FACTORS AFFECTING EFFECTIVENESS OF VAT COLLECTION IN THE CASE OF BAHIR DAR CITY

Abstract

VAT is a tax not on the whole value of products sold or services rendered however only on the incremental value or newly created value by the last vender. The study aims to assess factors affecting effectiveness of VAT collection the case of Bahir Dar city. The study is conducted on the five factors of effectiveness of VAT collection such as VAT collection practice, penalty, awareness, employees competency, and employees integrity. The study used quantitative research approach with descriptive and explanatory research design. Quantitative type of data from primary and secondary data sources was collected for this research, primary data was collected form 414 sample respondents(321 from VAT registered business firms and 93 from employees of revenue authority. Which were selected by convenient sampling for VAT registered business firms and census for employees of Amhara Revenue Authority. The questionnaire items were measures based on 5-point likert scale and the questioner was tested for validity and reliably of the items, cronbanch’s alpha was used to measure reliability. The regression result shows that VAT collection practice, penalty, employees competency, and employees integrity have positive and significance influence on the effectiveness of VAT collection whereas, taxpayers awareness have positive and insignificant influence on the effectiveness of VAT collection. The study recommends that, continues training of employees should be done in reference to improving on competencies and integrity.