Determinants of Tax Compliance: A Case of Gondar City, Ethiopia

Abstract

Tax compliance literature has indicated that there are many factors such as, social, psychological, economic, demographic and institutional factors that have an impact on compliance behavior of taxpayers. The study was conducted with the aim of identifying factors of compliance in Gondar city by adopting an explanatory research design by employing simple random sampling to select the participants. The sample was determined to 332 category ‘A’ and category ‘B’ business income taxpayers from whom primary data was collected structured questionnaires. Given the ordered ranking of the dependent variable (tax compliance), ordered logit model was adopted to identify the determinants of tax compliance in Gondar city. The findings revealed that simplicity of the tax system, probability of detection and organizational strength of the tax authority were found to be the significant determinants of tax compliance in Gondar city. Finally based on the findings recommendations are forwarded including building the tax authority’s capacity, increasing the number and frequency of audits and making the tax laws and regulations simple to understand.

Keywords: Determinants of tax compliance, Gondar, tax compliance, taxpayers