FACTORS AFFECTING VOLUNTARY COMPLIANCE OF VALUE ADDED TAX REFISTERED TAXPAYERS IN ADDIS ABABA REVENUE AUTHORITY THE CASE OF NUMBER TWO MEDIUM TAXPAYERS’ OFFICE.

Abstract

The overall objective of this study was to identify the factors affecting voluntary compliance of VATregistered taxpayers’ in AARA: the case of number two medium taxpayers’ office. The specific objective includes examining, the effect of economic, individual, social, and institutional factors. The research used explanatory research methods. The primary data was collected using Likert scale questionnaires distributed to the number two medium VAT registered taxpayers. Dependent variable (Tax compliance) was measured in terms of complied to tax law that is registered timely, collect VAT by a legal receipt, file the VAT returns in the actual filing date, compute the tax liability as per the tax rate specified in the law, paid the right amount of VAT within the time frame stipulated in the tax law and have adequate records to complete tax returns and associated tax documentation. The predictor or independent variables were tax knowledge, referral group, simplicity of tax system, Principle of Equity and Fairness, awareness of offenses and penalty, Perception of Government Spending, Efficiency of the tax authority and Tax audit. The target population was 3929 from VAT registered taxpayers and 90 tax office staffs. The researcher utilized systematic random sampling for taxpayers and purposive sampling for tax office staffs techniques to select the participants. A sample size of 367 has been drawn from the tax population in Addis Ababa medium taxpayers’ branch office of taxpayers to fill questioner and 27 were questioned by the tax office staff. The descriptive statistics was used to analyze the tax compliance and inferential analysis (multiple regression analysis) to determine the cause and effect relationship Independent variables on dependent variable and to test the hypothesis. According to the regression output the Tax knowledge, Referral group, Simplicity of tax System, Principle of Equity and Fairness and Awareness of offences and penalty affect the tax compliance significantly and positively. The remaining variables were negatively related with tax compliance and their contribution was statistically insignificant. All these independent variables are making 41.78% of the contribution for tax compliance. The results of this study also provide specific insights and enable policymakers to gain a better understanding of key variables that are significantly linked to tax compliance and enable them to implement appropriate strategies to minimize potentially harmful factors, as well as improve tax collections for their government. Thus, these factors should be given due consideration to enhance taxpayers’ compliance behaviour and improve government’s revenue collection. Independent variables on dependent variable