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Journal of Economics and Sustainable Development www.iiste.org

ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.8, No.21, 2017

Effect of Customs Functions Automation on Revenue Collection

Improvement: Case of Ethiopian Revenues and Customs
Authority
Abraha Hiluf Berhe
Ethiopia

Abstract
The Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for collecting revenue from
Customs duties and domestic taxes. In addition to raising revenue, the ERCA is responsible to protect the society
from adverse effects of smuggling. The role of Customs functions automation is to effectively Improve revenue
collection, Combat fraud, Provides statistical information, Encourages international trade, Speeding up customs
clearance and Minimize administrative cost(united nations conference on trade and development,2016) etc.
However, from ERCA annual reports, from media and personal observations, the researcher understood the
authority was ineffective in Customs functions automation due to different challenges. Thus, the objective of the
study is to look into the Effects of Customs Functions Automation in ERCA on revenue collection improvements.
To achieve the objective, a24years revenue collection quantitative data were collected. The study adopted
quantitative research approach and descriptive research methods. The collected data was analyzed by both
descriptive and inferential statistics (simple leaner regression analysis) with SPSS Version 21.0 tool. The result
indicated that there was a positive relationship among Customs functions automation and revenue collection
enhancement. As ERCA atomize one Customs function, revenue collection ability increases by $2.17. It was thus
recommended that the Authority should concentrate on effective Customs functions automation.
Keywords: Revenue improvement, ERCA, Automation.

1. Introduction
In Ethiopia, Customs duties collection started around the first century in the Kingdom of Axum on the Red Sea
coast (Buyonge et al., 2008). In any case, it was built up amid Menelik II as a lawful legislative structure in 1889,
to gather government income. Beginning from 1889-1923 it was under the Ministry of Finance & Treasury, from
1923-1941 under Ministry of Finance, from 1941-1996 under Ministry of Trade (Teweldeberhan W/gebriel, 2011).
Currently, the Ethiopian Revenues and Customs Authority (ERCA) is the body responsible for collecting
revenue from Customs duties and domestic taxes. In addition to raising revenue, the ERCA is responsible to protect
the society from adverse effects of smuggling. It seizes and takes legal action on the people and vehicles involved
in the act of smuggling while it facilitates the legitimate movement of goods and people across the border
(proclamation No, .587/2008)
Customs Automation remains the backbone of forward advancing security and trade program initiatives, such
as the Customs Trade Partnership Against Terrorism (C-TPAT) and the Container Security Initiative (CSI), by
allowing for the performance of risk assessment and identification of high-risk containers, as well as the receipt of
advanced shipment or passenger information for targeting purposes (WCO compendium of integrity best
practice.2007).

Thus, Customs is an age-old institution whose mission has been subject to numerous changes over time. At
its outset, the pivotal role of its mission was to levy Customs duties, which in other words meant collecting
resources for the benefit of local authorities. Subsequently, and at different moments throughout its history, these
duties became a key way of shaping the State´s economic policies which were designed to protect domestic goods.

2. Literature review
Automation or computerization of Customs functions can improve efficiency and effectiveness and remove many
opportunities for corruption. Automation can also increase the level of accountability and provide an audit trail for
later monitoring and review of administrative decisions and the exercise of official discretion. Where possible
automated systems should be ,configured in such a way as to minimize the opportunity for the inappropriate
exercise of official discretion, face-to-face contact between Customs personnel and clients and the physical
handling and transfer of funds (Revised Arusha Declaration.2003).
Automated tracking and audit systems produce reports that can identify weaknesses and reveal suspicious
patterns of user activity when a legal necessity to do so has been identified. Automation allows trade to flow more
freely and reduces the need for face to face interaction that could jeopardize the integrity of the import/export
process. These acts as a beneficial buffer between Customs officials that perform clearance tasks and the traders
that they regulate (compendium of integrity best practice, 2007, p. 30-31)

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Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.8, No.21, 2017

Reader for advanced Customs management ( M-02,P:12) stated that introduction of computerized support for
the processing of Customs declarations, perhaps more than any other change, provides the opportunity to
implement standardized procedures that leave little need for face-to-face contact or opportunity for the use of
discretion of officials. A properly designed system ensures that:
The correct rates of duties and taxes are applied;
Exemptions are only granted to authorized organizations and for authorized goods and
service;
The required information and documentation is presented;
Time frames for payment are met; and
Those who do not comply with filing and payment time frames are identified and Follow-up action is
taken.
In addition, the system can provide useful management information, including for example,Identifying
transactions that do not meet time standards for processing or individual officers Who undertake actions that are
out of the ordinary (e.g., physically inspecting too many Shipments).
The WCO (2007, P.18) on its “Integrity development guide” has been stated as; Customs must respond to
changing international trade practices that are increasingly involving the use of electronic commerce. The
electronic service delivery of Customs functions improves efficiencies within the organization and the trading
community and provides a mechanism to reduce the opportunity for corrupt behavior.
In addition to the above advantages of Customs automation, the WCO stated its limitations as, Automated
systems can be vulnerable to attack and manipulation from inside and outside the organization. Where external
consultants or contractors are involved it is important to ensure appropriate security checks are undertaken and
appropriate supervision and accountability systems are established. Where sensitive information is stored on
automated systems a suitable audit trail needs to be established to protect the information and identify any officials
who may access information for private or inappropriate purposes.

3. Research Methodology
The study has incorporated quantitative approach and has applied descriptive research type using the fact that a
descriptive research design is used to describe the data and characteristic about “what is” being examined.
Descriptive survey additionally empowers to acquire the present data. It is also used in fact finding studies and
helps to formulate certain principles and give solutions to the problems concerning local or national issues.
Descriptive survey method concentrates on exploring the present status, practice and problems of the under study
problem. In this study, to collect secondary data, the researcher used the data of revenue collected by Ethiopian
revenues and Customs authority from the year 1993 to year 2017.
Therefore, In order to collect relevant and adequate second hand data, the researcher applied deep survey of
secondary sources .The researcher developed simple linear regression model (Y = α + β1X1 + Ɛ ,Where; Y –
Revenue collection α - Constant
β1, - Coefficient indicating rate of change of Customs functions automation, X1 – Customs functions
automation, Ɛ-Error term). Both descriptive statistics and inferential statistics method of data analysis methods
was applied. Significant levels were measured at 95% confidence level with significant differences recorded at p
< 0.05. Therefore, to achieve the study purpose, one research hypothesis (RH) was tested. That is:-
Hypothesis1:
Ho1: Customs functions automation has no significant effect on revenue collection improvement.

4. Results and Discussion

4.1. Correlation Statistics
Correlation statistics is a method of assessing the relationship between variables/factors. To be precise, it measures
the extent of association between the ordering of two random variables. Thus, the study analyzed the relationships
that are inherent among the independent and dependent variables as well as among the independent variables/
factors. The results regarding this were summarized and presented in table 4.1bellow. Pearson Correlations results
in table 4.1 showed that customs functions automation and Revenue collection improvement was positively and
significantly correlated (r=0.592, ρ<0.05). Thus Customs functions automation had 59.2% positive relationship
with Revenue collection improvement.

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Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.8, No.21, 2017

Table4.1:Correlations between customs functions automation and Revenue collection improvement

Revenue collection customs functions
improvement automation
Revenue collection improvement 1.000 .592
Pearson Correlation
customs functions automation .592 1.000
Revenue collection improvement .001
Sig. (1-tailed)
customs functions automation .001 .
Revenue collection improvement 24 24
N
customs functions automation 24 24
The scattered diagram bellow shows the functional relationship between Customs functions automation and
revenue collection improvements. The scattered diagram has two revenue collection regimes. That was pre
automation and post automation of Customs functions. As it is shown in the diagram, during the manual age of
ERCA (i.e., pre automation), the revenue collection trend was slow and with insignificant changes in revenue
collection among years. where, while the Customs functions was automated, the revenue collection enhancement
increased at increasing rate.so the diagram indicates that, there is positive relationship between revenue collection
and Customs functions automation.

Table 4.1. Regression: Model Summary

Model R R Square Adjusted R Square Std. Error of the Estimate
1 .592a .350 .321 35.398794
a. Predictors: (Constant), customs functions automation
b. Dependent Variable: Revenue collection improvement by ERCA
Sources: survey data, 2016
The above table4.1 shows, 35% of the revenue collection improvement is due to Customs functions
automation .where 59.2% of the revenue collection variation is due to other factors which are not included in this
model.
Table4.2:ANOVAa
Model Sum of Squares df Mean Square F Sig.
Regression 14861.228 1 14861.228 11.860 .002b
1 Residual 27567.642 22 1253.075
Total 42428.870 23
a. Dependent Variable: Revenue collection improvement by ERCA
b. Predictors: (Constant), customs functions automation
The above table 4.2 indicates, test of model adequacy. The model is adequate if and only if Ho is rejected.
Statistical hypothesis;
Ho: Customs functions automation has no significant effect on revenue collection improvement.

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Journal of Economics and Sustainable Development www.iiste.org
ISSN 2222-1700 (Paper) ISSN 2222-2855 (Online)
Vol.8, No.21, 2017

H1: Customs functions automation has significant effect on revenue collection improvement.
From the table 4.2 above, the researcher concluded that.at the test statistic, F=11.86 and P-value=0.002, Ho
is rejected. Because p<5%.So the table shows that Customs function automations has significant effect on revenue
collection improvements and the model is adequate.
Table 4.3:Coefficientsa
Model Unstandardized Standardized t Sig. 95.0% Confidence
Coefficients Coefficients Interval for B
B Std. Error Beta Lower Upper
Bound Bound
(Constant) -45.429 23.496 -1.933 .066 -94.157 3.298
1 customs functions 49.942 14.502 .592 3.444 .002 19.867 80.017
automation
a. Dependent Variable: Revenue collection improvement by ERCA
The above table4.3 indicates, Customs functions automation has significant effects on revenue collection
improvements .That is; Other factors remain constant, as one Customs function is automated, revenue collection
ability increases by Birr 49.942 which is equivalent to $2.17.

5. Conclusion
Governments need money to finance their expenditure. In less developed countries, Customs still contributes the
greatest revenue to the government in comparison to internal taxes. For example, in Ethiopia Customs contributes
up to 41% of annual tax collections. So that, to collect revenue effectively from the economy, Customs
organization should have to be modernized Nations who has modernized Customs authority can easily improve
revenue collection, Combat fraud, Provides statistical information, Encourages international trade, speeding up
Customs clearance, Minimize administrative cost. Where, Lack of well automated Customs functions severely
limit Customs capacity to effectively accomplish its mission.

Reference
Federal Negarit Gazzeta, Ethiopian Revenues and Customs Authority Establishment Proclamation No. 587/2008,
Addis Ababa-Ethiopia 14th year No 40, 14 JULY,2008.
Reader for advanced Customs management (M-02), n. available at Ethiopian Civil Service University library.
[Pdf].
Teweldeberhan W/gebriel,2011.Challenges of Customs on Trade Facilitation in Ethiopia: The case of Customs
clearance in ERCA:[pdf] A thesis Submitted to the School of Graduate Studies of Addis Ababa University
in Partial Fulfillment of the Requirements for the Degree of Master of Science in Accounting and Finance:
Available at: www.scribd.com/doc/116399300/Teweldeberhan- Wgebriel[Accessed 30December2015].
World Customs Organization, 2003. Revised Arusha Declaration: Declaration of the Customs Cooperation
Council concerning good governance and integrity in Customs.[pdf]Tanzania7July1993(81st/82ndConcil
session)and revised in June2003(101st/102nd council session):Available at:
www.customs.bg/document/3107[Accessed29September2015]. World Customs Organization [WCO],2007.
Compendium of integrity best practice [Pdf].
World Customs Organization [WCO], 2007.Integrity development guide.[Pdf].

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