ASSESSMENT OF TAX COLLECTION PROBLEMS

(ACASE STUDY ON SOKORU WOREDA)

A RESEARCH PAPER SUBMITTED IN PARTIAL

FUILFILLMENT OF THE REQUIREMENT FOR
BACHELOR OF ART (BA) DEGREE IN
ACCOUNTING

PRE PARED BY: NEBIL AHMED

ADVISOR: - ABIY GETAHUN

JIMMA UNIVERSITY
BUSINESS AND ECONOMICS COLLEGE
DEPARTMENT OF ACCOUNTING

May 2012
JIMMA, ETHIOPIA

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 ABSTRACT

This study focused on problems related with tax collection in sokoru

woreda it is known that the existence of state without tax is unthinkable
because, government raises fund from tax collection. So studies of
problems associated with tax collection and finding appropriate solution
may help to contend with development constraints success fully through
detailed investigation, because of this, this study designed and looked at
the problems related with tax collection. In sokoru woreda. With the key
objective of assessing problems related with tax collection. This may help
the woreda’s revenue and tax office to look at originated problems.

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 ACKNOWLEDGMENTS

First my special thanks go to the almighty Allah for his undeserved

support. And secondly I would like to thank my advisor Ato Abiy
Getahun for his special assistance in providing professional and
technical advice.

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 TABLE OF CONTENTS

Contents page
Abstract.................................................................................I
Acknowledgment...................................................................II
Table of content ...................................................................III
List of tables ........................................................................V
CHAPTER ONE
Introduction .........................................................................1
1.1Background of the study ..................................................1
1.2 Back ground of the organization......................................3
1.3 Statement of the problem ................................................4
1.4 Objective of the study .....................................................5
1.4.1 General objective ..................................................5
1.4.2 Specific objective ..................................................5
1.5 Significance of the study .................................................5
1.6 Scope and limitation of the study ....................................6
1.7 Organization of the paper ..............................................6
CHAPTER TWO
2. Literature review ..............................................................7
2.1 Introduction ..................................................................7
2.2 Role of Taxation in development strategy..........................8
2.3 Characters of good tax system .......................................10
2.4 Taxation principles ........................................................11
2.5 Canon of Taxation ......................................................... 12
2.6 Major types of taxes in Ethiopia .....................................14
2.7 Classification of taxes based on their effect on income ....18
2.7.1 Progressive Taxes ................................................18
2.7.2 Proportional Taxes ..............................................19

III
 2.7.3 Regressive Taxes ................................................. 19
2.8 Categories of tax payers........................................21
2.9 Procedures of tax collection ...........................................21
CHAPTER THREE
3. Research Design and Methodology ………………………………….22
3.1 Research design ...........................................................22
3.2 Source of data and collection method ............................22
3.3 Target population and sampling methods ......................22
3.4 Data analysis method and presentation..........................23
CHAPTER FOUR
4. Data analysis interpretation and presentation .................24
4.1 Analysis of Data Gathered From Tax payers ...................24
4.2 Analysis of data gathered from employees ………………….30
4.3 Analysis and Presentation of Secondary Data..................34
CHAPTER FIVE
5. Summary, conclusion and recommendation .....................35
5.1 Summary.......................................................................35
5.2 Conclusion of findings ...................................................36
5.3 Recommendation............................................................37
References ...................................................................38
Appendix I....................................................................39
Appendix II.................................................................. 41

IV
 LIST OF TABLES
Table 1. General profile of pax payers ...........................................24
Table 2. Types of tax payers take parts in responding the
questionnaires ............................................................... 25
Table 3. Do you face any problem when you pay your
tax liability ................................................................. 25
Table 4. Is your annual tax liability based on your in come.......... 26
Table 5. When do you pay tax .................................................... 26
Table 6. Does the tax rate impose by government is fair......... 27
Table 7. Is the payment period enough ....................................... 27
Table 8. Do you know why tax is compulsory .............................. 28
Table 9. How do you feel about taxation ..................................... 28
Table 10. Are you satisfied with the method of assessment.......... 29
Table 11 General profile of the employees.................................... 29
Table 12 Do most tax payers pay their tax liability on time ......... 30
Table 13 How do you evaluate the coordination of your office
with others ................................................................... 30
Table 14 what do you think about the bureaus structural
Adjustment.................................................................. 31
Table 15 How do you evaluate knowledge of tax payer
about taxation ............................................................ 31
Table 16 What do you feel about the position you have
assigned ...................................................................... 32
Table 17 What is your idea about present tax collection and
assessment system ................................................... 32
Table 18 What is your idea about present tax collection and
assessment system? ……………………………………… …………..33
Table 19 The five years budgeted and actual amount of tax collected
in sokoru woreda. …………………………………………………34

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VI
 CHAPTER ONE
1. INTRODUCTION
1.1. Back Ground of the Study

Typically taxes are the primary source of government revenues.

Taxation policies depend of the socio economic and political
structure of a country. In Ethiopia though taxation came into being
with the emergence of state and government, but, there is no
reliable documentary evidence exists as to when exactly taxation
was introduced.

In the 15th century written stories of Atse Zera Yacob indicates that
taxation was introduced previously in Ethiopia. In these era tax
was paid by different social groups to government, feudal lords and
priests. Besides, these documents approve that Atse Zera Yacob
had for the first time enacted regulation can be taken as an
evidence for the presence of taxation system before and on Zera
Yacob government.

In general a kind of traditional tax system was practiced on those

days this traditional tax system was expresses in two forms of
payment in kind and unstructured tax system. In traditional tax
system, much burden was laid on farmers. Though such burden
was tried to lessen by emperor Tewodrosse ’s government, strong
change had been taken place by emperor Menilik.

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Towards the end of the Imperial period the majority of the
population living at subsistence level. There was limited
opportunity to increase taxes on personal or agricultural income.
Consequently, the imperial government relied on individual taxes
(customs, excise and sales to generate revenue for instance in the
early 1970s taxes on foreign trade accounts for close to 2/5 th of the
tax revenue, and one third of all government revenues. At the same
time, direct taxes accounted for less than one third of tax revenue.
During the “Dergue” regime the taxes were similar to those imposed
during Haileseassie regime except that wider tax base and
increased tax rates.

The “Dergue” regime partially alleviated the tax collection problems

that existed during the imperial period by delegating the
responsibility for collecting the fee and tax on agriculture to
peasant association which received a small percentage of revenue
as payments.

The main purpose of generating revenue from various sources is to

finance public expenditures. The governments generate are revenue
from tax and other non sustainable sources. The collection of
money from available sources of revenue by government needs the
availability of democratic government, foreign and domestic
creditors and donors, efficient tax system and awareness of the
society regarding the use of tax payment for government and its
contribution for the development of the country’s economy.
In our country payment of tax is considered by the society as a
debt imposed by government to increase the wealth of the
government officials. To avoid the negative attitude of the taxpayer

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a well designed tax system is necessary. In addition educate the
society regarding its obligation and the purpose of tax collection
minimizes the wrong attitude of the taxpayer. So, this study is
designed to minimize problems that face during assessment and
collection and to minimize wrong attitudes of tax payers.

1.2 Back Ground of the Organization

Sokoru is one of the 180 woredas in the Oromia region . This

woreda is named after the former awraja of the same name, and
covering much of the same territory as the current worda, as well
as its administrative center, sokoru, part of Jimma zone. Sokoru is
bordered on the south by omo Nada, on the west by Tiro Afeta and
on the north and east by the southern Nations, Nationalities and
peoples region, the southern Nations Nationalities and peoples
region the gibe river defines the northern boundary. other towns in
this woreda include Deneba, Kumbi and Natri Based on figures
published by the central statistics agency in 2005, this woreda has
an estimated total population of 157,552. 19676 or 12.49% of its
population are urban dwellers. Sokoru has an estimated population
density of 170 people per square kilo meter that is greater than the
zone average of 150.6. Oromiffa is spoken as afirst langurge by
83.74%, 4.62% spoke Amharic, 3.8% spoke kebena. 3.43% spoke
yemsa, and 3.1% spoke hadiya the remaining 1.31% spoke all. The
majority of the in habitants is Muslims, with 91.23%.

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1.3 Statement of the Problem

The role of taxation in well functioning governmental operation is

so high Development of infrastructures, basic social services
institution are apparently build by government. Moreover, the
public servants, deffence forces and police forces are employee of
the state, to cover these and other developmental costs the states
uses tax as principal source of revenue.

The need to build speedy economic progresses and overall

developmental activities call for strong tax revenue. If no arguments
in the above assertion therefore the Ethiopia government ought to
adopt sound taxation policy on collection system and in making
awareness on tax payer societies.

No doubt that the existence of better tax collection system is

decisive for the existence of well developed and economically strong
states. If no complain that better tax collection system is decisive in
one Country’s overall capacity, that is the main reason motivate
the researcher to study the constraint of tax collection system with
title “assessment of problem related with tax collection in sokoru
woreda.”

In the researcher study area there are some problems of tax

collection for instance in 2003 E.C the proposed amount of tax was
greater than the amount that actually collected and also some
problems related with awareness and willingness of taxpayers. So
in this paper the researcher tried to or answer the following basic
questions of tax collection problems. In the woreda
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 1. What are the major bottlenecks affecting tax collection system
in the woreda?
2. What are the problems and weaknesses in the side of
government bodies (tax collectors) or the system?
3. What are the gap and weakness in the side of tax payer
societies?

1.4 Objectives of the Study

1.4.1 General Objective
The general objective of this study is to find out the major
constraints that affecting the tax collection system in the
woreda.
1.4.2. Specific Objectives.
Specific objective of this study focused on assessment of
 Internal factors affecting tax collection system.
 Environmental (external) factors that influencing tax
collection system.
 To put some possible recommendation and to make this
study’s result base for further investigation.

1.5 Significance of the Study

The researcher believe that the followings are the significance of the
study
 Paved the way for improvement of tax collection system.
 Encourage compliance of tax payers
 To create fairly clear image how the tax collection and
problems with tax collection are taking place.
 Enable revenue bureau to find out whether its strategy are
effective or not.

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  The result of this study will serve as a reference for further
investigation
Lack of sufficient secondary data and failure of respondents to
return the questionnaires were the major limiting factors of the
study.

1.6 scope and limitation of the study

Though tax is very vast and curial issue, standing its nature of
study the tax policy at a higher level is time consuming and need
long term study so, this research paper restricted only in problems
of tax collection in sokoru woreda. The major limiting factors of the
study were lack of sufficient secondary data and failure of
respondents to return the questionnaires.

1.7 Organization of the Paper

This paper consists of five chapters the first chapter consists the
introductory parts wich includes. background of the study, back
ground of the organization, statement of the problem objective of
the study, significance of the study scope and limitation of the
study, the second chapter consist only the literature review.
The third chapter includes the term research design. Sources of
data, data collection techniques, method of data analysis and
presentation, target population and sampling methods. Chapter
four of this research deals with analysis of data that gathered from
tax payers and employees of the revenue bureau. The fifth and the
end chapter of this research deals with summary, conclusion and
recommendation,questionnaires and references that used to
conduct this study.

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 CHAPTER TWO
2. LITERATURE REVIEW

2.1 Introduction
Taxation is a means by wich governments finance their expenditure
by imposing charges on citizens and corporate entities. Government
uses taxation to encourage or discourage certain economic
decisions.
Tax is a fee charged (levied) by a government on product, income,
or activity tax is levied directly on personal or corporate income,
then it is a direct tax. If tax is levied on the price of a good or
services, then it is named an indirect tax. One of the most
important uses of taxes is to finance public goods and services
since public goods and services don’t allow a non payer to be
excluded, or allow exclusion by a consumer, there cannot be a
market in the good or services and so they need to be provided by
the government or quasi government agencies, wich tend to finance
themselves largely through taxes. (WWW. Investor words.com)

Meaning of Tax
Taxes are burdensome thus reduce the economic welfare of
individuals and businesses (public) organization. But activities that
are financed from taxes will bring benefits to individuals or
organizations, the net burden of tax then, must take the nature of
government expenditures in to account. (WWW. Business
dictionary.Com)

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Purpose of Taxation
According to American economist Richard Musgrave.A purpose of
tax action is to distinguish between objectives of resource allocation
income redistribution and economic stability (economic growth) or
development and competitiveness listed as separate goals, but they
can generally be subsumed under the other three. The other main
function of taxation is to permit the state to provide services for the
population. Infra structure and services are what we expects from
taxation(WWW.Yahoo Answers.Com).

2.2 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.

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The 4th is to ensure economic goals through the ability of the
taxation system to influence the allocation of resources. This
includes.
A. Transferring resource from the private sector to the
government to finance the public investment program.
B. 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 insides in investment
incentive to attract foreign direct investment (FDI) into the
country.
C. Influencing relative factor prices for enhanced use of labor
and economic use of the capital and foreign exchange.
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. (B.P herber,1999)

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2.3 Characters of Good Tax System
1. Tax is compulsory contribution:-it is a compulsory payment
from the person to the government without expectation of any
direct returns from it.
2. 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.
3. Common benefit to all:- the tax collected by the government is
spend for the common benefits of all people.
4. 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.
5. 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.
6. Attitude of the taxpayers:- the attitude of the tax payers is an
important variable determining the contents of good tax
system.
7. Good tax system should be in harmony with national
objectives:- a good tax system should run in the same
direction with important national objectives.
8. 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. (Tax system manual by Addis chamber 2004)

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2.4 Taxation Principles
Taxation principles are basic concepts by witch government is
meant to be guided in designing and implementing all equitable
taxation regime these includes.
1. Adequacy:-taxes should be just enough to generate revenue
required for provision of essential public services.
2. 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.
3. Compatibility- taxes should be coordinated to ensure tax
neutrality and over all objectives of good governance.
4. Convenience:- taxes should be enforced in a manner that
facilitates voluntary compliance to the maximum extent
possible.
5. 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.
6. Efficiency:-tax collection efforts should not cost an
inordinately high percentage of tax revenues.
7. 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.
8. Equity:-taxes should equally burden all individuals or entities
in similar economic circumstances.
9. Predictability:-collection of taxes should reinforce their
inevitability and regularity.
10. Restricted exemptions: tax exemptions must only be for
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 specific purpose (such as to encourage investment) and for
limited period.
11. Simplicity:-tax assessments determination should be easy to
Under stand by an average tax payers.(www.Taxation
dictionary.com)

2.5 Canons of Taxation

Canons of taxation are the main basic principles (i.e rules) set to
build a “Good tax system”
canon of taxation were 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 economists 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

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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, wich come, out of the pockets of people and
that wich is deposited in the public treasury should be as small as
possible. (H. (Gebrie worku 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).
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 showed 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.

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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. (IBID).

2.6 Major Types of Taxes in Ethiopia

1. Direct taxes:- direct taxes are those wich are paid entirely by
those person whom they are imposed. A direct tax is one paid
directly to the government by the persons on whom it is imposed.
Examples include some income taxes, some corporate taxes and
transfer taxes such as estate (inheritance) tax and gift tax.
2. Indirect taxes are computed indirectly in the cost of goods or
service you purchase such as taxes imposed on companies for
doing business. A good example of indirect tax would be shipping
cost wich are included in the cost of merchandise you buy at the
store. Cost on commodities like custom duties, sale taxes, excise
taxes etc included in types of in direct taxes.(Gebrie worku
mengesha,2004).

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 1. Types of Indirect Tax
A. Employment Personal Income Tax: every person deriving
income from employment is liable to pay tax on that income at the
rate specified in schedule. Employment income shall be includes
any payment origins in cash or in kind received from employment
by an individual. Employees have an obligation to with hold the tax
from cash payment to an employee, and pay the tax authority the
amount with hold during cash calendar month in applying the
procedure , income attributable to the month of Nehassie and
Pagume shall be aggregated and treated as the income of one
month If the tax on income from employment, instead of being
deducted from the salary or wage of the employee is paid the
employer in whole or in part, the amount so paid shall be added to
the taxable income and shall be considered as part there of
( Gebrie worku Mengesha ,2008)

B. Business Profit Tax

This is the tax imposed on the taxable business income /net profit
realized from enterprenurial activity. Taxable business income
would be determined per tax period on the basis of the profit and
loss accounting standard corporate business are required to pay
30% of fiat rate of business income tax. For with incorporated or an
individual business are taxed in accordance with the determined
schedule and rate. In the determination of business income subject
tax in Ethiopia, deductions would be allowed for expense incurred
for the purpose of earning, securing and maintaining that business
income to the extent that the tax payer can prove the expenses.

15
The following expenses calculating shall be deductible from gross
income in calculating taxable income.
 The direct cost of producing the income such as the direct cost
manufacturing, purchasing, importation, saving and such other
similar cost.
 General and administrative expense connected with the business
activity.
 Premium payable on insurance directly connected with the
business activity.
 Expenses incurred on connection with the promotion of the
business inside and outside the country. Subject to the limits get
by the directive issued by the minister of revenue.(IBID)
2. Types of Indirect Taxes
A. Turn over Tax
The turn over tax would persons not registered for value added
tax render payable on good sold and services. The rate of turn of
over tax is
 2% on good sold locally.
 For service rendered locally.
 2% on contractors, grain mills, tractors and combine
harvesters.
 0-50% on other.
B. Value Added Tax
Value added tax is tax on consumer expenditure: it is collected
on business transactions and imports. A taxable person can be an
individual firms company, as long as such a person is required to
be registered for VAT most of transactions, inviolable supplies of
goods or services, VAT is payable if they are:

16
 - Supplies made in Ethiopia.
- Made by a taxable person
- Made in the course or further once of business.
- Every import of goods, other than an example import and import of
service.
The registered person is required to issue the VAT invoices to the
purchaser of goods or services up on the supply or rendering, but not
later than 5 days after the transaction. (Tax system Manual by Addis
Chamber, 2004)
C. Excise Tax
Excise tax in Ethiopia is imposed and payable on selected goods,
such as luxury goods and on goods that are hazardous to health
witch are cause social problems, so excise tax will reduce the
consumption of such goods.
Rate of excise tax
The excise tax shall be paid on goods mentioned under the
senedule of the proclamation
1. when it is imported and
2. when produced locally at prescribed in the schedule
Base o computation of exercise tax
1. In respect of goods, produced locally the cost of production.
2. In respect of goods imported cost of insurance and freight (CIF)
Payment of excise tax
The excise tax shall be paid with in the time pres cribbed according
to proclamation no 307 sub article 12)
1. In respect of goods produced locally, by the producer.
2. In respect of goods imported by the importer(www.Addis
chamber.eom).

17
Time of payment
According to the proclamation, excise tax on goods shall be paid
under the schedule.
1. When imported at the time of clearing the goods from customs
area.
2. When produced locally, not late than 30 days from the date of
production.
2.7 Classification of taxes based on their effect on income
Taxes, based on their impact on income can be classified as
progressive proportional and regressive.
2.7.1 progressive Taxes
If the tax system is progressive , the proportion of income taken in
tax (the tax rate) rises with income or spending power, here as the
income or spending incase, the marginal rate of tax for the
increased income or spending also rises.

It is also possible to have a progressive expenditure tax where the

rate of tax rises with increment to consumption expenditure. There
is some empirical evidence that the UK Value Added Tax (VAT) is
actually progressive: people with higher incomes tend to increase
their spending on items subject to the tax to such an extent that
the payment becomes a bigger proportion of income
(W.pearce;1984, 358)

In developed countries they use a progressive income tax, for

example the USA income tax is the most progressive tax in the
world Progressive taxes the most equitable than repressive or
proportional taxes in the sense that they are lived according to the
ability to pay. Some criticize progressive taxes that too much
degree of progression discourages work effort and risk taking, but

18
some egalitarian economists and politicians tend to favors
progressive taxes.

In Ethiopia some of the progressive taxes are personal income

taxes of proclamation 30/1992 and 107/1994 and the rental
income taxes of proclamation 64/1993. The income level will be
categorized in different income brackets and taxed by progressive
rate

2.7.2 Proportional Taxes

This kind of tax is a tax whose rate remains constant as the size of
the base increases. A proportional tax rate is usually stared as a
flat percentage of the base regardless of its size. For example, the
property tax usually operates with proportional rates, and the tax
might be expressed as 1% of the assessed property. Sales and
excise taxes, payroll taxes, and most customs duties are also levied
on the basis of proportional rates (Douglas and Green wald;
1983;275).

These kinds of taxes in Ethiopia are seen in the mining income tax
proclamation 23/1996, which states that both large and small –
scale miners shall pay 35% of their mining income.

2.7.3. Regressive Taxes

In these kinds of taxes the marginal rate of tax decreased, as the

income or consumption increases. This tax a larger share of
income from the low –income tax payer than from the high income
tax payer.

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 A tax which is technically proportional in terms of the tax base,
can often be Considered regressive in teems of tax payers income.
Common examples of such regressive taxes are sales taxes, excise
taxes and property taxes. For example an excise tax on cigarettes
is based on the number of cigarettes sold and thus by definition is
proportional since the number of cigarettes consume may rise as
income rises, as income rises, however, the rate of the tax
decreases with increasing income and thus can be called
regressive. The effect of regressive tax is to increase inequalities of
income, by placing a larger burden on the poor than of the rich.
(Green wald; 1983,1127)

Most of the indirect taxes are regressive, for example excises and
sales taxes, the same amount of tax is paid per unit purchases.
This amount of tax represents a higher proportional of income to
the poor. Some people argue that regressive taxes encourage
people to work harder to be elevated above the lower income group.

As stated in the above illustration taxes can be progressive,

proportional or regressive.

They can be used for different objectives, to achieve their own

goals. As Green wald put as a diagram the relationship between
tax rates and tax base as follows.

Progressive

Proportional
The rate

Regressive

Tax base

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2.8 CATEGORIES OF TAX PAYERS
Tax payers are classified in to three major categories;
1. category “A” tax payers:- this category tax payers are include
A/ any company incorporated under the laws of Ethiopia
or in a foreign country.
B/any other business having an annual turnover of
birr 500,000 or above.
These category tax payers are required to submit to the tax
authority, at the end of the year.
2. Category “B” payers unless already classified in category ‘A ’
any business having on annual turnover of birr 100,000
would be classified under category “B” tax payers. This
category of tax payers should submit to the tax authority
profit and loss statement at the end of the year.
3. Category “C” tax payers: unless classified in category “A ” and
‘B’ those businesses as whose annual turnover is estimated
up to birr 100,000 are classified in category “C ” of tax payers.
(IBID)

2.9 Procedures of Tax Collection

Tax from category “A” and “B”, tax payer is collected based on tax payers
declaration of the annual, sales / income to the tax authority. Based on
this the authorized official approves the declaration. Following this the
approved, tax is collected from tax payers and they will be delivered
receipt and clearance letter. The tax assessment for category “C” tax payers is
made based on the subjective estimation of daily sales by district assessment
committee. After the assessment was made, the committee will decide on the
daily or annual sales of the taxes payers while considering different factors
which will inters provide a basic in determining the amount to be paid by the
tax payer. (Ministry of finance and economic development Addis Ababa 1996)

21
 CHAPTER THREE
Research Design and Methodology
3.1 Research Design
The study focused on the problem associated with tax collection problem
in Sokuru woreda which is found in Oromia region and Jimma Zone.
The study was conducted, by using both qualitative and quantitative
research approach.

3.2 Source of data and collection method

To conduct this study both primary and secondary data was collected.
The primary data was collected by using questionnaires from tax payers,
employees of revenues bureau and personal interview with the manager
of the bureau. The secondary data was collected from the previous year
reports of the bureau, from different books, and related published
materials.

3.3 Target Population and Sampling Methods

There are different tax base and tax payers in the woreda such as
employees, traders and farmers. From 8000 registered tax payers in the
woreda the study was conducted, on 100 registered tax payer of all
sector from 18 kebeles of the woreda. Among different sampling
techniques the researcher selects simple random sampling technique.
The sample size (100) is determined by using the following formula wich
came from statistics subject, as following using 90% confidence level.
(Source kottari 2004)
n=Z2pqn
2 2
e (N-1) Z pq where

n= = sample size
Z2 = from table of using confidence level
P = probability to be selected
22
q = probability not to be selected
N= Total population in woreda
e = error of confidence level
Therefore the sample size of the researchers is
N= (1.6)2 (0.5x0.5) 8000
(0.1)2 (8000-1)+1.642 (0.5 x0.5)
= 5379.2 =100
53.785

3.4 Data analysis Method and Presentation

After gathering all required qualitative and quantitative information data
analysis was performed and presented through table, percentage and
frequencies. Then the data was analyzed by using descriptive analysis
method.

23
 CHAPTER FOUR
4. Data analysis, Interpretation and Presentation
This chapter deals with analysis and interpretation on the base of
data gathered through questionnaires and interview. In order to
acquire information for the study totally 115 questionnaires were
distributed to tax payers and employees of tax bureau. From
randomly selected 100 tax payers only 87 were correctly filled and
returned the questionnaires. From 15 employees of the revenues
bureau all are correctly and actively participated in responding the
questionnaires. Furthermore, to gather additional data the
researcher was held interview with manager of the revenue bureau.
4.1 Analysis of Data Gathered From Tax payers
Table 1 General Profile of tax Payers
Gender Male Female Total
No of respondents 46 41 87

Percentage 52.9% 47.1% 100%

Age group 20.30 32-41 41-50 Above Total

No of respondents 18 24 30 15 87

Percentages 20.7% 27.6% 34.5% 17.2% 100%

Educational back 1-6 6-12 Certificate Diploma Degree Total

ground
No of respondents 35 20 14 15 7 87

Percentage 40.2% 22.9% 16.1% 12.6% 8.2% 100%

The data collected through questionnaires indictate that almost

about 53% of the respondents was male and 47% was female all
respondents age lie above 20 years. The age group from 41- 50
cover the highest ration with 34.5%. With regard to educational
bock ground 40.2% of the sampled respondents learned primary

24
Schools,22.9% secondary school, 16% have certificate,12.6% have
diploma and 8.2% have degree.
Table 2 Types of tax payers take parts in responding the
questionnaires
Types of tax payers No of Percentage
respondent
Employment in come tax payer 15 17.2%
Business income tax payers 55 63.2%
Agricultural in come tax payers 17 19.6%
Total 87 100%

From the whole respondents 63.2% are engaged in different types

business, 19.6% engaged on agricultural activity and 17.2% are
public servants.
Response of tax payers
Table 3 Do you face any problem when you pay your tax liability?
Response Total No of respondent Percentage
Yes 59 67.8%
No 28 32.2%
Total 87 100%

For the above question 67.8% of the tax payer tell us that a
problems when they pay their tax liability. As the data gathered
from questionnaires indicate major problems mentioned by tax
payers are in efficiency of tax collectors (by 60%), the existence of
over taxation (22.8%) and problem of procedure of tax collection
with 17.2% of respondents.

25
 Table 4 Is your annual tax liability based on your in come?
Response Total No of respondent Percentage
Yes 59 17.2%
No 72 82.8%
Total 87 100%

As tried to show in above table above 82.8% of the tax payers have
complain on tax amount imposed on them because the tax rhey
paid is not based on their income.
Table 5 When do you pay tax?
Response Total No of Respondent Percentage
When receive assessment 14 16.5%
notification
Before due date 42 48.3%
After due date 32 35.6%
Total 87 100%

As the data gathered implies that 51.7% (16.5% + 35.6%) of the tax
payers are not paid their tax liability on time for the same question
the response of revenues bureau employees was almost nearest to
this percentage with 53.3%. The late payers reason out some
problems for the late payment like of cash on hand on exact time of
payment and etc.

26
 Table 6 Does the tax rate imposed by government is
fair?
Response Total No of respondent Percentage
Yes 31 35.6%
No 56 64.4%
Total 87 100%

From the total sampled respondents 64.4% have complain on the

tax rate imposed on them because they feel it is above their
capacity

Table 7 Is the payment period enough?

Response Total No of respondent Percentage
Yes 77 88.5%
No 10 11.5%
Total 87 100%

Among the respondents 88.5 of the tax payers answers indicate

that the payment period is enough. The remaining 11.5% say the
payment period is not enough. This realizes that range of time
that given for payment is enough.

27
 Table 8 Do you know why tax is compulsory?
Response Total No of respondent Percentage
Yes 40 45.9%
No 47 54.1%
Total 87 100%

Knowledge of tax payers about taxation is still not adequate about

54.1% of tax payers have no idea why they pay tax. Some tax
payers when ask why they pay tax they reply that only they pay tax
because it is obligatory.

Table 9 How do you see present taxation system?

Response Total No of respondent Percentage
Good 35 40.2%
Not bad 27 31%
Need 25 28.8%
restatement
Total 87 100%

From all respondents 71.2% (40.2% + 31%) almost have positive

about present taxation system and the remaining 28.8% feel not
good. For the same question submitted for employees the majority
of them have good feeling.

28
Table 10 How do you feel about taxation?
Response Total No of Percentage
respondent
As an obligation 30 34.4%
As a debt 37 42.5%
As useful 20 23.1
Total 87 100%

As indicated in above table only 23.1% of taxpayer see taxation as

useful about 76.9% the tax payer considered tax as debt and
obligation this implies that the knowledge of tax payer is poor.

Table 11 Are you satisfied with the method of assessment?

Response Total No of respondent Percentage
Yes 47 54.1%
No 40 45.9%
Total 87 100%

Based on the above table 45.9% of the respondents are not satisfied
with the method of assessment. The following are some of the
reasons mentioned by the tax payers are the tax system are not
modernized; the appointed tax collectors are not feel responsible or
have no interest on their position.

29
 4.2 Analysis of data gathered from employees
This part of the analysis discussed with question that offered for
the employees of revenues bureau and their answers 15 employees
of the bureau and their manger were actively participated in
answering the questionnaires and stringy assist me by giving all
necessary data for my study.
Table 12 General profile of the employees
Gender No of Percentage Educational qualification
employees diploma Percentage
53.3
Male 9 60% Degree 46.7%
Female 6 40% M.A -
total 15 100% Total 100%

As it is shown in the above chart the total of employees in so koru

woreda revenues bureau are only 15. 9 are males and the
remaining 6 are females. Educational bank ground of the
employees tell us that about 54.3% of them have diploma and 46.7
of the employees graduated from college by degree.
Table 13 Do most tax payer pay their tax liability on time
Response Total No of respondents Percentage

The policy 2 13.3%

Tax payers - -
Tax office 4 26.7%
All 9 60%
Total 15 100%
30
Only 60% of the respondents answered that tax collection and
assessment is the responsibility of all the remaining 40% answered
different answer.
Table 14 How do you evaluate the coordination of your office with others
Response Total No of respondents Percentage

Excellent 2 13.4%
Very Good 3 20%
Good 5 33.3%
Hess 5 33.3%
Total 15 100%

For the question above about 66.7% of the respondents to tally

answered excellent good and very good only 33.3% said less this
averagely implies us the offices coordination with others office is
good.
Table 15 what do you think about the bureaus structural adjustment?
Response Total No of respondents Percentage

Complete the work 9 60%

quickly
Complete the work 5 33.3%
moderately
Complete the work 1 6.7%
excessively

31
Total 15 100%

According to data gathered from the respondents about bureaus

structural adjustment 60% of the employees believe that it is good
and complete the work quickly, 33.3 of respondents feel that its
complete the work moderately and the remaining 6.7% believe its
complete the work excessively.
Table 16 how do you evaluate the knowledge of tax payer about taxation.
Response Total No of respondents Percentage

High - -
medium 3 20%
Low 12 80 %
Total 15 100%

The response of employees concerning knowledge of tax payers

describe that 80% of the respondents come out with the knowledge
of tax payer is low, and the remaining 20% respond that their
knowledge is medium.

Table 17 what do you feel about the position you have

assigned?
Response Total No of respondents Percentage

Is the right position 6 40%

Beyond my capacity - -
Under my capacity 9 60 %
Total 15 100%

32
From total employees only 40% of the employees fecl the right
about their position the majority of the respondent (60%) feel their
position is under their capacity this implies that they have no
satisfaction on their position.

Table 18 what is your idea about present tax collection and

assessment system?
Response Total No of Percentage
respondents

Is effective 9 60%
Show discrimination 4 26.7
Have in sufficient 2 13.3%
manpower
Total 15 100%

Among the respondents 60% of the tax payers approve that the
present tax collection and assessment system is effective 26.7% of
the respondents said it shows discrimination while the remaining
13.3% of the respondents answered have insufficient power of man.

33
4.3 Analysis and Presentation of Secondary Data
Table 19 the five years budgeted and actual amount of
tax collected in sokoru woreda.
Year Budgeted amount Actual amount of Percentage
of tax tax collected
1999 4,ooo,ooo 4,187,552 104.65%
2000 4,448,000 5,801,536 130%
2001 5,200,000 4,925,234 94.71%
2002 5,620,265 5,024,441 89.39%
2003 6,789,000 5,322,161 78.39%
Total 26,057.265 25,260,924 96.94%
Source: Sokoru Woreda Revenues Bureau
As presented in the above table the actual amount of tax collected in
1999 and 2000 was above budgeted tax amount with 104.68% and 130%
respectively. But, this result is reversed for the next consecutive years of
2001,2003, and 2003 with 94.71%,89.39% and 78.39%. The declined
amount of tax collected in these three years also resulted in the
decreased amount of actual tax collected for cumulative five years from
the budgeted tax by 96.94%.

The data gathered via interview with the manager of the revenues bureau
indicate that the two major factors for decreased amount of actual tax
collected from the budgeted amount of tax are:
1. The conflict aroused between Oromo and Yem ethnic groups was the
major one. As the manager explained, even after the referendum of 2001
approved Sokoru town for Oromiya, some parties who were not satisfied
by the result was not paid the tax untill the last year. How ever,
currently with the intervention of federal government every thing is
settled.

34
2. The other factor that understates the actual tax collected from the
budgeted tax is bankruptcy of the registered tax payers.

CHAPTER FIVE
5. Summary conclusion and recommendation
5.1 Summary
The major findings that included in this research summarized as
follows.
In both questionnaires for employees and for tax payers to tally 55
males and 47 females were participated.
The educational background of employees of tax bureau is diploma
and above.
Both employees and tax payers were agreed that the tax payment
period is enough.
The tax payers are satisfied on the present tax assessment and
collection system.
Knowledge of tax payers about tax is poor.
Employees of revenues bureau are not satisfied on their position
and on their working environment.
Almost the majority of tax payers are suggested that the tax rate is
not fair.
The coordination of revenues bureau with other offices is good.
Lack of training and education concerning tax for employees of
revenues bureau.
The major factors for diminished amount of tax collected from the
budgeted are conflict between ethnic group and bankruptcy of the
registered tax payers.
The conflict of between oromo and yem ethnic groups are now
solved by intervention of the federal government.

35
5.2 Conclusion
To conduct this study questionnaires were distributed for 100 tax
payers and 15 questionnaires were distributed for employees of
revenues bureau. In addition to this, different opinions were
collected from manager of the office and the previous year report of
the office. As the result of the study indicate that the prominent
problems of tax collection in so koru woreda are the following .
 The other significant problem identified by the study is poor

knowledge of tax payers concerning tax.

 The annual tax payment (the tax rate) imposed by
government is not fair or not comparable with their income.
 Lack of adequate training and education with respect to tax
laws and amendment of tax low wich improve knowledge of
employees
 The revenues bureau faced a problem in service delivery by reason
of dissatisfied employees on their position and their working
environment.

36
5.3 Recommendation

To stamp out the distinguished problems and improve (sustain) the

strength wich shown in the woreda, with respect to tax collection
and assessment, the woreda’s revenues bureau should take the
following measures.
 The revenues bureau should extend awareness regarding tax
to the community by using different media, flyers, pamphlets
and by face to face training.
 The revenues bureau should try to smooth the way that the
annual tax payment (tax rate) and income of the tax payers
become balanced. By informing the complain of tax payers to
concerned body.
 It should necessary to create the spheres wich upgrade the
knowledge of the employees. And different training relating to
tax low and amendment of tax law must be provided.
 To reduce dissatisfaction of employees on their position job
rotation is one way and the revenues bureau should try to
make the working environment attractive and comfortable by
making the environment green, by providing refreshment
center for worker and by creating duties that improve friendly
relation between the workers.

37
 REFERENCES
 Ministry of finance and economic development Addis Ababa
1996.
 Gebrie Worku Mengesha (Tax accounting in Ethiopia context
2008. second edition.)
 Ministry of revenue Addis Ababa. Dec 2003
 Ethiopia chamber of commerce. HWK partnership. Addis
Ababa 8/2004.
 Encyclopedia of Americana 1997.
 Sisay Ayalew (Addis Abeba 1985) .
 WWW. Business Dictionary. Com
 WWW. On line dictionary. Com.
 www.Addis chamber.com
 Sisay Ayalew (training manual on economics of taxation,
Addis Abeba, 1985)

38
 QUESTIONNAIRE
JIMMA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS

First of all I would like to thank for your willingness to respond this
questionnaire form for study of assessment of tax collection
problems in case study of sokoru woreda.
I. Dear respondent you are not required to write your name to
give you freedom, to respond confidently and to keep your
secret safely.
II. Please put √ mark in the place provided for you in box for
both open and close questions.
Appendix I
Questionnaires related to tax payers
 personal information
 Age A. 20-30  B. 31-40 C. 41-50  D. above 50

 Sex A. Male  B. Female

 Education background:

A. primary school (5-6)  B. Secondary school (7-12) 

C. Technical school  D. college (diploma) 

E. College (degree) 

 Types of business:
1. How do you feel about taxation ? A. as an obligation 

B. as debt  c. as useful 

39
 2. Is the tax payment period enough? A. yes B. No 

3. When do you pay tax?

A. when I receive assessment notification 

B. before due data C. after due date 

4. Is your annual tax liability based on your in come?

A. yes  B. No 

5. Do you face any problem when you pay tax liability?

A. yes  B. No 
6. If your answer is “yes” for question number 5 what is your possible
reason?
A. Problem of procedure of tax collection system
B. Weakness among tax collector
C. The existence of over taxation
D. If any other specify ________________________________
7. How do you see present tax system? A. Good  B. Not bad 
C. Need restatement 

8. Do you know why tax is compulsory? A. Yes  B. No 

9. If your answer is “no” for question no 8 what is your reason?
A. No awareness creation by concerned body
B. Because tax is not so far contribute for one’s country ’s
development
C. I am not obliged to pay tax because it is not my responsibility.
D. If any other specify ________________________________
10. Are you satisfied with the method of assessment? A. Yes  B. No 
11. If your answer is “no” for question no10 because of what?
A. Power to collect tax is not delegated on the woreda
B. Tax collection system is not modernized one

40
 C. Appointed tax collectors are not feel responsible
D. If any other specify ________________________________
12. Does the tax rate imposed by government is fair? A. Yes B. No

Appendix II
Questionnaires related to revenues bureau employees personal
information
 personal information
 Age A. 20-30  B. 31-40 C. 41-50  D. above 50
 Sex A. Male  B. Female

 Education Qualification:

A. Technical school  C. College (degree) 

B. College (diploma)  D. MA/MSC 

1. Who is responsible for tax collection and assessment?

A. the policy  B. Tax payer 

C. Tax office  D. All 

2. How do you evaluate the coordination of your office with the

other office? A. Excellent  B. very good 

C. Good  D. Less 

3. How do you feel about the position you have assigned?

A. is the right position  B. beyond my capacity 

C. Under may capacity 

4. What do you think about the bureau’s structural adjustment?

A. will complete the work quickly  B. will work

excessively  C. will work moderately 

5. What is your idea about the present tax collection and

assessment? A. Effective  B. show discrimination 

41
 C. Have in sufficient man power 

6. How do you evaluate the knowledge tax payer about taxation?

A. High  B. Low  C. Medium 

7. Do most tax payer pay their tax liability on time?

A. Yes  B. No 

42