Abstract:
A growing issue of improving value added tax revenues comes at the forefront of all
crucial issues in the context of increasing recognition of the role of domestic revenue
mobilization for sustainable financial and social advancement of nations. This paper is
then explored the factor affecting value added tax revenue using Ethiopian cases. Using
data from 2004 to 2021collected from different sources on variables such as real GDP
per capita, trade openness, service share of GDP, corruption perception index, and
others; we estimated their effect on value added tax revenue using long run regression
model. The findings show that control of corruption (corruption perception index);
economic growth (GDP per capita), trade openness, fiscal deficit and tax administration
efficiency play a significant role in determining the VAT revenue collection in Ethiopia.
On the other hand, although the VAT reform has found to have negative effect on the VAT
revenue collection in Ethiopia, the effect is not statistically significant which may be
linked to the low percentage of individual or group unregistered for VAT in Ethiopian
since the 2017 VAT increase threshold from 500 thousand ETB to 1million ETB.
Therefore, this study recommends supportive policies to encourage policy toward improving
control of corruption; policy toward improving economic growth; policy toward improving the
expansion of trade and policy toward improving tax administration efficiency in order to improve
VAT revenue.
