THE CONTRIBUTION AND CHALLENGES OF INDIRECT TAX IN ALAMATA TOWN ADMINISTRATION,, TIGRY REGION STATE

Abstract

Purpose of the Study: The primary purpose of this research is to examine the contribution of indirect taxes to revenue generation and to identify the key challenges hindering their effective administration in the Alamata Town revenue office. Methodology: The study employed a mixed-methods research approach with a cross-sectional design. The target population consisted of 172 VAT-registered taxpayers and tax office employees in Alamata. A sample of 120 taxpayers was selected using systematic random sampling, alongside 18 employees. Data was collected through questionnaires and interviews. Quantitative data were analyzed using descriptive statistics with the Statistical Package for the Social Sciences (SPSS version 26), while qualitative data from interviews provided contextual depth and supported the findings. Main Findings: The study reveals that indirect taxes, particularly VAT, are a significant source of revenue for the Alamata town administration. However, major challenges impede their full potential. Key findings include: 1. Administrative Challenges: There is a significant issue with non-registration of potential taxpayers and improper issuance of VAT invoices upon transactions. 2. Systemic Weaknesses: The tax office suffers from a shortage of skilled manpower, inadequate auditing planning, and weak enforcement mechanisms, which hamper effective compliance control. Conclusion: The study concludes that while indirect taxes contribute substantially to local revenue, their efficiency is severely constrained by a combination of administrative incapacities, weak enforcement, and taxpayer compliance issues. Recommendations: To improve indirect tax administration, the study recommends: 1. Improving VAT collection by targeting non-filers and repeated nil/credit filers. 2. Developing a risk-based audit plan and increasing the number of qualified auditors. 3. Boosting voluntary compliance through extensive taxpayer education programs and improving service delivery at the tax office.