Effects Of Tax Evasion On The Revenue Collection: The Case Of Gulele Sub City Category “A” And “B” Taxpayers Branch Office

Abstract

This study examines the effects of tax evasion on revenue collection in Gulele Sub City, focusing specifically on Category “A” and “B” taxpayers. The primary objective of this study is to evaluate how tax evasion impacts the revenue collection capacity of the tax authority, assess taxpayer awareness of tax regulations, and analyze the effectiveness of current enforcement measures. The problem addressed in this research is the substantial revenue loss attributed to tax evasion, which significantly hinders the government’s ability to provide essential public services and infrastructure. Despite existing tax laws, tax evasion remains a pervasive issue, creating a notable gap between potential and actual revenue collection. This study aims to fill the research gap regarding the relationship between tax evasion and revenue generation in the Ethiopian context, particularly within Addis Ababa. Employing a mixed-methods approach, this study utilized both quantitative and qualitative methodologies. A sample of 381 taxpayers was derived from a target population of 7,680, using a proportional stratified sampling technique to ensure representation across different taxpayer categories. Data was collected from 370 respondents through structured questionnaires and supplemented with qualitative interviews from tax authority officials. The quantitative data were analyzed using descriptive and inferential statistics, while thematic analysis was applied to the qualitative data to gain deeper insights into taxpayer behaviors and perceptions. The results indicate that tax evasion significantly undermines revenue collection efforts, with prevalent techniques including underreporting income and claiming false deductions. Approximately 78% of respondents acknowledged that tax evasion adversely affects public finance. The study further reveals a critical lack of awareness regarding tax obligations, particularly among Category “A” taxpayers, which correlates with higher evasion rates. Although current enforcement measures, such as audits, are recognized as deterrents, many respondents expressed concerns about the sufficiency of penalties for non-compliance. Based on these findings, the study recommends enhancing taxpayer education through comprehensive programs that inform individuals about their obligations and the consequences of evasion. Additionally, it suggests strengthening enforcement strategies by increasing audit frequency and clarifying penalties to ensure fairness and effectiveness. Utilizing technology for compliance tracking and fostering community engagement in tax initiatives could further enhance compliance rates