Factors That Affect Tax Compliance Behavior of Small and Medium Enterprises: Evidence from Nekemte City

Abstract

The main objective of the study was to assess factors that affect tax compliance behavior of small and medium enterprises taxpayer in nekemte city administration. The study used descriptive and explanatory research design. The total population of the study was 8458 small and medium business enterprises in nekemte city from which the sample of 386 were determined for data collection. To ensure the representativeness of different business sectors of small and medium enterprises taxpayers, stratified sampling technique was adopted. In order to gather the required data, structured questionnaires have been used.  Data collected was analyzed by Statistical Package for Social Science version 24 and the findings were presented using tables and figures. The finding shows that tax rate have statistically significant negative effect on tax compliance behavior of small and medium enterprises tax payers, but the level of income, fine and penalty, Rewarding and incentives, simplicity of tax system, perceptions of government spending, tax audit, Attitude toward tax and tax knowledge and awareness were statistically, significantly and positively associated with tax compliance behavior of small and medium enterprises tax payers. The study recommended that management of tax revenue authority has keep tax rates to the minimum as much as possible, putting legal sanctions in terms of penalties and fines on non compliant SME tax payers, simplify filling and tax collection procedures, maintain transparency on how the revenue collected from taxation was being expended. Provide tax rewards and incentives to honest tax payers, educating the taxpayers to create the necessary awareness on tax laws and the detection of noncompliance so as to increases tax compliance behavior of SME taxpayers.

Keywords: tax compliance behavior, Small and medium enterprises

DOI: 10.7176/EJBM/12-19-04

Publication date:July 31^st 2020