CHAPTER ONE

INTRODUCTION

1.1. Introduction

Tax payers‟ behavior towards tax system has evoked great attention among many revenue
authorities in the world especially in developed countries. However, it is debatable on what
has been done towards the study of tax payers behavior towards tax system in
developing countries as they concentrate more in studies which would increase their budgets
“bottom-line” in terms of huge revenue collection and enforcement efforts at the expense of
studies on taxpayers behavior which would make increase in this tax revenue to be
realized and Tax means a compulsory contribution to state revenue levied by government on
personal income and business profits or added to the cost of some good, service, and
transactions. Normally tax is collect from peoples of country, when that they are workable
mans. Then this study discuses and analyze the existing problems facing in the assessment
and collection enforcement the case of Hosanna revenue authority and tax payers, see and
determine key variables that have adverse consequence on tax collection process. Tax have
international acceptance according to its usage. It’s constructed by rules and regulations. The
tax payers are started by levels based on amount of paying tax. I will introduce the means
of tax system and its problem

1.2. Back Ground of the Study

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. I will descuss on
what is the background of tax collection system and its necessity in our country. In
addition educate the society regarding its obligation and the purpose of tax collection
minimizes the wrong attitude of the taxpayer. So, this study is designed to minimize

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problems that face during assessment and collection and to minimize wrong attitudes
of tax payers. I will focuse on tax collection problem.

1.3. Back Ground of the Organization

Hosanna is central city of Hadiya zone in the SNNP region . This town eas
occupeide by the Italians on february 1937. By 1958 Hosanna was one of 27 places
in Ethiopia ranked as first class township. According to the Hosanna town revenue
authority branch office (HTRABO) revenues collected from different tax sources
have been significantly decreasing and increasing in the past 4 years. This shows
that there is a serious problem of revenue generation and the performance of tax
collection accordingly the government suffers to finance the social and economic
agendas of the Zone (town). Moreover, determinants of tax non-compliance in
Hosanna were not planned and controlled category basis that is category A, B and C
tax payer’s basis. I will be give some information on hosanna city and its revenue
office background.

1.4. Statement of the Problem

In this paper I will try to answer the following basic questions of tax collection
problems In the town. Aligned with the aforementioned facts, Hosanna town
revenue bureau might face different problems while collecting and administering
business income tax. Therefore, the objective of this study is to assess problems. of
business income tax administration with special emphasis on collection process in
Ethiopia (The case of Hadiya zone, Hosanna town).

1.5. Objectives of the Study

1.5.1 General Objective

The general objective of this study will to find out the major constraints that
affecting the tax collection system in the town.
 Asses the tax collection problems
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  Improve tax collection awareness
 Imply the weakness of tax collection system in the both side government
and societies
 Asses the solution of problems of tax collection
1.5.2. Specific Objectives.
Specific objective of this paper will focus on assessment of
 Internal factors affecting tax collection system.
 Environmental (external) factors that influencing tax collection system.
 To put some possible recommendation and to make this study’s result base for
further investigation.

1.6. Research questions (hypothesis)

1. I will ask that what are the major bottlenecks affecting tax collection system
in the town?
2. I will request about the problems and weaknesses in the side of government
bodies (tax collectors) or the system?
3. I will ask that what are the gap and weakness in the side of tax payer
societies? and
4. I will specifie the solution of its problem?

1.7. Significance of the Study

I belive that the followings will the significance of the study
 Will show the way for improvement of tax collection system.
 Will encourage compliance of tax payers
 Will create fairly clear image how the tax collection and problems with tax
collection will taking place.
 Will to enable revenue bureau to find out its strategies will whether effective
or not.

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  The result of this study will serve as a reference for further investigation

1.8. Scope and limitation of the study

The scope of this paper will improve the system of tax collection and will
aware the societies about tax importance for country by using regulate bodies.

Standing its nature of study will the tax policy at a higher level is time consuming
and need long term study so, the study paper will restrict only in problems of tax
collection in hosanna town.

CHAPTER TWO

2. LITERATU RE REVIEW
2.1. Introduction

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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. I will cover the
introdaction of the tax and its relates ideas.

2.2. Role of Taxation in Development Strategy

I will focus about role of taxation in fiscal policy and the development strategy will
view in the back ground of the function which a taxation system performs, I will list
the mian five roles of taxation in improvement policy.
 The primary function of tax system is to raise revenue for the government for
its public expenditure.
 The second function of taxation is to reduce inequalities through a policy of
redistribution of income and wealth.
 The third role of taxation is for the social purposes such as discouraging
certain activities which are considered undesirable.
 The fourth is to ensure economic goals through the ability of the taxation
system to influence the allocation of resources. This includes.
 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.

2.3. Characters of Good Tax System

There are 8 characteristics of well tax collection system. I will explain about those
characters of good tax system by list that include.
 Tax is compulsory contribution
 Taxes are levied by the government

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  Common benefit to all
 No direct benefit
 Certain taxes levied for specific objectives
 Attitude of the taxpayers
 Tax system recognizes basic report of tax payers
 Good tax system should be in harmony with national objectives

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. They are 11 principles that
I will list in this topic.
 Adequacy
 Broad basing
 Compatibility
 Convenience
 Ear marking
 Efficiency
 Neutrality
 Equity
 Simplicity
 Restricted exemptions
 Predictability

2.5. Canons of Taxation

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”. I will explain what is canon of taxation and what are the canons
of taxation that according on sceintists lists.

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  Canon of equity:- the principles aim at providing economic justice and social
justice to the society.
 Canon of certainty: - according to Adam smith the tax w/c an individual has to
pay should be certain, not arbitrary.
 Canon of economy:- this canon implies that the administration cost of tax
collection should be minimum, i.e. the difference between the money, which
come, out of the pockets of people and that which is deposited in the public
treasury should be as small as possible.
 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.

2.6. Major Types of Taxes in Ethiopia

 Direct taxes:- direct taxes are those wich are paid entirely by those person
whom they are imposed.
 Indirect taxes:- are computed indirectly in the cost of goods or service you
purchase such as taxes imposed on companies for doing business. I will try to
show the tax system and types in our country.
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. I will specify the classification of taxes briefly.

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.

2.7.2 Proportional Taxes

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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.

2.7.3 Regressive Taxes

In these kinds of taxes the marginal rate of tax decreased, as the income or consumption
increases. This tax a larger share of income from the low income tax payer than from the
high income tax payer. A tax which is technically proportional in terms of the tax base, can
often be Considered regressive in teems of tax payers income.

2.8 Categories of tax payers

I will define tax payers three major categories that are
1. Category “A” tax payers
2. Category “B” payers
3. Category “C” tax payers

CHAPTER THREE

RESEARCH DESIGN AND METHODOLOGY

3.1. Research Design

The study will focus on the problem associat with tax collection problem in Hosanna town
that the capital city of Hadya Zone in SNNP region. The study will from both qualitative
and quantitative research approach.
3.2. Source of data and collection method
To conduct the study I will collect both primary and secondary data. The primary data will
collect by using questionnaires from tax payers,. The secondary data will collect from the
official documents of bureau, from different and materials.

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3.3. Data analysis, Interpretation and Presentation
This chapter will deals with analysis and interpretation on the base of data gather
through questionnaires and interview. After gathering all required qualitative
and quantitative information data analysis will perform and present
through table, percentage and frequencies.

REFERENCE
 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,

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 Addis Abeba, 1985)
 Antony Lawrence (2010),customer relationship management,2nd edition, Himaly
publishing house, New Delhi
 Ellen Gifford (2002), customer relationship management.
 Philip Kottler and Gary Armstrong (2006), principle of marketing, 11 th edition,
prentice hall of India pvt Ltd, New Delhi.
 Philip kittler and keven Keller .12ed ,2006
 Sharp(2002),customer relationship management Baron A (2003), Behavior in
organization seventh edition, Hall of India.
 Baston Harvard, HTTP//www minded gedress, com.

 Clayton A, (1972); Existence: relatedness and growth (New York).

 Debra L. Nelson and Games capable quick, organizational behavior, 1994, second
edition addition, U.S.A western publishing company.

 David Buchana and Andrze (2004), organization behavior five editions span, mc
grew Hill Company.

 Debra, capbell and Nelson organization behavior 1994 second edition, USA western
lashing company.

 Douglas Mc Gregors (1974),organization behavior three edition.

 Fred Fiedler, 1960, leadership theory and practice.

 Freed L(1995; Baston Burr, Mc Graw –Hill 10 edition.

 Hellireigel, S, W, Organization behavior, 1988 fiveth edition.

 Http//.www.Com.leader behavior.

 Http//.www.people strim.

 Management study ,Baston Harvared, Http//www minded gedress com.

 Mc,shan and Von Glinow,(2009)organization behavior second edition in Mc Griw

Hill coampany

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  Nelson, Organzational Behavior, 1984 Second edition.

 Oforing and Toors (2009),Ethical leadership.

 Richard H .G Field Robert J.house, organizational behaviorss

 vior, 1995 Second edition; in USA,Canada city.
 Robert N.lussier and chrie to phert.Achua(2007),leadership fourth edition south
weastern.
 Stephern P.robbins, Organzational behavior, 1993, Fifth edition, New Delhi.

3.4 TIME AND COST BUDGET

3.4.1 COS T BUDGET
No Items Unit Quantity Unit in birr Total
cost
1 Paper PCS 50 2 100
2 Pen No 2 15 30
3 No 1 5 5
Ruler
4 Flash disc No 1 180
5 Secretary - - 300
6 Transportation - - 60
7 Internet - - 50
8 Total expense - - 665
9 Miscellaneous - - 70
expense
Total - - 735

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3.4.2 TIME BUDGET
No Activity Jan Feb . Mar Apr May Jun . July July

1 Selection of X
title
2 Preparation of X
proposal
3 Developing X
questionnaire
4 Distributing X
questionnaire
5 Collecting S X
questionnaire
6 Data analysis x
7 Writing up the X
paper
8 Presentation of x
the paper
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:
o A. primary school (5-6)  B. Secondary school (7-12) 
o C. Technical school  D. college (diploma) 
o 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 
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 B. before due data C. after due date 

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

A. yes  B. No 

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

A. yes  B. No 

6. If your answer is “yes” for question number 5 what is your possible reason?
A. Problem of procedure of tax collection system
B. Weakness among tax collector
C. The existence of over taxation
D. If any other specify ________________________________
7. How do you see present tax system? A. Good  B. Not bad 
C. Need restatement 
8. Do you know why tax is compulsory? A. Yes  B. No 
9. If your answer is “no” for question no 8 what is your reason?
A. No awareness creation by concerned body
B. Because tax is not so far contribute for one’s country’s development
C. I am not obliged to pay tax because it is not my responsibility.
D. If any other specify ________________________________
10. Are you satisfied with the method of assessment? A. Yes  B. No 
11. If your answer is “no” for question no10 because of what?
A. Power to collect tax is not delegated on the town
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

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  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 

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