Abstract:
Taxes are important sources of public revenue. Value Added Tax (VAT) is a tax on consumer
expenditure. It is collected on business transactions and imports. A taxable person can be an
individual, firm, company, as long as such a person is required to be registered for VAT. Even if
VAT is one of the most important sources of revenue and it’s in Ethiopia is infant Most
developing countries are currently dependent more on external financial resources to fund their
development activities. The tax contribution to GDP is very less as compared to developed
countries. The objective of this study is to investigate challenges of VAT administration in the
last five year at the Jimma Branch of the Revenue and Customs Authority. The study used
descriptive and analytical research design. VAT Register tax payers were the target population
of this study. A sample of 212VAT Register tax payers were drown from the population using
simple random sampling technique (lottery) method using their register number taken from the
authority. The study used primary and secondary data sources. Primary data were collected
through questionnaire and secondary data were collected from reports and manuals of Ethiopian
Revenue and Customs Authority (ERCA) Jimma branches. Quantitative data analysis was
supported by SPSS. Descriptive Statistics, correlation and multiple linear regression analysis
were used to analyze the survey and thematic analysis was done with good interviews. This result
also leads us to state a Complex tax system has significant impact on VAT administration.
Cultural backgrounds have significant impact on VAT administration. Low awareness about
taxation and government spending also affect VAT Administration in the study area.
Respondents who have poor awareness about government spending rarely comply tax. This
shows that the authority should empower taxpayers regarding the role of tax in national
development.
