Determinants of Value Added Tax Revenue Performance in Ethiopia: Ethiopian Revenue Authority at Jimma Town.

Abstract

The sustainable development of any country depends on the ability of the government to generate a sufficient amount of revenue from its internal source of finance. VAT has an important role in the revenue system of the Ethiopian government. To sustain its role the governments ensure that the revenue generated by this tax is raised as efficiently as possible. However, revenue generated by this tax system is not as good as expected due to weakness in the tax administration. The study was conducted to examine the determinant factors of Value Added Tax revenue collection performance in Ethiopian Revenue Authority (ERA) in the case of Jimma Town. To meet this objective, researcher used a descriptive research design that used both quantitative and qualitative research approach, in which simple random sampling methods were employed to select 435 VAT-registered taxpayers and employees of Ethiopian Revenue Authority. And the researchers used both primary and secondary sources of data. Primary data were collected from a sample of VAT-registered taxpayer’s and employees of Ethiopian Revenue Authority in Jimma Town and secondary data were collected from published document and office annual reports. The data were analyzed using the descriptive and econometric method to examine factors influencing determinants of value-added tax revenue collection performance of the Ethiopian Revenue Authority at Jimma Town. The result of the study showed that the determinants factors of Value Added Tax revenue collection performance which affects statistically significant and positive with tax education, political stability, taxpayers’ compliance, and whereas attitudes of taxpayers towards tax authority or government and unemployment rate affect negative statistically significant. Based on the findings of study, the researcher recommended that Revenues Authority should fulfill necessary manpower increase the taxpayer awareness by giving training to the taxpayers and create continuous follow up to improve Value added tax revenue collection performance, mechanisms to improve the knowledge and understanding of VAT rules and regulations, improve the attitude of the business community to increase government’s revenue collection capacity by reducing the resistance against VAT registration by taxpayers and improve VAT administration capacity in the town to earn high revenue from VAT collection that the economic growth.