Factors Affecting Effectiveness Of Value Added Tax (Vat) Collection: The Case Of Ambo Town, Oromia Regional State, Ethiopia

Abstract

A value-added tax is a consumption tax on goods and services levied at each stage of the supply chain where value is added, from initial production to the point of sale. The study's main objective was to examine the effects of factors such as controlling value-added tax evasion, value-added tax management, value-added tax registration, value-added tax penalty, technological factors, awareness of both employees and tax payers, and competency of employees on the effectiveness of value-added tax collections. The study employed a quantitative research approach supplemented with a minor interview-based qualitative approach combined with descriptive and explanatory research designs. The entire group of the population of the study consists of 1 top-level manager, 6 middle-level managers, 63 employees, and 605 value-added taxpayers. Using the census method for all the employees and using a simple random sampling formula, 241 taxpayers were included in the study. For supplementary interview purposes, one top-level manager and three middle-level managers were selected using a census and purposively, respectively. Both primary and secondary data were employed. The primary data was collected using a questionnaire and interviews, while secondary data was obtained by reviewing annual reports. The questionnaires were distributed to both employees and value-added taxpayers. The researcher analyzed the data using the Statistical Package for Social Sciences version 26. Descriptive and inferential statistics were employed in analyzing the collected data. The questionnaire items were measured based on a 5-point Likert scale. The Cronbach’s Alpha was used to measure the validity and reliability of the data. The study conducted a multiple regression with a Pearson correlation coefficient. The finding showed that independent variables have a positive relationship and considerable influence on the effectiveness of the value-added tax collection. Thus, the overall model was statistically significant. The study recommended that consistent on- and off-the-job training for both employees and taxpayers, enforcing tax laws, controlling Value- added tax evasion, promoting a good administrative approach, and fostering technology should be undertaken to improve value-added tax collection effectiveness in Ambo Tow