A Study on Tax Evasion and Avoidance in Ethiopia:

The Case of Ethiopian Revenue and Custom Authority Bahir Dar Branch

1. objective of the article

The general objective of the paper is to study the level of Tax Evasion and Avoidance in Bahir Dar city and to analyze the controlling mechanisms of tax evasion and tax avoidance..

• Specific objectives

The paper also try to cascade the general into specific objective that try to analyses and support to find answer for research question. These specific objectives of the paper are listed as the following

1. To assess whether there is reliable report of income by tax payers to the tax authority.

2. To analyze whether the tax payers report the exact tax liability.

3. To examine the degree of tax evasion and avoidance.

4. To assess the tax administration environment of tax evasion & avoidance

                              3.   Data used

The researcher uses descriptive research method with qualitative and quantitative data analysis approaches.  The paper uses primary and secondary data related to the reporting trend of tax payers income and tax liability, the level of tax evasion and avoidance in Bahir Dar city and controlling environment of tax evasion and avoidance were collected from Ethiopian Revenue and Customs Authority (ERCA) now the Ministry of Revenue in Bahir Dar branch and private auditors found in the city.

The Researchers distributed the questionnaires to 10 tax officers and 10 authorized accountants to rate the relevance of questions. The validity of the study instruments is performed using the content validity index (CVI) on a four point scale of relevant (4), quite relevant (3), somewhat relevant (2) and not relevant (1). Having this, researchers also performed cronbach’s alpha tests on the likert scales in the instrument for there is non-declaration or under report of income by tax payers to the tax authority, the tax payers report the exact tax liability, the degree of tax evasion, the degree of tax avoidance, methods of controlling tax evasion and avoidance. As shown below:

Reliability Test: Variables Cronbach’s Alpha Value

· Non-declaration or under report of income by tax payers                             0.765

· The tax payers report the exact tax liability                                                   0.705

· The degree of tax evasion and avoidance                                                        0.705

· Methods of controlling tax evasion and avoidance                                       0.705

Generally, a Cronbach’s alpha coefficient of at least .70 is considered sufficient and. As shown above, alpha coefficient range between 0.705 and 0.765 for all scales and this suggest a satisfactory degree of internal consistency for all the variables since all the reliability statistics measured well above the threshold 0.7.

• Method of Data Analysis

In order to manage the collected data the researcher try to make adjustment on the basis of their similar characteristics, editing, coding and tabulation process have been done prior to analysis of the raw data. Then, the statistical package for social science (SPSS) and MS excel software has been used for data entry, checking, validation and data analysis.

The paper employed a descriptive method of data analysis such as periodical tax audit reports, proclamations, tax audit policy, and others documents that are relevant for the study.

• Findings, Conclusions, and policy recommendations

According to the study conducted by the researcher there many reasons that force tax payer to involve in tax evasion and tax avoidance among these reason the following are the researcher’s finding

1. the system of tax administration in Ethiopia is inefficient and ineffective,
2.  the non-availability of the database of all taxable individuals by the revenue authority provides an opportunity for people to evade tax,
3. There is shortage of experienced and highly motivated personnel for tax assessment and tax collection,
4. The procedures for tax assessment and tax collection are ambiguous.

            Conclusions

The paper make the following conclusion based on the finding of the study conducted

The major methods used by tax payers to evade and avoid tax are non- declaration and under reporting of income, overstating business expense and deductions, overstating and understating trading stock, deduct personal expenses as business expenses to hide the exact tax liability.

Recommendations

The researcher try to list many recommendations based on analysis of the questions among these

1. Data base for tax administration at all levels of government should be promptly computerized to ensure that the system of information storage processing and retrieval is efficient.
2. It is better for the taxing authority to fulfill the work position with competent and experienced personnel so as to audit and inspect the accounts of tax payers there by protecting income tax evasions. And there should be continuous training for tax officers on how to provide rapid and courteous service.
3. The government should create tax compliance culture through education by creating for example pamphlets, newspapers, television

General Ideas on the Paper

The title of the paper is good research case that try to find why tax payers make tax evasion and avoidance.

As researcher even through sample data used is small to make conclusion for the city under study the paper achieve the objective of study.

The data analysis used the researcher is deployed the modern data analysis and interpretation based on the finding of the research.

The conclusion of the research is align the title of the research being under study.

The paper also contribute his own inputs for the other researcher to make further study on the title.

References

Alm, J. (2012). Measuring, Explaining, and Controlling Tax Evasion:Lessons from Theory, Experiments, and Field Studies. New Orleans, LA: Tulane University. 62

Biber, E. (2010). Revenue Administration: Taxpayer Audit Development of Effective Plans‟, Technical Notes and Manuals. IMF, Fiscal Affairs Department.

Bird, R. M. (2008). Tax Challenges Facing Developing Countries, Working Paper Series. University of Toronto: Institute for International Business Rotman School of Management.

Deak, D. (2004). Legal considerations of tax evasion and tax avoidance. Society and Economy.

Edmiston, K D and R M. Bird. (2004). Taxing Consumption in Jamaica: The GST and SCT‟, IPT Paper No.0414, International Tax Program. University of Toronto.:

Rotman School of Management. Ethiopian Chamber of Commerce and Ethiopian Business Development Services Network. (2005). Taxation in Ethiopia. Addis Ababa: Ethiopian Chamber of Commerce (ECC), Ethiopian Business Development Services Network (EBDSN).

 Federal Income Tax Proclamation 979/2016,

Federal Negarit Gazette (2016), Ethiopia. Federal Income Tax Regulation 983/2016,

Federal Negarit Gazette (2016), Ethiopia.

Feldman, N., & Slemrod, J. (2007). Estimating tax compliance with evidence from unaudited tax returns.

The economic Journal.

Franzoni, L. (1996-2000). Tax Evasion and Tax Compliance. In: Bouckaert – De Geest .

Gravelle, J. G. (2009). AssociationTax Havens: International Tax Avoidance and Evasion. National Tax Journal.

Haile, A. (2011). The Assessment of Tax Evasion and Avoidance in Mobilizing Tax Revenue. Addis Ababa.

Jain, A. K. (1987). Tax Avoidance and Tax Evasion: