A Study on Tax Evasion and Avoidance in Ethiopia: The Case of Ethiopian Revenue and Custom Authority Bahir Dar Branch

Abstract

Taxes are important sources of public revenue. Tax avoidance and tax evasion are widely believed to be significant factors limiting revenue mobilization. In Ethiopia, tax evasions and avoidances are pervasive features in tax collection process. This paper assessed the level of Tax Evasion and Avoidance in Bahir Dar city and analyzed the controlling mechanisms of tax evasion and tax avoidance. In doing so, both qualitative and quantitative data are obtained from both primary and secondary data sources using collection tools such as interviews, questionnaires and from different books & reports. Descriptive method of data analysis was used to analyze and interpret the data. The result showed that there is tax evasion and avoidance in Bahir Dar city and the major methods used by taxpayers to evade and avoid tax are non- declaration and under reporting of income, overstating business expense and deductions, overstating and understating trading stock, deduct personal expenses as business expenses to hide the exact tax liability. Consequently, it is recommended that: database for tax administration at all levels of government should be promptly computerized, it is better for the taxing authority to fulfill the required number of experienced personnel with the required qualifications and there should be continuous training for tax officers on how to provide rapid and courteous service, continuous education for citizenry has to be embarked upon and step has to be taken to convince the tax payers that the money collected in form of taxes are judiciously spent and the tax department should adopt scientific procedures in collecting data and selecting taxpayers for further audit and perform risk based tax audit. Keywords: Tax evasion, tax avoidance, tax administration, database, risk based tax audit and under reporting DOI : 10.7176/RJFA/10-23-06 Publication date: December 31 st 2019