Solution Manual for Financial Accounting, 11th Edition by Robert Libby, Patri...
Week 4 assignment
1. Ways forward Towards DRM in Ethiopia
Ethiopia has experienced a significant GDP growth
during the last decade, with an average growth
rate of more than 10 percent, which makes the
nation one of the fast growing economies.
The country is putting effort to consistency with a
two digit growth rate through the second phase of
the national plan named; Growth and
Transformation Plan II(GTP II) (2015-2020) which
gave priority to the following list of goals.
2. I. Agriculture and rural development,
II. Industrial growth,
III. Infrastructure development,
IV. Human development and
V. Good governance and democratization
The Five Top Priority Goals of GTP II Goals
3. To keep truck with this growth rate, the government
needs to provide due considerations and unreserved
commitment towards the realization of GTP II for the
next five years.
Even though Ethiopia is a LIC deserving the
development financing assistance from national and
international community to materialize the SDGs,
the domestic resource mobilization burden remains a
great challenge and demanding.
4. It is true that DRM is generated within country from:
i. individuals - personal income tax
ii. companies – corporate & business related tasks
iii. Governments – public revenue streams & debt
management strategies.
The major bottlenecks to DRM are:
i. Corruption
ii. Tax evasion
iii. Illicit financial flows
DRM Sources and Bottlenecks
6. According to UNDP report,
domestic revenue increased from 53.9 billion
in 2009/10 to 124 billion in 2013.
Tax collection increased from 43.3 billion in
2009/10 to 107 billion in 2013.
the result is that tax:DRM =86%
Therefore, tax collection takes the lions share
in DRM.
7. The statistics from UNDP again depicts that;
Indirect(trade) tax/ total tax=60%
DRM/GDP=14.2% in 2009/10 & 14.6% in 2013.
Tax/GDP= 11%-12.5% below the GTP target of
15%. And the sub-Saharan average of 20%
Therefore, one has note that the source with major
share of DRM is under serious challenge. Hence, if
Ethiopia is to move on with SDGs, this aspect of tax
administration needs argent attention to be paid.
8. Effective Tax Administration
Effective tax administration involves three
ingredients;
i. Political willingness(commitment,
consistency, institutionalization, fighting
corruption, building confidence, etc)
ii. Clear strategy(transparent policy, avoiding
uneven tax imposition, developing ways to
protect tax evasion, etc)
iii. Adequate resources( adequate manpower,
facilities, related costs of collection, etc)
9. The three main tasks of tax administration
1. Facilitating compliance;
Tax payers need to be identified, registered,
system must be in place to identify those not
registered voluntarily, process cost need to be
lowered, collection through banks, adequate
tax payer services(payment facilities, advice
agencies, electronic filling, etc. The approach
is to treat tax payers as clients, not as thief to
be caught.
10. 2. Enforcing Compliance;
Some tax payers are not honest and enforcing
compliance is mandatory to reduce tax
evasion. Adequate interest charges must be
imposed on late payments, and adequate
penalty structure is needed for those who do
not voluntarily register.
11. 3. Improving governance;
The third major task is to keep tax collection
honest. Tax structure be fair, and be convinced
that collected taxes were efficiently used,
corruption is reduced, tax officials are trained,
promoted on the basis of merit, judged by
adherence to standards of legality and
morality.
12. Lessons from International Experience
A. Keep it simple: Simplify the tax system to apply
effectively.
B. Treat tax payer as a client: Avoid generalization
that tax payers are always against, be strict to
take corrective measure against those involved
in tax evasion
C. Reorganize tax administration structure:
Evaluate, improve, implement, etc. No one best
way always exist. Administrative reform
strategies must usually be carried out without
major additions of costs.
13. D. IT solution:
No modern IT, no efficient tax administration.
Tax administration increasingly need IT
expertise because some of their most
important clients are multinational
companies and large domestic firms who
employ sophisticated computer system that
be beyond the investigative capacity.
14. The New Tool To Improve tax collection
The central function of government is tax
collection, otherwise it is to compromise the
development, growth, and even trust on itself.
Therefore, tax administration requires efficient
service delivery, operational accountability, and
public transparency to the tax payers on the side
of the government.
To this effect, IMF took the initiative to design tax
administration tool.
15. TADAT-Tax Administration Diagnostic
Assessment Tool
TADAT was designed by IMF for main purposes like;
1. Strengthen tax administration,
2. Enhance revenue mobilization,
3. Improve service delivery to tax payers and
4. Bring better tax payers compliance &
discipline.
16. The IMF deputy manager statement
“Countries at all economic levels, often
grapple with conflicting demands for both
higher spending and lower taxes. In such
circumstances, measures to strengthen tax
administration effectiveness are critical if the
necessary fiscal space is to be found to
improve public services, reduce poverty,
improve fairness of tax allocation, efficiency &
transparency.”
17. TADAT In Practice
The TADAT framework has now been put to
test in Zambia and Norway in 2013. TADAT
assessment in Zambia was found useful in
better understanding of reform needs and
priorities while TADAT assessment in Norway
was confirmed the strong performance of
Norwegian Tax Administration System
identifying improvements in key areas.
18. Ethiopia in Tax Administration
Regardless of the existence of tax policy and regulations,
Ethiopia has still a long journey to travel in relation to
effective tax administration which will play a paramount role
in DRM meant to support the nations development objectives
in line with SDGs.
political commitment need to be strengthened, fairness in
tax allocation need to be kept, visible and strictest
correction measures need to be taken against corruption,
and transparency to the tax payers need to be adhered to.
Adequate tax personnel need to be trained to national as
well as international levels. The tax administration
authority needs to be competent enough to evaluate large
and sophisticated as well as national and international
business firms.
19. Adequate pay to officials needs to be set to protect
corruption attempts.
Experiences of other countries with better tax
administration needs to be shared.
Information technology capacities needs to be
strengthened and efficiently utilized.
TADAT instrument needs to be exercised to make the
necessary and timely changes in our tax policies and
tax administration.
The multifaceted devastating impact of illicit financial
flows must be thought critically and fought
courageously and consistently.
