Challenges in Implementation of Casual Rental Income Tax: The Case of Selected Towns in Tigray Regional State

Abstract

Income tax from casual rent of property (sometimes called transient rental) has considerable potential to generate significant revenue to finance local projects of the Tigray regional state. In principle, these incomes are categorized as taxable incomes under schedule D of the Federal and Regional Income Tax Proclamations. This research aimed to study the practical, legal and institutional challenges of the implementation of the casual rental of property income tax in the Tigray Regional State taking Mekelle, Shire Indasilasie, Alamata and Wukro cities as a sample. The research employed qualitative research methodology. Accordingly, the legal analysis reveals that the law is blurred and suffering from lack of sufficient directions. It does not clearly define the scope and meaning of casual rental and the income tax therefrom. This research reveals that the implementation of the casual rental income tax is almost none. The non-taxation of income from casual rental of property is, in turn, defeats the purpose of basic taxation principles. The research found out that the failure of the tax authorities to identify the real and potential tax payers, the failure of the tax payers to report their tax obligations, the practical income characterization problems, the lack of awareness and ignorance of the tax assessors and tax collectors are the main challenges for the failure to implement taxation of income from casual rental of property. Stepping from these findings, the researchers recommend enactment of specific and comprehensive directives. They also place a clear direction (based on empirical data) for the tax authorities to enable them effectively implement casual rental income tax.