It is good

1. Research proposal
Research proposal in bank
Prepared by mesfin
mesfinabera180@gmail.com

2. ACKNOWLEDGMENTS
• Above all, I would like to express my deepest heartfelt
thanks to God whose hand support me all in my life time,
and for this research proposal he gives me the potential in
all aspects.
• And also,I would like to express my heart felt gratitude to
my Advisor Mr. Sintayehu G. (MSc.) for his guidance and
valuable support for the preparation of this research
proposal.
• In addition, I would like to thank my classmate because of
the availability from all of them while discussing the
topics, and ideas of this Research proposal session.
•

3. ABSTRACT
• This study will be assess the existing VAT audit practice in the case
of Ethiopia Revenue and Customs Authority,
• Hawassa Branch and find out the extent to which the VAT audit
contributed to enhancing government revenue in the context. This
study will be conducted based on data obtained from ERCA,
Hawassa Branch, specifically focusing on VAT audit. The unit of
analysis is VAT audit and the concerned section is the audit unit
(wing) in the organization.
•
• Additionally the study will be conducted to investigate the tax audit
practice, and to identify the main problems of the tax audit program
performed that affects tax revenue collection and taxpayers‟
voluntary compliance in the Ethiopian tax system. The study will be
adopted both quantitative and qualitative approaches

4. CHAPTER ONE
1 INTRODUCTION
• .1 Background of the Study
• Government has played an important role in the socio
economic development of society. Social development
may be in the form of raising the level of living and social
welfare in the form of providing social amenities to the
people. Social amenities are in the form of education,
health and sanitation, utilities like electric supply, water
supply etc, and recreation facilities. The process of socio-
economic development requiring huge expenditure
cannot be carried unless the government has the
perennial source of income. Every government has two
important sources of revenue

5. Introduction
• is one of the most important sources of revenue to every
government. In the earlier days, payment of taxes was optional
(Mekelle University, Public Finance and Taxation Module, n.d.). A
choice was given to the people to pay the tax and to avail the
benefit of social amenities in the form of education, health and
sanitation, utilities and recreation facilities. Naturally, everyone
interested in availing social amenities used to evaluate the benefit
derived by him in exchange for the tax to be paid by him. But the
option in the payment of tax created lot of problems for the
government in fulfilling their obligations to society. Hence, in
modern times, the option was withdrawn and tax became a
compulsory contribution by every citizen to the government to
enable the government to fulfill its commitments towards society
(Mekelle University, Public Finance and Taxation Module, n.

6. Introduction
• and economic services. Setting up an efficient and fair tax
system is, therefore, essential for every nation in the
globe, and especially in developing countries like Ethiopia
where there has been deep-rooted socio-economic
problems and increased demand for government services,
infrastructures, and social welfare. The ideal tax systems
in these countries should raise sufficient revenue and
reduce government borrowing, and should do so without
discouraging economic activity.

7. Introduction
• In order to minimize the complexity of tax administration, enhance
taxpayer compliance, and encourage investment, the Federal
Government of Ethiopia (FGE) has launched a tax reform program. The
government conducted a tax reform program to improve the tax system
as a whole. The reform program had two components, overhauling of
the tax legislation and improving the tax administration, both of which
aimed at establishing a sustainable domestic revenue base through
modernizing the tax system, encouraging saving, trade and investment.
The tax reform included issues like changing policies to address the
problem of insufficient revenue, correct distortions that reduce
economic welfare and growth, and take measures to reduce
inequalities. On the part of the government, establishing new tax
laws and proclamations had made its intention as to collect “new”
and “additional” revenue there by widening and deepening its tax base
for which it needs to cover its fiscal and budgetary needs (Income tax
proclamation,286/2002)

8. Introduction
• . In doing this, a number of reform measures were taken
including policy and legal issues, institutional
arrangements, as well as updating the tax system existed
for years. The enactment of the income tax proclamation
No. 227/2001, which was decreed on the 4th of January,
2001 by the House of People’s Representatives (the
parliament) was an important move and indicator of
governments’ commitment to pursue the reform program
to facilitate compliance and improve efficiency of the tax
administration.
• Following the income tax proclamation, the FGE continued
to issue other tax laws, and two such proclamations
include Proclamation No. 285/2002, called the

9. introduction of VAT (Value Added Tax) system that replaced
what was known as sales tax is, therefore, one of the most
important outcomes of the reform measures taken
regarding taxation in Ethiopia. VAT is a transaction tax
collected on all goods and services at all stages of
production and distribution. It is an indirect tax and is
collected on the value added at each stage. Value Added is
the difference between the sales and the value of
purchases at that stage (Mekelle University, Public Finance
and Taxation Module, n.d.). The collection of VAT begins
with importers or producers and ends with the retailers.
The amount of VAT collected from a transaction at different
stages of distribution will be equal to the total amount of
sales tax collected from one stage of the distribution on
that taxpayer against tax payable by him on sales (Mekelle
University, Public Finance and Taxation Module, n.d.).

10. Introduction
• VAT is the most prevalent form of consumption tax in the world.
Globally, the advance of the VAT is the most significant
development in the field of the taxation in the past 50 years.
VAT started in the 1960’s in Europe and America; while in
Ethiopia it started in the 21st century under the above
mentioned proclamation. The VAT proclamation in Ethiopia
puts forth so many requirements and procedures as to who will
pay VAT and how. Implementation of the system is one thing;
and monitoring the system, continuous follow up, and ensuring
compliance is another thing. The proper administration and
operation of these components in turn depend on the accepted
working norms and guidelines to frame its contribution to tax
management.
•

11. Introduction
• Although tax revenue of the Ethiopian government seems to
be increasing from time to time, little is known as to how
much the tax payers complied with the rules and the degree
to which tax evasion has been minimized and/or completely
avoided. An important monitoring system to ensure tax
payers compliance with the existing VAT proclamation and in
turn increase government tax revenue is, therefore, to place
an audit system, in particular VAT audit. The purpose of this
study is, therefore, to assess the existing VAT audit practice in
the case of Ethiopia Revenue and Customs Authority, Hawassa
Branch and find out the extent to which the VAT audit
contributed to

12. 1.2 Statement of the Problem
• The VAT system has emerged as a consumption tax of choice. A well
designed VAT does not disrupt trade and investment and is highly
successful in applying appropriate tax administration system. These
neutrality features are important for the proper functioning of
common markets, such as the Euro and free trade areas, which does
not permit discriminatory tax on imports or subsidies on exports.
Beyond that the VAT is productive, stable, and flexible source of
government revenue. Since VAT is collected on current basis, say,
monthly, its revenue generating capacity is not affected by inflation
and the effect of rate changes on revenue is immediately visible.
While VAT scores high on neutrality to pay basis, but this should not
be acceptable if adjustment to income tax social benefit schemes
can be made. In sum, the timing of tax collections under the VAT is
as under a retail sales tax

13. Count........
• Although a 15 percent VAT is charged on consumption of goods in Ethiopia,
the level of compliance among tax payers and/or organizations registered
for VAT needs close monitoring. It seems that there are a number of
deficiencies in the implementation and management of the VAT system
from the perspective of the tax payers, registered businesses, as well as the
tax authority itself. Violations of VAT provisions jointly by the tax payers and
businesses registered for VAT through collaborating and not disclosing all
taxable transactions seems to be a deep-rooted challenge in the existing
system, which is likely to degrade revenue generation capacity of the
government and hence impair public investment programs in the nation at
large. If there is any failure from the side of the concerned tax authority to
regularly check (monitor) the system and ensure compliance from
businesses, the problem would become very much serious and the tax
collected from consumers might end up in the hands of businesses.

14. Count............
• An audit, therefore, plays a central role in VAT administration especially
considering historical and cultural norms and practices as well as
people’s attitude towards paying tax in the context. As audit plays a
central role, preparation and use to VAT audit manual is of the highest
priority in facilitating audit and assessment functions. Here, an audit is a
selected verification of tax payers declared tax liability which always
involves a review of taxpayer’s book of accounts, related records, 3rd
party information, general tax payers, and etc. When analysis of the tax
payers compliance pattern justifies for audit and investigation of the tax
payers files, the tax office either applies spot or compressive audit to test
the reliability of the tax affairs dealt with the choice and preference of
the one to another is dependent on the magnitude of the tax risk
associated with the 0case and the number and qualification of the
existing audit.

15. • This study aims at investigating the VAT audit practice,
problems/challenges frequently encountered in the
process, and the contribution of the audit to enhancing
government revenue in view of evidence from ERCA,
Hawassa Branch Office. Specifically, the study seeks to
provide answers to the following question:
• Is VAT audit properly planned, executed, and monitored by
the concerned employees and officials of the tax authority?
• What are the major problems/challenges encountered
during VAT audit?
• Does the existing VAT audit practice contributed to
enhancing government revenue?
Count ........