CHAPTER ONE

1. Introduction
1.1 Back Ground of the Study
Taxation is an important instrument for the development of a country. It is one of major revenue earning sources. Government uses taxes to raise revenue and finances the large of socio-economic activities to its society. Tax revenue has occupied the most important place in the revenue system of all the governments (Bhatra, 1976). In fact tax is a major source of revenue to every developing country. The Ethiopian government with the new vision of bringing rapid and sustainable development has introduced tax reform since 2001/02. The tax reform measures are intended to encourage trade and investment, broaden the tax base, and ensure equity, fairness, consistency and honesty in the administration of the tax system in the country. The policy reform aspect relates to the overhaul of the income tax law, introduction of and implementation of VAT and Turnover tax, and the rationalization of the Excise tax law. The administration reform includes the implementation of the taxpayer Identification Number System, the introduction of Presumptive Taxation schemes, Tax Office Reorganization and the automation of the tax system. (Amin, 2010) In the Ethiopian context based on proclamation No, 286/2002 taxpayers are classified into the following three major categories. These are Category A Taxpayers, Category BTaxpayers and Category C Taxpayers. Category ATaxpayers includes any company incorporated under the laws of Ethiopia or in a foreign country and any other business having an annual turnover of Birr 500,000 or more. These taxpayers are required to submit to the Tax Authority, at the end of the year, a balance sheet and income statement that shows gross profit and the manner in which it is computed; general and administrative expense; depreciation expense; and provisions and reserves. Category B Taxpayers Unless already classified in category A, any business having an annual turnover of over Birr 100, 000 would be classified under Category B taxpayers. This category of taxpayers should submit to the Tax Authority profit and loss statement at the end of the year. Category

CTaxpayers Unless classified in Categories A and B , those businesses whose annual turnover is estimated up to Birr 100, 000 are classified under this category of taxpayers. According to the proclamation stated above, the taxpayers should submit the tax declaration to the Tax Authority at the time of submitting the balance sheet, and income statement for that tax year within the time prescribed. Pursuant to the proclamation Category A taxpayers should submit within four months from the end of the taxpayers tax year. Category B taxpayers should submit within two months from the end of the taxpayers tax year. Category C business income tax payers unlike category A and category B tax payers are not required (Not obligatory) to maintain books and records and prepare and submit any financial statement to the tax authority. To determine the taxable income and income tax liability of such tax payers, however, standard assessment presumptive taxation methods is used. According to Misrak (2011) standard assessment presumptive tax is a fixed amount of a tax liability determined by the tax authority based on standard estimation. Under such method, the income tax liability of a tax payers is determined by applying a fixed rate on the tax payers taxable income estimated by applying a fixed rate authority in order to determine the estimated amount of the taxable income and the tax liability thereon , the authority consistencies various factors such as type of business, business size and location of business, the estimated tax liability of the tax payers may continue years to years until revised by the authority or his category is changed. In standard assessment taxation method, tax assessors will be assigned by the tax authority to estimate the daily gross turn over (income) of the tax payers. The estimated daily gross turn over will be converted in to annual income (turn over) using the number of working taxes. Then annual income tax is determine on the basis of presumptive value assigned to aggregate activities, taxable incomes of each tax payer the schedules of presumptive tax develop by the tax expert and prescribed in schedules 1 and 2 of income tax regulation No 78/2002 are used for collecting the taxes from the category C taxpayers of schedule C in come tax payers (business income tax). The following three steps summarized the standard assessment presumptive taxation method for business income tax payers.

Step 1. Information on the daily sales revenue (turnover) of a tax payer is gathered by the tax assess or taking in to account the various relevant variables. Steps2. The daily estimated revenue figure is multiplied by the number of a business days in a year to arrive at estimated annual revenue and taxable income. Steps 3 the amount of income tax liability of the tax payers is located from the presumptive tax schedule provided in the income tax regulation no 78/2002. Back ground of the Study Area East Estie woreda is one of 113 woradas in Amhara National Regional State South Gonder Administrative Zone. According to 2007 senses report the population size is estimated 13901(Federal Democratic Republic of Ethiopia Central Statistical Agency 2010).

1.2 Statement of the problem

As stated earlier taxation is an important instrument for the economic growth of a country by encouraging saving and investment. It is one of the major revenue earning sources. Every government requires funds for the performance of its various functions. The main sources of financing government expenditure are taxations. Especially developing countries are used to raise revenue collection from tax for their economic development. One of the major aims of the tax system in Ethiopia is to increase domestic revenue by collecting sufficient taxes. In order to achieve this, the Ethiopian government creates the tax reform programs and the reform improved the application of Business income tax with a more simplified standard assessment methods of presumptive taxes (Misrak,2011). The standard assessment methods of presumptive tax is one part of a reform that has been conducted in the Amhara Region in the year 2002 and this reform is being implemented in 113 woredas. Since most of the category C tax payers are reluctant to provide full information for the purpose of registration, they are recognized as hard tax group. As the result, the tax administration is becoming more difficult to identify tax payers and assess the correct amount of tax to be collected. It may be expected that the same problems will be occurred in where this study will be conducted.

Thus,the aim of this paper is to examine and identify the challenges on the assessment and collection of presumptive taxation concerning category C tax payers by the revenue office of East Eastie woreda, and the study will try to address the following research questions; What are those major problems facing Esast-Eastie Woreda revenue office on tax assessment and collection activities? Does the Woreda revenue office have adequate skilled man power so as to discharge their responsibility regarding tax assessment and collection? What are the basic constraints appears between tax officials of the Woreda and business persons that negatively affecting the manner of tax assessment and collection of the Woreda revenue office? What seems individual and group dedication of officials employees towards the achievement of the revenue office tax assessment and collection goals? What measures have been taken by the Woreda revenue office in terms of creating compliance of tax payers to the tax law?

1.3 Objective of the Study

The main objective of this study is to investigate the existing problems in assessment and collection of presumptive taxation in East Estie woreda. Thus on this respect, the specific objectives are: To investigate problems that occurs during tax assessment and collection. To identify whether the revenue authority has adequate skilled man power and access to discharge their responsibility. To examine the activities done by the tax authority in order to encourage compliance of tax payers. To assess whether the standard assessment is in accordance with the capacity and expectation of the tax payer.

 To assess whether the tax authority has commitment and integration team spirit work among tax officers in tax collection process. To come up with the possible recommendation on the improvement of category C business income tax assessment and collection.

1.4 Significance of the Study

This study is expected to show the problems in assessment and collection of presumptive taxation in East Estie woreda and provide the solutions to solve the problems. And the researcher believes that it would be a good starting point for future researchers in the area and a good reference for those interested to have basic knowledge of the issue. Moreover, it would provide a benchmark for the policy makers.

1.5 Research Design and Methodology

1.5.1 Research design
Descriptive types of research have been used in this study. It was chosen because it has been examined and studying individual attitude. It was also analyzing and evaluating the available data to draw up the conclusion to arrive at finding.

1.5.2 Data Source and gathering tools

The researcher used both primary and secondary data in gathering the needed information. To obtain primary data sources, the researcher prepared questionnaires to the tax payers registered by the revenue office and to the tax employees in addition interview has been conducted to some tax officials (process owners).On the other hand secondary data was gathered from annual collection performance reports and written documents of tax assessment and collection in the revenue office.

1.5.3 Sample and Sampling Techniques

In this study all category C tax payers and Tax Authority officers in the East Estie woreda was the target of population. From 550 of all categories C tax payers in the woreda 15% of them

were selected by using simple random sampling techniques and from 14 of all tax employees in the revenue office 100% of them were selected for the study. The employees of the revenue office had been selected entirely because their number was very small. For interview purposive sampling techniques were used in the study.

1.5.4 Data Analysis and Interpretation

The data collected from both primary and secondary sources were processed and analyzed by using quantitative descriptions: Table, percentages and ratios.

1.6 Scope of the Study

The study has been focused on assessment and collection problems of category C business income tax at East Estie woreda revenue office and covered for five years (2006/7_2010/11G.C.).Thus it was not covered other income taxes. The researcher was used both probability and non-probability sampling techniques. Because covering all population in study is uneconomical and it is impossible to come with concrete generalization.

1.7 Limitation of the study

In this study there were some limitations that were obstacles to get reliable information. One of this limitations was un availability of relevant data from the revenue office especially number of tax payers in each year who did not pay their tax liability is not identified and documented. The other problem that encountered the researcher during this study was lack of experience of respondents to give their answer in the questionnaire and un willingness of few respondents to provide necessary information. How ever the researcher tried to create understanding to the respondents about the aim of study so that they were provided genuine information that sufficient to achieve the desired goal.

1.8 Organization of the paper

The research paper contains four chapters. The first chapter is the introduction part starting from back ground of the study up to the limitation of the study. The second chapter contains theoretical literatures from various text books and research documents on tax. Chapter three contains analysis of problems on the assessment and collection

based on the collected data. Chapter four contains the final conclusions and recommendations on the improvement of presumptive tax assessment and collection.

CHAPTER TWO
REVIEW RELATED LITERATURE

2.1 Meaning of Taxation

Taxation is a system of coercively collecting revenue from individuals who will tend to resist. The coercive nature of collecting tax indicates, the resource cost of administrating the tax system is large (Thompson F. and Green MT., 1998). Moreover, as it is described above, the concept of tax is the main in our country, the region and in the town. This is a system of rising revenue (collecting money) by a government or any revenue rising authority for the purpose of financing the government activity without any direct return for it.

2.2 Objectives of Taxation

According to Misrak (2011), tax is collected with the objectives of raising revenue by a government to finance is expenditure. Tax use as a tool to minimize income and wealth inequalities, tax is an important instrument for the government to control the market during inflation and deflation, to discourage the consumption of harmful products, to promote private investment, to reduce regional imbalance within a country. On the other hand, the government may give exemption to those of investors who wants to invest in those of less developed areas, to enhance capital formation, to encourage utilization of scarce resource in more productive area, discourage use of non-essential and luxurious products by imposing large tax, to encourage export and the government also use tax as a tool to create employment opportunity.

2.3 Principles of Taxation

These principles are the appropriate criteria to be used in the development and evaluation of a set of all taxes of country. This is due to the fact that a good tax system maximizes the benefit of society without levying difficult on tax payers. According to most of the economists of the day, these principles are a frame for a good tax system or a base for evaluating good or bad tax system. According to Misrak (2011), the four basic principles of taxation are discussed below.

2.4 Canons of Taxation

Canons of taxations are standards or rules or regulations or guidelines that support the principles of taxation. These canons of taxations serve as guiding rules and regulations for the government while

implementing the principles of taxation. According to Misrak (2011), the canon of taxations has been discussed below.

2.4.1 Canon of Simplicity

These canon stats that the tax system of a country should simple and clear to be understood by tax payers and tax administrative authorities. This is due to the fact that complex tax system resulted in failure of understating tax laws, violation of the laws, and difficult in administration.

2.4.2 Canon of Convenience

This is to mean that tax should be paid or collected at a time and in manner which is convenient to tax payers. As a result unnecessary trouble and difficulty to tax payers should be avoided or minimized.

2.4.3 Canon of Economic Growth (Buoyancy)

Tax is one of the tools used by the government to encourage or discourage investment or other economic issue. So the tax system of a country should not discourage national economic growth, capital formation and investment etc.

2.4.4 Canon of Transparency and Visibility

ration This canon is to mean that tax system should be transparent and visible to citizens in order to make them know that, as a tax is compulsory contribution to the government to exist, why tax exist, and as how tax is imposed on them (income, property, wealth...)

2.4.5 Canon of Productivity

Canon of productivity is one of the rules that suggest the tax system of the country to be free discouraging the productivity of the country. The tax system should not discourage the productivity of the economy and also the tax the tax system should be able to produce much more revenue for the government.

2.4.6 Canon of Flexibility

This canon states that the tax system should not be rigid to revise the tax structure on both of its base and rate arrangement. This help the taxing authority to make some arrangements on its tax base and rate based on the situation of its environment.

2.5 Business Income Tax

The term is sometimes defined as business profit tax because the tax is charged up on the profit of any trade activity. In a taxing system, the term business is used in the sense of an occupation, activity, protection which occupies time, attention and use of labor of a person, which can be with the objective of making profit. It is that profit which aspire individuals or corporate to stay in doing business. Moreover, business income tax is also a tax that is imposed on the flow of business or it depends on the production and sale of goods of a company.

2.5.1 Business Income Tax in Ethiopia

The current income tax proclamation no. 286/2002 article 2 (6) described the term business as any kind industrial, commercial, professional or vocational activities or any activity that can be considered as trade by the commercial code of Ethiopia and carried on by any person for profit. Business income tax or business profit tax is the tax which is imposed on taxable business income (the amount of income or profit from business activity which is subject to business income tax) realized from entrepreneurial activity. It is a tax which is charged on the profit of business enterprise on their activities for each tax year.

2.5.2 Business Income Tax Rate

In Ethiopia income from business activities are chargeable to tax based on the rates specified under article 19 of proclamation No. 286/2002. According to this article, a taxable business income of bodies is taxed at the flat rate of 30% and a taxable business income of other tax payers is taxed based on progressive tax rates stated in schedule C of proc. No. 286/2006.

Business Income in birr (per year)

Additional layer income 1,800 6,000 9,000 11,400 14,400 17,400 -

Tax rate

Adjustment/deduction (in birr)

0 1,800 1,801 7,800 7,801 16,800 16,801 28,200 28,201 42,600 42,601 60,000 Over 60,000 Source: Ethiopian income tax proclamation

Exempted 10% 15% 20% 25% 30% 35%

0 180 570 1,410 2,820 4,950 7,950

2.5.3 Categories of Tax Payers

The federal inland a revenue authority has classified tax payers of business income in to three major categories. These are category A, category B and category C tax payers. The basis of categorization of those a tax payer is on the base of their legal personal and annual turnover (sale revenue amount). 1. Category A tax payer This category includes business tax payers that have separated legal personality (share company, PLC, public enterprise and public finance agency) regardless of their annual sales revenue or other business having annual sales revenue of birr 500,000 or more. 2. Category B tax payer Unless already classified in category A, businesses with no legal personality and whose annual sales revenue is between birr 100,000 and 500,000 (i.e. birr 100,000 < sales < birr 500,000) is considered as category B tax payer.

3. Category C tax payer

This category includes any other business which are not classified under category A or category B which is to mean those business activities that have no legal personality and whose annual sales revenue is estimated up to birr 100,000. Category C tax payers are not required to maintain book of account and to prepare financial statements. To determine the income tax liability of such tax payers, standard assessment or presumption method shall be used.

2.6 Tax Administration

Tax is the main source of governments revenue for its socio-political and economic functions. Most of the time tax living system and methods vary widely from one country to the other, while the requirements for sound tax administration remain the same. Obviously, an administratively sound and acceptable tax system is the one that meet the principles and cannons of taxation in one way or another. Modern tax administration is a means of effectiveness and efficiency in tax system. But, it is fact that, this time tax administration is not given due attentions especially in developing countries. This is because effectiveness and efficiency is not only matter of collecting it and others. According to (Mikesel, 1974) stated in Thompson and Green (1998) tax administration is the application of the rules of collection to a tax base. This is a system of cost distribution to bring government the revenue it needs to purchase the resource to be used in delivery of public service. But neither economists nor public administration have give due attention for tax administration. It is fact, that economics focus on a tax to divert the private response and change resource allocation and public administration also focus on spending what is being raised.

2.6.1 Meaning of Tax Administration

As most scholars in the field argued, tax administration is derived from the words of tax and administration. Tax which is to mean compulsory levy imposed on tax payers without any quid pro qua and administration is mean that the organization, arrangement and running of any system.

2.6.2 Objectives of the Tax Administration

The main objectives of tax administration are making the tax system of a nation, region or a state equitable and fair to everyone in a country and improving the tax collection functions, like proper

registration of tax payers, determination of tax liabilities, the assessment of tax-gaps, timely collection of the assessed taxes, taking legal action against tax evaders and penalizing the activities of tax evaders. Eventually, according to Misrak (2011) the objectives of tax administrations are met by clearly applying the existing tax laws (rules and regulations) in assessing, collecting and penalties due from tax payers and evaders; auditing the correctness of tax declarations; educating and a warring tax payers; providing adequate service to tax payers. 2.6.3 Goals of Tax Administration According to Wolfson (1979), tax administration is carried out with the goal of maximize the revenue collected; minimize corruption, or unintended discrepancies in assessment and collection; and equalize rates of evasion and non-observance of taxes payable among tax payers. These three dimensions cannot be pursued in isolation. They must be reconciled in trade-offs between maximum growth through maximum public saving on the one hand, and the pursuit of equity and an optional use of scarce man power on the other. Misrak (2008) on the other hand stated that, a good and efficient tax administration need to have management system which carries the tax activities; tax laws or codes that guide the tax management system and knowledgeable administration. Not only this he also stated that a successful and effective tax administration needs to have an explicit and sustainable political commitment; train staffs (about assessment, estimation); sufficient resource to tax administration; incentive for both tax payers and administrators; simplified tax procedures; decentralize tax administration and developing good accounting system. Eventually, in order to collect the required resource that is spent on public goods and services; there must be a good tax administration that can able to implement the rules and regulations formulated by higher officials. Not only this, unless otherwise the tax living and collecting agency considers the principles of tax system in its taxing process, it may harm the tax payers and the amount of tax that is going to be collected as well as the economy as a whole.

2.7 Definition of Tax Compliance

Tax compliance can be defined as the degree to which a tax payer complies with the tax rules of their country. It is accepted that the goal of an efficient tax administration is to foster v voluntary tax compliance using all possible methods including penalties. Non compliance with the tax laws may take a variety of forms. For example , non- compliance occurs when individuals and firms under report their income, sales or over-claim defections, exemptions or credits resulting in a tax evasion or fail to file appropriate tax returns or to make tax payments in accordance with the tax laws. In view of these, the tax authority or the government must take actions to ensure compliance with the tax law. It may there for authorities to rely on harsher enforcement regime t achieve a certain level of compliance according to Games (2000), tax compliance is expressed in terms of degree to which tax payers comply with tax law. The problem of tax compliance characterized by the attitudes of the tax payers (Bahata, 1976) in this regard are influenced by a host of other factors like the political situation natural calamities, economic situations, social cultural and son on.

2.8 Definition of Presumptive Taxations

Presumptive taxation involves the use of indirect means to ascertain tax liability, which differ from the usual rules based on the tax payers accounts. The term presumptive is used to indicate that there is a legal presumption that the tax payers income is not less than the amount resulting from application of the indirect method. As discussed below, this presumption may or may not be resettable. The concept covers a with variety of alternative means of determining tax base, ranging from methods of reconstructing income based on administrative practice, which can be rebutted by the tax payer, to true minimum taxes with tax bases specified in legislation (Victor thoronyi, ed), 1996)

2.8.1, Scope of Application

Presumptive taxation is commonly used in the context of the income tax, some presumptive methods completely supplant the income tax for particular tax payers. In other cases, the

presumptive method may determine a portion of the tax base, for example, the income from a particular business or agricultural activity; presumptions are also use for taxes other than the income tax. Thus, the forfeit methods for small traders often cover both income tax and VAT liability; presumptive methods have also been used for the excise tax (Victor thuronyi, ed, 1996).

2.8.2, Advantages of Presumptive Taxation

The main virtue of presumptive taxation is that it may be the only effective way to tax small businesses in developing countries. Since small business represent the vast majority of enterprises, this may lead to a substantial increase in the number of taxpayers. In fact, in Countries where there is a solid presumptive tax tradition, the number of presumptive taxpayers may be ten to twenty times higher than the number of those subject to self assessment on recorded transactions, although this ratio declines with the level of economic development. Presumptive methods may also be effective in cutting audit time and cost, particularly in countries where accounting illiteracy is wide spread. Nevertheless, enforcement with out safeguards may lead to harassment of and extortion from tax payers by unscrupulous tax officials. Although, the participation of citizens in presumptive tax commissions may reduce the opportunities for abuse by corrupt officials (IMF,1995). According to IMF (1995),presumptive taxes may also enhance the efficiency and equity of the tax system. Presumptive taxes generally take the form of a tax on average or normal income . Hence, the marginal tax rate on income above this average income is zero, avoiding the negative incentives associated with high marginal tax rates. In addition ,by facilitating more effective taxation of hard-to-tax groups, presumptive taxation may be lead to greater horizontal equity in the tax system.

2.8.3 Implementation of presumptive tax in Ethiopia the standard assessment methods

Category C business income tax payers unlike category A and category B tax payers are not required (Not obligatory) to maintain books and records and prepare and submit any financial statement to the tax authority. To determine the taxable income and income tax liability of such tax payers, however, standard assessment presumptive taxation methods is used. Standard assessment presumptive tax is affixed amount of a tax liability determined by the tax authority based on standard estimation. Under such method, the income tax liability of a tax payers is determined by applying a fixed rate on the tax payers taxable income estimated by applying a fixed rate authority in order to determine the estimated amount of the taxable income and the tax liability thereon , the authority consistencies various factors such as type of business, business size and location of business, the estimated tax liability of the tax payers may continue years to years until revised by the authority or his category is changed. In standard assessment taxation method, tax assessors will be assigned by the tax authority to estimate the daily gross turn over (income) of the tax payers. The estimated daily gross turn over will be converted in to annual income (turn over) using the number of working taxes. Then annual income tax is determine on the basis of presumptive value assigned to aggregate activities, taxable incomes of each tax payer the schedules of presumptive tax develop by the tax expert and prescribed in schedules 1 and 2 of income tax regulation No 78/2002 are used for collecting the taxes from the category C taxpayers of schedule C in come tax payers (business income tax). The following three steps summarized the standard assessment presumptive taxation method for business income tax payers. Step 1. Information on the daily sales revenue (turnover) of a tax payer is gathered by the tax assess or taking in to account the various relevant variables. Steps 2. The daily estimated revenue figure is multiplied by the number of a business days in a year to arrive at estimated annual revenue and taxable income. Steps 3. The amount of income tax liability of the tax payers is located from the presumptive tax schedule provided in the income tax regulation no 78/2002.

2.8.4. Turn over tax collection

Turn over tax is payable on taxable goods supplied and taxable services rendered with in the territory of Ethiopia by persons not registered for VAT. This means, those persons who are engaged in the supply of taxable goods and rendering of taxable services in the country. And who are not required to register for VAT, have to collect turn over tax on the value of goods they supply or on the value of services they render in the country. And transfer same to the concerned tax authority (Gebrie 2006).

2.8.5, Team spirit work and Employees commitment

Tax administration performance is largely depends on revenue yields. Successful standard assessment systems are based up on fair and impartial administration. That includes transparent laws and regulations. In order to perform efficient and effective tax administration team spirit work and employees commitment is necessary. As per(Marshall Gold Smith,2008) Gaining employee commitment results in greater profits. Because enthusiastic employees stay, contribute discretionary effort and engage customers performance. When customers are enthused and stay, and when executives, managers, and employees are a collaborative team, united in achieving common goals.

2.8.6. The Appeal procedure

Proclamation NO.286/02 states that Appeal is a formal request to a higher appropriate authority requesting a change in a decision or confirmation or rectification of a decision. A tax payer who is not satisfied with the decision of the tax assessment/investigation may directly appeal to the tax appeal commission.

2.8.7.Power and Duties of Appeal commission

The appeal commission shall have the authority: to confirm, reduce or annual any assessment appealed against on the basis of established factual grounds and the law, and make such further consequential order there on as May seen just and necessary for the final disposition of the matter. To instruct the tax authority or the tax payers to submit facts if any; and to order the tax authority or the tax payers or any other person or governmental department or agency, as the case may be, to produce supporting evidence relevant to the tax payer's allegation.

CHAPTER THREE
DATA PRESENTATION, ANALYSIS AND INTERPRETATION 3.1. Introduction
This part of the paper focuses on data presentation, analysis and interpretation. The researcher attempts to identify research questions in presumptive tax assessment and collection. Method of data collection was carried out through questionnaires, interview and from different records ,documents and reports in order to conduct this study, the researcher prepared a total of 83 questionnaires and distributed to selected tax payers and the total 83 questionnaires 83 (100%) returned to the researcher. In addition, structured interview was also used to conducted interview with tax officials head of the revenue office, tax assessment and collection process owners and tax education process owners. The researcher has taken 83 respondents of tax payers. All of them are category C tax payers. And also the total of 14 employees was taken from East Estie woreda revenue office. Based on the collected data, analysis was made and secondary data were presented and analyzed. In order to make better understanding for the reader, the analysis part of the study was organized and presented in the following sequential order of discussion. Performance of tax assessment and collection. Measures taken to enhance tax payers compliance on the rules and regulations. Competency of employees in tax assessment and collection. Basic constraints between officials and tax payers. Evaluation of tax official cooperation to achieve revenue office goals.

3.2. Performance of tax assessment and collection

As per the income tax proclamation 286/2002 article 68 has declared that standard assessment is to be applied on category C tax payers. Sub article 2 specifies the condition for standard assessment to be type of business, business broadness, and place where the business location. Accordingly, the

assessment is made by the daily income estimation committee in kebele or by using various criteria obtained from the tax office and third party. The information obtained in various means is used to determine profit tax and turn over tax of the tax payers. The standard assessment guide of the region declared that the fairly income estimation was estimated from 3-5 years with any adjustment, due to this total analysis Performance of tax assessment is as follows: Table 3.2.1. Presumptive tax assessment response of tax payers No 1 Description Alternative No respondents 67 15 provide 1 83 54 20 3 6 83 18 65 83 of Percentage 80.7% 18.1% 1.2% 100% 65% 24.1% 3.6% 7.3% 100% 21.7% 78.3% 100 86.75% 13.25% 100% 68.7% 30.1% 1.2% 83 100%

Did you receive annual declaration Yes on time from the tax office? No Cannot response Total

In what way you declare the annual Full payment tax payment? Partial payment No payment Cannot provide response Total Do you think that the tax you are Yes paying is fair and based on your No ability? Total

Is your tax liability assessed on Yes time? No Total 5 Are you being asked by the tax Yes employees to give reliable No information of your daily income Cannot during tax estimation? response Total Source: primary data (2012)

72 11 83 57 25 provide 1

As indicated on the table 3.2.1, 67(80.7%) of the respondent said that; they declare honestly the income concerning about their business to the revenue office, where as 15(18.1%) of the respondents not declare their income to the revenue office. This implies that almost the majority of the respondents declare their income to the revue office. In relation to the way of declaration

54(65%) of the respondents declare with the full payment of the annual tax. Whereas 20(24.1%) of the respondents declare with partial payment of the annual tax. On the other hand 3(3.6%) of the respondents declare with no payment of the annual tax and also 6(7.3%) of the respondents cannot provide the response. From the above information we can conclude that the majority of the respondents declare their income honestly about their business. Because of they understand the importance of tax for the development of a country. In the contrary, according to the response the way of declaration is not totally full payment. There is a presence of partial payment and no payment. This indicates that Because of different reasons; like they assumed that payment of tax honestly will increase tax levied by the government and we paid large amount of tax to the government and tax burden laid down from US. Because of these reason there is no mutual trust between the tax payers and revenue office employee. In addition to this tax payers have misunderstanding about tax, and assumed that full payment of tax on the declaration time honestly implies that they paid large amount of tax beyond their ability to pay. And tax officers has no trust about taxpayers because of they hide their income. In addition to this as indicated on the table 18(21.7%) of respondents only said that the payment of tax is fair and based on their ability. Whereas 65(78.3) of tax payers are said that: the payment of tax is not fair and not based on their ability. From this we understand that the majority of tax payers response indicates, there is no fair estimation and assessment of tax in the revenue office. The reason for such over statement of tax is due to their daily sales estimation over and above their income, that means the daily sales estimators doesnt consider the necessary variables like the type of business, amount of capital and location of the business. In relation to assessment of tax on time 72(86.75%) of respondents said that: their tax liability is assessed on time. On the other hand 11(13.25%) of respondents said that their tax liability is not assessed on time. based on this information we can conclude that the majority of tax payers tax liability is assessed on time. this implies that the majority of tax employees understand tax is assessed on time. on the contrary based on the above data some respondents said that their tax liability is not assessed on time. This indicates that, there is a presence of Lack of full information on tax payers business activities and also lack of skilled manpower in the revenue office to assess

the tax on time. In case of taxpayers are being asked by the tax employees In order to give reliable information about their daily income during tax estimation 57(68.7%) of the respondents said that; they are asked by the tax employees to give reliable information. This shown that most of the tax payers asked by the tax employees in order to give reliable information before the daily income estimation. From this we conclude that; the way of asking taxpayers daily income by the tax employee before the dialing income estimation enhances the tax assessment are fair and based on ability. On the contrary 25(30.1%) of respondents said that they do not asked by the tax employees on the daily income to give reliable information before daily income estimation. This shows that, it has an impact of the tax assessment is not fair and the payment is not based on their ability. Table 3.2.2. Presumptive tax assessment response of tax employees No 1 Description Does the tax authority has standard estimation criteria 2 Alternative Yes No. of respondents 13 1 14 8 6 14 13 1 14 Percentage 92.8% 7.2% 100% 57% 43% 100% 92.8% 7.2% 100%

No Total Do category C tax payers Yes pay a fair tax according to No their income Total Yes

Are the tax officers assessing

frequently the tax payers No potential to pay tax before deciding the tax? Source: primary data: (2012) Total

As indicated on table 3.2.2, 13 (92.8%) of the respondent of the revenue office employees said that: the tax authority has standard estimation criteria. Like information gathered from the tax payers, tax paid by similar unit, third party information and based on sales estimation. This implies that the revenue office has its own standard estimation criteria. But based on the previous data information (table 3.2.1) even if the tax authority has its own standard estimation criteria, practically the tax employees are not fully implemented. Because of this there is no fair estimation of daily income. in relation to payment of a fair tax 8(57%) of the respondent said that, category

C tax payers pay a fair tax based on their income. On the other hand 6(43%) of the respondent said that category C tax payers do not pay a fair tax based on their income. And also as we have seen in the previous data on table 3.2.1taxpayers response, the majority of category C tax payers do not pay a fair tax. Based on this we can conclude that category C tax payers do not pay a fair tax. In case of tax officers frequently assessment of the tax payers potential, 13 (92.8%) of the respondent said that, the tax officers assess frequently the tax payers potential to pay tax before deciding the tax. This indicates that, frequently assessment of tax payers potential to pay tax before deciding the tax supports a fair estimation of tax. However based on interview response of the tax officials, tax payers hide their business activity using different techniques like hide sale item from business area during the study of daily income of tax payers, closing shop and unwillingness of tax payers to provide information are some of the basic constraints. To determine and calculate a fair tax liability of the tax payers, the revenue office uses rules, regulations enacted at Amhara Nation Regional State income tax proclamation No. 74/2002. Mostly category C tax payers paid their tax based on the schedule 2 listed on income tax regulation No.4/2003. According to the regulation, category C tax payers assessed their tax by estimation of daily income with the standard assessment method and evidence obtained from the third party. As the researcher observed , even if the tax officers follows and uses methods of tax assessment, most of the time they did not know the tax payers reliable daily income. Due to this, the problems of presumptive tax assessment and collection arises. Some of the problems in relation to assessment and collection of tax are as follows: Less performance of the assessment committee is one of the main problems on tax assessment and collection. As the researcher interviewed tax officials, the tax assessment committee was formed from different sectors based on the Amhara regional state tax assessment directives, rules and regulations. The committee has not enough knowledge about the taxpayers daily income. So at the time of estimation the assessment committee over state or under states the daily income of the tax payers and also some of the assessment committee is uncommitted and they gave information to their friends. Most of the committee does not understand the working procedures the proclamation and regulation of the government correctly. On the other hand as explained before tax payers hide actual daily income during the period of

declaration and at the time of estimation. Because taxpayers did not give actual information to the committee and revenue officers, and they were try to closing business shops and they move from one place to another place. As the result of this poor participation of tax payers and poor performance of the assessment committee, lack of fair estimation exists and needed to be solved. Table 3.2.3. Presumptive tax collection response of tax payers No 1 Description Why do you pay tax? Alternative To avoid penalties No of Percentage respondents 6 7.23% 92.77% 100% 45.8% 53% 1.2% 100% 100% 100% 27.7% 72.3% 100%

Is the time of payment convenient?

To get benefits of public 77 service Total 83 tax Yes 38 44 1 83 83 83 23 60 83

NO Cannot provide response Total Do you collect turnover Yes tax from the customer? No Total Are you being penalized Yes by the tax authority for No not paying tax? Total

Source: primary data: 2010) As indicated on table 3.2.3, 6(7.23%) of the respondents said that, the reason on payment of tax is to avoid penalties. This implies that tax payers do not aware the reason of paying a tax liability. And 77(92.77%) of the respondents said that, the reason on a payment of tax liability is, to get benefits of public service. This indicates that most of the tax payers have awareness on the payment of tax liability. On the contrary few number of tax payers have not awareness on the payment of tax. for efficient and effective tax collection the place and time of tax payment should be convenient to tax payers. Concerning this idea 38(45.8%) of the respondents said that time and place of tax payment is convenient. Whereas 44(53%) of the respondent said that time and place of tax payment did not convenient. From this we can conclude that it is not convenient for most of tax payers. In relation to collation of turnover tax from customers the total of 83 (100%) respondents said that the tax payers do not collect turn over tax. As per the Ethiopian proclamation 286/2002 tax payers collect turn over tax from customer and paid to tax authority. However, tax payers did

not collect turn over tax from their customer. This indicates that collection of turnover tax from a customer practically is not applicable by category C tax payers. In case of applying law enforcement penalty payment 23(27.7%) of the respondents are penalized by the tax authority for not paying tax. On the other hand 60(72.3%) of the respondents are not paying penalty. this shows that the majority of the tax payers do not paying penalty. form this we understand that implementation of law enforcement on non compliance tax payers is very less. Coordination among responsible bodies makes tax collection process from presumptive tax efficient and effective collected as the researcher interviewed and the employee revealed that, there is no coordination from different responsible body of public authority. Mainly Woreda Administration did not support transport facility on field work that has placed fair distant tax payers. In relation to implementation of law enforcement on those tax payers who do not pay their tax is very low. Because most of the time tax collectors in the office are not committed to seize and sale the property of tax payers who do not pay their tax on the due date. Table 3.2.4 presumptive tax collection response of employees. No 1 2 Description Do you believe that the revenue office collects the planned amount of tax from the tax payers? What are the major problems encountered in tax collection? Alternative Number respondents Yes 8 No 6 Total 14 Tax rates are to high Lack of commitment of tax collectors Unwillingness of tax 14 payers Yes 14 No 14 of Percentage 57% 43%100% 100% 100% 100% 100%

Is there any enforcement mechanism taken by the tax officers to those taxpayers who do Total not pay tax on time? Source primary data 2012)-100%

As it can be observed on the table 3.2.4 among 8(57%) of respondents said that the revenue office collects the planned amount of tax from the tax payers. Whereas 6(43%) of respondents said that the revenue office do not collects the planned amount of tax from the tax pays. Almost half of the revenue office employees response indicates that the revenue office do not collects the planed amount of tax from the tax payers. from this we can conclude that there is a problem faced on the

revenue office in tax coalition. In relation to major problems encountered in tax collection the total of 14(100%) respondents said that: unwillingness of tax payers is the mayor problems encountered in tax collection. from this we can understand that as we have explained previously the revenue office needs to improve on the implementation of law enforcement mechanism to those tax payers that are unwillingness on payment of tax. As we have seen employees response on this idea the total of 14 (100%) respondents said that there are enforcement mechanisms implemented by the tax officers to those tax payers who do not pay tax on time. concerning this idea the researcher observed that, some tax payers may pay penalties on the reason tax payers who do not pay their tax liability on time. But seizing and sale the property of tax payers is not implemented by the revenue office. To make it very clear, the following table shows the performance of category C business income tax accomplishment to its plan and to the performance of total revenue.

No

Year in G .C

Performance of category C business income tax

Percentage of accomplish ment of category C business

Performances of Total revenue in birr

Performance of percentage of category C business income tax to the total revenue

Plan in birr 1 2 3 4 5 2007/8 2008/9 2009/1 0 2010/1 1 2011/1 221469 161469 350,000 900,000 102549

Accomplis hment in birr 211502 274300 739512 658465 117898

income tax to its plan a birr 95.5% 169% 211.3% 73.2% 114.96% 115.3%

Plan in birr

Accomplishmen t in birr

Plan in birr

Accomplishment in birr

2,470092 3,000,000 4500000 6776831 7268261 24015184

2751160.77 3720421.69 6135585.13 6579831.17 7041863.94 26228862.7

8.96% 5.38% 7.77% 13.3% 1.4% 7.22%

7.68% 7.37% 12.% 10% 1.67% 7.63%

2 Total 1735487 2001677 Source: secondary data ( 2012)

As it indicated on the table above except year 2007/8 and 2010/11, the percentage of accomplishment of category C business income tax to its plan was greater than 100%. and the percentage of total accomplishment of category C business income tax to the total revenue (7.63%) was greater than the percentage of total plan of category C business income tax to the total revenue (7.22%). This implies that there was understatement of planning the collection of business income tax on category C tax payers.

3.3. Measures Taken to Enhance Tax Payers Compliance on the Rules and Regulations.
As per games (2000) tax compliance is the degree to which a tax payer complies with the tax rules of their country. In other words tax compliance is expressed in terms of degree to which tax payers comply with tax law. In view of these, the tax authority or the government must take actions to ensure compliance with the tax law.

Table 3.3.1 compliance level of tax payers response of tax payers. No 1 Description How do you evaluate the tax laws and rules? 2 Do you aware of the methods of tax assessment and collection? Alternative Good Moderate Bad Cannot provide response Yes No Cannot provide response No of respondents 28 49 5 1 55 26 2 % 33.73% 59.73% 6% 1.2% 66.27% 31.33% 2.4%

Table 3.3.2. Compliance level of tax payers response of tax employees.

No 1

Description Does the non compliance tax payer have a negative impact on the compliance of tax payers?

Yes NO

12 2

85.7% 14.3%

As indicated table 3.3.1 in evaluation of understanding the tax laws and rules 28(33.73%) of the respondents said that; the evaluation on tax laws and rules is good, 49(59.07%) of the respondents said that the evaluation on tax laws and regulations is moderate where as 5(6%) of the respondents said that the evaluation on tax laws and regulation is bad. It indicates that most of the respondents (59.07%) of the respondents said that; the evaluation on tax laws and regulations is moderate. It implies that the majorities of the tax payers are partially know and comply with tax law and regulations. And 33.73% of the respondents said that: The evaluation on tax laws and regulations is good. It implies that some tax payers have awareness on the tax laws and regulations and they comply with the tax law, where as 6% of the respondents said that the evaluation on tax laws and regulations is bad. It implies that very small tax payers have not awareness on the tax laws and regulations and also they do not comply with the tax law. In relation to the awareness of the methods of tax assessment and collection 55(66.27) of the respondents said that they have awareness on the methods of tax assessment and collection. From this we understand that the revenue office give to the tax payers special training on tax assessment and collection. And also the majority of the tax payers participate in tax awareness creation. Whereas 26(33%) of the respondents said that they have not awareness on the methods of tax assessment and collection. From this we understand that some tax payers do not participate in tax awareness creation. As indicated table 3.3.2., from the total of 14 employs 12(85.7%) of respondents said that: the non compliance tax payers have a negative impact on the compliance of tax payers. Whereas 2(14.3%) of the respondents said that:

The non compliance tax payers do not have a negative impact on the compliance of tax payers. From this we understand that the majority of the tax payers have understanding of the non

compliance tax payers have a negative impact on the compliance of tax payers. Table 3.3.3 Education qualification and experience of the revenue office in each position No Position Required Current valuable qualification no educational of employees qualifications and experience of employees each Tax assessment BA degree or college For BA Degree BA degree in and collection diploma in tax Minimum 1year management process owner administration, local relevant working government who has worked accounting, in tax assessment, economic business for diploma education minimum 5 yeas development relevant working administration from experience in tax recognized academic assessment and institutions collection 12 employees are required Tax assessment Diploma in Minimum of 3 Diploma in accounting officer accounting, tax years experience Diploma in administration, who has worked management management public in tax assessment finance. Tax assessment Diploma in officer accounting, tax administration, management public finance Tax education and public relation business process owner BA degree or college diploma in economics, accounting, business education marketing, tax administration urban faience and law. Plan BA Degree 3 years preparation and and diploma 8 years following up relevant working Minimum of 3 years experience who has worked in tax assessment Required education Position

The office has employee 5 year in tax collection and 3 year in tax assessment. 1 employee present.

For BA degree 3 years relevant working experience and for diploma 6 years relevant working experience Diploma in Diploma in human 6 years in tax human resource resource management collection and 3 management years plan

The officer has employees tax assessment 4 year and 2 year in tax collection 2 employees are present. Diploma in accounting Tax collection 3 and 1 Diploma in year month. tax management collection 3 year and 5 month. 2 employees are present. Not present Not present

and evolution experience who has officer worked in data collection and planning. 1 employee is required

preparation and following up . 1 employees present

For effective and efficient tax assessment and collection, employees of the organization have appropriate educational qualification, experience, understanding and comply with the rules and regulations issued at the regional and federal level. As indicated on the about table, the total number of employees required for tax assessment, tax collection, tax education and planning were 7 in numbers. But currently they are 6 in numbers. As the researcher interviewed the tax officers, even if employees of the organization have the required educational qualification, the performance of the employee complies with rules and regulation on tax assessment and collection was very poor. They had worked by previous experience and most of the employees have not confidence when they have assessed the tax liability of the tax payers, and makes the presumptive tax assessment and collection not comply with rules and regulation. As the researcher interviewed tax officials, some of the factors contributed to the presumptive tax assessment and collection not comply with rules and regulation of tax was: The revenue office at the regional level did not provide training to employees. Most of the employees did not understand and differentiate tax payers according to their ability to pay. For presumptive taxation estimation was made by committee, so uncommitted committee, doing by relations and give information to the tax payers to hide information about their business activity. Employees of the revenue office do not committed to seize the property of the taxpayers who did not meet their obligation. Regulations Table 3.3.4.Presumptive tax collection performance for the last 5 years Planned and actual collected tax from presumptive tax (2007/8-2011/12) Year Presumptive tax 2007/8 221469 2008/9 16/469 2009/10 359000 2010/11 900,000 2011/12 102549 Total 1735,487

planned Actual collected Over /under implementation Effectiveness in percentage actual collected to

2011502 (9967) 95.5%

274300 112831 169.87%

739512 389512 211.3%

658465 (241535) 73.16%

117898 15349 115%

2001677 266/90 115.34%

planned Source: East ester woreda revenue office annual report) As it can be observed from the above table in the last 5 years, east Estie woreda revenue office has planned to generate a total of birr. 1735487 from presumptive tax and actually collected a total of birr. 2001677. When we have seen the trends of incremental of planed presumptive tax, it decreases from 2007/8-2008/9 and the actual collection in 2008/9, 2009/10 and 2011/12 increases. In addition to this, the year 2011/12 planned amount is very less as compare to the year 2010/11. The reason is that as the researcher interviewed head office of the organization, one reason for declining the planned amount of tax in the year 2011/12 is because of for the administration purpose East Estie Woreda was broken down in to two woredas and by this reason a number of category C tax payers was taken to the new woreda. Due to this case, the year 2011/12 planned amount is very less. Even if this is a case, when we see the other years, the planned amount is increased in one year and decreased in the next year. From this we conclude that in the revenue authority has poor to forecasting the future tax collection. And they did not take in to account the ability to pay of tax payers.

3.4. Competency of employees in tax assessment and collection

Tax education and public relation business process was established as an autonomous business process in East Estie woreda revenue office in the year 2009 G.C. when the office implemented BPR. Duties and responsibilities of the business process was awareness creation about tax to tax payers and employees of the office and provide training to employees based on this, competency of employees in tax assessment and collection detail analysis as shown below on the table. Table 3.4.1. Competency of employees in tax assessment and collection. No Description Alternative No respondents of Percentage

Are you aware with the standard assessment method of taxation Does your office give special training to tax payers?

Yes No Total Yes No Total

12 2 14 14 14 1

85.7% 14.3% 100% 100% 100% 7.14% 92.86% 100% 35.7% 64.3% 100% 71.4% 28.6% 100%

If the answer is Yes how Once a year many times in a year? Twice a year

Three times and 13 above Total 14 4 Do you get appropriate Yes 5 training to discharge the No 9 assessment and collection of Total 14 tax very well? 5 Do you think that your office Yes 10 has adequate manpower? No 4 Total 14 (Source primary data 2012)

As indicate on table 3.4.1 .12(85.7%) of the respondents of the revenue office employees said that, they have awareness with the standard assessment method of taxation. Whereas 2(14.3%) of the respondents said that: they have not awareness with the standard assessment and collection. This implies that the majority of tax employees have awareness on the standard assessment method of taxation. But some tax employees have not awareness, because one of the reasons is that less commitment of employees. On the other hand, in order to achieve the objective of the organization, employees should be active enough and familiar with rules and regulations of tax through training. As indicated on the above table 5(35.7%) of the respondents said that they have got appropriate training to discharge the assessment and collection of tax very well. This indicates that some of tax employees have awareness to discharge the assessment and collection of tax very well. On the contrary 9(64.3%) of the respondents said that: they do not get appropriate training to discharge the assessment and collection of tax very well. This rose from regional and zonal tax authority executives are not committed to prepare and provide training. and also the revenue office encountered financial constraints to provide training for employees. From this we can conclude that employees of the organization did not get training about tax and have limited knowledge and

skills about tax. As a result tax assessment and collection done through rule of thumb and experience. Mainly estimation of daily income of tax and lacks commitment to collect tax liability of tax payers on time. As the researcher observed: As indicated on the table the total of 14(100%) employees said that: the revenue office gives special training to tax payers. Even if the revenue office provide training to tax payers, tax employees have not got awareness creation program. This resulted employees and tax payers have poor knowledge about tax and make an obstacle to tax assessment and collection performance. On the other hand, in the above table in relation to adequate manpower 10(71.4%) of respondents said that: the office has adequate man power. On the contrary, 4(28.6%) of respondents said that the office has not adequate manpower; this implies that the majority of the revenue office tax employees have adequate skilled man power. However, even if the office has adequate man power, they were not well informed on the current rules, regulations and procedures of presumptive tax assessment and collection.

3.5. Basic Constraints between Officials and Tax Payers.

According to the income tax proclamation 286/2002 article 68 has declared that standard assessment to be applied on category C tax payers. The assessment is made by the daily income estimation committee or by using tangible information from the tax office and third party. The standard assessment guide of the region declared that the daily income estimation was estimated from 3.-5 years with any adjustment. The daily income is estimated by the tax office or the daily income estimation committee in kebele and representative body and also the committee consists of tax payers and tax employees. The committee has various constraints because the representative of the tax payers do not play decisive role to the required degrees and standards. Most of the times do not contribute a lot in the process of estimation. Most of the committee does not understand the working procedure, the proclamation and regulation of the government correctly.

East Estie Woreda revenue offices have many factors that enhance estimation constraints. Based on the above ground the basic constraints between officials and tax payers are shown below: 3.5.1. Basic constraints between officials and tax payers response of tax payers. No 1 Description Alternative No respondents 21 29 32 1 83 30 53 83 1 of Percentage 25.3% 34.94% 38.56% 1.2% 100% 36% 64% 100% 3.3%

How many times you are Twice a year participating in tax awareness Once a year creation? Not at all Cannot provide response Total

Is there any problem facing Yes you when you go to the tax authority to pay your tax No liability? Total If the answer is yes what kind Absence of tax collector of problem? lack of treatment

16.7% 36.7% 26.6% 16.7% 100%

lack of full information on 11 the payment of tax discrimination 8 inefficiency of tax collectors Total (Source: primary data 2012) 5 30

As indicated on the above table 3.5.1, regardless of participation in tax awareness creation 21(25.3%) of the respondents said that: they are participating twice a year and 29(34.94%) of the respondents said that: they are participating once a year. On the contrary, 32(38.56%) of respondents said that: they are not participating at all. From this we can understand that the majority of tax payers do not participate on tax awareness creation. This implies that most of tax payers have not enough knowledge about the tax laws, rules and regulations.

In relation to problems facing when tax payers go to the tax authority to pay the tax liability 30(36%) of respondents said that there are problem facing when they are go to the tax authority in order to pay the tax liability on the other hand 53(64%) of the respondents said that they have not any problems facing when they are go to the tax authority to pay the tax liability. It implies that the majority of taxes payers have not any problems facing when they are go to the tax authority. On the contrary, some tax payers have a problem facing when they are go to the tax authority. Some of the main problems as shown on the above table are: Absence of tax collectors Lack of treatment Lack of full information on the payment o ax Discrimination Inefficiency of tax collectors. All these are some of the main problems facing when tax payers go to the tax authority. Haw ever, as we have seen on the table, the most dominant problems facing on the tax payers is lack of full information on the payment of tax. From this, the researcher observed that the revenue office needs to improve the service delivery of the tax payers.

Table 3.5.2. Basic constraints between officials and tax payers employee response NO 1 Description Alternative NO respondents 3 11 14 of Percentage 21.4% 78.6% 100%

How do you evaluate the High knowledge of the tax payers about Low taxation Moderate Total

Do you agree that the standard assessment criteria and collection system of your office are well enough to generate adequate tax revenue

Strongly agree Moderately agree Strongly disagree Moderately disagree Cannot provide response Total

5 7 1 1 14

35.7% 50% 7.15% 4.15% 100%

(Source: primary data 2012) As indicated on the table 3.5.2, 3(21.4%) of respondents said that: The knowledge of the tax payers about taxation is low. This implies that there are some constraints in the revenue office that do not implement awareness creation to the tax payers. On the other hand 11(78.6%) of respondents said that, the knowledge of the tax payers about taxation is moderate. This indicates that the majority of the tax payers have some knowledge about taxation. But this is not enough because the revenue office needs to provide detail awareness creations on the tax laws, rules and regulations. On the other hand, the criteria of standard assessment and collection, 5(35.7%) of respondents are strongly agree that the standard assessment criteria and collection system of the revenue office are well enough to generate adequate tax revenue. This implies that almost half of the tax payers have an idea of the standard assessment criteria and collection system of the revenue office is not well enough to generate adequate tax revenue.

3.6. Evaluation of tax officials cooperation to achieve revenue office goal

As per (marshall gold smooth 2008) in order to implement effective and efficient work on revenue collection, the main goal is to create an organizational culture that is aligned with the departments vision, mission and responsive to the needs of a customer. One way of accomplishing this goal is to create an environment that fasters the appreciation for the value of diversity. The revenue office needs to established a diversity team with a mission to promote an environment within the department that appreciates the value of diversity by identifying shared goals which are aligned with the departments values and vision with mangers support guidance and review team recommendations will enable employees to reach their potential with dignity and allow them to value their We have to dedicate to maximizing effectiveness in performing those functions. We seek to continually improve quality and excellence by:

Providing the necessary training to employees enabling competent job performance and enhancing professional growth. Encouraging employ self development motivation, participation, and recognizing contributions and performance. Fostering open communication and team work. Soliciting input and feedback from the customers we serve. Providing the necessary resources to meet these goals. based on the above idea, evaluation of tax officials cooperation to achieve revenue office goals is as follows:

Table 3.6.1. Evaluation of tax officials cooperation to achieve revenue office goals response of tax payers No 1 Description Alternative No respondents 27 56 44 33 6 of Percentage 32.53% 67.47% 53% 39.8% 7.2%

How do you evaluate the tax Good assessment and collection Bad Are you getting full service Yes form the tax authority No Cannot provide response provide Evaluation of tax officials cooperation to achieve employees How do you evaluate the High commitment of the tax employees in the tax Low collection process? Moderate Is there team sprit work Yes among the tax officers at the time of revenue collection? NO How do you evaluate the strength of the tax authority with respect to the following parameters? Service delivery Excellent Good Fair

3.6.2. 1

revenue office goals response of 10 71.4% 28.6% 100% -

14 -

3.1

5 8 1

35.7% 57.1% 7.2%

Poor 3.2 Tax collection efficiency Excellent Good 11 78.6% Fair 3 21.4% poor 3.3 Law enforcement Excellent Good 9 64.3% Fair 5 35.7% Poor 3.4 Awareness creation Excellent good 5 35.7% Fair 9 64.3% Poor As indicated on the table 3.6.1, on the evaluation of tax assessment and collection 27(32.53%) of respondents satisfied on the tax assessment and collection, where as 56(67.47%) of respondents are do not satisfied on the tax assessment and collection. This implies that the majority of tax payers are not satisfied on the assessment and collection performance of presumptive taxes. In relation to tax payers getting full service from the tax authority 44 (53%) of respondents said that they are getting full service from the revenue office. Whereas 33(39.8%) of the respondents said that they are not getting full service from the revenue office. From this we can observed that the majority of tax payers are getting full service from the revenue office .Based on this we conclude that some changes were observed after the implementation of BPR that enhanced customers satisfaction to some extent. By doing so it should be strengthened for further. As indicated on the table 3.6.2, in relation to the commitment of tax employees 71.4% of respondents said that employee commitment is high and 28.6% of respondents said that employee commitment is moderate however conflicting findings are obtained in this research that majority of tax payers respondents reacted negatively concerning this idea. Since tax payers are service users, having an agreement with the opinion of the tax payer respondents as indicate on the table3.6.1, it assures that the commitment of tax employees is very low. From this we observe that the commitment of tax employees in tax collection process is very less. In relation to team spirit work among the tax officers 100% of the respondents said that there is team spirit work among the tax officers at the time of revenue collection. On the other hand evaluation on the strength of the tax authority with respect to the following Para meters is:-

On service delivery 5(35.7%) of respondents said that the strength of the service delivery is very well 8(57%) said that very good and 1(7.2%) said that the service delivery is fair. In relation to tax collection efficiency 78.6% of respondents said that it is good and 21.4% of respondents said that tax collection efficiency is fair. From this we observe that even if the tax employees response is positive, as we have seen previously, having an agreement with the opinion of tax payers response, tax assessment and collection process have many constraints. Due to this the revenue office needs to improve the tax collection efficiency. In relation to law enforcement 9(64.3%) of respondents said that it is good and (35.7%) of respondents said that law enforcement is fair and also awareness creation 5(35.7%) of respondents said that it is good and 9(64.3%) of the respondents said that the awareness creation is fair, from this we conclude that based on tax payers opinion, as we explained in the previous, the revenue office have problems on service delivery, tax collection and law enforcement.

CHAPTER FOUR
Conclusion and Recommendation 4.1. Conclusion
Any government needs to raise revenue through taxation in order to provide public goods and services to the society. Therefore this study focuses on category C business income tax

assessment and collection problems in East Estie woreda revenue office and suggests possible recommendations that enable the revenue authority to improve the assessment and collection small size taxation. Generally, based on the analysis and interpretation of data, the major findings are concluded as the following One of the problems of presumptive tax assessment and collection in East Estie woreda is lack of awareness or weak tax education program about the existence and objectives of tax and how tax is levied on tax payers. There was an implementation of non fixed, continuous and non-seasonal training programs. This is result in tax payers have misunderstanding about tax and assumed that declaration income honestly implies that they paid large amount of tax beyond their ability to pay and tax officers has not trust about tax payers because of they hide their income and not to pay the required taxes voluntarily. Lack of sufficient training to tax authority of this woreda is another problem because when ever new proclamation and regulation are issued, they should have to be clarified to tax officers, tax assessment committee and tax payers. When East Estie Woreda revenue office performs its activity and tried to collect taxes from presumptive tax: there are some problems in presumptive tax assessment and collection which is critical to the revenue office. The major problem was related with the weakness of income estimation committee. The Capacity of income estimation committee was low to make fair and equitable income estimation. The assessment was limited there is no regular assessment; assessment was done in one day field study. Members of estimation committee have little knowledge towards taxation. In addition the revenue office has not proper documentation each and every business person activity of the business. The tax collection mechanism in the revenue office is not applied properly. The major attempts was tax payers not paying their tax by due date, payment process done in the office was inaccurate and late. The enforcement action was very less.

 One of the important inputs to enforce the tax laws is availability of infrastructures. In East Estie woreda non availability of infrastructures are also the problems in implementing presumptive tax assessment and collection properly. In East Estie woreda under study as result of this research indicates each year the total amount of estimated presumptive tax collection and actual collection shows great difference this is because of poor estimation by tax authorities to assess exactly identifying tax base and determining the tax liability of tax payers. On the other hand non-coordination between different responsible bodies and lack of commitment of the employee to seize the property of tax payers who do not meet their obligation. In East Estie woreda revenue office tax assessment and collection was not compliance with rules and regulations. Some of the problems are: employees of the revenue office did not carry out their responsibilities compliance with tax laws. Because most of them assessed tax based on relatives. Tax payers did not pay their tax liability on due date due. Tax payers and employee of the organization partially know and comply with rules and regulation due to tax authority did not give training for employees. Even if employees have the required educational qualification, the performance of the employee complies with rules a regulation on presumptive tax assessment was poor. Compliance tax payers are not encouraged by the revenue office. Lack of law enforcement on non compliance tax payers are the main constraints of the revenue office. Tax payers have right claim about the assessed tax and provide complain to review committee and appeal commission. In East Estie woreda revenue office majority of the respondents did not satisfied with tax assessment made by the tax authority, and made complain to the revenue office because of they had imposed and assessed tax beyond their ability to pay, and capacity tax payers did not know the appeal procedure and even if when they are dissatisfied with the appeal commission , they did not go to the court and make it complain to it. Only they have stopped the complain procedure up to the decision the appeal commission. After the implementation of BPR some changes are observed in the revenue office service delivery process. How ever the revenue office could not bring remarkable change in service delivery

improvement to satisfy the needs of its tax payers. So, we can evaluate that the extent of services delivered by tax employees in the revenue office was rated less The revenue offices have given emphasis to employees participation in decision making, in promoting delegation and team work. But it is less considerate to the importance of employee training, empowerment, motivation and rewards.

4.2. Recommendations
In this section, based on data analysis and interpretation part of this paper, the researcher suggests certain recommendations as alternative to the area where the gap is identified. So, the officials of the revenue office supposed to reconsider earlier short comings and under takes corrective measures for better accomplishment on the basis of finding this study. The researcher would like to draw the following recommendations as here under respectively to the conclusion of the paper. The main purpose of tax payers education is to create awareness among tax payers right and responsibility. In East Estie woreda most of the tax payers educational level is low. There should be regular and frequent training program for tax payers. So, the revenue office needs to arrange fixed, continuous and seasonal training schedules. The tax authority at local level should provide training for tax officers before assigning them in different position and this training program should continue even they are on the job. Presumptive tax assessment and collection should be performed with the existing tax laws and regulations and the revenue office has an obligation to provide awareness creation program to the tax payers, employees, and other responsible bodies who have direct relation on presumptive tax assessment and collection for generation of revenue through different methods, and employees should be active enough and familiar with rules and regulations of tax through training. More over the mechanism used by income estimation committee has to be changed by a workable system. The committee should have knowledge of data analysis to make accurate and fair estimation. In general the revenue office needs to bring tax payers who are not on the tax net, tax liability determination by estimation should be in a fair and equitable manner with the support of evidences and the revenue office should provide incentive to the estimation committee in order to perform well estimation of tax.

 The revenue office needs to provide educating the tax payers and conducting consultation sessions. In addition law enforcement measures should be taken to shape the tax payers to develop positive attitude on the payment of tax. Especially the revenue office needs to implement the program to identify tax payers who are delinquent in filing declaration or paying applicable taxes. The revenue office needs to create coordination among responsible bodies make tax collection process efficient and effective. Mainly the woreda administration should supports by providing vehicles and motor cycles on field work that has placed far distant business persons. The revenue office needs to improve its estimation and it should strength its effort for generating revenue from presumptive tax and the tax collectors in the revenue office should seize the property of the tax payers who do not meet their obligation for effective tax collection. The revenue office should give training to employees to increase the performance of them and should assessed tax only compliance with rules and regulations. On the other hand the revenue office needs to identify employees who assessed tax by relative and also tax payers needs to awareness by educating through arranging seminars and work shops. In addition it is important to recognize committed tax payers. As a result the performance of the employee complies with rules and regulations on tax assessment and collection will be efficient and effective. The revenue office needs to encourage complaint tax payers by strengthening legal enforcement and penalties on non compliance tax payers. Tax payers have right claim about the assessed tax and provide complain to review committee and appeal commission. In East Eastie woreda revenue office tax payers did not know the appeal procedure. So, the revenue office should provide awareness creation to tax payers on appeal procedures and should inform right and obligations to tax payers. Even it BPR has brought some service delivery improvements as compared to the previous system, the evaluation of extent of services delivered by the tax employees in the revenue office was rated less. This implies weakness of competency of the tax employees. Hence, it is recommendable to improve the services that given by tax employees and it should be strengthen further through bench marking it is better to learn from others best experiences.

 The revenue office has given emphasis to employees participation in decision making, in promoting delegation and team spirit work. How ever the revenue office needs to give high consideration to the importance of employees training, empowerment, motivation and reward Generally the revenue office can achieve its goals by following the above mentioned points.