NATIONAL AGENCY FOR EXAMINATIONS (NAE) NATIONAL EXIT

EXAMINATION FOR STUDENTS OF ETHIOPIAN LAW SCHOOLS

(2003- 2015 EC) ACADEMIC YEAR

TAX LAW (public law)

1. One of the following is not a canon of taxation

A. Certainty C. Accountability

B. Productivity D. Economy

2. The following statement is correct about commonality of TOT and VAT

A. Both are Indirect taxes

B. Both belong to the family of sales taxes

C. Both avoid cascading effect

D. All

E. None

3. Tax withholding is the process of depositing money to be credited later against one's tax
liability.

True/false

6. Among the two available income tax systems our tax system is
based on ____________________________________

7. ___________________________ Principle allows the tax payer to compensate and

make set-off the business loss suffered by the tax payer in a given year against the
subsequent profitable years

8. Define tax base? (5 points)

9. One of the following statements is correct about value added tax (VAT).
A. VAT creates cascading effect of a tax.
B. VAT is less comprehensive and less equitable tax system.
C. VAT increases the possibility of tax evasion.
D. VAT has more tax burden.

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10. VAT promotes capital investment and saving. What is tax burden? 6%

12. The principle of efficiency in taxation refers to the idea that:

A. The administrative cost to the tax collecting authority should be kept at minimum.
B. The costs of compliance on the part of taxpayer in discharging their obligation to pay
Tax should be kept at minimum.
C. The effect of a tax in changing the behavior of tax payers/distortion effect of tax/ should
be kept at minimum.
D. All.
E. A and C.

13. According to some people, "the assignment of the power to levy value added tax (VAT)
to the federal government under the guise of undesignated tax is unconstitutional. VAT is
not undesignated tax; rather, it is a sales tax already designated and allocated to the federal
and the regional states depending on the source." Write an essay in which you reflect on
the validity or otherwise of this assertion. 15%

14. Taxes are instrumental for a government:

A. To reduce consumption of harmful goods and services.

B. To control the level of price of goods and services/inflationl.
C For encouraging saving and investment.
D. All.
E. None.

15. The classification of taxes into direct and indirect taxes is based on:
A. The ability of taxpayers to pay tax.
B. Whether the source of revenue is from home or abroad.
C. Whether the tax is implicitly shift able or not.
D. A and B.
E. None.

16. The administrative cost to the tax collecting authority and the costs of compliance on
the part of taxpayer should be kept at minimum. Which one of the following principles is
best explained by this idea?

A. Efficiency.
B. Equity.
C. Certainty.

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D. Flexibility.
E. None.

17. Which one of the following is incorrect about allocation of tax power under the
Constitution of the Federal Democratic Republic of Ethiopia?

A. Taxes not specifically allocated to the federal government are always left to the regional
states.
B. Income tax from individual traders is under taxation power of regional states.
C. Income tax from companies and partnerships is under concurrent power of taxation.
D. Sales tax on federal enterprises exclusively belongs to the federal government.
E. None.

18. One of the following is an exclusive Federal tax power. Which is it?
A. Tax from large scale mining operations
B. Tax from companies I"
C. Income tax from employees of International organizations
D. Tax from small businesses in regions x
E. Income tax from persons working for regional governments,
19. Which one of the following taxes can be considered direct tax?
A. Value Added Tax
B. Turn Over Tax
C. Manufacturer's sales tax
D. Income tax
E. Custom duty paid by a company
20. Identify the income source that is not taxed based on schedule 'D'?
A. Income from winning lottery.
B. Income from legal advice rendered outside of Ethiopia -:
C. Capital gains tax
D. Income from casual rent of a house

E. Income from regular car rent

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21. A tax imposed on international trade of goods is called?
A. Customs duty
B.Value Added Tax,
C. Turn Over Tax
D. Excise Tax

E. Stamp duty

22. One of the following items is excluded from gross income during taxation of “Schedule
A” taxpayers?
A. Overtime payments.
B. Fringe benefits.
C. Hardship allowances.
D. Payment in-kind by the employer to employees.
E. Back payments.

23. Identify the true statement regarding the difference between Zero rated transactions
and Exempted transactions in VAT?

A. In exemption no VAT is collected but in zero rating VAT is collected but only from
exports.
B. Persons dealing with exempted transactions are required to register for VAT whereas
traders dealing with zero rating are not.
C. Zero rated transactions are inside the VAT system whereas exempted transactions are
outside the VAT system.
D. Both are multistage VAT systems.
E. Exported items are exempted from VAT whereas as imported items are zero rated.

25. Which of the following is correct about Ethiopian tax jurisdiction?

A. Residents are required to pay income tax from incomes they receive in Ethiopia only.
B. Non-residents are required to pay tax from their worldwide income.
C. Residents of Ethiopia pay tax from worldwide income.
D. All Ethiopians are required to pay tax to Ethiopian government wherever they reside.
E. Foreigners are required to pay tax from incomes they generate in Ethiopia only.

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26. The undesignated power of taxation included in the FDRE Constitution implies that

A. The two houses joint session determine which level ofgovernment can exercise the power
of taxation.

B. The two houses jointly determine the base and rates of the newly identified tax.

C. The two houses jointly determine how the proceeds obtained from such power is divided
between the levels of government.

D. It is viewed under the residual powers of the states. x

E. The states determine the tax base and rate to a newly identified tax,

27. Which one of the following types of income is NOT encompassed in taxable income?

A. Income from smuggling activity.

B. Casual income.

C. Capital Receipt, except gains on transfer of capital asset.

D. Income received in kind.x

E. Fees for services rendered.

28.Who is the actual payer of Value Added Tax in Ethiopia?

A. Consumers of the goods and services.

B. Seller who is registered for VAT.

C. Retailors registered for VAT.

D. Whole seller registered for VAT.

E. Both retailors and whole sellers.

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29. Which one of the following types of tax is an additional tax rate added onto the rate of
an existing tax?

A. Excise tax.

B. Surtax.

C. Surplus tax.

D Turnover tax.-

E. Value added tax.

30. Any compensation received or receivable by a victim of northern Ethiopia civil war
destruction is:

A. Fully exempt from tax.

B. Taxable.

C. Exempt up to 15 % of ETB.

D. Exempt except to the extent of amount received or receivable which has been allowed as
deduction for any loss damage caused by such destruction.

E. Deductible and subject to taxable.

31. Which of the following is correct about Ethiopian tax jurisdiction?

A. Foreigners are required o pay tax from incomes they generate elsewhere.

B. Residents are required to pay income tax fom incomes they receive in Ethiopia only.

C. Non-residents are required to pay tax from their worldwide income.

D Residents of Ethiopia pay tax with respect to worldwide income.

E. All Ethiopians are required to pay tax to Ethiopian government wherever they reside.

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32. Which one of the following taxation canons suggests relatively small cost of tax
administration against the tax revenue to be collected?

A. Horizontal equity.

B. Efficiency.

C. Certainty.

D. Simplicity.

E. Convenience.

33. Which statement is correct?

A. Tax laws have retroactive application.

B. Ethiopia has income tax jurisdiction only on its resident.

C. Gross income is the amount of income on which actual income is charged,levied and
collected after all deductions have been made.

D. Tax may affect the property rights of individuals.

E. Efficient tax system may result in government budget deficit.

34. Income tax is payable on

A. Earned income.

B. Every income.

C. Taxable income.

D. Aggregate income.

E. Selected income.

35. The following are objectives of taxation by the Government EXCEPT

A. raising revenue for the state.

B. maintaining economic stability.

C. reducing inequalities in income and wealth.

D. ensuring price stability.

E. stepping up public investments only.

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36. Which of the following is NOT correct about Value Added Tax (VAT)?

A. VAT is a multi-stage tax.

B. VAT is paid on the total value of the goods and services.

C. There is no cascading effect of tax in VAT.

D. VAT is not defined under the VAT proclamation.

E. VAT is a form of indirect taxation.

37. A good tax system is efficient when

A. there is flexibility and certainty in the tax system.

B. it needs lots of money and resource for its operation.

C. it changes consumer behavior that they buy less of taxed goods and more of other goods.

D. the cost of collecting a tax is greater in relation to the amount collected.

E. the tax system need not be simple.

38. Taxpayers who are not voluntarily or obligatorily registered for VAT shall pay

A. Custom duty tax.

B. Income tax.

C. Excise tax.

D. Turnover tax.

E. Stamp duty tax.

39. Which one of the following statements is INCORRECT about tax?

A. It is a coercive imposition.

B. It serves as a public revenue.

C. It is only imposed on persons/entities.

D. It regulates an economy.

E. It is solely imposed on cash income.

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40. Classification of taxes into direct and indirect taxes is based on:

A. Progressivity of tax rate.

B. Tax accounting.

C. Tax liability and economic incidence of revenue.

D. Mode of payment.

E. Tax assessment.

41. One of the following alternatives is NOT a purpose of tax. Which one is it?

A. Encouraging export trade

B. Discouraging harmful consumption

C. Generation of revenue

D. Stabilization of an economy

E. Regulation of government's budget

42. The Ethiopian income tax jurisdiction is based on:

A. Residence Jurisdiction.

B. Source Jurisdiction.

C. Age Jurisdiction.

D. Both Residence and Source Jurisdiction.

E. It isn't known.

43. Which level of government is constitutionally empowered to levy and collect tax from
employees of a share company residing/located in a given regional state?

A. The Regional State

B. The Federal Government

C. Both the Federal and Regional Governments concurrently

D. Such power is undesignated

E. Such companies are non-taxable

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44. Which one of the following sources of revenue is not primarily designed for collecting
revenue to the government?

A. Taxes on employment income.

B. Taxes on games of chance like lottery.

C. Fines/penalties/ due to violation of laws.

D. Loans.

E. Donation.

45. Taxes in which the rate of tax remains constant irrespective of the extent of the tax base
is referred to as:

A. Progressive tax.

B. Proportional tax.

C. Regressive tax.

D. Digressive tax.

E. Constant tax.

46. Which one of the following alternatives is an advantage of indirect taxes over direct
taxes?

A. Less inconvenient and less burdensome than the direct taxes.

B. The revenue from indirect taxes cannot be estimated accurately.

C. Indirect taxes create a better civic consciousness than direct taxes.

D. Indirect taxes can prevent inflation better than the direct taxes

47. Which one of the followings is among the characteristics of tax?

A. It is a consent based charge on a tax payer’s private property.

B. A tax payer can demand a direct return from the government.

C. Its compulsory nature distinguishes tax from all other payments.

D. Tax is always a legal collection aimed at welfare of the society.

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48. From the following alternatives, one is TRUE about the VAT system of Ethiopia.

A. he taxation power is explicitly assigned to the Federal Government by the FDRE

constitution.

B. The Ethiopian VAT system recognized ‘origin principle’ of imposing Value added Tax.

C. The Ethiopian VAT system recognized ‘Subtraction method’ of computing VAT

Liability.

D. Registered persons are not the only persons under obligation to collect Value Added
Taxes.

49. One of the following alternatives is recognized by the Ethiopian income tax law as a
unilateral solution to avoid double taxation.

A. Exempting a foreign income from taxation in Ethiopia.

B. Treating a tax paid in a foreign jurisdiction as expense.

C. Crediting a foreign tax in determining a tax in Ethiopia.

D. Applying double tax avoidance provisions of tax treaties.

50. One of the following principles of taxation advocates that a tax system should not
influence the economic decisions of tax payers.

A. Principle of independence.

B. Principle of neutrality.

C. Principle of certainty.

D. Principle of free decisi

51. Which one of the following alternatives is TRUE about custom duties?

A. Their increment is desired by advocates of free trade.

B. Generating public revenues is their only purpose.

C. Maintaining sovereignty is among their reasons.

D. They are imposed mainly to ban importation.

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