Factors Influencing Tax Revenue Collection In Ethiopia: The Case Of Holeta Town Revenue Office

Abstract

This study investigates the primary determinants of tax revenue collection, addressing the critical problem of a low national tax-to-GDP ratio (6.8%) despite nominal revenue growth. The research focuses on the micro-level dynamics within Holeta Town, a context where the specific factors influencing tax collection remain poorly understood. The objective of the study was to identify factors influencing tax revenue collection in Holeta town. A mixed-methods research approach was employed, using a cross sectional survey design to collect primary data from taxpayers and employees of the Holeta Town Revenue Office. The sample included 300 taxpayers selected using purposive sampling method, along with interviews with tax office employees. The study applied an ordered logistic model to analyze the relationships between a set of independent variables and the three-level, ordered dependent variable of tax revenue collection (low, medium, and high). The main findings indicate that tax evasion & delinquency and corruption are statistically significant and have a negative effect on tax revenue collection. Specifically, corruption was identified as the most detrimental factor, with an increase in corrupt activities increasing the probability of low tax collection by 14.2%. Conversely, the use of technology and the organizational commitment of the tax authority were found to have a positive and significant effect on collection. Political instability also has a significant negative impact. The study concludes that tax collection in Holeta Town is at a medium level, hindered by these various factors. It is recommended that the government strengthen the tax authority with modern technology, maintain political stability, and implement stronger enforcement mechanisms to address tax evasion and delinquency.