ASSESSMENT OF VAT ADMINISTRATION (A CASE STUDY ON BISHOFTU TOWN)

ASSESSMENT OF VAT ADMINISTRATION

(A CASE STUDY ON BISHOFTU   TOWN)

A RESEARCH PAPER SUBMITTED FOR THE PARTIAL FULFILLMENT OF BACHELOR OF ARTS DEGREE IN ACCOUNTING  

                             SUBMITTED BY: GEMECHIS KEBEDE

ADVISOR: DANIEL TOLESA

DEPARTMENT OF ACCOUNTING

COLLEGE OF BUSINESS AND ECONOMICS

JIMMA UNIVERSITY

                                   MAY, 2012

JIMMA, ETHIOPIA

Acknowledgement

First and for most, my thanks goes too almightily   God and saint virgin Merry, without whom I could never have been way I am today.  Next, I would like to express deepest gratitude to my advisor Daniel Tolesa for his valuable and conserve in preparing this research Paper. Finally I would like to thanks all contributes that provided their support on one or the other way to accomplish this research paper.

I

ABSTRACT

This study assessed the VAT Administration in Bishoftu town. The main objective of the research is to assess and identity problems related to VAT Administration in Bishoftu town revenue office.

To fulfill this objective both primary and secondary data were used. A primary data were collected through questionnaires and unstructured interview and a secondary data from secondary sources like internet and other relevant material.

The major problems related to VAT administration are found to be the implementation of VAT, awareness of tax payers to VAT, and others exist during collecting VAT.

To overcome a problem identified a constructive recommendations would be made in order to improve or alleviate those problems.

II

TABENT   OF CONTENTS

CONTENT                                                                                                                 PAGE

Acknowledgment ………………………………………………………………..…I

Abstract ……………………………………………………………………………II

Table of content ………………………………………………………………….III-IV

   CHAPTER ONE

1. Introduction …………………………………………………………………….….1

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

1.2 Background of area ………………………………………………………….……1

1.3 Statement of Problem …………………………………………………………….2

1.4 Objective of the study ……………………………………………………………3

   1.4.1 General Objective ……………………………………………………………3

   1.4.2 Specific Objective …………………………………………………………....3

1.5 Significance of the study ………………………………………………………...3

1.6 Scope of the study …………………………………………………………….…4

1.7 Limitation of the study ……………………………………………………….….4

     

CHAPTER TWO

2. Literature review …………………………………………………………………5

2.1 History of VAT ………………………………………………………………….5

   2.1.1 VAT in Ethiopia ……………………………………………………….……5

2.2. VAT Refund ………………………………………………………………..….6

2.3 Meaning of value added tax …………………………………………….…..…..7

2.4 Nature of VAT ………………………………………………………….…...…..7

2.5 Registration for VAT ……………………………………………………...…….8

2.6 Registration Procedure …………………………………………………………10

2.7 Time of application ………………………………………………………….….10

2.8 Time of Registration …………………………………………………………....11

2.9 Cancellation of Registration …………………………………………………….11

III

2.10 VAT administration ……………………………………………………….…..12

2.11 Advantage and disadvantage of VAT …………………………………………13

    2.11.1 Advantage of VAT ………………………………………………………13-14

    2.11.2 Disadvantage of VAT …………………………………………………….14-16

CHAPTER THREE

3.1 Research Design ……………………………………………………………..…...17

3.2 Site of the study ……………………………………………………………….…17

3.3 Data type and source …………………………………………………………..…17

3.4 Method of data collection …………………………………………………….….17

3.5 Method of analysis and interpretation …………………………………………...17

CHAPTER FOUR

4.1 Data Analysis and interpretation ……………………………………………….18-28

CHAPTER FIVE

Summary, conclusion and recommendation………………………………………..29

5.1. Summary and Conclusion ………………………………………………………29

5.2. Recommendation ………………………………………………………………..30

6. References …………………………………………………………………………31

7. Questionnaire ……………………………………………………………………..32-34

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                           CHAPTER ONE

                          INTRODUCTION

          1.1 BACKGROUND OF THE STUDY

 Tax administration is important activity in tax collection because it is the source of revenue for government. Tax administration is good way as it is recent issue in our country. VAT is started in our country in 2002 by proclamation 285/2002. Taxation can be redistributing society wealth by imposing heavies’ tax burden on one group in order to found service for another. It can also stabilize countries economy unpopular tax returns have caused public protests riots and even revolution.

 All government requires payment at money taxes from people. The government uses the tax revenue to build dams, to operative schools and hospitals to provide food and medical care for the poor and hundreds of other purposes. Value added tax is a tax levied on consumption goods. It is a modified sale tax based on the net value added at each stage rather than gross receipts it is principle means of indirect taxation.  It was organized in France since 1954. Encyclopedia, Britannia Jacob esparto (pp 416- 417) should implement VAT system .Value added tax is based on the net value added at each stage rather than on gross recipients. Net output tax minus in put tax output tax is a tax collected when one firms sell its products where as input tax   is tax paid when firm buys good from registered one can collect VAT without registration for VAT.

Generally VAT administration practice in Bishoftu town is one activity from tax administration.

Background of area or organization.

Bishoftu town of revenue authority office is found in east Shoa Zone Oromia Region and 40 km to east of Addis Ababa. It has a latitude and longitude of 8^o 45^o N 38^o 59^o E with an elevation of 1920 meters. It is a resort town, known for five crater lakes. The organization has started for the objective of performing activities of collection of revenue from different sources such as tax from traders, from salary employees currently tax organization have many department such as auditing. Accounting, financing information department, planning and budgeting etc.

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 1.2 STATEMENT OF PROBLEM

 Recently the federal government of Ethiopia adapted VAT    system at national level. All VAT eligible will not registered due to different reasons, failure to main records file  timely, and failure to notify change in business address and business live (Yohanis  and Sisay,   2009) .

 Problem at implementation  arise from a tax payer’s and tax administration and lack of awareness of business  enterprise to know about VAT advantages and application of it due to these not ready our self  of to register this is the  major problem in the country not only in the Bishoftu town  ( Yohanes and Sisay ,2009) .

 I will assess the VAT administration in case of Bishoftu town the main researches are:-

•  What is the problem in the implementation of VAT in Bishoftu town?
• Are the tax payers having awareness about VAT?
•  What problem is occurred in collecting VAT?
• What is benefit of VAT register?

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1.3 OBJECTIVE OF THE STUDY

     1.3.1 General objective

 The general objective of the study is to assess the main problem relating to the VAT administration and VAT payers in case of Bishoftu town.

 

1.3.2 Specific objective

The specific objectives of the study are:-

-        To explain the reason behind the lack of awareness of VAT payers.

-        To identify the major problems related of VAT collection

-        To assess VAT implementation problems in Bishoftu Town

-         To identify benefit of VAT registered.

1.4. SIGNIFICANCE OF THE STUDY

 The need to conduct this study is to explore the problem of VAT administration that was known and individual living condition with in the country. For the researcher it is an opportunity of relating academic knowledge with that of what is practiced with real world. For the administrator give a way it would raise the employees awareness towards VAT and show them the role they have to play. It paves way for other researcher and contribute some to those tax want to make further research and necessary for the identification of the obstacle at the collection of VAT.

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1.5 SCOPE OF THE STUDY

 The study focused on value added tax administration at Bishoftu town. This study was restricted on Bishoftu town VAT registered business those who have annual sales turnover of birr 500,000 and above. The aim of the study will generally, to assess the main problem relating to VAT administration and VAT payers in Bishoftu town.

1.6 Limitation of the study

In this research study the researcher faced some problems, some of these problems are:-

1. There was less cooperation and unwillingness to fill questionnaires.
2. A top level manager of a revenue office is not there for a continues of a twenty days.
3. Lack of awareness of some employees.

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CHAPTER TWO

                                             LITERATURE REVIEW

2.1 HISTORY OF VAT

Emergence and rapid spread of VAT is among the most important tax development of the later 20^th c VAT invested in 1954 by a French economist Maurice Laurie who was joint director of the French tax authority. The theory is that the end consumer carries the burden of VAT, not the business, which is merely collecting the VAT on behalf of tax authority.  According to international monetary fund report 2004, more than 4 billion, 70% of the world population new live in countries with VAT, raise about 18 trillion in tax revenue, roughly one quarterly of all government   revenue over 136 (72%) of them have made VAT part of their tax system, and from 53 member of countries of   African union 33(60%) of them are introduced VAT ( Gebrie , 2008,pp.186-187).

 2.1.1 VAT IN ETHIOPIA 

VAT is a new tax system introduced in Ethiopia this tax system is not new to other countries. The modern concept of VAT was truly introduction in France in 1954. The concept of VAT was propounded first by American experts by 1920’s. But at that time Americans failed to implement it. In Ethiopia, VAT was introduced since January 1/2003 designed to replace the cut dated sales tax which was served for more than four decades, which was collected at manufacturing level. VAT is taken as dispensable components of tax reforms in developing countries such as Ethiopia by considering it a miracle tax to replace direct and indirect taxes entirely.  Since 1993 the Ethiopia government has made major economic shift from central planning to market oriented economic system (Yohanes and Sisay, 2009, pp. 186-187).

     

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   2.2. VAT Refund

VAT registered person shall got refund if at least 25% of the value of a registered person in a single transaction of substantially all of the asset of a taxable activity provide a notice in writing signet by the transferred is finished with 21 days after the supply taken place is taxed at a zero rate the authority shall refund the amount of VAT applied as a credit in excess of the amount of VAT charged for the accounting period within a period of two months after the registered person files an application for refund accompanied by documentary proof of payment of the excess amounts.

In the case of other registered persons the amount of VAT charged for the accounting period is to be carried for word the next five accounting period is to be carried for word to the next five accounting periods and credited against payment for these period and any unused excess remaining after the end of this five month period shall be refunded by the authority with a period of two months after the registered person files an application for refund accompanied by documentary proof of payment of the excess amounts. Where the tax authority satisfied for refund application in over paid tax the tax authority shall.

§  First apply the amount of the excess in reduction of any tax levy interest of penalty payable by the person under the customs proclamation the income tell proclamation and excise tax proclamation.

§  The repay any amount remaining to the person amount to be refunded is more than 50 by.

When registered person is entitled to refund and the tax authority is satisfied but does not pay the refund within specified date the authority shall pay the person the refund plus interest set at 25% over and above the highest cam mercies lending interest rate that prevailed during the preceding quarter (Gebrie, 2008, p. 119).

     

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  2.3 MEANING OF VALUE ADDED TAX (VAT)

 Different authors who  wrote  about the tax have defined value added tax ( VAT ), According to encyclopedia Britannica VAT is “A sales tax designed like other  sales taxes to tax private consumption  by individual of the goods or  services subjected to tax” this definition failed to list out other features that distinguishes VAT  from other kinds of taxes. One can understand from this definition VAT is a variety of sales tax and the tax is imposed on consumer. Black law dictionary on its parts provides that “VAT is a tax assessed at each step in the production of a commodity production on cost and its selling price “(Yohanes and Sisay, 2009 pp.66).

 The VAT belongs to the family of sales tax a VAT way be defined  as “a tax to be paid by the manufactures or traders of good and  service on the basis of value added by them” . It is not a tax on the value of the commodity being sold but on the value added to it by the manufacture or trader. They are not liable to pay the tax on the entire value of the commodity. But have to the tax only on the net value added by them in the production or distribution (Dr. R. parameswaran, 2005, p. 105).

 It is broad tax based because it is charge in different stage at production and distribution chain rather than on – time imposition.  It also affects sectors, that is, import manufactures whole seller and retailer sector. VAT is family at sale tax sales  tax is a tax imposed on a sale of goods or services and computed as a percentages of the total tax collected at  multiple  stage. VAT is a self assessed tax since the VAT liability is calculated paid by the tax payers (proc, No 285/2002).

 2.4 NATURE OF VAT

 VAT is characterized by the following features

Ø  VAT is “general tax or comprehensive” that applies in principle to all commercial activities in valuing the production and distribution of good and provision of services.

Ø   VAT is “consumption tax” because it is levied in sales of good and the provision of service rather than income, capitals or saving.

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Ø  VAT is “broad based tax” since the government collects such tax from all sectors that is importer, manufacturing whole sale, and retailer sector.

Ø     VAT is “percentage of price” which means, the actual tax burdens is visible at each stage in the production and distribution chain.

Ø  VAT is collected “fractionally” because each time the item is changes hand in the process of production and distribution the VAT is assessed on the incremental value.

Ø   VAT is “neutral” because regress of how many transactions are involved VAT liability the amount of tax they have paid to other person on purchases for their business activities.

Ø  VAT is indirect tax because VAT is paid total authority by the seller of the goods, who is the taxable person but it is actually paid by the buyers to the seller as part of the price.

 The federal democratic republic of Ethiopia (FDRE) has adopted VAT in to be a tax system in 2003. It has been introduced on January 1/2003, replacing the former sale tax system. The VAT proclamation no 285(2002) has been ratified   by the house of people representatives six months before VAT implementation.

VAT is introduced in Ethiopia by proclamation (285/2002 replacing sale tax, with the following objective.

Ø   To collect tax on the added value whenever the sale transaction is conducted since the former sale tax system did not allow collection is conducted.

Ø   To minimize the damage that may be caused by attempts to avoid and evade the tax and ascertain the profit  obtained by   tax payers

Ø   To enhance economic growth and improve the rational relationship    between the gross domestic production and gross revenues.

Ø   To enhance saving and investment as it is a consumption tax and doesn’t a tax capital.

 2.5 REGISTERED FOR VAT

 2.4.1 Who has to be registered for VAT?

 In Ethiopia, registration for VAT is categorized in to two:-

i.                 obligatory registration

ii.               voluntary registration

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 I. OBLIGATORY REGISTRATION

 Any person conducting a commercial enterprise or instancing to conduct commercial enterprises or intending to conduct a commercial enterprise may apply to be registered for VAT. However if  the taxable turnover of the enterprise, which is   gross income for 12   calendar monthly exceeds  or is likely to exceeds  birr 500,000,  the person conducting the enterprise must be  register for VAT  with FIRA or. The Federal Inland Revenue. If the turnover is below birr 500,000 of business activity one may apply for   voluntary registration (Gebrie, 2008, pp.201-2002).

 II .VOLUNTARY REGISTRATION

A person, who carried on taxable activity and is not required to be register for VAT, may voluntarily apply to the authority for such registration. If he/she  regularly is supplying or rendering  at least 75% of his good and services to registered  persons (Gebrie , 2008, pp. 202-203)

BENEFIT OF   VOLUNTARY REGISTRATION

 Input VAT can be recovered if a person is registered. It will therefore be beneficial to voluntarily register where the person makes mainly zero - rated supplies.

The term any person for purposes of VAT registration includes:-

v  Sale proprietor, company, incorporated body or unincorporated body, club or association.

A commercial enterprise: - this refers to any business of whatever nature and includes such as

·        Ordinary business, example, shop, contractors, manufacture wholesaler etc.

·        Trades and profession, example builders, engineers, accountants, lawyers etc.

·        Activities of non- profit making bodies example societies, association (Gebrie, 2008, pp.202-203).

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    2.6. Registration procedure

Application for compulsory as well as voluntary registration must be made on application form called “application for VAT registration” on application for sale and the authority is required to register the person in the VAT register and issue a certificate of registration within 30 days of the registration containing details of.

·       The full name and other relevant details of the registered person

·       The date of issuance of the certificate

·       The data from which the registration takes effect and

·       The registered person’s tax payer identification number

If registration is disallowed FTRA will have to notify the applicator and the reasons for the refusal. The tax authority many deny the application for voluntary registration if the person:

·       Has no fixed place of residence or business

·       Does not keep proper accenting records

·       Has no bank account

·       Has previously been registered for VAT purposes but failed to perform his duties under the VAT law (Gebrie, 2008, p.203).

 2.7. Time of application

A person who carries on taxable activity and is not registered is required to file an application for VAT registration it shall fill an application for registration on later than the last day of the month after the end of the period if:

1.     At the end of any period of 12 calendar months the person made during that period, taxable transactions with a total value exceeding 500,000.00 birr or the last day of the month of the period if taxable transactions with a total value exceeding 500,000.00 birr.

                                                             

2.     At the beginning of any period of 12 calendar months when there is reasonable around to expect that the total value of taxable transactions to be made by the person during that period will exceed 500.000 birr (Gebrie, 2008, p. 203).

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2.8. Time of registration

Registration takes place on one of the following dates depending up on which date comes first.

·       In case of obligatory registration on the first day of the accounting period following the month in which the obligation to apply for registration arose.

·       In case of voluntary registration on the first day of the accounting period following the month in which the person applied for registration or

·       On the date selected by the registered person on his application for a registration person who conducts taxable activity in a branch or division shall be registered only in the name of the registered person to register one or more of its branches or divisions as separate registered person. The tax authority allows when it’s satisfied on such case that divisions or branches maintains and independent accounting system and can be identified by the nature of its activities or location (Gebrie, 2008, p. 204).

2.9. Cancellation of registration

VAT registered person can apply for cancellation of registration

·       If tax payer ceased to make taxable transactions.

·       At any time after a period of 3 years of the date of his most recent registration for VAT if the registration persons total taxable transactions in the period of 12 months then beginning reasonable are expected to be not more than 500,000.00 birr.

The cancellation of VAT registration takes effect

·       At the time the registration person ceased to make taxable translation for example, if one close down or sell his business. However, if one has more than one business and is not closing down or selling them all he may not be able to cancel it will depend on the level of taxable turn of remaining businesses.

·       If the registered person has not ceased to do so at the end of the accounting period during which the person applies to the authority for cancellation of VAT registration.                                           

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When registered of VAT is cancelled, the authority is required to remove the person’s name and all other details from the VAT register and the person is required to return back the issued certificate of registration. VAT registered person cannot charge VAT or issue tax invoices for any supplies made and cannot claim are fund of VAT incurred on any goods or services purchased from the date of the registration is cancelled (Gebrie, 2008, p. 209).

           

TYPES OR KIND S OF VAT

 The VAT can be determined in different forms. It may way depend up on the form of tax base. The forms may differ on the items to be included in the tax base.

 The common type of VAT is given below:-

A. Consumption VAT: in the type of VAT the firm is allowed to deduct    from gross value of its product not only the non- capital input purchased from other firm but also the capital equipment purchased.

 B. Production VAT ; in the production type VAT the  value of the input purchased by the firm from other firms is not  dedicated in full only the value of non capital purchases in dedicated.

C. Income type: - according to this form the firm is allowed to deduct the depreciation the capital goods (during the years) a part of the full value of its non capita purchase. Here, firms cannot deduct the entire value of its capital goods purchased during the year but they can deduct the respective amount of depreciation attributable to that year (Dr. R. parameswaran, 2005 p.106).

  2.10 VAT ADMINISTRATION

 The VAT replaced the current sales tax on manufactured and imported   goods and service on January 1/2003. The responsibility for the correct calculation and timely payments of VAT rests on the Tax   payers himself. The VAT is a broad based tax on the consumption of goods and service. It is collected at all the stages in the production and distribution process beginning with the importers and producers of raw materials and ending with retailers cascading of the tax (i.e.

tax  on tax is avoided by providing  for a credit  for the tax paid at  the  preceding level unlike the sales tax system , where by relief is granted only to raw materials  used directly  in the production of goods under a VAT  relief is  granted for tax paid on capital   goods, distribution and administration inputs . Sales of exported goods are not subject to the VAT.

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Removing the tax content (on input) from exported goods makes the goods more competitive in international markets. VAT is a tax on consumer expenditure. It is collected on business transaction and imports. Most business transaction involve supplies of goods or service and VAT is payable if they are  supplies  made in Ethiopia, made by a taxable person, made in the course of furtherance of a business are not specifically  exempted of zero – rated ( Gebrie, 2008,  pp. 190-191) .

2.11. Advantage and disadvantage of VAT

   2.11.1. Advantage of VAT

The following are some of the advantages of VAT

a.      It avoids cascading effect of tax (tax on tax)

VAT works on the principle of that when the raw material passes through various manufacturing stages and manufactured products through various distribution stages, tax should be levied on the incremental value at each stage and not on the gross sale price. This insures that some commodity does not get taxed again and again, and this there is no cascading effect. Putting the concept in simple terms, in VAT system, each input is taxed only once (Misrak, 2008, p. 310).

b.     It is major comprehensive and equitable tax system

Even though the ultimate burden of VAT full on the final customer, VAT is collected by the government from all sectors that is from import manufacturing, whole sale and retail sectors. Therefore, it is a more compressive and equitable taxes system. On the contrary, sales tax is normally levied at one stage of whole marketing (Misrak, 2008, p. 310).

c.      It reduces the possibility of the tax erosion

In the case of VAT the taxes are divided into several parts depending on the number of stage of production and sales. In each stage every transaction is made using VAT invoice approved by tax authority. In addition each VAT registered person (supplier) has to maintain appropriate records on their sale and purchase transaction. Those obligations make tax evasion difficult (Misrak, 2008, p. 310).                                                        

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d. It has less tax burden

Under VAT system, the tax is collected is small fragments at different stage of production and sale. Hence, the VAT payers feel the burden of the less (Misrak, 2008, p. 310).

e.      It is neutral

Regardless of the number of stage of production and distribution, VAT is collected in each stage, therefore; VAT is expected to be perfectly neutral in the location of resources in the form of production and commercialization (Misrak, 2008, p. 310).

f.      It improves productivity

In VAT system, a firm has to par tax even though it van in to loss. The firm cannot claim any exception for loss because it pats taxes on the value produced and not on profits. So, firms will always try to improve their performance and reduce the cost of production. As a result, the overall productivity of the country will be improved (Misrak, 2008, p. 310).

g.     It promotes capital investment and saving

VAT is a consumption tax since one pays VAT on its expenditure and has the option to sure so as not to be taxed. Furthermore, relief from tax on capital goods may encourage investment. Potential investors also consider tax legislation as one of the factors in making investment decision (Misrak, 2008, p. 311).

h.     It enhances exports

Exports of goods and services in most countries that implement VAT are liable to VAT. At zero rates this may make exports internationally competitive and thus encourage exports (Misrak 2008, p. 311).

2.11.2. Disadvantage of VAT

The following are some of the main disadvantages of VAT

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a.      It is regressive in nature

A straight forward single rate VAT with few exemptions would tax lower income groups (the poor) more heavily than the higher income groups (the rich). It is thus incongruent with the basic.                           

Principles of taxation which states that reason should be taxed according to his ability to par. This makes VAT regressive tax system.                                                           

In order to compensate for its regressive effect a number of countries have expected basic goods particularly food items from VAT (Misrak, 2008, p.311).

b.     It require advanced economic structure

The proper implementation of VAT system required organization and advanced financial and economic structure as it complicated system. VAT system also requires proper record keeping of invoice at each stage of production and sale by both the seller and buyer. Hence, it becomes, difficult to implement the system in all types of economy (Misrak, 2008, p. 312).

c.      It put additional burden to tax authority

In VAT system, the manufactures whole sellers and retailers have to fulfill various legal formalities in the form of manufactures various records, accounts, books, etc. the verification of those formalities put additional burden to the enforcing authorities (Misrak, 2008, p. 312).

d.     It is uneconomical

VAT system involves high of administration, assessment, verification collection, etc. hence; it is highly uneconomical (Misrak, 2008, p. 312).

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e.      It has reams loopholes for tax evasion

Although VAT system requires proper record keeping of invoices at each stage of production and distribution by both the buyer and seller, it has ream loopholes for tax evasion. This may include the following:

·       Tax payers could over report sales of zero rated goods.

·       Tax payers could use invoices they received for personal purchase to claim tax credits.

·       It enables buyers and sellers to strike secret deals with regards the issuance of receipts.

·       It could lead to the formulation of forged ponies’ recipients to claim tax credit on input VAT, etc (Misrak, 2008, p. 312).

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CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

                3.1 RESEARCH DESIGN

 The research or study was to the VAT administration in case of Bishoftu town and the study gave full   details to show the research activity gone to be carried out.

                3.2 SITE OF THE STUDY

 The study was focused on value added tax administration at Bishoftu town which    located 400 km from Jimma.

               3.3 DATA TYPE AND SOURCE

 This study was conducted using both primary and secondary source of data to get information.

 Primary source of data was employee and top level manager of a revenue office and secondary source of data are internet.

3.4 METHOD OF DATA COLLECTION

 For collecting the data suitable techniques were used depending up on the nature of data.  The primary data was collected by using closed and open- ended questioner to be distributed to a twenty employer a researcher take  from a total of thirty employers target population  by a system of judgmental sampling  and unstructured interview for a tax administer of top level manager a revenue office . The secondary data was collected from secondary source.

3.5 METHOD OF ANALYSIS AND INTERPRETATION

 Having the goal this study in mind the row data was processed by tabulating that identifying and classifying each answer which statistic by the researcher. The data was analyzed and interprets the finding by descriptive statistics method with table and percentage.

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CHAPTER FOUR

3.    Presentation, analysis and Interpretation of Data

This section focuses on interpretation and analysis of data collected from primary and secondary sources. The primary data were collected through the use of questionnaires for 20 respondents that work in Bishoftu town from revenue bureau, and interview tor top level management of tax administer. The questionnaires are distributed based on simple random sampling technique. The collected data has been edited and complied and the results are presented using both qualitative and quantitative data analysis method. First the data are collected through questionnaires and interview and then analyzed by using tables.

Therefore, these analyses are interpreted based an 20 respondents of the survey as follows

Table 4.1 Gender distribution respondents

No	Description	No of respondents	Percentage
1	Sex
	Male	14	70
	Female	6	30
	Total	20	100

Source, survey Result, 2012

As indicate in the above table, 14(70%) of the respondents are males and the remaining 6(30%) are females. From this the greater numbers of my respondents in the organization are males as compare with females.

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Table 4.2 the Age of respondents

No	Description	No of respondents	Percentage
1.	Age of respondents
	18-24	8	40
	25-30	6	30
	30-35	3	15
	Greater than 35	3	15
	Total	20	100

Source, survey Results 2012

As can be seen above from the table 8(40%) of the respondents age are found between 18-24, 6(30%) of respondents are between 25-30, 3(15% of them are found between 30-35, and the remaining 3(15%) are greater than 35 age. This shows that from my respondents the greater number of their age is found between 18-30.

No	Description	No of respondents	Percentage
1.	What is your educational level?
	Elementary and juniors complete	-	-
	Certificate	3	15
	High school complete	2	10
	1st degree	13	65
	Above degree	2	10
	Total	20	100

Table 4.3 Educational level of respondents

Source, survey Results, 2012

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Table 4.3 shows the educational levels of the revenue bureau employee and the VAT payers of the town. As show above 3(15%) of the respondents are certificate, 2(10%) of the respondents are high school complete, 13(65%) of them have degree holders and the remaining 2(10%) are degree holders. This shows that the focus division has degree and certificate holder’s employees. Besides these degree holders employee is greater than the other education status holder’s employees.

Table 4.4 year of service in the bureaus and year of experience of employee

No	Description	No of respondents	Percentage
1.	How long a year of experience?
	A. Less than a year	4	20
	A. a year	3	15
	C. above 2 year	8	40
	D. 1-2 year	5	25
	Total	20	100
2.	How long have been with town revenue bureau?
	A. a year	8	40
	B. 2-4 year	9	45
	C. 4 year	1	5
	D. above four year	2	10
	Total	20	100

Source, survey result 2012

As indicated from the above table the employee year of service on their profession and their year of service in the bureaus, a 4(20%) of employee has less than one year, 3(15%) of employee has a year, 8(40%) of employee has above two year and the remaining 5(25%) of the employee has one up to two year of the experience. The above results shows that the bureaus have experience workers and the greater number of the year of experience are above two year. As their experience increases, their performance to give services is also increases.

                                                                                 20

This may have a positive impact on the bureaus. When come to the second question 8(40%) of the employee give service in the bureaus for one years, 9(45%) of them for a 2-4 years, 1(5%) for a 4year, and the remaining 2(10%) are above four year service in the bureaus. These shows a long time period of a most employee stay with town revenue bureau are 2-4 year.

Table 4.5 Shows a response of how do you evaluate implementation of VAT in our

                 Administration.

No	Description	No of respondents	Percentage
1.	How do you evaluate implementation of VAT in your administration?
	A. very good	2	10%
	B. good	11	55%
	C. fair	7	35%
	D. bad	0	-
	E. worst	0	-
	Total	20	100%

Source, survey Result, 2012

From the above table 2 (10%) of the respondents are said the implementation of VAT in our administration is very good, 11(55%) of them say good and the remaining 7(35%) of them are said fair.

                                                                              21

Most of the responder responses the implementation of VAT practice in our administration is good

Table 4.6 A problem related to VAT application that have experienced by employer

No	Description	No of respondents	Percentage
1.	What are the major problems you have experienced to VAT application?
	A. unwillingness of tax payers	6	30
	B. Fraud of tax collectors	25	23
	C. lack of awareness about VAT	8	40
	D. others	1	5
	Total	20	100

Source, survey result 2012

The above table indicated that 6(30%) of the respondents response the major problem related to VAT application are unwillingness of tax payers, 5(25%) are fraud of tax collectors, 8(40%) of them are said lack of awareness about VAT, and the remaining 1(5%) are all of the above advised for these question. These show that the major problem of VAT application practice is the lack of awareness of tax payers about VAT.

                                                                                 22
Table 4.7 Feeling of VAT registered evaluated by employer

No	Description	No of respondents	Percentage
1.	How do you evaluate a feeling of VAT registered while they registered for VAT?
	A. VAT is an obligation	8	40
	B. VAT is debt	3	15
	C. VAT is useful	6	30
	D. VAT is bad	3	15
	E. others	-	-
	Total	20	100

Source, survey Result, 2012

As shown above 8(40%) of the employer response for the question raised VAT is an obligation, 3(15%) of them are VAT is debt, 6(30%) of them said VAT is useful, and the remaining 3(15%) are responses VAT is bad. Therefore most of the felling of VAT registered towards VAT is an obligation and useful respectively.

No	Description	No of respondents	Percentage
1.	Who is more responsible for VAT collection and assessment?
	A. Tax payers	2	10
	B. customers	1	5
	C. any government body	2	10
	D. tax office	13	65
	Total	2	10
		20	100

Table 4.8 a response towards collection and assessment of VAT

Source, survey Result, 2012

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Table 4.8 above shows the respondents of question raised on question number 9 for to indicate a more responsible for VAT collection and assessment as follows. 2(10) are tax payers, 1(5%) are customers, 2 (10%) are any government body, 13(65%) are tax office, and the remaining 2(10%) are said revenue authority. As it summarized most of a responsible for collection and assessment of VAT are tax office.

Table 4.9 Shows a problem exist while collecting VAT?

No	Description	No of respondents	Percentage
1.	What are problem you have faced while collecting VAT?
	A. Most of tax payers not  pay a required amount on time	6	30
	B. All of tax payers not pay a required amount on time	2	10
	C. Less of tax payers not pay a required amount on time	9	45
	D. Least of tax payers not pay a required amount time	3	15
	Total	20	100

Source survey result, 2012

This table indicate that the employee response for a problem in they have faced while collecting VAT are as follows 6(30%) are most of tax payers not pay a required amount an time, 2(10%) are all of tax payers not pay a required amount on time, 9(45%) are response less of tax payers not pay a required amount on time, and the remaining 2(10%) are said least of tax payers not pay a required amount on time, so the results are a highest problem faced while collecting VAT is less of tax payers not pay a required amount an time.

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Table 4.10 shows the awareness of tax payers about VAT

No	Description	No of respondents	Percentage
1.	How do you evaluate the awareness of tax payers about VAT?
	A. very high	1	5
	B. high	6	30
	C. low	10	50
	D. very low	3	15
	Total	20	100
2.	How do you judge the awareness of tax payers in the town?
	A. They have good awareness	5	25
	B. They have very good awareness	1	5
	C. They have less awareness	9	45
	D. They have poor awareness	5	25
	E. others	-	-
	Total	20	100

Source, survey Result, 2012

As refer from the above table the awareness of tax payers about VAT answered as follows by respondents 1(5%) are very high, 6(30%) are high, 10 (30%)) are said low, and the remaining 3(15%) of them are very low. The results shows that the awareness of tax payers about VAT are low because there are no more aware people about tax due to the most number of tax payers are unskilled persons and a VAT registered paying VAT is not amore percent in our country even paying VAT is not a recent phenomenon in our country.

Again from the above table No 2 show the judgment of the employee the awareness of tax payers in the Bishoftu town as follows. 5(25%) have good awareness, 1 (5%) have very good awareness, 9(45%) have less awareness, and the remaining 5(25%) of them have poor awareness.

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The quarterly percent of tax payers have poor awareness due to they think that VAT affect their competition in the market they do not willing to pay a tax, and they do not understand the advantage of VAT as compare to other types of tax, and 1(5%) have very good awareness due to the office teach a tax payer about VAT and their attitude is almost change from the previous time. The result shows that the awareness of the tax payers of VAT in Bishoftu town is less.

Table 4.11 shows the attitude of tax payer to VAT

No	Description	No of respondents	Percentage
1.	What are the attitudes of tax payers to VAT?
	A. very good	3	15
	B. low	7	35
	C. good	5	25
	D. bad	4	20
	E. worst	1	5
	Total	20	100

Source, survey result, 2012

According to the above table (Table 4.11) the attitude of tax payers to VAT responses by employee are like the following 3(15%) of the respondents are said very good, 7(35%) of them are good, 5(25%) are satisfactory, 4(20%) are said bad, and the remaining 1(5%) are responded a worst. Therefore the highest levels of attitude of tax payers to VAT are low.

                                                                                     

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Table 4.12 the response of advantageous one from VAT more

No	Description	No of respondents	Percentage
1.	Who benefited from VAT more?
	A. Tax payers	2	10
	B. Government	4	20
	C. Citizens of the country	14	70
	Total	20	100

Source, survey result 2012

As depicted in the above table 2(10%) of the respondents said the more benefited from VAT are tax payers, 4(20%) of the employee said a government, and the remaining 14(70%) are responses a citizens of the country. These result shows that the more benefited from VAT are citizens of the country. Since the VAT is collected from who gets much revenue it brings a good methodology and contribution of economy and it increase the investment opportunity and so on.

Table 4.13 shows the benefit of VAT register is higher than other types of tax types?

No	Description	No of respondents	Percentage
1.	Is the benefit of VAT register is higher than other types of tax types
	A.   Yes	11	55
	B.    No	9	45
	Total	20	100

Source, survey Result, 2012

As indicated in the above table, 11 (55%) of the respondents said yes the benefit of VAT register is higher than other types of tax types while 9(45%) of the respondents said no the benefit of VAT register is not higher than other types of tax types.

                                                                           27

Therefore the benefit of VAT register is higher than as compare to other types of tax types due to the following factor they are not paid. Turn over tax, they paid on final consumer with the price of product so it is not difficult to pay as compare to others since they pay the value added only and they collect more from a person who generate a higher revenue and it is easy to control our business and risk averse due to they prepared financial statements based on it, and supported by document, unless count it identifies a sold goods from unsold goods and so on.

The major VAT assessment problem are the tax payers does not have good awareness about advantage of VAT, less of tax payer not paid the required amount on time, lack of a awareness of tax payer, low attitude of tax payers and involuntary of to pay, and the tax payers not perform accurately what they sold by supported document such as sales receipt and not use invoice collecting.

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                           CHAPTER FIVE

Summary, conclusion and recommendation

5.1 Summary and Conclusion

Based on the analysis and discussion made in chapter four the following summary and conclusion can be drawn.

-        Most of the employers in Bishoftu town revenue office have been by young persons who are experienced.

-        VAT implementation practice in Bishoftu town revenue office is promising but not such a perfect.

-        The major problems encountered by VAT administration in Bishoftu town revenue office are lack of awareness of tax payers and employees.

-        Most of VAT registered businesses in the town should have not collected and remitted VAT to the tax authority on time and with proper figure.

-        Most of VAT registered business in Bishoftu town their attitude towards VAT are low.

-        A lot of VAT registered business in Bishoftu town not understands the advantage of VAT for them.

-        A most of a VAT registered business in Bishoftu town have a feeling towards VAT as an obligation.

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5.2  Recommendation

As to the study conducted there are certain problems to VAT administration of Bishoftu town. Based on the research findings the following points can be for warded as recommendation.

To increase the implementation practice in Bishoftu town the higher tax authority office follow up and control the employer of revenue office by giving a training, seminars and looking  their performance time to time.

To improve the awareness, attitude, and feeling of tax payers the government should arrange seminars, workshop, and conference to make them aware concerning taxation, why they pay tax, laws, rules and regulation of tax, the advantage they get from VAT and giving training, seminars and short term courses for employer and following up and control are the employer perform as a rule and regulation of a revenue office.

To avoided a problem exist during a collection VAT, and not paid on time with proper figure a government should control a bill or invoice they use, ordered them use a cash registered machine, follow- up, support in preparation of VAT return, initiate potential unregistered business for VAT registered so as to avoid unfair price competition.

To minimize or avoided the VAT registered business not understand a benefit of VAT, and look a VAT is only as an obligation the Bishoftu town revenue office would arrange a seminars, meeting to bring a challenge towards VAT and understand a benefit of VAT like not pay a turn over tax, the preparation financial statements made them not afraid to incur loss and it is used for to control their business since it is supported by document, and it increase the investment opportunity and so on. 

                                                             30

REFERENCE

Dr .Ramaswami Parameswaran, 2005, public finance and taxation. Addis Ababa

Encyclopedia Britannica Jacob escatra volume 28.

Gebrie Worku, 2008, tax accounting in Ethiopia 2nd ed. Addis Ababa Alem printing press.

Misrak Tasfaye, 2008, Ethiopia tax accounting: theory and practice.

Negarit Gazcta of the Federal Democratic   Republic of Ethiopia 8th year, proclamation No

               285/ 2002, Addis Ababa.

Yohanes Mesfin and Sisay Bogale, 2009, Tax law. Prepared under the sponsorship of the

             Justice and Legal system Research Institute.

                                                                       

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APPENDIX

QUESTIONNAIRE FOR EMPLOYEES

JIMMA UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING

 Objective dear respondents this is a questionnaires intended to obtain relevant information  on VAT administration in Bishoftu  town which is use  for academic  purpose . the finding of study   greatly depend on your cooperation for which are grateful  in advance  to achieve this  you are kindly requested to corporate giving response for following question , please tick (P) on the box your  choice  and fill the blank space.

1. Sex: - male    £           female £

2.  Age   18-24 £   25-30 £    30-35 £          >35£

3. Education status:-

                Elementary and junior complete  £          high school complete £

                Certificate   £                      1^st degree  £    above degree £

4. Work experience: - less than a year  £        1 year £

                                      Above 2 year   £             1-2 year £

5. How long have been with Bishoftu town revenue bureau? 

       a year  £         2-4 year £      4 year  £   and above £

6 How do you evaluate implementation of VAT in your administration?

                      Very good      £             good £        fair £

                Bad £           worst £          others, please specify ____________________

7. What are the major problems you have experienced related to VAT application?

Unwillingness of tax payers £   fraud off tax collectors £   lack of awareness   about VAT £                if others, specify _____________________________________________

8. How do you evaluate VAT registered parties feeling while they registered for VAT?

  VAT is an obligation £    VAT is debt   £   VAT is useful £  VAT is bad £

Other, please specify ______________________________________________________

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9. Who is more responsible for VAT collection and assessment?

 Tax payer’s £   customer £   any government body £   tax office £

Other, specify -_________________________________________________________

10. What are problem you have faced while collecting VAT?

 £  Most of tax payers not pay a required amount on time

£  All of tax payers not pay a required amount on time

£  Less of tax payers not pay a required amount on time

£   Least of tax payers not pay a required amount on time

 Others, specify ________________________________________________________

11. How do you evaluate the awareness of tax payers about VAT?

 Very high £   high £              low   £          very low   £

 If your answer low specify_______________________________________________

12 How do you judge the awareness of tax payers in your town?

 £  They have good awareness

£  They have very good awareness

£ They have less awareness

£  They have poor awareness

                  If out these, specify _____________________________________________

13.   If your answer is poor,   specify

_______________________________________________________________________

________________________________________________________________________

14.   If your answer is very high,   specify

________________________________________________________________________

________________________________________________________________________

15 what are the attitude of tax payers to Vat?

 Very good £   fair £   satisfactory  £    bad  £     worst    £

Other, specify ____________________________________________________________

                                                                     33

16. Who benefited from Vat more?

 Tax payer’s  £  government  £     citizens of the country   £

 If say tax payers, specify ______________________

 17 the benefit of VAT register is higher than other tax types?

               Yes £           NO £

If you answer is yes specify_________________________________________________

Because ________________________________________________________________

Since ___________________________________________________________________

As compare to at hours _____________________________________________________

18. In your opinion what are the major Vat assessment problem?

 Please specify

________________________________________________________________________

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