Value added tax collection challenges in Ethiopia

Value added tax collection challenges in Ethiopia

As most of the developing countries do, Ethiopia was highly dependent on external financial resources to finance its development activities. For many decades, the tax contribution to GDP was very less and this needs an improvement. The government needs dependable and sustainable domestic revenue so as to run its function. Therefore, the purpose of this thesis has focused on addressing issues relating to assessments of VAT collection challenges in Gondar city administration revenue office. In order to attain the stated objective, the study has raised major research questions related to the challenges for low VAT collection performance, the compliance level of VAT payer’s and the VAT payer’s awareness level about VAT rules and regulations. The researcher used descriptive type of research design using quantitative and qualitative approach and purposive and systematic random sampling technique were employed to gather the data from the sample size of 146 VAT payers and 12 concerned tax officials. The researcher also used questionnaires and interviews to collect primary data and the last five years (2010/11-2014/15) annual report of revenue office and relevant documents to collect secondary data from data sources. In order to analyze the collected data, Percentages, table, pie charts and graphs were used. The result from descriptive analysis of primary and secondary data consistently reveals that: - poor tax collection enforcement capacity, poor performance of penalty for non compliance, high tax evasion, low level of voluntary compliance, ineffective VAT audit practice, taxpayer’s lack of awareness about VAT, submitting of illegal invoice, not participatory planning system, absence of continuous tax education program, inconvenience of the tax office location are the main constraints. The researcher recommended that: - effective tax collection enforcement, effective VAT audit practice, develops participatory planning system, enforce taxpayers that are eligible to VAT but not registered and develop continuous tax education program for VAT payers