Value Added Tax Practices and Problems in Federal Inland Revenue Authority of Ethiopia
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Date
2007-07
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A.A.U
Abstract
Most of the Governments revenue is generaled from taxes. It can redistribute society’s wealth by imposing the tax burden on one group in order to find services for another. Taxes are classified in to tow. These are direct and indirect taxes. Direct taxes are directly related to the tax payers where as indirect taxes are paid by an individual through purchase of goods and service. Value Added Tax (VAT) is one of the indirect taxes. It is a tax an consumption levied wherever the value of goods and services increase as they charge hands in course of production, distribution and final sale to the consumer. The value added at each stage of production is the difference between the sellers ‘cost for materials and the selling price VAT is a key source of government revenue in most of the the nations. So it is implemented in many developed as well as developing countries. The first proposal of VAT emerged in france in the 1920 and was recognized in 1948.Most of the developing countries of the world adopted this tax diring 1980s and 1990s cotedlvaire is the first African country to introduce VAT in 1960
VAT has become an indispensable component of tax reforms in developing countries Ethiopia has also implemented this tax primarily to raise more revenue. Modernizing its tax administration and encourage investment and trade Ethiopia ‘sax reform program has introduced VAT since January.2003 Tax reforms include changing polices to address insufficient revenue. To correct distortions that reduces economic welfare and growth. Or measure to reduce inequalities. The Tax reform has tow components: Overhanedeling of the tax legislation and improving the tax administration.
Vat is a tax system that has replaced sales tax in Ethiopia. And it has applied a uniform rate of15% on most consumption goods and services. The replaced sales tax was collected only at the point of sales: as the result of this if has a double taxation has consoling effect and had server tax evasion problems.VAT. On the other hand. Is applied on the value added on each stage of production. Hence would solve the tax cascading and reduce its evasion with its modern administration system
A threshold of half a million birr is a level above which registration for VAT is legally compulsory, but a category of taxpayers that fall below the threshold are registered for TOT VAT Is Collected At Stages In The Production and distribution process beginning with importers and producers raw materials and credits the final consumers. Unlike the format sales tax VAT is a board based tax is imposed at different levels of production and distribution. VAT is payable if there are supplies made in Ethiopia, made by a taxable person, made in the course or furtherance of a business and is not specifically exempled or zero rated.
The survey of the study indicates that VAT implementation in Ethiopia faced different challenges. Some of the challenges are: Administration inefficiency, misunderstanding of the VAT laws by some business communities, resistance against registration of some traders. Failure to maintaining books of accounts. understated financial statements. And non-issuance of invoices has been exercised by VAT registered person particularly on sales made on final consumer: Non –issuance of invoices is practiced in various forms: providing options to their customers to choose between sales with VAT and sales with out VAT invoice. Print and use identical VAT invoice one registered by the tax office and other not registered .As the result of these constraints the implantation of VAT in Ethiopia could not be effectively implemented and achieve its objectives.
The study of the survey indicates that to alleviate these constraints the FIRA has taken some measures. These measures include. Strengthen its tax administration functions by delegation of region/city administration, forced registration for non-compliance enterprises door-to door checking were made to identify those who should be registered but not yet registered for VAT. Intensive awareness program have been conducted using mass media. Seminars and workshops to disseminate information and to increase the awareness of the business community. Therefore the FIRA should continue to strengthen its administration capacity to curve the problems and achieve its objective. Its objectives.and the business community should also other the current VAT rules and regulations.
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Keywords
Federal, Practices, Problems