Determinants Of Taxpayers’ Compliance With Tax System: The Case Of Holeta Town, Oromia, Ethiopia

Abstract

The study was conducted with the purpose to assess tax payers’ compliance with tax system and collection challenges in Holeta town. The study employed a mixed research design, and approach whereby qualitative and quantitative methods of data collection and analysis were combined. To analyze qualitative data, thematic content analysis was employed. On the other hand, simple descriptive statistics (percentage, frequencies, mean, and standard deviation); inferential statistics (Chi-square test, and Pearson correlation); and advanced econometric model (binary logistic regression) were employed the quantitative data of the study. A grand mean of 1.84 indicated the overall poor practice of tax revenue collection, and management in the town. A grand mean of 3.83 indicated the seriousness of the existing challenges of the tax revenue collection, and management in Holeta town. A mean of 4.34 indicated that the absence of procedural fairness by the tax authority is the most serious challenge of revenue tax collection and management in Holeta town. Age of the respondent, sex of the respondent, fairness of tax system, effectiveness of the tax authority, perception on equity, change in government policy, referent group, perception on government spending, and personal financial constraint were confirmed to have significant association (P<0.05) with tax compliance attitude of income tax payers in Holeta town. The tax authority in Holeta town should urgently address the identified challenges (poor service delivery by the tax authority, poor public good and service provision in the town, weak awareness creation to the tax payers by the tax authority, absence of procedural fairness by the tax authority, unethical behavior by the tax collectors, and absence of reward to tax payers (giving a trophy for being best tax payers) to improve its efficiency and effectiveness. Moreover, Attention should be given to age of tax payers, sex of tax payers, fairness of tax system, effectiveness of the tax authority, perception on equity, change in government policy, referent group, perception on government spending, and personal financial constraint to improve the tax compliance attitude of income tax payers towards the existing tax system in Holeta town.