The objective of this study is to investigate factors affecting category "A" tax payers in Samara logia city administration. A conceptual framework was adopted based on the economic, social, individual and demographic factors. The study adopted a quantitative research approach and answered research questions. The data collected from 106 Category "A" tax payers in Samara logia city administration through distributing self-administered questionnaires. Date was analyzed using SPSS version 26. Descriptive statistics were used to examine significant determinant factors of tax collection problems and challenges. The result found that the majority of tax payers were identified and aware of tax rules and principles. It also revealed that tax audit, evasion of tax, personal financial constraint, awareness on offenses and penalty rate, and tax knowledge are significant factors of tax collection. Other factors considered under this study, age, gender, sex, work experience, and government policy were found to be insignificant.

1. SAMARA UNIVERSITY
POSTGRADUATE PROGRAM
TITLE:- INVESTIGATION OF TAX COLLECTION PROBLEMS
AND CHALLENGES IN CATEGORY “A” TAXPAYERS
SAMARA LOGIA CITY ADMINISTRATION
BY:-MESFIN ABEBE
ADVISOR: PROF. ANBALAGEN
FEBRUARY , 2024
SAMARA, AFAR, ETHIOPIA

2. o First, I would like to thank the Almighty "GOD" for giving me the courage, inspiration,
diligence and wisdom. required for the successful completion of this thesis .
o My heartfelt thanks go to my Advisor, Prof. Anbalagen and Co-advisor. Abdulaziz K
for their commitment on the thesis at each stage and for making invaluable comments
and suggestions that guided me thoroughly toward its good end.
o My most sincere thanks are addressed to my beloved families for everything they have
done to help me. Their moral support and pray is always recognizable with great love
and thanks.
o Also, my special thanks go to all the study participants who have given their time to fill
the questionnaires and to many people especially friends for their kind support up to the
completion of my thesis proposal work.

3.  A tax is be defined as a "a compulsory contribution payable by an economic
unit to a government without expectation of direct and equivalent return from
the government for the contribution made” (Bhatia, 2003).
 Tax administration refers to the identification of tax liability based on the
existing tax law, the assessment of this liability, and the collection, prosecution
and penalties imposed on recalcitrant taxpayers.
 Tax administration therefore, should aim at improving on laws regarding the
registration, assessment, collection revenue, and exploiting fully taxation
potential of a country. In most developing countries, like Ethiopia, the revenue
generated by the government is quite less than the expenditures spent.
 In Ethiopia, tax is administered at federal or central and regional levels. The
constitution of Federal Democratic Republic of Ethiopia has separated the tax
revenue to be collected by federal government, state or regional government
and jointly by the federal and state government (Proclamation No33/1992). The
regional governments of Ethiopia collect taxes and revenue by bureaus of
Regional Inland Revenue Authorities from privately own enterprises and organs
of regional governments.

4.  The regional governments of Ethiopia collect taxes and revenue
by bureaus of Regional Inland Revenue Authorities from
privately own enterprises and organs of regional governments.
 Whereas, the central government revenue collection organs are
responsible to collect revenues of federal and joint revenues
owned by both the central government and regional governments
from different organizations including those owned by federal
government (FDRE Constitution, Article 97).
 The sharing of revenue between the federal government and
regional governments take considerations like; ownership of
source of revenue, the regional character of the sources of the
revenue, convenience of levying and collection of the tax or duty,
population, distribution of wealth, standard of development of
each region; and other factors that are basis for integrated and
balanced economy (FDRE Constitution, Article 98).
CONT……….

5. Background of the study
 The revenue of the Ethiopian government comes from different sources such as tax, public borrowing,
sales of public assets, and transfer payments. The main purpose of generating revenue from these various
sources is to finance government expenditure. These public expenditures are meant for public goods and
services that are very essential for the development and wellbeing of the society.
 The tax Investigation for those, who are required to maintain financial records, is done based on the records
that taxpayers maintain; however, if they fail to maintain financial records, estimated Investigation will be
done. For the rest of taxpayers, who are not required to maintain financial records, it is based on the
standard assessment method (council of Ministers, 2002).
 The law has classified the business income tax payers on business profit on to three major categories with
respect to their legal personality and annual turnover as category A, B and C. Category "A", category "B"
and category "C" taxpayers are classified as follows (Council of Ministers 2002).
 Category "A”, which shall include the following persons and bodies : The tax Investigation for those, who
are required to maintain financial records, is done based on the records that taxpayers maintain; however,
if they fail to maintain financial records, estimated Investigation will be done. For the rest of taxpayers,
who are not required to maintain financial records, it is based on the standard assessment method (council
of Ministers, 2002).
 Any company incorporated under the laws of Ethiopia or in a foreign country, for example Private
Limited Companies Share Companies and;
 Any other business having an annual turnover of Birr 500,000 (Five hundred thousand Birr) or
more;
 Category "B", unless already classified in category "A", any business having an annual turnover of over
birr 100,000 (One hundred thousand Birr);
 Category "C", unless already classified in Categories "A" and "B", whose annual turnover is estimated by
the Tax Authority as being up to Birr 100,000 (One hundred thousand Birr) (council of Ministers, 2002).

6.  A government finances its expenditures through the fund acquired from the
service given by the government, tax, loan and donation.
 From all sources of finance, tax is the major source; however, in most
developing countries, it is a common phenomenon to notice serious problems
in developing adequate tax systems that permits a government to sufficiently
finance its expenditures. Along with the growth in the overall Ethiopian
economy, it has been observed that there has been an increased government
spending and deficit financing. In principle, government could use both
domestic and external sources of finance that a country can tap to finance the
deficit.
 Along with the growth in the overall Ethiopian economy, it has been observed
that there has been an increased government spending and deficit financing. In
principle, government could use both domestic and external sources of finance
that a country can tap to finance the deficit.
 Along with the growth in the overall Ethiopian economy, it has been observed
that there has been an increased government spending and deficit financing. In
principle, government could use both domestic and external sources of finance
that a country can tap to finance the deficit. The government collected
significant amount of revenue including grants, which could not fully finance
the total expenditure. Without grants, the deficit could have been also about
significant.

7.  This makes the borrowing and grant element of government’s total expenditure
counts too much. Of the external grant that constitute part of government
revenue, almost half comes in the form of grants in kind (or earmarked) and the
remaining comes in the form of untied cash (IMF, 2006).
 The problems are from both the weakness of the Investigation and collection
system and various challenges used by the tax payers as well. As tried to
describe earlier tax is a blood vessel of a country.
 the problems around this tax collection need a close attention. Therefore,
identifying the problems on tax Investigation and collection at each tax office
and taking corrective measures need attention since they have adverse effects on
the overall revenue of the government. Accordingly, this study tries to
Investigation of tax collection problems and challenges in category “A”
taxpayers in a case of samara logia city administration.

8.  What is the main problems and causes in tax Investigation
relating to category “A” tax payers faced by the different
parties involved in the tax Investigation?
 What is the challenges faced in the tax collection system?
 What kind of measurement taken to overcome the challenges
of category "A" taxpayers as well as the system?
The research encompassed carrying out a detailed
examination or inquiry, especially on tax
Investigation and collection process regarding profit
tax, value added tax and rental income tax in respect
of Category “A” taxpayers found and obligated to
pay to Samara logia city administration in order to
identify situations posing undesired influence on the
tax revenue.

9. 1.4 Objectives of the study
1.4.1 General Objective
 Identify the main tax collection problems and their challenges
causes in tax Investigation relating to category "A" tax payers.
 Identify the challenges faced in the tax collection system
 To develop different measures to overcome Category "A"
Taxpayers as well as the system.
The overall objective of this research is to Investigation of tax
collection problems and challenges in category "A" taxpayers in a
case of Samara logia city administration.
1.4.2 specific objectives

10.  The findings of this study may give clear understanding of what
type of tax Investigation and collection procedures are there,
what problems are there and how those problems were handled
by both tax payers and Administrators.
 all the concerned body will be able to strength the tax collection
and try to adopt a comprehensive strategy, and minimize the
observed tax administration problems to increase tax revenue.
 The samara logia city revenue office may use this finding to
revise its strategies concerning Investigation of tax collection
problems and challenges.

11.  Semera (Afar Samara; Amharic Samera) is the capital of Afar
Region, Ethiopia. It is a town on the Awash–Asseb highway in
north-east Ethiopia, having been planned and built to replace Asaita.
Located in Administrative Zone 1, Semera has a latitude and
longitude of 11°47′32″N 41°0′31″E. One of the completed buildings
is Semera University, which began holding classes in 2007.
Research design
 Cross-sectional survey would be employed in this study.
 Both qualitative and quantitative methods would be used
because they supplement each other.

12. The populations of the study would be samara-logia category “A”
tax payers
 There are 106 Category “A” taxpayers in Semera Logia city
administration. The target Category “A” tax payers include; travel
agencies, hotels and restaurants, sugar retailers, construction
contractors, consultancy firms, education centers, construction
machineries and equipment’s rent providing firms, sales agencies,
photo shops, insurance firm, butchers, printing firms, Chat retailers,
building rent providers, clinics, transistor, fuel stations, whole
sellers, groceries, fruit and vegetable shops, stationeries, dairy
product shops, cake and bread bakeries, advertising firms, and
boutiques.
 . In order to achieve this objective, ninety self-administered semi
structured questionnaires were distributed to the selected taxpayers.
Study
population
Sampling Technique and sample size

13.  the study used questionnaires to get primary data from tax
officers of Semera Logia city administration revenue office and
category “A” taxpayers respectively. In addition to primary data,
the study used secondary data to support it.
Data analysis
Descriptive study and inferential statistics would be used for
data analysis by using Computer package SPSS 26 and
STATA14 version.

14. MODEL SPECIFICATION
• Since the data set in this study is ordinal, ordered probit model was preferred to
examine factors of tax compliance like previous studies on similar topic. A research by
Torgler (2006) and Alm and Torgler (2006) use a dataset with a wide sample of
countries. Given that tax morale is an ordered categorical variable, measured with
survey questions, ordered profit or loss it regression models are the rule.
• The general equation for the model used to test is shown below
• Y = α + β1X1 + β2X2 +β3X3 + β4X4 + β5X5+ β6X6 +Ɛ
• Where;
• Y – Investigation of tax collection problems and challenges
• α - Constant
• Ɛ - Error term
• X1, X2….X12 Investigation
• Substituted Coefficients
• Tax Comp= α + β1tax_Audi + β2 Gov _ Spend +β3 Tax _ Fair + β4 Gov _ Policy +
β5 Penalty +β6 Tax_ knowledge +β7 Gender+ β8 age + β9Educ+ β10 Marital + β11
Work experience+β12Leads +Ɛ

15. • Table 1 illustrates the gender of respondents which shows that 77.4% of the
respondents were males and 22.6% were females. This shows that the majority of
Category "A" tax payers' are males.
• Since the study emphasized business taxpayers, a minimum age of 20 years old
was considered reasonable. There were four age groups involved in this study
with a 10-year range in each group except for above 51 years old. The largest
group of the respondents was between the ages of 31-40 and 41-50; both having
34% and 38.7% respectively. The next largest group was between the ages of 21-
30 representing 10.4% of the total respondents. Respondents in the group of above
51 years old were the lowest number with 18 responses 17%. Generally,
respondents within the age group of 31 and 50 and made up with 72.7% of the
total respondents (Table 2).

16. Cont.……
 There were lack of transparency and consistency in imposing penalties .Tax
payers (70.75%) agree and strongly agree on the existing level and extent
of penalties for evaders and tax personnel who are working in collusion
with tax evaders are sufficient to discourage tax evasion but have low level
of practicability through illegal means.
 The description of variables in this paragraph is based on responses to
statements in the survey that range from 0 ‘strongly disagree’ = to ‘strongly
agree’ = 5. About 63.15% of the respondent agrees with ‘the existing
selection criterion of tax payers for audit and auditing lack clarity and
transparency.
 Tax officers and employees are participated in tax evasion activity. About
83% 0f tax payers replied the existence of tax evasion in tax collection
process. The possible reason include, close relativeness between tax official
and tax payers (25.5% ) and shared benefits(43.3% ) followed by less
committed employers(21.7%) are the main cause of tax evasion practice.

17. Model Fitting Information
 The Model Fitting Information Table 26, which gives the-2 log
likelihood for the intercept only and final models, can be used in
comparisons of nested models. The statistically significant chi-
square statistic (p<0.05) indicates that the Final model gives a
significant improvement over the baseline intercept only model.
 Therefore, the Full model (with factors that investigation of tax
collection problems and challenges as a predictor) is
significantly better than the ‘tax collection problems and
challenge’s’ model and This tells that the Ordinary regression
model gives better predictions and model is a very good
finding on how well does the model fits the data in this study.
Model Fitting Information
Model
-2 Log
Likelihood Chi-Square DF Sig.
Intercept Only 230.419
Final 135.137 95.282 24 .000
Link function: Log it.

18. Goodness-of-Fit
 This table contains Pearson's chi-square statistic Goodness of
fit test of the null hypothesis that the model adequately fits
the data, since the value of the Pearson’s Chi-square
goodness-of-fit test statistical significance value is greater
than common 0.05; we i.e. fail to reject the null hypothesis
depending on the observed data and model-predicted values,
implying that the model fit adequately.
Goodness-of-Fit
Chi-Square df Sig.
Pearson 62.226 65 .575
Deviance 66.839 65 .414
Link function: Log it.

19. Pseudo R-square Statistics
 Cox and Snell R2 =0.485 implies that 48.5% of response variable i.e. tax
collection problems and challenge’s’ was explained by the independent
(explanatory) or predictor variable. Nagelkerke R2 =0.668 also implies that
66.8% of the variation of dependent or response variable was explained by
independents (explanatory) variable of the model. The pseudo R-square
indicate the model is good fitted model since the value of Cox and Snell is
found between 0 and 1. Here, the pseudo 𝑅2values (e.g. Nagelkerke = 66.8%)
indicates that there is relatively small proportion of the variation in level of
job satisfaction between employee performance. This is just as we would
expect because there are numerous factors that address tax collection
problems and challenge’s’
Pseudo R-Square
Cox and Snell .485
Nagelkerke .668
McFadden .513
Link function: Logit.

20. Interpretation of parameters
The ordinal logistic regression analysis of tax audit (1) , tax
audit (3) were the statistically significant at 0.05 level of
significance but the remaining variables are statistically non-
significant. The respondent of the tax audit of disagree were
decreased by 2.34% as compared with tax audit of strongly
agree of tax collection problems and challenge’s’ provided
other variables constant. Also The respondent of the tax
audit of agree were decreased by 0.9% as compared with tax
audit of strongly agree of tax collection problems and
challenge’s’ provided other variables being kept

21. Cont……
 The ordinal logistic regression analysis of tax audit (1) , tax audit (3) were
the statistically significant at 0.05 level of significance but the remaining
variables are statistically non-significant. The respondent of the tax audit
of disagree were decreased by 2.34% as compared with tax audit of
strongly agree of tax collection problems and challenge’s’ provided other
variables constant. Also The respondent of the tax audit of agree were
decreased by 0.9% as compared with tax audit of strongly agree of tax
collection problems and challenge’s’ provided other variables being kept
Tax fairness
 The ordinal logistic regression analysis of Tax fairness (1), Tax fairness (3)
were the statistically significant at 0.05 level of significance but the
remaining variables are statistically non-significant. The respondent of the
Tax fairness of disagree were times by 10.84 times as compared with Tax
fairness of strongly agree of tax collection problems and challenge’s’
provided other variables constant. Also The respondent of the Tax
fairness of agree were increased by 6.1% as compared with Tax fairness Of
strongly agree Of tax collection problems and Challenge provided other
variables being kept

22. Based on the result of the study, the following conclusions were drawn:
 The research measures tax collection have a number of determinant factor that
questions and the result of descriptive analysis of both scenarios indicated majority
of them were stated . This is an implication for the government to work on
determinant factors to improve tax administration.
 This work was aimed to study a comprehensive overview of business income tax
payers’ knowledge towards the tax law focusing on category “A” tax payers in
Samara logia city administration. The result of the study revealed tax payers who
know and understand tax rule and regulation meet their obligation.
 Most taxpayers were conditioned by fairness of government spending and they are
keen to know where their tax contribution will be spent. The analysis also finds
evidence that those who are more satisfied with public service provision are more
likely to comply with tax rule. Those who engage in tax evasion often justify such
behavior by suggesting that the government wastes tax revenue and spends
unwisely; such arguments can decrease voluntary tax paying in the long run
(Braithwaite et. al. 2009).
 Generally, taxpayers and tax offices have tax administration problems of different
natures. The following section presents different recommendations as to which

23. Depending on the important findings , the following policy recommendations were
suggested:
• The main factors that stated both in tax payers and tax officials are; tax rule like
penalty, tax proclamation were stated but have low level of execute. Therefore
to avoid inefficiency of tax collection, the government officiers and policy
makers follow up about the right continuation and practicability of tax rules and
administration.
• With regard to social factors, the influence of referral group is critical because
as much literature describes, decisions either to evade or not to evade tax
sometimes are work on social norms and ethical values and will create different
incentives for tax compliance
• Finally the thesis suggests a series of measures, which could be taken by the
government in general, and tax authorities in particular; improving
thoroughness of audit, educating the taxpayers and conducting awareness
creation and providing all necessary social services to the public will enhance
compliance level. Awareness creation should go beyond simply giving tax
education to taxpayers it should extended to having consultative sessions. There
should be more preventative education for the public and increased awareness
of tax responsibilities in schools.

24.  Asian Development Bank 2001 Tax Conference, Challenges of Tax Administration and Compliance.
 Bird and Casanegra de Jantscher, eds., 1992, Improving Tax Administration in Developing Countries
(Washington: Internationa Monetary Fund).
 Burges, R.; Stern, N. (1993): Taxation and Development, Journal of Economic Literature, June 1993,
31(2):762-830.
 Council of ministers, 2002, income tax proclamation no. 78/2002, Negarit Gazetta, FDRE
 Council of ministers, 2002, Income tax proclamation no 286/2002, Negarit Gazetta, FDRE
 Council of ministers, 2002, Value added tax proclamation no 285/2002, Negarit Gazetta, FDRE
 Gorman, Canadian Income Taxation: Policy and Practice, 2nd ed., Toronto, 2001, 591.
 Hesse (eds.) (1993): Administrative Transformation in Central and Eastern Europe, Towards Public
Sector Reform in Post-Communist Societies, Blackwell Publishers, Oxford, UK. And Cambridge, MA.
 James, “Tax Compliance and Administration.” 1999, in Handbook on Taxation, edited by W. Bartley
Hildreth and James A. Richardson (New York: Marcel Dekker, Inc.), pp. 741-768.
 Kaldor (1980): "The Role of Taxation in Economic Development", Essays on Economic Policy I,
Duckworth, London.
 Kangave, 2005, Improving Tax Administration: A Case Study of the Uganda Revenue Authority,
Journal of African Law,145–176

25. Thank you