EVALUATION OF THE EFFICIENCY OF STANDARD ASSESSMENT FOR CATEGORY C TAXPAYERS IN ETHIOPIA: THE CASE OF TIGRAY REGIONAL STATE

Abstract

This article evaluates the application and efficiency of the Ethiopian standard tax
assessment, as enshrined in the Income Tax Regulation No. 78/2002, against the tax
liability of Category C Taxpayers, commonly known as small business taxpayers,
referring to the practice in Eastern Zone Administration of the Tigray National
Regional State. This mode of tax assessment was introduced to ensure the basic
principles of tax systems such as equitability, efficiency, certainty, simplicity etc; as
opposed to the situation when the tax regime is employing estimated tax assessment
for the same purpose. It is found that there is a contradiction between the rules of
standard tax assessment and their practical application, since the actual tax liability
of the large section of the Category C Taxpayers is being assessed according to
estimated taxation and this practice is incurring higher cost of administration. This
article argues that the practical assessment of tax liability of Category C Taxpayers
is not ensuring efficiency and the practice has to conform to the rules of standard tax
assessment to meet efficiency; yet the criteria for categorization of taxpayers into
Category C Taxpayers must be revised to fit the actual incomes of taxpayers to
ensure equity and equality.