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Perception of Value Added Tax Compliance in Ethiopia: Filing and Invoicing

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Presentation by Gebregziabher G. Tsadik, Assefa Gezae and Worku Tamrie at the second annual meeting of the Ethiopian Tax Research Network, which took place in Addis Ababa on 8th October 2018.

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Perception of Value Added Tax Compliance in Ethiopia: Filing and Invoicing

  1. 1. 1 Perception of Value Added Tax Compliance in Ethiopia: Filing and Invoicing The case of three federal branch offices in Addis Ababa By:- G/her G/tsadik Worku Tamrie Assefa Gezae 08 Oct 2018
  2. 2. 2 Presentation Outline Items Introduction Objectives of the study and Research Questions Conclusions and Recommendations Research Methods and Material Results and Discussions 1 2 3 4 5
  3. 3. 3 Introduction Tax compliance refers to complex attitudinal issues toward all types of tax Includes registration, filing, computation and payment of taxes Theories have been taken in to account to understand the attitude of taxpayers to tax compliance Tax Compliance VAT Compliance Similarly, VAT compliance deals with behavioral issues but specific to VAT  It can be analyzed through the same theories It includes perception of VAT registrant toward filing and invoicing compliance 1
  4. 4. 4 Introduction Perception to VAT filing and invoicing compliance Various studies have been undertaken on perception of taxpayers toward tax compliance in other countries and Ethiopia  However, as to the researchers knowledge studies not undertaken on perception of VAT registrant to VAT filing and invoicing compliance 1 Therefore ,this study intends to fill the existing knowledge gap by conducting an in depth investigation on perception of VAT registrant on VAT filing and invoicing compliance issues
  5. 5. 5 VAT Filing and Invoicing Legal Framework Overview 1 Compliance VAT Law Proclamation Regulation VAT Filing  VAT registrants are required to file a VAT return no later than the last day of the calendar month  Failure to file a timely return is liable for penalty equal to 5 percent of the amount of tax underpayment for each month 285/2002 article 26 sub articles 1-4 and article 46 sub article 1-4 Regulation no 79/2002 article 9 sub article 1-16 VAT Invoicing  A person registered for VAT that carries out a taxable transaction is required to issue a VAT invoice  Any person issued incorrect tax invoice penalizes 100% on the transaction 285/2002 article 22 sub articles 1-7 and article 45(a-c)
  6. 6. 6 Objective of the study and Research Questions The broad research objective is to assess perception of value added tax compliance on filing and invoicing in Ethiopia Specific research questions are:  How do VAT registrant perceive VAT invoicing and filing compliance? What are VAT invoicing and filing compliance related issues in Ethiopia? 2 Note: To address these research questions the researchers tried to analysis the cause and effect relationship between variables
  7. 7. 7 Methods and Materials Research Approach and Sources of Data • Quantitative • Qualitative research approach • Primary Sources - Survey tools - Interview and FGD • Secondary Sources - ERCAs’ various reports and relevant laws 3 Analysis of Data Collected • Descriptive statistics software (SPSS); Multiple Linear Regression • Pie Charts and Tables • Percentages, mean, std and narrative discussions of ideas Sample Selection • As of 11 January 2018 there were 23,114 VAT registrant; • Samples were selected based on simple randomly i.e. 1,060 • Sample selection was proportional as # of taxpayers in branches: LTO: 52, EAST: 612, and WEST: 396 • Out of 1,060 survey questionnaires distributed 652 were completed and returned* Note: * The response rate was 62%
  8. 8. 8 Results and Discussions 4 Sex 45% 55% Female Male Majority of respondents were Male Respondent’s Age 54.50%36.50% 9% 21- 30 31- 40 >40 Most of respondent’s age were between 21 and 30 years Respondent’s education qualification 4.00% 9.20% 61.10% 23.10% 2.60% High School Deploma 1st Degree 2nd Degree >2nd Degree Majority of respondents have 1st degree 26% 19% 20.40% 5.70% 15.20% 13.70% Import and Export Service Construction Whole seller and Retailer Manufacture Sector Source: Survey tool and SPSS Computation Most of respondents engaged in construction and service sector
  9. 9. 9 Results and Discussions…. 4 The researchers have considered various variables that may have impact on VAT filing and invoicing compliance behavior Attitude of VAT invoicing and filing compliance (Dependent variable)A 62% 31% 3% 4% ‘Your view in terms of invoicing non-compliance?’ ‘Your view in terms of invoicing non-compliance?’ 56% 35% 6% 2% It is very wrong and very accountable by law It is wrong and accountable by law It is wrong but not make accountable It is not wrong and not make accountable The attitude of VAT invoicing non- compliance is low The attitude of VAT filing non- compliance is low Source: Survey tool and SPSS Computation
  10. 10. 10 Results and discussions …… 4 Attitude of VAT registrant toward VAT invoicing and filing compliance (dependent variable)A Questions Descriptive statistics Result “The prevalence of forged VAT invoices?” The alternative answers were ranges from very high =1 to very low =5 Mean=2.73 Attitude to invoicing non-compliance is low “VAT registrant honestly file?” The alternative answers were ranges from strongly agree =1 to strongly disagree=5 Mean=3.22 Attitude to filing compliance is low Source: Survey tool and SPSS Computation
  11. 11. 11 Results and discussions …… 4 Perception of VAT registrant to independent variables B Questions Descriptive statistics ResultAssumptions “Perception of VAT registrant that ERCA provide services without discriminating tax payers” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.55 Perception of VAT registrant to ERCA provide services with discriminating taxpayers is not low Perception of fairly treated by the tax administration have impact on invoicing and filing compliance “Perception to the government use VAT revenue for providing public goods and services” and the response range from strongly agree =1 to strongly disagree=5. Mean=3.07 Perception of VAT registrant toward government use VAT revenue for providing public goods and services is low Perception to the level of goods and services provided by the government influence non- compliance behavior to invoicing and filing compliance Source: Survey tool and SPSS Computation
  12. 12. 12 Results and discussions …… 4 Perception of VAT registrant to independent variables B Questions Descriptive statistics ResultAssumptions “Perception of other VAT registrant taxpayers are compliant to VAT invoicing and filing” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.47 Low perception towards other VAT registrants are noncompliant Noncompliant behavior of other (customer, neighbourand peer group) may influence the perception of VAT invoicing and filing compliance Source: Survey tool and SPSS Computation “Perception of VAT registrant that customers request invoice during transactions ” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.3 Perception of VAT registrant that customers request invoice during transactions is high
  13. 13. 13 Results and discussions …… 4 Perception of VAT registrant to independent variables B Questions Descriptive statistics ResultAssumptions “Perception to VAT registrant that VAT filing process is easy’” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.89 VAT registrants have perception that VAT filing process is not easy Perception to government legitimacy have impact on perception of VAT invoicing and filing compliance “Perception to taxpayers easily access VAT laws’” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.69 VAT registrants have perception that VAT laws are not easily accessible “Perception of VAT laws are complex and difficult to understand easily ’” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.99 VAT laws are perceived as complex and difficult to understand Source: Survey tool and SPSS Computation
  14. 14. 14 Results and discussions …… 4 Perception of VAT registrant to additional independent variables c Questions Descriptive statistics ResultAssumptions “Perception to cash register machine improve invoicing and filing compliance ” and the response range from strongly agree =1 to strongly disagree=5. Mean=1.61 High perception to cash register machine that can improve invoicing and filing compliance Perception to cash register machine improve invoicing and filing compliance have impact on perception of VAT invoicing and filing compliance Source: Survey tool and SPSS Computation “Perception of difficult to get input VAT invoice during purchases ’” and the response range from strongly agree =1 to strongly disagree=5. Mean=2.98 VAT registrants have perception to get input VAT invoices is difficult Perception of VAT registrant toward getting input VAT invoices during purchase might influence the behavior of invoicing and filing compliance
  15. 15. 15 Multiple Linear Regression Between the Mentioned VariablesD 4 Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig.B Std. Error Beta 1 (Constant) 1.140 .597 1.908 .057 Perception of difficult to get input VAT invoice during purchases .118 .056 .112 2.117 .035 Perception of VAT registrant that customers request invoice during transactions .131 .059 .112 2.217 .027 Perception of other VAT registrant taxpayers are compliant to VAT invoicing and filing -.133 .060 -.119 -2.236 .026 Perception of VAT laws are complex and difficult to understand easily -.079 .058 -.071 -1.367 .172 Perception of VAT registrant that ERCA provide services without discriminating tax payers .105 .049 .108 2.116 .035 Perception to the government use VAT revenue for providing public goods and services .120 .055 .117 2.196 .029 Perception to cash register machine improve invoicing and filing compliance .032 .084 .018 .376 .707 Sex .528 .136 .199 3.892 .000 Respondents' age .112 .107 .053 1.046 .296 Education level -.170 .097 -.089 -1.751 .081 Business sector .111 .029 .179 3.749 .000 a. Dependent Variable: The prevalence of forged VAT invoices Source: Survey tool and SPSS Computation
  16. 16. 16 Regression between the mentioned variables…….D 4  Perception of VAT registrant that customers request invoice during transactions  Perception of difficult to get input VAT invoice during purchases  The perception of others’ compliance and compliance attitude  Perception of VAT registrant that ERCA provide services without discriminating tax payers  Perception to the government use VAT revenue for providing public goods and services Sex Business sector The result of multiple linear regression (P<0.05) show a positive and statistically significant relationship to VAT invoicing and filing compliance behavior on the following variables:- Meaning: A one-point increase or decrease in the perception of these variables is likely to positively increase or decrease the probability of the view that noncompliance of VAT filing and invoicing Source: Survey tool and SPSS Computation
  17. 17. 17 Regression between the mentioned variables…….D 4 The result of multiple linear regression (P>0.05) show a negative and statistically significant relationship to VAT invoicing and filing compliance behavior on the following variables:-  Perception of VAT laws are complex and difficult to understand easily  Perception to cash register machine improve invoicing and filing compliance  Respondents' age Education level Source: Survey tool and SPSS Computation Meaning: A one-point increase or decrease in the perception of these variables is likely to negatively decrease or increase the probability of the view that noncompliance of VAT filing and invoicing
  18. 18. 18 Conclusions Recommendations The perception of VAT registrants to the following variables was found to have statistically a significant (positive) impact on VAT filing and invoicing compliance attitude The study highlighted VAT filing and invoicing compliance issues that have impact on taxpayers behaviors. Based on this findings the following points are recommended:- Conclusions and Recommendations 5 Perception of ERCA provide services without discriminating tax payers Perception of VAT registrant that customers request invoice during transactions Perception of difficult to get input VAT invoice during purchases Perception to the government use VAT revenue for providing public goods and services Perception of VAT registrant that of others’ compliance Gender and business sector Variables that was found to have negative statistically a significant impact on VAT filing and invoicing compliance attitude Perception of VAT laws are complex and difficult to understand easily Perception to cash register machine improve invoicing and filing compliance Age and Education level •ERCA need to assess the existing taxpayers and public communication systems and procedures and practices to upgrade taxpayers and the public awareness toward tax •ERCA need to modernize core processes including filing and other using digitalization •ERCA Should focused on the key manufacturers , importers and distributors in order to issue VAT receipt to buyers •ERCA has to develop and implement compliance policy
  19. 19. 19 Thank You!

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