ODA BULTUM UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE

ASSESSMENT OF TAX COLLECTION PROBLEMS

(A CASE OF CHIRO TOWN)

RESEARCH PAPER SUBMITTED IN PARTIAL FUILFILLMENT OF

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

PRE PARED BY: EYERUS WENDSON

ADVISOR:- KARIMA RAHAMTO

NOVEMBER 2020
CHIRO, ETHIOPIA
 ACKNOWLEDGMENT
First and for most, I would like to thank the Almighty GOD for giving everything. Next I would
like to forward special gratitude to my advisor Karima Rahamto for her advice, comment,
suggestion and correction to our mistake. Lastly, but not least, I would like to thanks to my
family for their desire and effort to see me being successful in my education
 ABSTRACT

This study were focused on problems related with tax collection problems in Chiro Town, it is
known that the existence of state without tax is unthinkable because, government raises fund
from tax collection. So 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
Chiro Town.
The data needed for these studies were collected by using both primary and secondary source
of data. Primary data was collected through interview and questionnaire and secondary data
obtained from annual report and documentary analysis of the organization.
Finally based on the discussion and analysis of the study, Conclusion and recommendation
were provided by researcher for future implementation of tax collection system for the
organization.
 Table of Contents
Acknowledgment……………………………………………………………………………..…I
ABSTRACT.................................................................................................................................II
Table of content ....................................................................................…………………….…III
List of Table…………………………………………………………………………………….v
CHAPTER ONE ................................................................................………………………….1
Introduction .........................................................................................………………………….1
1.1 Background of the study ...............................................................…………………………..1
1.2 Statement of the problem ..............................................................………………………….2
1.3 Research Questions .......................................................................………………………….2
1.4 Objective of the study ....................................................................………………………….3
1.4.1 General objective .................................................................………………….………3
1.4.2 Specific objective ................................................................………………………….3
1.5 Significance of the study ...............................................................………………………….3
1.6 Scope and limitation of the study ..................................................………………………….3
1.7 Organization of the paper .............................................................………………………….4
CHAPTER TWO ...............................................................................………………………….5
2. Literature review .............................................................................…………………………..5
2.1 Introduction ..................................................................................…………………………..5
2.2 Role of Taxation in development strategy.....................................………………………….5
2.3 Characters of good tax system .......................................................………………………….6
2.4 Taxation principles .........................................................................…………………………7
2.5 Canon of Taxation .........................................................................………………………… 8
2.6 Major types of taxes in Ethiopia ....................................................………………………….9
2.7 Classification of taxes based on their effect on income ................…………………………12
2.7.1 Progressive Taxes ..............................................................…………………………12
2.7.2 Proportional Taxes .............................................................…………………………12
2.7.3 Regressive Taxes .................................................................……………………….. 13
2.8 Categories of tax payers.........................................................…………………………13
2.9 Procedures of tax collection .........................................................…………………………14
CHAPTER THREE …………………………………………………………………………15
3. Research Design and Methodology ………………………………………………….15
3.1 Description of Study area ..............................................................…………………………15
3.2 Source of data and collection method ..........................................…………………………15
3.3 Target population and sampling methods ....................................…………………………15
3.4 Data analysis method and presentation..........................................…………………………16
CHAPTER FOUR …………………………………………………..………………………...17
4. Data analysis interpretation and presentation ...................................………………………..
4.1 Analysis of Data Gathered From Tax payers .....................................……………………..
4.2 Analysis of data gathered from employees ………………………………..........................
4.3 Analysis and Presentation of Secondary Data....................................……………………...
CHAPTER FIVE………………………………………………………………………………
5. Summary, conclusion and recommendation ....................................……………………….35
5.1 Summary.........................................................................................………………………..35
5.2 Conclusion of findings ...................................................................………………………..36
5.3 Recommendation.............................................................................……………………….37
References ..........................................................................................………………………….19
Appendix I..................................................................................…………………………..20
Appendix II................................................................................…………………………… 22
 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 income................................... 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 Chiro Town. ………………………………………………………….……34
 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.
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 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. The study related tax collection problems require sufficient and long
term study and it’s difficult to conduct on all area related to tax collection problem and the
different researcher conducted this study area on different title but not more conducted on
assessment problem related to tax collection in Chiro town revenue administration office.

1.2 Statement of the Problem

The role of taxation in well-functioning governmental operation is so high Development
of infrastructures; basic social services institutions are apparently build by government.
Moreover, the public servants, deference 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 efficiency of tax system is not determined only by appropriate legal regulation but
also it depends on the efficiency and integrity of tax administration. In many countries,
especially in developing countries, especially in developing countries small amount of
collected public revenue can be explained by either in capability of the tax
administration in realization of its duty or with the sum degree of corruption. Regardless
of how carefully tax law has been made, they could eliminate conflict between the tax
administration and tax payers (kaldor, 1980).
However in most developing countries, tax is a common phenomenon that faces many
problems to develop adequate tax system that help the government to finance its
expenditure sufficiently. Particularly in Ethiopia it is difficult to see the potential
challenges faced by tax payer and tax officers in different tax activities such as tax
collection.

It is known that tax collection have an administrative and compliance cost. So the
government must have tax laws that enable it to collect its revenue efficiently. However,
when collecting these taxes and providing those services, the offices is not running
without problems. The office assesses and collects tax by structuring in town. There are
weaknesses and problems that exist in reality during tax assessment and collection such
as customer remaining reluctant to pay tax and the authority finds it difficult to collect
tax on time and problems related to awareness are some of the problem encountered on
the tax collection process.

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 were constraint of tax collection system with title assessment of
problem related with tax collection in Chiro Town.
1.3 Research Question
This research paper tried to answers the following basic questions of tax collection
problems.
1. What are the major bottlenecks affecting tax collection system in the Chiro town?
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 assessed tax collection problem that affecting the
tax collection system in the Chiro Town.
1.4.2. Specific Objectives.
Specific objective of this study focused on assessment of
 To identify Internal factors affecting tax collection system.
 To examine 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
This research paper would expected to provide the following 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.
 The result of this study will serve as a reference for further investigation
1.6 Limitation Of the study
In conducting this study the researcher may face several problems which have negative impact
on this paper.
 Lack of sufficient time to collect data.
 Absence materials equipment and supplies that have to be provided by the universities
because of pandemic disease.

1.7 scope of the study

The scope of this study were delimited in the area related to the tax collection problem on Chiro
town tax administration office as particular organization, due to tax is very vast and crucial
issue, standing its nature of the study. The study related tax collection problems require
sufficient and long term study and it’s difficult to conduct this research paper on all area related
to tax collection problem, so this study was restricted only problem related to tax collection in
Chiro town tax administration office.
1.8 Organization of the Paper
This paper consists of five chapters the first chapter consisted the introductory parts
which includes. Background of the study, statement of the problem, objective of the
study, significance of the study scope and limitation of the study, the second chapter
were consisted only the literature review.
The third chapter included the term research design. Sources of data, data collection
techniques, method of data analysis and presentation, target population and sampling
methods. Chapter four were provided analysis of data that gather from tax payers and
employees of the revenue bureau. The fifth and the end chapter were deals with
summary, conclusion and recommendation that will be used to conduct this proposed
study.
 CHAPTER TWO
2. LITERATURE REVIEW
2.1 Introduction
Taxation is a means by which 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)

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.
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)

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)

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 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 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
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)

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).
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.

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:
- 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 within 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).

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 in case, 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 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. The tax a larger share of income from the low income tax payer than from the
high income tax payer

A tax which is technically proportional in terms of the tax base, can often be
Considered regressive in terms 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)
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)
 CHAPTER THREE
3. Research Design and Methodology
3.1 .Description of study Area
Chiro town revenue and custom Authority is located at eastern part of Ethiopia, Oromia
region western hararghe zone which far away from Finefine the capital city of Ethiopia.
The study focused on the problem associated with tax collection problem in Chiro Town.
A. Economic activities.

In Chiro the major economic activities are mainly tertiary such as trade and shopping goods
which are displayed at market, hotel, restaurant and bar; selling and buying agricultural
products, retail trade of consumable goods like Chat and coffee and products of small scale
industry like wood and metal works.

B, Social services
Education: In the town currently, there are 10 elementary schools, 0ne TTC college, 2 high
school, and one preparatory school, two Universities, one technical and vocational training
college and.

Health: Concerning health situation of the town, there are 8 private clinics, 15 pharmacies that
are owned privately, one family Health Guidance clinic and one health post, and one hospital.
The total health coverage of the town is 81%. This increment is from 69% in 2004/05 to 81%in
2007/08.

Housing: generally, the housing condition of the town is in poor condition except some private
residential houses.
Road: Generally speaking, the network of the road in the town is poor before four years.
However, after the town is reformed efforts have been made to construct roads. Hence currently
12 km of gravel and 3km couble stone road is constructed and 5 km of road become asphalted.
This is one way or another contributes to socio economic development to the town (Chiro Town
Local Government, 2017).
3.2 Research Design
Research design refers the study were planned and conducted the procedures and techniques
employee to answered the problems. This study carried out through descriptive survey.
Descriptive research is appropriate to this study
3.3 Source of data and collection method
To conduct this research paper were used both primary and secondary data collected. The
primary data were 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.

3.4 Target Population and Sampling Methods

There are different tax base and tax payers in the Chiro Town such as employees, traders and
farmers. From 8000 registered tax payers in the chiro town the study were conducted, on 100
registered tax payer of all sector from 3 kebeles of the chiro town. Among different sampling
techniques the researchers 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
q = probability not to be selected
N= Total population
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 gathered all required qualitative and quantitative information data analysis was performed
and presented through table, percentage and frequencies. Then the data would analyzed by using
descriptive analysis method.
 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 ground 1-6 6-12 Certificate Diploma Degree Total
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 indicated 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 were covering the highest ration with 34.5%. With regard to
educational background 40.2% of the sampled respondents learned primary 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 respondent Percentage
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.
Table 4 Is your annual tax liability based on your income?
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 they 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.
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.

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 restatement 25 28.8%
 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.
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.
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 Chiro Town 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%
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
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%
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.
4.3 Analysis and Presentation of Secondary Data
Table 19 the five years budgeted and actual amount of tax collected in
Chiro Town.
Year Budgeted amount of Actual amount of tax Percentage
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: Chiro Town 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 Chiro town 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.
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.

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 Chiro Town 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.

5.3 Recommendation

To stamp out the distinguished problems and improve (sustain) the strength wich shown
in the Chiro Town, with respect to tax collection and assessment, the Chiro Town ’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.
 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)
 WWW. Investor words.com definition of Taxation
 QUESTIONNAIRE
ODA BULTUM 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 Chiro Town.
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 
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 income?
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
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 
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 