Value Added Tax Administration in Ethiopia: A Reflection of

School: Royal Melbourne Institute of Technology - Course: MANAGEMENT 103 - Subject: Accounting

Title of the Reviewed Article:Value Added Tax Administration in Ethiopia: A Reflection of Problems Author:Wollela Abehodie Yesegat Journal:eJournal of Tax Research (2008) vol. 6, no. 2, pp. 145-168 1.Author's Motivation and Problem Statement The main motivation for the author to take on the title is the unavailability of comprehensive studies which examine the VAT administrative practices in Ethiopia. It is, hence, not known whether the administration of VAT in Ethiopia is as per the legislation, and which features of VAT are being affected due to administrative weaknesses. Furthermore, in Ethiopia, administrative practices that are compromising the VAT's operation are not known. 2.Relevance of the Article to the Course The title is found to be very much relevant to the course what we are taking as the article delivered brief highlight on value added tax (VAT) in general and VAT administration and practice in Ethiopia in particular. 3.Research Question The author has sought to answer the following research questions; How VAT administrators in Ethiopia perform their duties and how the effective taxation requirements differ from the legislation (focusing on the key administration tasks)? What are the key problem areas that deserve the government's due attention? 4.Objective of the Paper The objectives of this paper are to examine the administration of VAT in Ethiopia and identify the main administrative problems that deserve the government's due attention, and briefly examine the decentralization of VAT revenue and administration. 5.Summary of Theoretical and Empirical Review

Considering the significance of tax administration, many studies have been conducted in some developing and transitional countries with respect to the main VAT administration tasks. These studies include Jantscher (1990), Edmiston and Bird (2004), Bird and Gendron (2005), Grandcolas (2005) and Bird (2005). The analyses of these papers focused on practices of different developing countries with respect to taxpayer identification, invoicing, filing and payment process, control of filing and payments, refunds, audits and penalties. In addition, the costs of VAT administration were briefly examined in the case of Jantscher's (1990) study. The main conclusion of these studies is that VATs prevailing in developing countries were quite different from the broad based tax discussed in public finance literature and that administrative problems have a major contribution to this divergence. 6.Research Methods The author has employed qualitative research design and analyzed the data using descriptive research technique.The author conducted face-to-face interview method with sample size of 269 taxpayers and 33 tax practitioner with response rate of 71.8% and 87.9% respectively. 7.Summary of Major Findings In this section the author's findings on how the tax authorities perform their responsibilities with respect to the major VAT administration tasks are summarized as follow. 7.1 Taxpayer identification and registration Examination of survey responses revealed several problems related to taxpayers registration. For example, 13% of (taxpayer survey) and 62% of (tax practitioner survey) respondents indicated the prevalence of VAT unregistered businesses and urged the government's due attention. The dominance of VAT unregistered businesses, according to survey respondents, resulted in uneven market competition and a loss of market share and profitability by registered businesses. 7.2 Control of filing and payment As the outcomes of the in-depth interviews revealed, the tax authority tries to identify non-filers in collaboration with the Ministry of Trade and Industry. In Ethiopia every trader is required to renew business license annually with the pertinent offices under the Ministry of Trade and Industry or regional governments. To renew business licenses, traders are required to produce evidence from tax authorities that all taxes have been paid.