Practices and Challenges of VAT Implementation in Ethiopia Post January 2003 Assessment.

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Addis Ababa University


The objective of the study is to examine the nature, practices, and challenges of VAT implementation in Ethiopia and identify areas of weaknesses and strengths towards the achievement of VAT Objectives. In doing so, the paper further assesses the impact of VAT to gross domestic product and total government revenues. The study used both qualitative and quantitative research methods to collect and analyze both primary and secondary data. Self-administered questionnaires to the ERCA employees and VAT registered respectively were used to collect primary data. Secondary data was collected from ERCA, MoFED by way of reviewing documents from previous studies. The Statistical Package for Social Sciences (SPSS) version 17 and STATA 11 was the method used for quantitative data analysis The study paper discovered that during the implementation of Valued Added Tax since the year 2003 till to date; the major challenges hindering ERCA from generating what was initially planned are: lack of sufficient number of skilled personnel, limited staff capacity, nonresponsiveness by the management, limited awareness creation, problems related with invoicing, unfair competition, and control centered management tendency. The paper suggests that in Ethiopia, attempting to implement what is legislated in the main areas deserves the Government’s due attention. The study also emphasizes the need to strengthen the administration capacity in general and the VAT collection system in particular as efficiently as possible. The empirical analysis disclosed that VAT contributes significantly to the increase of the total government revenue and the economic growth of Ethiopia at large. Finally, if Ethiopia joins the World Trade Organization, the country needs to enhance domestic based resources mainly generated from Value Added Tax. In this regard, the paper has far-reaching policy implication in an effort to improve tax collection. Keywords; VAT, WTO, government revenue, unfair competition, GDP



VAT, WTO, government revenue, unfair competition, GDP