ATTITUDE OF BUSINESS ENTERPRISES TOWARDS VALUE ADDED TAX (VA (A CASE OF JIMMA TOWN)

                              ATTITUDE OF BUSINESS ENTERPRISES
                               TOWARDS VALUE ADDED TAX (VAT)
                                     (A CASE OF JIMMA TOWN)









A RESEARCH PAPER SUBMITTED TO
ACCOUNTING DEPARTEMENT FOR PARTIAL
FULFILLMENT OF BACHELOR OF ARTS DEGREE
(BA) IN ACCOUNTING







PREPARED BY: EBISA ADUGNA


ADVISOR: DANIEL TOLESA



DEPARTMENT OF ACCOUNTING

COLLEGE OF BUSINESS AND ECONOMICS
JIMMA UNIVERSITY


                                                                                                                                 MAY, 2012
                                                                                                                                 JIMMA,ETHIOPIA












ACKNOWLEDGEMENT
First I would like to express my sincere gratitude to Daniel Tolesa for this constructive
great support, comments, suggestion, encouragement and offering useful hints since the
data of topic selection to the submission of proposal to complete my research paper. Also I
would like to thank Jimma University, college of Business and Economics for giving me
this chance to prepare research for the graduation. Finally, I acknowledge Meti Buraka who
helps me by typing my research papers.
I
ABSTRACT
This research assessed the attitude of business enterprise towards VAT in the case of Jimma
town. The study emphases the attitude of business enterprises towards registers for and
collect VAT. To investigate this research primary and secondary data were used. Also
business enterprises are randomly selected to collect primary data. At the same time
questionnaires and unstructured interview questions is used.
The other most important notice to understand here percentage computing of raw data
analysis ways is used. On the other hand awareness of business enterprises towards VAT
and measures taken by revenue and custom authority office of Jimma town to reduce fraud
related VAT is analyzed.
II
TABLE OF CONTENTS
CONTENTS PAGE
Acknowledgement ……………………………………………………………………….I
Abstract …………………………………………………………………………………..II
Table of Contents ………………………………………………………………………..III
CHAPTER ONE
1. Introduction ……………………………………………………………………1
1.1 Background of the study ……………………………………………………..1
1.2 Background of the organization ……………………………………………..2
1.3 Statement of the Problem ……………………………………………………3
1.4 Objective of the Study ………………………………………………………4
1.5 Significance of the Study ……………………………………………………4
1.6 Scope of the Study ………………………………………………………….4
1.7 Limitation of the Study ………………………………………………………….5
CHAPTER TWO
2. Review of the literature ……………………………………………………………….6
2.1 Introduction ………………………………………………………………………….6
2.2 Computation of VAT ……………………………………………………………….7
2.3 VAT administration in Ethiopia …………………………………………………….7
2.4 VAT Refund …………………………………………………………………………8
2.5 Registration ………………………………………………………………………….9
2.6 Benefits of Voluntary Registration ………………………………………………….10
2.7 Registration Procedures …………………………………………………………….10
2.8 Time of application …………………………………………………………………11
2.9 Time of Registration ……………………………………………………………….11
2.10 Cancellation of registration ……………………………………………………….12
2.11 Advantage and disadvantage of registration ………………………………………12
III
CHAPTER THREE
3. Research Design and Methodology …………………………………………………….16
3.1 Methodology ……………………………………………………………………………………16
3.2 Data Collection ……………………………………………………………………….16
3.3 Source of Data ……………………………………………………………………..…16
3.4 Method of data Collection ………………………………………………....................16
3.5 Method of Sampling …………………………………………………………………..17
3.6 Sample Size …………………………………………………………………………...17
3.7 Method of Data analysis and interpretation …………………………………………..17
CHAPTER FOUR
4. Data analysis and interpretation ………………………………………………………...18
4.1 Gender status of Business enterprises owners…………………………………….……18
4.2 Age status of Business enterprises owners……………………………………..……...19
4.3 Martial status of Business enterprises owners………………………………………….20
4.4 Educational level of Business enterprises owners……………………………………..21
4.5 Duration of activities of owners in the business………………………………….…….22
4.6 Sale level of Business enterprises annually……………………………………………23
4.7 VAT Registered Business enterprises…………………………………………………24
4.8 The Advantages of Registration for VAT……………………………………………..25
4.9 The Disadvantages of Registration for VAT……………………………………….…26
4.10 Access of information for Business enterprises on VAT……………………………27
4.11 Source of information for Business enterprises on VAT……………………………28
4.12 Cause of non-enough information for Business enterprises on VAT……………….29
CHAPTER FIVE
5. Summary, conclusion and Recommendation ……………………………………………31
5.1 Summary and Conclusion ………………………………………………………………31
5.2 Recommendation ………………………………………………………………………32
References …………………………………………………………………………………33
Appendix …………………………………………………………………………………..34-35
Declaration …………………………………………………………………………………36
IV
CHAPTER ONE
INTRODUCTION
1.1Back ground of the study
One of the mechanism in which countries raise revenues to finance government spending
on the good and services that most of us demand is taxation. As compared to the
developing countries, there have been able to generate substantial revenue through
imposing of taxes one of reasons for this has been the efficient tax system operating in the
developing economies which are characterized by weak monetary and low development of
the formal sectors. Value added tax (VAT) is a new system introduced in Ethiopia.
Beginning with the adoption of tax sur, lavaliere adopted by France in 1954 it was
gradually been adoption by other countries (purhot, 2000, p.200).
The development this tax system is so fast, it has now been employed by a large number of
Latin American, Asian, African and Pacific countries value added tax (VAT) has become a
major tax instrument worldwide. The global trend to introduced VAT in more countries is
continuing (Good, 1993, p. 201). Ethiopians tax reform program has introduced VAT since
January 2003.
The Ethiopian government has introduced, VAT as part of the overall tax reform program.
The tax reform program is preceded by establishment of a new ministry of revenue as a
first step to improve tax collections and to compact fiscal fraud.
The need for VAT emanates from the very weakness of the sale tax that is intended to
replace (Purhet, 2000, page 200). VAT is an indirect tax that is changed whenever at a
taxable person makes a taxable supply of goods and services in the course of his business
although it is finally borne by consumer (Hancock, 1998, p. 156).
1
1.2 Back ground of the Organization
Jimma, also Jima (Italian Gimma) is the largest city in south western Ethiopia, located in
Jimma zone of Oromia region. It has a latitude and longitude of 7o40’N36o50’E. the town
was the capital of Kaffa province until the province was dissolved. Prior to the 2007 census
Jimma was organized administratively as a special zone (Lewis, 2008, p. 56).
In the early 1960’s it was “the great market in all of south western Ethiopia. On a good day
in the dry season it attracts up on thirty thousand people (Lewis, 2008, p. 56)”.
Based on the 2007 census conducted by central statistical agency of Ethiopia (CSA), this
zone has a total population of 520960, of whom 60864 are men and 60136 women. With an
area of 50.52 square kilometers, Jimma has a population density 2394.30 all are urban
inhabitants. Some buildings survive from the time of Jimma kingdom including the palace
of Aba Jifar. The city is home to a museum, Jimma University, several markets and airport.
Also of note is the Jimma research center, founded in 1968, which is run by the Ethiopian
institute of agricultural research and the center specials in agricultural research, which
includes serving as the national center for research to improve the yield of coffee and
spices (Lewis, 2008, p. 56).
Town revenue and custom authority located in this town. The vision of this office is leave
faithful tax level and initiate tax payer to pay on their need. The mission of this office is
leave in modern ways and reduce fraud related VAT.
2
1.3 Statement of the Problem
One of the financing sources of government expenditure is taxes. On recent year almost all
governments in the world funding their needs from revenue generated from taxes
(Hancock, 1998, p. 196). The revenue funded for payment of defense and social securities’,
construction of infrastructures facilities, provision for food aid, shelter, medical care and
etc of different tax type VAT is the main in generating revenue to government. To collect
this main tax (VAT) problem raise from administration and activities of business enterprise.
In general the study will answer the following questions.
·Are there business enterprises aware about VAT?
·Are there work done by Jimma town revenue and custom authority to reduce fraud related
VAT?
·Is registration for VAT affect business activities of business enterprise?
3
1.4. Objective of the Study
While identify the attitude of business enterprise towards VAT incase of Jimma town. The
study has general and specific objectives.
1.4.1. General Objective
The general Objective of this study is to assess the business enterprise attitude towards
register for and collect VAT.
1.4.2. Specific Objective
The research will be carried out to emphasis specifically the following objective. These
are:-
·To identify the awareness of business enterprise towards VAT
·To identify the attitude of business enterprise register for and collect VAT
·To study the activity of revenue and custom authority of Jimma town to change attitude of
business enterprise towards VAT whether low attitude of business enterprise is there to
register and collect VAT.
·To emphasis the effect of registration for VAT on business activities of business enterprise,
if there.
1.5. Significance of the study
As discussed before, the study focus on the attitude of business enterprises towards VAT. In
general the outcome of this study helps to change attitude of business enterprises if there,
create awareness about VAT for business enterprises and initiate other researchers to
perform better study to come up with relevant information for improved performance.
1.6. Scope of the study
Major and particular emphases were given to Jimma town, which located south west of
Addis Abebe in Oromia regional state.
For vat implication too vast and difficult to cover all of them, the scope of the study on the
attitude of business enterprises towards vat.
4
1.7 Limitation Of the study
In conducting this study the researcher faced several problems which have negative impact
on performance. The major limitations are:
Lack of awareness among the respondents about VAT system.
Lack of sufficient secondary data.
Most of the respondents lack willingness of fills the questionnaires.
5
CHAPTER TWO
REVIEW OF LITERATURE
2. VALUE ADDED TAX (VAT)
2.1. Introduction
Vat is a tax on the valued added TAX to good services by enterprises at each stage of the
production and distribution processes. It arises whenever a “taxable person” makes a
“supply of goods and services” in the course of his business. Thus in some countries it is
called “good and services tax” or GST VAT was invented by French economist in 1954 by
Maurice Lour, director of the French Tax authority. VAT was invented because vary high
sales taxes and tariffs encourage cheating and smuggling (Gebrie, 2008, p. 186).
Unlike the turn over tax which is applied to the full value of a product every time the item
changes hands in the process of production and distribution the VAT is assessed at each
stage on only the increment in value acquired by the product since the last taxable
transaction. At the end of the chain the total amount of tax paid on a given commodity is
determined only by the tax rate and the final price of the commodity, required less of the
number of stages through which it has passed what has been collected in fractional
payments in equivalent to a single stage tax on the value of the final product. The theory is
that the end consumer carves the burden of VAT not the business, which is merely
collecting the VAT on behalf of tax all Hoity. But the reality is not quite so simple (Gebrie,
2008, p. 186). For fully taxable business VAT is not a cast but is merely an accounting
headache whatever you collect in output tax must be handed over to tax authority whatever
you collect in output tax must be handed over the tax authority. Whatever you pay in put
tax can be recovered from tax authority (apart from the input VAT on personal passenger
vehicle and entertainment but on has taken care full on purchase and sales of taxable
supplies otherwise VAT will affect hi/her cash flow ( Purhet,2000 , p.2000).
5
2.2. Computation of VAT
In modern taxation there are four types of value added taxation system there are:
a.Gross product value added tax.
b.Income type value added tax.
c.Capital exemption type value added tax
d.Consumption type value added tax (Gebrie, 2008, p. 188).
2.3. VAT Administration in Ethiopia
The VAT replaced the current sales tax on manufactured and imported good and service on
January 1, 2003. The responsibility for the correct calculation and timely payment of VAT
rests on the tax payer himself. The VAT is a broad based tax on the consumption of goods
and services it is collected at all stage in the production and distribution process beginning
with the importers and producers of raw materials and ending with the retailers cascading
of the tax (i.e. tax on tax) is avoided by providing for a credit for the tax paid only to raw
materials used directly in the production of good under a VAT. Relief is a granted for goods
are not subject to the VAT. Removing that tax content (on in puts) from exported goods
makes the goods makes the goods makes the goods more competitive in international
markets.
VAT is a customer expenditure it is collected on business transaction and important most
business transactions involve of goods and services 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 or zero-rated supplies are outside the scope of the tax if
they are
Made by someone who is not a taxable person or
Not made in the course or furtherance of business
6
Curse or furtherance the way a taxable person has to carry out its activity to develop
advance and progress the taxable activity. It refers to the normal and expected events or
processes to develop the taxable activity. Anything done in connection with the
commencement or termination of a taxable activity is treated as carried out in the course or
furtherance of that taxable activity (Hancock, 1998, p. 156).
2.4. 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).
7
2.5. Registration
In Ethiopia, registration for VAT is categorized into two. It discussed as follow:
2.5.1. An Obligatory registration
Any person conducting a commercial enterprise 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 months exceeds or is likely to exceed birr
500.000 the person conducting the enterprise must register for VAT. Turn registration is
compulsory (Misrak, 2008, p. 226).
The term any person for purposes of VAT registration includes
·Sole profiteer
·Company
·Partnership
·Emote of decease
·Trust
·Incorporated body or unincorporated body
·Club or association
A commercial enterprise refers to any business of whatever nature and includes:
·Ordinary business e.g. shop contractors manufacture wholesalers etc.
·Trades and professions e.g. Builders, Engineers, Accouters laurersete
·Activities of non-profit moving bodies e.g. societies, associations, sporting club, etc.
The turn is calculated on an ongoing basis two periods need to be considered the past 12
calendar months and the next 12 calendar mother-by month basis. There is the need to
estimate at the end each trading calendar month the total value of taxable goods and
services supplies by all the business for the past 12 months where the total exceeds birr
500.000 then there is the real nutriment to register for VAT.
8
2.5.2. Voluntary Registration
A person who carried on taxable activity and is not required to be registered for VAT max
voluntarily apply to the authority for such registration if he/she regularly is supplying or
rendering least 75% of his goods and services to registered persons.
2.6. Benefits of voluntary registered
Input VAT can be recovered if a person registered it will therefore be beneficial to
voluntarily register where the person makes mainly zero rated supplies. In such a case input
VAT will be recovered and on VAT will be charged on zero rated out puts (Gebrie, 2008,
p.203).
2.7. 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).
9
2.8. 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 (Lewis, 2008, p. 156).
2.9. 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 allow when its 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).
10
2.10. 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.
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).
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).
11
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 (Lewis, 2008, p. 200).
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 (Hancock, 1998, p. 304).
12
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
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 (Hancock, 1998, p. 305).
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
13
VAT system involves high of administration, assessment, verification collection, etc. hence;
it is highly uneconomical (purhot, 2000, p.206).
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).
14
CHAPTER THREE
RESEARCH DESIGN AND METHODOLOGY
3. Methodology
The researcher was used different research method and materials in taking into account.
The variables and the researcher was access and analyze the business enterprise attitude
towards register for and collect VAT.
3.2. Data Collection
To reach in constructive result and to examine the attitude of business enterprise towards
VAT; data needed will be collect from primary data.
3.3. Source of data
The data required to conduct this study was collected from both primary and secondary
sources. Primary data will be collected from direct contact to business enterprise and
Jimma town revenue and custom authority office
3.4. Method of Data collection
The primary data was collected through structured questionnaires and unstructured
interview questions. Questionnaires were used to collect primary data, because it was
preferable for many reasons. The reasons are, to get detail and to the point answer and
allow the respondent to answer the question reasonably by giving enough time to
respondents. All questions are not answered by questionnaires, to make clear in detail the
answer given on questionnaires and other additional information interviewing needed.
15
3.5. Method of Sampling
The data were collected from business enterprise and Jimma town revenue and custom
authority office. To collect data from business enterprise as a whole it was difficult. To
conduct the study by less complication and less expensive the researcher was use random
sampling method. The advantage of this method is low cost, convenient, less time
consuming and per the weakness of the value it’s enter depend up on the judgment of their
writer.
3.6. Sample size
There are numerous business enterprises in Jimma town. Of these business enterprises, 30
(thirty) business enterprises are sampled through random sampling method.
3.7. Method of data analysis and interpretation
After processing and classifying data, analysis was carried out. Descriptive data analysis
was used to transform data into a form that make it easy to use and interpret. After
completion of data collection and analysis, the collected information will be analyzed.
Then the analysis was carried out using appropriate tabulation.
16
CHAPTER FOUR
DATA ANALYSIS AND INTERPRETATION
The consideration that under line here is choosing of analysis method for best interpretation and
demonstrating of the result.
For analyzing the data the research collected the data form Jimma town. In general, percentage
computation most method of analyzing the data for best interpretation and demonstration of the
results. For the total population who are operating business 30 owners have been questioned to
arrive at this result. Depending on the information obtained for the respondents almost all of the
owners of business enterprise are liable to VAT to extent the amount imposed on them
4.1. Gender status of the owners of business enterprises
The table below shows the gender status of business enterprises runners
Table 4.1 Gender status of the owners
Serial number Sex Number of
respondents
Percentage
1 Male 19 63.33%
2 Female 11 36.67%
Total 30 100%
Source: survey Result, 2012
As indicated in the table 4.1 above, 9 (63.33%) of the respondents from the sample
surveyed are male and the rest 11(36.67%) are females. It indicate that, the participation
of males is more higher than females in running Business enterprise in the area so there
is imbalance of sex in participation of business activities.
17
4.2 Age status of Business enterprises owners
The details of the age status of business enterprises shown below in the given table below.
Table 4.2 Age status of owners of business enterprises.
Source: survey results, 2012
From the total population of 30 owners of business enterprise, Age status constitute,
below 21, 22-30, 31,40, 41-55 and above 56 years ,and theirs percentile shares are
1(3.33%) 3((10%), 6(20%), 14 (96.67%) and 6(20%) respectively.
From this data the researcher can infer that, the age group of 41-55 years are operating
the business enterprise dominantly in the town, which covers the highest portion
54(46.67%) of the total age group followed by age group of 31-40 and above 56 age
group with 6(20%) and the age group of below 25 age group and 22-30 age group
covers the small portion of the total age group which is 1(3.33%) and 3(50%)
respectively.
The researcher concluded that, most business enterprises are run by adult age group and
greater than half of business enterprises are dominated by them. From this the
productive age group have high share for the growth of country’s economy. But not only
productive (adults) age group others age group have their own contribution.
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s
13
.
3
3
%
22
2
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3
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r
31
0
%
18
4.3 Martial status of business enterprises owners
The details of marital status of business enterprise owners are shown below in the
given table below.
Table 4.3 Martial status of business enterprise owners
Source: survey result, 2012
From the total population of 30 owners of business enterprise 28(93.33%) are married and
2(6.67%) are single
It indicate that almost all of the owners of business enterprise are married
19
4.4 Educational level of business Enterprises owners
The table below indicates educational level of business enterprise owners
Table 4.4 Educational level of business enterprise
Source: survey Result, 2012
According to survey results the researcher took, From the total population of 30
owners of business enterprises 16(53.33%) of respondents complete their secondary
education,
9(30%) and 5(16.67%) of respondents are complete their primary and college,
University educational level respectively.
From survey, the researchers conclude half of the business enterprises complete their
secondary educational level. Also most of them complete their primary and some of
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the compute their college university educational level. All of them can write and read. In
general, there are no illiterate owners of business enterprise according to researcher survey
result.
20
4.5 Duration of activities in business enterprises of the owners.
The following table show in detail the duration of owners in business enterprise activities.
Table 4.5 Duration of owners’ activities in business enterprise activities
S. No Duration of activities No of respondents Percentage
1 0-5 years 4 13.33%
2 6-10 years 19 63. 33%
3 Above 10 years 7 23.34%
Total 30 100%
Source: survey Result, 2012
From the total population of 30 owners of business enterprises, the duration of activities in
burliness activities constitute, 0-5 years, 6-10 years and above 10 years. Their share in
percentage are 4(23.33%), 19(63.33%) and 7(23.34%) respectively
The survey result show that, half of owners participate in business activities for greater than
five years and some of them participate for less than five years.
21
4.6 Sale level of owners of business enterprises annually
The table below analyzes the annual sale of business enterprise owners deeply as follow
Table 4.6 annual sale level of business enterprises
Source: survey Results, 2012
From the total population of 30 owners of business enterprise, the sale level annually
constitute, less than 100,000.00 birr 100,000.00 birr 200,000.00 birr, 200,000.00
birr, 500,000.00 birr and greater than 500,000.00 birr. The share of each sale in
percentages are 1(3.33%) 6(20.67%) 21(70%) respectively except for less than
100,000.00 birr sale. The research conclude from the survey result that, more than
half of owners annual sale are 21 (70%) of them are greater than 500.000.00 birr. In
general, most of the owners of business enterprise are liable to register for VAT,
because of their annual sale are greater than 500.000.00 birr most only for business
enterprise annual sale greater than 500.000.00 birr, for owners’ sale are less than
500.000.00 birr can register for VAT. But, it is not obligation for them.
22
4.7 VAT Registered Business enterprises
The following table analyzes the business enterprise owners registered for VAT and
it discussed in details as follow
Table 4.7 VAT registered business enterprise owners
Source: survey Result, 2012
According to survey analyzed from total population of 30 owners of business
enterprise 23(76.67%) are registered for VAT and the rest 7(23.33%) are not
registered for VAT.
The researcher argues that greater than half of business enterprise owners are
registered for VAT and some of them are not registered. The registered for VAT are
obligated by law for their sales are 500,000.00 birr and some of them are registered
voluntarily. The unregistered business enterprises sales are less than 500,000.00 birr.
Business enterprise sale less than 500,000.00 birr sale are not obligated by low. In
general most (greater than half) of the owners are registered for VAT.
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23
4.8 The Advantage of Registration for VAT
The registration for VAT have many advantage like avoid cascading effect of tax,
compressive and equitability, payment made by final consumer and etc.The below
table analyze the advantage of business enterprise registered for VAT
Table 4.8 the advantage of registration for VAT.
Source: survey Results 2012
The registered business enterprises aware about the VAT advantage 16(69.57%) take
VAT advantage as It avoids cascading effect of tax ,3(13.043%) of owners take it as
it is comprehensive and equitable and 2(8.7%) infer it as , it is fairs tax other than
other tax types and remain respondent set their own opinion.
The researcher concludes that most of the owners of business enterprise know the advantage
of register for VAT. The respondents set the advantage of registration for VAT as paid by
final consumer fair tax other than other tax types, comprehensive and equitable, and avoid
cascading effect of tax. In general, the VAT registered business enterprise owners take
(aware) the advantage of registration.
24
4.9 The disadvantage of register for VAT
All things that have advantages have disadvantage. The disadvantages of register for
VAT are discoursed in the following table in detail.
Table 4.9 the disadvantage of registration for VAT
Source: survey Results. 2012
The researcher concludes that most of the owners fair for their market, if their
competitor is not register for VAT. They set the disadvantage of the register for VAT
as, affect poor and demand decrease, need advanced economy and fear for their
demand if their competitor is not register for VAT.
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.
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1A22
25
4.10 Access of information for Business enterprise on VAT.
Access of information on VAT is needed for business enterprises owners to change
the awareness, attitude and teach advantage and disadvantage of VAT. The following
table expresses in detail on the access of information for business enterprise owners
Table 4.10 the access of information for business enterprise on VAT
Source: Survey Results, 2012
As disused in the above table most of the business enterprise owners get information
on VAT. However, form total population of 30 owners,7(23.33%) of owners can’t
access information on VAT through media and Jimma town VAT administration
bureau and 23(76.67%) of the owners access the information.
The researcher concludes that, most of the owners of the business enterprise access
information related VAT. In general the information related VAT have great role in
changing attitude and awareness of business enterprise owners.
26
4.11 Source of information on VAT for Business enterprises
The source of information for business enterprises related VAT is discussed in detail
in the below table.
Table 4.11 source of information on VAT for business enterprises.
Source: survey Results, 2012
From the total population, 23 owners of business enterprise that access information
related VAT, 15 (71.43%) access form mass media, 3(23.81%) access from Revenue
S
.
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3
.
8
1
%
and custom authority office and 3(14.28%) from other sources likes record materials.
The business enterprise owners access information from mass media, revenue and
custom authority office and other records materials. Source of information accessed by
business enterprises most them from mass media. The mass media have great role in
changing attitude and business enterprises awareness. Also respondents access
information from revenue and custom authority office and other record documents
following mass media.
27
4.12 cause of non-enough information on VAT for Business
enterprises
The following table describe the cause of non-enough, information on VAT for business
enterprise
Table 4.12 cause of non-enough information related VAT for business enterprises.
Source: survey Results, 2012
From business enterprises sampled, 7 of them have not access enough information on
VAT. The cause for such lack are low offer of information by revenue and custom
authentic bureau, low availability of mass media on this program and low business
owners access to media 4(57.14%) 2(28.57%), 1(11.33) of business enterprises sat as
cause for low (non-enough) information on VAT as, low offer information of revenue
and custom authority office, low a viability of mass media on this programs and low
access to media of the owners respectively.
The researcher conclude form the survey results that, the most cause for non-enough
information on VAT for business enterprises raise form low offer information of revenue
and custom authentic office.
28
Also the respondent sat their idea as no availability of media work on this program
following low offer of information by revenue and custom authority office. Also low
access to information of business enterprise owners is taken as other cause.

4.13 The Activities of Jimma town Revenue and custom Authority office
to
Reduce fraud on VAT
The VAT related fraud takes place by business enterprise owners registered for VAT. To
reduce the VAT related fraud, the Jimma town revenue and custom authority work on it, as
the information researcher get from the office. The office take measures to reduce the fraud
related VAT as solution the following means. These measures are teach consumers take bill
for their payments, obligate the business enterprise registered for VAT to use cash register
machine for their sale, give invoice to customers, audit their performance and punish
owners done such acts.
4.14 The Activities of Revenue and custom authority office to change
attitude
Of business enterprises towards VAT.
The revenue and custom authority office activates to change the attitude of business
enterprise towards VAT. As the researcher get information from the office, the office work
with the town administration and teach the business enterprises on workshops prepare
coupon and disperse to the business enterprise and work with local media to change the
attitude and awareness of business enterprises.
29

CHAPTER FIVESUMMARY, CONCLUSION AND RECOMMENDATION

5.1 Summary and Conclusions
-Most of business enterprises in Jimma town that have been filled the questionnaire have completed
their secondary education and can easily understand the tax laws, rules and regulations. They also
have more than 6 years of experience in the business.
-The study addressed both VAT registered and unregistered business owners. Out of which most of
them are VAT registered.
-Most of the targeted businesses through that registering for VAT is advantageous in that it avoids
cascading effect, and comprehensives and equitable. So it not affects their businesses activities.
-Getting access to VAT related information is relatively easier in Jimma town revenue office and
most of the tax payers are happy with that and it have great role in changing their awareness on
VAT.
-Jimma town Revenue and custom authority office uses different means to avoid VAT related fraud
such as improving the VAT payers’ awareness level, through punishing illegal actors and
developing its employee’s level of performance.
30
5.2 Recommendations
Based on the research finding the following points can be forwarded as recommendation.
-The tax office should work hard to increase awareness of business communities in general and
VAT payers in particular.
-It is better of the revenue office help the tax payers with their difficult and reduces the tax fraud
accordingly.
-The revenue office should strengthen its human resource with well educated employees so as to
implement the tax rules and regulations properly.
-The revenue office should reward the model VAT collector to motivate VAT registered collect
effectively.
31
REFERENCE
-Gebre worke, 2006 tax accounting in Ethiopia context, first edition, A.A Alem printing
press.
-Hancock Dore, 1998, Taxation policy and practice, 2nd edition.
-Misrak Tasfay, 2008, Ethiopia tax accounting: theory and practice, Ethiopia.
-Purhat, Mahesh, 2000, value added tax: the need of the new millennium 9th edition.
-Richard M. bird Pierre pascal Gerdron, 2007, public finance and taxation, 6th edition.
32
APPENDIX
DEPARTMENT OF ACCOUNTING
COLLEGE OF BUSINESS AND ECONOMICS
JIMMA UNIVERSITY
Questionnaires on attitude of business enterprises towards VAT.
Questionnaires prepared to collect data for the investigation of attitude of business
enterprises attitude towards VAT in Jimma town.
Questionnaire for business enterprise
1.Gender status Male Female
2.Age: 18-30 years 31-40 years
41-55 years >56 years
3. Marital status: Single Married
4. Education level:
Illiterate Secondary
Primary College University
5. Activities in business for
1.5years 6-10 years above 10 years
6. Sale level annually
< birr 100,000.00 birr
Birr 100,000.00 birr
Birr 200,000.00 birr
Birr 500,000.00 birr
33
7. Are you registered for VAT?
Yes No
8. If your answer for number “7” is yes what are the advantages of registering for VAT?
It avoids cascading effect of tax
It is compressive and equitable
It is paid by final consumer
It is fair tax other than other tax, types
It others, Specify _______________________________________
9. If your answer for number “7” is No, what are the disadvantages of register for VAT?
It affects poor and demand is decrease
It required advanced economic structure, so most consumer is poor and no demand.
If other business enterprise not registered for VAT, they sell at lower price than us and we are not
get consumer.
If others, specify _______________________________________
10. Have you get enough information about VAT?
Yes No
11. If your answer for question number “10” is yes, form where you are get?
Through mass media
Though revenue and custom authority office
If others, specify __________________________________________
12. If your answer for question number “10” is No, What are the reasons?
No work done by revenue and custom authority office
No program work on VAT through mass media
It others, specify ___________
34
Declaration
I under signed declare that this student research paper is my original work and has not
been presented for a degree in any other university, and all the materials used for this
study have been duly acknowledge.
Ebisa Adugna _________________
Name of student Signature
This student research paper has been submitted for examination with my approval a
university advisor.
___________________
Name of Advisor Signature
Date ___________________________
35