gaps and problems that exist between the business community and public sectors in ethiopia
TRANSCRIPT
GAPS AND PROBLEMS THAT
EXIST BETWEEN THE BUSINESS
COMMUNITY AND THE
PUBLIC SECTOR IN ETHIOPIA:
A CASE FROM DIRE DAWA
ADMINISTRATION
BY: Yohannes Mengesha
Development Research and
Business Consultant
251-938-978-358 / 251-912-177-620
The 2nd Annual
Conference on Eastern
Ethiopian Economic
Development
September 2013
Haramaya University
Categories of Taxpayers According to the current federal income tax
proclamation
taxpayers are categorized into three categories, category “A”, “B”, and “C” based on their volume of sales.
Category “A” :- any company having annual turnover of Birr 500,000 and more.
Category „B‟:- having annual turnover of between 100,000 and 500,000 Birr
These categories of taxpayers are required to maintain book of account and declare profit and loss statement at the end of each year.
Categories........
Category „C‟ :- taxpayers whose annual
turnover is estimated to be Birr 100,000 or
less.
The income tax liability of Category „C‟
taxpayers is estimated by the Tax
Authority using standard assessment.
They are often called hard to tax group.
Purpose
Assessing
Perception of taxpayers about the taxaion
system
problems related to tax assessment
procedures,
Institutional capacity of tax authorities
and other important issues related to
taxation
Methods
Tax payers were the major source of data
survey method and FGDs were employed.
On 4 market areas Stratified based on
geographic locations.
Business Sectors addressed by the study:-
exporters; importers; Contractors,
Cooperative associations and small
business owners.
Methods…. proportional random sampling technique was
used to draw sample tax payers
A total of 183 tax payers have participated in the study
Further, key informants from Chamber of Commerce and Sectoral Association (DDCCSA); Tax and Revenue Authority (DDTRA) and Federal Custom and Inland Revenue Authority (FCIRA).
The use of different respondents was to triangulate the data and obtain full information from the study subjects.
Descriptive & inferential statistics
Findings
Reasons
Tax payer's Category Chi-square
test
Category 'A' and
'B' (%)
Category
'C'(%)
χ2 p-value
To avoid disturbances 0.00 52.56
6.505
0.001
In the anticipation of
public services
79.17 30.77
It is an obligation
towards the
government
20.83 16.67
Total 100 100
Tax payers’ perception
about tax
Issues in tax assessment Category „C‟ tax payers were asked whether they have
faced any problems when their tax is estimated.
Table 7: Problems of tax assessment based on estimation
Problems
Agree
(%)
Disagree
(%)
Method of assessment is based on a simple
guess or subjective 85.71 14.29
Daily/annual income in tax estimation is Inflated 97.14 2.86
No fair tax among similar businesses in same
proximity 97.14 2.86
No trust of tax payer’s statement of volume of
daily sales 100.00 0.00
Issues…. (FGD)
The prevailing inflation is making the daily
nominal sales inflated, which eventually
overstate the tax without them, gaining
real profit.
No transparency in the standard
assessment system at all.
That is, the taxpayers have no access to
information and they do not know how
the tax is assessed or calculated.
View from Chamber of
commerce
The actual practice of tax assessment by
Tax and Revenue Authority is very hard to
tolerate and practically very difficult to
fulfil by the tax payers of category „C‟.
Views from TRA
category „C‟ tax payers have never been
honest to the tax assessment officers.
They also added that
most of the business communities are not
even willing to declare their daily sales
when they are told to do so.
WRT Cat A& B, problems encountered while keeping
accounting records
Lack of accounting
or recording
knowhow
35%
Lack of accounting
professionals on the
market
13%
High professional
fee to hire
accountants
43%
No problems
encountered
9%
Problems
Problems encountered while
submitting book of account
Problems Percent
Deliberate & unjustifiable rejection of
expenditure receipts 57.14
Unnecessary frequent call by the authority
to defend and explain issues related to the
accounting book 28.57
No problems encountered 14.29
VAT implementation
The employees of TRA follow up the
compliance of some businesses seriously
while turning blind eyes to many others
who are making their sales without VAT.
Views from TRA Officials
it should primarily be the responsibility of the tax payers themselves to report those law breaking citizens
They have a system of rewarding people who report such business owners.
However, they also admit their shortcomings in enforcing VAT laws due to lack of manpower working in the area of intelligence.
Institutional capacity
Survey respondents evaluated the Tax Authority with respect to certain parameters.
Poor Service delivery
Gap in availability of information and skills of employees
No trustworthy tax system,
Poor law enforcement and
Unfair taxing system
Institutional Capacity (Gov’t view)
Capacity gap in the TRA resulted poor
service delivery by the office
High management staff turnover are the
key sources of their incompetencies.
For instance,
There were only four officers in the
authority to provide customer service for
around 16, 000 tax payers in the city.
Gov’t efforts….
But still, some positive results has been
observed, especially, the late coming
habit of tax payers was seen decreasing
from year to year.
Summary Most of the problems rests on the category c
group. These include:
Over taxation as result of over estimation of
daily/annual income
Nontransparent, non-participatory standard
assessment by the authority for category ”C”
Poor tax laws enforcement especially for VAT
and large number of tax defaulters.
Summary…..
Poor communication and understanding between the tax
authority and taxpayers.
Weakness in tax collection and
unsatisfactory service delivery of tax authority
Concluding Remarks Category „A‟ & B tax payers have better
understanding toward tax
The Business Community has no trust in employees of TRA and TRA also do not trust Cat C Tax payers‟ income statements.
Hence, lack of understanding from tax payers side and problem of transparency and institutional capacity gap from the authorities‟ side.
Are concluded to be the major causes of the problems discussed
Concluding….. The authority should revise its system and should
build capacity.
Should actively involve the taxpayers or their
representatives while estimating the daily sales or
revenue of taxpayers
This way, trust of tax payers on the tax system will
develop gradually.
