ASSESSMENT OF TAX ESTIMATION AND COLLECTION SYSTEM ON

CATEGORY “C” TAX PAYERS : CASE OF ARBA MICNCH TOWN

ADMINISTRATION REVENUE OFFICE

ARBA MINCH UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMENT OF ACCOUNTING AND FINANCE

Prepared by: Semehal Girma Berhe

Id No: SSHR /1250/13

ADVISOR: Mr.Abrham

March, 2024

ARBA MINCH, ETHIOPIA

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 Abstract

This research seeks to assess tax estimation and collection system on category “C” tax payers in
case of Arba Minch Town administration revenue office. The general objective of the study is the
assessment of tax estimation and collection system on category “C” tax payers in Arba Minch
Town administration revenue office. The researcher will adopt descriptive research design and
also conduct the research by use quantitative and qualitative research approach. The
researchers adopt both primary and secondary source of data. the target population of the study
was Arba minch town 2 weredas and selected catagory c tax payers from those weredas and the
researcher conducts census based and simple random sampling technique to provide equal
chance to being selected for each tax payers and to avoid bias. The primary data was collected
from questionnaire that have both open and closed ended questionnaire and through interview.
The secondary data was collected from published, unpublished and internet. The researcher
used both simple random sampling technique to tax payers and census to employees. The data
analysis was carry out based on tabulation and percentage method. Finally, researcher forward
his finding and will give some recommendation up on finding to those issues. Therefore, it will
be concluded by obtain those goals in the objective of the research.

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Contents

cover page...............................................................................................................................................i

ABSTRACT ...........................................................................................................................ii

CHAPTER ONE...........................................................................................................................1

INTRODUCTION ........................................................................................................................1

1.1 Background of the study................................................................................................................1

1.2 statement of the

problem………………………………………………………………………………………………………
….…2

1.3 OBJECTIVES OF THE STUDY.........................................................................................................3

1.3.1. General objectives......................................................................................................................3

1.3.2. Specific objectives........................................................................................................................3

1.4Research
questions……………………………………………………………………………………………………
……………………….3

1.5 Significance of the study.................................................................................................................4

1.6 Scope of the study…………………………………………………….......………………………..…..5

1.7 Limitation of the

study……………………………………………………………………………….....5

1.8 organization of the study……………………………………………………………………………….5

CHAPTER TWO........................................................................................................................5

2.1 REVIEW OF RELATED

LITERATURE........................................................................................................................5

2.2. Empirical Literature....................................................................................................................12

2.3 Research
Gap…………………………………………………………………………………………………………
……………………..…13

CHAPTER THREE........................................................................................................................14

RESEARCH METHODOLOGY..............................................................................................................14

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3.1 Research Design and approach……………………………………………....................................
………………....14

3.2Source and Method of data collection........................................................................................14

3.3target population……………………………………...
……………………………………………………………………………………..15

3.4. Sample size and Sampling Techniques.....................................................................................15

3.5. Method of Data Analysis................................................................................................... 15

3.6Budget Schedule……….....………………………………………………………………….16

3.7Work
Plan…………………………………………………………………………………………………………
……………………………..16
References……………………………………………………………………………………………………
………………………………………17

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 INTRODUCTION
CHAPTER ONE
1.1 Background of the study
The revenue of Ethiopian government comes from different source such as tax, borrowing sales
and public asset and transfer payment. The most common method of government finance is
taxation. It is system of rising money to finance government expenditure. Tax is a compulsory
contribution for a person to a government without expectation of direct and equal benefit. As it
is a compulsory contribution, no one can refuse to pay a tax for the reason that does not get any
benefit of certain public servicefrom the government. (Gebrie worku, 2006).

A tax is a compulsory contribution payable by an economic unit to a government without

expectation of direct and equivalent returns from the government for the contribution made
(,BHATIA 2006). Some economist believe that taxation is an important tool for maintaining the
stability of the country economy. This is because taxation can redistribute a society wealth by
imposing a heavier tax burden on group of people in order to fund services to another. (Gebrie
2006).Taxes are an important source of public revenue for the production and supply of public
goods and services and the nature of public goods make impossible for private suppliers to
benefit by selling these produce at market prices like other commodities. Government
intervention in the supply of public goods is, therefore, becomes inevitable and can only be done
if the public pays taxes for the production and supply of such goods. (Gebrie, 2006)

In Ethiopia tax is administered at federal and regional level .The regional government of
Ethiopia collect tax and revenue as proclamation number 33/1992 by bureaus of regional inland
revenue authority from privately owned enterprise and organ of regional government .Whereas
the central government revenue collection organ are responsible to collect revenue of federal
and regional government from different organization including those owned by federal
government tax sharing of revenue between the federal government and regional government to
take consideration like, ownership source of revenue convenience levying and collection of tax
or duty ,population distribution of wealth ,and other factor that are basis for integration and
balance of economy.(Council of minister, 2002).

Although countries differ considerably in the amount of taxes they collect yet the most important
source of revenue for modern government remains to be tax. While the remainder of government

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revenue comes from charging fees for services, borrowing and other related sources. (Gebrie,
2006).

The government finances its expenditure through the fund acquired from the service it provide to
the general public, tax, loan, and donation. From all source of finance, tax is the major source;
however, in most developing countries, it is a common phenomenon to notice serious problems
in developing adequate tax system that permits a government to sufficiently finance its
expenditures. One of the potential problems of tax administration is tax evasion. (Ramaswarmi,
2005) Researchers like (Torgler, 2003) and (Murphy and Hirris, 2007), work on tax compliance
by focusing their attention on the western world and some Asian countries. On the other hand
(Emrata, 2010) investigated about the underground economy and tax evasion in Ethiopia on his
study he found that the amount of tax evasion in Ethiopia reached 10% of the economy that have
great impact on the implication for tax policy. The assessment and collection of tax at any
category should be effective to generate adequate amount of funds that can cover all the capital
that the government needs (Boru, 2019).

Tax law frameworks of different countries including Ethiopia provide specific rules governing
the assessment method, tax rate, accounting period, deduction, exemption, and other related
guidelines for each of the above listed group of taxpayers. Although the impacts of application of
different types of income tax assessment mechanisms would also deserve discussion, the theme
of this article is on the ‘efficiency ‘of the standard assessment as implemented for assessing
income tax liability of the small businesses, contextualized as ‘Category C Taxpayers’ (taxpayers
whose annual income turnover is less than or equal to 100,000 Birr) in Ethiopia (Income tax
Proc. no. 286/2002). During the initiation of the Income Tax Proclamation No.286/2002, there
have been many expectations to be optimistic in one hand and concerning issues on the other
hand about the efficiency of the provision of standard assessment to assess income tax liability of
category C taxpayers. These study focused on category “C” tax payers that are found in Arba
Minch Town administration revenue office that are engaged in estimating and collecting of
category” C’’ tax payers.
1.2 Statement of the problem
The revenue rising system from tax is used to achieve a number of public service that the public
wishes to acquire from the government. Many infrastructure and service provide by the

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government mainly covered by the revenue from tax collection. This fact imply a proper and
efficient tax estimation and collections should be available in one country in order to accomplish
the government objective of providing service infrastructure to its citizens.

To collect taxes from different taxes, ERCA classifies all the tax payers in to three
categories .Category” A”, category “B and category “C” Category A is any company having
annual turnover of birr 500,000 or more Category B unless already classified in category A any
business having annual turnover of birr 100,000 The tax authority as being up to 100,000 unless
already classified in category A & B, whose annual turnover estimate category C. Then, most
retailers are categories under category C and should not maintain books of account .so; their tax
is calculated based on standard assessment., thus this show the difference between those
categories from category C thus as there is difference in their assessment the researcher drived to
assess the estimation and collection of category c tax payers.

Arba Minch Town administration revenue office is responsible to design and implement
effective and efficient tax estimation and collection system. The authority estimate tax to be
collected based on criteria of category “C” tax payers. This estimation is required because these
categories of tax payers are not in a position to prepare and submit financial statement to the
authority. The authority state that, the authority observes and estimation tax one time in a year
and estimation by itself is a problem because, it requires professional judgment which consider
the entire environment surrounding of tax payers.

The problem on category “C” tax payers were tax estimation and collection system: tax collector
has low understanding about their responsibility and accountability in relation to tax collection,
tax authority of city administration is not efficient and effective in various aspect such as
improving and creating awareness, enforcing the tax law, providing service and information
regarding tax. In addition, inefficient and ineffective organization of computerize system in tax
administration.
The researcher attempts to assess those gaps resulted on tax estimation and collection in Arba
Minch town administration revenue office and also the researchers need to identify the problems
that are related with tax estimation and collection system on category “C” tax payers in Arba
Minch Town and provide the appropriate solution.

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1.3 Research question
1. How effective is the tax estimation and collection system for category C taxpayers in
Arbaminch Town Administration Revenue Office?
2.What methods are used by the tax authority to check the awareness on tax collection and
estimation system?
1.4 Objectives of the study
General objectives
The general objective of this study is to assess tax estimation and collection system on category
“C” tax payers, in case of Arbaminch town administration revenue office.
Specific objectives
1.To describe whether the tax collection system and procedure used in Arbaminch town
administration revenue office is effective and efficient or not.
2.To check the awareness of Arba Minch tax authority tax estimation and collection system.
3.To suggest the techniques for improving the tax estimation and collection system of used in
Arbaminch town administration revenue office.
1.5 Significance of the study.
This research is vital for the government to give recommendation to review and assess its tax
collection and estimation system efficiently and effectively on category “C” tax payers in
response to the people and employee. It also enables the revenue office to evaluate and assess its
problem on a system of taxation on category “C” tax payers for the better performance of
effective revenue estimation and collection. Finally, it is important as reference to other
researcher who want to investigate and over view about the tax revenue collection and estimation
system.

1.6 Scope of the study

The scope of this study would be limited on evaluation of tax estimation and collection system of
category “C” tax payers in case of Arbaminch town administration revenue office.
1.7 Limitation of the study
 Resource Constraints: Limited financial resources or access to specialized tools or
software for data analysis may restrict the scope of the study.

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  External Factors: External factors such as changes in tax laws or economic conditions
may influence the effectiveness of the tax estimation and collection system, but may not
be fully captured in the study.
 Stakeholder Engagement: Limited engagement with key stakeholders such as tax
officials, taxpayers, or local authorities may hinder a comprehensive understanding of the
tax system.
 Language Barriers: Language barriers between researchers and participants could impact
the quality of data collected and analyzed.
 Scope of Study: The study may focus specifically on category C taxpayers in Arbaminch
Town Administration Revenue Office, limiting its applicability to other taxpayer
categories or regions.
 Lack of Prior Research: Limited existing research on this specific topic may constrain the
ability to compare findings or build upon previous studies.
1.8 Organization of the study
The study is organized in to five chapters in which chapter one deals with background of the
study, background of the organization, statement of the problem, objective of the study,
significance of the study and scope of the study. Chapter two is to the review of related literature
consisting theoretical review and empirical review and also research gaps. Chapter three covers
the research design and approach, source and method of data collection, target population,
sample size and sampling technique, method of data analysis, budget, work plan, references.
Chapter four is include finding and discussions part of the study that is analysis and discussion.
The last chapter is incorporating the conclusion and recommendation part of the study.

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 REVIEW OF RELATED LITERATURE

CHAPTER TWO
2.1 The meaning of taxation

Taxation is source of government revenue by which individual, companies, goods and service to
rise revenue for its operation and to promote social equity through the redistribution of income
effect of taxation (Anyanwu, 1997)

Taxation is a compulsory levy payable by an economic unit to the government without any
corresponding entailment to receive a defined and direct equivalent and taxation is an enforced
contribution, exactly in accordance to the rule of legislative authority in the exercise of the

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taxing power, and imposed and collected for the purpose of rising revenue to be used for public
or government purpose. (Bhatia, 2003)

Tax could be viewed as an involuntary contribution required by law to finance the function of
government. The amount of contribution extracted the tax payers is unrelated to any privilege,
benefit or service received from the government agency imposing the tax .(Morphyand Higgin,
(2001).

2.2 General characteristics of tax

1- Tax is a compulsory contribution: -taxis a compulsory contribution by the tax payers to the
government. The people whom the tax is levied cannot refuse to pay the tax. once it is levied
they have to pay it.
2.Benefit is not the basic condition: -for the payment of tax, there is no direct return or quid
pro-quo to the tax payers. that is, people cannot expect any return in benefit for the amount of tax
paid by them.
3. Personal obligation: tax impose of personal obligation on the tax payers. When a person
becomes liable to pay the tax, it is the duty of him to pay it and in no way he can escape from it .
4. Common interest: - the amount of tax received from the people is used for the general and
common benefit of the people as a whole. Now the government has to render enormous range of
social activities, which incur in huge expenditure.
5. Legal collection: -tax is the legal collection .it can be levied only by the government both
central and state.
6. Element of sacrifices: -since the tax is paid without any return in benefit it can be said that
there is the prevalence of sacrifices in the payment of tax.
7. Regular and periodically payment: -the payment of tax is regular and periodically in nature
it is levied for a fixed period usually a year. Thus, almost all the tax is annual taxes. The payment
of tax should be regular also.
8. No discrimination: - tax is levied on people without any discrimination of caste, creed etc.
but according to their ability to pay.
9. Wide scope: -tax is levied not only on income but also on property and commodities. To
enhance the revenue and to bring all the people under the tax net, the government imposes
various kind of taxes. This enhances the scope of taxes. (alka gupta, 2001).

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2.3 Main objective of tax
Initially government imposed tax for different purpose that means the government imposes tax
from the tax payers to achieve the ultimate goal of a country as a whole, to cover the cost as
whole, to maintain law and order in the country and for defense purpose .( Carl Copping Plehn)

Generally, the main objective of tax is; to raise the income and revenue of the government, to
render various economic and social activities, to remove the inequality in income and wealth:
government adopts progressive tax system and stressed on canon of equality to remove in
equality in income and wealth of the people, and also to ensure the economic stability of the
economy: -taxation affects the general level of consumption and production. to reduce the
negative regional imbalance :-if there is regional imbalance within the country ,government can
use taxation to remove such imbalance by tax in exemption and a concessions to investor who
made investment in under developed regions, in addition to reduce regional imbalance and to
preventing harm full things on the society by leaving heavy excise tax on
cigarettes ,alcohols ,and other product , which worsen people’s health .Finally, to
encouragement of exports :- government enhance foreign exchange requirement through export
oriented strategy .These provide a certain tax exemption for those exporters and encourage them
with arranging a free trade zone and by taking a bilateral and multi-lateralagreements. (Tesfaye,
(2008)

2.4 Principles of taxation and its components

Principle of taxation refers to the appropriate criteria to employ in the development and
evaluation of good tax system (that is, the set of all taxes) of country (Misrak, 2001). The most
important principles, known by the names canons of taxation are proposed by the scholar Adam
smith. Adam smith was enumerated the following cannons and principles of taxation which are
accepted universally.

Canon of equity: - The subject of every state ought to contribute towards the support of the
government, as nearly as possible in proportion to their respective ability
Canon of certainty: -These canon is meant to protect the tax payers from UN necessary
harassment by the tax officials the tax which each individual is bounded to pay ought to be
certain, and not arbitrary.

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Canon of convenience: -The mode and timing of tax payment should be, so far as possible
convenient to the tax payers. These canon recommends that unnecessary trouble to the payers
should be avoided, otherwise various ill effect may result.
Canon of economy: -this canon recommends that the cost of collection of tax should be the
minimum possible. It is less imposing taxes which are too widespread and difficult to administer.
Canon of productivity: -it is also called canon of fiscal adequacy to these 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.
Canon of buoyancy: -The tax revenue should have an inherent tendency to increase along with
an increase in national income, even if the rates and coverage of taxes are not revised.
Canon of flexibility: -it should be possible to the authorities, without undue. the revise tax
structure, both with respect to its coverage and rates, to suit the changing requirements of the
economy and treasury.
Canon of simplicity: -the tax system should not be too complicated that makes it difficult to
understand and administer and breeds the problem of interpretation and legal dispute.
Canon of diversity: -it is risky for the state to depend up on too few source of public revenue.
2.5 Classification of tax
A tax is ordinary classified in to direct and indirect tax on the basis of assessment rather than on
the cover assessment tax. For instance, can be on income received or expenditure incurred.
Those which are imposed on the received of ice are called direct. While those taxes which are
imposed on expenditure are regarded as indirect. Commodity tax such as excise custom duty and
turn over taxes are indirect taxes.

Direct taxes
Indirect taxes
A tax said to be an indirect tax when the impact of the tax falls on person and the incidence up
on other. Indirect tax is those tax that are paid to government by an intermediary and then
passed on the final user by including tax in the final price. I t is changed from one person to
another generally producer and ultimately paid by another generally the consumer. (Gebre
Worku, 2008).

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In direct tax is mainly composed of value added tax “VAT” custom duty (export import duty)
excise tax and local production (Gebre Worku, 2006).

2.6 Categories of tax payers in Ethiopia

For its efficient and effective tax administration purpose, the Ethiopian Government Classifies
schedule “B” income tax payer (rental income tax).and schedule” C” income tax payer (business
income tax payer or trade business) in to categories. For categorization purpose, the Ethiopian
government uses two bases: -the legal personality /legal status / tax payers and their annual
gross turnover (annual actual or expected gross sells revenue). Accordingly, schedule “B” and
schedule “C” (without corporate business) income tax payers are categorized in to three, namely
category” A”, category” B” and category” C” tax payers (MISRAK ,2011).
Category” A” tax payers
Category of “A” of schedule “C” (without corporate business) income tax payer includes the
following type of tax payers.
Business income tax payers or rental income tax payers formed under the law of Ethiopian or
foreign laws, that have separate legal personality (i.e. share company, plc., public enterprise,
public finance agency, and foreign body business agent residing and doing business in Ethiopia
on behalf of the principle). regardless of their annual gross turnover or revenue.
Any business having annual gross turnover of birr 1,000,000 or more
Category “A” tax payer shall at the end of the year submit to the tax authority a balance
sheet and a profit and loss statement and details of the following: -Gross profit and the manner in
which it was computed, general and administrative expense, depreciation and provisions.
Keeping accounting recorders :- category” A” tax payers are required to keep a
complete ,accurate and proper books of accounts ,records and other supporting documents in
accordance with the general accepted accounting principles (GAAP).Depending up on the type
of ownership ,size of business and nature of business operations of the tax
payers ,journals ,general and subsidiary ledgers ,payroll record, internal operation manuals and
vouchers are the principal ingredient of books and records which must be kept by the tax payers
for tax assessment purpose .

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Vouchers: - category “A” tax payers are also required to register with the concerned tax authority
the type and quantity of voucher use before having such vouchers printed. Any printing press,
before printing the voucher is registered with the appropriate tax authority.
Financial reports :- Category “A” tax payer shall prepare and submit to the concerned tax
authority ,at the end of the tax year ,audit balance sheet and income statement ,which are
prepared based on books of accounts maintained in accordance GAAP .whenever requested in
writing by the concerned tax authority ,and public auditor shall also submit the audit report of his
clients to the authority .Failure to submit the report will result in cancellation of his license by
the appropriate government organization .(MISRAK, 2011).
Category” B” tax payers
Category “B” tax payers includes, unless already classified in category “A” business income tax
payers with no legal personality and whose annual gross turnover is between birr 500,000 and
1,000,000. All category” B” tax payers whom are engaged in a business are also required to
maintain proper books of account and other supporting documents which are like to category
“A” tax payers. They shall also use the type and quantitative of vouchers are requested and
approved by the concerned tax authority.
Category “C” tax payers

It includes any other business income tax payers which are not already classified under category
“A” and “B”. Business income tax payers those have no legal personality and whose annual
gross turnover is estimated up to birr 500,000. Category” C” tax payers, unlike category” A” and
category “B” tax payers ,are not required to maintain books and records and to submit any
financial statement to the tax authority .To determine the income tax liability of such tax payers,
however , standard assessment presumptive taxation method is used.(Misrak , 2011)

2.7 Declaration of income and assessment of taxes

Payers shall submit Tax the tax declaration to the tax authority at the time of submitting the
balance sheet, and the profit and loss count for the tax year within the time prescribed below:

Category “A” tax payers within four months from the end of tax payers tax years

Category “B” tax payers within two months from the end of the tax payer’s tax year.

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A standard assessment method should be used to determine the income tax liability of category
“C” from the 7th day of July to the 6th day of august every year, unless tax payers requested and
is allowed to make installment payments. If no records and books of accounts are an acceptable
to the tax authority, or if the tax payers fail to declare his or its income within the time prescribed
by the proclamation, the tax authority may assess the tax by estimation. Unless and other wise
provided, the period for tax assessment is the one _ year period from 1sthamle to
30thsene.Abody shall not change its accounting year unless it obtains prior approval, in writhing,
from the tax authority and compiles with any condition that maybe attached to the approval.

If tax payers have submitted a declaration of income within the time and manner as prescribed in
the proclamation, the tax authority has five years to amend the assessment the five years’
assessment period runs from the due date of the declaration. In case where the tax payers have
not declared his income or has submitted a fraudulent declaration, no time no time limit provided
in any other law shall by the assessment of the tax by the tax authority.(Gebre Worku, 2008).

2.8 Tax assessment

A tax assessor is responsible for preparing and minting the assessment roll, the tax roll and
collecting the tax levies in accordance with the quality standards .the core service responsibility
include:-preparing annual market value assessment for all properties, preparing the business
assessment valuations for all business premises, defending assessment before municipal and
provincial assessment tribunals, providing and mailing annual assessment and tax notice to tax
payers.

Assessment notification
Every assessment notification should contain the following elements: - Gross income and
deduction applicable, taxable income, rate applicable or percentage tax paid and due and any
penalty or interest.
2.9 Right of appeal against assessment of income
Any tax payer who objects to an assessment may appeal to the tax appeal commission up on
fulfilling the following requirements.

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A deposit of 50% of disputed amount should be made to the tax authority and the appeal is
lodged with the appeal commit ion within 30 days following the day of receipt of the assessment
notice or from the date of decision of revenue committee.
The appeal commission exists at different levels
Federal appeal commission
Regional appeal commission
Zone appeal commission
Woreda appeal commission
Record keeping requirement
All people who are engaged in a business or trade or who own buildings held all or in a part for
rental, except for category ‘C” tax payers shall keep book and records. Those businesses that are
required to keep books of accounts and records are also required to keep the following
information:-Record of the business asset and liability, including a register of fixed asset
showing the date of acquisition, the cost of acquisition, and the current book value of each asset,
in addition they must record all daily income and expense related to the business activity and the
mater to which they relate, necessarily they record of all purchases and sales of goods and
services to the business activity, finally record of trading stock on hand at the end of the
accounting period, including the type, quantity and cost of that stocks as well as method of
valuation of that stock and any other document relevant to determination of the tax liability

2.10. Penalty for failure to keep proper records

The tax payers shall be liable for penalty of 20% of tax assessed if he failed to keep proper books
of account, records and other documents regarding certain tax year.

2.11. Procedures for tax collection

It is expected that people tax payment should be in line with their income and they are required
to pay a tax in proportion to their level of income. On the other part of tax collector, collection of

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tax should be time conscious and convenient and the cost of collecting the taxes should not high
to discourage business.

One potential research gap in a study on the assessment of tax estimation and collection system
for category C taxpayers in Arbaminch Town Administration Revenue Office could be the lack
of consideration for the impact of socio-economic factors on tax compliance and payment
behavior among category C taxpayers.

2.3 Empirical literature

There were studies on tax components and tax systems for different periods in different regimes
in Ethiopia.

Jenkins (1991) emphasized that the tax system can never work better than its tax administration,
but even the best tax administration would certainly fail to turn a bad tax system into a well
operation one. The researcher also warned that many ambitious tax reforms failed because of the
inefficient tax administration. Without the permanent reorganization of the tax administration
and almost daily improvements in methods of its management, it is impossible to expect that tax
reforms could be realized successfully (Asamnew,2012). The removal of exemptions, loopholes,
and concessions can simplify administration and reduce evasion. Taking a systematic view of the
tax system, rationalization, simplification, and the removal of anomalies should have the effect
of reducing the administrative costs of identification, assessment, auditing and enforcement. The
administrative simplicity of “tax handles”, however, while influencing tax policy, should not be
allowed to dictate it. Concentrating on just a few handles can lead to highly distortion structures
(Asamnew,2012).

Kangave (2005) discussed tax administration in Uganda’s context. It then discussed Uganda’s
tax structure, the problems faced in administering taxes, and it gave possible solutions to the
problems the author identified in this research. The author, in his research, identified corruption,
tax evasion, and inadequate resources for tax administration poor quality of audits and
inadequate support for tax administration as problems or challenges of tax administration that
have weakened the ability to achieve desired revenue targets. The author did not purport to
address all of the problems. Neither does it set out to address in detail the causes of these
problems. Instead, it points out the problems. Besides, the author recommendations for solving

14
the tax administration problems were adopted from the Canadian tax administration system. The
researcher does not believe that the tax Canadian tax administration system should not be taken
as standard for measuring the performance of tax administration system. In addition to this, the
author used interview with the tax officials and relied on secondary sources. However, author
could have also gathered responses from the target taxpayers to get additional information for his
research. Sahota (1961) undertook a study on the tax performance of the tax system of India for
the period 1948 – 1958 using the proportional adjustment method and found that the tax system
was inelastic even though the country had a highly progressive income tax at that time. The
reason was due to a defective tax structure and rate schedule, wide spread tax evasion and
income distribution in favor of the “non-income tax payers group” or in favor of the low-income
brackets within the tax-paying group (Asamnew,2012). Generally, one can see that the empirical
studies undertaken thus far for developing countries, particularly for Ethiopia, bothered little or
no to see the potential challenges faced by taxpayers and the tax authorities in administering
different tax activities such as tax assessment and collection. The performance of the tax
administration will have a bearing on the capacity to raise revenue for a country since it includes
primarily the assessment and collection activities

2.4 Research Gap

The study conducted before not explored how factors such as income level, education level,
employment status, and access to financial resources influence the ability and willingness of
category C taxpayers to meet their tax obligations. Therefore, understanding the socio-economic
context of taxpayers can provide valuable insights into the challenges they face in complying
with tax requirements and can help tailor tax estimation and collection strategies to better meet
their needs.

CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Research approach

------------------------------------
3.2. Research Design

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The researcher will conduct descriptive type of research design. The major purpose of
descriptive research is to describe the state of affairs/situation as it exists. It gives a basic
description of statistical unit under investigation. Therefore, this descriptive type of research
method will be employed by the researcher. In addition to this the researcher will use both
quantitative and qualitative research approach because quantitative approach enables to conduct
the study with intent of quantify report and assess multiple realities and evidences based on
actual words of different prospective from individuals and organization itself.

3.2 Source and Method of data collection

The researcher will use both primary and secondary source of data. The primary data was
collected by the investigator herself for a specific purpose. Primary data is first-hand information
that collected primarily through questionnaires and interview from tax payers, employee,
especially tax collector and manager of Arba Minch town administration revenue office because
this two data collection method are the best one. The questionnaire has both open and closed
ended questionnaire. The secondary data was gathered from published, unpublished and internet.
3.3 Target population
There are 10 weredas in Arba minch town which are considered as population in this study
from those I use 2 weredas and 50 category c tax payers and 20 employees as a target population
and 25 retailers and 10 employees use as sample. for the sake of sampling technique. We apply
simple random method.

3.4. sampling technique

determine sampling size the researcher will use both census for employees because of small
population and simple random sampling technique for category “c” tax payers the reason for
using this technique is to provide equal chance to being selected for each tax payers and to avoid
bias.
3.5 Sample size
As it is impossible to cover the whole target population due to finance and time constraints. This
will enforce that the researcher to take 20 from employees of Arba Minch town revenue office
and 50 from category “c” tax payers. To determine sampling size, the researcher would be used
both census for employees because of small population and simple random sampling technique

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for category “c” tax payers the reason for using this technique is to provide equal chance to being
selected for each tax payers and to avoid bias.

3.5 Method of Data analysis procedure

For the purpose of data analysis, the study depends on descriptive method of analysis. By using
this method, the researcher analyzes the collected data through tables and percentage method.
Describing with necessary interpretation and findings the study gives an over view tax revenue
collection and estimation system in Arba Minch town administration revenue office.

3.6 Budget Schedule

No. Material No. Of Unit cost Total cost

unit
Required Birr Cent Birr Cent
required

1 Pen 10 25 00 250 00

2 Print and 45 10 450 00

machines

3 Transportation 10 15 150 00

4 Miscellaneous 500 00
expense

5 Sub total 1350 00

6 Contingences 30
5%

Grand 1309
total

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3.9 Work Plan

NO. Activity Jan. Feb. March Ap. May. June

1 Topic selection 

2 Preparation of  
proposal

3 Collection of   
useful material

4 Data collection  

5 Data analysis  
and writing of
final research

6 Submission of 
research

7 Presentation of 
final research

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References

 asammnew gebresilase gebremariam, 2003, tax assessment and collection problem of

category” A” tax payers: in case of yeka sub city.
 Bhatia, 2003, public finance
 council of minister, 2002, income tax proclamation no .78/2002, negarit gazette. FDRE\
 Carl Copping Plehn, Introduction to Public Finance, 2nd Ed., Macmillan Company, New
York
 Gebrie Worku Mengesha, Tax Accounting in Ethiopian Context, 2nd Ed., Alem Printing
Press, Ethiopia, 2008
 Misrak taye abate, (2001) Ethiopia tax accounting principle of taxation, 5thedition
revenue authority, journal of African law, 145-176.


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