ASSESSMENT OF UNDER INVOICING VALUATION SYSTEM: THE CASE OF PROFIT TAX AND ACCOUNTING PRACTICE

Abstract

Ethiopia is one of the countries with excessive challenges in under invoicing import. The inflated cost of imported item in custom valuation database and foreign exchange crisis in Ethiopia has become a major constraint for under invoicing. The focus of this thesis is the impact of under invoicing in profit tax and accounting practice. The methods adopted in the study include documentary analysis, and in-depth interview. The results suggested that the under invoicing valuation method affect the determination of profit tax and the recording of accounting principles There is also risk of revenue loss to the government due to under invoicing of imports, since the foreign currency crisis, transfer pricing and Tariff classification are not adequately developed. Therefore, the Government of Ethiopia needs to improve the process of determining dutiable value of the goods, foreign currency availability and the controlling of transfer pricing, since Profit Tax revenue is one of the major revenue for the federal government in Ethiopia.