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The Effect of Value Added Tax Administration on Revenue Performance: the Case of Gamo Gofa Zone, Southern, Ethiopia

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The Effect of Value Added Tax Administration on Revenue Performance: the Case of Gamo Gofa Zone, Southern, Ethiopia THE EFFECT OF VALUE ADDED TAX ADMINISTRATION ON REVENUE PERFORMANCE: THE CASE OF GAMO GOFA ZONE, SOUTHERN, ETHIOPIA ARBAMINCH UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS DEPARTMENT OF ACCOUNTING AND FINANCE A THESIS SUBMITTED TO THE DEPARTMET OF ACCOUNTING AND FINANCE, SCHOOL OF POST GRADUATE STUDIES IN PARTIAL FULFILLMENT IN THE REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN ACCOUNTING AND FINANCE By AMARECH BEYENE BEZABIH ID NO RMA/003/07 PRINCIPAL ADVISOR: SHAIK ABDUL MUJEEB (PROFESSOR) CO-ADVISOR: MR NEGALIGN MAMO (MSc) JUNE, 2017 ARBAMINCH, ETHIOPIA 6 THE EFFECT OF VALUE ADDED TAX (VAT) ADMINISTRATION ON REVENUE PERFORMANCE: THE CASE OF GAMO GOFA ZONE, SOUTHERN, ETHIOIPA AMARECH BEYENE A THESIS SUBMITTED TO THE DEPARTMET OF ACCOUNTING AND FINANCE, SCHOOL OF POST GRADUATE STUDIES IN PARTIAL FULFILLMENT IN REQUIREMENTS FOR THE DEGREE OF MASTER OF SCIENCE IN ACCOUNTING AND FINANCE 7 DECLARATION I hereby declare that this MSc thesis is my original work and has not been presented for a degree in any other university, and all sources of material used for this thesis have been duly acknowledged. Amarech Beyene Signature ------------------------------------ Date--------------------------------------- 8 Examiners ‘Thesis Approval sheet School of Postgraduate Studies Arbaminch University We, the undersigned, member of the Board of Examiners of the final open defence by Amarech Beyene have read and evaluated her study entitled “The Effect of Value Added Tax (VAT) Administration on Revenue Performance: The Case of Gamo Gofa zone, Southern, Ethiopia” and examined the candidate’s oral presentation. This is, therefore, to certify that the study has been accepted in partial fulfilment of the requirements for the degree of Master of Accounting and Finance (MSc). Name of Chairperson Signature Date Mr Taye Tadese (MSc) ------------------- ------------------ Name of External examiner Signature Date --------------------- ------------------ ------------------- Name of Internal examiner Signature Date ----------------------- -------------------- -------------------- Shaik Abdul Mujeeb (Prof) Signature Date (Principal Advisor) ------------------------- ----------------------- Mr Negalign Mamo (MSc) Signature Date (Co-Advisor) ------------------------ ------------------------ SGS Approval Signature Date ------------------- ----------------- ----------------------- 9 ACKNOWLEDGEMENTS I would like to express all the glory and honour to the God Almighty whose grace enabled me to succeed in my study despite the challenges I was confronted with. I also would like to extend my deepest and heartfelt gratitude to my major advisor Shaik Abdul Mujeeb (prof.) and co-advisor Negalign Mamo (MSc) for their unreserved and valuable support and guidance during my study and thesis work. My appreciation also goes to Geze Gofa Woreda administration offices, finance and economic development office, and Trade and industry development offices for their full sponsorship of my study, moral, material and financial support for last three years. I am glad to my husband Mr Delelegn Degela and my son Albert Delelegn & daughter Kalikidan Delelegn for their devotion to share more responsibilities that when I carried during my study. My heartfelt thanks also goes to D/r Yechale Kebede, Mr Taye Tadesse, Mr Afework Birhanu, Dr Melekamu Mada and Dr Anto Arkato for their particular support while I was faced painful events during my study. 10 TABLE OF CONTENTS DECLARATION ................................................................................................................... 8 ACKNOWLEDGEMENTS ................................................................................................. 10 TABLE OF CONTENTS ..................................................................................................... 11 LISTS OF TABLE ............................................................................................................... 14 LIST OF FIGURES ............................................................................................................ 15 ACRONYM AND ABBREVIATION ................................................................................... 16 ABSTERACT ...................................................................................................................... 17 INTRODUCTION .............................................................................................................. 18 1.1. BACK GROUND OF THE STUDY ........................................................... 18 1.2. STATEMENT OF THE PROBLEM ........................................................... 20 1.3 OBJECTIVE OF THE STUDY ................................................................... 22 1.3.1. GENERAL OBJECTIVE OF THE STUDY ............................................. 22 1.3.2 SPECIFIC OBJECTIVES OF THE STUDY ................................................. 1.4. RESEARCH QUESTIONS ........................................................................ 23 1.5. SIGNIFICANCE OF THE STUDY ............................................................ 23 1.6. SCOPE OF THE STUDY ........................................................................... 23 1.7. LIMITATION OF THE STUDY ............................................................... 23 1.8. ORGANIZATION OF THE STUDY .......................................................... 24 CHAPTER TWO: ............................................................................................. 25 LITERATURE REVIEW ..................................................................................................... 25 2. 1 THEORETICAL EVIDENCE OF VAT ADMINISTRATION .................... 25 2.1.1 DEFINITION OF VAT................................................................................. 25 2.1.2. DEVELOPMENT OF VAT ......................................................................... 27 2.1.3 CONTRIBUTION OF VAT TO ECONOMIC DEVELOPMENT .............. 28 2.1.4 OBJECTIVES OF VAT ................................................................................ 30 2.1.4. TYPES OF VAT .......................................................................................... 30 2.5, WHO HAS TO BE REGISTERED FOR VAT: ........................................... 32 2.5.1. OBLIGATORY REGISTRATION ....................................................................................... 32 11 2.5.2 VOLUNTARY REGISTRATION: ........................................................... 33 2.6 VAT IN ETHIOPIA ........................................................................................ 33 2.2. EMPIRICAL EVIDENCE OF VAT ADMINISTRATION ......................... 34 2.2.1. VAT ADMINISTRATION ................................................................................................... 34 2.2.2 WHO ADMINISTERED VAT? ............................................................... 35 2.2.2.1 IDENTIFICATION AND REGISTRATION OF VAT ........................................ 19 2.2.2.3 VAT COLLECTION PROCESS ................................................................... 19 2.2.2.4 VAT REFUND ...................................................................................... 20 2.2.5. VAT FILING AND PAYMENT ..................................................................... 22 2.2.6. CONTROL OF FILING AND PAYMENT .............................................. 22 2.2.7. VAT INVOICE .......................................................................................... 23 2.2.9. VAT PENALTY ..................................................................................... 26 2.2.10. ELECTRONICS CASH REGISTER MACHINE .................................. 26 CHAPTER THREE ........................................................................................ 32 3. RESEARCH METHDOROLOGY ............................................................. 32 3.1.1. GEOGRAPHICAL LOCATION AND CLIMATE ......................................................... 32 3.1.2Economic Features ................................................................................................. 32 3.2 RESEARCH METHOD .................................................................................... 33 3.4. SAMPLING TECHNIQUE ................................................................................ 34 3.5 SAMPLE SIZE DETERMINATION..................................................................... 34 3.6 .DATA COLLECTION TECHNIQUES ................................................................ 36 3.7. VALIDITY AND RELIABILITY TEST OF DATA ............................................. 36 3.8. DATA SOURCES .......................................................................................... 36 3.9 QUESTIONERS ............................................................................................ 37 3.10 SEMI STRUCTURED INTERVIEW ................................................................ 37 CHAPTER FOUR .......................................................................................... 39 4.1. INTRODUCTION ..................................................................................... 39 4.1.1 NUMBER OF RESPONDENTS ........................................................................ 39 4.1.2. EDUCATIONAL BACK GROUND OF RESPONDENTS ....................................... 40 4.1.3 RESPONDENTS AGE PROFILE...................................................................... 42 4.2 DESCRIPTIVE STATISTICS/ANALYSIS ................................................. 42 12 4.2 .1 BUSINESS
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