Factors Affecting Tax collection Effectiveness. Case Addis Ababa Revenue Large tax Payers Branch Office

Abstract

This study aims to investigate the various factors influencing tax effectiveness at the Addis Ababa Revenue Large Taxpayers Branch Office. To achieve this, a descriptive research design was applied to investigate the relationship that exists between the dependent and independent variable, in this study, a mixed research approach was applied. Data were collected from both primary and secondary sources through questionnaires, interviews, and document analysis. The study's sample comprises a total of 177 respondents for the questionnaire survey, and seven respondents were purposively selected for in-depth interviews. The data collected were analyzed using descriptive and inferential statistics, including correlation analysis and multiple regression models, facilitated by SPSS Version 25. The findings reveal several key relationships. Tax office capacity has a significant positive correlation with collection effectiveness (r = 0.483, p < 0.01), and tax compliance is also positively correlated with collection effectiveness (r = 0.268). Taxpayer awareness also significantly correlates with collection effectiveness (r = 0.251). Furthermore, tax exemptions are positively correlated with collection effectiveness (r = 0.367). In regression analysis, the summary shows that the factors we looked at (like tax office capacity, tax compliance, taxpayer awareness, and tax exemptions) explain 26.7% of the difference in how effective tax collection is. The study highlights several key challenges faced by the Ethiopian tax system, including insufficient tax education, high resistance to compliance, outdated tax policies, and inadequate staffing. Interviews with tax officials and taxpayers suggest that these issues exacerbate tax collection ineffectiveness and hinder overall tax system performance. The research also identifies organizational challenges such as frequent employee turnover and political interference in staffing decisions, which further undermine tax collection efforts. Based on these findings, recommendations are made to strengthen tax office capacity, enhance taxpayer awareness, ensure fair and transparent tax policies, and improve compliance through incentives and enforcement.