Assessment of the effect of Value Added Tax on consumption behavior: The Case of Nekemte Town, Wollega

Abstract

This study has been conducted having the objective of assessing the effect of Value Added Tax on consumption behavior of Nekemte Town households.  Descriptive research design has been implemented to undertake this study. The two most commonly used data collecting mechanisms (questionnaire and interview) have been used for this study by taking a sample size of 384, out of 20,870 households using stratified random sampling and three higher officials of Ethiopian Revenue and Custom Authority  Nekemte branch from twelve total staff members using purposive sampling.  To collect and measure the study,  Liker Scale question were used and the collected data were edited for minor error.  Relevant statistical methods of analysis like mean, standard deviation correlation and regression were use using the statistical package. The study revealed that the implementation of VAT to go down well with Consumers, the scheme has to come with some compensatory measures such as the reduction of income taxes to put more money in the pockets of households and to boost their purchasing power. And to ensure that the low-income and poor consumers – who may not enjoy the benefits of lower income taxes as most likely they are already exempted from such payment in the first place - are not worse off with VAT, zero-rating some basic essential products and providing other targeted assistance programmes are necessary measures to help them.