FACTORS AFFECTING TAX PAYERS COMPLIANCE WITH THE TAX SYSTEM: CATEGORY “A” TAX PAYER’S IN ADDIS ABABA

Abstract

The objective of this study is to examine factors affecting category “A” tax payers in Addis Ababa. A conceptual framework was adopted based on the economic, social, individual and demographic factors. The study adopted a quantitative research approach to test the hypotheses and answer research questions. The data collected from 120 Category “A” tax payers in Addis Ababa through distributing self-administered questionnaires. Date was analyzed using STATA. Two analysis methods were used, descriptive statistics and ordered probit model to examine significant determinant factors of tax compliance. The result founds that majority of tax payers were not compliant. It also revealed that education level, tax audit, government spending, the influence of referent group, personal financial constraint, awareness on offences and penalty rate, and tax knowledge are significant factors of tax compliance. Others factors considered under this study, age, gender, income level, equity and fairness, government policy were found to be insignificant. Finally the study suggests that the government has to improve public services to enhance tax compliance behavior. Following this it is mandatory to create awareness about benefits of paying tax, conducting preventive education to the public and conduct through audit to discourage non compliance behavior. In addition it would be helpful if further study is conducted on influence of referral group on compliance behavior since social norms and ethical values will create different incentives for tax compliance.