RIFT VALLEY UNIVERSITY KALITY CAMPUS

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
CHALLENGE OF TAX REVENUE COLLECTION THE CASE OF CATEGORY
“C” TAXPAYERS IN AKAKI KALITY SUB CITY WOREDA 08

FINAL RESEARCH SUBMITTED TO ACCOUNTING DEPARTMENT IN

PARTIAL FULFILLMENT OF THE REQUIREMENT BACHELOR OF ARTS
DEGREE IN ACCOUNTING AND FINANCE.
PREPARED BY:-
1. MASFIN HIRPA-------------------------------------- --RVU/UAFR/0021/13
2. GELANA ADMASU------------------------------------ RVU/UAFR/0023/13
3. TADESE TURUNE------------------------------------- RVU/UAFR/0022/13
4. ARARE DEMBELASH-------------------------------- RVU/UAFR/0235/13
5. ZEBENAY TIBEBU----------------------------------- -RVU/UAFR/0025/13
6. HANA KELBISA---------------------------------------- RVU/UAFR/0009/13

ADVISER:-BALCHA
MAY, 2024
FINFINNEE (A. A) ETHIOPIA
 ACKNOWLEDGMENT
I am indebted to my Advisor Mr. Balcha without whose wise and intellectual advice, guidance and
direction this study would not have come to an end and would not become tangible. My sincere thanks are
kept to all my friends and course mates, especially group members who supported me during my stay at
the university. I really enjoyed the discussions and socialization we had. I am grateful to each entire Aaki
Kality sub-city Woreda 08 Tax and Revenue office staff for their cooperation in providing me necessary
information. I would like to express my deepest appreciation to the taxpayer population for their
cooperation. My warmest gratitude is of course reserved for my family members who were giving me
invaluable encouragement and support throughout my studies. And, I am grateful to all whose works have
been cited in this paper. Have my acknowledgement and appreciation.

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Table Contents
DECLARATION .................................................................................................................................. i
ACKNOWLEDGMENT ...................................................................................................................... ii
LIST OF FIGURES ............................................................................................................................ vii
ACRONYMS .................................................................................................................................... viii
ABSTRACT: ....................................................................................................................................... ix
CHAPTER ONE ...................................................................................................................................1
INTRODCTION....................................................................................................................................1

1.1. Background of the Study ................................................................................................................1

1.2. Statement of the Problem ...............................................................................................................2

1.3. Objective of the Study....................................................................................................................4

1.3.1. General Objective ....................................................................................................................4
1.3.2. Specific Objectives ..................................................................................................................4

1.4. Research Questions ........................................................................................................................5

1.5. Significance of the Study ...............................................................................................................5

1.6. Scope of the Study..........................................................................................................................5

1.7. Limitation of the Study...................................................................................................................5

CHAPTER 2..........................................................................................................................................7
LITERATURE REVIEW......................................................................................................................7

2.1. Introduction ....................................................................................................................................7

2.2. Theoretical Literature Review ........................................................................................................7

2.2.1. Definition of Terms ..................................................................................................................7
2.2.2. Types of Revenue ....................................................................................................................9
2.2.3. Purpose and scope of presumptive taxation .............................................................................9
2.2.4. Theoretical framework of presumptive taxation ....................................................................10
2.2.5. System based on turnover or gross income............................................................................10
2.2.6. Presumptive system based on indicators ................................................................................11
2.2.7. Simple lump sum patents .......................................................................................................12
2.2.8. System based on agreement between the taxpayer and the administration............................12
2.2.9. Types and basic method of presumptive taxation ..................................................................15
2.2.10. Tax assessment.....................................................................................................................16
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 2.2.11. Tax Reform in Ethiopia ...................................................................................................... 17
2.2.12. Strategies for improving enhancement of revenue collections and broadening the tax base
.................................................................................................................................................. 17
2.2.13. Challenges in Revenue Collection ...................................................................................... 18

2.3. Conceptual Framework ............................................................................................................... 18

CHAPTER 3....................................................................................................................................... 20
RESEARCH METHODOLOGY ....................................................................................................... 20
Introduction ........................................................................................................................................ 20

3.1. Research Design .......................................................................................................................... 20

3.2. Data Type and Source ................................................................................................................. 20

3.3. Sample, Sample Size and Sampling Techniques ......................................................................... 21

3.4. Method of Data Collection .......................................................................................................... 21

3.5. Method of Analysis and Presentation .......................................................................................... 22

CHAPTER 4....................................................................................................................................... 23
PRESENTATION AND ANALYSES OF DATA ............................................................................ 23
Introduction ........................................................................................................................................ 23

4.1. Descriptive Statistics Results for taxpayers respondents ............................................................ 23

4.1.1. Response Rate ....................................................................................................................... 23
4.0.1. Demographic characteristics of the respondents ................................................................... 23
Table 4: Distribution of respondents by gender of category c tax payer............................................ 24
4.1.2. Distribution of respondents by age of category c tax payer at Akaki Kality sub-city Woreda
08 revenue authority ................................................................................................................. 24
4.1.3. Distribution of respondents by educational status of category c tax payer........................... 24
4.1.4. Distribution of respondents by occupational status of category „c „tax payers‟ .................. 25
4.1.5. Types of Business (business category) ................................................................................. 26
4.1.6. The average annual income distribution of sampled respondents ........................................ 27

4.2. Tax assessment Based on estimation .......................................................................................... 28

4.3. Taxpayer and the Administration on Category „C‟ Taxpayers Perceive the Presumptive Tax
Regime With Respect to Its Fairness ................................................................................................. 29
4.3.1. Perceptions of Exchange Fairness ........................................................................................ 29
4.3.2 Perceptions of procedural fairness ......................................................................................... 31
4.3.3. Perceptions of horizontal fairness ......................................................................................... 32

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 4.3.4. Perceptions of vertical fairness ............................................................................................. 33
4.3.5 Perception of time-related fairness ........................................................................................ 34
4.3.6. Perceptions of inter-group fairness ....................................................................................... 36
4.3.7. Perceptions of compliance fairness ....................................................................................... 37
4.3.8 Perceptions of administrative simplicity ................................................................................ 38
4.3.9. Perceptions of administrative capacity ................................................................................. 40

4.4. Descriptive Statistics Results for tax officer’s respondents ......................................................... 41

4.4.1. Gender ................................................................................................................................... 41
4.4.2. Educational level distribution. .............................................................................................. 43
4.4.3. Distribution of respondents by occupational status of Akaki Kality sub-city Woreda 08
revenue authority Tax official/Employee.................................................................................. 43

4.5. The extent to which the challenges affect tax assessment & Collection process ........................ 44
CHAPTER FIVE ................................................................................................................................ 45
SUMMARY OF FINDINGS, CONCLUSION ANDRECOMMENDATIONS ................................ 45
Introduction ........................................................................................................................................ 45

5.1. Summary of Findings .................................................................................................................. 45

5.2. Challenge on the standards used in tax assessment based on estimation of category “C”
taxpayers ............................................................................................................................................ 45

5.3. The administration on category “c” taxpayers perceive the presumptive tax regime with respect
to its fairness. ..................................................................................................................................... 45

5.4. Conclusion ................................................................................................................................... 46

5.5. Recommendations and policy implication .................................................................................. 47

5.5.1. Recommendations ................................................................................................................. 47

5.6. Policy Implication ....................................................................................................................... 49

5.7. Need for Further Research .......................................................................................................... 49

REFERENCES ................................................................................................................................... 50
APPENDICES.................................................................................................................................... 56

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LIST OF TABLES

Table 1: Cronbach‟s alpha coefficient of the research items ....................................................................... 23

Table 2: Distribution of respondents by gender of category c tax payer ...................................................... 24
Table 3: Age of the respondents ................................................................................................................... 24
Table 4: Educational level distribution ......................................................................................................... 25
Table 5: Occupational status......................................................................................................................... 25
Table 6: Distribution of business sectors included in the sample................................................................. 26
Table 7: The average annual income distribution of sampled respondents .................................................. 27
Table 8: Problems of tax assessment based on estimation responded by tax payers ................................... 29
Table 9: Descriptive summaries for statements under the theme of exchange fairness ............................... 30
Table 10: Descriptive summaries for statements under the theme of procedural fairness ........................... 32
Table 11: Descriptive summaries for statements under the theme of horizontal fairness ............................ 33
Table 12: Descriptive summaries for statements under the theme of vertical fairness ................................ 34
Table 13: Descriptive summary for statements under the theme of time-related fairness ........................... 35
Table 14: Descriptive summary for the statement under the theme of inter-group fairness ........................ 36
Table 15: Descriptive summary for statements under the theme of compliance fairness ............................ 37
Table 16: Descriptive summary for statements under the theme of administrative simplicity .................... 38
Table 17: Descriptive summary for statements under the theme of administrative capacity ....................... 40
Table 18: Gender distribution ....................................................................................................................... 42
Table 19: Age distribution for tax officers employee................................................................................... 42
Table 20: Educational level distribution of tax officer /employees .............................................................. 43
Table 21: Occupational status....................................................................................................................... 44

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LIST OF FIGURES
Figure 1: Conceptual Framework Model ..................................................................................................................... 19

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ACRONYMS

ERCA Ethiopia Revenue and custom Authority

FDRE: Federal democratic republic of Ethiopia
GDP: Gross Domestic Product
AKSWRA :Akaki Kality sub-city Woreda 08 Revenue
Authority
OECD: Organization for Economic Co-operation and
Development
SIRM: Standard integrated revenue management
SPSS: Statistical Package for Social Sciences
TOT: Turn over Tax
VAT: Value Added Tax
AKSWARA Akaki Kality sub-city Woreda 08 administration
revenue authority
ERA Ethiopia revenue authority
BMS Block management system
ETB Ethiopia Birr
ICT Information and Communication Technology

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 ABSTRACT:
The main objective of this study is to analysis the challenges of tax revenue collection by Akaki Kality sub-
city Woreda 08 Administration Revenue Authority. Both quantitative and qualitative research design were
adopted. The research used primary and secondary data which was obtained from the yearly financial
report in respect of the total tax revenue collected and plan from the direct and indirect taxes for the
period of 2006-2012. The population of the study constitutes Tax revenue official and category “C” tax
payer in Akaki Kality sub-city Woreda 08. Akaki Kality sub-city Woreda 08 tax payers and tax office
Departments were selected. The major findings show that no trust of tax payer's statement caused by
poor communication and understanding between the tax authority and taxpayers; over taxation as result
of over estimation of daily/annual income; lack of fairness or equity of taxation among similar businesses
of category ”C”.On the other hand, the study found out that there is taxpayer resistance, low tax morale
on part of the citizenry, low level of literacy rates of taxpayers using technology and the findings suggest
that improving staff integrity while increasing taxpayers versus AKSWARA administrative capacity in
terms of IT requirements and authority and likewise challenge of availability of low level of literacy rates
to taxpayers regarding the utilization of technology in paying taxes and the respondent argued in
avoidance of tax evasion which the use of legal means to reduce one’s tax liabilities while tax evasion is
the use of illegal means to reduce the tax liabilities. More over the findings from the study indicated that,
the sample respondents of category “C” taxpayers have negative perceptions of exchange fairness,
procedural fairness, horizontal fairness, compliance fairness, simplicity and the administrative capacity of
the tax and recommendation, government to ensure that equal taxes are levied on individuals who have
equal income and authority must also actively involve taxpayers or their representatives while estimating
the daily sales and the authority build, the enhancement of taxpayer education on tax laws and procedures,
building public support and effective publicity through various ways such as media is important for the
facilitation of voluntary tax compliance.

Key Words: category C, Tax revenue, Taxpayers, presumptive Taxation, assessment

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 CHAPTER ONE
INTRODCTION
1.1. Background of the Study
Taxation is a system of raising revenue by a government through tax. It is the system of collecting money
by government to finance government operations (Misrak, 2014). According to (Bauer, 2005), Public tax
is the most important part of government sources of revenue and most of its plans and policies also depend
on the revenue collected. Government has also given priority in reducing the budget deficit through the
mobilization of domestic resources. The proper amount of tax must be collected on a timely manner for
successfully improving and maintaining steady economic growth in a nation. To do this, the enforcement
power of the tax administration, including proper tax assessment must be applied in a manner that fulfills
the tax principles.
In Ethiopia, though it was difficult to get reliable documentary evidences as to when exactly taxation was
introduced. It is believed that taxation came together with the establishment of the government. The new
constitution of Federal Democratic Republic of Ethiopia, (1995), Art. 51(10) and Art. 52(2 (e)), provides
the power to Federal and regional governments to levy and collect taxes from the source allocated to them.
Income tax proclamation No 286/2002 section, sub Article 16 classifies tax payers in to three different
categories: category “A‟ and “B” are those which are obliged to keep their book of account to present their
income statement and pay their tax liabilities accordingly. Category
„C‟ tax payers are not treated in direct way as of “A” and “B”, they are not forced to keep records
maintain it by the tax laws instead they are treated differently by the means called presumptive method.
The tax assessment on this category is based on estimation and the overall aim of this study to describe
the challenges relating to presumptive tax assessment and collection.
A number of researches conducted on “C” taxpayers have found out that tax assessment and collection is a
problem and the category “C” taxpayers are more associated with challenges than of the other categories.
Besides, the tax authority of some city administrations are not efficient and effective in various aspects
such as improving the tax assessment and collection system, creating awareness, enforcing the tax law,
providing services, and information regarding tax. Research findings reveal that determinants of the tax
assessment and tax collection problems are related with lack of equity and fairness of the tax system, low
level of awareness of taxpayers, ineffectiveness and inefficiency of tax the authority, poor service
delivery, lack of trust of the tax payers on tax collectors and tax assessment

1
system procedures. Other factors such as taxpayers‟ attitude and honesty/loyalty were found to be the
result of lack of awareness Abi, (2018).
It is, thus, the main objective of this study to find out the challenges of tax revenue collection category “C‟
tax payers at Akaki Kality sub-city Woreda 08 Revenue Authority.
1.2. Statement of the Problem
The Ethiopian government needs to bring rapid and continuous economic development. To achieve this,
government has been undergoing different reforms regarding revenue mobilization through taxation. Tax
reform must involve the balancing of multiple objectives and principles of raising revenue, ensuring
economic efficiency, equity and administrative efficiency. Tax reform of the country has two major parts,
namely policy and administrative reforms Fantahun, (2002).
Amina and Saniya (2015) studied the determinants of tax compliance for the case of Akaki Kality Sub-
city Woreda 08category “A” tax payers. By distributing total taxpayers, the study tried to explore the main
determinants of tax compliance. The result of their study found out that age, sex, penalty, audit, simplicity,
fairness and government perception to affect tax compliance. in general it is recommended that ERCA has
to work on education the young generation about the tax system and the benefit it has to the society as a
whole, try to make the whole tax system as far as possible with regard to the benefit received for paying
tax and the tax burden of paying it, to expand and make more regular and consistent auditing still putting
in mind the cost associated with it, work on bringing a good reputation in providing public service and
making the tax system simple in general and the law, the forms, the filling, the paying and appeal system
in particular in order to increase the tax compliance in one hand and the tax revenue in general. But the
research overlooked tax payers of category “C”
According to World Bank (2015) report 24% of GDP to finance investment requirement is being solicited
from loans and grants. Furthermore, Tadele, (2015) indicated that although the overall economic
performance of Ethiopia, measured by growth in real GDP, between 2003/04- 2010/11, registered an
average annual growth rate of 11.4%, and the contribution of tax revenue to GDP in 2010/11 is about
11.5% the ratio was proved to be low compared to other developing countries such as Botswana (35.2%),
Djibouti (20%) Kenya (18.4%). According to Workineh, (2016) the role of tax revenue is imperative in
bringing economic development, where its working or efficiency is determined by different socio
economic and political factors.
There is a controversy among literature as far as the determinants of tax revenue are concerned. For
instance, Eltony (2002) found foreign aid and foreign debt to have positive influence on tax revenue,

2
whereas; Gupta (2007) indicated that both have negative effect on tax revenue. As far as the relation
between tax revenue inflation rates is concerned, Mahdavi (2008) indicated that tax revenue is negatively
affected by inflation. Tesfaye (2015) forwarded that, foreign direct investment to GDP percentage negative
significant influence on tax revenue, but Belay (2015) in his study reveals that foreign direct investment
has significant positive relationship with tax revenue.
According to Ayale (2017) the study was conducted to assess effectiveness of tax assessment and
collection practice of category “C” tax payers at Alaba City The findings of the study revealed that most of
the taxpayers, those in the category “C‟, have been facing various problems related to the taxation system.
Despite the business community’s positive attitude towards the general concept of taxation, most of the
surveyed tax payers stated that what they are paying is beyond their ability to pay and that they neither
have trust in the employees of the authority nor in the overall tax estimation, assessment and collection
procedures. In light of these facts, the study concluded that the tax authority of the city administration is
not being effective or is being reluctant in making the tax procedures objective, transparent and
understandable to taxpayers.
In addition Amina (2013) studies the determinants of tax compliance: the case of Akaki Kality sub-city
Woreda 08 Category B tax payers. The study tried to explore the main determinants of tax compliance and
how these determinants are related with tax compliance. The findings of the study shows that tax rate,
probability of detection, penalty rate, reference group and tax knowledge are the determinants of tax
compliance. When tax rate is perceived as higher and inequitable, tax compliance will decrease: the higher
the probability of detection, the lower the compliance: when taxpayers perceived there is high penalty rate
for any non-compliance, the level of compliance will decrease: negative perception on friends and relatives
result in low compliance.
Many developing countries need to spend more of their tax revenue on public infrastructure, education,
health services and so on, and hence they need to increase their tax effort – tax revenue as a percentage of
gross domestic product (GDP) – if they want to grow and to be less poor, (Bird, 2006). The Akaki Kality
sub-city Woreda 08 Revenue Authority (AKSWRA) has been able to increase revenue collections;
improve voluntary compliance, minimize collection costs, widen the tax base, and control evasion and
fraud. In absolute terms, tax revenue collected by the AKSWRA increased from an equivalent of
45,575,000.00 million in 2005/06 to the current levels of 173,496,748.00 million in 2010/11 while revenue
to GDP ratio increased from 22.53% to 86.45 %respectively. This analysis shows that about 86.45 of
revenue in Akaki Kality sub-city Woreda 08 administration was from tax revenue collection; this is
contrary to the expectation of, the constitution of the government of Ethiopia
3
article 51(10) and article 52(2) (e) provides the power of levy and collect taxes from their own sources to
federal and regional governments respectively. Akaki Kality sub city Woreda 08 Revenue Authority is one
of the local government bodies which are given the authority to collect and administer its tax revenue
under its jurisdiction. It is increasingly necessary for the city to find ways and means of improving its
revenue generation in order to meet the higher level of their development needs The AKSWRA aims at
raising the ratio to 100% (AKSWA revenue trends, 2005/06 - 2011/12).
In generating revenue through taxation from taxpayers there exist different challenges such as tax
assessment method, strategies for improving enhancement of revenue collections and broadening the tax
base, system based on agreement between the taxpayer and the administration capacity and simplicity and
tax payers procedural fairness and identify challenges of tax revenue collection for the last six years
planned vs actual revenue collection Akaki Kality sub-city Woreda 08 revenue office. As far as the
knowledge of the researchers is concerned, no comprehensive research has been conducted to assess the
challenges of tax revenue collection in Akaki Kality sub-city Woreda 08 and bridge the gap in the existing
literature and the existing literatures indicated inconclusive finding as far as the challenges of tax revenue
collection is concerned study by (Bird, 2006). Mahdavi (2008) , Amina (2013)Tadele (2015), Amina and
Saniya (2015),Tesfaye (2015), Workineh, (2016) Ayale (2017) were conducting research with could not
fill the gap of such contradicting findings is timely and worth taking. Hence, research is aimed at is
assessing the challenges of tax revenue collection in Akaki Kality Sub City. Therefore, this study sought to
unveil the challenges of tax revenue collection it in order to come out with strategies for their eradication
1.3. Objective of the Study
1.3.1. General Objective
The general objective of the study is to assess the challenges of tax revenue collection in Akaki Kality sub-
city Woreda 08 Revenue Authority.
1.3.2. Specific Objectives
 In order to attain the general objective, the following specific objectives were developed.

 To analyze challenge on the standards used in tax assessment based on estimation of category”C”
taxpayers.
 To assess challenges on category „C‟ taxpayers perceive the presumptive tax regime with respect
to its fairness, simplicity and administration capacity?
 To assess challenges facing the taxpayers and the revenue authority.

4
 1.4. Research Questions
In line with these specific objectives the researcher developed research questions as follows.
 What is the challenge made during the methods used in tax assessment for presumptive taxation?

 How do challenges encountered in applying the scheme of presumptive taxation category “C”
taxpayers on perceptions of fairness, simplicity and administrative capacity?
 What are challenges facing the taxpayers and the revenue authority?

1.5. Significance of the Study

According to Ethiopian federal system power to levy and collect tax has been stretched up to the lower
level of administration i.e. Woreda level and authority and responsibility to spend this revenue for public
activities would also be decentralization to this lower level. Now a day there is highly increases of the
need for public goods and services. In order to finance this demand, government at each level is expected
to generate substantial domestic revenue effectively and efficiently. Therefore the contribution of this
study is important:-
 To show a better way of implementing the existing new tax reform regarding presumptive tax to
increase revenue generation.
 It may help the tax authority to identify the problem area and take corrective action

 It may be the base for further study on this topic in the Akaki Kality sub-city Woreda 08 Revenue
Authority.
1.6. Scope of the Study
The scope of this study was limited to the Akaki Kality sub-city Woreda 08 Revenue Authority small
business tax payers (category “C” tax payer “.) It was not include other tax payer categories (category
‟A” and“B”). The data of at least six consecutive years (2006-2012) were taken in order to evaluate the
increment of revenue in Akaki Kality sub-city Woreda 08 revenue authority. In order to undertake this
study, only category C tax payers were selected by the researcher; found in Akaki Kality sub-city Woreda
08.
1.7. Limitation of the Study
Lack of cooperation of some business taxpayer respondents to complete filling the questionnaire timely
and to provide the required information was serious challenges to conduct this study and also, most of the
respondents of business taxpayers are service providers and retail traders and did not have enough time to
respond to the questionnaires. These all requires additional time to encourage and

5
needed frequently to visit most of the respondents. The other limitation of this study was focused on part
of category „C‟ taxpayers only. Category „A‟, and category „B‟ taxpayers were excluded and also the
study was only focused on Akaki Kality sub-city woreda.

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 CHAPTER 2
LITERATURE REVIEW
2.1. Introduction
This chapter reviewed the literatures from different studies in order to capture ideas and arguments which
guided the development of the study. It is based on a theoretical literature review, a literature review from
earlier studies, and conceptual framework.
2.2. Theoretical Literature Review
2.2.1. Definition of Terms
Tax/revenue is referred to as a chargeable income during a year (Chijoriga, 2012). However, in order for
tax to be paid well voluntary tax compliance practices need to be emphasized. Voluntary tax compliance
refers to self-assessment of a taxpayer on his/her tax ability and then remit relevant amount of tax to the
government Fjeldstad, (2006).
Baurer (2005) argued that it is a well-known fact that the revenue generated from the taxation of
individuals and businesses is an important stream of income for government. In an economy like ours that
is struggling to remain afloat, it is even more important. Tax revenue is the source of funds used for
development projects such as provision of infrastructure like good roads, stable power supply, stable water
supply etc. All of which combine to create an enabling environment for businesses – and in turn the
economy at large- to grow.
However, Bofah (2003) stated that tax revenue collection is one significant issue of economic development
among others. It has been said that „what the government gives it must first take away‟. Because the
economic resources available to society are limited and so an increase in government expenditure normally
means a reduction in private spending. Taxation is one method of transferring resources from the private to
the public sector, but there are others i.e. creation of more money, to charge for the goods and services it
provides or to borrow.
Taxation has its limits as well, but they considerably exceed the amounts that can be raised by resorting to
the printing press, charging consumers directly, or borrowing. So while governments often use all four
methods of raising resources, taxation is usually by far the most important source of government revenue
Chaudhry, (2010). As important as tax revenue is to a nation, many people still find it difficult to comply
with their tax obligation.
According to Nightingale (2002) “No one really likes paying taxes yet they are inevitable for the

7
 Revenue: Revenue refers to the income generated by a business or organization from its primary
activities, such as sales of goods or services. It is the total amount of money earned by a company before
deducting expenses, taxes, and other costs. Revenue is a key financial metric that reflects the overall
performance and growth of a business.
 Tax Revenue: Tax revenue is the money collected by the government from taxpayers through
various forms of taxes. This revenue is used by the government to fund public services and programs, such
as education, healthcare, infrastructure, social welfare, national defense, and other government functions.
Tax revenue is a crucial source of income for governments at all levels, including federal, state, and local
governments.
 Taxpayers are individuals, businesses, or other entities who are legally obligated to pay taxes to the
government. Taxes are imposed by the government to fund public services and programs, such as education,
healthcare, infrastructure, and national defense. Taxpayers are responsible for paying taxes based on their income,
assets, transactions, or other financial activities, as determined by the tax laws and regulations of their country or
jurisdiction. Different types of taxes may apply to different taxpayers, such as income tax, property tax, sales tax,
and corporate tax.
 Category C Tax Payers: Category C taxpayers typically refer to a specific classification of taxpayers in
certain tax systems. The categorization of taxpayers into different categories helps tax authorities to classify and
manage taxpayers based on their characteristics, income levels, or other criteria. In some tax systems, Category C
taxpayers may be individuals or entities with specific characteristics or tax obligations that distinguish them from
other categories of taxpayers.
 Tax Reform: Tax reform refers to the process of making changes to the tax system of a country or
jurisdiction. The goal of tax reform is typically to improve the efficiency, fairness, simplicity, and effectiveness of
the tax system. Tax reform can involve various changes to tax laws, regulations, policies, and procedures that govern
how taxes are collected and administered.
 Taxation Assessment: Taxation assessment refers to the process of evaluating and determining the amount
of tax liability owed by an individual, business, or other entity to the government. The assessment is typically based
on the income, assets, transactions, or other relevant factors that are subject to taxation according to the applicable
tax laws and regulations.

8
provision of social welfare”.James, S. and Nobes, C. (2000). and Nightingale (2002) while citing Smith,
K.W. and Kinsey, K. A. (1976) posit that a good tax should have the qualities of equitability, efficiency,
neutrality, flexibility and simple. These principles still holds today and even act as a guide for policy
formulation. However, the ability to achieve all in a single tax policy is practically impossible; hence
Nightingale (2002) stated that there is no good tax. This is because an efficient tax might be inequitable.
According to Małgorzata& Sabina (2017),“An efficient tax may not necessarily be considered fair and one
that is considered equitable may not be efficient”. Ordinarily, people abhor tax payment due to its effect on
their income. Małgorzata & Sabina (2017),) noted that only a few people are enthusiastic about paying tax.
Tax policy must be generally accepted by the people if it must gain compliance (Nightingale (2002). It
therefore means that a good tax system must be in consonance with (Smith, 1776) cannon of taxation.
World Bank (2002) stated that the tax system in Tanzania is still complicated and non- transparent.
Moreover, Logue, D. and Vettori, G. (2010) pointed out that tax legislation is unclear and causes random
and partly ad hoc collection procedures. Assessors are considered to have wide discretionary powers to
interpreting tax laws, for instance, to allow or disallow expenses or charges or to exempt import duty on
items imported. Therefore, reforms of tax legislation and procedures, including measures to improve
transparency in the taxpayer–tax officer relations, should take place concurrently to reduce opportunities
for corruption and the demand for corrupt services Logue, D. and Vettori, G. (2010). Bofah. K.(2003)
argued that literacy rate is by far the most important element in success of tax revenue collection while the
backbone of an effective tax system is the documentation of the economy. Documentation comes from a
literate tax base. In the present day world literacy does not only being able to keep records on books but
also includes knowledge of information technology and its usage. Taxes yield less revenue in less literate
economies. Tax collection requires consistency in implementation and consistency in implementation
comes with political stability. Taxes, law and order situation is indirectly related. A country with stable
law and order situation would mean greater investment being brought in, more jobs being created,
resulting in greater purchasing power on the part of the consumers who effectively have to pay tax.
Awareness to the people on the benefits of paying taxes which increase the tax morale of the people should
be brought as long run policy implication Bahiigwa et al, (2004).
Garde (2004) observed that the tax incidence model focuses on the equity implications (or fairness) of
alternative local revenue policies. The health of the tax/revenue system and the consequent quality of
service delivery is constrained by a number of challenges including:

 The high costs of collection relative to yield for some taxes;

9
  Low compliance rates for some taxes;

 The lack of voice felt by taxpayers and negative perceptions of service quality, which affect
willingness to pay taxes;
 The propensity for some employees to ignore central government legislation in their search for new
revenue sources (a dynamic that was documented following recent tax reforms in Tanzania); and
 Leakage of revenues from privatized tax collection arrangements, which can introduce wide
margins between payment by taxpayers and yield to authorities Sarzin, (2007).
2.2.2. Types of Revenue
A. Tax Revenues
These include; Direct taxes such as corporate tax; personal income tax, withholding tax- rents,
management and professions fees, property tax etc. and indirect taxes such as import duty, excise duty
( imports and local goods), VAT (imports and local supplies) and stamp duty. Misrak, (2014)
B. Non-Tax Revenues
These include; Fees such as passport, driving license etc. fines and penalties regarding the breach of
law or non-fulfillment/failure; surplus from public enterprises such as dividends from profits Chijoriga,
(2012).
2.2.3. Purpose and scope of presumptive taxation
The ability of the tax system to adequately perform its functions is to a large extent determined by its
correspondence to the economic environment along with certain principles and requirements. Specifically,
tax burden should be fairly distributed among all the economic entities depending on their taxable
capacity. The implementation of this principle is, however, hampered by the informal (unregistered)
economic activity and active tax evasion by a significant part of the taxpayers. Another problem and,
simultaneously, an important task of the state is the establishment of the economic environment favoring
all kinds of socially useful entrepreneurship. Special support should be received by small enterprise and
self-employed single entrepreneurs. Meanwhile, tax systems of the majority of countries will be meant
from the beginning for targeting large and medium-size companies with the highest level of “budget
efficiency” from the point of view of tax administration. As a results, small business as a rule finds
unacceptable the costs and difficulties associated with the accountancy and submission of statements in
accordance with the general tax treatment. The above issues constitute the major reasons for the
application of presumptive taxation. Special treatment schemes and methods for the assessment of tax
liabilities are to a larger extent taking into account the particular features of specific groups of economic

10
entities compared to the general tax treatment. Presumptive taxation employs relatively simple rules for the
accrual and payment of taxes for those economic operators, which often avoid regular taxation Make
donskiy, (2005)
2.2.4. Theoretical framework of presumptive taxation
An application of the standard tax regime requires the keeping of appropriate books and records. This,
however, creates a high compliance burden not only in terms of cost but also in terms of the skill and
capacity required, which micro businesses often lack. The presumptive approach is popular in this regard.
Since there are no standard and uniform principles, the regime differs significantly in its scope of
application and in the criteria used to determinetax liability. Presumptive tax systems generally an be
categorized into four groups, namely: system based on turnover or gross income, system based on
indicators, simple lump sum patents, and system based on agreement between the taxpayer and the tax
administration Engelschalk,(2007).
2.2.5. System based on turnover or gross income
Turnover or gross income-based schemes are the most popular kind of presumptive taxes Mutsotso (2010
:). This system can be implemented in different ways, namely: uniform turnover-based presumptive
taxation, progressive turnover-based presumptive taxation, or application of different tax rates on a
standardized tax base.
 In uniform turnover-based presumptive taxation, businesses are charged a similar tax rate
regardless of their income, their profit margins or the business activities they are engaged in. Under
this system, all micro businesses under the presumptive system are taxed uniformly. Such a system
may under-tax those businesses that have higher annual income under the system and over-tax
those that earn less. This form of taxation has a disincentive for micro businesses at the upper band
to graduate to the standard regime. Though the uniform turnover-based system is the simplified
system of taxing micro businesses, its disincentive regarding transition to the standard regime has
made it less preferable and therefore less widely used Engelschalk,(2007)
 Progressive turnover-based presumptive taxation taxes micro businesses with different rates based
on their income. However, different business activities are treated uniformly as long as they are in
the same band of turnover. This form of taxation reduces the tax burden between the upper band of
the presumptive system and the lower band of the standard system, smoothing the transition to the
standard regime. Though there is a compliance cost in joining the standard regime, unlike the
presumptive regime, the standard regime offers incentives for businesses to grow Engelschalk (2007 :)

 Application of different tax rates on a standardized tax base is a system that treats micro businesses

11
 in a non-uniform way regardless of either their business activity or their profit margin. The tax
liability of micro and small businesses differs not only depending on their income difference but
also on the business activity they are engaged in. The different tax rates, however, should be kept at
a minimum for simplicity and to avoid dispute between taxpayers and the tax administration.
Unlike the uniform and progressive turnover-based systems, this system is difficult to administer.
However, it has a tendency of increasing fairness among micro and small businesses. As there are
two forms of presumptive tax in Ethiopia, namely indicator- based and turnover-based, the system
of presumptive taxation is employed for taxpayers who have an annual turnover of less than ETB
100,000 they are defined as category „C‟ taxpayers, Engels chalk,(2007).
However, in 2016 the new income tax regulation revised the categorization of taxpayers, and category
‟C‟ taxpayers will be re-categorized as those whose annual turnover is less than ETB 500,000. During the
period of Engels chalks study, category „C‟ taxpayers will be taxpayers earning annual turnover of less
than ETB 100,000After the revision of the income tax proclamation in 2016, category „C‟ taxpayers are
those that have annual income of less than ETB 500,000. Though it is popular, the turnover-based scheme
is an inefficient form of presumptive regime. It discourages businesses that are efficient by causing them to
incur more costs. For example, if business A has annual gross receipts of ETB 200,000 with a cost of ETB
100,000 and business B has gross receipts of ETB 100,000 with zero cost, then under a turnover-based
regime a rational business will have an incentive to join business B, which is an inefficient one, Logue and
Vettorri,(2010).
2.2.6. Presumptive system based on indicators
This system is based on certain indicators that can be used as a proxy of the income of the taxpayer. Good
indicators have to be easy to verify and record, have low risk of falsification, and must have a sufficient
correlation with the income of the taxpayer. Some of the indicators used are the number of employees the
business has, machine capacity, floor space, value of inventory and years of business operation. In some
cases, third party information, such as electricity and water bills, is used as a good indicator. In cases
where the risk that micro businesses can get their supplies from unrecorded sources is low, few countries
collect data from wholesale suppliers. Though this approach is the main alternative to the turnover- based
presumptive system, it can have an adverse effect on employment generation and efficient use of capital
usage as firms limit their use to reduce their tax liabilities ,Engelschalk (2007).
There are cases where both the turnover-based system and the indicator-based approaches are used in
combination to tax micro and small businesses. In cases where there is understatement of gross income,
indicator elements are used in the turnover-based system as the indicators provide clear counter evasion
12
elements from the tax collectors‟ point of view. This is what is known as the combination of the turnover-
based approach and the indicator- based system Mutsotso,(2010).
2.2.7. Simple lump sum patents
Patent systems are often implemented to tax the „hard-to-tax‟ groups of micro and small businesses
owners. The main objective of this system is to familiarize small businesses to encourage them to join the
tax net instead of generating tax revenue. This system has a long-term objective of improving the tax
culture instead of the short -term objective of generatingrevenue. This is justified because in many cases
the number of patents collected hardly surpasses the cost of collection, Mutsotso, (2010).
This is a system that applies a uniform tax rate to a given business division irrespective of thesize or
turnover of a business in the division. This is the least sophisticated form of presumptive tax system.
Patent systems can be designed to capture the actual profit potential of a certain profession, like in the case
of Bulgaria. In Bulgaria, this system divides small businesses into 43 sectors and each sector is divided
into different sub- sectors. In addition, the system takes business locations into consideration leading to an
estimation of more than 52 tax rates, making it an unpopular and unaccepted system in the country
Pashev,(2005)
2.2.8. System based on agreement between the taxpayer and the administration
The prominent form of this system is the „forfeit‟ system of France which has now been repealed and
replaced by the turnover-based system. In this form of taxation, the tax administration conducts broad-
based research on businesses and determines the profit above which tax has to be paid. Agreement will
then be reached on the amount of profit on which the taxpayer pays taxes. In most cases the profit initially
estimated by the tax administration is higher than the agreed system. This system is what is known as the
rebuttable form of presumptive regime. This practice, however, is not often used in many countries
Thuronyi (1996:).These different forms of taxing micro and small businesses have to be based on the basic
tax principles such as fairness, efficiency, administrative capacity and so on. Some discussions on fairness,
simplicity and administrative capacity are presented in the subsequent paragraphs.
Simplicity
Simplicity: refers to the simplification of the tax structure with regards to administrative and compliance
costs. Tax simplification is achieved through the simplification of the tax system, the tax legislation, and
the application of the tax rules Mohd and Ahmad , (2011). The type of tax, method of assessment and
collection must be simple and understandable by both the taxpayer and the tax collector. Mugume
(2006)asserted that, a good tax should be one which is easy to understand that to say, the tax payer must be
able to know the exact amount to pay and when and how much to pay without any difficulty. Complicated
taxes tend to lead to disputes, delays, and high collection costs in terms of time and resources. Organizing
13
assessments basing on the principles ultimately improves on the Local revenue collection hence service
delivery and the reverse is true.
Administrative capacity
On the other hand refers to various issues that can be divided along the lines of a functional classification –
registration, payment, information access, assessment, audit, litigation and the appeal system, sanctions
and penalties. In this study perceptions of administrative capacity are focused on these areas. Fairness
should be viewed in the general tax system and not just from the presumptive tax point of view as it can be
offset by social security and other form of taxes. As one of the major objectives of this study is to assess
the perception tax payers of fairness, it is worth discussing the different dimensions of fairness in this
section. According to the American Institute of Certified Public Accountants, there are seven dimensions
of tax fairness, AICPA (2007 :)
Exchange fairness
Taxes are prices paid for the crucial goods and services provided by governments. Exchange fairness
means that, over the long run, governmental organizations provide adequate public goods and services to
meet the needs of taxpayers. Exchange equity does not mean that, during a specific period, the amount of
taxes paid by an individual tax payer will precisely match with the value of the tax benefits directly or
indirectly received. In order to avoid evasion and improve compliance, taxpayers must have a positive
perception of exchange fairness. Taxpayers must feel that, in the long run, they are getting public services
worth the tax they pay. Taxpayers‟ insufficient perceptions of exchange fairness and a lack of
representation in tax decisions discourage voluntary compliance and, in most cases, lead to revolutions
Moser, Evans and Kim, (1995).
Procedural fairness
There are three key aspects to procedural fairness. First, political processes give taxpayers an opportunity
to influence how and to what extent they are taxed. Second, tax systems include safeguards that permit
taxpayers to challenge the taxes assessed. Third, tax administrators are expected to treat taxpayers with
respect. In the interest of both exchange and process equity, taxpayers should have a direct or indirect
voice in how tax revenues are spent. If taxpayers have perceptions that they are not well represented, they
are likely to be involved in protests against the tax laws and legislation.Alm et al (1993, 1999), Alm and
Torgier (2006)
Horizontal fairness
Horizontal fairness is the most often cited aspect of tax equity. Horizontal fairness means that taxpayers
with equal amounts of income should pay the same amount of tax. Horizontal fairness also suggests that
similarly situated taxpayers (e.g. those with a similar family size, or business location, access to markets,
14
expenses etc.) should be taxed similarly. Two households may earn exactly the same income, but may not
be „similarly situated‟, and may therefore have differing abilities to pay taxes. A certain amount of each
family‟s income is needed to provide for basic human needs. This amount should not be subject to tax.
The amount of income that should not be taxed depends on several factors, including the cost of living, the
size and structure of the family, the age of family members, and extenuating circumstances such as
disabilities or illness , Moser, D. V., Evans III, J. H., & Kim, C. K. (1995).
Vertical fairness
Vertical fairness means that the tax burden should be based on the taxpayer‟s ability to pay. Clearly
individuals with subsistence levels of income should not be subject to all types of taxes because they need
all their resources to provide for themselves and their families. Beyond this subsistence or poverty level of
income, however, exchange equity suggests that all citizens should pay some taxes, even a relatively small
amount. In general, vertical fairness is the justification for progressive tax, Maroney, J. J., Rupert, T. J.,&
Anderson, B. H. (1998),wenzel (2004).
Time-related fairness
Time-related fairness means that the total tax liable is suitable over the long term and not overly distorted
by fluctuations in income or wealth. Two factors contribute to potential time-related inequities. First, tax
liabilities are based on short-term or single point- in-time measures. Second, changes in the general price
level affect the value of the monetary unit, as well as the relative value of various tax provisions,
Meshesha, (2015).
Inter-group fairness
Inter-group fairness implies that no group is favored at the cost of another without good cause. While some
shifting of tax burdens based on the ability to pay may be appropriate, tax burden and benefit inequities
should be minimized Verboon, P., & Van Dijke, M. (2011).
Compliance fairness
Compliance equity and fairness means that all taxpayers pay what they owe on a timely basis. Significant
non-compliance depresses perceptions of equity, increases tax administration costs, shifts tax burdens and
expand the tax gap. A large current tax gap makes it necessary for legislative bodies to raise future tax
rates, borrow additional funds or reduce costs or benefits. Changes in tax law or tax administration that
make it easier for taxpayers to comply (or more difficult to not comply result in fairer tax systems James et
al (2003), Wenzel, M. (2004).
2.2.9. Types and basic method of presumptive taxation
2.2.9.1. Standard assessments method
Standard assessments method was developed for the first time and applied in Israel (1950)‟s. under the is
15
raelitachshiv system (standard taxation) careful examination of about one hundred sectors of business is
made on the basis of key indicators, i.e. production factors. the average return and its interrelation with
some factors are discussed with the representatives of the respective business sector. Unlike the forfeit,
which sets forth limits on the turnover, standard assessments do not establish such limitations. The
examples of the key indicators in or standard assessments are: location; number of seats (for restaurants,
cafes, hairdresser shops, etc.); qualification level of employees (for garages or carpenter shops); the nature
of the used equipment (for truck and taxi drivers); water consumption (for ice producers); quality of soil
and average crop yield (for the agricultural producers). the complex preparation and continuous updating
of the standard assessments require significant time and effort which contradicts to the purpose of
simplicity which is associated with the presumptive taxation. as the practice has shown, the effectiveness
of the application of this method decreases if the established charges are not reduced in accordance with
the inflation, while the assessments of the average income are not reviewed periodically. Besides, standard
assessments do not take into account the specific conditions of the taxpayers, family status type, or losses
in the particular year. makedonskiy, (2005 )
According to Misirak, (2014), tax assessment is one of the most difficult aspects of tax administration. It
requires clear, transparent and comprehensive law, directives and manuals from the tax collectors point of
view and knowledge of accounting by the tax payee. It is the process of determining tax liability base on
the income obtained with in a specific period. The assessment could be based on information declared by
the tax payer and information obtained from different sources and tax payers with small volume of
business are not usually obliged to maintain books of account. The assessment of their taxable income is
based on their self-declaration and tax office investigation. Tax offices apply presumptive assessment to
decide the taxable income which is usually discretionary and involve subjective judgment.
To abandon the current estimated assessment and pave the way for introducing standard assessment,
proclamation No. 227/2001 provides specific particles. It is clearly stated that beginning fiscal year of
2002/03 a standard assessment method will be applied to determine the income tax liability of category
“C” taxpayers. The proclamation stipulated that the standard assessment would be fixed amount of tax,
which will be determined by a regulation of the council of ministry’s. Moreover, up to its implementation
the law incorporates a transitional tax computation rule. Under the transition rule a category “C” taxpayers
will be liable to pay the amount of tax due for the preceding tax year, adjusted up ward by a coefficient of
6% standard assessment entails to set a fixed lump-sum tax for a taxpayer based on occupation or business
activity Fantahun, (2000,).
2.2.9.2. Estimated assessments method
16
Estimated assessments method implies participation of the tax administration in the assessment of incomes
and tax liabilities of the taxpayers. That method is most relevant for the sectors and types of business
activity, where understatement of income is regular and wide spread. However, the practice has shown that
discretionary treatment (establishment of tax liability upon discretion) often backfires by becoming an
“invitation for corruption” for tax authorities. Along with the complexity, difficulty and unreliability of
assessing the sectoral activity by key indicators, still other negative consequences of the application of
taxes on imputed earnings should also be mentioned here. Because the target of taxation is not the actual
income but a certain estimate of the production factors, small business entities may lose incentives to
increase the number of employees and involved capital, seeking rather to reduce their tax liabilities. The
applied methods of assessment on the basis of key indicators involve expert evaluation of profitability.
Such “discretionary assessments” may encourage the corruption in tax and state authorities having to do
with the establishment of tax liabilities. Make donskiy, (2005 ).
2.2.10. Tax assessment
Tax assessment is the definition of the amount the taxation under particular state requires an analysis of the
tax payers‟ situation and legal provisions that apply to him with income tax and also other taxes on the
transfer the property, such as inheritance tax, the tax payer submits a tax return providing information as to
his professional suppliers. Additionally, copies of balance sheet, income statement and minutes of the
general meeting that approved these financial reports. The return with the attached reports and statements
is means to provide such complete and correct tax. Most tax systems also collect information in other ways
in order to inform as potential tax liabilities, The New Encyclopedia Britannica, (1997), Volume28
2.2.11. Tax Reform in Ethiopia
Tax reform must involve the balancing of multiple objectives and principles of raising revenue, ensuring
economic efficiency, equity and administrative efficiency. Tax reform of the country has two major parts,
namely policy and administrative reforms.
2.2.12. Strategies for improving enhancement of revenue collections and broadening the tax base
A classical economist Smith (1776) put forward the canons or general principles of taxation which he said
should be observed when imposing a tax, and these are; equity, certainty, convenience, productivity,
buoyancy and economy. These canons if followed in tax assessment, collection and administration,
improve on the Local revenue collection and administration.
According to Prisely, (2013) on his title assessment of the challenges facing revenue collection in
Tanzania: evidence from Tanzania revenue authority (TRA); morogoro study was to determine the
strategies for the enhancement of revenue collection at Tanzania revenue authority (TRA) morogoro. The
strategies included; establishing more accessible and transparent payment facilities; improving fiscal
17
policy, legal and regulatory framework; broadening the tax base; enhancing taxpayers‟ education and
sensitization; improving the citizens‟ access to and right to information on taxes collected and how
revenues are spent; application of block management system; use of presumptive approach of taxation;
implementation of weekly/monthly individual action plan and evaluation of results and implementation of
quality audit procedures for high revenue yield. In addition Marcellina ,(2012) dean, university of Dares
salaam business school new areas for enhancement of revenue collection and broadening tax base of the
country presented stated that enhancement of revenue collection and broadening tax base of the country in
Tanzania morogoro revenue authority has been classified the strategies for improving enhancement of
revenue collections and broadening the tax base discussed in five class are Improvement on the fiscal
policy, legal and regulatory framework including Improvement on the tax exemptions policies and
regulations. and Equal treatment of all investors - inclusive taxation local and foreign investors and the
Second strategies are broadening the tax base- What it means , expanding the total value of all incomes
and/or property and Increase the number of tax payers or type of taxes , Informal sector – increase number
of tax payers through registration or regularization and Improvement of the business environment and
improvement in the economic growth – more taxable business (corporate tax), more employment (paye),
more consumption (VAT) , Broadening the Tax Base – Strategies including Formalization of the informal
sector – National identification cards, simplification of business registration procedures, enhance
compliance , controlling fraud ad minimizing tax avoidance, enhancing Block management system (BMS),
application of ICT based systems from mapping the blocks. , Improve the formalization of properties and
business formalization (registration and licensing) and improved business climate cost of doing business.
Improving investment climate and Improvement of tax collection in other sectors in the – natural resource
Fishing , forestry, mining, energy etc. and finally Marcellina mvula chijoriga 2012 during his presentation
Improved fiscal prudence and Financial Discipline and Economic Management Cost Cutting and Resource
Rationalization Measures and Improvement in the Tax Administration and Enhances tax payers education
are the Strategies for improving Enhancement of Revenue Collections and Broadening the Tax Base
2.2.13. Challenges in Revenue Collection
According to Chijoriga (2010) the challenges include; Broadening the Tax base, informal sector included
in the tax net, Ensure that all due Government revenue is collected and tax evasion and avoidance are
controlled. Raising the level of revenue yield to be commensurate with the average yielded in other local
governments. Addressing stakeholders‟ (community’s)expectations by exercising various statutory powers
fairly in accordance with the law without political influence. Expediting tax decision making and rulings
by putting in place well established procedures and criteria improving staff integrity.

18
 2.3. Conceptual Framework
The conceptual framework used in Figure 1 is modified from Rwegasira (2011) is the challenges of
revenue collection will be identified and examined for the purpose of making AKSWRA stay and produce
effective services for the betterment of all stakeholders.
Figure 1: Conceptual Framework Model

Strategies for enhancing Tax

revenue and broadening tax base

Revenue enhancement plan

Personal Characteristics

 Sex
 Age
 Level of education

Perception of turnover based

\ presumption tax system fairness
Tax Revenue
Simplicity collection

 Administrative
capacity
 Exchange fairness
 Procedural fairness
 Horizontal fairness
 Vertical fairness

Tax assessment

 Tax assessment
ce: Adapted and modified fro

Source: Modified and adopted by the researcher from Review of Literature

19
 CHAPTER 3
RESEARCH METHODOLOGY
Introduction
This chapter presents the methods and procedures that were used to carry out this study. Specifically, the
chapter spells out the research design, the population studied, the sampling strategy, the data collection
process and how data will be analyzed and findings presented.
3.1. Research Design
This study uses a descriptive research design. A descriptive research design enables current description of
the phenomena being studied. According to Mugenda (2004)a descriptive research involves collection of
data in order to investigate the current status of the subjects with respect to the reason for the study. This
study required the careful Analysis of the challenges of tax revenue collection Akaki Kality sub-city
Woreda 08 Revenue category “C” tax payers.
To obtain the advantages of both the qualitative and quantitative research approaches and at the same time
to overcome their limitations, the mixed approach has been applied. As cited by Wollela, 2009, through a
mixed methods approach, biases and weaknesses inherent in any single method could neutralize or cancel
those of other methods.
As aregued by Wollela 2009, mixed methods approach is one in which a researcher tends to base
knowledge claims on pragmatic grounds employing strategies of inquiry that involve collecting both
quantitative and qualitative data either concurrently or sequentially to best understand research problems.
3.2. Data Type and Source
The target population was category „C‟ tax payers (are those tax payers whose annual turnover is up to or
less than 500,000 ETB & estimated assessment method shall be used to determine their income tax
liability) according to income tax regulation number 78/2002. According to the Akaki Kality sub-city
Woreda 08 Tax revenue office report by the end of June 2012 E.C the total number of category „C‟ tax
payers in the Woreda were estimated to be a total population of 2199. Therefore, the total population of the
study was 2,199.
In this study both primary and secondary data have been used. Primary data were the major source of data
for the research as there are no research works done on challenges of tax revenue collection in Akaki
Kality sub-city Woreda 08 both empirically and theoretically. Secondary data also have their

20
own contribution as they are helpful to define the research problem, methods that were used in data
collection and analyses. Secondary data were collected from the town's tax authority data base and from
other unpublished sources.
3.3. Sample, Sample Size and Sampling Techniques
The researcher used purposive sampling method to generate the required primary data from 20 purposively
selected tax officials. Purposive sampling method was used to select the targeted respondents as indicated
because it is a non-random sampling procedure in which personal experience of the respondent, the key
position one held, or the roles s/he played in relation to a particular business/activity. The respondents
selected purposively included from operation department revenue collectors and tax revenue estimators.
The sample selection method was made by considering the nature and scope of the subject matter under
study. Hence the researcher used purposive sampling to select 20 respondents out of 21 tax officers from
the Akaki Kality Sub-city Woreda 08 and the respondents selected purposively included 20 tax personnel
and the sub city manager. The tax personnel were made to supply data using questionnaire, while the
manager was orally interviewed in a face-to-face setting.
In addition the researcher employed proportional stratified sampling to form different strata. All the strata
comprised of a total population of 2199 category C taxpayers. From all strata, 198 categrory C taxpayers
were randomly selected by the researcher. Random selection is believed to make the sample more
representatives of the Akaki Kality sub-city Woreda 08 category C tax payers.
3.4. Instruments of Data Collection
In this research self-administered questionnaires were used to collect primary data. The questionnaire has
two parts. In the first part 5 questions that are concerned with the general characteristics of taxpayers such
as their age, sex, educational background, etc. The second section of the questionnaire contains about for
teen main questions with a total of 25 sub items which measure the challenge level of taxpayers. Each of
the items was rated over 5 point Likert type scale ranging from 1 (Strongly Disagree), to 5 (Strongly
Agree). This part of the questionnaire helped to identify and analyze the main challenge of tax revenue
collection Secondary data were collected from the city's tax authority database or unpublished sources.
This data includes number of category 'C' taxpayers in Akaki Kality sub-city Woreda 08, and the
respective activities engaged in which taxpayers were engaged. This data laid foundation to divide the tax
payers into different strata with respect to their activities.
3.5. Techniques of data Analysis
To analyze the challenges of tax revenue collection in Akaki Kality sub-city Woreda 08, specifically
category C taxpayers', descriptive statistics such as Frequency and percentage analysis were used. Four
questions were asked in the questionnaire to measure the challenge level of the respondents which have a
21
five Likert scale starting from one (strongly agree) up to five (strongly disagree).
In order to implement the answers given by the respondents, from one up to three were regarded
challenges (coded as 0), respondents who respond from four up to five otherwise (coded as 1).
After having collected the relevant data from primary sources, the data were edited, coded and finally
entered into a computer and were processed using Statistical Package for Social Scientists (SPSS) version
24 software for windows. Finally, descriptive statistical tools like tables, figures, charts and graphs were
used to classify and present the major findings of the study.

22
 CHAPTER 4
PRESENTATION AND ANALYSES OF DATA
Introduction
This chapter presented and discussed research findings on challenges of tax revenue collection in Akaki
Kality sub-city Woreda 08 revenue authority. It presents the demographic characteristics of the
respondents; identifies the challenge facing of tax revenue collection and determines the strategies for
the enhancement of revenue collection at AKSWRA, tax assessment based on estimation and assess
challenges on category „C‟ taxpayers perceive the presumptive tax regime with respect to its fairness,
simplicity and administration capacity taxpayers affects collection of tax revenues in Akaki Kality sub-
city Woreda 08. However, an analysis of the demographic characteristics of the respondent is done first.
The following definitions of codes were used in this section; a dummy independent variable, indicating
headed by agree coded 0 or 1 for disagree.
4.1. Descriptive Statistics Results for taxpayers respondents
4.1.1. Response Rate
The research had targeted 21 tax officers including tax collectors and tax assessors, auditor and
compliance department completed the questionnaires with head manager interview successfully leading to
a response rate of 21(82.8%). and 180 respondent the information gathered from tax payer were not fully
completed and 160 ( 81%) were collected. The Cronbach alpha was 0.819 indicating an acceptable level of
reliability in the responses.
Table 1: Cronbach‟s alpha coefficient of the research items

Reliability Statistics
N of Items Cronbach's Alpha
26 0.819
Source: Survey questionnaire (2024)
4.0.1. Demographic characteristics of the respondents
The demographic characteristics of the respondents category “C” taxpayers by gender, these were
presented in the following table blew.

23
Table 2: Distribution of respondents by gender of category c tax payer

Category No. of % of respondents

respondents
Male 85 53.1%
Female 75 46.9%

Total 160 100%

Source: Survey questionnaire (2024)
According to the table 2 above 85(53.1%) of the respondents were males and 75 (46.9%) of the
respondents were females. From this data, we can easily observe the most of the business owners (tax
payers) of category “C” tax payer‟s in the sub city one are dominated by the number of males. This shows
that there are more male in the informal sector than females.
4.1.2. Distribution of respondents by age of category c tax payer at Akaki Kality sub-city Woreda 08
revenue authority
Table 3: Age of the respondents

Age level Frequency Percentage

18-28 7 4.4%
29-39 46 28.8%
40-50 84 52.5%
>51 23 14.4%

Total 160 100%

Source: Survey questionnaire (2024)
In table 3 four age brackets were represented; those aged between 18 –28 years were 7 accounting to 4.4%, from
29 – 39 years 46(28.8%), from 40 –50 years 84(52.5%) and the rest 23 (14.4%) were aged above 50 years. As it
can be easily understood, most of the business traders category “C” tax payers respondents are generally ages in
between 29-50 years age and young people know the extent to which taxpayers understand and apply tax rules
and proclamations in presumptive taxation.
4.1.3. Distribution of respondents by educational status of category c tax payer

24
Table 4: Educational level distribution

Education status Frequency Percentage

1-8 primary education 24 15.80%
9-10 Secondary school 47 29.4%
11-12(TEVET) 63 39.4%
diploma 21 13.1%
Degree and above 5 3.1%

Total 160 100%

Source: Survey questionnaire (2024)
According to the table 4 above 24 (15.8%) of the respondents were learning primary (1-8), 47 (29.4%) were
between 9th –10th grade and,63 (39.4%) were graduated from TVET and completed grade 11th- 12th ,21 (13.1%)
were diploma holders, and the rest 5 (3.1%) were degree graduated and above. Therefore, this indicates that the
majority of the tax payers were not well educated and, they may lack knowledge about how their taxable income
is computed. More over in addition to the above analysis, when the educational qualification of the respondents
were observed in each of the sampled educational status separately, then it was observed that in each of the
taxpayer the majority of the respondents were completed grade 11th-12th and minority were secondary school
followed by elementary school completed and diploma/degree holders. Therefore, this poor educational
qualification of the respondents necessitates the government to provide tax training on a regular basis in order to
develop their awareness.
4.1.4. Distribution of respondents by occupational status of category „c „tax payers‟
Table 5: Occupational status

Occupation status Frequency Percentage

Business owner 60 37.5
manager 21 13.1
Manager and owner 60 37.5
employee 16 10
others 3 1.9

Total 160 100%

25
 Source: Survey questionnaire (2024)
The table 5 above shows the position of the respondents in the businesses. The table shows that more than 37 per
cent of the respondents are either owners, or managers and owners. Nearly 21 (13.1%) of the respondents are
managers only and 16(10%) are employees. and 3(1.9 per cent of them have identified themselves as other.
4.1.5. Types of Business (business category)
Presumptive taxation is a tool to combat limited record keeping by the business community, tax evasion,
tax compliance and weak tax administration capacity. Implementation of the standard assessment method
applying to small (Category C) taxpayers in regions and city administrations with annual turnover of less
than Birr 500,000 was introduced in Feb of 2016. According to Income Tax Regulation No. 203/2009
(A.A) year 26th feb.3/2009, Schedule 1 category "c" presumptive tax payer which included in the samples
are17 out of 99 categories of business sectors.
Table 6: Distribution of business sectors included in the sample

Item Frequency Percent

Vali Barber& beauty salon 6 3.8

d
Cereal & Pulses Trade 3 1.9
Shoe and Shoe imputes sales, Shoe Making and 8 5.0
Repair

Cosmetics shop 2 1.3

Electrical and Electronic Goods Supply And Repair 5 3.1

Metal and Building 1 .6

Materials Trade
Coffee Pot Coffee 13 8.1
(Jebena Buna) Trade only

Coffee and Tea cafeteria 1 .6

Grocery 2 1.3

26
 Pool house and caranbula 13 8.1
Music& video shop 12 7.5
Retail shops 76 47.5
Computer Typing, 1 .6
Printing, Photocopy
Hotels, Bars and Snacks 2 1.3
Stationary 3 1.9
Tailoring 1 .6
Wood and Timber Trade 11 6.9

Total 160 100.

Source: Survey questionnaire (2024)
However, the categories surveyed in this study and their distribution is presented in the table above is 76(47.5%)
of tax payers are retail shopping 6(3.8%) were Barber& beauty salon , 13(8.1% ) were response by Coffee Pot
Coffee (Jebena Buna) Trade only category tax payers, 13(8.1%) Pool house and caranbula, traders in the sub city
and 11(6.9%) were responded by Wood and Timber Trade 6(3.8%) beauty salon and barbers and 12(7.5%)
Music& video shop traders and 5(3.1% ) are responded by electrical and electronic goods supply and repair were
are responded including in the sampling. This results shows most of the taxpayers in category “C” sub city one
were participated on retail trading.
4.1.6. The average annual income distribution of sampled respondents
In the table 7 below regarding the businesses‟ annual income, out of 180 respondents 20(11.1 per
cent) were not willing to respond. Out of those who did respond, 112 (70per cent)of the total sample
responded that their annual income is between ETB 0-100,000. Around 38(23.8%) per cent responded that
their annual income is between ETB 100,001-200,000 and their annual income in between 200,001
-300,000 were 6(3.8% ETB and in between 300,001-400,000 were 3(1.9%) and the remaining 1(,6)
percent earn between their annual income in the range of 400,001 to 500,000. Category „C‟ tax payers
earn this income from informal employments were the main sources for income generating ways of
respondents Coffee and Tea cafeteria, Retail shops, barbers and beauty salon, grocery, music and video
shops etc are also an important source of income for employed in the study area.

Table 7: The average annual income distribution of sampled respondents

Annual income Frequency Per cent

27
 0-100,000 112 70%
100,001-200,000 38 23.8%
200,001-300,000 6 3.75%
300,001-400,000 3 1.875%
400,001-500,000 1 .625%

Total 160 100%

Source: (annual revenue report from revenue office, 2024)

With the above background, the following sections present perceptions of respondents on different aspects
of the presumptive tax regime, challenges of tax revenue collection, challenges in revenue enhancement
and method of tax assessment based on estimation were Discussed in each of the tables in the following
sub-sections,
4.2. Tax assessment Based on estimation
Tax assessment based on estimation category „c‟ tax payers, the main targets of this study, are by
estimation. To this effect, they were asked whether they have faced any problems when their tax is
assessed using standard tax assessment scheme as can be seen in the below table 8. All of the respondents
160(100 %) have agreed that the tax authority has no trust on the statement tax of daily‟ sales volume and
all most, all of them 155(96.9%) believed that there is no fair taxation among similar businesses in the
same area and 5(.3.1%) were disagree and 145(90.6%) that their daily/annual income are inflated in the
process of estimation were agree. Similarly, 133(83.1% ) of the respondents believe that the method of
assessment is based on a simple guess and that it is subjective. Results from the taxpayers they suggests
that the procedures of the standard assessment and computations are not objectively understood by most of
the category “C” taxpayers and that the tax authority is and understandable to taxpayers .moreover the
assessments are made based on subjective estimation they lack reliability, entails under- or over-
statement, deplete trust, and nurture corruption deficiency of the system to ensure vertical and horizontal
equity among taxpayers To put it differently, the majority of taxpayers do not exactly know how to
determine or calculate their tax obligation by themselves. Furthermore, some of the participants expressed
their fear and concern about the effects of the prevailing inflation, which is making their daily nominal
sales inflated and eventually overstate the tax without them, gaining real profitfrom executed sales.

28
Assessment is the determination of the amount to be paid in respect of a particular revenue item and
raising a formal notification of the amount to be the basis for its determination, the due date and mode of
payment among other to the tax payer. An assessment must be based on a clearly defined tax base and
must reflect the rates applicable a tax base. The assessment exercise helps Governments to keep a record
of the amount and due date for payment of the respective revenue items assessed, the name, location and
other details of the taxpayer Fjeldstad, O &Rakner L, (2003), the assessment exercise requires first the
identification of suitable assessors and then training them before embarking on the assessment exercise. A
good revenue system must have a team of well-trained assessors whose main responsibility is to prepare,
raise, and distribute assessments in line with the regulatory and policy framework for Local and central
Government.
Table 8: Problems of tax assessment based on estimation responded by tax payers

Response
Challenges Agree Disagree
Method of assessment is a simple guess or subjective 133(83.1%) 27(16.9%)
Inflated daily/annual income in tax estimation 145(90.6%) 15(9.4%)
No fair tax among similar businesses in same proximity 155(96.9%) 5(3.1%)
No trust of tax payer's statement 160(100) -

Source: Survey questionnaire (2024)

4.3. Taxpayer and the Administration on Category „C‟ Taxpayers Perceive the Presumptive Tax
Regime With Respect to Its Fairness
4.3.1. Perceptions of Exchange Fairness
Perceptions of exchange fairness this is an independent variable, indicating that identified to show the
taxpayers‟ perceptions on exchange fairness of the tax payer. There are four statements identified to show
the taxpayers‟ perceptions on exchange fairness, under this sub-section.

29
Table 9: Descriptive summaries for statements under the theme of exchange fairness

Response
Challenges Agree Disagree
Taxes paid to the government in the form of presumptive tax 126(78.8%) 34(21.3%)
are used for the benefit of the general public
Services provided by the government to the business 15(9.4%) 145(90.6%)
community are worth the amount of tax they pay
Property rights and patent rights of tax payers are protected 33(20.6%) 127(79.4%)
If taxpayers‟ compliance improves, government provision of 117(73.1%) 43(26.9%)
public services will also increase

Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024).
For the above four statements, the number of respondents is 160 for each statement and there are no
missing values. For the first statement, „Taxes paid to the government in the form of presumptive tax are
used for the benefit of the general public 126(78.8%) of the respondents agreed with the statement and
34(21.25%) were not agree. Out of the total respondents from the businesses engaged in retail activities,
Music and video, pool house and cerenbula, woodand Tember trade more than half per cent responded that
they agree to the statement given. However, the respondents that are engaged in the electrical and
electronic goods and supply and repair, coffee pot (jebena buna) trade business disagreed with this
statement, making the less response for disagreement with the statement
However, for the second statement that, „Services provided by the government to the business community
are worth the amount of tax they pay again, 145(90.6) of the respondents said that they disagreed with the
statement followed by 15(9.4%) per cent of the respondents are not content with the statement, showing
that the perception of exchange fairness among category „C‟ taxpayers is disagreed. Among the total
respondents to this statement that are engaged in pool house and cerenbula, retail shop, shoe and shoe
inputs sales , and shoe making and repairs and timber trade business activity, nearly 90 per cent of them
disagreed with this statement. On the other side, the least response that agreed with this statement came
from the retail business activity, coffee pot (jebena buna), some retail shop, music and video shops 9.4 per
cent.
For the third statement, „Property rights and patent rights of taxpayers are protected‟, the highest number
of responses 127(79.4 per cent) disagreed with the statement. This shows that the respondents do not
believe that they are getting the service of protection of property from the government. It has to

30
be noted that around 33(20.6%) per cent of the respondents perceive that the government is providing
property and patent rights to taxpayers. The highest frequency of disagreement with this statement comes
from the businesses engaged in barbers and beauty salon, music and video shop and retail shops.
The last statement, used to address exchange fairness, is a leading statement that, „If taxpayers‟
compliance improves, government provision of public services will also increase‟. Slightly more than half
of the respondents 117(73.1%) agreed with this statement and 43(26.9%) response were disagree with this
statement .This shows that there is a consensus that there is lack of compliance among taxpayers
themselves and that if this improves, the government’s provision of goods and services will improve and
strengthening the perception of the lack of compliance among taxpayers. Businesses engaged in retail
activities seem to agree more highly than businesses involved in retail shop, wood and timber trade, pool
houseand carenbula and coffee pot(jebena buna) and barber and beauty salon making
73.1 per cent of the total businesses engaged in the sector.
In general, it can be concluded that there is a low perception of exchange fairness among category „C‟
taxpayers. As mentioned in the literature review section, taxpayers who have a negative perception of
exchange fairness have a tendency to evade taxes and under-report income. As the survey result shows,
there is lack of voluntary compliance among taxpayers. This can be attributed to the negative perception of
exchange fairness among the taxpayers in the sample. Therefore, the finding of this study aligns with the
theory that negative perceptions of exchange fairness lead to non-compliance among taxpayers.
4.3.2 Perceptions of procedural fairness
Perceptions of procedural fairness this is an independent variable, indicating that identified toshow the
taxpayers‟ perceptions on procedural fairness of the tax payer headed by Agree or Disagree. As noted
above, procedural fairness mainly focuses on how taxpayers are involved in and represented in the process
of their tax assessment. Accordingly, the statements below reflect the procedural fairness of the turnover-
based presumptive regime in the table below 10.

31
Table 10: Descriptive summaries for statements under the theme of procedural fairness

Response
Challenges Agree Disagree
Category „C‟ taxpayers will be represented during the 6(3.8%) 154(96.3%)
estimation of daily sales

When tax laws are developed, the business community is 8(5%) 152(95%)
Well consulted to represent the interests of the business
community
Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024).
For the above two statements there are no missing values and the frequencies and percentages show the
responses of all 160 taxpayers in the sample. For the first statement
„Category „C‟ taxpayers were represented during the estimation of daily sales‟, 154(96.3%) per cent of
the respondents disagreed with the statement and 6(3.8%) of the respondents were agree with the
statement. Businesses engaged in retail activities seem to disagree more highlybusinesses involved in
coffee pot (Jabana buna), barbers and beauty salon, music and video shops and pool house were disagree
with the statement. For the second statement that „When tax laws are developed, the business community
is well consulted to represent the interests of the business community a large number of the respondents
disagreed with the statement. These respondents constitute 152(95%) per cent of the total respondents who
disagreed and 8(5%) per cent of the total respondents who agreed with the statement. Responses from the
two statements show that category „C‟ taxpayers have a perception that they are neither involved in the
process of the development of tax laws nor well represented during the estimation of the daily sales. The
retail shops, wood and timber trade and pool house business activities have larger frequencies in their
responses of disagreement to the statements that reflect procedural fairness. Based on the combined values
of the statement for these two statements, it is possible to conclude that there is low perception of
procedural fairness among the category „C‟ taxpayers.
4.3.3. Perceptions of horizontal fairness
Perceptions of horizontal fairness this is an independent variable, indicating that identified to show the
taxpayers‟ perceptions on horizontal fairness of the tax payer headed by Agree or Disagree.
Two statements are picked to measure the perception of horizontal fairness among category “C” taxpayers.
Again, for these two statements all the respondents in the sample responded to these questions leaving 0
missing values.

32
Table 11: Descriptive summaries for statements under the theme of horizontal fairness

Response
Challenges Agree Disagree
Micro businesses who earn the same level of income pay a more 41(25.6) 119(74.4%)
or less similar amount of tax

Taxpayers in a similar situation (business location, living 67(41.9%) 93(58.10)

standards, personal expenses, property they acquire, family size
… etc.) pay similar amounts of tax

Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024).
In the table 11 results shows more than half of the respondents 119(74.4%) disagreed with the first
statement that „Micro businesses who earn the same level of income pay a more or less similar amount of
tax and 41(25.6%) were agree with the statement. Responses from all the different kinds of business
activities engaged in retail shops, pool house show that there is high level of disagreement.
Nearly half 93 (58.1% ) of the respondents disagreed with the second statement „Taxpayers in a similar
situation (business location, living standards, personal expenses, property they acquire, family size etc.)
pay similar amounts of tax and 67(41.9%) of the respondents preferred to be agree on the statement.
From the two statements given above, it is shown that there is low perception of horizontal fairness among
category „C‟ taxpayers. As a majority of the taxpayers have a perception that category „C‟ businesses
earning the same do not pay a similar amount of tax, then this is one of the indicators that the perception of
horizontal fairness is low. In addition, taxpayers in similar situations are perceived to not be paying similar
taxes: this is the other indicator for the low perception of horizontal equity.
As presumptive tax deals with micro individual businesses, most businesses provide for basic needs with
the income they earn. Horizontal fairness argues that such taxpayers should be taxed less as others with a
better position should be taxed higher. However, the finding above shows that there is a negative
perception of horizontal fairness among the sample respondents. Especially, perceptions from the Shoe and
Shoe imputes sales, Shoe Making and Repair, coffee pot (jabana buna) pool house , music and video shops
and wood and timber traders sector are very low on horizontal fairness.
4.3.4. Perceptions of vertical fairness
Perceptions of vertical fairness is an independent variable, indicating that identified to show the

33
Taxpayers‟ perceptions on vertical fairness of the tax payer In this section, two statements are identified to
show the taxpayers‟ perceptions of vertical fairness.
Table 12: Descriptive summaries for statements under the theme of vertical fairness

Response
Challenges Agree Disagree
There is no significant difference in the amount of tax that is 4(2.5%) 156(97.5%)
paid by small businesses and big ones

Micro businesses are paying identical amounts of tax 55(34.4%) 105(65.6%)

irrespective of their income level
Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024).
The above table 12 shows that 156(97.5%) per cent of respondents disagreed with the first statement. The
majority of the respondents recognized that big businesses pay more taxes than small businesses and
4(2.5%) of taxpayer agree in their difference the amount of tax that is paid by small business and big ones.
The negative perception from businesses paying micro taxes largely came from the Shoe and Shoe imputes
sales, Shoe Making and Repair, retail shops and music and video shop sector. Since the question itself
assesses the perception of vertical fairness not only among category „C‟ taxpayers but in the overall
system, the responses show that there no exists a positive perception of category „C‟ taxpayers in the
sample in this study on the vertical fairness of the overall tax system.
The second statement on the other hand tries to capture vertical fairness within the group of category
“C‟ taxpayers. The responses for the statement, Micro businesses are paying an identical amount of tax
irrespective of their income level show that more than half of the respondents 105(65.6%) were disagreed
and followed by 55(34.4%) were agree on paying identical amount of tax irrespective of their income
level.
In general, this shows that category “C‟ taxpayers have a positive perception about the vertical fairness
within the presumptive tax regime. In addition, category „C‟ taxpayers have a positive perception of
vertical fairness in the overall tax system as well as the presumptive tax regime. This result confirms that
taxpayers have a perception that a turnover-based system treats businesses differently based on their
incomes.
4.3.5 Perception of time-related fairness
Perception of time-related fairness an independent variable, indicating that identified to show the

34
Taxpayers‟ perceptions on time-related fairness of the tax payer headed by Agree or Disagree
Three statements are identified to assess the perception of time-related fairness among category „C‟
taxpayers which includes, the income estimated for micro and small businesses owner considers the
amount of income they earn/lose across time, the daily sales estimation only considers the good seasons of
business activities and ignores seasons with low business activities and the daily sales estimation considers
the average income of my business across time. Like the previous statements used to assess other forms of
fairness, these three statements also have no missing values and the total number of responses for each
statement is 160
Table 13: Descriptive summary for statements under the theme of time-related fairness

Response
Challenges Agree Disagree
The income estimated for micro and small businesses owner 31(19.4%) 129(80.6%)
considers the amount of income they earn/lose across time
The daily sales estimation only considers the good seasons of 133(83.1 27(16.9%)
business activities and ignores seasons with low business %)
activities
The daily sales estimation considers the average income of my 13(8.1%) 147(91.9%)
business across time

Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024)
The first statement that is used to capture time-related fairness shows that nearly 129(80.6%) of the
respondents disagreed that the estimated income considers the income they earn across time and
31(19.4%) were agree on the statement. The largest percentage of disagreement with the statement comes
from the Shoe and Shoe imputes sales, Shoe Making and Repair, barber and beauty salon , retail shops and
music and video shops sector, which calls for closer attention to developing a positive perception.
For the following statement that, „The daily sales estimation only considers the good seasons of business
activities and ignores seasons with low business activities 133(83.1 per cent ) of the respondents agreed
with this statement, whereas almost 27(16.9 per cent) dis agreed. From the reactions of the respondents it
is demonstrated that there is a high perception that the daily sales estimations do not consider businesses‟
bad seasons.

35
Regarding the last statement, the daily sales estimated considers the average income of my business across
time were 147(91.9%) disagreed and 13(8.1%) of the respondents agreed. Again, it is in the retail shop
sector that there exists a high level of disagreement with this statement. Generally, category
„C‟ taxpayers in the sample of this study seem to have negative perceptions of time-related fairness, as is
observed from all the three statements.
On time- related fairness, changes in the general prices and relative prices are the factors that lead to time-
related inequity. The rising inflation that Ethiopia has been witnessing for the last 15 years can be
considered as one of the contributing factors for time-related inequity. In addition, the negative perception
of time-related equity from the survey response strengthens the argument that in a very dynamic economic
environment, the long-run expectations of economic agents vary leading to time- related inequity.
4.3.6. Perceptions of inter-group fairness
Perceptions of inter-group fairness an independent variable, indicating that identified to show the
taxpayers‟ perceptions on inter-group fairness of the tax payer responses headed by Agree or Disagree
Inter-group equity and fairness implies that no group is favored to the disadvantage of another without
good cause. To assess the perception of inter-group fairness among taxpayers under a turnover -based
presumptive regime, the statement, „Certain groups of micro business were more favored than others in the
implementation of presumptive taxes‟ was given. The responses to this question are summarized in Table
16 below.
Table 14: Descriptive summary for the statement under the theme of inter-group fairness

Response
Challenges Agree Disagree
Certain groups of micro business were more favored than 133(83.1%) 27(16.9%)
others in the implementation of presumptive taxes

Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024)
The above table 14 contains a single statement used to measure the perception of inter-group fairness
within the presumptive tax system, and the responses show that 133(83.1%) of respondents agreed with the
statement. Out of the total respondents who disagreed with this statement, was 27(16.9%) from the
businesses in this sector half of them are from the retail business sector and this could be due to the large
sample size from the businesses in this sector. In general, from this it can be seen that there is a perception
that there is no separate group that is favored under the presumptive tax system. This shows

36
that there is indeed a positive perception among category „C‟ taxpayers in the sample regarding inter-
group fairness.
The positive perception of the respondents on inter-group fairness explains that no segment under the
presumptive system is treated differently. Such perceptions contribute to the improvement of compliance
and trust in authorities. However, inter-group fairness alone may not lead to this level of trust unless
accompanied by other dimensions of fairness.
4.3.7. Perceptions of compliance fairness
Perceptions of compliance fairness an independent variable, indicating that identified to show the
taxpayers‟ perceptions on time-related fairness of the tax payer responses headed by Agree or Disagree.
As mentioned in the literature review, compliance fairness refers to taxpayers paying what they should pay
on a timely basis. Though compliance is not an issue in the case of presumptive taxes, the two statements
identified is designed to adjust for turnover-based presumptive taxation. The summary statistics are
provided under Table 15.
Table 15: Descriptive summary for statements under the theme of compliance fairness

Response
Challenges Agree Disagree
Category „C‟ taxpayers pay all their tax due on time 136(85%) 24(15%)
Some taxpayers pay less taxes by hiding stocks during the 147(91.9%) 13(8.10%)
estimation of daily sales

Source: (Survey of Category „C‟ Taxpayers in Akaki Kality sub-city Woreda 08 2024)
For the first statement in Table 15 „Category „C‟ taxpayers pay all their tax due on time‟, 136(85 per cent
) of the respondents agreed and followed by 24(15%) were be disagreed to the statement on Category „C‟
taxpayers pay all their tax due on time.
The revenue authority claims that there is a problem among taxpayers in that they are hiding stocks during
the estimation. Due to this reason, the second statement was modelled as, some taxpayers pay less taxes by
hiding stocks during the estimation of daily sales .The largest number of the respondents in each business
activity remained 147(91.9%) agree to this question and 13(8.1%) responses to disagree. This shows that,
on average, responses tend to agree with the statement. In addition, it is observed that business activities
that are related to selling goods have fewer counts of agreeing to this statement, though it is the first
highest response. For example, cereal & pulses trade, grocery hotel,

37
have less frequencies of agreeing with this statement. However, business activities that engage in the
provision of services, such as, retail shop electronic and computer services, and beauty salons have higher
positive responses for this statement. The possibility is that businesses that are in the service sector feel
comfortable about answering this question.
In general, regarding the first statement, there is a positive perception among category „C‟ taxpayers in the
sample on compliance fairness with a Category „C‟ taxpayers pay all their tax due on time. On the other
hand, regarding the second statement, there is a negative perception among category „C‟ taxpayers in the
sample on compliance fairness, with some taxpayers pay less taxes by hiding stocks during the estimation
of daily sales. As negative perceptions on compliance fairness depress the overall fairness, it is important
to build positive perceptions of compliance fairness. Various opinions exist about the best ways to improve
tax compliance. Given the chance, a lot of businesses will not pay taxes unless there is a motivation to do
so. Some believe that the best way is to increase incentives (Feld and Frey, 2007) others believe the best
way is to increase penalties.
4.3.8 Perceptions of administrative simplicity
Perceptions of administrative simplicity is an independent variable, indicating that identified to show the
taxpayers‟ perceptions on administrative simplicity fairness of the tax payer and the responses headed by
Agree or Disagree. In this section, five statements are identified to show the taxpayers‟ perceptions of
administrative simplicity.Table16 below summaries the responses to these statements.
Table 16: Descriptive summary for statements under the theme of administrative simplicity

Response
Challenges Agree Disagree
The presumptive tax regime is a simplified tax system 26(16.2%) 134(83.8%)
compared to other regimes
It is better for high-earning micro businesses to graduate 126(78.8%) 34(21.2%)
to the standard tax regime than to be under the
presumptive tax regime
After the daily sales are estimated, the way the tax is 158(98.8%) 2(1.2%)
calculated is complicated
There is an adequate education campaign on tax issues 32(20%) 128(80%)

38
 Micro taxpayers can get any information through a free 49(30.6%) 111(69.4%)
phone service (8199) or website without going to the office of
the authority

Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024)
Regarding the result in table 16 above the presumptive tax regime is a simplified tax system compared to
other regimes 134(83.8%) per cent of the respondents disagreed and 26(16.2%) per cent of the respondents
agreed. The result for the statement is showing that the overall responses tend to disagree that the
presumptive tax is a simple system. For the second statement, „It is better for high-earning micro
businesses to graduate to the standard tax regime than to be under the presumptive tax regime 126(78.8%)
per cent the highest response agreed and 34(21.3%) were the respondents disagreed to the statement and
showing that the average responses tend to agree with the statement. This result proves that the category
„C‟ taxpayers in the sample are not happy with the presumptive system.
The third statement is: after the daily sales are estimated, the way the tax is calculated is complicated were
158(98.8%) of the respondents agreed with this statement and 2(1.2%) per cent s were dis agreed. Business
activities such as retail shops, barbers and beauty salon and music and video shops and electronic services
had a higher count of responses agreeing to the statement. The average responses, in general, have a
tendency to agree with the statement. Based on this statement, category „C‟ taxpayers in the sample of this
study have allow perception of the easiness of the presumptive system.
More over the statement on a proper and adequate education campaign on tax issues is one of the elements
of tax simplicity. The next statement is modeled to capture the perceptions of taxpayers on this area. For
the statement, there is an adequate education campaign on tax issues 128(80%) per cent of the respondents
disagreed and 32(20%) of the respondents were agree. Hence, overall the responses show that category
„C‟ taxpayers disagreed with the statement.
The final statement under the theme of administrative simplicity is „Micro taxpayers can get any
information through a free phone service (8199) or website without going to the office of the authority
Around 111(69.4) per cent of the respondents disagreed with this statement and 49(30.6%) were agreed
with the taxpayers can get any information through a free phone service (8199) or website without going to
the office of the authority. Beauty salons and Shoe and Shoe imputes sales, Shoe Making and Repair, retail
shops, have higher frequencies of disagreement with this statement compared to other business activities
From all the five statements given above, the responses show that there is a negative perception

39
regarding the simplicity of the regime. There might be several reasons why there is negative perception
regarding simplicity. The main one can be attributed to the excess number of business activities and the
turnover bands that require the setting and adjusting of 1,881 different rates. Another is the poor
information channel between the tax authority and taxpayers.
4.3.9. Perceptions of administrative capacity
Perceptions of administrative capacity is an independent variable, indicating that identified toshow the
taxpayers‟ perceptions on administrative capacity fairness of the tax payer and the responses headed by
Agree or disagree.. This section evaluates the perceptions of the sample respondents of administrative
capacity in implementing presumptive taxes. Though tax administration has different dimensions, in this
section only five statements are used. These statements are summarized in Table 17 below.
Table 17: Descriptive summary for statements under the theme of administrative capacity

Response
category Agree Disagree
The appeal process is fair and just 2(1.2%) 158(98.8%)
The daily sales estimating team members that visit your 132(82.5%) 28(17.5%)
working premises are polite in making conversation

The tax authority has an organizational structure that can 37(23.1%) 123(76.9%)
address tax issues arising from micro business taxpayers

The presumptive tax regime motivates and encourages 40(25%) 120(75%)

taxpayers to keep books and records
The presumptive tax regime motivates and encourages 36(22.5%) 124(77.5%)
category „C‟ taxpayers to graduate to the standard tax regime
Source: (Survey of category „C‟ taxpayers in Akaki Kality sub-city Woreda 08 2024)
Regarding the first statement of Table 17 the appeal process is fair and just‟, almost all of the respondents
158(98.8 %) in the sample disagreed and Nearly 2(1.2 %) of the respondents agreed with the statement and
in the second statement the daily sales estimating team members that visit your working premises are
polite in making conversation 132(82.5 per cent) of the respondents agreed and 28(17.5%) of the
respondents were disagreed with the statement the result shows that there is a positive perception among
the sample taxpayers on this statement.
The third statement the tax authority has an organizational structure that can address tax issues arising

40
from micro business taxpayers were among the total samples of category „C‟ taxpayers, 123(76.9 per cent)
of responded that they disagree with the expression and 37(23.per cent) were agree with the statement and
from this it can be concluded that there is a low perception of taxpayers in the sample on the organizational
structure of the authority to tackle issues experienced by micro taxpayers.
More over the presumptive tax regime motivates and encourages taxpayers to keep books and records‟ is
the fourth statement under the theme of administrative capacity were out of the total respondents, 120(75
per cent disagree and 40(25 per cent) were agree with the statement and result shows having the average
response inclines to disagree with the statement and this leads to the negative perception of the
respondents on how the system motivates the taxpayers to keep books.
The last statement of Table 17 stated that the presumptive tax regime motivates and encourages category
„C‟ taxpayers to graduate to the standard tax regime Based on the responses of sample turnover-based
presumptive taxpayers, 124(77.5 per cent of the respondents disagreed with the statement and nearly 36
(22.5 per cent) were responded agreed and from these responses it can be concluded that there is a negative
perception among the sample taxpayers of the statement above.
In general, out of the five statements assessing perceptions of tax administration, five of the statements
reflect negative perception of the administrative capacity of the tax authority. However, responses to one
of this statements show that there is a positive perception of tax administration capacity. This is the
statement that the tax team members of the daily sales estimation make conversation in a polite way. The
average responses incline to the positive perception that the estimating team had polite conversations with
the sample taxpayers. How the administrative capacity is perceived among taxpayers plays a crucial role to
smoothen the tax regime. Hence tax authorities and legislators should build a positive perception among
taxpayers.
4.4. Descriptive Statistics Results for tax officer’s respondents
Demographic characteristics of the respondents‟ analysis and presentation of data gathered from sub city
one revenue authority employees/officials.
4.4.1. Gender
Sex of the respondents, indicating that identified to show the sex of the respondents in the tax officer‟
headed by Male coded 0 or 1 for Female. were presented in the following table blew..

41
Table 18: Gender distribution

Sex category Frequency Percentage

Male 13 65%
Female 7 35%

Total 20 100%
Source: Survey questionnaire (2024)
According to the table 18 above 13 (65%) of the respondents were male and 7 (35%) of the respondents were
women. From this data, we can easily observe most of the revenue officials/employees in the sub city one are male.
Both male and female participation on the assessment of the challenges facing revenue collection was important as
men pointed out challenges such as taxpayer resistance and low tax morale on the part of the citizenry which result
into low tax compliance; women provided challenges such as ensuring that all due government revenue is collected
and tax evasion and avoidance are controlled in order to improve the services to the citizens as most of taxpayers
have been complaining on the inequity between what is paid and what is reciprocated in terms of services by the
government to the citizens. The demographic characteristics of the respondents by age group, these were presented
in the following table below.
Table 19: Age distribution for tax officer’s employee.

Age category Frequency Percentage

18 -28 years 3 15%
29 -39 years 12 60%
40 -50 years 4 20%
Above 51 years 1 5%

Total 20 100%
Source: (Questionnaire, 2024)
In table 19 above four age brackets were represented; those aged between 18 –28 years were accounting to 3(
15%), and age in between 29-39 years were 12 (60%), from 40 –50 years 4 (20%) and the rest 1 (5%) were
aged above 51 years. As it can be easily understood, majority of the revenue bureau officials in sub-city one
are between the ages of 29 –39 years. However, those who were between 29 to 39 years gave challenges
such as the need to improve staff integrity and tax evasion for the enhancement of government services to the
public; while those who were between 40 and 50 years and above of age gave challenges facing revenue
collection such as the availability of low level of

42
literacy rates on tax laws which necessitates tax evasion while rendering corruption practices among staff.
4.4.2. Educational level distribution.
The demographic characteristics of the respondents by Educational level, these were presented in the
following table blew.
Table 20: Educational level distribution of tax officer /employees

Educational status Frequency Percentage

1-8 (elementary school) 0 0
9-10 (secondary school) 0 0
11-12 preparatory (TEVET) 0 0
College Diploma 4 40%
First Degree and above 16 60%

Total 20 100%
Source: Akaki kality sub-city worada 08
Table 20 above table were represented; those educational status between 1-8 grade and 9-10 and 11-12
preparatory (TEVET) grade were 0 accounting to 0%, depicts that the 4(20%) of the respondents were
college diploma holders; 16 (80%) are first degree holders. From this figure, we can understand that most
of the revenue bureau employees/officials in sub- city one are first degree holders. It is definite that the
educational status of the given individual has a great thing to do with the efficiency and effectiveness of
what he/she performs. So the fact that Most of the administrative staff of the organization holds good
academic status can contribute a lot towards the effectiveness of the tax collection system and what is
more, they can better address the customers‟ needs.
4.4.3. Distribution of respondents by occupational status of Akaki Kality sub-city Woreda 08 revenue
authority Tax official/Employee

The results in Table 21 below showed that; 7(35 %) were tax auditor and 4(20%) were tax collector and
7(35%) were tax estimator /tax assessor and the remaining 2(10%) employees from revenue official
compliance section However, the occupation of respondents was vital for the study as while AKSWRA
employees could point out challenges of tax revenue collection such as shortage of staff, technology
changes incorporated by AKSWRA for the enhancement of revenue collection but which do not favor the
level of technical knowhow of taxpayers, delivery of prompt and quality service

43
 needed by the public and high revenue targets in comparison with the tax base present. The taxpayers
pointed out challenges such as technological problems such as unreliable network infrastructure to
support the use ERA machines as required and frequent changes of tax laws unknown to taxpayers which
retard the pace of tax payment and compliance
Table 21: Occupational status

Occupation status Frequency Percentage

Tax compliance dep’t 2 10%
Tax collector 4 20%
Tax assessor/estimator 7 35%
Tax auditor 7 35%

Total 20 100%
Source , (survey from Akaki Kality sub-city Woreda 08 revenue authority 2024)
4.5. The extent to which the challenges affect tax assessment & Collection process
The following data was extracted from Akaki Kality sub-city Woreda 08 revenue authority (AKSWARA
) showing the revenue Performance and Trends from 2012/2013 to 2018/2019.Under this sub section, the
degree to which the challenges discussed above affected tax revenue collection at Akaki Kality sub-city
Woreda 08 is presented.

However most respondents having agreed that revenue collection have always fallen short of targeted,
was in similar way mentioned by Musgrove (1993) who said that inefficiencies in the tax collection
system may undertake actual revenue from the budgeted level. The reasons given for this include: high
rates of tax evasion and avoidance and corrupt tendencies in the revenue collection system. They also
mentioned that the cost of revenue collection is higher than expected and thus actual collection cannot
equal to set targets.

44
 CHAPTER FIVE
SUMMARY OF FINDINGS, CONCLUSION ANDRECOMMENDATIONS
Introduction
The purpose of this study was to identify the challenges of tax revenue collection category “C” taxpayer in
Akaki Kality sub-city Woreda 08 revenue authority. The summary of findings, conclusion and
recommendations, Policy implications and the need for further research which are the outcome of the study
findings are also presented in the subsequent subsections
5.1. Summary of Findings
In general the findings of this study have been summarized based on the research objectives which
included: To analyze challenge on the standards used in tax assessment based on estimation of category
“C” taxpayers, to assess challenges facing the taxpayers and the revenue authority, to determine strategies
for the enhancement of revenue collection at AKSWRA and A trend of tax revenue collection in Akaki
Kality sub-city Woreda 08 .and to assess challenges on category “C‟ taxpayers perceive the presumptive
tax regime with respect to its fairness, simplicity and administration capacity,
5.2. Challenge on the standards used in tax assessment based on estimation of category “C”
taxpayers
Challenges of tax revenue collection Category „C‟ tax payers, the main targets of this study was tax
assessment based on estimation. To this effect finding whether they have faced any problems when their
tax is assessed using standard tax assessment scheme summarized below.
 On the other hand, 90.6% of the respondents reported the inflated daily/annual income in tax
estimation were over taxation as result of over estimation
 Moreover 96% the respondents shows no fair tax among similar businesses in same proximity tax
assessment by the authority and lack of fairness or equity of taxation among similar businesses of
category ”C” taxpayers
 Additionally 100% of the respondents replies no trust of tax payer's statement caused by poor
communication and understanding between the tax authority and taxpayers and weakness in tax
collection and unsatisfactory service delivery of tax authority.
5.3. The administration on category “c” taxpayers perceive the presumptive tax regime with
respect to its fairness.
The findings from the study indicated that, the sample respondents of category „C‟ taxpayers have
negative perceptions of exchange fairness, procedural fairness, horizontal fairness, compliance fairness,
45
 Simplicity and the administrative capacity of the tax authority were discussed below.

 Beside on the finding of perceptions of exchange fairness that identified to show the taxpayers‟
perceptions (90.6%) of the respondents results shows services provided by the government to the
business community are worth the amount of tax they pay negatively perceived.
 On the other hand beside on Perceptions of procedural fairness among tax payers finding that the
negative perception of procedural fairness among the taxpayers in the sample includes 96.3% of the
respondent’s disagreed with the statements of Category „C‟ taxpayers will be represented during
the estimation of daily sales
 It is identifies in the study that, to measure the low perception of horizontal fairness among
category „C‟ taxpayers ( 91%) of the respondents disagreed with the statements of taxpayers in a
similar situation (business location, living standards, personal expenses, property they acquire,
family size … etc.) pay similar amounts of tax.
 (91.9%) agree to revenue authority claims that there is a problem among taxpayers in that
they are hiding stocks during the estimation
 More over the finding on the perceptions of administrative simplicity based on this statement,
category „C‟ taxpayers (98.8%) of the respondents responses agreed after the daily sales are
estimated; the way the tax is calculated is complicated.
 XV. Finally (98.8%) of the finding on the perceptions of administrative capacity disagreed among
tax payer regarding the statement of the appeal process is fair and just
5.4. Conclusion
The findings from the study indicated that, the sample respondents of category „C‟ taxpayers have
negative perceptions of exchange fairness, procedural fairness, horizontal fairness, of, compliance fairness,
simplicity and the administrative capacity of the tax authority. On the other hand, the respondents in the
sample most of the taxpayers, especially those in the category „C‟, over taxation as result of over
estimation of daily/annual income and no fair tax among similar businesses in same proximity tax
assessment by the authority which rise from lack of fairness or equity of taxation among similar businesses
and no trust of tax payer's statement caused by poor communication and understanding between the tax
authority and taxpayers and weakness in tax collection and unsatisfactory service delivery of tax authority.
On the other hand of the respondents reported the availability of taxpayer resistance and low tax morale on
part of the citizenry which may result into the reduction of revenue collection, availability of

46
corruption including embezzlement of revenue Likewise, reported the challenge of availability of low level
of literacy rates to taxpayers regarding the utilization of technology in paying taxes and sometimes
encountering unreliable network infrastructure to support the use of authorized TRA tax machines and yet,
of the respondents reported the challenge of improving staff integrity while increasing taxpayers versus
TRA administrative capacity in terms of IT requirements in order to ensure that all due government
revenue is collected and tax evasion and avoidance are controlled. Specifically the results of the
respondents argued with enhancing taxpayers‟ education and sensitization to enable them understand the
need to pay taxes (i.e. voluntary compliance) by applying the principle of large numbers and
understand what tax can do to improve our economy and participate in formalized economic activities and
finally improvement in the tax administration shows improvement and modernization of the tax systems
and tax controls vs trade facilitation, and implementation of the performance based and responsive
leadership and management, and staff integrity and building sector specific administration capacity
through training.
5.5. Recommendations and policy implication
5.5.1. Recommendations
From the above findings, the researcher proposes the following recommendations and policy implication.
Based on the findings of the study, the following recommendations can be drawn:. The study revealed that
Tax assessment Based on estimation is significantly affect tax revenue collection negatively and
recommended that
 Government to ensure that equal taxes are levied on individuals who have equal income and
governments by applying a higher tax rate to people with a higher ability to pay than others, and to
spend public funds in a way that addresses the needs of people with low income or wealth.
 The authority treats taxpayers perception of equity and fairness in the tax system and the tax
authorities should revise their system not only to ensure that equal taxes are levied on individuals
who have equal income but also to make sure that each taxpayer is paying according to his/her
ability to pay;
 The authority must also actively involve taxpayers or their representatives while estimating the
daily sales or revenue of taxpayers so that trust of tax payers on the tax system will develop
gradually.
 Exchange Equity and Fairness-over the long run taxpayers receive appropriate value for the taxes
they pay.

47
 Perceptions of procedural fairness-taxpayers have a voice in the tax system, are given due process
and are treated with respect by tax administrators.
 Perception of horizontal fairness-among category „C‟ taxpayers– Similarly situated taxpayers are
taxed similarly.
 Perceptions of compliance fairness among category “C” tax payers- all taxpayers pay what they
owe on a timely basis.
 We recommends a facility provided by the tax authority to ease the method of tax simplification,
tax structure with regards to perception of administrative simplification by achieving through of (a)
the tax system, (b) the tax legislation, and (c) the application of the tax rules and taxpayers
education through as a taxpayer knowing his or her tax liability and when and where to pay the tax.
 Finally we recommend the administrative tax authority ensure regular update to the tax payer
registry and perception based approaches measure capacity by assessing how capable individuals
think a tax administration is.
 Increase the transparency of tax policy making and modernize tax administration procedures: these
measures would reduce opportunities for corruption and improve the “taxpayer experience”.
 Governments build citizens‟ perceptions of public officials, especially tax officials, can influence
attitudes towards taxation (e.g. being asked or expected to pay bribes).
 Government by simplifying tax regimes and greater use of information technology are ways to
improve tax morale and compliance
 It is recommended to establish avenues to discuss and put forward what is done by the government
out of citizens‟ taxes in order to avoid unnecessary complaints. And they should be enlightened
that their contribution in form of taxes leads to effective service delivery.
 We recommends that while increasing TRA administrative capacity in terms of IT requirements in
order to ensure that all due government revenue is collected and tax evasion and avoidance are
controlled and Education is essential variable for the tax revenue performance, so the policy maker
should give further consideration to enhance the knowledge of RA staffs and taxpayers
 Governments strengthening legal enforcement and penalties, where necessary, their legal,
regulatory or administrative provisions and their powers of investigation for the detection and
prevention of tax avoidance and evasion, with regard to small business taxpayers , and exchange
experiences on a continuing basis on tax avoidance and evasion practices, on techniques for
detecting and preventing them and on ways and means of improving tax compliance in general
48
  The authority build, the enhancement of taxpayer education on tax laws and procedures, building
public support and effective publicity through various ways such as media is important for the
facilitation of voluntary tax compliance.
 The authority informing and educating potential taxpayers on the purpose and benefits of the
revenue they contribute. Governments normally undertake massive sensitization through
workshops, newspapers, and radio stations among others.
 It recommended that, the office of Revenue authority build its capacity in technology and
networking infrastructure that is reliable in supporting effective tax collection and building sector
specific administration capacity, and arrange for the training and manpower development for
employees of the revenue
Finally we concluded the above recommendation that tax assessment based on estimation is firstly, the tax
administration must have the technical resources to make detailed studies of profitability by type of
activity, and secondly, an adequate number of tax officials must be available to verify information
provided by taxpayers about the characteristics of their business. Tax authorities and other stakeholders
should work together to improve the perception of fairness among taxpayers and legislators and tax
authorities should work to build positive perceptions of simplicity and administrative capacity. Focus
discussion with head manager of the authority some of the factors that led to low perceptions are the late
reassessment of the daily sales in 2017. Though the daily income was supposed to be assessed every three
years, the 2017, assessment was conducted after six years, leading to an unanticipated and sharp increase
in the estimation.
5.6. Policy Implication
The researcher argues for revenue collection capacity enhancement through improving staff enhancement
and enrichment while facilitating taxpayers with education and establishing more accessible and
transparent payment facilities in order to minimize revenue leakages.
5.7. Need for Further Research
The study assessed the challenges of tax revenue collection in Akaki Kality sub-city Woreda 08 with
evidence from AKSWRA.
Further studies need to be done on the following issues;

 What is the perception of taxpayers regarding the misuse of revenue collected by the authority in
relation to revenue evasion?
 To what extent has AKSWARA been able to address revenue evasion?

49
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 APPENDICES
Appendix 1

RIFT VALLEY UNIVERSITY KALITY CAMPUS

College of Business and Economics
Department of Accounting and Finance
Challenge of Tax Revenue Collection the Case of Category “C” Taxpayers in Akaki Kality Sub city
Woreda 08 (Questionnaire designed to tax office personnel) may, 2024. The purpose of this questionnaire
is to collect data useful to elucidate the problems associated with Assessment of Challenge Of Tax
Revenue Collection The Case Of Category “Taxpayers In Akaki Kality Sub city. The data will form the
basis for the research will be conducted in Partial Fulfillment of Bachelor of Arts Degree in Accounting
and Finance. Hence, your participation and swift response in filling out the questionnaire is greatly
appreciated. I assure you that all information you provide will be held in strictest confidence and be used
only for research purposes. Finally, the researcher would like to praise your contribution to the successful
completion of the research.
1. Personal information I.Gender: Male Female
2. Age: less than 20 20- 30 31 – 40 41 -50 Above 50

3. Level of education: Diploma. Bachelor Masters.

PHD
4. Work Experience: Less than 2yrs. 2-4yrs 5-7yrs

8-10 years More than 10

5. Basic salary: Less than 2000 2001 – 5000 5001 – 8000
More than 8001

56
Appendix 2
PART 2: System based on agreement between the taxpayer and the administration regarding to
Perceptions of fairness
B ) below summarizes the responses to the statements representing fairness (to filled by both Tax payers
and RACA tax office)Please indicate your agreement or disagreement regarding the challenges of tax
revenue collection in case of fairness by AKSCWARA Sub City 1 branch as follows;
1) SA=strongly agree 2) D=agree 3) U=Uncertain 4) A=Disagree 5) SD= strongly disagree

CHALLENGES CHOICE
Strong Strongly
ly Disagree
agree agree Uncertai Disa
n gr ee
6. Perceptions of exchange fairness
Taxes paid to the government in the
form of presumptive tax are used for
the benefit of the general public
Services provided by the government
to the business community are worth
the amount of tax they pay
Property rights and patent rights of
tax payers are protected
If taxpayers‟ compliance improves,
government provision of public
services will also increase
7. Perceptions of procedural
fairness

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Category “C” taxpayers will be
represented during the estimation of
daily sales

When tax laws are developed, the business

community is well consulted to represent
the interests of the business community
8. Perceptions of horizontal fairness
Micro businesses who earn the same level of
income pay a more or less similar amount
of tax
Taxpayers in a similar situation(business
location, living standards, personal
expenses, property they acquire, family size
… etc.) pay similar amounts of tax

9. Perceptions of vertical fairness

There is no significant difference in the
amount of tax that is paid by small
businesses and big ones
Micro businesses are paying
identical amounts of tax irrespective of their
income level

10. .Perception of time-related fairness

The income estimated for micro and small
businesses owner considers the amount of
income they earn/lose across time
The daily sales estimation only considers
the good seasons of business activities and
ignores seasons with low business activities

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The daily sales estimation considers
the average income of my business across
time

11. Perceptions of inter-group fairness

Certain groups of micro business will be

more favored than others in the
implementation of presumptive taxes
12. Perceptions of compliance fairness
Category “C” taxpayers pay all their tax due
on time
Some taxpayers pay less taxes by hiding
stocks during the estimation of daily sales

13. Perceptions of administrative

simplicity
The presumptive tax regime is a
simplified tax system compared to other
regimes

It is better for high-earning microbusinesses

to graduate to the standard tax regime than
to be under the presumptive tax regime
After the daily sales are estimated, the
way the tax is calculated is complicated
There is an adequate education campaign on
tax issues
Micro taxpayers can get any information
through free phone service (8199) or
website without going to the office of the
authority

14. Perceptions administrative capacity

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 The appeal process is fair and just

The daily sales estimating team members

that visit your working premises are polite
in making conversation

The tax authority has an organizational

structure that can address tax issues arising
from micro business taxpayers
The presumptive tax regime motivates and
encourages taxpayers to keep books and
records
The presumptive tax regime motivates and
encourages category “ C” taxpayers to
graduate to the standard tax regime
Thank you very much!!

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