The Challenges of Tax Incentives on Government Revenue: the Case of ERCA
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Date
2017-07
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Addis Ababa University
Abstract
The purpose of this study is to investigate “The challenges of tax incentives on government
revenues: the case of ERCA”. The study employed a descriptive research method and used
both qualitative and quantitative research approaches. The primary and secondary data
were gathered and used for this research. The data collected through different tools were
analyzed and interpreted by using descriptive statistics tools. The finding of this study
shows that the investment related tax has a significant negative effect on government
revenue. This study also revealed different challenges in the administration of the
investment incentives in ERCA. The legal framework is found as complex, inconsistent,
unstable, and insufficient and lack coordination with administrative procedures. Similarly,
administrative under capacity, non-coordination between ERCA and different organs,
interventions from both internal and external bodies and lack of attention are identified as
the major challenges. It is also found that incentives are prone to abuse and the authority
does not have strong mechanisms of monitoring and controlling. The researcher
recommended that ERCA should have a mechanism to measure the cost and benefit of tax
incentives on timely manner. The tax expenditure amount should be reported timely with
other reports to the concerning body to create transparent and accountable tax system.
Finally, the study suggested some probable solutions including keeping the tax incentive
system simple, strengthen administrative capacity, strengthening continuous audit system,
improving enforcement capacity and imposing economically meaningful penalties in the
case of abuse
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Keywords
ERCA, Tax incentives on government revenue