A Study on Determinants of Voluntary Tax Compliance in Bahir Dar, Ethiopia

Abstract

In Ethiopia, as in some other developing countries, tax noncompliance is a serious challenge facing income tax administration and hindering tax revenue performance. Hence, this study focused on the relationship between the perceptions of equity/fairness, strength of tax authority, lack of ability to pay, perceptions of government spending, enforcement of tax law, tax knowledge, complexity of tax system, and compliance costs are investigated to examine the effect of these independent variables on dependent variable (income tax compliance) in Bahir Dar City Administration of Amhara National Regional State taxpayers. Quantitative research design is used, primary data are collected using structured questionnaire from a sample of 125 taxpayers of the city dwellers, selected using purposive and random sampling. For data analysis descriptive statistics, correlation, and regression analysis techniques are employed. The result of the study indicated that perceptions of equity/fairness, lack of ability to pay, Perceptions of government spending, tax knowledge, complexity of tax system, and compliance costs have a direct and significant effect on income tax compliance while organizational strength of tax authorities and appropriate enforcement of tax law have a direct but insignificant effect on income tax compliance. Out of these variables lack of ability to pay, compliance costs and complexity of the tax system are related negatively with the income tax compliance. Considering the findings of the study, maintaining tax fairness and equity, building capacity of the tax authority, conducting extensive awareness creation programs, and providing social services to the general public is suggested.

Keywords:Tax compliance, perceptions of fairness, ability to pay, government spending, tax knowledge, complexity of tax system, and compliance costs.

DOI: 10.7176/RJFA/10-23-04

Publication date: December 31^st 2019