The Impact of Cash Register Machine on Value Added Tax Income: A Case of Wolaita Sodo Town

Abstract

Introduction: Taxation is a mandatory financial obligation imposed by governments to fund public expenditures, with a long history in Ethiopia. The introduction of cash register machines (CRMs) has significantly improved Value Added Tax (VAT) compliance and revenue collection in several countries, including Ethiopia, by reducing sales underreporting and increasing transaction transparency. Despite these gains, VAT revenue in Ethiopia still falls short of its potential. Limited taxpayer awareness, high operating costs, inconsistent audit follow-up, and mixed perceptions of CRMs continue to undermine full compliance. This study therefore addresses the central problem of how these factors affect the effectiveness of CRMs in enhancing VAT income in Wolaita Sodo Town, Southern Ethiopia.

Methods: The study employed a quantitative research approach with a causal research design. The target population consisted of 1,145 individuals: 1,124 taxpayers, 18 VAT experts from the tax authority, and 3 cash register machine suppliers. Using random sampling for taxpayers and purposive sampling for VAT experts and suppliers, a total of 317 respondents were selected. Structured questionnaires were distributed to these respondents to assess the challenges associated with using cash register machines to collect VAT.

Results: The research highlights the positive impact of cash register machines (CRMs) on Value Added Tax (VAT) collection in Wolaita Sodo Town, attributing success to significant awareness and training efforts. However, it points out the need for improvements in audit transparency and cost management. It was found that while CRMs are effective in reducing VAT evasion, particularly with audit follow-ups, there's room for enhancing audit processes and reducing operational expenses.

Conclusion: The study concludes that there is positive perception among businesses about the use of cash register machines for VAT collection, driven by effective training and awareness initiatives. Despite mixed opinions on the identification of VAT evasion, there is a consensus on the critical role of tax audit follow-ups in reducing evasion, although concerns remain about audit process transparency and additional operational costs. The study emphasizes that while perceptions of cash register machines are important, the real fiscal benefits will only be realized through stronger tax enforcement and enhanced taxpayer knowledge.