THE IMPACT OF TAXATION ON THE
DEVELOPMENT OF SMALL BUSINESS IN CASE
OF BOLE SUB CITY ADDIS ABABA ETHIOPIA
PREPARED BY:
NAME ID NO:
1. PETEOS BERHAN UGR/22401/13
2.CHALA TARIKU UGR/30303/14
3.BIFTU ELIYAS UGR/30155/14
1.Introduction
1.1 Background of the
Study
The development small business enterprise is greatly
affected by the level of taxation .
the higher the task
risk of the greater the efforts to fulfill taxation requirements
are met,
the tricky balance between tax rate, compliance cost, tax
administration and economic growth should be a measure
goal of every tax policy.
The relationship between taxation and the level of growth of
small business enterprise has been a debatable issue over the
year.
The significance of small business enterprise in their
contribution to job creation and out put generation now a day
1.2 Statement of the
Problem
small businesses are found in the advanced
economy of as well as developing countries.
The contribution of those enterprises to income
and employment are very much considerable
particularly in the economy of many developing
countries.
the success of an economy especially for
developing countries start from the
indigenous knowledge and resources base of
a countries since small business play great
role in mobilizing these resources.
1.3 Objective of the Study
objective of the study is to explore the impact of
taxation on the growth of small business
enterprises
1. To identify the implication of taxation on the owners
of small business, such as service, manufacture
construction, urban agriculture, and trade .
2. To identify the impact of taxation on the
development of small business in addis ababa
administration bole sub city .
3. To recommend feasible solution for the
improvement of small business tax estimation on
small business.
1.4 Significance of the Study
oThe focus of the study would be on taxation
and its impact on small business. Therefore,
the study would have the following benefits.
oIt provides information for small business
owners about the impact of taxation on their
business operation.
o Therefore, the researcher would obligate or
encourage to conduct this research and to
search effectively through the impact of
taxation on small business development.
2.Theoretical Review of Literature
• Taxes are the primary sources of government revenue
though the proportion of tax revenues to total
government varies considerably.
• Tax can be also defined as financing government
function.
• Tax burdens are ultimately borne by individual even
though they may be formally paid by business entity such
as corporation which is owned by single individuals.
• Taxes can be impose on any of the four primary tax basis,
with hybrid, combination is also possible.
• Tax can be classified into two major categories
basing on the incidence of tax as well as ‘tax to
income’ ratio.
Tax can be classified into two major categories basing on
the incidence of tax as well as ‘tax to income’ ratio.
1. direct taxes include corporate income tax, property tax and
tariffs
2. indirect tax component The rises of sales tax and Value
Added Tax
o what is small business and small business tax payers.
the law divided business tax payers in to categories as
category“A”,“B” and “C.”
Category “C” taxpayer is contextualized as small business
tax payers.
2.1 conceptual frameworks
Taxation: Refers to the compulsory financial
charge imposed by the government on small
businesses. This includes taxes like VAT, income
tax, excise duties, and other local taxes.
Small business development; encompasses the
growth and sustainability of small enterprise in
terms of profitability , market expansion ,
employment creation and innovation
Impact of taxation; This can be both positive
(incentives, support for growth) and negative
(burden, barriers to growth). The research would
Tax system on small business
The tax system on small business is among the small
business.
Because tax system now a day s increases from year to
year.
A small business has a vital role in the economy of the
country.
Even if taxation is the main sources of revenue
generating for the government, it is the most direct and
visible way that affect the small business environment .
Tax rate
Small business are mostly owned and mainly a single
individual.
They have less capital and less market share and also
they are dependent on their profit generating activity .
taxation is the source of revenues for the government it
is the direct and visible way that affects the small
business environment.
Currently the tax system is among the most factor that
discourage the development and growth of small
business.
Because small business have not deals with complete
taxation issues since they haven’t generate enough
profit especially at their in font stage.
Classification of tax in Ethiopia
Government imposes many types of taxes.
In most developed countries individuals pay income taxes
when they are earn money.
Consumption tax when spent it, property tax when they
own home or land, and in some cases estate tax when they
die.
1 . Direct tax
those with are paid entirely by those people on whom they
are imposed.
Direct taxes are those taxes which cannot be shifted to
others.
It includes tax on income from employment, business
profit tax, tax on income from rental of building, tax on
2.Indirect tax
Indirect tax is the type of that levied by the
state consumption, expenditure and privilege
but not on income or property.
A. Value added tax (VAT) is a sales tax based on
the increased involve or price of production at
each stage in its manufacture and distribution.
The cost of the tax is added to the final price
and is eventually paid by the consumer
The rate at which tax or VAT taxed is 15% of
the value for every taxable transaction by a
registered person.
C. Turn over tax is an equalization tax imposed on persons not
registered for value added tax to fulfill their obligation and also
to enhance fairness in commercial relations and to comp let the
coverage of tax system.
Classification of taxes based on their affect on
income
Taxes based on their impact on income can be classified as
progressive, proportional and regressive.
A. Proportional taxes : - Charge the same percentage of income
as taxes from all tax payers, regardless of their income.
. It applies the same tax rate across low, middle and high –
income tax payers.
B. Progressive tax: - It is a tax in which the tax rate increases as
the tax base increase. A progressive tax takes a larger
percentage of income taxes from the high- income group than
C. Regressive tax “Regressive” means going from higher
to low.
It is a tax imposed in such a manner that the tax rate
decrease as the amount of taxable income increase .
The high-income group pays less in taxes than the
lower income group people with low income and low
ability to pay will pay higher taxes.
Canons of taxation
The canons of taxation are the main basic principle
(rules) set to build a “Good tax system”.
Canons of taxation were first originally laid down by
the economist Adam smith in his famous book “the
wealth of nation”.
A.Canon of equity:- the principal aim at providing
economic justice and social justice to the society.
According to this every person should pay depending on the ability to pay.
B. Canon of certainty:- according to Adam Smith the
tax, which an individual has to pay should be
certain, not arbitrary.
C. Canons of convenience: - the mode and timing of
tax payment should be as far as possible,
convenient to the tax payers.
D. Canon of economy: - this canon implies that the
administration cost of tax collection should be
minimum.
3. Research methodology
Categories of tax payers
Tax payers are classified in to the following three
categories as category A, Category B, category C and
category D tax payers.
A. Category “A” tax Payer
• Category “A” tax payer are required to submit to tax
authority at the and of the year a balance sheet as well
as profit and loss statements with details of gross profit,
general and administrative expense and provision and
reserves.
• This category of tax payers include any company
• Incorporated under the lows of Ethiopia in foreign country
having annual turnover of birr 500.000 Or more.
Tax rate for schedule “A”
Employment income (Per month) Income tax payable
Over Birr To Birr
0 150
151 650 10%
651 1400 15%
1401 2350 20%
2351 3550 25%
3551 5000 30%
Over 5000 35%
Source Ethiopian revenue & custom authority
B.Category “B” tax payer
Unless already classified in category “A” any business
having an annual turnover of over birr 100,000 would
be classified under authority “B” tax payer and they
submit to the tax authority profit and loss statement
This category mainly includes income from rents of house and other within the following tax rates table 2.2
at the end of the year Taxable income from rental /year Income tax payable
Over Birr To Birr
0 1800 Exempt threshold
1801 7801 10%
7801 16.800 15%
16.801 28.200 20%
28.201 42.600 25%
42601 60.000 30%
Over 60.000 35%
Source Ethiopian revenue & custom
authority
C. Category “C” tax payers
• Those businesses whose annual turnover is
estimated up to birr 100.000 are classified under
this category of tax payers.
Tax rate for this is taxable business income of bodies is taxable at the rate of 30% & taxable business income o other tax payers shall be taxed in accordance with the
following schedule.
Table 3
Taxable Business income (per year Income tax payable
Over Birr To Birr
0 1.800 Exempt threshold
1.801 7.800 10%
7.801 16.800 15%
16.801 28.200 20%
28.201 42.600 25%
42.601 60.000 30%
Over 60.000 35%
Source Ethiopian revenue & customer authority
D. Category “D” tax payers are includes the following income sources
such as royalties, income paid for services rendered outside of
Ethiopia.
Sampling Technique
he total number of small enterprise in addis ababa city administration
bole sub city 169, which contains 262 members participating in small
enterprises.
Based on this information samples will be taken from small enterprises
by using Yamane formula
n=NI/1+NI (e) 2 where,
NI=total target of population
n=sample size
e=level of precaution
Accordingly the above formula the sample size will be
n=262/1+262(0.1)2
n=262/3.62=72
• From those different sector, the sample has been selected
proportionally stratified sampling by personal judgment
decision. This is for purpose of comparison between
different sectors.
• Each disproportional stratified samples in different sector
can be determined the following strata.Based on the
above data72- respondents are selected.
1.Manufacture=14×72÷262=4
2.Construction =7×72÷262=2
3.Service=172×72÷262=47
4.Urban agriculture =1×72÷262=1
5.Trade=68×72÷262=18
n=n1+n2+n3+n4+n5
• From total population that the small business
employees, the sample that would
Sample be selected for
Size Proportion
this study will 72 peoples.
No Sector Total enterprise Sample size Samples taken
determination
by proportion
1 Manufacture 14 14×72/262 4
2 Construction 7 7×72/262 2
3 Service 172 172×72/262 47
4 Urban 1 1×72/262 1
Agriculture
5 Trade 68 68×72/262 18
Total 262 72
Source, field Survey(2017)
Budgeting
• This cost budget helps the researcher to know on
the necessary research materials inputs and to
buy
• There in the appropriate time. It also helps to
No. Item Unit of measurement Quantity in number Cost (unit in birr Total cost in birr
control the cost of the materials because it is
already specified on the paper each material
Stationary cost
1 Paper Ream 1 180 180
3
prices.Pen
Binding
Piece
Piece
2
3
10
15
20
45
4 Exercise book Piece 1 20 20
5 Ruler Piece 1 10 10
6 Typing Birr 1 70 70
7 Printing Birr 3 60 180
8 Transportation Birr 4 15 60
9 Mobil card Birr 10 5 50
10 Flash disk Birr 1 120 120
11 Photocopy Birr 4 0.4 16
Total 771
THANK YOU!!!
