DECLARATION

I, undersigned, declare that this research paper is my original work and has not been presented
for a degree in any other university, and all the materials used for this study have been duly
acknowledged.

Taha Abadiga

Sign
______________

Date
_______________

This research has been submitted for examination with my approval as a university advisor.

Name of Advisor
______________

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Date
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ACKNOWLEDGEMENT
With so many reasons and without reasons, I thank the ALMIGHTY GOD and I would like to
thank my advisor Mr. Naga Jabal for his continuous professional support to make my paper
valuable.
I would to thank Mrs. Sufi Jihad for typing and Mr. Teka Tesfaye for sharing my burden in
editing the research papers.
Lastly, on the whole I want to transmit happiness and feeling for those who lent me hands
directly or indirectly, for my achievement throughout the course of preparation of this research
project.

ii

ABSTRACT
The main objective of this study is to identify the major aspect that contribute to the existence of
challenge in indirect tax Administration system, inhabits and that scale down efficiency of
system in complying with tax rules and regulations in Jimma Town administration. Descriptive
survey research was employed for this research to identify and discuss the practical problems of
indirect Tax Administration. Both primary and secondary source of data were collected. About
25% and 5% of population selected as a sample size for tax officers and tax payers respectively.
Questionnaires were the major data collection instrument that was used. however, weak tax
payers service delivery ,unfair tax estimation, weak tax collection enforcement, declaration of
tax liability in full payment, in adequate budget appropriation, and so on are some challenging
problems that hindered the efficient and effective practice of indirect tax administration. So to
help achieve Local Government (LG) in responding to ever increasing urban/town center
demand for infrastructure service delivery, the same of relevant and practicable
recommendations has been under taken.

iii

TABLE OF CONTENT

CONTENT

Page

DECLARATION ....................................................................................................................... I
ACKNOWLEDGEMENT ...................................................................................................... II
ABSTRACT............................................................................................................................ III
TABLE OF CONTENT ......................................................................................................... IV
ACRONYM ........................................................................................................................... VII
UNIT ONE.................................................................................................................................1
1. INTRODUCTION .................................................................................................................1
1.1 BACKGROUND OF THE STUDY ...........................................................................................1
1.2 BACKGROUND OF THE ORGANIZATION ..............................................................................2
1.3 S TATEMENT OF THE PROBLEM ...........................................................................................2
1.4. RESEARCH QUESTION .......................................................................................................2
1.5. OBJECTIVE OF THE STUDY ................................................................................................3
1.5.1. General objective .....................................................................................................3
1.5.2. Specific objective .....................................................................................................3
1.6 SIGNIFICANCE OF THE STUDY ............................................................................................3
1.7 SCOPE OF THE STUDY ........................................................................................................4
UNIT TWO ...............................................................................................................................5
2. LITRATURE REVIEW ........................................................................................................5
2.1 CLASSES, ASPECTS AND COMPONENT OF TAXES ...............................................................5
2.1.1 Class of taxation........................................................................................................5
2.1.2. Principle of taxation .................................................................................................6
2.1.3. Objective of taxation................................................................................................8
2.1.4. Component of tax.....................................................................................................8
2.2. APPROACHES TO TAX ADMINISTRATION ........................................................................10
2.2.1. Aspect of tax technology .......................................................................................10
2.3. COST OF TAXATION ........................................................................................................12
2.3.1. Tax administration cost..........................................................................................13
2.3.2. Compliance costs ...................................................................................................13
2.4. THE ROLE OF POLITICAL LEADERS..................................................................................13
UNIT THREE .........................................................................................................................15
3. RESEARCH DESIGN.........................................................................................................15
iv

3.1. SOURCE OF DATA ...........................................................................................................15

3.2. METHOD OF DATA COLLECTION .....................................................................................15
3.3. SAMPLE SIZE ..................................................................................................................15
3.4. SAMPLING TECHNIQUES .................................................................................................16
3.5. METHOD OF DATA ANALYSIS .........................................................................................17
3.6. METHOD OF DATA PRESENTATION ..................................................................................17
UNIT FOUR ............................................................................................................................18
4. RESULT AND DISCUSSION ............................................................................................18
4.1. INTRODUCTION ................................................................................................................18
4.2. SAMPLE COMPOSITION .....................................................................................................18
4.2.1. Characteristics of population ....................................................................................18
4.2.2. General Characteristics of Tax Payer Respondent ....................................................18
4.3. TAXPAYERS TYPE AND NUMBER OF YEARS BEING IN SERVICE ............................................20
4.4. FAIR AND PROFESSIONAL TAX ADMINISTRATION ..............................................................20
4.5. ACCOUNTABILITY OF THE TAX OFFICE ..............................................................................21
UNIT FIVE ..............................................................................................................................23
5. CONCLUSION AND RECOMONDATION .....................................................................23
5.1. CONCLUSION ...................................................................................................................23
5.2. RECOMMENDATIONS........................................................................................................24
REFERENCE ..........................................................................................................................26
ANNEX I.................................................................................................................................28
QUESTIONNAIRE ...............................................................................................................28
SECTION ONE: QUESTIONNAIRE FOR OFFICIALS .....................................................28
SECTION TWO: QUESTIONNAIRE FOR TAX PAYER ..................................................32
SECTION THREE: QUESTIONNAIRE FOR TAX ADMINISTRATION .........................34

LIST OF TABLES

Table 1 Used sampling method for Value Added Tax registrants ...............................................16
Table 2 The demographic character ...........................................................................................19
Table 3 Taxpayers Types and Customer Being in Service ........................................................20
Table 4 Fair and professional administration of tax system ........................................................21
Table 5 Accountability of Tax Officer for what it does ..............................................................21

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ACRONYM

IRS

Internal Revenue System

ITS

Internal Tax System

NGOs

None Government Organization

OPRS

Oromo People Regional State

SME

Small and Micro Enterprise

vii

UNIT ONE
1. INTRODUCTION
1.1 Background of the study
Ethiopia is pursuing a range of economic and solid reform programs necessary to achieve
sustainable development throughout the country. Among different economic and social reforms
tax administration system reform is the one the major engine to mobilize economic and
social resources toward insuring sustainable economic and social development thus
different regimes in Ethiopia government carryout different forms of tax system in the country.
During the past two regimes, i.e. the Hailesilasie regime and during regime tax regulation and
collection were made by the central government .as a unitary until the central government
minister of finance was responsible for handle problem of public finance in general , and tax
administration system.
In May 1993 the Ethiopia people revolutionary democratic front (EPRDF) ascended to power
and destructed administration regions by decentralizing those (Hagose, 1995). Due to the power
given to the regional government in its sense, 1991 charter, the power to regulate, collect and
utilize tax income was divided between central government and federal state power
decentralized.
The federal democratic republic of Ethiopia constitution article 51 (20) of 19992/1993 gave
power to raise, collect and utilization of revenue to 9 regional state/sub national governments.
The Oromo people regional state (OPRS) is one of nine regional states that were delegated powers
to raise collect and utilize revenue in 1995 by the constitution of FDRE, 1992 /1993. The post
history of tax reform activities in this region since 1992/1993 was the same as that of the
countries under reform.
In the same manner zonal administration, special woredas local woredas/towns also were legally
delegated with responsibilities to them to raise ,collect and utilize regional state revenues from
their own recourse as well as federal tax revenue such as VAT(value add tax)in which the
federal given to the regional state.

1.2 Background of the organization

Jimma town is the town found in Oromia region state and with the total population
129,960 people... After reform the tax collection of the town increased with an average rate of
91. %. All tax payers are indirect taxpayer group (Mesfin, 2010), or Hard-to Tax (Micro and
small) group.
Even though the tax collection has shown slight progress, due to this weak tax
administration system, especially of indirect taxation, inefficient revenue mobilization and
under potential/revenue collection practices and none complying of tax payers with the
existing tax law are great challenges and problems that examine tax administration capacity in
Jimma town.
Though the researcher tries to assess the factors especially, facing effective and efficient
indirect tax administration system in Jimma town administration and propose possible
solution.
1.3 Statement of the problem

Local government needs revenue to provide infrastructural service to its communities. These
revenues mainly collected from local source in the form of tax administration system in other
says efficient revenue system is also essentials factor to determine the revenue collection
capacity of the revenue department. Thus noncompliance of tax payer with tax laws and
regulation, inefficient

revenue mobilization and lack of healthy indirect tax

administration system contribute to inefficient revenue collection (Tanzi, V 1987). As the result
of this, local government not fully responding infrastructural needs of community. Therefore,
this study was address that major causes for the existing challenge or problems of indirect tax
administration (IRS) system in Jimma town.
1.4. Research question
1. What are the factors that affect the efficiency of indirect tax administration in the town?
2. What are the towns administration mechanisms to evaluate free service delivery system of
Indirect tax administration?
2

3. What is the main challenge of indirect tax collection in the town?

1.5. Objective of the study

1.5.1. General objective
The general objective of this study will be to assess the challenges of indirect tax administration
(tax administration system and non compliance with tax rules and regulation in Jimma town
tax authority).
1.5.2. Specific objective
1. To find out factors affect the practice of indirect tax administration system, tax appeal in
Jimma administration.
2. To examine the taxpayer service delivery in the town.
3. To identify the implementation of internal revenue system (IRS).
4. To ascertain factor affect organizational capacity of tax collection, tax
administration in Jimma town.
5. To provide possible recommendation
1.6 Significance of the study
The study was attempted to analyze the issue of indirect tax administration from all
administrative points of view of small (micro and small) tax payers groups. It aims to solve the
problems related to inefficient revenue mobilization, under potential revenue collection and
payers not able to comply with existing tax rules and regulation. And it was also attempt to
look the problems of tax payers service delivery, tax assessment/ estimation and tax
administration systems as a general study. Hence, from this perspective, it was vital study on
current existing problems of Jimma town tax administration.
The expected results provide the following;

Tax payer: - it solves the problem that affecting their business stands
regarding indirect tax administration.

Tax preparers: - it provides those good administrative incentives and motivation

3

programs and self committee to implement the tax rules and regulation.

The town tax authority: - it serves as a guide to evaluate and assess its
effective and efficient revenue collection potential of the region.

The zonal administration: - it increases the revenue capacity of administrative

capacity that helps to provide adequate (sufficient) service and goods to it
community.

As the same time the study helps the researcher in partial fulfillment for degree of art in
accounting.
1.7 Scope of the study
The study was concerned with problem on the effectiveness and efficiency of indirect tax
administration of in the area of Jimma town. The researcher was going to evaluate and assess
the indirect taxation patterns of indirect tax administration concerning to efficiency and
effectiveness of the researcher. The study was limited geographically in the Jimma town
administration territory.

UNIT TWO
2. LITRATURE REVIEW
2.1 Classes, Aspects and component of taxes
Before proceeding to discuss about the different components and natures of tax
administration, it is better to give highlight about what taxes are.
Taxes
Taxes have been discussed and said by different authors in the following manners. Terry et al
(2005) defines tax as a compulsory contribution to the government imposed in the common
interest of all for the purpose of regulation, without reference to the special benefits conferred
on the one making the payment whereas Danel (2001) explained tax as any revenue
collected by the government on any basis what ever with the sole exception of fees paied for
the consumption of taxable goods or material . OPRS(orormo people regional state) revenue
authority also defined tax as withdrawn from private sector without leaving the government with a
liability to the payee.
When we conclude and generalize the above all authorizes says, the common idea that they
share each other is tax is compulsory contribution levied by the government to raise revenue in
order to provide service and goods to its community and regulation controlling and promoting is
economic path growth to achieve the economic path of growth to achieve the economic
goals of the governments/its in prescribed way. Taxes have different classes. These are direct
and indirect, single and simple multiple (JebesA,et al 2005)
2.1.1 Class of taxation
2.1.1.1 Direct tax
Direct tax is those taxes which cannot be shift to others. The paying ability is assessed directly
examples of direct taxes are income tax, capital gain tax, dividend tax and interest6, gains of
chance, etc (Gupta A,2001). The impact and incidence of tax rests on some persons only.
direct tax most the most preferable in developed countries than
developing countries, because majority of people can have income above minimum
5

requirement, there is large degree of voluntary tax payment , honest accounting

recording, high level of literacy, higher per capital ,etc.
2.1.1.2. Indirect tax
Generally the incidence of indirect is on ultimate consumers. Indirect taxes are value added
tax (VAT)turn over tax(TOT) excise tax, costume duties , and stamp duties are some of the
examples (JObesA,et al2005). Indirect tax are taxes in which the burden is shifted to the seller
and they are imposed on consumption of goods and services to the consumer.
2.1.2. Principle of taxation
2.1.2.1. Voluntary taxation system
Government can raise revenue either through voluntary or coercion exchange. Income, property
estate and gift taxes are examples of coercer forms of taxation because those paying have no
choise about it. They must pay or face possible punishment. Voluntary forms of revenue rising
includes lotteries (McGee, 2004). In society where freedom and democratic election , private
property are valued, based on voluntary forms of revenue rising alternative than coercive
forms. If government follows cost benefit taxation principles, then coercive is to be
minimized and possibilities for voluntary exchange maximized . apply coercive taxation
system might be important for the government to rise all funds, but the tax principle of
fairness, equity and the right of people to own property are totally absent from this lines
of reasoning. Therefore, to achieve effectivemuually inclusive goals of government,
effective revenue raising participatory leader-ship of political leaders, the tax administration
should focus on promoting and encouraging voluntary taxation system.

2.1.2.2. Low tax rates

A tax system may impose either low tax rates or high tax rates. High tax rates are
disincentive to productions, savings and wealth accumulation (McGee, 2004). High tax rates in
the area of estate taxes discourage savings and investments. Capital accumulation suffers as
results, which has negative effect on economic growth and the standard of living. From tax
payers stand point, low rates are superior to high rates. From the
governments point of view, high rates may be more attractive than low rates ,but while this
6

may be true over a certain range of people will change thieir behavior and especially I the case
of small taxpayers it distorts small and micro business sectors, and the total revenue generated
may actually decline.

2.1.2.3. Cost benefit principle

Tax administration in the economy where small and micro business in wide coverage have
been operating, should be aimed encouraging this business and gradually bringing them in to
tax-net. These tax payers group should pay the required tax based on cost- benefit approach.
Those who benefit the most from the service provided by the government should pay the
most based on their income and the reverse too.

2.1.2.4. Easy to administer

A tax may be either or difficult to administer. Needless to say, a tax that is easy to administer
is preferable to that one is difficult to administer, emerging economics tax administration
requires easy administrating approaches than that of advanced western economy(McGee,2004).
Easy to administer means, that the tax administration system, such as tax assessment ,
collection, especially for those hard-to tax groups must get easily and more accessible service
from tax administration.

2.1.2.5. Visible tax

A tax cans be either visible or hidden. The two possibilities seem to be climatically opposed
to each other. Which possibility is better? That depends on the goal of the individual (tax
administration) making the determination. If the goal is to raise as much revenue as possible
with minimum of protest, then hidden tax is to be preferred to a visible tax. If the goal is to
restrain the amount of tax the government takes, or to let tax more likely to be payers know
exactly what they have to pay for government service, then a visible tax is more likely to be
help achieve that goal(Robert,2004)
From a strictly moral or ethical point of view and effective and transparent tax
administration system prospects a visible tax is to be preferred to hidden
tax (Robert, 2004). Visible tax gives opportunity for tax payers to the full cost of what they have
to pay for governments. Therefore, visible tax administration system is the primary issue to seen
7

the economy and encourage those tax payers.

2.1.2.6. Taxable capacity base

OPRS(oromo people regional state)tax authority (2008) defined taxable capacity as, the maximum
tax which might be collected from particular tax payers or group of tax payers under condition.
Such a tax paying capacity may be estimated/assessed with reference to the economy as a
whole, a region, an industry a group of individual person, a particular country, etc such is an
absolute taxable capacity. Additional variables have to be encountered for estimating the
taxable capacity. In short run, it has to be decided as to how much sacrifice may possibly be
imposed up on the tax payers. In this connection people have to be referred to various basic
figures, like subsistence of existing standard of having etc.
2.1.3. Objective of taxation
The main objectives of taxation especially in developing countries are to be encourage the
development objectives/goal of tax payers. It includes,

To create a culture of taxation and the regularization of the rule of low;

To provide education and training and how to monitor business activities;

To increase the size of the formal sector; and

To promote growth (W.Tersh&M.Poteba, 2002).

The achievement of these goals suggests a different type of tax system from a large
taxpayers scheme, and slightly enhanced role for the revenue authority to include outreach
and education.
2.1.4. Component of tax

2.1.4.1 Tax authority

Tax authority is that the term refers to the gridlines, that gives the tax payers and tax prepares
to report actual taxable income correctly and also gives guidelines and precedents for
judicial decision conflict between the eternal revenue service (IRS) AND taxpayer
(Khalizadeh&sheh,1991). The author have given more attention on guidelines, that means how
8

the tax prepare of file its actual tax return and report to the concerning

body. Besides this, tax authority includes giving of guidelines and precedents juridical decisions
concerning conflicting raised during tax assessments and payments between tax payers and IRs.
There are three primary tax authorities:

Statutory sources

Administrative sources

Judicial sources (Khalizadeh&Sheh, 1991)

2.1.4.1.1 Statutory sources of tax authority

Statutory sources of tax authority most commonly relied upon internal revenue code (IRC)
changes to it must pass through the entire process to become tax law. It is the legislative
process of tax law. The IRS is written by ministry of tax authority (MOFTA) and must pass
through the parliament in order become tax law. The problem with IRC is that usually
extremely broad and difficult to apply to specific tax situation. Because of these limitations
administrative and judicial tax authorities have involved together.

2.1.4.1.2 Administrative tax authority

Administrative tax authority created IRS is in effect, the IRSs interpretation of IRC. Lists of
the major IRS administrative authorities are

Revenue ruling

Revenue procedures

Private letter ruling (Hoffmon&Raabe,2007)

2.1.4.1.3 Indirect tax administration

Indirect tax administration has the same definition described above 2.1.1.2 under tax
administration. The only difference is indirect tax administration focuses in which the burden
is shifted to the buyer and they are imposed on consumption of goods and services to the
consumer. Indirect tax administration application takes place in the line with administration tax
9

authority.
2.2. Approaches to tax administration
Tax administration efficiency can and will be powerful the right tax policy to put I to
the place. Tax administration feasibility dominates tax structure decisions. The tax
structure of developing countries, however, the change is eing under taken now, is
dominated by their limited ability to administrator (Joved and anwar, 1991).
As the result of weak tax administrative structure, heavy taxes levied on a narrow tax base
may affect the organization and production of taxed goods in unexpected and undesirable
way. These result tha tax payers to become dissatisfied with outcomes of the tax system for
any reason and consider it unfair, finally get away with it. A tax system comprises both structure
and administrative reform must be considered together it; tax reform is to accomplish the goals
usually attributed to.
2.2.1. Aspect of tax technology
Javed and Anwar (1991) have supported that addition to simply recognizing the
interdependency of the structural and administrative aspects of taxation, more research in area of
technology is needed to improve the success ratio of tax reform efforts. This section reviews
three aspects of these technology and suggests some possible lines for future better
implementation tax administration (tax research)
2.2.1.1 Internal revenue service
All tax participation must pose an understanding of the internal revenue service (IRS). The
IRS mission is to provide Americas tax payers top quality service by helping them understand
and meet their tax responsibilities abd by applying tax Law with integrity and fairness to
all(Robert abd Richard, 200 1)the authors have tried to give highlight on the mission of IRS.
Generally we can understand that the IRS includes specific works, like taxpayers service
taxpayers registration, tax assessment , estimation, filling payment, tax collection enforcement and
promoting staff in crevice program.

10

2.2.1.1.1 Tax payers service delivery

2.2.1.1.1.1 Tax payers service delivery, basic information on the characteristics of
the tax payer
Basic information on the characteristics of taxpaying population is needed to enforce taxes
adequately and fairly. to improve tax administration in most developing countries is this
simply to design and install better management information system is a curtail issue (will and
Malony,2007). The tax administration must balance its educational and educational and
assistamne rule with its enforcement roles. The overriding goal is foster is to foster voluntary
compliance with the tax laws and thereby to help the effective mobilization (collecxtion) of tax
authority.
2.2.1.1.1.2 Service delivery
According to Olyemi (2009) service delivery is the inter-relation between the government
functionaries and the citizens to whom the service of the government are addressed to, and the
manner in which the service, reach those for whom they were intended. In the case of tax
payers service delivery, it is interaction between the tax functionaries and the tax payers to
whom the service of the tax administration are addressed to, and the manner in which the
service directly reaches to tax payers. Tax payers have able to get all necessary information
regarding taxation system and implementation procedures from tax authorities.
2.2.1.1.1.3 The way to improve citizen centered service delivery
integrated service delivery this service allows entrepreneurs to register with multiple
participating federal and state public sector agencies, local governments and NGOs through a
single window, and
Improving information New and existing public information will be rewritten using plain
language to help customs and better understand their tax obligation and entitlements(Olaemi
2009)

11

2.2.1.1.2 Tax payers registration

Tax payer registration rules drive from the need to create a stable, horizontal
classification system of economic activities, i.e. applicable to the whole system and, if possible,
at all levels in the tax agency. I other words, with in the general tax payer censes
or database there should provide input to the system used to assess the tax burden that is imposed
upon this segment of taxpayers.
2.2.1.1.3 Tax assessment
A tax may be assessed at any time when a tax payer files a false or fraudulent return with the
internet to evade tax liability and when a tax liability and when tax payer fail to file a return,
innocently or neglectly (William, Geraid and Derba, 2006). This definition gives more attention
on irregular returns. There are also regular returns assessment system which is being done
within three years of later of the data the return was actually field the un extended due data of the
returns. Generally IRS has broad authority to assess/ estimate taxes either determined by the tax
payers on a self-assessing basis or as a result of a subsequent examination of the return. For the
purpose this study this-sub-title will have focused on irregular returns assessment system,
especially that tax payer who innocently or negligently fails to their return.
2.2.1.1.4 Tax collection
IRS possess power to collect or abate delinquent accounts. The manual state that
installment agreements must be consider. (Robert and rechard, 2001.) through any means of
communication creating an interview with tax payers regarding collection of tax revenue is very
important. Collection information is to be secured depending on tax payers financial and the
unpaid liabilities.
2.3. Cost of taxation
The cost of living taxes is obviously a relevant consideration in shaping the ax structure and
effective implementation of the objective of taxation there by to make reliable base of revenue
generation for the governments, tax changes create transitional costs as increased
uncertainties start-up costs and learning costs(bird,1991). Tax hangs could be done daily based
on structural change needs of existing tax system, characteristics /attitude of tax payers or
12

land countrys needs of economic condition and also to proceeded the existing taxation
system cost of taxation requirement is high tax implementation cost needs are classified into
categories. These are: 2.3.1. Tax administration cost
Joved and Anwar (1991) have given definition to tax administrative cost as general expense
incurred by government in collecting taxes. (these costs, of course are ultimately born by tax
payers) costs, too need to ensure that the gains from change exceed its costs sufficiently to make
the investment worthwhile . Sufficient costs must be allocated to tax administration in order
to collect.
Bird (1991) described for example, reports two unpublished studies. In Colombia and
Indonesia this suggested that forever $ 1 in bribes received by the tax officials,
governments lose$ 20 in tax return. An even caused observation report by bird (1991) is that
forever additional $ 1 spent on tax enforcement in Mexico, an additional $ 25 in revenue is
collected.
2.3.2. Compliance costs
Hennery and Joel (2004) explained complain costs as costs associated with maintaining tax
records, learning about tax laws, preparing the return and sending the return to the tax authorities.
More comprehensive definition of complain costs would be include expenditure of time
and money by the tax payers solely to avoid as well as the costs to taxpayers of being audited
or corresponding with the tax after the returns has been failed. Complain costs raised for low
income tax payer.
2.4. The role of political leaders
The effectiveness and efficiency of any tax administration reflects many factors. The
importance of an adequate legal frame work both for the tax structure and such procedure aspect
of administration as assessment , collection, review and appeal and tax enforcement is
clear (Joved and Anwar, 1001). So is the need for adequate internal management and
effective deployment of resources by the tax administration itself to achieve its objectives.
The principal functions of governments are to deliver service and to manage conflict. The principle
13

of benefit taxation of levying taxes in accordance with the benefits received from the
expenditure they finance.

14

UNIT THREE
3. RESEARCH DESIGN
Descriptive research was used to conduct the study. The method was help to identify and
analyze the challenges of indirect tax administration system in Jimma town.
3.1. Source of data
The study was used both primary and secondary data source relevant to the objectives of the
study. Both qualitative and quantitative types of data were used in order to answer the research
questions. Primary source of data being the main input for the study was collected through field
survey. To obtain information on tax assessment/estimation and tax collection and beyond
these taxes collected from tax officers, tax payers, and Jimma town administration and town
finance and economic development office. The secondary data sources are work shop papers,
trading manuals, working manuals, revenue report documents in the city revenue department
and proclamation and regulation.
3.2. Method of data collection
To accomplish the study in the prescribed manner, in addition to relevant and reliable data
source, convenient and appropriate data collection methods are essential. So in order to be able
and conduct the study effectively, the researcher was used questionnaires as a data collection
instrument.
3.3. Sample size

The study was conducted in Jimma town administration tax authority department. The total
population of the tax payers was the registration list of Value added Tax registrants in Jimma
town administration totaling 5050 (Category A = 568, B = 403 and C = 4079). Whereas, for the
tax officials, employees of Revenue Authority office of the Town totaling 12 was the sampling
frame. Hence, the total population of the study is equal to the sum of Value Added Tax
registered in the Town, tax officials of the Authority Office and JImma town administration.
This is equal to 5063.

15

3.4. Sampling techniques

The study was select categories of tax payers, tax offices and town administration as
sample frame to carry out the study. Therefore, the following formula was used for the
purpose of determining sample size of the Value Added Tax registrants.

n=

(t 2 )( p )(1 p )
m2

Here that, n = required sample size, t = confidence level at 90% (standard value of 1.645)
p = sample proportion,

m = margin of error at 5% (standard value of 0.05)

(Habtamu Dheressa 2015)

n=

(1.645 2 )(0.05)(1 0.05)

52
0.05 2

Table 1Used sampling method for Value Added Tax registrants

No

Types of respondents

Number of Value Added

Tax payers

Tax registrants
5050

Tax Officers

12

Town Administration

Total

5063

56

Sample size n1 =

n( N1 )
N

52

To be economical out of the total tax officers 25% percent elected to be the sample size
included in the study and the estimated sample proportion was 5% for the calculation of the
sample size of tax payers. The study use both random and non-random sampling techniques
to select the required respondents from sampling frames. For the selection of Value Added Tax
registrants taxpayers, simple random sampling techniques were used. The Purpose of using this
sampling method was each element of the respondents is equal chance and the sample can be
independence, generalized and known population.

For the selection of employees of the

Authority Office, judgmental sampling method was used. The purpose of this sampling
technique used here is to address experts in the area who are familiar with the work and based on
knowledge and position their works.
16

3.5. Method of data analysis

The study was describing the basic features of the data in the study. The data analysis was
involves three major steps that are data preparation, descriptive statistics and statistical
analysis to be performed. Data preparation under this study, involves checking logging the
data in, checking the data for accuracy, entering the data in to the computer, transferring
the various measure. The researcher was describing the basic features of the data in the study.
The researcher was used ratio, percentages and averages to provide descriptive analysis to
arrive at general picture of conclusion validity and recommendation.

3.6. Method of data presentation

Tables, graphs, and pie-charts were used as data presentation tools that adopted in the study.
Generally, the researcher was collect, compile, analyzes data using Ms-excel soft ware
program.

17

UNIT FOUR
4. RESULT AND DISCUSSION
4.1. Introduction
This chapter discusses the data analysis and interpretation and intends to compare with existing
literature. The researcher analyzed and interpreted the data in to meaningful and applicable units.
The data is presented in frequencies and percentages. A total of 52 questionnaires were
distributed and 46 questionnaire, were returned from taxpayers. The analysis and interpretation is
arranged according to each variable. This chapter analyzes and discusses the extent
administrative remedies, the strength and weaknesses of the indirect tax administration procedure
followed by tax authority in Jimma Town, the effectiveness and efficiency of indirect tax
collection and mobilization.

4.2. Sample composition

4.2.1. Characteristics of population
The composition of the sample involved in the research in terms of respondents demographic
and the types of incidents reported on is as follows:

It is apparent that a large indirect tax payer group has been invited to the questionnaire, resulting
in slightly 52 of the sample. A sample size of 52 is selected from the whole population 5050 and
52 questioner distributed. Out of 52 sets, 46 indirect tax payers answer the questionnaires were
meets the survey requirements. As a result, the member of in the sample group was above 18
years old. The rating system of the questioner were, strongly disagree and agree were clearly
the option chosen most on the overall assessment of tax payers satisfaction of service delivery
handling procedures.

4.2.2. General Characteristics of Tax Payer Respondent

Table below present the demographic characteristics of indirect tax payer and administration
18

respondents, with regard to, respondents gender, age and educational information.
Table 2 The demographic character

Description of respondents

Frequency

Percentage%

Male

31

70%

Female

15

30%

18to30

18.13%

31 to 40

18

38.3%

41 to 50

13

28.13%

51 to 60

11.63%

61 and above

3.81%

Primary school completed

4.32%

Secondary school completed

6.8%

Certificate graduate

18.32%

College diploma graduate

20.5%

BA/BSC degree

21

45%

Master and above

5%

Gender

Age

Educational background

The result indicated that N= 31(70%) of the respondents were males and 30% (N=15) were
females. With regards to age, the highest number of respondents are in 31 to 40 years age group
(38.3%) followed by up-to50 years age group (28.13%)were between 18-30 age group(18.3%)
and 51 to 60 were over (11.63%). The educational level of respondents is quite high as 45.8%of
them above completed at least bachelor level and above. Others are college diploma holders
(20.54%), certificate holders (12.32%) secondary school completed (6.8%) and primary school
completed (4.38%). Therefore the majority of the respondents are matured enough being in the
age group and educational background. It is implied that has better knowledge and experience in
tax matters and can better evaluate the tax compliant handling procedures of the tax office and
review committee.

19

4.3. Taxpayers type and number of years being in Service

The distribution of the sample business type and the time waiting tax payers being service users
in the tax office are shown below in table 3.
Table 3 Taxpayers Types and Customer Being in Service

Business type

Frequency

Percentage

Partnership

19.8%

Private limited

29

63.00%

Corporations

2.7%

Other

14.38%

1-3Yr

13

27.39%

4-7 Yr

20

43.83%

7and above

13

28.76%

Customer being in service

Below one Yr

Based on the business type all the sample respondents are classified in four sectors, partnership,
private limited, corporation and others. All these sectors are included in the study for the purpose
of analysis. Of the total selected business units, the largest numbers are Pvt. Ltd (63%), followed
by corporation (2.7%), partnership (19.8), and others (14.38%). More than three fourth of the
respondents (72.6%) are being the customers of the tax office for longer period, specifically four
years and above. From the data indicated that the longer period the customers served in the tax
office the better they evaluate the service delivery system of the branch office. They will be able
to evaluate the efficiency and effectiveness of the review committee.
4.4. Fair and Professional tax Administration
A highly skilled, helpful, and ethical staff can resolve tax issue professionally in reasonable time
frames. The majority of the taxpayer (87%) agrees with the statement. The Office is fair and
professional in how it administers the tax system. The demographic sub-groups more likely to
agree with the statement include males, those who are less than 30 years old.

20

Table 4 fair and professional administration of tax system

Age

Gender

Population group

Percentage

18-30

13.11%

31-40

35.00%

41-50

23.87%

>50

28.00%

Male

78.26%

female

41.67%

4.5. Accountability of the tax office

A taxpayer can ask tax authorities to be accountable for what they do and to ask tax officials the
spending patterns of the amount of tax collected because it is their money. The tax payer almost
(87%) disagrees with the statement the tax office is accountable for what does. This shows the
accountability of the tax official law. The demographic sub-group more likely to disagree with
the statement is males and those who are more than 30Yaers old.
Table 5 Accountability of Tax Officer for what it does

Age

Gender

Population group

Percentage

18-30

13.33%

31-40

33.33%

41-50

40.41%

>50

12.93%

Male

55.36%

female

37.50-%

When a tax authority makes a decision about taxpayer affairs, the authority shall explain that
decision and in form the tax payers about its right and obligations in respect of that decision. If a
tax authority transfers taxpayers information across a border, the original tax authority remains
accountable for the treatment of this information even after it relinquishes control over the
information. A tax payer has the right to challenge tax information relating to the taxpayers and,

21

if the challenge is successful, to have the information been amended or erased.

From the above analysis, tax offices are good in keeping taxpayers privacy and on listening and
responding tax complaints. Thus can benefit the office of ensuring and protecting tax payer
rights to privacy and can increase the level of satisfaction by the office service. There is
moderate level of satisfaction with aspects of helping taxpayers to understand their obligation.
The tax office action is not based on customers suggestion, the office does not look news to help
taxpayers, application of tax laws is not a consistent and certain manner, and the tax office is not
accountable from what it does. This can increase level of dissatisfaction, and corruption in. High
level on unsatisfactory leads to more appeals by taxpayers and avoiding to pay tax, thus, reduces
the revenue on the branch.

22

UNIT FIVE
5. CONCLUSION AND RECOMONDATION
5.1. Conclusion
The chapter contains conclusion and recommendations. The researcher concludes the following
idea based on finding and interpretation. The idea of indirect tax administration was the part of
the town administration revenue source in the town. From information and the data collected
from tax office, and tax payer the researcher have observed that office tries to handle indirect tax
system. From these the researcher draws the following conclusive remark.
In regard to indirect tax administration the main problems in the implementation process of tax
administration are observed. The main challenges faced on implementation of indirect tax
collections are in the conception of idea there is lack of knowledge, lack of profession and
experience tax payers. The office has given attention to improve customer services delivery and
thereby to reduce complaints through establishing customer service units.
Tax administration authority have satisfactory performance in protecting taxpayer privacy,
listening and responding complaints, and professionally and fairly administration of tax system.
They have also moderate performance in supporting taxpayer who needs the right thing to do.
The efficiency of any town administration measure their performance raising capacity and
collection revenue. The collected data indicated the trend of indirect tax collection fluctuate
years to years goes up and down. Most of the customer in the branch office is not solved by the
review committee. This is due to the reason the cases were not related transparency and
accountability. Members of the review committee are appointed from different areas and are the
employees of the branch engaged in different activities, thus, this duty is not primary job of the
members. Generally, in Jimma town indirect tax administration system have in the low levels
due to this the town service provisions are inadequate level. These are because of insufficient
timeless for tax collection, lack of skilled manpower, lack of insufficient service.

23

5.2. Recommendations
From the finding the researcher recommends the following point to improve the indirect tax
administration.
Timeless
One good practice for improving timeless is the early identification of different types of tax
collection. So that certain tax can be collected more quickly and at less cost, where appropriate.
This typically knows indirect tax which is collect from July 1 to June 30 and submitted the
amount of turnover tax, excise tax and VAT from July 1 to July 30 in each month.

Transparence and Accountability

The office should increase its transparency and accountability in tax collection. Transparency is
required with regard to proposed decision, appeal procedure, and review committees
responsibility. Transparency increase the accountability of given system and increase taxpayer
understanding on appeal procedure.

Public information
The tax office has to disclose procedures, provision and conditions in published appeal guide. It
should also issue clear, concise, and complete written decision to resolve appeals. Furthermore,
publication of decision as a means to provide guidance to tax payers, and upon which for whom
taxpayers is necessary.

Reducing Number of Appeals

An appeal denotes dissatisfaction or ambiguity with tax lows. Tax appeals can be reduced by
making transparent, simple and fair tax laws, developing effective handling procedures, and
timely resolution. It also can be reduced through assisting and educating taxpayers and effective
implementation of tax collected for worth projects.

Treat tax payers

Transforming in to customer focused organization requires major to the revenue body-listening
of customers through surveys and other method, measuring how well it serves customer, holding,
managers and employees accountable for how taxpayers are treated, acting rapidly to address
24

appeals, in sum, it requires resolution in customer service. To treat taxpayers as customers the
tax office should first a system that works on focus of taxpayers, then lead the way, seek the
changes in every aspect to treat taxpayers.

Amend Tax Laws With regard to Appeal provisions

The concerning body should amend the indirect tax law provision for timing limit for taxpayer,
bonding or payment of disputed amount and documentary requirements for indirect tax. The tax
law should also be reviewed in a way that tax payers can understand easily.

25

REFERENCE
1. Bahl,(1988), tax reform in Jamaica, final Report of the Jamaica tax structure Examination
project Syracuse University, Maxwell school, Metropolitan studies program Roy
(1991), the Jamaica tax Reform, Cambridge, Mass; Lincoln institution of land policy.
2. Bird R. M (1991), more tax than taxes taxation in developing countries; San Francisco,
institution for contemporary studies.
3. Cruz, Deschamps, Niswander, Prendergast,Schisler and Tron(2007),Fundamental of
Taxation, McGraw-Hill Companies, Americ Inc, America, New York.
4. Daniel.J Mitchell (200 1),An OECD proposal to Eliminate Tax and Competition Would Mean
Higher Taxes and less privacy, Washington D.C Heritage foundation.
5. Edwards,L, Myedew and Terry Sheelin (2005). Tax and Business Strategy, Planning
Approach.
6. Ethiopian Revenues and Customs Authority (ERCA). (2009). Taxation of SMEs in
Ethiopia. Paper presented on ITD Conference Rwanda, Kigali, April 2009.
7. Gebrecherkos, Birast (2009), problem of the Implementation Presumptive Taxation in Mekele
Region, A thesis in partial Fulfillment of Requirements for the Master of the Arts in public
Finance Management, institution of tax and custom Administration, Addis Ababa.
8. Hagos,H, Beyene (1992),sectoral analysis of Ethiopian Economy, policyIssue,Strategies and
performance, pre-collage training, Addis Ababa.
9. Henry,J, Arson and Joel, Slemard (2004), Crisis in Tax Administration, Bookings
Institution press, Washington D.C.
10. Javed, Khaliladeh, Shiziai and Anwar, Sheh, Taz policy in developing countries, world Bank
Symposium.
11. Mclure, CharlesE, Jr(1992), review of the Theory of Taxation for Developing Countriesin
Newberg and N. Stem,ed, Economic Development and Cultural Change.
12. SNNPRs Tax Authority (2008), Tax policy Objectives and principles, public
Communication and Services, unpublished, Awassa.
13. Tanzi,V(1987), Infilation lages in collection and real value of Tax Revenue Internal unitary
Fund Staff Paper P.24:154-67

26

14. Habtamu Dheressa, K.K Reddy, and Debela Yadeta (2015) , Challenges of Value Added Tax
Administration: The Case of East Wollega Zone, Journal of Finance and Accounting Vol.6(2)

27

ANNEX I
QUESTIONNAIRE
Rift valley University, Faculty of Business and Social Science
Department of Accounting
Part one: General Information
This questionnaire is prepared for educational purpose which is carried out by the researcher for
the partial fulfillment of B.A degree in accounting. The study is on the challenge of indirect
Tax Administration in Jimma Town. You will be kept on confidentially thus answer the entire
question.
Instruction: please answer the question either by putting or X in appropriate box or writing
down the required word, phrase or sentence on the space provided

SECTION ONE: QUESTIONNAIRE FOR OFFICIALS

01. Name of organization ____________________________

02. Have you got any formal training in tax assessment/estimation, collection and tax payers
service delivery?
Never

once

two times

more than two times

03. academic status

10 complete

01

Diploma

02

Degree

03

Masters

04

04. which facility are you form

-

business

language

accounting

economics

others
28

05. record your gender

Female
Male
06. you responsibility in tax office ______________________________
07. How do you obtain information about taxpayers business condition?
from 3rd party_________ from books records

For tax payers

From both sources,

08. How do you evaluate the assessment/estimation, Tax payers service provision, tax
collection, and tax payment and collection enforcement.
Very good

good

enough/decent

low

09. the city tax administration has standard estimation criteria

Yes

insure

no

third part information

information available with tax payers
estimation based soles information
others ______________________________________________________
if yes, what type of criteria do you have?
Tax paid previous years plus an appropriate increase
Tax paid by similar unit
10. what are the causes for inefficient and ineffective presumptive tax administration
A. A scale of annual budget
B. Less revenue collection
C. Unskilled man power
D. Poor management
E. Poor tax payers service deliver
If

any

___________________________________________________________________________
___________________________________________________________________________
____________
11. Does in adequate budget to effective service delivery?
Yes

No
29

12. Who is more affected by poor service delivery?

-

Low income group

Middle income group

All

No one affected

13. do the tax payers I complying with existing tax rules and regulations?
Yes

No

If no, what are the reasons of tax payers to do so?

Explain______________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
______________
14. please mark X under your option to the following statement regarding to tax payers service
delivery table
Statement

Strongly

Agree

Neutral Disagree strongly

disagree

Active participation of tax payers I

tax

estimation committee
Discrimination of tax payers by the in
come estimation committee
Clear transparency of work process payers
and concerning bodies
High accountability of tax administration
to tax laws and regulation and tax payers
There is open and visible tax assessment
procedures.

15. General information about implementation of tax payers service delivery.

15.1. In implementation of tax payers service provision, what are constraints that are related
with tax assessment/estimation, collection and enforcement.
30

___________________________________________________________________________
______________________________________________________________
15.2.

what

are

possible

solution

for

raised

constraints?_________________________________________________________________
_______________________________________________________
15.3. How do you evaluate the appeal committee I the town? Are the appeal procedures
convenient to both tax payers and town administration?
___________________________________________________________________________
_____________________________________________________________
15.4.

what

possible

ways

do

you

suggest?____________________________________________________________________
___________________________________________________________________________
__________
16. please mark X under your option response to the following statement regarding to tax
estimation

if

others,

pleasespecify________________________________________________________________
___________________________________________________________________________
_____________________

31

SECTION TWO: QUESTIONNAIRE FOR TAX PAYER

This questionnaire is prepare for educational purpose which is carried out by Jimma university
under collage of business and economics, department of accounting participate for bachelor
degree in accounting study of the challenge of indirect Tax administration in Jimma town. You
will be kept on confidentially answer the entire question.
Instruction: please answer the question either by putting or Xin appropriate box or writing
down the required word, phrase, or sentence on the space provided
a. type your business
partnership

private limit company

corporation

others

b. level of education
Primary school completed

secondary school completed

certificate

diploma

degree

postgraduate
c. How old are you?
18-30 years
31-40 years
41-50 years
51-60 years
61 above
04 record your gender
Female

Male

d. how long have been stayed I business

Below one year

1-3 years

4-7 years

7 and above years

e. how do you satisfied by the provision of service of tax administration

f. very poor

poor

ok

good

very good

g. How do you evaluate the annual tax assessment ,estimate and collection?
Verygood

good

decent

unfair

h. How do you decleare annual tax liability payment?

Full payment

partial payment

installment payment

no declaration

09. How do you get levying tax burden

Fair

UN fair
32

If

unfair

please

specify_____________________________________________________

______________________________________________________________________________
______________________________________________________________________________
__________________________________________________________
10. From where do you get information about the tax low, rules and regulation?
11. What is the reason for inefficient and ineffective operation of presumptive tax
administration?

If

lack of skilled man power

lack of annual budget

weak tax payers service delivery

lack of co-operation working process

hidden of tax estimation procedures

All

any

please

specify______________________________________________________

______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________

33

SECTION THREE: QUESTIONNAIRE FOR TAX ADMINISTRATION

This questionnaire

is prepare

for educational purpose which is carried out by Rift valie

University collage department of accounting participate for bachelor degree in according a study
of the challenge of indirect tax administration in Jimma Town. You will be kept on
confidentially answer the entire question.
Instruction: please answer the question either by putting or X in appropriate box or writing
down the require word, phrase, or sentence on the space provided
Interview guide
1. what is your understanding of the following concept
1.1. tax assessment
1.2. tax estimation=
1.3. tax payment
1.4. tax collection enforcement
2.

what are the weakness during the

implementation tax assement, tax estimation, tax

payment tax collection enforcement in town tax administration ?

3.

what were the causes for inefficient and ineffective indirect tax administration in the town?

4.

what are the limitation of taxpayers service provision in town tax authority and
administration ?

5.

how do you observe the implementation capacity(trained man power, tax collection budget
and material resource avilablity )of town tax administration?

6. Is there active participation of community during town strategic development plan preparation
and implementation?
7. What possible way do you suggest for those above raised issues?

34