Factors Affecting the Value Added Tax (VAT) and Their Impacts on Sales of VAT Registered Business Firms: In Case of Ambo Town

Abstract

Many Developed and developing countries in the world generate their government’s revenue from taxes. Taxes can be classified as direct and indirect taxes. Direct taxes are taxes that are directly related to the taxpayers; whereas indirect taxes are taxes paid by an individual through the purchase of goods and services. VAT is one of the indirect taxes levied on consumption where the value of goods and services increase as they charge hands in the course of production, distribution and final sales to the consumer. This research investigates the impacts of factors affecting VAT on sales VAT registered business firms in West Shewa Zone, specifically at Ambo town Inland Revenue authority branch. For the sake of achieving the objectives of the study, the researcher used mixed research approach, that means both quantitative and qualitative research approach were used. The information used for the study was gathered through self administered questionnaire from a sample of 208 VAT registered business firms and 12 office employees of the revenue authority branch of Ambo town. These respondents were selected using stratified sampling technique and purposive sampling technique respectively. The researcher used questionnaires and interviews to collect primary data and relevant documents to collect secondary data from the data sources. The data collected by distributing the questionnaire were analyzed by statistical analysis of both descriptive analysis and inferential statistical analysis such as correlation and multiple regression analysis. The result of this study indicates that Compliance of VAT highly predict the revenue of VAT payers while Mode of payment less predictor of the revenue of VAT payers among the selected explanatory variables. Based on the findings of the study, the researcher forwards some recommendations to both VAT registered business firms and the employees of VAT at the Inland Revenue authority branch of Ambo town and suggestion for other researchers