The Moderating of Financial Condition on Tax Compliance Behavior: Evidence from Mekelle City

Abstract

The factors underlying individual business profit taxpayers’ compliance behavior in Mekelle City to come across the causes of noncompliance. In order to gain in-depth understanding of the occurrence, the study expands the basic tax compliance model to incorporate perceived tax service quality, tax system structure, attitude towards tax evasion, non-compliance opportunities as well as moderating effects of personal financial condition on factors influencing taxpayer’s compliance behavior. Multi-stage cluster random sampling technique used to select the samples of the study from the population of individual business profit taxpayers residing in Mekelle city. The primary data, which were collected through self-administered questionnaires 185, cross sectional type, were treated statistically using multiple regressions analysis State 10 for test of hypothesis and through statistical package SPSS version 16 software for descriptive purpose and 10 in depth interview via content analysis. Business profit taxpayers randomly selected from four sub-city administration of Mekelle city, Tigray. The descriptive statistics on the surveyed sample perceived the tax service quality and tax system structure were ineffective and business profit taxpayers shown unfavorable attitude towards tax evasion. The findings also indicate income levels (low income) have significant effect. The financial condition significantly moderated the influences of attitude towards tax evasion changes the sign and non-professional occupation on tax compliance behavior. Financial condition besides of moderator, it has strong relations with tax compliance behavior, but some variables do not interacted.  By implications, the findings of the study suggest extension to compliance model to incorporate these factors for better understanding of tax compliance behavior.

Keyword: Financial Condition, Tax Compliance, Tax Service Quality and Taxpayer’s Non-Compliance opportunities.