Factors Affecting Value Added Tax Collection from the Supplies of Farm Machinery Service for Farmers: A Case Study of Bale Province, South Eastern Ethiopia

Abstract

Nowadays, the Ethiopian government is paying due attention to raise more money from various companies and individuals through taxes. Of the various types of taxes, VAT plays an important role in supporting government revenues. Therefore, farm machinery service providers are expected to charge, collect and transfer VAT when providing their services. The system for the collection of VAT on the supply of taxable goods or services is highly vulnerable to tax avoidance and evasion, especially in the rural areas. Thus, the present study assessed factors that affecting VAT collection from the supplies of farm machinery service, in the case of Bale province, Eastern Ethiopia. To this end, the study used descriptive and explanatory research designs with both quantitative and qualitative approaches of data collection methods. The quantitative data was analyzed by logistic regression analysis and chi-square; while, the descriptive analysis were used to deal with qualitative ones. As the findings of this study show most of the farmers in the study area are deprived of VAT information collected from the provision of the farm machinery services and how taxes are paid for the benefit of the taxpayer and contributing to the general public good. In addition, the poor practice of farmers' invoice requesting was identified as factor that hindered the proper collection of VAT, especially in rural areas. These are directly related to the lack of intensive education and training for farmers on VAT, limited resources in the local revenue offices, and lack of incentives for those farmers who collect VAT invoices. To alleviate these problems, the researchers recommended that it is worth considering improving VAT education for farmers by using various media outlets more accessible to the rural areas. The study also emphasized the need to develop and strengthen a strategy that encourages farmers to claim VAT and other tax invoices.