Chapter-One

1. Introduction

Taxation had started in the world during the ancient Empires. The first known written record of
taxes dates back to ancient Mesopotamia (Asiva Noor Rachmayani, 2015). The Gambella Region
in Ethiopia is one of the westernmost regions of the country, known for its rich natural resources
and diverse cultural heritage. However, the region has been facing significant challenges in tax
assessment and collection, particularly in the case of Category "B" taxpayers, such as the
Gambella Town Revenue Office. This paper aims to examine the challenges faced by the
Gambella Town Revenue Office in tax assessment and collection, with a focus on Category "B"
taxpayers. The Gambella Region in Ethiopia is one of the westernmost regions of the country,
known for its rich natural resources and diverse cultural heritage. However, the region has been
facing significant challenges in tax assessment and collection, particularly in the case of
Category "B" taxpayers, such as the Gambella Town Revenue Office. This paper aims to
examine the challenges faced by the Gambella Town Revenue Office in tax assessment and
collection, with a focus on Category "B" taxpayers.

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(ANANDA MUHAMAD TRI
UTAMA, 2022). Tax is a compulsory contribution payable by economic units to a government
without expectation of direct and equivalent return from the government for the contribution
made Government has also given priority in reducing the budget deficit through the mobilization
of domestic resources(Minale, 2020). Taxes are not paid directly based on exchange contract like
any other payments except subsidies paid by government. Any citizen pays it whether or not the
citizen benefits from the government projects and programs financed by the taxes (Sebhat &
Assfaw, 2019). According to a study by the Ethiopian Revenue and Customs Authority (ERCA),
Category "B" taxpayers, which include small-scale businesses and individuals, are a significant
contributor to the regional revenue base (ERCA, 2020). 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

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tax assessment must be applied in a manner that fulfills the tax principles(ANANDA
MUHAMAD TRI UTAMA, 2022). The countries need to collect adequate amount of revenue for
various purposes, such as for building different infrastructures, for national defense and for
administration(Minale, 2020). Tax administration refers to the identification of tax liability based
on the existing tax law, the assessment of this liability, and the collection, prosecution and
penalties imposed on recalcitrant taxpayers(Debele, 2013). One of the most important uses of
taxes is to finance public goods and services, public goods like roads, power, municipal services,
street cleaning and other public infrastructures. Since public goods and services do not allow a
non-payer to be excluded, or allow exclusion by consumer, there cannot be a market in the good
or service, and so they need to be provided by the government or a quasi-government agency,
which tend to finance themselves largely through taxes(Minale, 2020). The tax system in
Ethiopia is not only meant to raise revenue for current expenditure but also aims at directing
economic agents to the development goals foreseen by the government through the incentive
schemes embedded within the prevailing tax laws(Desta, 2020). However, the amount of tax
revenue generated in the economy and collected by the government in the form of taxes depends
on the capability and readiness of taxpayers to abide by tax rules and meet the term soft tax
procedures(Ayalew Anteneh Ethiopia & Policy, 2023). The best instrument which the
governments can use as a source of revenue is taxation(Minale, 2020). There are thirteen branch
offices administered under the Ministry of Revenues of Ethiopia. Among these branches of the
Ministry of Revenues, this study focused on the Large Taxpayers’ Branch Office to evaluate the
factors that are affecting taxpayers’ tax compliance in Ethiopia. The reason why large taxpayers
from the Large Taxpayers’ Branch Office became the subject of this study is to prove the
researcher’s close scrutiny on the low compliance of taxpayers, and they contribute the highest
share of the tax revenue in Ethiopia, which accounts for about 70% of the total annual tax
revenue for five consecutive years(Luis & Moncayo, 2024). According to the current federal
income tax proclamation no.286/2002 taxpayers are categorized into three categories, namely
category “A”, “B”, and “C” based on their volume of sales and form of business. Category “A”
includes any company incorporated under the tax law of Ethiopia or in or a foreign country and
other entities having annual turnover of Birr 500,000 and more. Category ‘B’ includes those
enterprises having annual turnover of more than Birr 100,000 and less than Birr 500,000. These
categories of taxpayers must submit profit and loss statement at the end of the year. The law

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requires all entries in the records and accounts to be supported by appropriate vouchers (Council
of Ministers Regulation no. 78/20Article18, Sub Article 2)(Vat & Tax, 2024).

1.2. Statement of the problem

Tax is that the main part of government revenue that may be accustomed to finance all the
government expenditure to stabilize the economy. In Ethiopia, the government imposed tax
(direct and indirect), among others; as major and vital sources of public revenue for the
promotion of its economic process (Sebhat & Assfaw, 2019).Tax is a compulsory payment made
on different basis and rates by citizens (corporate bodies and individuals) to government, non -
negotiable but obligatorily. category “B” taxpayer being a person, other than a Company, having
an annual gross income of Birr 500,000 or more but less than 1,000,000(Incom.Tax Prol.W/GT,
2016) .This payment is not based on direct exchange for the payment for goods and services. It is
non - negotiable because none of the citizens has any direct contribution to the composition of
the basis and rates of payment (Deyassa DADI et al., 2020). Among different things, the
challenges facing tax collectors are existence of taxpayers ‘culture to evade and avoid taxes,
social disapproval among taxpayers against tax offences and taxpayers’ delay in tax declaration
(Sebhat & Assfaw, 2019). (Deyassa DADI et al., 2020) Well organized business tax assessment
and collection has good contribution for economic development of the country in general and
Gambella town in particular. According to a study by the Ethiopian Revenue and Customs
Authority (ERCA), Category "B" taxpayers, which include small-scale businesses and
individuals, are a significant contributor to the regional revenue base (ERCA, 2020). Most of the
world‟s governments follow to use taxation so as to lift most of its financial needs. The reason
for this is that taxation is the greatest effective source of government revenue. Ethiopia, done
various tax transformations for civilizing its tax system, increasing the competence of the tax
system and civilizing justice (Ethiopian revenue and customs authority(“Nottle,” 2021). One of
the key challenges faced by the Gambella Town Revenue Office is the lack of awareness among
Category "B" taxpayers about their tax obligations. A study by the World Bank (2019) found that
many small-scale businesses in the region are unaware of their tax obligations, which leads to
non-compliance and revenue loss for the government. This lack of awareness is exacerbated by
the limited capacity of the revenue office to educate taxpayers about their obligations.

The best instrument which the governments can use as a source of revenue is taxation(Minale,

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2020). Through the tax system, government can protect domestic industries from competing
imported goods through levying high tariff on the later(Faculty of Business Department of
Accounting an Assessment of Problems on Tax Collection in the Case of Erca Merkato By
Business Faculty, 2014). Developing countries struggle with low tax collection rates, which can
be attributed to ineffective tax administration caused by factors such as limited resources and
designing taxes without considering their practical implementation (Vat & Tax, 2024).Main
difficulties that encounter the maximum tax revenue Revenues includes; lack of tax knowledge,
absence of positive attitude of taxpayers to tax, and inadequate execution of collection done by
all lawful ways which are seen by the low performance and previous years of tax collection
execution compared to planned and actual tax collected(“Nottle,” 2021). in Desse town depicted
that among the main challenges the tax authority of town faces principally was taxpayers’ delay
in tax declaration. The number of expected revenue from tax might not be collected due to tax
evasion and tax avoidance which are existing behaviors in all economies in all century (Sebhat &
Assfaw, 2019).Reducing noncompliance can be effective if the reason for noncompliance by tax
payers is well understood which can be constructive tool to tax authority by providing them
information and helping them which strategy is appropriate and effective to increase tax
compliance (Sebhat & Assfaw, 2019). Another challenge faced by the Gambella Town Revenue
Office is the limited capacity of the revenue office itself. A study by the United Nations
Development Programme (UNDP) (2018) found that the revenue office in Gambella Region
lacks the necessary human and financial resources to effectively collect taxes from Category "B"
taxpayers. This limited capacity is reflected in the high levels of tax evasion and avoidance in the
region. In addition to these challenges, the Gambella Town Revenue Office also faces significant
logistical challenges in collecting taxes from Category "B" taxpayers. The region's remote
location and limited infrastructure make it difficult for the revenue office to reach taxpayers and
collect taxes. A study by the International Monetary Fund (IMF) (2020) found that the lack of
infrastructure in the region, such as roads and telecommunications, hinders the revenue office's
ability to collect taxes. In the Gambella context, the disparity that has been observed between the
man who works in the revenue office to collect taxes from taxpayers means that some taxpayers
pay more money while others pay less, which leads to a high rate of compliance during the
collection process. Due to the budget being cut in 2023, the Gap has witnessed a decrease in
unrest in the Gambella region, which has prevented the revenue office from collecting additional

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money.

1.3. Research Questions

1. What are the key factors influencing tax compliance among Category "B" taxpayers in
Gambella?

2. How does the administrative capacity of the Gambella Revenue Office impact tax assessment
and collection for Category "B" taxpayers?

3. What role does technology play in enhancing the efficiency of tax assessment and collection
processes within the Gambella Revenue Office?

1.4. Objectives of the study

1.4.1 General Objective

This study focuses on the tax assessment and collection challenges in Gambella a regional:
evidence for Category "B" taxpayers in Gambella revenue office . The main objective of the
study was to assess problems related to taxpayers and tax authority. Specifically, aims to
investigate the relationship of taxpayers’ delay of declaration, corruption and political instability,
organizational strength of the tax authority, taxpayers’ awareness, starting business without
license, tax fairness and modes of tax collection and tax collection.

1.4.2. Specific Objective

1. To identify and analyze the key factors that influence tax compliance among Category "B"
taxpayers in Gambella.

2. To evaluate the administrative capacity of the Gambella Revenue Office and its impact on tax
assessment and collection for Category "B" taxpayers.

3. To examine the role of technology in improving the efficiency and accuracy of tax assessment
and collection within the Gambella Revenue Office.

1.5. Significance of the study

The study may benefit stakeholders of the branch for which it will provide information about the
weaknesses and strength of the branch tax collection service that leads to take appropriate

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decision. The researcher also believes that the findings of the study would provide the basis for
planning and control of procedures and policies in the tax collection services system. Thus, the
study is delimited to study only the tax collection service system of the branch. According to a
study by the Ethiopian Revenue and Customs Authority (ERCA), Category "B" taxpayers, which
include small-scale businesses and individuals, are a significant contributor to the regional
revenue base (ERCA, 2020). However, the study also highlights that these taxpayers often face
significant challenges in complying with tax laws and regulations. In the case of the Gambella
Town Revenue Office, the challenges are even more pronounced due to the region's remote
location and limited infrastructure.

1.6. Scope of the study

Subject scope: Conceptually despite there being other determinants of tax collection efficiency
which influence tax collection efficiency the focus of this study is taxpayer’s awareness, tax
office capacity, tax compliance, and tax exemptions.

Geographical scope: Considering all customs in all sub cities i.e., outlying branches under this
study is difficult and unmanageable from broadens, time, money, and experience constraints
point of view. Therefore, this research is confined to Ministry of Revenue Large Taxpayer’s
Branch Office for the sake of in-depth analysis with genuine investigation on determinants of tax
collection efficiency.

Methodological scope: The study was used extensively a quantitative research approach in
which it confines itself to questionnaire survey on determinants of tax collection efficiency.

Respondents scope/target scope: The target population of the research was taxpayers who were
registered and pay in Ministry of Revenue Large Taxpayer’s Branch Office. In addition to this,
the study population included 786 Ministry of Revenue Large Taxpayer’s Branch Office
taxpayers. Because it is perceived.

1.7, Operational Definition (Optional) On the other part of the tax collectors, according
to canon of taxation, collection of tax should be time conscious and convenient and the cost of
collecting the taxes should not be high to discourage business. Some of the procedures
undertaken by tax authority to ensure compliance such as Filing return, return processing of tax.

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Exemptions: Tax exemption is the monetary exemption of persons, property, income, or
transactions from taxes that would otherwise be levied on them(Minale, 2020).

Tax Awareness is knows of something and acting or responding for some occurs. First of all the
understanding of tax is a form of contribution in supporting the country's growth(Minale, 2020).

Tax compliance: Compliance refers to the readiness of persons to act in accordance with in both
the ‘spirit’ and the ‘letter’ of the tax law and management without the application of enforcement
action (Minale, 2020).

Tax office capacity :is the government body, which administrates collection of tax and other
kind of fees and collections from the society and business body. Tax Authority capacity consist
many things, this include technology, man power, building and infrastructure for sake of well
collection and makes the collection procedures easy the government should capacitate its office
with profession, updated technology and different equipment (Minale, 2020).

Tax collection efficiency: based on voluntary compliance by a large number of decentralized

taxpayers. Most transition economies have only recently started to address compliance issues and
build up a modern tax administration with better overall revenue performance

1.8. Organization of the study

The study will be organized into five chapters. Chapter one will present the introduction in
which brief introduction of topic, research problem, research questions, objective of study, and
scope and limitations of the study will be addressed. Chapter two will discuss literature review in
which previous theories and empirical findings regarding Tax assessment and collection problem
are explained. Chapter three will explain the research design and methodology employed.
Chapter four will briefly discuss the results and findings of the study. The final chapter five will
explain and present the summary, conclusions and recommendations of the study based on the
findings.

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 Chapter-two

Review of related literature

This section presents a brief review of existing theoretical and empirical literature of tax
assessment and collection in the Gambella Region: Insight from Category "B" Taxpayers at the
Gambella Town Revenue. Researcher reviewed extraordinary associated literatures written by
extraordinary students to get tax assessment and collection challenges. The researcher made use
of secondary data supply together with tax books, tax journal, Ministry of revenues work
manuals and yearly reports, tax legal guidelines and net website. This indicates that the tax
payers are positive about paying tax if the government applies it appropriately for the benefit of
the tax payers. A survey conducted on tax payers‟ attitude in Scotland shows that the majority of
the respondents did not think that the government spends tax payers‟ money wisely (Desta,
2020).This enabled a researcher to evaluate and become aware of the troubles and variables of
tax assessment and collection enforcement difficulties and to provide you with the important
applicable solutions to the results. This chapter is presented into two sections. The first section
deals with theoretical literature review, the second section deals with empirical review.
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(Luis & Moncayo,2024). 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 (Luis & Moncayo,2024).

2.1.1. Review of Concepts

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A tax is “a compulsory charge imposed by the Government without any expectation of direct
return in benefit”. In other words, a tax is a compulsory payment or contribution by the people to
the government for which there is no direct return to the taxpayers(Minale, 2020). Tax imposes a
personal obligation on the people to pay if they are liable to pay it. The general public should be
taxed according to their ability to pay, i.e., the people in the same financial position should be
taxed in the same way without any discrimination. Thus, tax can be defined as, "an involuntary
fee or more precisely, "unrequited payment", paid by individuals or businesses to a
government(Minale, 2020). Governments may raise or lower taxes to achieve social and
economic objectives, or to achieve political popularity with certain groups. Some economists
consider taxation an important tool for maintaining the stability of a country’s economy.

2.1.2. Review of Theories

The economic model of tax compliance is valid at least partly on the ground that audit and
penalties curb or threaten noncompliance behavior of some selfish taxpayers. It is also possible
to assume that this argument is more acceptable in societies where the vast majority of taxpayers
feel that the government does not take care of them (2021).

2.1.1 Legal structure for effective tax administration

The importance of a sound legal structure for effective tax administration and the importance of
incorporating principles that will further tax compliance in the design of that legal structure.
Since each stage of the administrative process is dependent upon the other, to achieve a
significant improvement in the overall effectiveness of the tax administration each element of the
legal structure needs to be designed for maximum effectiveness (Asian Development Bank
2024).

-Agreement of autonomy from the executive branch

- Accountability to legislative assembly

- Relationship to the Ministry responsible for the tax legislation

- Type of organization structure in relation to taxes administered

- Decentralization

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- Personnel policy

- Policies for internal audits

- Mission statement and strategic plan

2.1.2 Importance of tax administration

tax administration dictates tax policy. Indeed, tax administration and compliance issues
determine the broad evolution of tax systems. The shift in industrialized countries over a century
ago from reliance on excise, customs and property taxes to corporate income and progressive
income taxes can be explained, in large part, by the relative decline in the rural sector, the
concentration of employment in large corporations and the growing literacy of the population. In
recent years, the shift away from these taxes - corporate income and progressive individual
income tax - and toward tax systems that rely more on broad-based consumption taxes such as
the value-added tax, flatter rate structures, and the adoption of “dual income taxes,” in which a
progressive tax on labor income is accompanied with a low flat-rate tax on capital income, as
adopted in certain Scandinavian countries, can be explained, in large part, by the forces of
globalization and developments in financial innovation and the inability of tax administrators to
develop technologies to cope with these forces and developments(2013). In tax reforms there is a
close correlation between successful tax policy and efficient tax administration. In other words,
there is no good tax policy without efficient tax administration. Most obviously, the failure to tax
all sources of economic power, such as the imputed rental value of homes or accruing capital
gains, are often justified by reference to practical concerns of administer ability. It is futile to
design a complex and sophisticated response to a tax policy problem if the rules to implement the
regime cannot be administered.

2.1.3 Tax administration challenges

The efficiency of a tax system is not determined only by appropriate legal regulation but also by
the efficiency and integrity of the tax administration. In many countries, especially in developing
countries, small amounts of collected public revenue can be explained by either incapability of
the tax administration in realization of its duty. All transition countries had a very huge fall of
GDP, which, with serious limitation of tax administration, resulted in an alarming revenue gap.

10
Moreover, in all countries, revenues from taxes collected from big, mostly state firms, declined,
and were not replaced with increased taxes collected from private, mostly small enterprise. This
has created pressure to increase tax rates and introduce new, very often ad hoc taxes. These
diversities, which are called "patches" in the tax system, are to a great extent a result of the
inefficiency of the tax administration in collecting the existing taxes.

2.1.4 Efficiency of tax administration

The key precondition for efficient tax administration is tax structure with minimizing distortions,
strictly tax exemptions and elimination of the differences in tax treatment of particular parts of
economy. This will mean extending the VAT to all but a few goods and services (notably export,
which should be zero - rated, and banking and insurance services, where it may be difficult to
determine the amount of value added to be taxed) . Badly conceived or unnecessarily
complicated tax structure greatly complicates the operating function of the tax administration,
while simple and transparent tax structure could affect it in the opposite way. So, the increase of
efficiency of the tax administration could be attributed mainly to the simplification of the tax
system. Tax administration cannot change legislation as a means for improvement of tax
structure, but could propose necessary changes in laws that can improve tax structure and / or
could aid in application of the law (Mansfield, 1990). Effective tax administration in a market
economy is based on voluntary compliance by a large number of decentralized taxpayers. Most
transition economies have only recently started to address compliance issues and build up a
modern tax administration with better overall revenue performance. A first step is restructuring
how the work is organized. In transitional countries, tax administration can be organized
respecting the functional principle (collecting, recording, auditing, and enforcement) according
to the type of taxpayers; the type of taxes; and type of enterprises in economy. Tax administration
should develop around activities (such as recording or auditing), as in Hungary, rather than
according to the type of tax and taxpayers. More generally, tax payment needs to be assessed,
collected and recorded more efficiently. Current procedures are rarely up to the job of dealing
with a growing number of taxpayers, many of which - particularly private businesses and service
enterprises are tricky to tax at best. The government might start by assigning an identification
number to all taxpayers, focusing its efforts on large taxpayers who generate the bulk of revenue,
and withholding wage tax at the source. This, however, does not mean that results of successful

11
monitoring of large taxpayers can be excused for neglecting medium and small taxpayers. This
can lead to the decrease of their compliance, resulting with lower total revenue. Next should be
improved auditing and follow-up actions against those who fail to file returns or make payment.
Latvia, for example, has issued regulations for an improved taxpayers' register: every taxpayer
must register with the State Revenue Service; financial institutions will not be allowed to open
accounts (Debele, 2013).

2.1.5 Improve tax administration

The growing concern of tax administrations throughout the world is on how to simplify the tax
assessment system to encourage voluntary compliance, and many countries have adopted the
self-assessment system as a solution (SAS). Thus, the recent trend in developing countries sees a
shift from the official assessment system to a SAS. Thus, setting up of a simple and broad based
tax system is crucial to the development of a better tax administration. Studies have identified the
main impediments as the lack of tax education among the taxpayers followed by poor public
relation activities and inadequate penalty provisions for errant taxpayers. The need to increase
training and improve the working environment of tax officials, as well as establish an
information management system are also seen as important factors to be met for better tax
administration (2013).

2.1.6 Service commitments of tax administration

The tax administration should provide impartial and professional courteous service and must
keep private and confidential information regarding the individual taxpayers. It should also offer
Education and information programs on specific tax issues should be arranged with taxpayers to
enhance their awareness and taxpayers should be allowed to voluntarily disclose their tax
situation without incurring a penalty or being prosecuted for tax violations under certain
conditions (Asian Development Bank (2024).

2.1.7 Tax assessment

Tax assessment is the definition of the amount the taxation under particular state requires an
analysis of the taxpayers‟ 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

12
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 (ANANDA MUHAMAD TRI UTAMA, 2022). Like many tax regimes in Ethiopia
income tax is assessed in three forms; Assessment of income tax on the basses of taxpayer's
records and books, assessment of income tax on the bases of standard assessment method, and
assessment of income tax on the bases of estimated assessment method(Faculty of Business
Department of Accounting an Assessment of Problems on Tax Collection in the Case of Erca
Merkato By Business Faculty, 2014). Assessment of income tax by books and records,
Assessment of income tax by standard assessment method and Assessment of income tax by
estimation. 2.1.9 Tax Assessment

A tax assessor is responsible for preparing and maintaining the assessment roll, the tax roll and
collecting the tax levies in accordance with the quality standards. The core service
responsibilities include:

• Preparing annual market value assessments for all properties • Preparing the business
assessment valuations for all business premises • Maintaining accurate property information and
ownership on all realty accounts • Maintaining accurate business information and ownership on
all business accounts defending assessments before municipal and provincial assessment
tribunals

• Responding to inquiries and requests for information related to assessment and taxation 34

• Producing and mailing annual assessment and tax notices to tax payers reporting assessment
rolls and meeting annual audits(Debele, 2013).

2.1.8 Procedures for tax collection

It is expected that people’s tax payments should be in line with their income and they are
required to pay a tax in proportion to their level of income. On the other part of the tax
collectors, collection of tax should be time conscious and convenient and the cost of collecting
the taxes should not be high to discourage business. Alternatively, this means that the ideal tax
system in developing countries should raise essential revenue without excessive government

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borrowing and should do so without discouraging economic activity and without deviating too
much from tax system in other countries (2024).

2.1.8.1 Identification and registration of taxpayers

Tax Identification Number (TIN) is used to identify taxpayers. Every taxpayer has a unique TIN,
which he or she is supposed to use in all his or her correspondence with the tax authority, and no
taxpayer should have more than one TIN. In countries like Uganda, they issue TIN free of charge
upon the taxpayer completing a TIN application form(Debele, 2013).

2.1.8.2 Filing returns

Taxpayers are required to file returns within specified months of the end of their tax accounting
year. The return should be filed in quadruplicate and should contain all the particulars of the
taxpayer. All documents respecting taxation should be presented to the tax authority office where
the taxpayer has their file. James (Debele, 2013).

2.1.8.3 Returns processing

Upon receiving a taxpayer’s return, the tax authority officers examine the accuracy of the return
by determining whether the return is properly completed, whether tax has been properly
computed, and whether there are any penalty payments to be made by the taxpayer. The officer
then allocates an assessment number to the return and issues the taxpayer with a Bank Payment
Advice Form, stating the tax payable. James (Debele, 2013).

2.1.8.4 Payment of taxes

Duties are unpaid on the end date of the submission of the self-declaration returns. Taxes should
be billed to a certified bank, the Bank Payment Evidence ( 2021). Government's legitimacy, the
government's efficiency and the government's credibility influence taxpayers' compliance and
thus determine the tax revenue the government can raise. Taxpayers can estimate the fair terms
of trade between their private consumption and government provision of public goods(Sebhat &
Assfaw, 2019). Tax knowledge as one of the factors influencing tax compliance is related to the
taxpayers’ ability to understand taxation laws, and their willingness to comply. The level of
education received by taxpayers is an important factor that can contribute to the understanding of

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tax requirements, especially regarding registration and filing requirements. Taxpayer education,
the taxpayer is aware of the rights, obligations and the procedures of paying taxes as well as the
consequences of non- compliance(Sebhat & Assfaw, 2019). This suggests that taxpayers’ higher
understanding of tax matters can compel them to satisfy their tax obligation and thence do away
with nonpayment tendencies. But, the study of(Sebhat & Assfaw, 2019). As stated out for
successful a tax system the high compliance of taxpayers is required. Subsequently there May 10
be better results in supporting fundamentally obedient taxpayers to encounter their fiscal
responsibilities than in outlaying more funds in pursuing the small non-obedient( 2021).

2.1.8.5 Audit and examination

The role of tax audits and examinations is to check the accuracy of the information that
taxpayers provide to tax authorities. The audits range from simple field and desk audits to
comprehensive audits. The Screening Process: The majority of cases for audit are selected during
this process. Here, comparison is made between returns of taxpayers who engage in similar
businesses or occupations, and between information contained in returns of current and previous
years for a taxpayer. Where inconsistencies are detected, CCRA officials put the returns aside for
possible audit and specific returns are selected for audit. The selective and careful scrutiny not
only saves resources but also increases the chances of detecting evasion(Debele, 2013).

2.1.8.6 Collection and enforcement

At a time when taxpayers do not pay their tax at end period, tax office can take measure to
collect the unpaid tax in a many of means. When the taxpayer has not made payment on the due
date, and does not object to the tax assessed, tax authority can enforce payment in a number of
ways. The Commissioner may bring a suit against the taxpayer or request a person owing or
holding money for the taxpayer to pay the money on a specified date or institute distress
proceedings against the taxpayer’s moveable property. In a wider context, the issue of
enforcement includes offences committed by the taxpayer, and the penalties for these offences. A
fine or penalty is money paid usually to a government authority, as a punishment for a crime or
other offence (Sebhat & Assfaw, 2019). Increases in tax deterrence sanctions pertaining detection
likelihood and the severity of penalties resulted in lower non-compliance among taxpayers. The
level of penalty rate is statistically significant to affect tax compliance levels. In general, the

15
discussions so far focused on the review of the literature on the theoretical aspect of tax
administration. The following section presents the empirical evidence on tax administration and
their problems from the perspective of developing countries, Ethiopia in particular(Debele,
2013). The Administrator may move to court beside the taxpayer or request an individual liability
or holding currency for the taxpayer to pay the currency on a stated period or start distress
actions beside the taxpayers portable assets. It is a broader situation; the topic of taking enforce
measures‟ contains faults devoted via the taxpayer, and the fines for these violations( 2021).
When the taxpayer has not made payment on the due date, and does not object to the tax
assessed, tax authority can enforce payment in a number of ways. The Commissioner may bring
a suit against the taxpayer or request a person owing or holding money for the taxpayer to pay
the money on a specified date or institute distress proceedings against the taxpayer’s moveable
property. In a wider context, the issue of enforcement includes offences committed by the
taxpayer, and the penalties for these offences.

2.2. Empirical Review of Literature

argued India is an expert of tax revenue deficits for the reason that of gap in revenue sharing
between the poor and rich in centralized system of governance. The rich who made the highest
portion of tax income deliberately run-away tax payments. Increasing tax revenue is a difficult
because of the inadequacies in tax structure( 2021). The Results showed that a marginal increase
in tax audit and tax penalty will lead to increase in tax compliance in Gambella State. The result
of the research originates that taxpayers would be eager to pay high amount if public services
were better. But taxpayers’ refusal to pay tax is not perceived to be the key problem in tax
revenue assortment. The result of the survey data indicates poor public services to be the greatest
significant descriptive factor behind low tax obedience. In general, one can observe that the
experimental research done far for emerging nations, specifically for Ethiopia, worried slight or
no to see the possible challenges met by taxpayers and the tax offices in managing different tax
actions such as tax assessment and assortment. The execution of the tax government will have a
bearing on the ability to increase tax revenue for a country since it contains mainly the
assessment and assortment activities. the tax assessment sometimes can be unclear to the
taxpayers. Regarding to the complexity of tax assessment system (not simple and clear) may
result in unintentional non- compliance if taxpayers have problems with filling the tax form.

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Furthermore, such noncompliance differs from other crimes. Because it can be concluded that the
errors occurred unintentionally due to the misinterpretation of the rules(Vat & Tax, 2024).
Generally, one can see that the empirical studies undertaken thus far for developing countries,
particularly for Ethiopia, bothered little or no to see the potential challenges faced by taxpayers
and the tax authorities in administering different tax activities such as tax assessment and
collection. The performance of the tax administration will have a bearing on the capacity to raise
revenue for a country since it includes primarily the assessment and collection activities.
Therefore, this research will not only identify the problems of the Arada sub city tax
administration and taxpayers, but also the cause of these problems. Because the researcher
believes that identifying the root cause of the problems is the best ground to provide appropriate
solutions(Debele, 2013).

2.3. Research Gap

Hence, we are looking at the challenges of tax revenue collection there seem to be a
disagreement in the findings. In some variables are Significant in one study also insignificant in
another study. And also, from the previous empirical research found that the challenges of tax
revenue collection have been found to differ between countries. This means there is no universal
findings are highlighted by researchers pertaining to genuine challenges of tax revenue collection
among countries sharing similar tax systems, and cultures. The case of Ethiopia is a good
example for this situation(Luis & Moncayo, 2024). Problems like delays in the lawful system,
absence of tax court law, absence of correct billing, lack of consciousness of non-payers are the
central matters that can be stated in enforcement difficulties. Additionally, deficiencies of trained
man power and an absence of workers training, increased employs turnover, nonexistence of
computer supported tax payer recording and data keeping tax systems are difficulties that fall
under capability restriction(2021).

2.4. Conceptual Framework

They differ from fees and fines in that they are imposed on the entire community and are not tied
to receiving any specific services, privileges, or violations of the law. Taxpayers are legally
obliged to pay taxes and may not always receive direct benefits in return. The primary means for
governments to generate revenue is taxation, which is essential for financing operations and

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providing public goods and services (Vat & Tax, 2024).a conceptual framework is a tool
rationalizing and streamlining the procedures and approaches used in research projects(Ayalew
Anteneh Ethiopia & Policy, 2023). conceptual framework contains the basic structure of a study
that considers questions, variables, data collecting instruments, and methods of data analysis in
the research. According to the empirical literatures reviewed and the theoretical issues stated
above, the conceptual framework of this study was contextualized and framed herewith.

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