Department of public financial Management and Accounting

Masters of Science in Accounting and Finance Weekend Program

Title: The Effect of Customs import duty and Tax Expenditure

(Export trade duty incentives) on Revenue collection in
the case of Addis Ababa air port and kaliti customs
branch offices

prepared by

Enat Endawoke
Id no.ECSU1901073

Research proposal
for the partial fulfillment of master of Science in Accounting and Finance

Submitted to: Shimelise (Assistant Professor)

May, 2020 G.C

Addis Ababa

1|Page
 Table of Contents
Acronyms....................................................................................................................................................................ii

CHAPTER ONE.........................................................................................................................................................1

INTRODUCTION.......................................................................................................................................................1

Background of the study.............................................................................................................................................1

1.1. Statement of the problem..............................................................................................................................2

1.2. Objective of the study....................................................................................................................................3

1.3. Research questions........................................................................................................................................3

1.4. Limitation of the study..................................................................................................................................3

1.5. Scope of the study..........................................................................................................................................4

1.6. Significance of the study...............................................................................................................................4

1.7. Organization of the paper.............................................................................................................................4

CHAPTER TWO.........................................................................................................................................................6

2. LITERATURE REVIEW.........................................................................................................................................6

2.1. Definition of tax expenditure?.............................................................................................................................6

2.2. Objective of tax expenditure................................................................................................................................9

2.3. Tariff Quotas and Tariff Exemptions................................................................................................................10

2.4. What are the different types of tax expenditure?..............................................................................................10

2.3. Measurement of tax expenditure.......................................................................................................................11

2.4. Conceptual Framework..............................................................................................................................12

CHAPTER THREE...................................................................................................................................................13

RESEARCH DESIGN AND METHODOLOGY.......................................................................................................13

Introduction..............................................................................................................................................................13

2.1. Research Design.........................................................................................................................................13

2.2. Population and sampling Technique..........................................................................................................13

2.2.1. Sampling techniques...............................................................................................................................13

2.3. Data collection Instruments........................................................................................................................14

1|Page
 2.4. Procedures of Data collection....................................................................................................................15

2.5. Methods of data Analysis............................................................................................................................15

2.5.1. Objectivity...............................................................................................................................................15

Reference..................................................................................................................................................................16

2|Page
Abstract

Duty and Taxes increases the tax payers cost of capital or outlay money due to the payment of ,
so an import or export customs duty and taxes therefore, by deducting or reducing, or
exempting such costs governments try to encourage capital investment, to attract foreign direct
investment there by to get markets for their products in the international markets and generate
foreign currency. Many governments offer tax expenditure to attract investment, yet policies
often fail to fully assess their likely costs and potential benefits. Incentive policy should balance
the higher revenues and social benefits jobs, positive externalities, signaling effects from
possibly increased investment with the indirect costs of incentives such as administrative cost
and the revenue losses from incentives given to investments that would have been made even
without them. Sebastian (2010) This study will try to assess the effect of customs import duty
and tax expenditure of duty drawback, export voucher scheme, bonded export factory
warehouse, bonded manufacturing, bonded input supplies warehouse, industrial zone schemes ,
second schedule, preferential tariff treatment and duty free incentive /expenditures/ on revenue
collection of the Ethiopian customs commission Addis Ababa air port and kaliti branch offices.
Based on its purpose the study is explanatory type. It emphasis on studying a situation or a
problem in order to explain the relationships between variables in this study it is used to explain
the relation between impact of tax incentives against economic growth. According to (Saunders
et al. 2009) “explanatory studies establish causal relationships between variables”.

3|Page
Acronyms

COMESA Common Market for Eastern and Southern Africa

EIC Ethiopian Investment Commission
ERCA Ethiopian Revenues and Customs Authority
FDI Foreign Direct Investment
FDRE Federal Democratic Republic Of Ethiopia
GTP growth and transformation plan
HQ Head Quarter
HS Harmonized system
MOFED Ministry Of Finance and Economic Development
OECD Organization for Economic Co-operation and Development
ICAO International Civil Aviation Organization
TE Tax Expenditure

4|Page
 CHAPTER ONE

INTRODUCTION

1. Background of the study

Duty and Taxes increases the tax payers cost of capital or outlay money due to the payment of ,
so an import or export customs duty and taxes therefore, by deducting or reducing, or
exempting such costs governments try to encourage capital investment, to attract foreign direct
investment there by to get markets for their products in the international markets and generate
foreign currency.

Almost every argument used to support or criticize the implementation of tax and customs
import duty expenditure in the form of incentives, in developing countries are arguable for the
fact that such expenditures are included in the formal budgetary and reporting process and due
to unavailability of data on it becomes difficult to measure; in addition to this there is lack of
model, and legal frame work for reporting such matters and lack transparency and
accountability developing countries like Ethiopia. Lack of the guidance to implement and
establish system to measure and report the effect of the tax and customs import duty
expenditure or export duty incentives on their economy as a hole and on their revenue collection
specifically so as to evaluate the achievement of the pre-determined economic goals these
kinds of policies are intended to achieve.

According to ERCA’s unpublished document the government of Ethiopia has made great efforts
to enable the country to have a competitive investment policy with continual improvements by
encouraging trade and investment. The Investment Proclamation has taken steps to create a
capital stock for foreign and domestic investors. In addition, a system of tax filing and tax
refund system through export trade duty incentive scheme proclamation number 768/2012 and
investment and duty free proclamations and different rules and regulations the government
introduced customs import duty and tax expenditure system .Some of them are the following:-

5|Page
1- Bonded Manufacturing Warehouse scheme

2-Bonded input supplies warehouse scheme

3-Export voucher scheme

4-Duty free scheme

5-Duty draw back scheme

6-Bonded export factory scheme

7-Industrial zone scheme has been introduced to encourage investors engaged in export
business. The government's main reason for encouraging domestic and foreign investors to invest
in the private sector is to increase the private sector, create more jobs for the people, bring
technology transfer, improve the management skills, transfer knowledge, attract foreign capital,
increase domestic capital, and generate foreign exchange, and to enable them to contribute the
country's growth.

The government tries to encourage investment and promote the inflow of foreign capital and
technology as well as to get enough foreign exchange or hard currency. Because such
expenditures are as simple as they do not require direct financial outlay in the form of budget
allocated for the achievement of government policy objectives ; so by using such tools as a
policy try to meet targeted objectives and psychologically since there is no formal direct
financial expenditure there is such understanding by all as if they are as important as the direct
budget allocated. some of the steps taken by the government to achieve the foreign trade and
investment of the nation by using tax expenditure system in the form of export trade incentives
to investors engaged in areas eligible for tax expenditure: The intention of these tax expenditures
is by exempting or reducing customs import duty and tax minimizing tied up capital of those
who are investing their money ,knowledge and time in the above mentioned areas enabling
smooth business area and there by generating enough foreign exchange or hard currency which
in turn support the trade balance of the country.

6|Page
Based on the above mentioned unpublished internal report of the then authority from duty free
scheme only from Ethiopian calendar year 1999 -2002 the government has foregone, 5.6, 9.6,
14.6 and 18.9 billion birr respectively. It was also reported that in 2002 the foregone revenue
for that year only from the duty free scheme accounted for about 4.72% of the country's GDP
and imagine how was the pressure on the economy generally and on the revenue specifically;
had it not been foregone for the eligible individuals and organization or traders( importer,
exporter) it have been reported as additional to our GDP +4.72% .So if this was the case ten year
ago what would be the effect in last ten years ago? what if we consider or we take into account
export duty incentive scheme and second schedule "A" as well as preferential tariff treatment
duty free scheme together so as to show their bold effect and pressure.

This study will try to assess the effect of customs import duty and tax expenditure of duty
drawback, export voucher scheme, bonded export factory warehouse, bonded manufacturing,
bonded input supplies warehouse, industrial zone schemes , second schedule, preferential tariff
treatment and duty free incentive /expenditures/ on revenue collection of the Ethiopian customs
commission Addis Ababa air port and kaliti branch offices.

1.1. Statement of the problem

Many governments offer tax expenditure to attract investment, yet policies often fail to fully
assess their likely costs and potential benefits. Incentive policy should balance the higher
revenues and social benefits jobs, positive externalities, signaling effects from possibly increased
investment with the indirect costs of incentives such as administrative cost and the revenue
losses from incentives given to investments that would have been made even without them.
Sebastian (2010)

Any incentive policy requires constant monitoring to prevent leakage, imposing an additional
burden on tax authorities. Excessive use of tax incentives complicates administration, facilitates
evasion, and encourages corruption. Khan (2006)

Basically duty free /tax expenditure/ is given in the Ethiopian context to attract foreign direct
investment, to create employment opportunity, to enhance the foreign currency generation and to
transfer knowledge and technology. These are the objectives of granting export duty incentives

7|Page
and duty frees. The most important question is that what is the effect of customs import duty and
tax expenditure on revenue collection of the commission? How it affects foreign currency
generation are the most, so the aim of this study is to analyze the effect of custom duty and tax
expenditure (export trade duty incentives) on revenue collection as well as generating or
obtaining foreign exchange and the examining for existence reporting mechanism and legal
frame work for such reporting and who is responsible for this reporting process and indicating
the reporting mechanism.

1.2. Objective of the study

The general objective of the study is to assess the effect of tax expenditure on revenue collection;
the specific objective of this study is;

 To examine the effect of customs import duty and tax expenditure on revenue collection
 To assess the existence of reporting mechanism for such expenditure and the
understanding of the matter in comparison to the direct budget expenditure
 To assess the performance and effect of export trade and their foreign currency
generation
 to see if enough foreign currency is generated that can help for importing other capital
goods and services which in turn help in collecting more revenue in the form of customs
import duty and tax.

1.3. Research questions

 What is the effect of customs import duty and tax expenditure on revenue?
 How tax expenditure affect generating foreign exchange?
 What is the relationship among tax expenditure, foreign exchange and import duty and
tax?
 Is there any reporting mechanism for tax expenditure? Who is accountable for the subject
matter?
 Are there any legal frameworks that deserve or request for such TE reporting to the
legislative orange of the government?

8|Page
 1.4. Limitation of the study

The study is limited only on assessing the effect of customs import duty and tax expenditure on
the above-specified issues. It does not cover the effect of inland tax expenditures like tax
holidays, depreciation, and other the like or further economic analysis on the tax expenditure
such as the impact of tax expenditure on number of schools that could be constructed had the tax
have been collected. Therefore, its intention is calculating the revenue forgone. It does not take
into consideration the negative impact of the uncollected revenue rather it shows the impact
(effect) of tax expenditure (duty free) on generating hard currency, and the interrelationship
among the foregone revenue, the foreign exchange generated by using the above mentioned
incentive and the amount of revenue collected since the introduction of the customs import duty
incentive and export duty incentives. It also does not take into consideration the domestic tax
expenditure such as tax holiday, and domestic revenue related expenditures.

1.5. Scope of the study

The study focuses on customs import duty and tax as well as export duty incentives impact that
is the second schedule, preferential tariff treatment and export duty incentive /expenditures/ on
the manufacturing sector from 1998E.C to 2002 E.C at authority level and since 2003-up now
2012 E.C at kaliti and Addis Ababa air port customs branch offices .

1.6. Significance of the study

This study is significant on showing the effect of the customs import duty and tax and export
duty and tax expenditure/ granted to the privileged. It will also show how it affects the revenue
collection and generation of foreign exchange; it will also show the methods or ways of
calculating tax expenditures the principles how to analyze using frame works how to report and
the benefits of reporting such expenditures. It will support policy maker on analyzing the cause
and effect relation.

At the end of the study, it will intend to provide valuable information to the government bodies’
i.e. Ethiopian revenues and customs authority & investment commission &ministry of economic
cooperation as well, the society regarding their employee’s perception about the tax system, duty
free/tax expenditure/ and its administration. Also From the forwarded recommendation they will

9|Page
take the constructive comments to improve the system. It will also serve as a stepping stone for
other researches which will be conducted in similar topic area in the future. & finally it will
increase the knowledge & ability of the researcher groups in conducting in similar studies.

*So the importance or significance of this study is to indicate the importance of introducing
reporting mechanism in the area of customs import duty and tax expenditure for policy makers.

1.7. Organization of the paper

This proposal is organized in to three chapters. The first chapter provides an introduction to the
study. It contains background of the study, statement of problem, objectives, research questions,
limitation, scope and significance of the study.

The second chapter is the literature review of the study. In this part literatures related to the topic
will be reviewed. It includes review of different books for identifying the main theoretical
perspectives. In addition prior studies will be reviewed.

The third chapter explains methods of the study. In this chapter the type and design of the study,
sources and tools of data collection, procedures of data collection and the data analysis
techniques will be discussed. The study uses secondary data about customs duty and tax
expenditure which are given for the beneficiaries in different mechanisms through the export
duty incentive as well as second schedule and preferential tariff and the revenue collected in the
last ten years and the amount of foreign currency generated during those years will be analyzed
using simple table and schedules .

10 | P a g e
 CHAPTER TWO

2. LITERATURE REVIEW

2.1. Definition of tax expenditure?

It is better to give the definition duty and tax before delivering the definition of tax expenditure.

what is duty? what about tax?

Duty is a charge levied and collected on any import or export goods in accordance with the
customs tariff regulations issued pursuant to this proclamation and international convention on
the harmonized commodity description and coding system.

Tax means payment collected in accordance the existing tax laws on imported and exported goods

“Tax expenditure is the revenue spend that the tax system would otherwise generate” Thomas
F.poge. Tax expenditure is the foregone amount of revenue that would have been as a budget
surplus to the government or revenue authority. Tax expenditure is not the direct outlay
(expenses) that have been made by the revenue collecting authority as a means for collecting
revenue like salary, and other inputs. Rather it is the forgone/ uncollected/ amount of
money/revenue/ which is granted to the individual/business/ private sector as incentive in order
to participate pr engage in some specific area of the economy that would have been positive
impact. They are special provisions administered by revenue authority. (Thomas f.pogue 2009)

As (Thomas F.pogue 2009) tax expenditure concept and framework for analysis paper New
Mexico taxation and revenue department indicated tax expenditure fall in to two broad
categories. One consists of the tax expenditures that provide incentive and funding for individual
and business to engage in activities that policy maker see a serving public purposes, such as
entering the work force or increasing hours worked, purchasing solar energy systems, or
producing energy from alternative sources. The other consists of tax expenditures that provide
resources to tax payers who have specified characteristics or are in particular circumstances.
Such law income, workers and elderly. Tax expenditures are those intended to achieve public
policy objective that are not directly related to the fair and efficient of tax revenues.

11 | P a g e
Tax expenditure is the gap between potential tax revenue which does not contain preferential tax
provision, and the net tax revenue or the tax revenue received. tax expenditure can be granted in
three ways. Sales tax expenditure which is composed of import supply sales expenditure and
local supply sales expenditure. This is the amount of revenue which is excluded from the basis of
tax during tax assessment on the amount of duty and taxes exempted or reduced or granted as a
duty free during importation for those who engaged in areas which are given such rights and
provisions. (Ather Maqsood Ahmed and Robina Ather2014)

Customs duties are also one of the 3 types of tax expenditure This is the amount of revenue for
gone otherwise have been collected either through reduced tariff rate, or special treatment or
provision through bilateral, multilateral and unilateral agreement or totally exempted or allowed
to be free from any duty and tax by the policy or different proclamations and rules. The 3 rd types
of tax expenditure is based on the income tax expenditure that grants deductions for the cost that
used to generate the revenues and for the brackets of tax payers that is also concealed as tax
expenditure.(ibid)

Based on the national conference of state legislatives the forum for America’s ideas tax
expenditure budgets and report tax expenditure is defined as it is as exemptions, deduction,
exclusion or other deviations from the normal tax structure.

Based on the Ethiopian foreign trade policy page 27 the Ethiopian national tariff is based on the
harmonized system. Following the ratification of proclamation no 67/1993 article 5 the
definitions and powers and duties of the council of ministers and the executives organs the
federal democratic republic of Ethiopia proclamation no 4/4994 and article 51(1) of proclamation
60/1997 all custom tariffs revisions and amendments scale 1993 have been done on the
international accepted commodities descriptions Coding System of the HS including the latest
amendment of import tariffs Regulation No. 209/2003.

The Harmonized System (HS) is articulated in 4 digits, 6 digits and 8 digits of the Harmonized
System (HS) tariff item number. All import and export tariffs are based on ad valorem duties.
There are no preferential tariffs other than for imports from the COMESA member states. All
imports from the Sudan (Proclamation No 318/2003 and Article 4 of the Agreement), and
imports of salt, fish and fish products, and bottled or canned water from Djibouti are zero-rated.

12 | P a g e
A series of customs tariff amendments and measures have been taken since 1993.The maximum
import tariff has been decreased step by step from 230 percent to 35 percent.

The average tariff rate has also been reduced from 41.6 percent to 17.5 percent and tariff bands
from 23 to 6 including the zero rate bands. As per Regulation No.80/2002, the Trade Promotion
Manual for Ethiopian Diplomatic Missions FDRE Ministry of Foreign Affairs 28 existing
customs tariff amendment has been done in January 2003. At present, there are five import tariff
bands excluding zero rates. They are 5,10,20,30 and 35 percent. Accordingly, the tariff bands,
the number of tariff lines, imports and share of imports for the year 2003 are shown in the Table
below.

Table 1: The Existing Distribution of Tariff Bands

Tariff Bands Number of tariff lines Share of tariffs

(Percent Ad Valorem)

0 179 3.2%
5 1391 24.8%
10 1370 24.4%
20 1004 17.9%
30 725 12.7%
35 934 16.7%
Total 5608 100.0%
Source: Ethiopian customs Authority tariff 1 and 2 books (2003)

The number of tariff lines is 5608, out of which 5424 are subject to ad valorem duties while the
rest are duty free items and prohibited. Currently the lowest and highest tariffs are 5% and 35%
respectively, which makes the dispersion of 30%. The current simple arithmetic average of all
tariff lines is 20 % and the weighted average tariff rate is 17.5 %. As indicated in Table 3 above,
the share of 2003 annual imports of goods falling within each band is as follows: zero percent
band, 4.3 %; five percent band, 20.1 %; ten percent band, 15.8%, twenty percent band, 13.7 %;
thirty percent band, 15.1 %; thirty-five percent band, 31.0 %. In general, the duty-free category
of imports is mostly comprised of fertilizers, articles of wood, railway or tramway locomotives,
rolling-stock and parts thereof, aircraft, spacecraft and parts thereof, etc. Within the 5 and 10
percent bands are raw materials and machineries, which are used by manufacturing industries.
Items within the 20 percent band include organic chemicals, carton, boxes, envelopes, sacks and
bags, thread, synthetic filaments, artificial filaments, yarn and synthetic monofilament staple

13 | P a g e
fibers. Items within the 30 and 35 percent bands include perfumes, soaps, tiles, transmission
belts, ornaments, silk, cotton, jewelry, footwear, motor vehicles, textiles products and toys. To
encourage sect-oral development, and to accommodate social health and security issues, the
Ethiopian customs tariff book also contains the second schedule which mainly lists conditional
exemptions at Trade Promotion Manual for Ethiopian Diplomatic Missions FDRE Ministry of
Foreign Affairs 29 nil or reduced rates and exemptions at nil for importation by or on behalf of
privileged organizations, persons, public bodies and institutions.

2.2. Objective of tax expenditure

According to ERCA web site www.erca.gov.et the objectives of tax expenditures/duty free/ are
the following:

 It assures the benefit of the nation's economic growth and the benefit of the people;
 Creates favorable conditions for many investors to enter the country to invest their capital
and technology;
 Creates job opportunities for many citizens and builds different infrastructures on the
revenue generated from the collected tax that benefit the community.
 Creates technology and knowledge transfer;
As a result, the government granted taxpayer privileges of 11 billion birr on the first Growth and
Transformation Plan (GTP) and provided substantial encouragement and support to the
investment sector. In the country, various investment opportunities and several jobs were
created.

Not only this in case of knowledge and technology transfer there had been a visible change due
to different tax incentives and duty privileges which are provided by foreign and domestic
investors especially in the manufacturing sector in connection to the different custom export
schemes and the expansion of industrial zones in different regions of the country new
technologies and knowledge are being transferred.

2.3. Tariff Quotas and Tariff Exemptions

Ethiopia does not apply tariff quotas. However, there are tariff exemptions (relief from duties
and taxes) for various kinds of imports. These include:

14 | P a g e
  Exemptions granted on imports by diplomatic missions or consular privileges according
to the Vienna Convention;
 Relief on goods imported for education, scientific and cultural materials (UNESCO
agreement);
 Equipment or material related to International Civil Aviation Organization (ICAO
Convention);
 Commercial samples and advertising materials;
 Importation of tourist publicity documents and materials;
 Goods for display or use at exhibitions, fairs and meetings;
 Relief on personal effects imported by investors and capital goods for the specific project
under the permission of government authorities;
 For goods imported for home use by international organizations and etc.;
 Exemptions for humanitarian and religious purposes; and
 Tariff exemptions granted by Proclamation no. 249/2001 (revised in 2007) (revised
768/2004) MOFED directive No 35/2005 and ERCA directive 86/2005 (revised
103/2016) as export trade duty incentive scheme.

2.4. What are the different types of tax expenditure?

According to the world bank policy paper series on Pakistan PK 21/12 January 2014 written by
Ather Maqsood Ahmed and Robina Ather generally tax expenditure can classified in two three
broad basis. Based on the sources of the tax

1. Income tax expenditure

2. Sales tax expenditure
3. Customs duty and tax expenditures
Based on the OCED book on tax expenditure pp.14 tax expenditure can be classified as
allowances, exemptions, rate relief, tax deferred and credits. According to the way how they
have been granted to the beneficiary.

According to Regulation 768/2004 Based on the current Ethiopian context duty free/tax
expenditures/ is granted in the following forms:

15 | P a g e
 1. second schedule or reducing import duty rate for different manufacturers as well as
exporters
2. Different export incentives
A/ duty drawback scheme
B/ voucher scheme
C/ bonded manufacturing warehouse
D/ bonded warehouse
E/ duty free
F/ industrial zone

2.3. Measurement of tax expenditure

Tax expenditure can be calculated or measured using the revenue forgone or uncollected amount
method. This method calculates the tax that would have been payable if the tax concession was
removed and economic behavior remained unchanged. There are two ways of measuring the tax
expenditures;

1. Based on the assumption of changed or unchanged behaviors and changed or unchanged

revenue from other taxes we can measure tax expenditure as
1.1. Initial revenue loss or gain

1.2. Final revenue loss or gain

2. Based on the way of direct expenditure that would be required in pre tax terms to achieve
the same after tax effect on tax payers income as the tax expenditure if direct expenditure
is accorded to the tax treatment appropriate to the type of subsidy or transfer in the hands
of the recipient we can measure tax expenditures using outlay equivalence method.

2.4. Conceptual Framework

This study investigates the impact of tax expenditure on economy. In this study the dependent
variable of the study is economic growth while the independent variables is the availability duty
free /tax expenditure/.According to (James, 2009) tax incentive can be considered as beneficial
when they satisfy the conditions mentioned below:

16 | P a g e

Economic growth responds
strongly to the tax
expenditures and revenue
rises
Lost revenue from Indirect costs of tax
Social benefits from
investments that would expenditure
increased investment due to
have been made anyway
the tax expenditure
but receive the tax
expenditure

Figure 1. Conceptual Frame work

CHAPTER THREE

3. RESEARCH DESIGN AND METHODOLOGY

3.1. Introduction

This chapter deals with the research design and the methodology that will use in gathering data for
the study. It contains the research design, the sampling method and the sample size, source of data,
variables of the study, data collection procedure and data analysis techniques and finally reliability,
and validity section.

3.2. Research Design

17 | P a g e
Based on its purpose the study is explanatory type. It emphasis on studying a situation or a
problem in order to explain the relationships between variables in this study it is used to explain
the relation between impact of tax incentives against economic growth. According to (Saunders
et al. 2009) “explanatory studies establish causal relationships between variables”.

The data will be collect by employing a survey strategy can be use to suggest possible reasons
for particular relationships between variables and to produce models of these relationships. In
addition survey strategy as it use samples it will enable to generate a representative finding of the
whole population at a lower cost (Saunders et al. 2009).

3.3. Population and sampling Technique

3.3.1. Sampling techniques

For this study the source populations are the current government officials/employees in
investment promotion department & duty free scheme department of Ethiopian Investment
commission , Employees of Ethiopian ministry of revenues, Customs Commission incentive
administration & investment promotion support team. Due to the difficulty in addressing all
concerned government bodies throughout the country the researcher will use a
convenience/deliberate sampling technique. It’s a non probability sampling technique that
involves purposive or deliberate selection of particular units of the universe for constituting a
sample which represent the universe.

18 | P a g e
The preliminary survey undertaken by the researcher before questionnaire distribution indicated
that there are two government offices & two departments that are considered to be most relevant
for the study. The sample population of this study comprises employees from three different
government bureaus. I.e. from Ethiopian investment commission the investment promotion &
duty free scheme department and from Ethiopian ministry of revenues & customs Commission
HQ support team for tax incentive & from kality Branch incentive administration department. A
total number will take as a sample is 44 out of that 36 found in ERCA head office investment
support team and Kality incentive administration and the rest are taken from Ethiopia investment
commission.

3.4. Data collection Instruments

There are different techniques on how to collect data. The chosen alternative depends on which
method best answers the question of the investigation/study.

This study will use both primary and secondary sources of data. The primary data will be
collected through questionnaire. The questionnaire questions are direct, simple and grant the
respondents the opportunity to reflect on them and answer at their own time but within the time
period.

The questionnaire will have four sections. The first section will be on the background of the
respondents, which request information on the age, sex, work experience, educational
qualification. The second section will be about the availability of tax expenditure. The third
section will be about investment specially FDI which create job opportunity and generate foreign
currency. The fourth section will focus on the linkage/relationship linking economic growth &
tax expenditures.

Secondary data will be available they refer the data which have already been collected and
analyzed by someone. The secondary data will collect from different publication, documents in
EIC & ERCA also proclamations were used.

19 | P a g e
 3.5. Procedures of Data collection

The construction of a research instrument or tool for data collection is the most important aspect
of a research project because anything you say by way of findings or conclusions is based upon
the type of information you collect, and the data you collect is entirely dependent upon the
questions that you ask of your respondents.

The form of questionnaire that will be used in the study is a combination of close ended & open
ended. The questionnaire will be distributed for promotion & investment incentive administrative
officials who will be selected through convenience sampling. In the closed form of questionnaire
the respondents choose one of the alternatives as possible answers. The questionnaires will
directly give to the respondents. Thus, the respondents will answer the questions and the filled
questionnaires that will be collected from each respondent according to the time line provided for
data collection.

3.6. Methods of data Analysis

Analysis of data means studying the tabulated material in order to determine inherent facts or
meanings. It involves breaking down existing complex factors into simpler parts and putting the
parts together in new arrangements for the purpose of interpretation.

The collected data will be analyzed by using both descriptive and inferential statistics.
Descriptive statistical analysis is concerned with numerical description of a particular group
observed. From descriptive statistics percent, frequencies will be used to analyze the variables of
the study.

3.6.1. Objectivity

Objectivity is the absence of the researchers influence on the results of the study, It is about
limiting the influence of the researchers own value, interest and intention. The researcher will try
to keep a high level of objectivity in all works of the study by trying to search for information
from varies sources and triangulating the findings in the analysis. And since this study is not

20 | P a g e
written at the request of any company or organization there is no pressure on the researcher to
reach at a specific conclusion, which has made keeping an objective perspective.

4 .Work plan and Budget

4.1 Work plan

No. Description of the activity Duration Final Date
1 Topic selection Apr.16-28 Apr.28
2 Literature search Apr.28-May 8 MAY 8
3 Proposal writing May 8- 24 MAY 24
4 Data collection Jun.1-Jun.13 JUN.13
5 Data analysis Jun.14 –Jun23 Jun. 23
6 Research writing Jun. 24- July.4 July 4
7 Presentation July 5 July 5

4.2 Budget Plan

No Description of the activity Unit Unit price Total Cost
.
Personal cost
researcher 01 450 450
Transportation 08 2 550
Secretary 01 200 200
Material cost
Paper 01 140 140
Transport
Pen 02 5 10
Pencil 02 5 10
Binder 1 20 20
Other /miscellaneous cost 300
Total 1680

Reference
Alexander Klemm (2009),casue ,Benefit and risk of Business tax incentives. International ontery fund

21 | P a g e
Ather Maqsood Ahmed and Robina Ather(2014) : Study on Tax Expenditures in Pakistan. World
Bank Policy Paper Series on Pakistan PK 21/12

C.R kotari (2004) Research Methodology methods and techniques 2nd edition.

Council of ministers and the executives organs the federal democratic republic of Ethiopia
proclamation no 4/1994

Edward Mwachiga, Effectiveness of tax incentive in attracting investment evidence and policy
implication.

Ethiopia investment guide 2012, 2013. Addis Ababa Ethiopia

Ethiopian foreign trade policy

Ethiopian Revenues & Customs Authority (2001) Incentive on Income Tax Administration and
Regulation no 21. Addis Ababa, Ethiopia

FDRE (2001): A Proclamation to Establish Export Trade Duty Incentive Scheme. Federal Negaret
Gazeta 7th year no39 .Addis Ababa, Ethiopia

FDRE (2012): Council of Ministers Regulation Investment Incentives and Investment Areas
Reserved for Domestic Investors Federal Negaret Gazeta 19 th year no4 .Addis Ababa,
Ethiopia

Kenneth. P Thomas (2007) Investment Incentives: Growing up, uncertain benefits, uneven controls
university of missorri st.louis.

OECD (2007): Tax incentive for investment- A global perspective: Experience in MENA & Non
MENA countries.

Sebastian James(2009) tax & non tax Incentive & Investments: Evidence & policy
implication. World Bank group

Thomas F.poge (2009): tax expenditure: Concept and Framework for Analysis

Yoges kumar (2006) fundamental of research methodology & statics

22 | P a g e