Determinants of Tax Compliance Behavior in Ethiopia: Evidence from South Gondar Zone

Abstract

This study is conducted with the main objective of analyzing the empirical relationship between tax compliance behaviour and its determinants in South Gonder Zone of the Amhara region. The study is conducted by using primary data collected from category “A” and “B” tax payers. The primary data is collected using structured questionnaire from 11 districts in the zone. The response obtained from 295 respondents (87.3% response rate) is used for the analysis. Both descriptive and econometrics approach is applied to analyze the data. In order to determine the empirical relationship between tax compliance behavior and its determinant, binary logit model is estimated. The study found that audit rate, attitude of tax payers, perception on equity of the tax system and benefit from the government as well as education are found to have statistically significant positive impact on the tax compliance behavior of category” A” and “B” tax payers in South Goder Zone. On the contrary, tax rate, audit probability, social norm, compliance cost and sex are identified as statistically significant negative determinants of tax compliance behavior in the study area. But, Penalty rate, Perception of government Spending, training to enhance tax knowledge and age of the respondent are found to have statistically insignificant effects on compliance behavior of category “A” and “B” tax payers in South Gondar zone. Finally, the study has forwarded suggestions to further strengthen audit rates, tax equity, tax education, and build the capacity of tax auditors. Moreover, the tax authority should work hard to reduce compliance costs and improve the attitudes of tax payers.

Keywords: Determinant, Logit model, Tax Compliance

DOI: 10.7176/RJFA/11-5-03

Publication date:March 31^st 2020