ASSESMENT OF FACTOR AFFECTING REVENUE COLLECTION FROM VAT IN ETHIOPIA

Abstract

Value Added Tax (VAT) is a consumption tax that is being charged and embraced by many developed and developing countries, which is relatively easy to administer and very difficult to evade. As most of the developing countries do, Ethiopia was highly dependent on external financial resources to finance its development activities. For many decades, the tax contribution to GDP was very less and this needs an improvement. On the other hand, the Ethiopian Government has a strong belief and commitment to eradicate poverty and assure sustainable development; and it is impossible to achieve such a goal without generating sufficient revenue that can cover at least the budget of the government. To narrow the gap, VAT was introduced before ten years and is showing dramatic changes in generating government revenue. The study is expected to assess the key factor that hinder revenue collection process focus on VAT in Ethiopia and then recommend mechanisms for improvement. In addition, it also has an aim of recommending mechanisms for enhancing the performance in the revenue collection process. In the study, due to the pandemic corona virus (covid 190) we are used only secondary data sources are employed. In addition, qualitative data are gathered and then analyzed. 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