This document provides an assessment of value added tax (VAT) administration practices in Yirgalem town, Ethiopia from 2004-2006. It was submitted by Abraham Sewnet to fulfill requirements for a B.A. degree in accounting and finance from Hawassa University. The study focuses on identifying challenges in VAT administration and compliance from the perspectives of taxpayers and tax authorities. Literature on VAT is reviewed, including definitions, types of VAT, terminology, and theoretical frameworks. The study aims to assess factors creating administrative problems, compliance with rules and regulations, major issues in VAT collection, and impacts on prices and customer behavior. It is intended to assist policymakers and taxpayers in understanding VAT and improving the system.

1. ASSESSMENT OF VAT
ADMINSTRATION PRACTICE IN CASE OF
YIRGALEM TOWN,
2004-2006
A RESEARCH PROJECT SUBMITTED FOR THE PARTIAL
FULFILLMENT OF B.A DEGREE IN ACCOUNTING AND
FINANCE
BY: ABREHAM SEWNET
ADVISOR: MESFIN (Msc)
HAWASSA UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
SCHOOL OF MANAGEMENT AND ACCOUNTING
DEPARTMENT OF ACCOUNTING AND FINANCE
MAY, 2015
HAWASSA, ETHIOPIA
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2. ABSTRACT
Taxation is a system of raising money to finance government activities VAT is levied on most
business transactions on many goods and services.
The study focused on assessment of vat administration practice in Yirgalem town.
The data needed for these studies were both primary and secondary data was obtained from
annual report of VAT department working paper and questioner.
The study used different method of analysis percentage and tabulation to disclose the facts in
very meaning full way.
Finally based on the discussion and analysis of the study, Conclusion and recommendation is
given for future implementation of VAT system of the organization.
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3. Acknowledgment
First and for most, I would like to thanks the Almighty GOD for giving me everything. Next I
would like to forward special gratitude to my advisor Mr. Mesfin (Msc), for his advice,
comment, suggestion and correction to my mistake. Lastly, but not least, I would to thanks to
my family for their desire and effort to see me being successful in my education.
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4. 4

5. CHAPTER ONE
1.Introdution
1.1 Background of the Study
One of the mechanisms is which countries rise revenue to finance government spending on
the goods and service that most of us demand is taxation,
Value added tax (VAT) is a tax on value added to good and services by enterprises at each
stage of the production and distribution process (Gebrie, 2003). Value added tax is a tax not
on the total value of the good being sold but only on the value added to it by the last seller
(Bhatia, 2003).
Value added is one of taxing system that were introduced for the first time in the world in
France in 1954 by French economist Maurice laurel director of the France tax authority
(Gebrie, 2006). It was gradually has adopted for it consumption variety and selected on it own
exception area and multiple rate schedules (Bhatia, 2003).late it was gradually expand to
African countries especially countries which were colonies of France like cot-devour,
Senegal, mail and other western country which were under colony of France.
The development of this tax system is fast it has now employed by large number of Latin
America Asia ,Africa and pacific countries value added tax (vat has become a major tax
instrument worldwide The global trend to introduced VAT I more countries is countersuing.
Ethiopian tax reform program has introduced VAT since January, 2003 (Gebrie, 2008).
The Ethiopian government has introduced, VAT as part proceeded by tax reform program, the
tax reform program is preceded by establishment of anew ministry of renewed as the first step
to improve tax collections and to combat fiscal frond , The need for value added tax (VAT)
tenements from the very weakness of the sale tax that is intended to replace (Purhot ,2000).
value added tax is an in direct tax that is charged whenever a taxable person make taxable
supply of good and services in course of his business
Although it is finally borne by consumer (Hancock, 1998) service while other summit their
VAT their VAT returns without payments. There is also deliberate submission of nil returns
non issuance of VAT in voices and enter trainmen provides and operations refuse to use the
VAT coupons (Alemayehu, 2009).
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6. 1.2 Statement of the Problem
The main source of government revenue comes from taxation .So vat is one of the type of tax
that increase the revenue of the government, to balance the expenditure of government and
revenue. Even if the value added tax system is accepted by many country some problem are
existed;-all vat eligible are not registered ,failure to maintain records timely ,and failure o
notify change in business live.(Yohanis and sisay 2001)
The vat tax has been criticized as the burden of it relies on the personal end consumer of
product and is there fore as any sale tax based on the consumption of essential regressive tax
(the poor pay more in comparison than the rich) even if the above mentioned are problem vat
system, still various tax reformer committee and other economist advocate this system as
suitable to the prevailing economic condition of developing country. But vat system is not
easy and simple to adopt in under developed countries where the tax administrative set up is
in efficient and in experienced to understand any complicated tax structure.
The introduction of value added tax system in Yirgalem town raise some problem from tax
payer side such as lack of understanding the subject mater, in responsiveness and the
introduction of value added tax result change in price and customer behavior. On the other
hand on the government side there is the problem of lack of properly implemented the rule
and regulation.
1.3 Objective of the Study
1.3.1 General Objective
Primarily this study would intend with assessment of value added tax administration practice
in Yirgalem town 2004-2006.
1.3.2 Specific Objective of the Study
Based on the above general objective the following specified objective would be addressed:-
 To assess factor that create administrative problem in relation to value added tax.
 To asses weather the tax payer and tax authority implemented value added tax
incompliance with rule and regulation issued by the government.
 To asses what are major problems related value added tax collection.
 To analyze the change in price and customer behaviors due to implementation
VAT.
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7. 1.4 Research question
By taking the above and other facts in account, the study address the following questions
- What is the major problem concerning implementation and administration of vat?
- How customers react on the change in price and customer behavior due to
implementation of vat?
- Is tax payer and tax authority implemented value added tax in compliance with the
rule and regulation issued by the government?
1.5 Significance of the Study
This research is conduct to indicate the existing operation of value added tax and its challenge.
Therefore the result of this study would assist policy makers and tax payer in understanding the
need of value added tax, the nature and the mechanism to determine Value added tax,
understanding value added tax administration problem to tax payer and Decision maker to
contribute their own share for the development of the country .more on the above study have
importance to researcher in giving tangible knowledge by deep finding the major bottleneck of
vat administration ,and yirgalem tax authority.
1.6 Scope of the Study
Assessing administration of VAT practice is a vast topic in content so it can not be
exhaustively discussed in this research paper. There fore the study is delimited to asses the vat
administration practice in Yirgalem town from 2004-2006 E.C.
1.7 Limitation of the Study
During the preparation of this research paper the researcher team are encounter some
limitations. These are
 Unwillingness of respondents to give full information
 Less attitude towards research of some respondent
 Lack of finance
 Lack of personal computer
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8. 1.8 Organization of Paper
This paper sub divided in to five chapter, the first chapter deals with the generally
introduction of the paper (proposal), chapter two and chapter three are literature review
related to the study and research methodology respectively. The last two chapter to the study
is comprise the data analysis and finding ,and conclusion and recommendation which takes
about what should be done depending on the finding to minimizes the problem in the
administration of VAT.
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9. CHAPTER TWO
2. Literature Review
2.1 Introduction
In this chapter the research team will be critical review the contemporary theory and wisdom
or empirical finding related to the topic of assessment of vat administration practice of the
study. This study will be organized in two parts this are theoretical literature and empirical
literature. The theoretical literature the research team shall try to review what the scholar
define vat around the world and the empirical literature write about what other researchers did
are review .but in this study the research team would went to asses review on theoretical
aspect.
Tax is compulsory levy payable by an economic unit to government with out any
corresponding entitlement to receive definite and direct quid pro quo from the government,
which it is not a price paid by tax payer for any definite terms rendered or community
supplied the government.
The benefit receiving by the tax payer from the government are not related to base up on their
being tax payer (Bhatia, 2003 P145
). Taxes are broadly classified in to two this is direct and
indirect tax (Alka L Gupta .1998).
. Theoretical aspect of the study
2.2 Direct Vs Indirect Tax
The distinction between direct tax and indirect taxes is not always satisfactory or consistent
one there has been large traditional in economic literature to classify taxes in to these two
categories. One way of distinction between these two has been in terms of the incidence of
taxation .it is asserted that if the incidence of tax rests upon the person who bears its impact
also then it is direct tax if on other hand the incidence is passed on to other then it is indirect
tax.
How ever the distinction between direct and indirect tax on the basis of the coincidence of
impact and incidence is not the only one available .it has been maintained that while taxes on
production are direct those on the consumption are indirect tax. Similarly it has been claimed
taxes on incomes are direct, but thus on expenditure are indirect (HL Bhatia 19th
ed. P140
).
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10. Direct are those paid entirely by those persons on whom they are imposed .in other word
direct tax are the immediate money burdens up on the man who pays the tax to the authority,
tax can not shifted to other .direct taxes are those tax which are based on the receipt of income
.examples of direct tax are in come tax, tax on profit, capital gain tax, property tax or wealth
tax. (Alka Gupta, 2003)
Indirect tax is a tax the burden of which may not necessarily burn up on the accesses .it can be
shifted or passed to other persons. According to John Stuart Mill in direct tax are those which
are demanded from one person in the expectation and intention that he/she shall identify
him/her self at the expanse of another .from point of view of assessment indirect tax are taxes
on expenditure .example of indirect tax are customer duties, excise tax, sales tax, value added
tax, turn over tax, and stump duties taxes (Alka Gupta, 1998)
Some is the case with gift tax, in heritance tax, expenditure tax wealth tax and so on .all these
are example of direct taxes. Corporation tax such as tax on profit, sale tax on profit, sales
proceeds assets of firm And Corporation are also consider direct tax because these institution
are also consider economic entities. (H.L Bhatia, 19th
ed. P140
) .
2.3 General Over View of VAT
Vat (value added tax) belongs to family of sale taxes therefore it would be help full if we
briefly distinguishes between different form of sale taxes and note the place of vat in them a
general sale tax is a tax on sales transaction but it is applied at only one stage of business
activity right from the manufacturer to the retailer .usually it is collected either at whole seller
level or at retailer level.
Vat is a tax not on the total value of the good being sold but only on the value added to it by
the last seller .the seller there fore is liable to pay tax not on its gross value but net value that
is gross value minus the value of inputs. The basic difference between vat and sales tax is that
the tax liability under vat is split up in to stages theoretical the tax liability under vat and in
the case of sales tax at the retailer level is the same .this is because the total retail price is
nothing but the value added to the row material at different stage of production and trade.
The consumption tax (retail sales tax) imposed on the amount consumer pay for consumption
good and the value added tax consumption type is imposed on the amount paid to factory for
6

11. producing those good these remarks of course abstract from friction imperil feeling on in
market but the basic difference with sale tax is base of tax not on the gross value of the
retailer sale rather net value. (H.L Bhatia, 19th
Ed P152-53
)
The value added tax (VAT) is general tax on consumption level on the value added to inter
mediate product by business at stage of production .various form of value added tax rate are
in use in more than 50 nation of the world including Canada, Japan, and all nation of the
European Union (EU). The tax was first adopted in 1954 by the French national government
when nation is admitted to European Union .it is required to introduce vat as a condition of
membership.
VAT is simple multi stage sales tax that exempts the purchase of intermediate good and
service from the tax base .vat is the difference between sales proceeds and purchase of
intermediate good and service over certain period.
Value added =total transaction-intermediate transaction
Final sale = GDP =wage + interest + profit + rent + depreciation
(David N. Hyman 7th
ED P604
)
VAT belong to family of sales of tax t is on indirect tax that is charged when ever taxable
persons makes taxable supply of good and service in the course of his/her business through it
is finally born by the consumer .value added tax is a tax in the value added to good and
service by enterprises at stage of production and distribution process. (Bhatia 2003 p145
)
2.4 Value Added Tax Terminology
Some of the terms that are in vat literate are:-
A) Input: - the vat that your business pays over on taxable supplies made (vat paid on
purchase) and can be recovered only on so far as your business in vat registered and make
taxable out put.
B) Out put: - the vat that your business collets over on taxable supplies (vat paid on sales)
C) VAT payable: - this is the net vat to be paid to the FIRA by tax able person .it is arrived at
by the formula vat payable = out put tax -input tax.
D) VAT refundable: - The net vat that taxable person expected from FIRA when input vat
exceed out put vat in Ethiopia case FIRA does not refund up on the sale ratio sale rather
7

12. taxable person shall carry forward the balance for five month until it offset by out put vat .if
taxable person does not sell taxable supplies with in this five month he /she entitled for refund
E) Zero rating: - the supply is changed with vat at 0% but credit can be taken for vat paid on
purchase used to make supplies.
F) Positive rate (stand rate):- the supply is changed with rate of 15%.
G) Exemption: - the supply is exempted from vat no vat is charged on the supply no credit
can be taken for vat paid on purchase used to make supply.
2.5 Type of Value Added Tax
The value added tax can be determine in deferent forms it may vary depending up on the form
of tax base, the forms may differ on the item to be included in the tax base in this connection
there are two important varieties of vat the consumption Varity and the income Varity the
difference between these two emerges from the treatment of capital depreciation.
If firm is allowed to deduct the entire credit when the capital equipment is purchased the
system is termed as consumption vat if this allowed to deduct the credit of the equipment
depreciates over time the system is termed as an income vat (Dr. H.L Bhatia, 2003).
2.5.1 Income type tax
This type of tax is where the firm allowed deducting the full value of its non capital purchase
from other firm. this approach obviously gives the prepare net value added .foe the country as
whole the aggregate tax base in the absence of international trade would be net national
product (NNP). In other word here the tax base is sale minus material minus depreciation for
each firm (Dr. Bhatia 2003, P147
)
The value added tax of income type thus different from that the consumption type in that
former permit the firm to deduct depreciation while later per unit it to deduct gross investment
i.e. purchase capital (Musgrave, 5th
,P401
).
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13. 2.5.2 Consumption Type VAT
In this case the firm in question is allowed to deduct from the gross value of its product not
only the capital in puts purchased from other Firm but also the capital equipment so
purchased. In the absences of the foreign trade the greatest base of this tax for the economy as
a whole became wage (w) plus profit (p) plus deprecation (d)minus investment (I),there fore,
the aggregate tax base became;
C =GNP –I
2.5.3 GNP Type VAT
Under this to arrive at the value added tax by the firm the value of the in put purchased by its
form the other firm not deducted in fully only the value of none capital purchased is deducted
no deprecation is permitted on purchase of capital good even in subsequent year. The tax
would be applicable to both consumer and capital good it would pay by seller when the
product was sold to its last purchaser whether consumer firm which added to its inventory on
firm purchase capital good.
This type of value added tax most of the time can not be popular with the government because
it militates against the use of capital and referred economic growth
GNP = IG +C
IG=gross investment
C = consumption
(Musgrave, 5th
ed. P, 401)
2.5.4 Wage type VAT
This Variety of vat is where the firm is able to deduct the net earning from its capital in order
to arrive at the tax base since earnings from capital amount to profit plus interest. There fore
the balance left to be taxed is equivalent to wage and it is also un likely to be used for taxation
by any government.
General rule for distinguishing between different verities of vat is based on the treatment of
fixed investment expenditure and it’s as follows.
1. In consumption type fixed investment is fully deducted from gross value of out put.
2. In wage type the estimate of income type further reduced by deducting profit and
interest
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14. 3. Income type, deprecation of fixed investment is deducted from gross value of out put.
4. In GNP type on deduction for fixed investment is made for gross value of output.
(Bhatia, 2003 P148
)
2.6 Collection method
Taking the consumption type vat we have seen that each firm compute it tax bases as sales
minus purchase of intermediate and capital good when it has done so . There are two methods
 Account method
 Invoice method
Account method: - is to ask each firm to pay it tax on the bases thus determined.
Invoice method: - is to have the firm compute its gross tax by applying tax rate to total sales
and then to credit against this tax an amount equal to the tax already paid by supplier from
which the firm has purchased intimidate and capital good by making the tax credit for each
firm has purchased on presentation of the tax receipt made out to the preceding supplier, the
invoice method included self enforcing element because each buyer will demand copy of such
receipt. The invoice is generally used in European countries and constitutes an advantage of
vat approach. (Musgrave, 7th
, Ed. P 400-02
)
2.7 Type of Registration
2.7.1 Obligation Registration
A person who carries taxable activity and is not registered is required to file and application
for vat registration with authority if at the end of any period of 12 calendar month the person
made during that period, taxable transaction the total value of which exceed 500,000 birr or
the beginning of any period of 12 calendar month there are reasonable ground to expect that
the total value of taxable transaction to be made by the person during that period will exceed
500,000 birr.
2.7.2 Voluntary registration
In voluntary registration a person who carried on taxable activity and is not required to be
register for vat, may voluntary apply to the authority for such registration if he/she regularly is
supplying or rendering at least 75% of his good and service to registered persons (source:-
http://www.erca.gov.et/vat.php).
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15. 2.8 Advantage and Disadvantage of VAT
Value added tax has many advantage and disadvantage as discussed here below.
2.8.1 Advantage of VAT
 It is much easier to asses’ tax liability of firm by using the credit method. There is also
greater scope for cross checking of return submitted by firm.
 VAT is supposed to be neutral to the resource allocation from production and business
organization hence it avoid process of integration those form of production which are
economical more suitable.
 VAT’s do not hinder adoption of advanced technology which may be capital intensive
 On impact advantage of vat is its neutrality with regard to its resources allocation.
 Lesser tax evasion, because of the tax is divided in to parts.
 The use of vat helps a country in encouraging its export.
 Are easy to separate tax from the production cost in case of vat.
 General agreements on trade and tariffs recognize vat rebate as legitimate practice of
encouraging export.
2.8.2 Disadvantage of VAT
VAT however are not just bundle of advantage rather it has serious limitation especially for
under developed countries because of which it has not yet became popular.
 VAT is complicated system and need an honest efficient government machinery to do
the cross checking and link up various production activities.
 The system depends a lot up on the co-operation of the tax payer each firm it self
calculates its tax liabilities to begin with and also find out these taxes paid by earlier
firm.
 Unless the rate of vat is extraordinary high the state would up with the small tax
revenue against the collection from sale tax.
 Even if the tax payers are fully honest this system of taxation forces them to maintain
elaborate and costly account .this becomes UN economic especially for small firm.
 The difficult of marinating account, cross checking and preventing tax evasion.
 it would be difficult to assume that modern government would like to have a tax
system which is claimed to be neutral in its allocation and distributives effect
(Bhatia, 24th
, Ed. 2003)
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16. 2.9 Method of Computing VAT liability
1) Addition method: - under this method the value added by firm i.e. The tax base is
determined by adding the payment made by the firm to the various factor of production such
as wage, rent, interest and profit that is add together the various element that make up value
added . It is not used and has not been proposed at the national level in any country.
VAT= rate (wage + rent+ interest + net profit)
2)subtraction method:- in this method the value of added by the firm is determined by
subtracting the cost of production from the sales the value can be calculated the subtraction
method can divided in to two method. They are credit subtraction vat and sales subtraction
method.
Again the credit subtraction can be divided into two. These are subtraction with out invoices
(also called the invoice method) and credit subtraction with invoice. The first method of credit
subtraction vat is European style vat that relies on invoice and is used with some variation
almost all over the world. The other method of credit subtraction used in Japan as
consumption tax does not rely on invoice and the sales subtraction vat method is not common
in useless where.
2.10 Administration of VAT
Administration of value added tax does not require firm to calculate value added. The most
common means of administering the tax is the invoice method developed in France and used
in European Union nation to collect the tax. Under the invoice method, all transaction are
taxed at fixed proportion rate regardless of weather they are final or intermediate transaction
tax payer then are allowed to deduct the terming their tax liability . This is called the invoice
method because payment of the merely require firm to maintain invoice on sales and
purchased for each tax payment period (usually monthly or quarterly ). Tax liability is simply
by applying the fixed rate of taxation to total sales invoice and then deducting the amount of
vat paid previously on intermediate purchased as indicated on purchases invoice.
This method result in taxation of value added with out the need to actually calculated value
added
Tax liability = tax payable on sale - tax paid on intermediate purchased
= [(t) (sale)] – [(t) (purchased)]
= (t) (total sale – total intermediate purchased)
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17. = (t) (value added)
Where t is the rate of taxation
At the final stage of production , consumer purchased good with the value added tax include
in the price and because consumer have no intermediate transaction to offset only produce
can offset their tax liability to the extent to which they purchased intermediate good and
service .
Firm that make capital purchases are allowed an additional tax paid on capital good so the
tax liability of firm that makes capital purchased in a given tax period would be
Tax liability = [(t) (total sale – total intermediate purchased)]-[(t) (capital purchased)]
= (t) (total sale – total purchased – capital purchased)]
= (t) (value added – investment)
In most nations that use the value added tax, it is customary not to itemize the tax on the final
transaction.
Also the invoice method embodies sort of build in ant evasion on mechanism. If any firm fail
to pay its tax liability at some embodies stage of production, it then became the tax liability of
the producer in the following stage of the production this is not to say that that tax evasion is
impossible. In some nation that uses tax, it has been evaded by arrangement between firm and
consumers to engage in transaction exist and the tax became difficult to collect. problem of
tax evasion have been most acute for small firm and professional service such as those of
physician, lawyer and insurance , sales person where the cost of enforcement are high ,
compliance has been fairly good for larger firm .
The value added tax is tax typically rebated on export sales this makes good of the nation that
uses the tax more competitive in the international market when they are exported to nation.
(David N. Hyman, 7TH
, Ed. P 607)
2.11 Tax Evasion, Avoidance and Audit
2.11.1 Tax Evasion and avoidance
It is the general term for effort by the individual firm trust and other entity to tax by illegal
means, tax evasion usually entails tax payer deliberately miss presenting or canceling the true
state of the their affairs to the tax authority to reduce their tax liability and including in
13

18. particular dishonesty tax report (such as declaring less income profit or gain than actually
earned or over stating deduction .This deduction violation of tax law.
In contrast tax avoidance does not violet the law. It occurs when a tax payer arranged his /her
post economic position, which is to minimize the amount of tax owed. In other word tax,
avoidance is the law full act. Thus may be accomplished in shirt run by the influencing that
tax legislation through the support of lobbies and pressure group, which represent the special
interest of tax payer.
Tax evasion occurs when tax payer do not pay taxes that are legally due .analysts agree that
some evasion is inventible in any tax and tax evasion rate for any tend to the rise during the
later half of 20th
century value added tax (vat) emerged as modern form of consumption tax
through word . Producer who collect vat from consumer may evade tax by the under
reporting the amount of sale, i.e. business enterprise and individual business man are evaded
value added tax. The possible reasons that encourage them to evading vat are lack of
awareness among VAT payer. How ever, those who have the awareness are also evading vat
due to the fact that there weakness in enforcement of scheme from FIRA. (Source:
http://en.wikepidia.org/tax avoidance and tax evasion)
2.11.2 Audit
The IRS will review your return, check your arithmetic, compare it with which report
received from other on your income source and some deduct able item and notify you by mail
if they find discrepancies.
2.12 Sales Taxes, VAT and Excise Tax
Most of the tax on consumption and transaction are endless. On specific item such as
gasoline, automobile like or cigarettes is known as exercise tax.
We can sort the various kind of sale tax in any of seller way one grouping is to sort them into
multi stage and single stage.
The second way ton classified the tax is by the breadth of the base and third classification
would be on the bases of who is legally liable tom pay the tax which often bear little relation
ship to actual economic in cadence .
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19. Primary objective to sale taxation is that the sale tax tend to erode its own base over time
particularly if the abase of the tax any thing less than to total consumption or tax rate are very
different.
Source (David N. 7TH
P. 607
)
2.13 Avoiding Cascading
Another efficiency issue in sale or consumption tax is ensuring that don’t accumulative so that
some item are taxed only once and other two or more times, resulting in different tax burden
on different purchase and un intended distortion of consumer choice some earlier forms of
sales taxes still in use in flow less developed country collected sales tax at multiple point
during the processing of good and service.
2.14 Criticism of VAT
The VAT has been criticized as the burden 0f it relies on personal end customer of product
some critics consider it to be regressive tax means the poor pay more as percentage of the
income than rich. Defender argue that exciting taxation trough income is an arbitrary standard
and the vat is in fact proportional tax in that people with higher income is pay more at the
consumer more the effect of progressive or regressive of vat system can also be affected when
different class of good are taxed at different rate .
Revenue from vat is frequently lower than expected because they are difficult and costly to
administer and to collect. In many countries how ever where collection of personal income
tax and corporate profit tax has been historical week. Vat collection more successful than
other type of tax.
Certain industries (small scale service, for example) tend to have more vat avoidance
particularly where cash transaction predominated and vat may be criticized for encouraging
this. Because exports are general zero rate land vat refund or offset against other tax this offer
where VAT fraud accurse in Europe the main source problem is called carouse fraud
(Source: http://www.answer.com/topic / value added tax.
15

20. 2.15 VAT Exempted
The following type of supplies of good or rendering of service are exempted
o Insurance and banking operation.
o (http;//www.conseco.ru/eng/abc/tax/small/vat3.htm) The seller or transfer of used
dwelling or the lease of a dwelling
o The rendering of financial service
o The supply or import national or foreign currency (except for that used numismatic
purpose) and of securities.
o The import of gold to be transferred to national bank of Ethiopia.
o The rendering of religious organization or church related service.
o The import or supply of prescription drugs specified in directive issued by the
minister of health and the rendering of medical service
o The supply of electric city, resource and water.
o Good imported by the government organization, situation or projected exemption
from duties and other import tax to be extent provided by low or by agreement.
o Supply by post office authorized under the Ethiopian postal service proclamation,
other. Than service rendered for free or commission.
o Some R&D operation.
o Sale of companies employed disabled.
o Gratuitous aid.
o Transfer of participatory share in limited liability companies
2.16 VAT Invoice
Vat invoice is the document used us the basis for in put recover sees also procedures of
drawing up vat invoice
Sale ledger-is required to determine vat amount for each operation subject to vat and to
registered vat invoice in it (for retail trade to register copy of cash receipt)
Purchase ledger-is requested to registered vat invoice issued by seller and to determine vat
amount subject to recover.
Vat for good (work service) paid and entered in to book may be deducting providing that the
purchase ledger contain corresponding vat invoice and due notes.
Vat invoice received from seller are registered in the purchased ledger in chronological
sequence after good (work and service) are paid for and entered into book.
16

21. (Source http;//www,conseco.ru/eng/abc/tax/small/vat8.htp
2.17 VAT Computer Systems
With the respect to main vat computer system the minister (minister of revenue) is acquiring a
system that has already been developed by a nation company and operates successful in other
countries which will only require customization to meet the specific need of the FIRA .the
customization effort commenced in may 2003 and implementation of the system is expected
to commence in the TIN (tax payer identification number) and vat interim system will be
converted in to the main vat system (Source http://www,mor.gov.et/vat admin.htm).
2.8 Empirical Evidence
Assessing the relation between administrative effort and revenue outcome is by no means
simple: it is important, for example to distinguish the extent to which revenue is attributable
to the active intervention of the administration rather than its relatively passive role as
recipient of revenue generated by other feature s of the system There are three main elements
in order to build a good tax system, which includes state legimancy, tax payers’ willingness to
pay tax, and the effectiveness of the tax administration As Bird and Gendron (2005) cited in
yesgat, 2008) noted that low tax morale and large informal sector are among the factors of
weak tax administration in developing countries Apart from weak tax administration tax
payers’ dislike to words tax in another factors that
Creates difficulty in the tax system of many countries (Agapitos, 2005)
17

22. CHAPTER THREE
3. METODOLOGY OF THE STUDY
To achieve the intended objectives of the study the research team would design the research
as follows those are source of data, sampling method, sampling size, data collection and data
analysis method are used in addition to these. the researcher would use data from 21004-2006
E.C. to assess the vat administration practice in Yirgalem town
3.1 Data Collection Method
The study team would use primary data through questionnaire because collect data from
employees of the organization is to make respondent free in giving their idea feeling and
suggestion relating to the problem of vat administration practice in Yirgalem town and
secondary data have obtained by observing the manual of the organization and different web
site are visited.
3.1. Data Sources
In this study the researcher would use primary and secondary source of data. Primary data
source from employs of tax administer office and business and service organization that are
registered
in vat. In addition to these primary data the researcher would use secondary data from
manual of the organization and different website are observed.
3.2. Sampling Method
The researcher will use simple random sampling because of the each and every item of
population is give and have equal chance being chose and also free from personal bias
because researchers does not exercise his disctionary preference in choosing of population
subject to questionnaire .
3.3. Sampling Size
It was timely and financially infeasible to engage all the population from the total business
and service organization registered in Yirgalem 140 businesses and service organization
registerd as vat users and 42 employee are exist from these the researchers use 50% of the
total population as sample.
N=total population have 140 business and service organization registered as vat user
18

23. n=sample size =70
Kth
= tax payer
Kth
=N / n =140/70=2
The number ”2” indicate the interval of units of sample size and after selecting one sample
from first 140 elements using random sampling that is lottery method system. Therefore
first you select one tax payer from the first interval randomly then add the interval on the
number picked from the first interval.
3.5. Method of Data Analysis
The collected data using the above tools would be analyzed by using descriptive as well as
quantitative method of data analysis including table and percentage.
19

24. CHAPTER FOUR
4. Data Analysis On VAT Administration Practice And Related
Problem In Yirgalem Town
4.1 Introduction
The main purpose of this chapter is to analysis information collected through questionnaire
related to assessment of administration practice in yirgalem town. As indicated in chapter one
relevant data are gathered through questionnaire. The questionnaire is conducted for vat
department workers and vat payer .for the purpose of analyzing quantitative information
minister of revenue or tax administration office working paper also used this chapter mainly
concerned with identifying factors that create administrative problem in relation to vat. To
assess weather the tax payer and tax administration authority implemented vat in compliance
with rule and regulation issued by government, to assess major problem related to vat
collected and to analysis the change in price and customer behavior due to implementation of
vat is clearly stated.
General as clearly stated in chapter one of this papers the collected data by using
questionnaire is anal sized through quantitative method of data analyzing including table and
percentage are employed and presented in the preceding section of this chapter.
4.2 Personal profile
In this part of research paper the research team wants to analyze the personal information of
revenue authority office and tax payers as follow.
Table 4.1 personal data of Yirgalem town tax administration authority’s officers
No Item Number of respondent Percentage (%)
1 Sex Male
Female
Total
17
4
21
80.95
19.05
`100%
2 Age Less than 18 year
From 18-25 year
25-35 year
35-45 year
45-55 year
Above 55 year
Total
-
4
11
5
1
-
21
19.04
52.38
23.8
4.98
100%
3 Education
Level
8-12
10+2
Certificate
Diploma
Degree
total
-
-
2
8
11
21
-
-
9.533
38.09
52.38
100%
20

25. Source: researcher computation own personal data
As we can see from the table above the Yirgalem town tax administration authority officials
profile show that most of the officials are taken as a sample of respondent of the questionnaire
are mal (80.95%) and a few female (19.05%). As for sex concerned respondent with respect
to age, the largest number of respondent (52.38%) are with in interval of 25-35 year, 22% of
the respondent are between 18-25 and the remaining 4.78% of the respondent are in between
45-55 year.
Regarding education level, most of (45%) of the respondent are diploma and 33% are degree,
and the rest small number of respondent is certificate holder.
Table 4.2 Personal data of VAT payers
Number Item Number of respondent Percentage (%)
1 Sex Male
Female
Total
54
16
70
77
23
100
2 Age Less than 18
18 -25
25 -35
35 -45
45 -55
Above 55
Total
-
8
14
29
12
7
70
-
11
20
41
17
10
100
3 Educational level 8 -12
10 +2
Certificate
Diploma
1st
degree
total
14
10
19
25
2
70
20
14.28
27.1
35.7
2.8
100
Source: researcher own computation of personal data
We observed from the above table vat payers profile show that the respondents participated
were male /77%/ and the few number of respondent are female/23 %/.With regarding to age
11% the respondent are in between 18 -25 year and 10% are above 55 year .The rest of
21

26. respondent are 41% are from 35 -45 year and 17% of the remaining are in between of 45 -55
year.
Table 4.3 Judgment of VAT administration practice
Relation ship between tax
payer and tax office
Number of respondents Percentage (%)
Poor 55 78.5
Good 15 21.42
Very good - -
Excellent - -
Total 70 100
Source: questioner
Based on the above table one can justify that the relation ship between tax payers and the tax
administration office is very poor since only 78.5% of the respondents do not have better
relationship with the office. Because of the as the respondent say’s that a person who have
annual income greater than 500,000 birr are not yet registered so this may lead to the decrease
of our customer due to increase of price by tax payer on the price of good the person who are
not registered can sell out put or service less than our price. These may be the cause for
terminations of our business. The rest respondents do have good relationship (21.42%) with
tax administration office. According to the participant’s response, the employees are fast and
equally rendered service to tax payer.
As the researcher identified in literature review there are two type of registration those are
obligatory registration those tax payer that have income higher than 500000 birr and
voluntary registration a person whose income level are less than 500000 birr are existed but in
these town some people are not still registered in vat registration office whose income is
higher than 500000 birr.
Table 4.4 In compliance of tax payer with rule and regulation issued by government
22

27. Item Number of respondent Percentage (%)
Yes 70 100
No - -
Total 79 100
Source: questioner
According to above table the respondent say’s that the entire tax payer is compliance with
rule and regulation approved by tax authority office. Tax payers are paid the imposed tax
liability and they are report their invoice on time to the tax administration office. These also
indicate their compliance with rule and regulation issued by the government.
Table: 4.5 effect of implementation of vat on the behaviors of the customer
Item Number of respondent Percentage (%)
Decrease the number of the
Customer
30 42.85
Increase the number the
Customer
5 7.14
No change 24 34.28
Increase the price of the material 11 15.71
Total 70 100
Source: questioner
As we can see from above table the respondent say’s that 42.85% of the respondent say’s
there is decrement on the customer due to lack of awareness about vat on the society at the
time of adding vat on the price of good or service they shift to other compotator who are sell
the product less than our price and 7.4% of respondent say’s that there is increase of the
customer because they said that our business can rendered service with good position as we
compared to other business and we can provide product or service as per customer need with
appropriate price 34.28% of respondent say’s that their was no change on the number of the
customer due to implementation of vat because a person who went to get service from our
business can serve unless we can not in force them to get service and the remaining 15.71% of
the respondent say’s the implementation of vat is increase the price of the material by increase
the price in order to cover the liability imposed by tax authority and other cost . These may
leads to change the behavior of the owner of the business to increase price on the product
23

28. Table: 4.6 Awareness creations by tax office
Item Number of the respondent Percentage (%)
Within three month 32 45.71
With in four month - -
With in six month 20 28.57
One year 18 25.71s
T0TAL 70 100
Source: questioner
Based on above table 45.71% of the respondent response is tax administration office create
awareness to taxpayer with in three month and 28.57% of the respondent say the create
awareness with in six month and the remaining 25.71% of the respondent says awareness is
created within a year this type of awareness creation time is passive because the main cause
for dalliance of tax payment that make tax payer not to report on time and record the tax
invoice and the tax administration office are announced the tax payer at the time of collection
period or a person who are not paid the tax liability time to announce about collection /due
date /they announce yearly.
Table: 4.7 Problems related to invoice report
Presence of the problem Number the respondent Percentage (%)
Yes 70 100
No - -
Total 70 100
Source: questioner
As we can see from above table 100% of vat payer are record their invoice on time and report
the recorded invoice to the tax administration office to know how much amount of tax
liability are imposed .As indicated on literature review part of the tax administration office
use two type of collection method those are account method and invoice method ,so the tax
payer use the above two method when invoice method is employed the collector should be
collect invoice reported by tax payer and imposed with 15% rate on each sales invoice and
when the record account or invoice are found unreliable and when there is no record the tax
payer use estimation method.
Table 4.8 Additional cost they incurred due to implementation of VAT
Number of the respondent Percentage (%)
24

29. Item
Cost of printing new invoice 18 25.71
Additional man power salary 5 7.14
For salaries of educated
person
5 7.14
Both the cost of printing
&and
Additional manpower cost
42 60
Total 70 100
Source: questioner
According to the respondent fill that 60% of the respondent due to implementation of vat in
this town they incurred both cost of printing a new vat invoice and additional man power and
25.71% of the respondent are say’s cost of printing invoice and 7.14 additional man power,
and the remaining 7.14% are cost incurred for salary of educated man who are appropriately
collected their invoice and record the collected invoice.
4.2.1 Problem of Lack of Awareness and Misunderstanding the Tax System
According to response of participants due to lack of awareness and miss understanding of vat
tax system there are a lot of problem faced by the tax administration office some of them
were as follow ;
 unable to differentiate exempted good and service at the time the report the
collected invoice to the tax administration office the tax payer over stated the
value of exempted good and under stated the value of taxable out put or service.
 it encourage tax evasion through lowering their sales revenue
 Financial penalty; at the time of collection if the tax payer are not paid the tax
liability on time the tax administration office penalize the tax payer.
4.2.2 How the Implementation of VAT Increase the Cost
Of Material/Service
Due to the fact that the implementation of vat increase price as we compared to that of a
business that run with out implementation of vat. In order to cover the tax liability and cost
incurred to produce out or render service the tax payer is imposed a tax liability at 15% rate to
the final user.
Table: 4.9 actions taken by tax administration offices on who are not report invoice on time
25

30. Item Number of respondent Percentage (%)
Financial penalty 21 100
temporary shut down of
The business
- -
Sent to prison penalty - -
Total 21 100
Source: questioner
According to the above table show that 100% of the respondent say’s that a person or the tax
payer who are not report the collected invoice on time to Yirgalem town tax administration
office are penalized by financial penalty.
4.2.3 Effort to be Made to Register Tax Payer /Potential Tax Payer
As the researcher identified in literature review part of the study it has advantage so numerous
are expected from tax official to meet the objectives. The major task to be done by revenue
authority office or tax administration office to increase vat registrant should be by using
extensively coordinating, initiating and motivating tax payer to bring tem selves to be
registered group. As the per respondent response tax administration office mainly focus on the
following action to increase number of registrant
 Encouraging and initiating potential tax payer to be registrant
 facilitate work shop ,seminaries panels and conferences
 hiring and appointing educated experts and official in vat offices
 creating better awareness by using different mass media and try to address a potential
tax payer
Table 4.10 Problem with respect to challenge in the application of vat
Item Respondents Percentage (%)
Lack of experienced employee 5 23.8
Lack of a adequate personal 5 23.8
Lack of skill man power 6 28.57
Lack of awareness of tax payer 5 23.8
Total 21 100
Source: questioner
26

31. based on the above table most of the respondent who are taken as a sample 23.8% of the tax
administration office employer specially which are existed in the vat department are
response that the most challenge against the application of vat is lack of awareness of tax
payer, 23.8% of the respondent are say‘s that there was lack of experienced employee, and
28.57% lack of skill man power respectively are identified and the rest 23.8% of the
respondent are believed that there was lack of adequate personal.
4.2.4 The Impact of Evading Tax on Government Revenue
As the researcher identified on the literature review part evading tax means usually tax payer
deliberating misrepresenting or canceling the true state of their affairs to the tax authority to
reduce tax liability and including particular dishonesty Tax reporting; such as declaring less
income profit or gain than actually earned or over stated deduction the direct violation of the
tax low.
Taxation forms an important part of fiscal policy of any government this it because it is
through taxation that government can raise the revenue required for recurrent and
development expenditure. Even if the vat is an important source of the government revenue
some problem are raised due to evasion of tax.
 Reduce revenue of the government; when the tax payer is decaling less income profit
or gain than the actually earned or over stating deduction. these lead to decreasing of
the government revenue
 Reduce the general public service; as the research team identified the decrement of
revenue of the government leads to the excess of expenditure over the revenue this
may get reduce general public service because the revenue of government get from
non-tax and tax. If the revenue get from tax reduce revenue also reduce.
 Reduce construction of infrastructure; as we know that government is responsible to
facilitate infrastructure such as construction of school, road, hospital and other though
out region as well as national level , so to do these the government impose tax on the
beneficiary but if tax evasion is there the government will fail its duty.
4.2.5. VAT an Administration Practice and Its Compliance with Proclamation
According to proclamation 285/2002 a person who carriers on taxable activity and having
annual total value of taxable transaction exceeding birr 500,000 is required for registration in
chapter two it is also clearly stated that a person carry out taxable import of good to Ethiopia
27

32. is subject to tax. But even if these are the case the most of the tax payer do not want registerd
as a tax payer. This mainly through illegal trade and other problem is also vat payer hidden
their total sales and create difficulties in determine the tax base. The analysis part states that
the country is losing huge amount of vat revenue because of illegal trade. This shows that
most of the tax payer does not comply with the vat proclamation.
As the per the respondent response that some business man are not still registered whose
income have greater than 500,000 birr these leads to the tax payer are not sold as they
estimate because of the competitor that are not subject to the register vat and as per the
questionnaire conducted with vat department revenue office do not successful apply
administrative penalty stated by the proclamation. The administration do not take any
administrative measure foe non compliance, the only thing that the vat department doing is
warning to the tax payer. Example a person submitted the false report to tax administration
office or a person who over state the deduction and try to cheat the office is penalize at
minimum one year or not greater than 15 year.
According to the proclamation number 285/2002, the authority can issue and additional
assessment of vat when it review that a person has under stated his obligation. This
assessment can be carried with five year after the end of the accounting period concerned.
However, FIRA did not issue an additional assessment due to short period of time for its
implementation and administration as result we can conclude that there are problem in
complying with low from the authority and the tax payer.
Table 4.11 the advantage of VAT on government r revenue
Item respondent Percentage (%)
Low - -
Medium - -
High 21 100
Total 21 100
Source: questioner
According to the above table the advantage of vat on the government revenue is high (100%)
since the government generate high amount of revenue from the collection of vat as indicated
28

33. in annual report of tax office it has greater economic advantage for the development of the
country.
As the response gathered from the employee of tax officer by preparing questionnaire more of
them replied about its economic advantage.
General as the researcher would conclude that value added tax is essentially important in
economic advantage of the government to raise the revenue of the country.
4.3 Secondary Data Analysis
Problem related to vat implementation and collection for successful growth of the country tax
revenue that is collected in effective way is very help full. Even though this is the fact there
may be different problem related to its implementation and administration practice as follow.
 lack of awareness about vat to the society or vat payers
 lack of modern technological recording and keeping invoice
 lack of technical and experienced employee
 lack of budget
 lack of cooperation from concerned body
 lack of incentive action to motivate worker to work
 illegal trade trough problem inherited during implementation and collection period
It is well known that and accepted that government use the tax system as a fiscal policy
instrument such that to balancing of multiple objective such as revenue expenditure economic
efficiency and administrative effectiveness. Thus threats emanated from illegal trade affects
adversely formal business organization.
4.3.1 Cancellation of VAT Registration
As per the document of vat department the researcher analyzed that in order to cancel the
registration the following step must taken
 when the tax payer ceased or stopped to make transaction
 when the ax payer request the tax administration office to remove the person
name who registered from vat and all other detailed from vat registration and the
person is required to return the issued certificate.
4.3.2 Major Weakness Inherent in VAT System in Yirgalem
29

34. As stated in literature review part vat is indirect tax part which is levied on the value added to
the product. Even it has more revenue generated capacity compared to other indirect tax it has
its own problem inherent itself. According to employee of vat department /working paper /
vat has its own problem in its implementation and administration practice in Yirgalem town.
These stated as follows.
 tax payer may over the report the expected good /zero rate good /
 Vat requires good record keeping of invoice at sage of production for both buyer and
seller. There fore final compliance to vat to be time consuming and resource draining
 There is also discrimination and lack of awareness in registration of vat payer.
According to vat payer that is accompany with annual income greater than 500,000
must be registered obligatory and less than 500,000 birr must be registered voluntarily
even if tax administration office are not do their power properly and effectively
 increase the cost of the material
 The tax rate (15%) also decrease tax payer.
Table4.12 Revenue collected on vat in Yirgalem Town Tax Authority Office, 2004
30

35. Type Plan to be collected collected %
Sugar 53,583.31 51,583.31 96%
Soft drink 27,339.44 26,339.44 96%
Beer 53,850.32 53,539.18 99%
Leather and
leather product
144,412.29 144,412.29 100%
Metal and roof 232,157.20 227,157.2 98%
Food 2,058,984.93 2,129,743 103%
Vehicle and
sphere part
8,656.55 6,656.555 77%
Other 121,467.02 289,213.33 238%
Total 2,700,451.06 2,928,645.2
Source: from vat department working paper
4.14 Revenue collected on vat in Yirgalem town tax authority office, 2007
Type Planned to be collected Collected %
Sugar 150,000 104,058.04 69.37%
Soft drink 76,333 79,209.72 103.77%
Beer 50,000 40,698.37 81.40%
31
type Plan to be
collected
Collected %
Sugar 18,000 17,250 9.6%
Soft drink 30,000 51,296 172%
Beer 10,000 6,020 60%
Food 1,077,000 1,412,618 131%
Metal 56,000 76,346 84%
Leather and
skin products
50,000 76,346 153%
Rental of
things
136,500 170,640 125%
Total 1,377,500 1,610,778
Source: vat department working paper
4.13 Revenue on VAT collected in Yirgalem tax authority office,2005

36. Leather and skin 200,000 189,668.07 94.83%
Metal and roof 280,000 262,748 93.84%
Vehicle sphere parts 18,000 16,487.15 91.6%
Food 1,300,000 1,245,853.49 95.83%
Other 2000,000 1,748,419.63 87.42%
Total 4,074,333 3,497,664.06
Source: vat department workers
Based on the above table the revenue performance of Yirgalem town tax revenue authority
increase from year to year (1,610,778, 2,928,645, 3,497,664.06) respectively in each year.
According to the response of vat department employees the main reason for increment of the
revenue collected from vat is increase the number of registered people and indirectly revenue
contribution capacity by in direct tax also growth rapidly.
CHAPTER FIVE
5. Summary, Conclusion, and Recommendation
5.1 Summary of Finding
The objective of this section is to summarize the major result of the study from the previous
chapter. VAT is a tax not on the total value of the good being sold but only on the value
added to it’s by the last seller. This seller therefore is liable to pay tax not on its gross value
32

37. but on the net value that is gross value minus the value of the input.
As the researcher identified in the analysis part majority of the respondent replayed that there
is some problem face to tax payer as the result of vat implementation and the rest are there is
no problem face to tax payer.
Most of the respondents suggest there is additional cost, which they incurred due to
implementation of VAT. Means due to implementation of vat tax payer are incurred some
additional cost those are cost for additional man power salaries and cost for printing of
invoice.
According to the respondent response that there is non registration business whose annual
income is greater than 500,000 birr this is the main cause for tax evasion in directly this
aversely affects the revenue of government.
Most of the respondent response the number of their customer is decreasing after
implementation of vat because the tax payers are add vat on the normal price of the good to
cover the cost incurred for additional man salaries and tax liability imposed by revenue
authority.
5.2 Conclusion and recommendation
In the previous chapter the researcher tries to describe and evaluate the major problem related
to vat administration practice. In this chapter the researcher summarized data presentation
analyzed in the analysis part and forwarded some recommendation in order to improve the vat
administration practice.
5.2.1 Conclusion
33

38. Value added tax (vat) is a new tax system that requires better way of administration and
implementation system. It is another form of tax, which is collected, on consumption on good
and service and also it is collect from legally registered VAT payer.
 The trend in vat registrant shows the number is increasing rapidly compared to vat
revenue performance ,even if vat revenue increase by less amount it cover large
portion of indirect tax and total tax revenue
 Even if vat is a major source of government there are major problem, which hinder
its administration. Among these illegal trade and in appropriate application of rule
and regulation in relation to person who are not paid the tax liability. In generally
illegal trade at national level aggravate criminal activity halt saving, and investment
there fore formal trade is affected adversely.
 Consumer’s behavior is also negatively affected due to the price increase due to
implementation of vat.
 The country was not in position to implementation of vat because of the fact that the
business community was not capable of minting appropriate book of account and
record for vat still now these problems are not solved due to the following reason.
 There is lack of awareness by tax payer to provide the relevant information. this
reflect in that most of the tax payer issue under state value of invoice and tax
administration office employee are not create awareness vat to the tax payer
Finally vat administration is adversely affected by different factor specified in the
analysis section. These problems should be solved for the successes full
administration of vat the tax system and to increase revenue collection, which leads
to the growth of the countries economy.
5.2.2 Recommendation
Based on the findings of the study the researcher tries to prove the following possible
recommendations to help the responsible body to improve their service delivery in the relation
to vat and minimize problem face vat implementation.
 There should be a strategy to reduce illegal trade by awarding potential tax payer and
34

39. consumer. Revenue authority office must conduct extensive seminar and work shop
to improve their awareness regarding vat on regular basis.
 The departments have to give pre-orientation to the tax payer about the law of tax a
well as right and obligation of tax payer under the law.
 VAT department should take a reasonable measure on those who are not report there
invoice, under state or factious the invoice and who evade tax.
 Tax payer should pay taxes on time in order to reduce their penalty.
 Tax payer should keep a book or account recorded appropriately.
 As the researcher observed the tax authority office is not equipped with modern
technology which is important to control fraud of tax payers .
 Tax payer in order to develop their knowledge or in order to create awareness about
vat payer have to follow printing media, radio, and TV program etc.
 Tax administration office must be obligatorily registering the people who run the
business with annual capital greater than 500,000 birr.
As final solution the authority has to take measures on those tax payers who are constantly
failing to comply with the tax rule and regulation
In general in order to over come the problem of vat implementation the public, tax payer and
tax administration office would have to work in collaboration.
References
Alkal gupta, 2001, public finance and planning, 1st
edition, anmol publication pvt. Ltd New
Delhi.
Annual report of Yirgalem town revenue authority office,2004-2006 EC, unpublished.
David N.Hyman, 2002, Contemporary application of theory to policy, 7th
edition, Harcourt
35

40. College, United State of America.
H.L Bhatia, 1996, 2003, Public finance,19th
and 24th
revised & enlarged edition, vikas
publication house PVT Ltd, New Delhi.
Http: //www.answer. Com/ topic/ value added tax
Http: //www.erca.gov.et/ vat.php
Musgrave, 2004, Public finance in theory & practice,7th
edition, New Delhi.
Ulbrich, Holley H, 2003, Public finance in theory and practice, Thomason learning PVT, Ltd,
Australia.
Appendix
HAWASSA UNIVERSITY
COLLEGE OF BUISNESS AND ECONOMICS
36

41. School management and accounting
Department of Accounting and finance
This questioner is designed for the employee of Yirgalem tax authority employee and customers to
collect information about vat administration practice .The aim of the study to assess vat
administration practice in town And for partial fulfillment of bachelor of degree in Accounting and
Finance. Thus you are kindly requested to contribute to the study by providing for felling honestly.
1.Personal information Male female
2.Age less than 18 18-25
25 -35 35-45
Above 45
3.Level of education 8-12 Certificate
10+2 Diploma
Degree Above first degree
4.Problem with respect to the application of vat
Lack of experienced employee
Lack of adequate personnel
Lack of skilled man power
Lack of awareness of tax payer
5.Action taken by tax administration office on who are not report invoice on time?
Financial penalty
Temporary shutdown of the business
Sent to prison penalty
6.Is VAT advantageous for government revenue? YES NO
7. Awareness creation by tax office?
Within three month with in six month
Within four month with in one year
37

42. Questioner for employee of vat department workers
1. What is the relation ship between tax payer and tax office?
Poor Good very good excellent
2. is vat computation in compliance with the rule and regulation issued by government
YES NO
3. What is the effect of implementation of vat on the behavior of customer?
Decrease the number of the customer
Increase the number of the customer
No change
Increase the price of material
4.Awarness creation by tax office
With in three month
With in four month
With in six month
One year
5. Is there a problem related to invoice report
Yes no
6. which additional cost incurred due to implementation of vat
Cost of printing new invoice Additional man power salary
For salary of educated person both the cost of printing and additional man power
38