FACTORS AFFECTING TAX COMPLIANCE BEHAVIOR OF BUSINESS TAXPAYERS IN ADDIS KETEMA SUBCITY, ADDIS ABABA, ETHIOPIA

Abstract

Tax non compliance has been a serious challenge for the administration and performance of tax revenue for many developing nations. The issue of complying with the existing tax system has predominantly been dealt with in several developing countries. The situation is also the same for Ethiopia. This study has been conducted to evaluate the status of tax compliance and factors affecting the compliance behavior of business tax payers in Addis Ketema Sub city. The study has applied a mixed methods approach to investigate the problem of tax compliance. Samples for this study were selected using a stratified random sampling technique through purposive targeting of business tax payers in Addis Ketema Sub city. Data collection was made through interviews, informal discussions and a semi structured questionnaire. Qualitative analysis of data was through narrations while quantitative techniques were applied using frequencies, percentages, tabular presentations, graphs and other descriptive techniques. For the analysis of factors affecting tax compliance behavior of the respondents, a binary logit model was applied. Result of the analysis shows that 89.8% of the respondents were found not to comply with the existing tax system while the remaining 10.2% of them were complying. Among the factors affecting the tax compliance behavior of respondents in the sub city, knowledge of taxation, probability of detection for non compliance and complexity of the tax system were found to have a significant effect on tax compliance behavior. As a conclusion of the study, knowledge of taxation does not necessarily lead to compliance but may sometimes lead to non compliance due to the nature and interest of the tax payer in relation to utilizing the knowledge. At the end of the study, it was recommended that the government should introduce modern technologies that could help in the identification of non compliance thereby simplifying the current tax system in the sub city.