Determinants of Tax Compliance Behavior in Ethiopia: The Case of Bahir Dar City Taxpayers

Abstract

In the Ethiopian government five year Growth and Transformation Plan, it has been clearly stated that efforts will be geared towards promoting compliance and equipping tax collection institutions with adequate enforcement power which will further boost revenue mobilization at federal and regional levels. The country’s tax mobilization was also the lowest among most African countries and thus, identifying the factors that determine tax compliance behavior has been open for empirical investigation. Accordingly, using one-way ANOVA, two samples and one sample T- test, this study examined the determinants of tax compliance behavior in Ethiopia particularly in Bahir Dar city administration. The data was collected using structured questionnaire. The results revealed that perception on government spending; perception on equity and fairness of the tax system; penalties; personal financial constraint; changes on current government policies; and referral group (friends, relatives etc.) are factors that significantly affect tax compliance behavior. However, gender and probability of being audited have no significant impact on tax compliance behavior. Finally, the findings show that older people will comply less if there is no equity and fairness in the tax system and any changes in government policy on fuel prices, electricity and water rates are not favorable.

Keywords: Compliance behavior, Tax payers, Ethiopia.