tax collector. To interpret the data the researcher
uses tabular frequency. The researcher uses 95 respondents that 29 are tax officials and 66 are
taxpayers to collect data and from these respondents 76 of them are voluntary to fill the
questionnaires while the remaining 19 respondents were not willing to fill the questionnaires.
The researcher uses two types of questionnaires that one for the tax payers and the other to for
tax officials separately. The first sections of the interpretation deal with tax officials from 29
respondents 4 of them are involuntary to fill the questionnaires.

4.1 Demographic profile of respondents

Table 1: personal background of the respondents (tax officers).
No Characteristics Frequency Percentage
1 Sex male 15 60%
Female 10 40%
Total 25 100%
2 Age 20-30 15 60%
31-40 8 32%

20
 41-50 2 8%
Above 50 0 0%
Total 25 100%
3 Education level
Certificate 4 16%
Diploma 8 32%
Degree 12 48%
Above degree 1 4%
Total 25 100%

Source: data collected from questionnaires 2016

From the above table 4.1, Out of the sample respondents 60% of them are males and the
remaining 40% are females. The sex distribution of the tax officers in the above table indicates
that the male populations are higher in percentage as the researcher seen to differentiate from the
female population in order to identify the major problems that incorporate in category “B
“business income tax payers.
As regards to their age, 60% of the respondents fall in the age between 20_30 years. This age
group is considered as most of the tax officers are adults. As indicated from the above table in
question 3, the respondents classified according to their education level shows that 48% of the
respondents have degree position, 32%were diploma, 16% were certificate and the remaining 4%
are above degree position. There for almost half of the tax officers have degree position.

4.2 Analysis regarding to the problem

Table 2: problems inside of category” B” business income tax payers.

No Item frequency Percent

1 Do you believe that there is a problem in side of category
B business income tax payers?
Yes 19 76%
No 6 24%
Total 25 100%

21
Source: data collected from questionnaires 2016
As shown from the above table 4.2, 76% of the respondents say there is a problem in side of
category” B” business income tax payers. These problems are identified in question 2 as follows;
doesn't maintain recording book, doesn't use cash register machine, dalliance of tax payment on
time, tax evasion and avoidance, doesn't unknown their income and expense to the revenue office
on time (within two months).
There for most of the category” B” business income tax payers have many problems as identified
by the respondents.
Table 3: about tax evasion
No Item frequency percent
3 Do you believe that the tax payers evade their tax
obligations?
Yes 21 84%
No 4 16%
Total 25 100%
Source: data collected from questionnaires 2016
From the above table 4.3, 84% of the respondents say that most of the category “B” business
income tax payers evade their tax liability. So, the income generated from this type of tax is more
influenced by the tax evasion.
There for the tax officials perform their activity efficiency and effectively to collect the expected
amount of tax.
From the above table 4.3, shows that 84% of the respondents says that the tax payers evade their
tax obligations due to the reasons, by hidden the commodities in hidden place, by increase their
expense and decrease their income, by terminate their business when they know the regular
valuation period. They evade because of the following reasons, such as due to their selfish
interest, inconvenient tax payment period, large amount of payment at once and high tax rate.
Therefore, most of the category “B” business income tax payers have tax evasion problems.

22
Table 4; willingness of the tax payers
no Item frequency Percent
5 Do you believe that the payers are willing to pay their tax
obligations?
Yes 12 48%
No 13 52%
Total 25 100%
6 If your answer for question 5 no specifies
_lack of awareness about purposes of tax 6 46.15%
_carelessness 2 15.4%
_inconvenient of payment time. 3 23.1%
_due to huge amount to be payable. 2 15.4%
Total 13 100%
Source: data collected from questionnaires 2016
From the above table 4.4, 52% of the respondents say that most half of the tax payers are not
willing to pay their tax obligations but the remaining 48% of the respondents says willing to pay.
Therefore, the majority of the tax payers haven't willingness to pay business income tax even
though tax payers were pay their tax liability based on their level of income.
As shown from the above table shows that there are many reasons to their unwillingness such as;
lack of awareness about purposes of tax, carelessness, inconvenient of payment time and due to
huge amount to be payable with respect percentage of 46.15%, 15.4%, 23.1%and 15.4%
respectively. So, most of the tax payers are unwilling to pay tax due to lack of awareness about

23
purposes of tax.
Table 5, covenant of collection period
no Item frequency percent
7 Do you believe that the tax collection period is covenanted
to tax payers?
Yes 15 60%
No 10 40%
Total 25 100%
8 If your answer for question 7 no specify the reason
_due to summer season. 7 70%
-due to amount paid at once. 3 30%
Total 10 100%

Source: data collected from questionnaires 2016

From the above table 4.5, 60% of the respondents say that the tax collection period is covenant to
the tax payers while the remaining 40% of the respondent’s response shows that the collection
period is inconvenient for the tax payers.
As shown on question 8 from ten respondents 70% of them says that the payment period is
inconvenient due to summer season and the remaining 30% of the respondent’s response shows
due to the amount paid at once.
There for, the payment period is in some extent inconvenient for the tax payers.
Table 6, About dalliance of payment.
no Item frequency percent
9 Do you believe that the tax payers deliberately delay to pay tax?
Yes 17 68%
No 8 32%
Total 25 100%
1o If your answer for question 9is yes what is the reason?
_to generate by the tax amount 8 47.1%
_because of the penalty is low 5 29.4%

24
 -to evade tax 4 23.5%
Total 17 100%
Source: data collected from questionnaires 2016
From the above table 4.6shows that 68% of the respondent’s response shows that majority of the
tax payers deliberately delay to pay their tax obligations on time. From these the remaining 32%
of the respondent’s response shows that the tax payers don’t delay to pay. As shown on question
10, 47.1% of the tax payers delay to generate revenue by using the tax amount and the remaining
29.4%and 23.5% of the tax payer’s delay for the penalty is low and to evade their tax
obligations. Therefore, most of the category “B” business income tax payers deliberately delay to
pay tax.

Table 7, periodic review of the tax obligations

no Item frequency percent
11 IS there a periodic review to estimate the tax obligations?
Yes 21 84%
No 4 16%
Total 25 100%
12 If your answer for question 11 is yes how many times
Once a year 2 9.5%
Twice a year 8 38.1%
Three and above 11 52.4%
Total 21 100%
Source: data collected from questionnaires 2016
From the above table 4.7, 84% of the respondents reply that there is a periodic review to estimate
the tax obligations. From these most of the respondent’s response shows that there is a periodic
review at three and more than three times in a year. Therefore, as shown on the above table there
is no well-known regular review to estimate the tax obligations.
4.2 Data analysis for the tax payers
The data is collected from 66 category B business income tax payers. From these 15 respondents
were unwilling to fill the questionnaires and 51 respondents fully incorporate the questionnaires.

25
Table 8: personal background of respondents (tax payers)
Degree 16 31.4%
No Item frequency percent
1 Age
20-30 12 23.5%
31-40 18 35.3%
41-50 15 29.4%
Above 50 6 17.76%
Total 51 100%

2 Sex male 33 64.7%

Female 18 35.3%
Total 51 100%
3 Education level
Illiterate 4 7.84%
Complete elementary school 8 15.7%
Complete secondary school 9 17.64%
Certificate 7 13.7%
Diploma 6 11.76%
Degree 16 31.4%
Above degree 1 1.96%
Total 51 100%
Source: data collected from questionnaires 2016
As shown on the above table 4.8, out of the 51 respondents 64.7% of them are males and the

26
remaining 35.3% of the respondents are females. The sex distribution of the respondents in the
above table indicates that the male populations are higher than the female population in order to
determine the major problems that incorporate in category” B” business income tax payers.
As regarding to their age, 35.3% of the respondents fall in the age between 31_40, 29.4% of
them fall in the age between 41_50, 23.5% of them fall in the age between 20_30and the
remaining 17.76% of them fall in age above 50.
As indicated from the above table 4.8, the respondents classified according to their education
level shows that 31.4% of them have degree position, 7.84%, 15.7%, 17.64%, 13.7%, 11.76%and
1.96%shows illiterate, complete elementary school, complete secondary school, certificate,
diploma and above degree respectively.

4.3 Analysis regarding to the problem

Table 9: The purpose of tax.

no Item frequency percent

1 Do you understand purpose of tax?
Yes 38 74.5%
No 13 25.5%
Total 51 100%
Source: data collected from questionnaires 2016
From the above table 4.9, 74.5% of the respondent’s response shows that understand the purpose
of tax, while the remaining 25.5% of the taxpayers doesn't know the purpose of tax.
Therefore, one fourth of the respondents don’t know the purpose of tax.

Table 10: willingness to pay tax

no Item frequency percent
2 Do you have a willingness to pay your tax obligation on time?
Yes 37 72.5%
No 14 27.5%
Total 51 100%
3 If your answer for question 2 is no why?

27
 -lack of awareness 8 57.14%
-carelessness 2 14.29%
-lack of willingness to pay 4 28.57%
Total 14 100%
Source: data collected from questionnaires 2016
From the above table 4.10 out of the respondents 72.5% of them have a willingness to pay their
tax obligations on time while the remaining 27.5% of the respondents are unwilling to pay their
tax obligations on time.
From the respondents who haven't willingness to pay 57.14%of the tax payers are unwilling due
to lack of awareness while the remaining 14.29% and 28.57% of the tax payers are due to
carelessness and lack of unwillingness to pay.
Therefore, most of the respondent’s response shows that majority of the tax payers are willing to
pay their tax obligations.

Table 11: problems inside of the tax officers

no Item frequency percent
4 Do you believe that there is a problem inside of category” B”
business income tax officers?
Yes 39 76.47%
No 12 23.53%
Total 51 100%
5 If your answer for question 4 yes why?
-lack of knowledge to estimate 12 30.77%
-unfairness to collect 9 23.07%
-lack of good attitude 8 20.5%
-lack of sufficient periodic review 10 25.64%
Total 39 100%
Source: data collected from questionnaires 2016
From the above table 4.11, out of the respondents 76.47% of their response shows that the tax
officials have a problem and the remaining 23.53% of the tax officials are better by their
activities. Most of the tax officials who estimate and collect the tax obligations have the

28
following problems like; lack of knowledge to estimate, unfairness to collect, lack of good
attitude and lack of periodic review with their respective percentage of 30.77%, 23.07%, 20.5%
and 25.64%.
Therefore, most of the tax officials have a problem when they estimate and collect the tax
obligations.

Table 12: program to create awareness

no Item frequency percent
6 Does the revenue office prepare sufficient program to create
awareness about purpose of tax.
Yes 36 70.58%
No 15 29.42%
Total 51 100%
7 If your answers for question 6 yes how many times the program
prepare?
Once a year 4 26.67%
Twice a year 8 53.33%
Three and above 3 20%
Total 15 100%
8 Is the program prepared based on your willingness?
Yes 22 61.1%
No 14 38.9%
Total 36 100%
Source: data collected from questionnaires 2016
From the above table 4.12, 70.58% of the respondent’s response shows that the revenue office
prepares sufficient program to create awareness about purposes of tax. The remaining 29.42% of
the respondent’s response shows that the tax payers don’t know when and how many times the
training program is prepared.

29
From the respondents who have knowledge about when and how the training is presented as
follows; 26.67% of the respondents gain training once a year, 53.33% of the respondents gain
training twice a year and the remaining 20% of the respondents gain training three and above at a
year.
As shown on the above table shows that 61.1% of the respondents participating with respect to
their willingness while the remaining 38.9% of the respondents are unwilling to participate.
Therefore, most of the tax payers participate in training program but some of the tax payers don’t
participate.
Table 13: determination of the tax amount
no Item frequency percent
9 Do you believe that the tax liability is determined in fair manner?
Yes 17 33.33%
No 34 66.67%
Total 51 100%
10 If your answer for question 9 no why?
Tax collectors consider only the budgeted collected amount but not 8 23.5%
the income
Tax officer’s biasness 15 44.1%
Due to lack of knowledge 11 32.4%
Total 34 100%
Source: data collected from questionnaires 2016
On the above table 4.13, 66.67% of the respondent’s response shows that majority of the tax
liability doesn't determine in fair manner. The remaining 33.33% of the respondent’s response
shows that the tax liability determined in fair manner.
As shown on the above table most of the tax liability doesn't determine in fair manner because
of; the tax officials consider only the budgeted collected amount but not consider the income of
the tax payers, biasness of the tax officials and due to lack of knowledge with respect to their
percentage of 23.5%, 44.1%, and 32.4%respectively.
11. What is your recommendation about category B business income collection system?
As the information obtained from the tax payers, they give different comments about the tax
collection system. This is shows as follows;

30
_the collection period is inconvenient so it may be changed.
_the tax amount may be collected twice a year.
-train the tax officials as if.
4.4 Analysis of interview questions
To conduct the study the researcher interviews the manager to support the data collected by using
questionnaires. As the information gathered from the manager through interview the revenue
office budget the amount to be collected to the budget year. To estimate the budgeted amount the
revenue office use rules and regulations that describe on the proclamation that reflects how many
business men are incorporated, what type of projects is proposed, the factors which influence the
business and how the income is estimated.
The revenue office collects approximate the budgeted amount of tax such as 95%, 98% and
99%in the year 2013, 2014 and 2015 respectively.
As the gathered from the revenue office manager there are many problems with respect to
category B business income tax payers such as: hidden their yearly sale, increase their expense,
deliberately delay to pay on time because of low penalty, doesn't unknown their income and
expense within two months to the revenue office, doesn't maintain self-assessment book, lack of
good attitude.
The response to the revenue office manager shows that there are sufficient training programs
facilitate four times a year but the tax payers don’t fully participate in the training program.

31
 CHAPTER FIVE

5. CONCLUSION AND RECOMMENDATION

This chapter covers the conclusion and recommendation under two sections. The first section
deals the conclusion that describes the finding of the study in short while the second section
deals about the recommendation that made from the prospective findings.

5.1 conclusion
The study is assessed based on the result of analysis and findings of the following conclusion
were made by the researcher. So, the conclusion reflects the response of the tax payers and the
tax officials.
-The result of the study shows that there are some problems related to taxpayers. These
problems are that the taxpayers do not maintain recording books, does not maintain cash register
machine, dalliance of tax payment, tax evasion and does not unknown their income and expense
to the revenue office on time with respect to tax payers. While lack of knowledge, unfairness to
collect, lack of good attitude and lack of sufficient periodic review to estimate the tax liability of
the tax payers are problems of the tax officers.
-As the result on the analysis shown some of the tax payers are not willing to pay their tax
obligation on time because of that lack of awareness about purpose of tax, carelessness,
inconvenient payment period and due to large amount to be paid at once.
-Even though most of the taxpayers do not evade their tax obligation some of the taxpayers
evade their obligations because of that due to their selfish interest, due to inconvenient tax

32
collection period and due to large amount to be paid a once. There evasion mechanism is by
hidden the commodities in hidden place, by increase expense and decrease their income and by
closing their activity when they know the regular valuation.
-As the collection period shows that some of the respondents result shows that the tax collection
period is inconvenient to the taxpayers due to summer season, due to tax amount paid at once.
By this reason the tax payers deliberately delay to pay tax. The taxpayers delay to pay is because
of that to generate revenue by the tax amount, the dalliance penalty is low and to evade tax
obligation.
-Even though there was a periodic review to estimate the tax obligations, the respondent’s
response shows that the program is not constant, that shows once, twice, three and more in one
year.
-Most of the tax payers understand the purpose of tax, some of the respondent’s response shows
that some tax payers do not know the purpose of tax. To expand the awareness of purpose of tax
the revenue office prepares sufficient program. But the program is not constant because the
program prepares at once, twice and three of the year. At this time the taxpayers do not
participate in the program due to lack of good attitude and the program is made without the
willingness of the taxpayers.
-As the tax amount of category “B” business income tax payers determine by the employee of
the revenue office, the tax determination is not fair due to the officials consider only the
budgeted collected amount not the income, biasness of tax officials and lack of knowledge of tax
payers.

5.2 Recommendation

Based on the analysis, finding and conclusion the researcher recommended the following
necessary points to decrease the problems inside of category” B” business income tax payers.

-The training program may permanent and modernized to creating awareness towards taxation.
That means the training program date may fixed and known for taxpayers by different medias.
-One to five payment may be established by giving different incentives who pay the tax
obligation on the specified date.

33
-The revenue office promotes most of the tax payers use cash register machine to improve the
accuracy of the tax liability by distributing the machine with appropriate price to the tax payers.
-The revenue office may consider the availability of social amenities before determining the tax
obligations because most of the business activities are related to these resources.
-The revenue office also gives sufficient training before the tax officers perform the periodic
reviewing, estimating and collecting the tax amount.
The tax authority should have skilled manpower that can able to understand the tax legislation
and able to train taxpayers, and curious to develop new tax issues. The tax authority should
create awareness towards the taxpayers because tax The government should also apply the
punishment for tax evaders based on the rules and regulations as per articles 960 of the income
tax proclamation number 979/2008 mainly in monetary value and • The revenue authority should
improve the attitude of the business tax payers about the importance of taxation and its effect for
economy development are levied from them and change the negative attitude of taxpayers
towards tax.
The government should also apply the punishment for tax evaders based on the rules and
regulations as per articles 960 of the income tax proclamation number 979/2008 mainly in
monetary value and • The revenue authority should improve the attitude of the business tax
payers about the importance of taxation and its effect for economy development

34
 References

Bejaković, P., 2000, August. Improving the tax administration in transition countries. In Institute

for Public Finance, http://www. umar. gov.

Getinet, M. (2019). The Effect of Tax Payers Awareness on Voluntary Tax Compliance: Evidence

from Category “A” and Category “B” Tax Payers in Hawassa City (Doctoral

dissertation, Hawasssa University)

Emran and Stiglitz (2005), Problems Associated with Tax Payers and Revenue Authority in Case

of Dessie Town, Northern Ethiopia.

ERCA, (2010): "Federal Government Tax Collection,” Ethiopian Revenue and Custom

Authority. Addis Ababa.

Eredatie, G. (2012). Institute of Tax and Customs Administration (Doctoral dissertation, Institute

of Tax and Customs Administration Tax administration Master’s Program An Assessment

35
 of Determinant of Taxpayers’ Compliance towards Taxation

Fantahun, (2002), Policy reform implementation and outcome in Ethiopia, Addis Ababa

Gebrie, W, (2008) Tax Accounting in Ethiopian Context, 2nd Ed., Alem Printing Press, Ethiopia,

Getaneh, M. (2011). The audit practice in Ethiopia: The case of the Federal Government. Addis

Ababa University, Ethiopia.

Gupta, Alka (2001): "Public Finance and Tax Planning", Anol Publication, New Delhi. Kothari,

B L (2007). "Research Methodology: Tools Techniques ABD Publisher. Jaipur, India

Hagos, G. (2011). Assessment on the challenges of business income collection process: A case

study in Aksum town, Tigray, Ethiopia, Mekelle University.

Imam, P., A. and Jacobs, D., F. 2007. Effect of Corruption on Tax Revenues in the Middle East.

Kaldor, (1980), the challenges of tax administration and collection of revenue in Afar Region,

Ethiopia

Lemessa,T. (2007). A research project on determinants of taxpayers’ voluntary compliance with

taxation: The case study of DireDawa City, Addis Ababa University.

Misrak Tesfaye (MSC) (2008), Ethiopia Tax Accounting Theory and practice. (1st Edition).

Misrake.T (2006), Ethiopian tax accounting principles and practice 2nd edition.

MisrakTesfaye, (2011), Ethiopian Tax Administration, (1sted), Addis Ababa.

Negeri, D. D. (2023). Assessment of Determinants of Tax Collection (the Case from Negele

Town Administration East Guji Zone Oromia Regional State, Ethiopia). Partners

Universal International Research Journals

Phillips and Sandall (2008), Challenges of Tax Assessment and Collection Procedures in

Bangladesh

Tadesse, n. (2020). assessment of tax administration problems: the case of ministry of revenue

36
 large taxpayers branch office (doctoral dissertation, St. Mary’s university).

Temtime Debre, (2014), Business Taxpayers’ Satisfaction with the Tax System in Addis Ababa,

Ethiopia.

The Constitution of the Federal Democratic Republic of Ethiopia, Federal Negarit Gazeta, 1 st

year, No. 1, Addis Ababa – 21 st august 1995.

Bird, R. M., Martinez-Vazquez, J., & Torgler, B. (2008). Tax effort in developing countries and

high-income countries: The impact of corruption, voice and accountability.

Arif, I., & Rawat, A. S. (2018). Corruption, governance, and tax revenue: evidence from EAGLE

countries.

SALALE UNIVERSITY GENERAL TADESSE BIRU CAMPUS

37
 DEPARTMENT OF ACCOUNTING AND FINANCE
RESEARCH QUESTIONNAIRE
Dear respondents! The aim of this study is to assess the problems that exist in category “B”
business income tax payers in case of fiche town. This study is for academic purpose only, so
your cooperation to provide genuine and relevant information is highly important and
appropriate for the success of the study. This questionnaire is to collect data for the study on the
title Business income tax collection problems in category B income tax payers. I would like to
assure that your response will be kept in confidential. There for, please feel free to give answers
for all questions frankly and accurately. It is not necessary to write your name on the
questionnaire. I thank you for your precious time that you spend for answering the question.
Researcher's Name: taleamlak terefe
. Cell phone, 09 41 87 38 12
Part one: about personal information
1. Your age.......
2. Your sex.......
Male... Female....
3. Level of education
Illiterate....
Complete elementary school.........
Complete secondary school......
Certificate......
Diploma.......
Degree......
Above degree....
Note
-does not write your name when you fill the questionnaire.
_for closed ended questions please "circle" in the of your choice.

Part two: questions to employees

38
1. Do you believe that there is a problem in side of category B income tax payers?
A, yes B, no
If your answer for the above "yes", specify it........ ............................. . . ........
2. Do you believe that tax payers evading tax obligations?
A, yes. B, no
If your answer for the above question “yes” specifies the way...... .....
3. Do you believe that the tax payers are willing to pay their Tax obligations?
A, yes B, no
If your answer for question 3 no specifies the reason..................................
4. Do you believe that the tax collection period is covenant to the tax payers.
A, yes B, no
If your answer for question 4 "yes" specify the reason.................
If your answer for question 4 “no” specifies the reason........
5. Do you believe that tax payers deliberately delay to play tax?
A, yes. B, no
If your answer for question 5 "yes" specify.................................................
6. List category B business income tax collection problems.................................
Part two: questions to the tax payers
1. Do you have a willingness to pay your tax obligations on time?
A, yes. B, no
If your answer for question 1"no" why?
A, lack of awareness. B, carelessness
C, lack of ability to pay. D, if other specify..........
2. Do you believe that there is a problem in side of category B income tax payers?
A, yes. B, no
If your answer for question 2 yes specifies it..............................
3. Does the government prepare sufficient program to create awareness of purpose of tax?
A, yes B, no
If your answer for question 3 "yes" how many times the program prepares?
A, once a year. B, twice a year. C, three and above
4. Could you understand the purpose of tax?

39
A, yes. B, no
5. Do you believe that the tax liability is determined in fair and equitable manner?
A, yes. B, no
If your answer for question 5 "no" specify the reason....'.......
Part three: Interview questions
1. Does the office collect the budgeted amount of tax from category B business income tax
payers?
2. How the tax payers evade and avoid their tax liability?
3. What are the problems with respect to category B business income tax payers?
4. What seems like the tax payer’s willingness to pay their tax liability?
5. Does the government facilitate sufficient training program to the tax payers?

40