​

Wollega University

College of Business and Economics

​

Topic: CHALLENGES IN ADMINISTRATIONS OF VALUE ADDED TAX: THE CASE OF EAST WOLLEGA ZONE, ETHIOPIA

                             

                               Abstract

​

Ethiopia adopted Value Added Tax (VAT) by January, 2003 to replace the out dated sales tax that worked for more than 40 years in the country. VAT was adopted to create opportunity for overall modernizations of tax administration. However, it is not as expected because the country inadequately prepared for such new beginning and hence, it has disrupted the functioning of an existing administration at the very beginning. This is due to the reason that development levels are low, community administration is often ineffective and political conditions in Ethiopia are comparatively unstable. The main objective of this study is to examine major challenges in administration of VAT in East Wollega zone (EWZ, Ethiopia. To meet the aim of the paper, the researcher employed descriptive research design, mixed research approaches, survey research strategy and cross sectional time dimension of research. The researcher has used both primary sources of data including questionnaireand interview collected from VAT tax payers and tax officials of EWZ and different secondary sources of data. The researcher used VAT tax payer samples of 298 selected through stratified random sampling techniques from six purposively selected towns of Nekemte, Sire, Arjo Awuraja, Gudatu Arjo, Angar Guttin, and Gida Ayana.  Furthermore, 24 samples of the tax authorities selected from these towns including manager, tax auditor, VAT tax collectors and VAT tax registering employees were used. From the total questionnaire of 298 distributed for VAT tax payers, only 259 were valid and returned but the responses of tax authority were analyzed wholly. The study finds that; fear of competition from similar businesses of VAT unregistered, tax payer’s low habits of registering and paying tax by their own willingness, lack of awareness of the VAT benefits, lack of training and learning resources on VAT, lack of VAT machine, untimely provisions of tax refund for VAT tax payers, imbalanced service delivered by tax authority and unfairness of penalty imposed by tax authorities, different illegal acts committed by tax payers, complexities of VAT laws and procedures and presence of systemic corruption were these that challenges VAT administrations in EWZ. The study recommends as the government should have to promote training to develop habits of compulsory registrations and must consciously perform for exhaustive identification and registration of these potential taxpayers. Tax authorities should provide adequate service for taxpayers as a client by giving them respect, moral and rewards for those honestly paying taxes. Tax authority should have to use modernized technology’s and increases compensations for tax officials so that the tax administrations can be improved and modernized than ever before.

 

Key words: Value Added Tax (VAT), administrations, Challenges, East Wollega Zone, Ethiopia

​

​