Assessment the Impact of Electronic Tax Register Machine on VAT Collection: The Case of Addis Ababa City Revenue and Customs Authority

Abstract

This study was conducted to assess the impact of Electronic Tax Register Machines (ETRs) on VAT collection. The study has determined the effect of ETRs on Audit follow up, administration cost, compliance cost, maintenance time, the extent of tax evasion/fraud, the extent of VAT return and clearance after using ETRs with related to tax payers organizations and tax collectors. This study has also analyzed and examined the trend of revenue collection capacity by Revenue Authority in Ethiopia for the past eight years. The paper has identified problems related to the use of ETRs from the perspective of tax payers and tax collector (Ethiopian Revenue and Customs Authority). The study has used both primary and secondary sources of data. Using stratified random sampling method 363 tax payers were selected from the total population of 6794 with 86% return rate. Both descriptive as well as econometrics approach have been used to analyze the data collected Thematic analysis also has been used. The major findings are: The use of ETRs decreased the administration cost of the tax collectors and improved the efficiency and effectiveness of the tax collectors. The use of ETRs improved timely filling of the monthly VAT returns, decreased the extent of VAT evasion/fraud. ETRs are found to have a great contribution for improvement of VAT collection. Econometrics approach has indicated that: awareness, audit follow up and maintenance time have a significant impact on VAT income. The major problems faced by the tax payers are unallowable expenses due to the problem of ETRs suppliers and the lack of consistency and transparency in imposing penalty for tax personnel. ERCA has to improve the awareness creation on tax collection system of the country to minimize tax evasion. To improve the problems of power and net work interruptions, ERCA has to work in cooperation with Ethiopian Electric Power Corporation and Ethio-telecom. To address the problem related to maintenance time and cost of ETRs, ERCA has to increase the number of ETRs suppliers and create competition among them to reduce maintenance time and cost. ERCA has to enforce the regulations imposed on suppliers of ETRs.