OROMIA STATE UNIVERSITY

SCHOOL OF ACCOUNTING AND

TAX ADMINISTRATION

DEPARTMENT OF PUBLIC FINANCIAL MANAGEMENT

ASSESSMENT OF TAX PAYER’S ATTITUDE AND

COMPLIANCE BEHAVIOR

THE CASE OF CATEGORY A and B IN DUKEM TOWN

ADIMISTRATION
BY:

AWEL GOLE FITORA

A THESIS SUBMITTED TO THE SCHOOL OF ACCOUNTING AND

TAX ADMINISTRATION, OROMIA STATE UNIVERSITY, IN
PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR AWARD OF
A MASTERS DEGREE IN PUBLIC FINANCIAL MANAGEMENT

ADVISOR: - SIMECHEW MULUGETA (Ph.D.)

June, 2019

BATU, ETHIOPIA
 DECLARATION

I Awel Gole Fitora do hereby declare that this thesis is my original work and that it has
not been submitted partially or in full by any other person for award of a Master Degree
in other University and that all sources of materials used for the thesis have been fully
acknowledged.

Name of Researcher Awel Gole Fitora Signature....................Date..................

 CERTIFICATE

This is to certify that the thesis prepared by Awel Gole Fitora entitled assessment of
taxpayer’s attitude and compliance behavior case of category “A” and “B” Dukem town
adimistration which is submitted in partial fulfillment for the Degree of Master in public
financial management with the regulation of the University and meets the accepted
standard with respect to originality and quality.
Name of Advisor Simechew Mulugeta (Ph.D) Signature....................... Date.....................
 APPROVAL SHEET

As members of the Examining Board of the Final MA Open Defense, we certify that we
have read and evaluated the thesis prepared by Awel Gole Fitora and examined the
candidate. We recommend that the thesis be accepted as fulfilling the thesis requirement
for the Degree of Masters in public financial Management.

Name of Advisor.................................................Signature.......................Date..................

Name of Internal Examiner..................................Signature.................... Date.....................

Name of External Examiner...................................Signature..................Date.....................

Name of chaiman...................................…...........Signature..................Date.....................
 Acknowledgment

I am indebted to Dr. Simechew Mulugeta, my advisor, without whose wise and

intellectual advice, guidance and directives this study would not have come to an end and
would not become tangible.My sincere thanks are kept to all my friends and course
mates, especially my finends who supported me during my study. I am grateful to each
entire Dukem town Revenue authority staff for their cooperation in providing me
necessary information. I would like to express my deepest appreciation to the taxpayer
population for their cooperation.My warmest gratitude is of course reserved for my
families who were giving me invaluable encouragement and support throughout my
studie and, I am grateful to all whose works have been cited in this thesis. Have my
acknowledgement and appreciation.
 ACRONYMS

ANOVA..........................Analysis of Variance
FDRE -……………....Federal Democratic Republic of Ethiopia
GDP - ……………….Gross Domestic Product
GTP - ………………..Growth and Transformation Plan
IMF -………………...International Monterey Fund
OECD ……………….Organization for Economic Cooperation and Development
PSEP -………………. Physical and Socio Economic Profile
SSA - ………………..Sub-Saharan Africa
SPSS…………………...Statistical Product and Service Solution
TOT-…………………Turn over tax
UN - …………………United Nation
UNDP -…………….. United Nation Development Program
USD-………………...United State Dollar
VAT- ………………..Value Added Tax
Table of Contents

DECLARATION..................................................................................................................I
CERTIFICATE...................................................................................................................II
APPROVAL SHEET.........................................................................................................III
ACKNOWLEDGMENT...................................................................................................IV
ACRONYMS......................................................................................................................V
TABLE OF CONTENTS..................................................................................................VI
LIST OF TABLES..........................................................................................................VIII
LIST OF FIGURES...........................................................................................................IX
ABSTRACT..........................................................................................................................X
CHAPTER ONE..................................................................................................................1
1.0. INTRODUCTION........................................................................................................1
1.1. BACKGROUND OF THE STUDY....................................................................................................................1
1.2. STATEMENT OF THE PROBLEM.................................................................................................................3
1.3. OBJECTIVE OF THE STUDY.......................................................................................................................6
1.3.1. General Objective1................................................................................................................................6
1.3.2. Specific Objectives.................................................................................................................................6
1.5. Significance of the study...........................................................................................................................6
1.5.1. Future Researchers................................................................................................................................7
1.5.2. Researcher him self................................................................................................................................7
1.5.3. The Revenue authority...........................................................................................................................7
1.5.4. The Town Administration.......................................................................................................................7
1.6. SCOPE OF THE STUDY..............................................................................................................................7
1.7. LIMITATIONS OF THE STUDY....................................................................................................................8
1.8. OPERATIONAL DEFINITION.......................................................................................................................8
1.9. ORGANIZATION OF THE PAPER.................................................................................................................9
CHAPTER TWO.............................................................................................................................................10
2. 0.REVIEW OF RELATED LITERATURE..................................................................................................10
2.1. INTRODUCTION................................................................................................................................10
2.1.1. Theoretical of Tax................................................................................................................................10
2.1.2. Definition of Tax compliance...............................................................................................................11
2.1.3. Tax Compliance Theories....................................................................................................................12
2.1.1.4. The Economic (deterrence) theory....................................................................................................12
2.1.1.5. Social-psychology Theory.................................................................................................................13
2.1.1.6. Assessment of Tax payers attitude and Compliance Behavior.........................................................13
2.1.1.6. Economic assessment........................................................................................................................14
2.1.1.7. Institutional assessment....................................................................................................................15
2.1.1.8. Social Assessment.............................................................................................................................16
2.1.1.9. Individual assessment.......................................................................................................................16
2.2. EMPIRICAL LITERATURE REVIEWS..........................................................................................................17
2.2.1. Empirical studies from outside Ethiopia..............................................................................................17
2.2.2. Empirical studies in Ethiopia...............................................................................................................18
2.2.4. Research gap........................................................................................................................................21
2.2.3. The Concept of compliance..................................................................................................................22
2.3. CONCEPTUAL FRAMEWORK MODEL......................................................................................................22
2.4 VARIABLES CONSIDERED IN THE STUDY.................................................................................................23
2.5. CONCLUSION.........................................................................................................................................24

CHAPTER THREE...........................................................................................................25
3.0 .RESEARCH METHODOLOGY...............................................................................25
3.1. DESCRIPTION OF THE STUDY AREA.......................................................................................................25
3.2. RESEARCH DESIGN................................................................................................................................27
3.3. RESEARCH APPROACH...........................................................................................................................28
3.3.1. Quantitative research approach..........................................................................................................28
3.3.2. Qualitative research approach............................................................................................................28
3.4. POPULATION OF THE STUDY..................................................................................................................29
3.4.1. Sampling Frame.................................................................................................................................30
3.4.2 Sampling Unit.......................................................................................................................................30
3.4.3 .Sample size...........................................................................................................................................30
3.6. SAMPLING TECHNIQUES........................................................................................................................31
3.7. DATA SOURCE.......................................................................................................................................33
3.7.1. Primary data source.............................................................................................................................33
3.7.2. Secondary data Source.........................................................................................................................33
3.8. METHOD OF DATA COLLECTION.........................................................................................................34
3.8.1. Questionnaire.......................................................................................................................................34
3.8.2. Interview...............................................................................................................................................35
3.8.3 FOCUS GROUP DISCUSSION.................................................................................................................35
3.9. PROCEDURE FOR DATA COLLECTION....................................................................................................35
3.10. VALIDITY AND RELIABILITY................................................................................................................36
3.11. ETHICAL CONSIDERATIONS.................................................................................................................37
3.12. DATA PROCESSING AND ANALYSIS.....................................................................................................37

CHAPTER FOUR.............................................................................................................39
4.0. RESULT DISCUSSION AND DATA ANALYSIS..................................................39
4.1. RESPONSE RATE....................................................................................................................................39
4.1.1. Gender Distribution of Respondents....................................................................................................39
4.1.1.2. Age of Respondents...........................................................................................................................40
4.1.1.4. Tax payers category..........................................................................................................................42
4.1.1.5. Length of Stay in years of tax payer..................................................................................................42
4.1.1.6. Respondents distribution by current position in the sector...............................................................43
4.1.1.7. Respondents distribution in bussiness Experience............................................................................44
4.1.1.8. Why do Tax payers pay taxes............................................................................................................45
4.1.1.9. Considering the ability to pay, how the tax payers think tax liability..............................................45
4.2. ANALYSIS OF MAJOR QUESTIONNAIRES ..................................................................................................46

4.2.1 .ECONOMIC ASSESSMENT.................................................................................47

4.2.2. Institutional assessment.......................................................................................................................48
4.2.3. Social assesment..................................................................................................................................50
4.2.4. Individual assessment..........................................................................................................................52
4.2.5. Discussion Document Review Results..................................................................................................54

CHAPTER FIVE...............................................................................................................56
5. 0. SUMMARY, CONCLUSION AND RECOMMENDATION.......................56
5.1. SUMMARY OF MAJOR FINDINGS............................................................................................................56
5.2. CONCLUSION.........................................................................................................................................59
5.3. RECOMMENDATIONS.............................................................................................................................60

REFERENCE....................................................................................................................64
APPENDIX -A..................................................................................................................72

List of Tables
Page
Table 3.1.Population and Sample size table……………………………………………30
Table4.1 .Age group of respondents……………………………………………………38
Table 4.2.Level of Education of Respondent…………………………………………..39
Table 4.3.The respondents position in the sector……………………………………….41
Table 4.4.Responses on the amount of tax liability paid………………………………..43
Table 4.5.Respondents rating on the Economic Compliance …………………………..45
Table 4.6.Respondents rating on Institutional Compliance……………………………...46
Table 4.7.Respondents rating on the Social Compliance………………………………..48
Table 4.8.Respondents rating on Individual Compliance………………………………..49
Table 4.9.Respondents rating on Individual………………………………………….....53
Table 4.10 Dukem Town revenue collection trend …………………………………..53
Table 4.11 Dukem Town Audit performance trend …………………………………….54

.
List of Figures
Page
Figure 2.1 .Conceptual Framework …………………………………………………………23
Figure3.1. Location map of Dukem town figure ………………………………………27
Figure 4.1.Gender Distributions of Respondents………………………………………38
Figure 4.2.Tax payers category……………………………………………………………….40
Figure 4.3 Length of the years .as tax payers…………………………………………...41
Figure 4.4.Respondents’ distribution in bussiness Experience………………………….42
 ABSTRACT

Tax is important sources of public revenue.Public goods and services are normally
subject to collective consumption, thus requiring that we put some of what we earn into
government hands. However, as most of the developing countries, Ethiopia has been
highly depending on external aid and loan for funding its expansion events.The tax
involvement to GDP remained consistently low and is relatively reduction due to low tax
compliance. The study was assessed tax payer’s attitude and compliance behaviors
employed 243 respondents were involved during the assessment in order to met the
study objectives with a special attention to selected tax category “A” and “B”in Dukem
town adimistration to its operation area. Chapter three was a bout methodology in which
the research design descriptive survey research method was used by employing both
probabilistic and non-probabilistic sampling techniques descriptive design using
quantitative and qualitative approach questionnaire ,interview, focuse group discuson
and pre test also used.For data analysis by employing tools like MS-Excel, and SPSS
have been used. The collected data and analyzed was presented in the form of tables,
figures frequencies and percentage for the quantitative data and the study measures the
central tendency by using mean, standard deviation. According to the study, of
assessment such tax rate, tax, audit, perception of government spending referent group
perception on equity and fairness. In addion, the role of tax authority tax complexity, tax
knowledge awareness of offences and penalties personal financial constraints were
considered the assessment affecting taxpayer’s compliance. Finally, based on the
findings possible recommendations were given. These include, maintaining tax fairness
and equity, building capacity of the tax authority, conducting extensive awareness
creation programs, and providing social services to the general public.Revenue
authorities at levels of the town adimistration have to build trust in the tax system,
assessments and collection procedures in the mind of resident as a whole ,specifically to
tax payers and strengthen the audit capacity also an important issues to assure tax
compliance.

Keywords: Tax compliance, Economic, Institutional, Social, and Individual

assessment.
 CHAPTER ONE

1. INTRODUCTION
1.1. Background of the study

Tax is important sources of public revenue. Public goods and services are normally
subject to collective consumption, thus requiring that we put some of what we earn into
government hands. Public goods are normally supplied by public agencies due to their
natures of non-rivalry and non-excludability. The nature of consumption of public goods
is such that consumption by one does not reduce consumption for others. Besides,
consumption of public goods by an agent does not exclude others from doing same. Such
nature of public goods therefore makes them impossible for private suppliers to avail
them at market prices like other commodities. Tax is a compulsory levy and those who
are taxed have to pay the sums irrespective of any direct corresponding return of services
or goods by the government (Peter, 2013).
Government needs financial resources to act as a government and play a role that is
expected from it by the public (James, 2000).Taxation is one method of transferring
resources from the private to the public sector. The role of taxes as an instrument
stabilizes the economy, and reduces private demand when resources are released for
public sector use. Taxes are not payments for some special privilege granted or services
rendered and are, therefore, distinguishable from various other charges imposed for
particular purposes under particular powers or functions of government (Murphy, 2004).
Tax compliance is the ability and wasingness of taxpayers to comply with tax laws,
declare the correct incomes in each year pay the right amount of taxes on time (Internal
Revenues Services, 2009).Tax compliance is a complex term to define according to
Brown and Mazur (2003) cited in Marti, et al (2010) tax compliance is multi-faceted
measure and theoretically, it can be defined by considering three distinct types of
compliance such as payment compliance, filing compliance, and reporting compliance.
Organization for Economic Cooperation and Development (2008) advocates that dividing
compliance into categories in considering definitions of tax compliance.These categories
are administrative compliance and technical compliance where the former refers to

1
complying with administrative rules of lodging and paying otherwise referred to as
reporting compliance, procedural compliance or regulatory compliance and the latter
refer to complying with technical requirements of the tax laws in calculating taxes or
provisions of the tax laws in paying the share of the tax.Attitudes are the core of our likes
and dislikes for certain people, groups, situation, object and intangible ideas.According to
Ajzen’s (1991). Attitude may also be defined as positive or negative views of an “attitude
object”; i.e. a person, behavior or event. In relation to tax taxpayers’ attitudes may be
defined as positive or negative views of tax compliance behavior. The outcome of
positive views is tax compliance and negative views are tax non compliance.The
assessment factors tax payer attitude and behavior compliance has been classified
differently by different researchers. identified these factors as economic, social and,
Psychological (Kirchler, 2007).To have a broad knowledge in the area and to list out the
main factors found by different researchers Kirchler (2007), and Palil (2010).But most of
these classification overlap on one another. By considering the most relevant one for this
study, classified them in to four major groups: economic, institutional, social and
individual factors.

Ethiopian Revenues and Customs Authority (2008 EC) tax is collected by federal, state or
regional governments. In Ethiopia, the tax revenue covers over 70% of the total
government expenditure (Fjeldstad 2016). Furthermore, the tax-to-GDP ratio (11%) is
lower than the average for developed countries tax systems (25-35%), developing
countries (18-25%) and even of the Sub-Saharan average tax system (16%) (Tigist
2017).Here it should be noted that, even if tax to GDP ratios are not completely
comparable because of differences among countries with respect to the definition of tax
base and rates, administrative capabilities and level of taxpayers' awareness, such a
comparison can be made in practice and used as indicative although not conclusive
(Yesgat,2009).Accordingly, assessing the tax burden of the Ethiopian government in
comparison with the Sub-Saharan African average indicates that the tax revenue
performance of the Ethiopian government is low.

2
Tax compliances in the Oromia region became the major reason for higher tax evasion
and low growth rate of tax revenue. According to the survey conducted by Teshome
(2016) that out of 4,701 business people, only 514 business people were using receipts
for their business transaction. That means only 11 percent of the tax payer respect the
regional tax law in terms of issuing sale receipts.The numbers of business people that do
not use any sale receipt were 3,548. It is 75 percent of surveyed business people are
avoiding tax. Further the tax audit conducted on 12,928 business people in 2010 collected
additional Birr 1.6 billion.

The higher tax non compliances indicate the unfair and inefficient tax system in the
region. The above is true in Dukem town adimistration tax revenue collection has been
constrained by the significant number of problem like tax assessment problem, under
performance, minimal number of tax auditors and non compliance tax payer, etc. out of
72 business people, only 63 business people were using receipts for their business
transaction. That means only 12.5 percent of the tax payer respect the regional tax law in
terms of issuing sale receipts. (Report and plan document, 2009 E.C). The numbers of
business people that do not use any sale receipt were 63. It is 87.5 percent of surveyed
business people are avoiding tax. Further the tax audit conducted on 139 business people
in 2009 collected additional Birr 20 million. .

1.2. Statement of the problem

In Ethiopia, like any other developing countries, faces difficulty in raising revenue to the
level required for the promotion of economic growth. Hence, the country economy has
been growing at a rate averaging more than 10 percent, but the tax to GDP ratio remained
low at 13.4 percent in 2015 which is below the Sub Saharan African average of about 20
percent (e.g. Kenya 23%). None-compliance attitude reduces tax revenue generation
capability to the amount planned to be collected by government and leads to budget
deficit the country. This implies the slow growth in the tax to GDP ratio suggests that
growth in tax collection is not commensurate with the economic growth perhaps
indicating a huge untaxed potential GTPII (2015).

3
The main reason of this low revenue collection performance is due to presence of
negative voluntary compliance attitude or tax non-compliance and poor tax
administration (IMF, 2015).Negative tax voluntary compliance attitude is individuals’
failure to comply with their tax commitment In developing countries low tax compliance
is a serious challenge facing income tax administration and hindering tax revenue
performance (Gupta A, 2007). Deferent studies showed that comparisons of the studies
conducted with various researchers on similarly area of studies presented are that the
justification part of those studies address that findings are still debatable among different
researcher. Hence, we looking at the assessment of taxpayer attitude and compliance
behaviors there seem to be a disagreement in the findings. In some variables are
Significant in one study also insignificant in another this means there is no universal
findings highlighted by researchers pertaining to genuine tax compliance assessments
among countries sharing similar tax systems, and cultures.

The case of Ethiopia is a good example for this situation.These studies were conducted
by Yoseph Eshetu (2018) in West Showa Zone Revenue authority estimated a total of
278,630,100.00 as being the expected total direct tax to be collected from tax payers , it
was later established that only 242,902,858.00 was collected (87%). Out of the expected
329,478,564.00 in 2008 E.C, only 274,269,903.00 were collected (83%). Mostly recently
in 2009 E.C, the Zone Revenue authority estimated to collect 333,694,230.00 out of
which only 280,219,237.00 was collected (84%).

The statistics reveal cases of low tax collection in the West Showa Zone.This is true in
the case of Dukem town administration in 2008 E.C the Dukem town administration
revenue authority estimated a total of 345,000,000.00 as being the expected total tax to
be collected from tax payers , it was later established that only 236,093,574.40 was
collected (79.4%) this show that there is 21% tax gap which underperformance tax
administration (Carey,2005) . The statistics reveal cases of low tax compliance rate and
high tax gap in the Dukem town administration. It is very important to study factors
that affect tax compliance of the town in order to increase government revenue and
guarantee economic stability.

4
The study of Mesele & Tesfahun (2016) in Desse town depicted that among the main
challenges the tax authority of town faces principally was taxpayers’ delay in tax
declaration. Reducing noncompliance can be effective if the reason for noncompliance by
tax payers is well understood which can be constructive tool to tax authority by providing
them information and helping them which strategy is appropriate and effective to increase
tax compliance.

Category “A”, and “B” in Dukem town adimistration because “A" and “B” taxpayers to
high tax payer’s, submit their balance sheets and income statements by keeping record to
financial accounting standards but it not mandatory for category “C” to keep the record of
all business activities and submitting profit or loss account and statement of financial
position to tax authority office at the end of tax year most of the time “A’’ and “B”
category tax payer pay deferent tax such that VAT, TOT obliged to keep or maintain
books of account and they follow self- assessment policy (Yousuf, 2012).

These tax payers shall submitted the tax declaration from the for authority at the time of
submitting the balance sheet and the profit and loss account for the tax payer with
months from the end of the tax payers tax year. Tax assessment of tax payer’s voluntary
compliance with tax law is complex on “A” and “B” category than category “C”.But
“C” category pay tax after the budgetary year of one month. Category “C” tax payer is
paying tax annual profit tax only does not have an additional obligation to declare VAT
and TOT daily sales are estimated by a committee of tax officials by asking the
concerned taxpayer questions and also observing the business location and the nature of
the business.

Therefore bearing in mind the above problem, the researcher want to study analyze the
assessment of tax payer’s attitude and Compliance behavior.

5
1.3. Objective of the study

1.3.1. General Objective1.

The general objective of this study was to analyze the assessment of tax payer’s attitude
and Compliance behavior in Dukem town Administration

1.3.2. Specific Objectives

This study has the following specific objectives:

1. To examine taxpayers attitude and, compliance behavior

2. To assess the service of institution on taxpayer attitude and, compliance behavior.
3. To assess the level of voluntary tax compliance among the tax payers
4. To examine individual of taxpayer attitude and, compliance behavior

1.4. Research Question

Based on this study, there was answered through the following sub-questions:

1. What are the economic assessments that affect taxpayer’s attitude and, compliance
behavior?
2. Is the service of institution has influence on taxpayer attitude and, compliance
behavior?
3. How affect tax collection, the voluntary tax compliance among the tax payers?
4. What are the assessments of social distress on taxpayer’s attitude and, compliance
behavior?

1.5. Significance of the study

This study is aimed to have significant role as availing information related to areas of tax
payer attitude and compliance behavior.

6
1.5.1. Future Researchers

Other researchers may use this study as a baseline to conduct further research in the area
and also serve as a future reference for researchers on the assessment tax payer attitude
and compliance behavior

1.5.2. Researcher him self

It enables the researcher to acquire basic experiences and knowledge regarding several
issues on areas of assessment tax payer’s attitude and compliance behavior and, related
aspects and the tentative solutions provided by the researcher.

1.5.3. The Revenue authority

It was also enable the tax authority to solve the identified problems; on the assessment of
tax payer attitude and compliance behavior for their acceptance by tax payer, maximize
voluntary compliance, minimize non compliance, tax gap, ensuring equity and fairness.
And also increase revenue generation potential performance.

1.5.4. The Town Administration

The output from the research was also help on the non voluntary tax compliance some
remedial actions or corrective measures on the problems identified in the research. It is
also help to integrate their role to sustainable, follow new direction in, in implementation
of action policies, facilitating and, enhance voluntary tax compliance to bring changes as
well as optimizing economic growth and development.

1.6. Scope of the study

This study was delimited in its scope to manageable size. Because of financial and
experience limitation, it was limited to the study. As a result, this study was delimited to
organizations to find out the these study analyses the assessment of tax payer attitude and
compliance behavior in oromia regional state with special reference (example) Dukem
town Administration .In particular tax compliance of category “A” and “B” category tax

7
payers were considered many tax assessment can be considered to analyze tax payer
attitude and compliance behavior of business taxpayers in general. But in this study only
ten tax assessment factors attitude and compliance behavior such that tax rate, tax,
audit, perception of government spending referent group perception on equity and
fairness, the role of tax authority tax complexity, tax knowledge awareness of offences
and penalties personal financial constraints were considered. While studying the tax
payer attitude and compliance, the present study considering only the practice and its
application in Dukem town adimistration so that the scope was limited.

1.7. Limitations of the study

Limited awareness on tax payer’s, miss information was some of the limitations that the
researcher comes across, lack of cooperation of some business taxpayer respondents to
complete filling the questionnaire timely and to provide the required information was a
challenge to conduct this study. The study was used only some variables out of the many
variables. The practical weakness in the methodologies the researcher adapted on solution
problem service for social science (SPSS).The other limitation the study was only
focused in town administration. These all requires additional time to encourage and
needed frequently to visit most of the respondents.The researcher to overcome these
likely a limitation conducted triangulation using different sources of evidence.

1.8. Operational definition

A Tax: is “a compulsory charge (imposed) by the government without any expectation of

direct return in benefit’’

Assessment: refers to appraising, measuring and evaluating

Tax compliance: is the ability and wasingness of taxpayers to comply with tax laws,
declare the correct incomes in each year pay the right amount of taxes on time.

Voluntary compliance: is a function of public attitude towards taxation and

organizational strength (efficiency and effectiveness) of the tax authority or constructive

8
to tax authority by providing them information that can help them which strategy is
appropriate and effective to increase compliance

Tax non compliance: is socially destructive, as it can reduce revenue, distort labor
market and weaken state stability by feeding perception of cheating and fraud.

Attitudes: In relation to tax taxpayers’ attitudes may be defined as positive or negative

views of tax compliance behavior. The outcome of positive views is tax compliance and
negative views are tax non- compliance.

1.9. Organization of the paper

The paper was organized into five chapters as follow. Chapter one present background of
the study, statement of the problem, objective of the study, research question , scope and
limitation, significance of the study and Organization of the paper. Chapter two reviewed
theoretical empirical and conceptual literature, Chapter three focused on research
methodology. The fourth chapter is also presents the analysis and findings of the study.
The last chapter five which is presents the summary, conclusion of the finding and
recommendation.

9
 CHAPTER TWO

2. REVIEW OF RELATED LITERATURE

2.1. INTRODUCTION

This chapter presents a review of the related literatures concerning the definitions of tax,
definition of tax compliance, theories of empirical concepts, conceptual framework
(CFW) of tax compliance, assessment of taxpayer attitude and, compliance, review of
previous studies are presented research gap and, conclusion is included.

2.1.1. Theoretical of Tax

Tax has been defined by various authorities and professionals in various ways.
Conceptually, tax can be defined or seen as a compulsory transfer of resources from the
private to the public sector. According to the World Bank (2010) reiterated that taxes are
compulsory transfers of resources to the government from the rest of the economy. Taxes
are important sources of public revenue. The existence of collective consumption of
goods and services necessitates putting some of our income into government hands. Such
public goods like roads, power, municipal services, and other public infrastructures have
favorable results on many families, business enterprises, industries and the general
public. Public goods are normally supplied by public agencies due to their natures of non-
rivalry and non-excludability Ethiopian business chamber of commerce (2005).

Taxes are compulsory levy by the tax subject (government) through her designated agent
on the tax subject (the tax payers). And another study by Lymer and Oats (2009) tax is
defined as ‘a compulsory levy, imposed by government or other tax raising body, on
income, expenditure, or capital assets, for which the taxpayer receives expenditure, or
capital assets, for which the taxpayer receives nothing specific in return. According to
Ethiopian income tax proclamation (2016) taxable business income would be determined
per tax period on the basis of the profit and loss account or income statement.

10
 According to the Constitution of Federal Democratic Republic of Ethiopia (1995),
revenue sources are assigned between Federal government and Regional states.Regional
states can endorse their income tax proclamation and regulations based on the
constitution in conformity with the federal income tax proclamation. According to the
federal income tax proclamation (2016) taxpayers are categorized into three categories,
namely category ‘A’, ‘B’, and ‘C’ based on their volume of sales and form of business.
Therefore, taxpayers with annual gross income of Birr 1,000,000 or more are categorized
under Category ‘A’ taxpayers, business income taxpayers with annual gross income Birr
500,000 or more but less than Birr 1,000,000 are under category ‘B’ and business profit
taxpayers with annual gross income less than Birr 500,000 are under category ‘C’
taxpayers.

Taxable business income would be determined per tax period on the basis of the profit
and loss account or income statement. Accordingly, taxable business income of corporate
businesses is taxed at a flat rate 30% and other business (unincorporated individual
businesses and PLCs) taxpayers are taxed at a progressive rate 10% to 35%. The standard
rate of VAT is 15% of the value of every taxable transaction by a registered person and
all imports of goods and services other than those exempted.

2.1.2. Definition of Tax compliance

There is no standard all-embracing definition of compliance adopted across all tax

Compliance studies. For example, Kirchler (2007) stated that compliance might be
voluntary or enforced compliance. Voluntary compliance is made possible by the trust
and cooperation between tax authority and taxpayer and it is the wasingness of the
taxpayer on his own to comply with tax authority’s directives and regulations. However,
in the presence of distrust and lack of cooperation between authority and taxpayer, which
creates tax hostile climate, authorities can enforce compliance through the threat and
application of audit and fine.

11
Another definition of tax compliance is a person’s act of filing their tax returns, declaring
all taxable income accurately, and disbursing all payable taxes within the stipulated
period without having to wait for follow-up actions from the authority (Singh, 2003). For
the purpose of this study, tax non-compliance is defined as failure to comply with tax
laws and/or report incorrect income, the act of claiming incorrect deductions and
exemptions and/or paying the incorrect amount of tax beyond the stipulated time frame.

2.1.3. Tax Compliance Theories

Several theories of behavior, borrowed from economics and the psychological sciences,
can be useful in classifying analysis of variables. Theories of taxpayer compliance
behavior, including the decision whether or not to pay taxes, there are two broadly
approaches: economic deterrence theory, and the social-psychological theories

2.1.1.4. The Economic (deterrence) theory

Economic factors in relation to tax compliance refer to actions which are associated with
the costs and benefits of performing the actions (Loo, 2006). Song and Yarbrough (1978)
assumed that taxpayers are rational economic evaders who likely would assess the costs
and/or benefits of evasion. The tax compliance determinants associated with economic
factors assessment such as tax rates, tax audits and perceptions of government spending
are discussed as follows; previous studies examined the relationship of tax rate and tax
compliance. Such as, Hai and See (2011) found that the high tax rate causes high tax
noncompliance. Spicer & Becker (1980) argue that those taxpayers who are aware that
their tax rate is higher than average tax rate paid by other have higher records of tax
evasion.

Evidence suggests tax rates have mixed impact on tax compliance i.e. decreasing tax
rates does not necessarily increase in tax rates might have positive or negative impact on
evasion and increasing tax rates was not necessarily always decrease compliance
behavior (Allingham&Sandmo, 2012). A recent study by (Modugu, Eragbhe, &Izedonmi,
2012) tax rate do not have any positive or negative effect on tax compliance.

12
2.1.1.5. Social-psychology Theory

Researchers McKerchar (2009) that Social and psychological insights have contributed to
better understanding of the observed level of tax compliance. Social psychology theory
looks that tax compliance behavior in an environment of social interactions and
conventions. In these models tax compliance is influenced by a range of assessment,
including attitudes, perceptions, beliefs, personality traits and interactions between the
actors (taxpayers, tax administrators/the state, tax advisors, and others).

The social psychology theory, unlike the economic deterrence model, pertains to the
relationship between tax compliance and social interactions and conventions. An aspect
of this theory says that perceptions and attitudes towards a tax system and compliance
behavior may be affected by the behavior of an individual’s peer groups. The compliance
behavior of peer groups like friends, neighbors and relatives is expected to impact on the
perceptions and compliance decisions of others. More specifically, noncompliant
decisions by peer groups may reduce the level of tax compliance by others.

The other aspect of social psychology theory is related to social sanctions. Social
sanctions and attitudes towards them may affect the level of tax compliance. The severity
of social sanctions against noncompliant taxpayers and attitudes towards them may
increase wasingness to comply. Regarding the above points, Fjeldstad et al. (2012) argue
that compliance behavior and attitudes towards the tax system may be affected by the
behavior of an individual’s reference groups. If a taxpayer knows many people in groups
important to him/her who evade taxes, his/her commitment to comply was be weaker. On
the other hand, social relationships may also help deter individuals from engaging in
evasion for fear of the social sanctions imposed once discovered and publicly revealed.

2.1.1.6. Assessment of Tax payers attitude and Compliance Behavior

Previous researcher had identified a number of assessments of tax payer attitude and,
compliance behavior. Regarding the research subject, the researcher was want to
investigate attitude that affect tax compliance. To achieve this, the researcher reviews
several researches and journals. While reviewing, different scholars try to list out that

13
compliance is influenced by numerous assessment (Brook, 2004). Scholars identified
these assessment as economic, social and psychological (Kirchler, 2007). The assessment
of tax payer attitude and compliance has been classified differently by different
researchers. But most of these classification overlap on one another. By considering the
most relevant one for this study, we classified them in to four major groups: economic,
institutional, social and individual factors.

2.1.1.6. Economic assessment

The tax payer attitude and compliance assessment associated with economic assessment
such as tax rates, tax audits and perceptions of government spending (Palil, 2010). The
tax compliance assement associated with economic assess such as tax rates, tax audits
and perceptions of government spending are discussed as follows; previous studies
examined the relationship of tax rate and taxpayer attitude and compliance. Such as, Hai
and See (2011) found that the high tax rate causes high tax noncompliance. Tax payers
who are aware that their tax rate is higher than average tax rate paid by other have higher
records of tax evasion.

Evidence suggests tax rates have mixed impact on tax compliance i.e. decreasing tax
rates do not necessarily. Increase in tax rates might have positive or negative impact on
evasion and increasing tax rates was not necessarily always decrease compliance
behavior. Park and Hyun, (2003) in their empirical study finds that the increase in tax rate
strengthen the incentive to report less income to compensate the reduced income .In other
word they find a negative relationship between tax compliance and tax rate. The
contribution of tax audit on improving tax payer’s compliance is significant among other
measures taken by revenue authorities of the country (Agumas, 2016). But, a study
conducted by Ahmed & Kedir (2015) and Ahmed (2013) revealed that audit has negative
and significant effect on tax payers compliance behavior. The findings of the study show
that the higher the probability of detection, the lower the tax compliance level.

If the tax payers are informed that their fillings was be closely assess, there is a tendency
for the tax payer’s behavior to change in response to an increased probability of tax

14
audited. In contrary, the study of that the chance of being audited does not have any
important impact on tax compliance behavior.Government's legitimacy, the government's
efficiency and the government's credibility influence taxpayers' compliance and thus
determine the tax revenue the government can raise. Taxpayers can estimate the fair
terms of trade between their private consumption and government provision of public
goods (Ahmed & Kedir, 2015).But the level of governmental accountability and
transparency and perception of government spending did not significantly impact
taxpayers’ attitudes.This means that the levels of accountability and transparency in
governance are matters that taxpayers have less regard for in their compliance decisions
Ahmed, A. (2013)

2.1.1.7. Institutional assessment

The role of the tax authority in minimizing the tax gap and increasing voluntary
compliance is clearly very important Dubbin, J.A. (2004). Exemplified that tax
compliance is placing the government and the tax authority as the main party that need to
be continuously efficient in administering the tax system in order to decrease tax
evasion .With regard to simplicity of tax system, previous studies argue that simplest tax
system encourage tax payers to voluntarily comply with tax system (Palil, 2010),
Complexity of tax system negatively affecting tax compliance decision (Jayawardane &
Low, 2016).

However, a study conducted by Ahmed & Kedir (2015) on investigation of the

determinants of tax compliance at Jimma zone category ‘A’ taxpayers using multiple
rogation analysis showed that simplicity of tax system has positive and insignificant
effect on tax payer’s compliance behavior. But, the studies Olatunji Olaoye (2017) on
determinants of tax compliance behavior of tax payers indicated that the role of the tax
authority was not significantly correlated with tax compliance.

15
2.1.1.8. Social Assessment

There is an existing social bond between the society and this bond influences the members of the
society in complying with the tax. These assessments are perceptions of equity and fairness,
changes to current government policy and referent groups.Tax compliance assessment from a
social perspective relates to taxpayers’ wasingness to comply with tax laws in response to other
people’s behavior and their social environment (Torgler, 2007&Kirchler (2007).

A public feels increasingly over time that taxes are unfairly imposed, it was be
increasingly likely to evade paying taxes recommended that shorter sentences and active
style of writing was help improve the readability of tax legislation and consequently
reduce the complexity of the tax law. But in the studies conducted by Ahmed (2013) it
was indicated that the relationship between the equity perceptions of the taxpayers and
their tax compliance intention is not statistically significant. Perceived tax fairness was
found to have a positive and significant relationship with tax compliance. These findings
imply that positive improvement of perceptions of fairness about taxes was lead to
improved tax compliance.

Therefore, the foremost obvious demand of equity or fairness is to treat equal individuals
in equal circumstances in an equal method. Similarly, the studies conducted by Geletaw
(2017) in Addis Ababa City revealed that the equity and fairness of the tax system is
positively and statistically important to have an effect on tax compliance levels in formal
sector.

2.1.1.9. Individual assessment

Personal circumstantial factors like Tax knowledge as one of the assessment influencing
tax compliance is related to the taxpayers’ ability to understand taxation laws, and their
wasingness to comply. Through taxpayer education, the taxpayer is aware of the rights,
obligations and the procedures of paying taxes as well as the consequences of non-
compliance (Machogu & Amayi, 2013).

16
Tax Penalties and Enforcements a fine or penalty is money paid usually to a government
authority, as a punishment for a crime or other offence (Muoki et al., 2014). Generally
when taxpayers have no enough disposable income and they used to consume the return
from sales, it is clear that tax evasion is inevitable and leads to tax arrears Palil (2010)
people with no financial distress also exercise tax evasion and surprisingly, the level of
evasion they exhibit can be more serious than people in financial distress.

2.2. Empirical Literature Reviews

2.2.1. Empirical studies from outside Ethiopia

Various researchers have studied on assessment of voluntary taxpayer attitude and

compliance behaviors internationally.They further argued that understanding tax rules
lead to increased perceptions of fair tax systems and tax compliance. Study made by
Rizal Palil (2010) on ‘Tax Knowledge and Tax payer attitude and Compliance in Self-
Assessment System in Malaysia’ can be summarized as follows. The study used
inferential statics and multiple regression models.The results indicated that tax
compliance had influenced specifically by probability of being audited, perceptions of
government spending, penalties, personal financial constraints, and the influence of
referent groups. Other researchers Rizal Palil, Abdul Hamid & HizamHanafiah (2011) on
‘Factors affecting tax compliance behavior in self-assessment system’ can be summarized
as follows.

The study used correlation and regression method, the result indicated that probability of
being audit, perception of government spending; the role of tax authority had positively
affect tax compliance. However, tax rates (negative association) not only become another
factor that affects tax compliance behavior in relation to the SAS in Malaysia in the
present study, but also the most significant assessment. Another study made by Alabede
(2014) analyzed individual taxpayers’ compliance behavior using ANOVA technique
based on the data from a survey in 332 taxpayers in Nigeria.He used demographic
variables such as age, income level, employment sector, and ethnicity in analyzing tax
compliance problems.He suggests that the demographic factors such as age and

17
employment status are statistically significant in affecting taxpayers’ compliance
behavior in Nigeria. However, his result displays that gender and education are not
statistically significant in influencing tax compliance. The result shows that older tax
payers are 6.8 percentage points more compliant than younger taxpayers. Moreover, their
result also exhibits that taxpayers who have higher income level are more compliant than
those who have lower income level. Additionally, taxpayers who are already settled with
their job have better tax awareness than those who are unemployed.

Finally, the research claims that education and religion are not statistically significant
with tax compliance status. Fjeldstad, Schulz-Herzenberg and Hoem (2012) on ‘People’s
Views of Taxation in Africa.A Review of Research on assessment of Tax payer attitude
and Compliance’ stated that compliance with tax depend on the taxpayers knowledge that
they cannot evade taxes and that the more individuals are satisfied with the public
services provides by governments the more the likelihood of tax compliance.They further
stated that tax payer’ intentions for compliance was increase if they perceive the
government utilizing revenue generated form tax, otherwise they was became less
committed towards compliance.

2.2.2. Empirical studies in Ethiopia

Most tax compliance studies to date are based on data from developed countries. There
are few studies that provide evidence from developing countries. The assessments of tax
payer attitude and compliance in Ethiopian are still under-explored area in the literature
of tax compliance behavior.As per the researcher access and knowledge, the previous
study conducted in Ethiopia by Lemessa (2007) on ‘assessment of Taxpayers’ voluntary
Compliance with Taxation.

The case Study of Dire Dawa City, Ethiopia the study used in methodology is descriptive
statistics and the results showed that tax fairness and equity, organizational strength of
the tax authority, awareness level of the taxpayers, socio-cultures factors, and provision
of social services by the government were the assessment of taxpayers’ voluntary tax
compliance.

18
Study made by Beza (2014) on ‘assessment of Tax Payer’s Voluntary Compliance with
Taxation in East Gojjam-Ethiopia. The study used methodology type is descriptive
statistic and Pearson correction and chi square. The selected sample size areas are
category “A”,’B” and “C” taxpayers and in his study results showed that there is no
difference in their tax compliance behavior between males and females, As well as
between category of ‘A’, ‘B’ and ‘C’ taxpayers and only perception of fairness and
attitude towards taxation have positive and significant correlation with tax compliance ,in
addition to that, another study made by Tilahun and Yadersal (2014) on ‘assessment of
Taxpayer attitude and Compliance Behavior in Ethiopia.

The case of Bahir Dar City Taxpayers’ can be summarized as follows. The study used an
Ordered Probity Model and focused only category ‘C’ taxpayers. The results revealed
that tax compliance influenced by the probability of audited, financial constraints, and
changes in government policy.Other variable such as perception of government spending,
perception of equity and fairness, penalties, role of the tax authority and tax knowledge
not significantly correlated with tax compliance. Study made by Tadesse and Goitom
(2014) on ‘Factors Influencing taxpayers’ compliance with the tax system: An empirical
study in Mekelle City, Ethiopia’. The study results from the survey conducted in Mekelle
using 102 respondents indicate that tax compliance was influenced by the probability of
being audited, financial constraints, and changes in government policy. The findings
indicated that tax compliance was influenced by the probability of being audited,
financial constraints and changes on current government policy.

Other variables such as perception of government spending, perception of equity and

fairness, penalties, roles of the tax authority and tax knowledge were not significantly
correlated with tax compliance at the time of this study. Study made by Amina Ahmed
and Saniya Kedir (2015) on ‘Tax compliance and its assessment the case of Jimma Zone,
Ethiopia can be summarized as follows. The study was conducted with the aim of
investigating the assessment of tax compliance for the case of Jimma zone category ‘A’
taxpayers. By distributing total of 384 questionnaires to category ‘A’ sample taxpayers,
the study try to explore the main assessment of taxpayer attitude and compliance.

19
The findings show that age, sex, penalty, audit, simplicity, fairness and government
perception were found to affect tax compliance. Study made by Niway and Wondwossen
(2016) on assessment of voluntary tax Compliance Behavior in Self-Assessment System:
Evidence from SNNPRS, Ethiopia can be summarizing as follows. The study used a
cross-sectional survey method of research design.

The target population of the study was category “A” tax payers and analyze and present
the results of this study, Pearson correlation matrix and logistic regression model were
employed. The result of this study revealed that tax knowledge, simplicity of tax returns
and administration, perception on fairness and equity, perception on government
spending, probability of auditing, and the influence of referral group were determinant
factors that influence voluntary compliance behavior of tax payers in SAS. Study made
by Dereje Lemma (2016) on ‘assessment of tax payer attitude and compliance behavior:
Among category “A” and “B” taxpayers in Hosanna Town can be summarized as
follows.

The study used Ordinary Least Square (OLS) multiple regression analysis, One-way
ANOVA and one sample t-test and business profit taxpayer’s category ‘A” and “B”.The
study results revealed that tax compliance behavior was influenced by the tax rates;
perception of government spending; perception of equity and fairness were the major
factors that positively and significantly influenced tax compliance. However, referral
groups (friends, relatives etc.) influenced tax compliance negatively but
significantly .Wollela and HelgeFjeldstad, (2016) study on tax payer’s views of business
taxation in Ethiopia.

The objectives of their study were to assess business peoples’ views of paying taxes in
Ethiopia and to identify (perceived) difficulties with the tax system and priorities for tax
reform. Hence the result shows that the main reasons for tax noncompliance were; lack of
predictability in the tax system forces taxpayers to reduce their current tax liability,
difficult to compete with businesses that import goods at manipulated custom duties, It is
those who are not paying taxes that are quickly growing, so why should I comply,
discrimination by the tax administration forces honest taxpayers to evade taxes.

20
 The research gap above studies showed that comparisons of the studies conducted with
various researchers on similarly area of studies presented are that the justification part of
those studies address that findings are still debatable among different researcher. Hence,
we looking at the assessment of tax payer attitude compliance behaviors there seem to be
a disagreement in the findings. In some variables are Significant in one study also
insignificant in another study. And also from the previous empirical research found that
the assessment of tax compliance has been found to differ between countries. This means
there is no universal findings are highlighted by researchers pertaining to genuine tax
compliance assessments among countries sharing similar tax systems, and cultures.The
case of Ethiopia is a good example for this situation.

2.2.4. Research gap

The research gap above studies showed that comparisons of the studies conducted with
various researchers on similarly area of studies presented are that the justification part of
those studies address that findings are still debatable among different researcher. Hence,
we looking at the assessment of tax payer’s attitude compliance behaviors there seem to
be a disagreement in the findings. In some variables are Significant in one study also
insignificant in another study. And also from the previous empirical research found that
the assessment of tax compliance has been found to differ between countries. This means
there is no universal findings are highlighted by researchers pertaining to genuine tax
compliance assessments among countries sharing similar tax systems, and cultures. The
case of Ethiopia is a good example for this situation.

Therefore, this research is to fill the research gap that were not addressed by any one of
the earlier studies, specifically problems associated with tax payers and revenue authority
in Dukem town and also this study initiation is needed to fill the literature gap regarding
the assessment of tax payes attitude and compliance behavior and contribute to the body
of knowledge and, also this study initiation is needed to fill the literature gap regarding
the assessment of tax payers attitude and compliance behavior.

21
Hence, this research has done at town administration levels ensuring facilitation and
Voluntary compliance.It is with this ground thatfindings,Conclusions and
recommendation provide more evidence assessment of tax payers’ attitude and
compliance on selected Category ‘A’, and ‘B’ in Dukem town adimistration.

2.2.3. The Concept of compliance

There is no standard all-embracing definition of compliance adopted across all tax

compliance studies. For example, Kirchler (2007) stated that compliance might be
voluntary or enforced compliance. Voluntary compliance is made possible by the trust
and cooperation between tax authority and taxpayer and it is the wasingness of the
taxpayer on his own to comply with tax authority’s directives and regulations.

However, in the presence of distrust and lack of cooperation between authority and
taxpayer, which creates tax hostile climate, authorities can enforce compliance through
the threat and application of audit and fine. Jackson and Milliron (1986) defined tax
compliance as the reporting of all incomes and payment of all taxes by fulfilling the
provisions of laws, regulations and court judgments.Another definition of tax compliance
is a person’s act of filing their tax returns, declaring all taxable income accurately, and
disbursing all payable taxes within the stipulated period without having to wait for
follow-up actions from the authority (Singh, 2003).

2.3. Conceptual framework Model

The proposed research framework model (Figure 2.1) has been created after a thorough
assessment of the related literature review.
The conceptual framework proposes that the assessment of tax payer attitude and
compliance behavior in Dukem town administration.

22
 Figure 2.1 .Conceptual Framework `
Independent variables Dependent Variable

ECONOMIC

-Tax Rate
-Tax Audit
-Perception of Government
Spending
INSTITUTIONAL

-The Role of Tax Authority,

Tax Complexity TAX COMPLIANCE

SOCIAL

-Referent group, Perception

on Equity

INDIVIDUAL

-Tax Knowledge, Awareness

of offences and penalties
-personal financial
constraints

Source: Researcher own construction based on different literature

2.4 Variables considered in the Study

Variables were selected on the issues stated in the study objectives i.e. on assessment of
tax payer attitude and compliance behaviors in Dukem town revenue authority. The
selected variables are: related to tax compliance like tax rate, audit, perception of
government spending, referent group, perception on equity and fairness, the role of tax
authority, tax complexity, tax knowledge awareness of offences and penalties personal
financial constraints are independent variables and tax compliance behavior is
dependent variable.

23
2.5. Conclusion

This chapter describes the relevant theories about tax compliance; various opinions exist
about the best ways to improve tax compliance. Given the chance a lot of businesses were
not pay tax unless there is a motivation to do so. Some believe that the best way is to
increase benefit (Feld & Frey, 2007) others believe the best way is to increase penalties.
Some of the major tax theories include economic based theories and psychological based
theories. Economic based theories are also known as deterrence theory and they place
emphasis on benefit. The theory suggests that taxpayers are a moral utility maximizes-
they are influenced by economic motives such as profit maximization and probability of
detection. They analyze alternative compliance paths for instance whether or not to evade
tax, the likelihood of being detected and resulting repercussions and then select the
alternative that maximizes their expected after tax returns after adjusting for risk.

The fiscal exchange theory suggests that the presence of government expenditures may
motivate compliance and that governments can increase compliance attitude by
providing goods that citizens prefer in a more efficient and accessible manner
(Moor,2004). They believe that compliance increase with perceptions of the government
spending .On the other hand, non-economic based theories focus on the taxpayers’ moral
and ethics. The theories suggest that a taxpayer may comply even when the probability of
detection is low. As opposed to the economic theories that emphasize on factors such as
increased audits and penalties as solutions to compliance issues, psychology theories lay
emphasis on changing individual attitudes towards tax systems (Alm & Torgler, 2011).

These non-economic assessments include the tax knowledge and information, attitudes
towards taxes and perceived fairness of tax system. Reviews of past studies on tax
compliance of assessment of tax compliance indicate mixed but interesting findings. In
addition to this about tax fairness, tax service quality and government spending priorities
greatly affect their tax compliance decision and tax knowledge was discovered to have no
effect on tax compliance

24
 CHAPTER THREE

3.0 .Research Methodology

3.1. Description of the Study Area

Dukem town adimistration is one of the reform towns in oromia regional state and an
industrial urban center in the region and the country at large since the beginning of 2000
EC and known as the Industrial zone. It is one of the urban centers under reform by virtue
of the proclamation 65/1995 EC (2005).The urban center is expanding to a large extent
encompassing the rural villages of Waajitu and Dibdibbe, Yaatu and OdaNabe in the
present plan boundary Informants. The town is divided in four kebeles and found in
eastern Finfine/Addis Ababa along the main road Adama-Addis Ababa or along the
Ethio-Djibouti rail way line close to the cities of Addis Ababa about 37 km far from the
capital city of Oromia regional state /Ethiopia to the east.

Astronomically, the town extends roughly from 80 13' 45'' - 90 11' 15''N latitude and 380 40 '
30'' - 390 25 ' 00'' E longitudes. It is bounded by in West Gelan town, in East Bishoftu
town in south &North west by Akeki in North south east by Ada’aWoreda. Dukem town
has strong linkage with Fiinfinne, and the Neighboring Urban Centers: Gelan, Bishoftu,
Modjo and Adama as well as rural towns like Dire, Gimbichu. According 1994 census
Population of the town is projected to be more than 31,500. Out of which 16,304 are males and
15,196 are females Dukem town admistration profile (2012).

In fact the town has significant economic importance because of the industrial expansion
there are about 241 Companies in Dukem town admistration.This causes many to migrate
to this area searching for livelihood and for job opportunity created by these industries

The revenue collected to cover the town’s budgetary need is collected from two main
sources of revenue. These are the state revenue and the municipal revenue.The state
revenue is not totally under the control the town. The revenue ceiling for the state is

25
given by the regional government and the town has the right to use only the figure
which is allowed by the regional government.

Most of the time the state revenue is used to cover the salary and operating costs of the
administrations sector offices. On the other hand the municipal revenue is totally under
the jurisdiction of the town. Based on the revenue of potential of the town the
municipality plans what amount of state revenue to collect and based on that the revenue
authority plans and collect the revenue from different revenue codes both state and
municipality revenue.

In relation to this the town’s expenditure goes parallel to the revenue collected because
the administration has no other source of revenue rather than own collected revenue.
Therefore the expenditure of the town is always covered by the revenue collected.
Totally the revenue of the town both the state and municipality was around 15 million
before five (2007EC) years but currently it has reached around 345 million. According to
Dukem town Revenue Authority report of the year (2017/18 ), there were total of 4323
taxpayers consists of 213 category “A”, taxpayers 410 category “B”, taxpayers and 3700
category “C” business income taxpayers in town .

The study was assess the assessment of taxpayer attitude and compliance behavior of
category “A” and “B” tax payer in Dukem town administration. Thus, the descriptive
survey enables the researcher to picture out the current tax compliance in the town.
Descriptive statics methodology has great importance to obtain pertinent and whenever
possible, to draw valid general conclusion from the facts discovered.

26
Figure 3:1 Location map of Dukem town figure

Source: GIS Data 2017

3.2. Research Design

Research design is the general plan of how the research questions were answed. It is the
conceptual structure within which research was conduct. It constitutes a blue print for the
collection, measurement, and analysis of the data, the main data analysis methods used
for this research was descriptive type such as tables, percentage theoretical and indication
analyised.Descriptive studies are non-experimental researches that describe the
characteristics of a particular individual, or a group. It deals with the relationship between
variables and development of generalizations and use of theories that have universal
validity. It also involves events those have already taken place and may be related to
present conditions and that it is possible to report what has happened or what is
happening. (Kothari 2004).Then, the strategy of this research was survey research for
investigated social phenomena that collected information from sample or whole
population via questionnaire.This research strategy produces information that was less
detailed but extensive and could be fairly generalized to the population from which
sample was drawn.

27
3.3. Research approach

The research approach quantitative, qualitative and mixed methods using qualitative and
quantitative methods was helped in triangulating of data sources, in an approach that is
commonly referred to as mixed methods approach or mixed methods research (Creswell
2009).For the current study, this data collection method was chosen for the study
because it allowed the data to be collected in a short period of time.

3.3.1. Quantitative research approach

The quantitative research design helped to identified various challenging assessment

factors of tax compliance of Dukem town Administration the quantitative features of
research design, namely, sampling design variables, research questions and data analysis
and interpretation. Quantitative design employs strategies of inquiry such as survey and
collected data through standardized instruments that are close- and open ended question and
numeric data. Using statistical method, it generalizes about the population from the sample.

3.3.2. Qualitative research approach

In a first phase, quantitative data are gathered through survey instrument and results
further used in a second phase of qualitative research. Accordingly, the connection or
mixing occurred between quantitative data analysis and the data collection of second
phase research. The analysis of quantitative data and its results helped to prepare
qualitative interview questions and focus group discussion.

28
Thus the identified assessed factors that impeded tax compliance implementation further
used to better understand thei rmagnitude as challenging factors of tax compliance
implementation in the revenue authority of Dukem town administration. It was believed
that interviewees have had better knowledge was interviewed nine interviewees on issues
based on the results of the first phase. Interview questions were prepared prior to
conducting the interviews, while emerging questions also rose during the interview. In
addition, before conducting the interviews, respondents wasingness ask first after getting
their wasingness and schedules, the researcher interview the respondents using interview
protocol and by making handwriting notes.Qualitative data collected from interviewees
and focus group didcussion was notices in to appropriate contexts, written down, and
thematically analyzes. Potentially the themes helped to analyze qualitative data for the
second phase of the study.

3.4. Population of the study

The study population of this research was taxpayers’ category “A” and “B” in Dukem
town. According to FDRE, (2016).There was three categories of business income
taxpayers based on their annual gross income. These are “A”, “B” and ‘C’ categories
respectively.Categories “A” taxpayers is business entities that have an annual gross
income of Birr 1,000,000 (one million Birr thousand Birr) and more. Category “B”
taxpayer being a person, other than a Company, having an annual gross income of Birr
500,000 or more but less than 1,000,000 and category “C” taxpayer being a person other
than a Company, having an annual gross income of less than Birr 500,000. From those,
two tax payer categories ‘A and B are selected through stratified simple random sampling
technique for the study. According to Dukem town Revenue Authority adimistration
report of the year (2016/17 G.C), there were total of 623 taxpayers consists of 213
category “A”, taxpayers 410 category “B”, taxpayers business income taxpayers in town
. These were having taken as target population of this study by the author.

29
3.4.1. Sampling Frame

Sample frame is the complete list of accessible population from which the sample is
drawn Of which 213 are Category “A” tax payers and 410 are Category “B” tax payers
are sampling frame of the study.

3.4.2 Sampling Unit

As it was try to be indicated in the above sampling frame the sampling unit of the
research was assessed of category “A” and “B” tax payers attitude and compliance
behavior in the study area was possible and obtained the varies relevant information’s.

3.4.3 .Sample size

the researcher consider two categories of taxpayers as strata and select sample out of
each two strata using simple random sampling because in scenario of selecting sample
from strata “the groups were termed strata in this form of sampling and can be based on
any naturally occurring grouping kothar (2004).To determine the sample size from total
taxpayers in the town, mathematical formula of Yamane, T, (1987) used by taking in to
account the total population, the sampling error and the level of reliability. It is assumed
that the sample was have 95% reliability about population and a sampling error was 5%.
This simplest formula is

n = __N______

1+N (e) ^2

Where; n is the sample size,

N _ is the population

E_ is the level of precision or sampling error= (0.05)

1_ is given coefficient

30
 623
Regarding tax payer n=
1+ 623 ( 0.05 ) 2

n=244

Proportional sample, for each tax payer population

n ≈ 244, thus the sample of individual tax payer this study. There are three category tax
payers in the town for this study with the total of 623 populations. To select the sample
size for each office the proportional stratified sampling technique formula.

n= ___n___x ni

Where, n, Total sample population, N=Total population determined, ni, sample size for
each tax payer population.

Table 3.1 Proportional Sampling for each of the two taxpayer category in the town
NO. Sampling strata Individuals(Population) of Using the Proportional Sample size
the tax payer stratified sampling for each tax
technique n=nxni/N payer
Population

1 Category “A” 213 244/623x213 83

2 Category “B” 410 244/623x410 161

Total 623 n=244

Source: Dukem revenue authority report 2010.E.C

3.6. Sampling Techniques

Sampling techniques commonly categorize in to two.There is random sampling and non

random sampling. The researcher has applied the sampling techniques was used for this
study is stratified simple random sampling and purposive sampling techniques.

The reason that the researcher uses these techniques, they have the possibility to be used
for this study manageable to employ and proportionate sampling gives proper

31
representation to each stratum and give equal chance to the all taxpayers’ in all two
categories, to select representative sample for the study to save the resources. Its
statistical efficiency is generally higher proportionate sampling gives proper
representation to each stratum and its statistical efficiency is generally higher. Besides,
the researcher used purposive sampling technique to select nine tax officers in the
town using for interview and focus group discussion purpose to obtain relevant
information about the topic. This is concept of using probability and non-probability
sampling techniques to achieve the objective of this study.

Stratified simple random sampling techniques to select ‘A’, and ‘B’ tax payer which
was included under this study. Then, simple random sampling techniques was employed
to take the selected ‘A’, and ‘B’ tax category. Therefore stratified random sampling
which was probability sampling and also purposive sampling used because from revenue
office the researcher believe that management members have capable to provide the
sufficient information the investigator. According to the table, and for stratifies of this
study, the researcher used a population size N (623) category A (213), and B (410) tax
payers thus a sample size goal of n=244 category A and “B’ tax payers. For each of the
sampled (623) category ‘A’ and ‘B’ Tax Payers, They were chosen as the target
respondent as they were believed to represent the major category “A”, and “B”. Tax
Payers and, can be expected to have a better understanding of the assessment of taxpayers
attitude and compliance behavior problem in the category “A,” and “B” a tax Payers
Found in Dukem town. Therefore, a sample of 83 category “A” and , 161 category “B”
was selected from a population of 623 category “A” and “B” taxpayers a sample
Dukem town Revenue Authority in order to substantiate the information obtained from
the tax collector side by interview and group discusion.

3.7. Data source

In this study primary data was used. Primary data collection is necessary when a
researcher cannot find the data needed from secondary sources, especially when the

32
researcher is interested in primary data about demographic characteristics,
attitude/opinion/interest, awareness/knowledge, intentions, motivation and behavior.
Primary data refers to data originated by the researcher for the specific purpose of
addressing the research problem (Coper and Schindler, 2008). It was what the researcher
originally collected from the sample or target population.

In this research, the primary data has collected by questionnaire. Primary data was the
major source of data for this research because there are almost no research works done on
the assessment of tax payer attitude and compliance in Dukem town adimistration both
empirically and theoretically.

3.7.1. Primary data source

The primary data was collecting through structured questionnaire aninterview and group
discussion.The questionnaire was consist of close-ended and a few open-ended questions
to understand category ‘A’ and ‘B’ taxpayers ‘opinions about the assessment of tax
payers attitude and compliance behavior in Dukem town admistration . The primary data
sources category ‘A’ and’,B’ tax payer of Dukem town Revenue Authority.The interview
and questionnaire items were prepared in English and translated to Amharic or Afan
Oromo.

3.7.2. Secondary data Source

The researcher used different documents in order to access accurate and reliable data.
Documents utilizes comprised of guidelines, directives, policies and regulations
(regarding Assessment of tax payers attitude and compliance behaviors ), books and
journals (as literatures) and Dukem town Revenue Authority assessment of taxpayer
document.

3.8. Method of Data Collection

In order to find sufficient and relevant information, both primary and secondary sources
of data were used. The primary sources of data were obtained from questionnaires that

33
include both open and closed-ended and also structured, semi structured questionnaires
and gropu discussion was being employed. On the other hand, the secondary sources of
data were collected from books, internet and documents. In this regard, an assessment of
documents which are related to the areas of the study was made at the target assessment
of tax payer attitude and compliance behavior.The documents include proclamation,
manual and other important documents were assessed and journals. In this study, the
main data collections instruments to gather relevant information was questionnaire semi-
structured interview and focus group discussion.

3.8.1. Questionnaire

Questionnaire was helped researchers to collect data from lesser sample and it gives
privacy to respondents. Foody (2015), stated a questionnaire is a research instrument
consisting of a series of questions and other prompts for the purpose of gathering
information from respondents. To collect data a questionnaire consisting of close ended
and open ended questions was designed. The questionnaire translated into Afan Oromo
and Amharic. The researcher was told to respondents briefly about the purpose of the
study.

The first section designed to obtain data about respondent’s profile. The first part of the
questionnaires was analyzed by using percentage and frequency and the second part of
the questionnaires was analyzed by using Likert-scale type was requested the
respondents to rate the items in five scale points that comprises of strongly agree, agree,
neutral, disagree and strongly disagree, frequency, percentage based on the nature of
questionnaire.

3.8.2. Interview

Interview has an advantage over other instruments in that it gives a chance to the
researcher to be in person with the respondents and understand what they feel. In this
study, semi-structured interview applied to collect data from the nine selected samples.
Hence, the researcher was got the chance to further explain the question and also to be
able to triangulate the data obtained.

34
3.8.3 Focus Group Discussion

A focus group is a situation where a focus group moderator or researchers select a small
and homogeneous group of eight people. Conduct the discussion on a research issue.
Focus groups are useful for exploring ideas and obtaining in-depth information about
how people think about an issue focus group discussion in combination with other
methods, was helped researcher the fundamental principle of mixed research or
triangulation focus groups useful for exploring ideas and concepts. Provides window into
participants’ internal thinking can obtain in-depth information.Can assess how
participants react to each other.

3.9. Procedure for Data Collection

Once the pre filed preparation was completed, with the letter of request for access to the
concerned body of each tax payer the formal contact was made. Along with this the
formal request for access to the relevant documents was made on the first visit. Then the
exact number of respondent as per the sample size in each group was decided and the
actual number of respondent was determined. Having done this on the second day of the
visit an interview schedule was presented to the contact person and appointment for
interview was made with the selected respondents. As per the appointment, the interview
sessions was conducted each lasting fifty five minutes.Besides; focus group discussion
was conducted with the specified target groups as per the appointment set with the group
which were took two to two and half hours after the questionnaires were prepared pilot
testing of the instrument was made on one randomly selected tax payers and from non-
sampled revenue official.

Moreover, to confirm the validity of the instrument, respondent of taxpayer also pilot test
was oriented about the objectives of the pilot study, how to fill, evaluate and give
feedback regarding the relevance of the question items, Based on the suggestion
forwarded and, information obtained. In general, the pilot test was helped the researcher
to avoid errors related to clarity of languages and contents, and include some important
concepts.

35
After the necessary improvements was made, the questionnaires was duplicated and
distributed with the necessary orientations and filled by the respondents

3.10. Validity and Reliability

During conducting research, the existence of various errors is predictable. In process of
ensuring the data quality, reliability and validity data collection instruments are
necessary. Data reliability is defined as the extent to which a questionnaire, interview,
focus gropup discussion or any measurement produces the same results on repeated trials.
The researcher conducted triangulation using different sources of evidence.The
researcher used triangulation to ensure that data collected from one source was compared
to the others to ensure consistency of the information in the study-using questionnaire,
structured and semi-structured interviews. As far as respondents were concerned,
interview techniques were used to minimize their bias. To ensure validity, the researcher
conducted communicating with informants.

In formulation of appropriate questionnaires to answer research questions in line with the

research objectives and in accurate primary’s data were supported by (Ethiopian tax law,
rules and tax proclamation of Oromia, 2009EC) during data analysis in the study.
Reliability concern with the procedures of data collection and analysis would generate the
same results on other occasions or would other observers make similar observations and
arrived at the conclusions from the raw data. The researcher aware of same biases would
be occurring on the side of these respondents and cares taking to avoid them. For
instance, respondent bias may occur when they can be identify individually tend them to
gone socially desirable answers.

In order to ensure the validity and reliability of the research, the researcher has exerted
his maximum effort by taking the whole population as a sample and formulate best
questionnaire. Thus, the researcher strongly believes and confident that the independent
variables which were assessed of taxpayer attitude and compliance in case Dukem town
adimisrtation.

36
3.11. Ethical Considerations

The researcher of this study had been respect ethical parameters such as giving
value, privacy and right for every participant like to withdraw themselves at any time
they want, prevent the studied subjects from getting harm by making it confidential,
giving necessary information to respondents in advance and report them after
completion, respect for any secondary data obtained from research area from being
harmed, avoid plagiarism by referring and citing, and keep away from being
biased for enduring reliable, honest for the research topic in particular and the society on
which the research is undertaking in general. The right of the respondents to privacy was
put into consideration by not asking them unnecessary information. The respondents also
participated wasingly in the study after they were made to understand the intentions of
the study and the information received has not and was not be used for any other
purposes apart from this study.

3.12. Data Processing and Analysis

After collecting the necessary data, from the source the data by descriptive statistical
tools tables, percentages, mean ,standard devation .figures, graphs, charts, was organized
according to their homogeneity; tailed, tabulated and analyzed to answer the basic
research questions in meaningful way. Both quantitative and qualitative data analysis
methods used to in the study according to the research questions contexts. Quantitative
data which was collected through questionnaire from tax payer was organized, tabulated
and analyzed quantitatively by using linkert scale to measure answers like (strongly
agree, agree, average, disagree and strongly disagree).

Percentage and frequency used to analyze the personal information of the respondents
and answers like (Yes or NO) in similar way was employed to assess statistical
significance differences between respondents based on the nature of the questionnaire.
However, the qualitative data that was collected through interview from officials semi
structured interviews (some general interview guide, close-ended questionnaire), focus
group discussion and information gathered from documents was narrated in words

37
through content analysis. Lastly, the researcher was also used SPSS 20 Version software
to analyze the data.

CHAPTER FOUR

4.0. RESULT DISCUSSION AND DATA ANALYSIS

This chapter deals with results and discussions of the data that were categorized into two
parts. The first part was the characteristics of the respondents which describe the study

38
population by sex, age, education, exprince in business ,while the second part deals with
the analysis of findings of the study that were gathered through questionnaire interview
and group discusio. The data are collected and then analyzed in response to the problems
posed in the first chapter of this study.

4.1. Response Rate

The respondents were tax paper’s which were treated using questionnaire. The total
questionnaires being distributed were 244. Out of 244 questionnaires distributed to tax
payer’s 243 questionnaires were returned in the time schedule. Therefore, this indicates
that the overall response rate of the study is 99.5%.

4.1.1. Gender Distribution of Respondents

Figure 4.1 below presents the distribution of respondents for the study. A sample of two
hundred fourty three (243) respondents responded to the administered questionnaire.
Figure 4.1 below shows that majority of the respondents (54.7%) were males whilst 45.3%

were females. As evidenced by the Figure 4.1.The results show a sample relatively
skewed in favour of male test subjects and this high ratio of males reflects the structure of
income earners in the study area.That is in most developing countries; including Ethiopia,
husbands and single males are responsible for the earning of income and providing
money for wives to purchase goods and services may be due to the cultural influences.
The need to take both Sexes in the study was to get the clear picture of men and women.

Figure 4.1: Gender Distributions of Respondents

39
 54.7%

45.3%

Male
Female
Source: Field Survey, 2019

4.1.1.2. Age of Respondents

Table 4.1 below shows the age distribution of respondents. The mean age of the
respondents was 2.4650 with a standard deviation of 2.1070.According to the result 7.8%

were age group of Lessthan 30years 51.9 % were age group of 31-40 years 30.0% were age
group of 41-50 years 6.6% were age group of 51-60 years 3.7 % were age group 61 and above

and above years. From this the study revealed that most of the respondents were between
the ages of 31-40 years .This indicates that the respondents composed of various age
groups help to provide a complete picture of various group of people and the majority of
the tax payers fall in the working age group accounting 51.9 percent, almost above half of
the total populationon the assessment of tax pairs, attitudes and compliance behaviour in
Dukem town administration.

Table 4.1 Age group of respondents

Frequency Percent Valid Percent Cumulative
Percent
Valid Lessthan 30 19 7.8 7.8 7.8
31-40 126 51.9 51.9 59.7
41-50 73 30.0 30.0 89.7
51-60 16 6.6 6.6 96.3
61 and above 9 3.7 3.7 100.0
Total 243 100.0 100.0
Source: Field Survey, 2019
4.1.1.3. Level of Educational status of the respondents

40
The results from Table 4.2 captured five (5) categories of educational background of the
respondent’s namely First cycle and below.Secondary school, Diploma, Degree , MA
and above. As illustrated in the table, majority of the respondents could read or write as
compared to those who could not. However, only few of them had attained a highest
level of educational background 3.7% with MA and above. It was found that most of the
respondents (39.1%) had Secondary school.Those with Diploma and Degree holders are
respectively as follows 26.3% 11, 6 and 6.2%. This depicts that most of the responses on
the assessment of tax pairs, attitudes and compliance behaviour was tapped into the base
of respondents with First cycle and blow. This indicated that majority of respondents were
somewhat not educated, thus assumed to provide not balanced and accurate information
on the tax pairs, attitudes and compliance.

Table 4.2. Level of Education of Respondent

Frequency Percent Valid Percent Cumulati
ve
Percent
Valid First cycle and below 95 39.1 39.1 39.1
Secondary school 60 24.7 24.7 63.8
Diploma 64 26.3 26.3 90.1
Degree 15 6.2 6.2 96.3
MA and above 9 3.7 3.7 100.0
Total 243 100.0 100.0
Source: Field Survey, 2019

41
 4.1.1.4. Tax payers category

Figure 4.2. Below presents the distribution of respondents for the study. A sample of
two hundred fourty three (243) respondents responded to the administered
questionnaire. Figure 4.2 below shows that majority of the respondents (65.8%) were
category of B while 34.2 % were category of A. The results show a sample relatively
skewed in favour of B test subjects. The need to take both Categories in the study was
to get the clear picture of ‘A’ and ‘B’.

Figure 4.2. Tax payers category

34.2%

65.8%

Source: Field Survey, 2019

4.1.1.5. Length of Stay in years of tax payer

Regarding the number of year’s respondents had been spent in staying in of tax payers,
the study revealed as shown in Figure 4.3. That many of the respondents (60.1%) had
spent more than 3-5 years in tax payers but time of starting business wasa 66% the
defferent 6% tax payers not pay on time this show that there is non -compliance of tax.
About 21.8% of tax payers 6-10 years, 11.9 % were more than 10 years, 6.2% were 2
year and less, respectively and almost more than half of the tax payers are 3-5 years. It is
important to emphasize that the number of years the majority of respondents had stayed
in the tax payers would factor into the information they had contributed to this study. The
length of years respondents had stayed in the tax payers is a good indicator to suggest the
possibility of them providing the requisite knowledge on issues concerning on the

42
assessment of tax pairs, attitudes and compliance behaviour in Dukem town. This is also
good implication to get better understanding about the tax pairs, attitudes and compliance
behaviour.

Figure 4.3, Length of Stay in years of tax payers

60.1%

21.8%

11.9%
6.2%

Source: Field Survey, 2019

4.1.1.6. Respondents distribution by current position in the sector

Table 4.3. The respondents position in the sector

Frequency Percent Valid Percent Cumulative
Percent
Valid Owner 163 67.1 67.1 67.1
Mangers 39 16.0 16.0 83.1
Accountant 24 9.9 9.9 93.0
Others 17 7.0 7.0 100.0
Total 243 100.0 100.0

Source: Field Survey, 2019

According to the survey result in Table 4.3 the respondents were from positions in the
sector. However, as of the distribution in the population the majority 67.1% were Owner
and 16.0% of the respondents were Mangers 9.9 %Accountant and 7.0% were others
respectively.

43
This shows that most of the respondents were from Owner position that more information
was gained from them because they have giving the exact information which was on
going in the town on tax pairs, attitudes and compliance behaviour in Dukem town.

4.1.1.7. Respondents distribution in bussiness Experience

As indicated in Figure 4.4, in business exprience experience of the respondents’ was

evenly distributed by two year and less 8.2 %3-5years 66.3%6- 10 years 18.1% More
than 10 years 7.4% respectively.The majority of the respondents had work experience
between 3-5 years to the work environment thereby able to evaluate the situation in their
business From this we can get more information about the issues because most of the
respondents were experienced as we seen from the result and they had more information
about tax payer’s attitude and compliance behavior in the study area.

Figure 4.4.Respondents’ distribution in bussiness Experience

66.3%

18.1%
8.2% 7.4%

Source: Field Survey, 2019

44
4.1.1.8. Why do Tax payers pay taxes

Table 4.4: Responses on the why do you pay tax

Frequency Percent Valid Percent Cumulative
Percent
To avoid disturbances (penalties and, 42 17.3 17.3 17.3
sanctions)
In the anticipation of public services. 44 18.1 18.1 81.9
Valid
It is an obligation towards the 157 64.6 64.6 100.0
government.
Total 243 100.0 100.0
Source: Author, field survey, 2019

Table 4.4 shows when tax payers were asked why they pay taxes, 64.6 percent of the
respondents said that they pay taxes because it is an obligation to the government or state
and in the anticipation of public services from the government ( 18.1 percent).This
indicates there is a negative understanding or non complince as to why people pay taxes
and if successive works are done probably better results can be registered.and the
remaining 17.3 percent of the respondents said that they pay taxes to avoid
disturbances.The response of others who said there is no opportunity to evade, it indicates
that they have the intention not to pay if they have the opportunity to do so or their
compliance behavior is questionable

4.1.1.9. Considering the ability to pay, how the tax payers think tax liability

Table 4.5: Responses on the amount of tax liability paid

Frequency Percent Valid Percent Cumulative
Percent
Valid Overstated 221 90.9 90.9 90.9
Understated 4 1.6 1.6 92.6
Normal 18 7.4 7.4 100.0
Total 243 100.0 100.0
Source: Author, field survey, 2019

Table 4.5 shows when the respondents were asked to rank the major problems in the tax
system from the list of most probable options, majority of the respondents (90.9percent)
felt that the tax rates are too high or Overstated, 1.6 percent said tax revenues are

45
Understated why he pay taxes, and 7.4 percent said taxpayers are wasing to pay taxes and
say normal. From this response it is clear that the tax rate is not based on the ability-to-
pay principle or it is perceived to be unfair by taxpayers. Even though the principle says,
tax should be based on the ability- to pay; the problem here is in determining this ‘ability’
for each taxpayer.The communication gap between the tax authority and taxpayers might
have created this perception (i.e., the tax rates are too high) and it continues to be the
issue as far as the understanding of the taxpayers regarding tax rates, assessment,
calculation etc is low. As stated by Brooks (2004), fairness or equity is one of the main
variables that determine the compliance of tax payers. If there is fairness or equity in the
tax system, voluntary compliance of tax payers with tax law can be easily assured. But
the response from table 4.5 indicates the amount of tax that the tax payers had paid is
beyond their ability to pay which implies unfairness in the tax system in the study area.

This might be practically true, but the public must be made aware of these social services
which are being financed by the taxpayers’ money. As long as there is a gap in
communicating these facts to the public, the above attitude problem was not be changed.
This problem is the central problem as far as tax compliance is concerned and it is related
with variety of factors.

4.2. Analysis of Major Questionnaires

This section of the study was present the results of the survey interview and focus group
discussion about the tax payer’s attitude and compliance behavior. The result classifies
the the tax payer’s attitude and compliance behavior in different parts such as, economic,
institutional, Social and Individual compliances.seventeen (18) items measuring the tax
payer’s attitude and compliance behavior were captured in this study. All the variables
were measured using a 5-point Likert scale (1=strongly disagree to 5=strongly agree.

4.2.1 .Economic assessment

On Economic Compliance in Table 4.6 was taken Only 5 variables out of 18 items were
captured in this study. These includes Tax rates increase evasion mean value =3.28403.,

46
SD=.960821 Detection increase, compliance. Mean value=4.1893, SD= .55779, High
detected for nonpayment mean value =3.9506, SD =.89398, Tax evasion is ethical mean
value= 3.6296, SD =1.09971, Composition of public spending means value=3.7037, SD
=.87827.In percentile also as indicated in Table below the variables was measured using
a 5-point Likert scale.Various economic compliance in tax payer’s attitude and
compliance behavior had been taken. According to the survey result indicated in Table
4.6 on the variable when Tax rates increase evasion also increases 5.3 % of the
respondents strongly disagree 18.1 % disagree 21.0 % were undecided 53.9 % were
agreed, 1.6 % were said strongly agreed, this implies that the tax payers in the town
believed that the current tax rates are not fair and equitable and so tax rate must be have
lower rates .On the Detection increase, compliance 70.0 % were said Strongly Disagree.
From this we can see that most of the respondents were agreed this shows that when the
detection of tax increases tax compliance increases. The findings, therefore, indicated that
majority of tax payer agreed a probability of detection was increase tax compliance.

The other on item number 3 on the same table on High detected for nonpayment 1.6%
strongly disagree, 9.5 % Disagree, 4.1% Undecided, 23.0% Agree and 61.7 % were said
strongly agreed on the issues. From this we can see that most of the respondents 61.7 %
% were strongly agreed this shows that most of the respondents were agreed that when
the high detectetion tax compliance increased.This implies that tax authority and other
responsible bodies should work to enhance voluntary compliance by strengthen the audit
capacity.The other item mentioned on number 4 and 5 Tax evasion is ethical and
Composition of public spending is the same as mentioned on the above discussion al
most the respondents were agreed on. The above statistics reveal that many of the
respondents were of the opinion that in order to encourage tax compliance is achieved;
government should provide goods and services that market does not provide.

Table 4.6.Respondents rating on the Economic assessment

No Economic factors N Rating Likert scale in % Mean SD

1 2 3 4 5

47
1 Tax rates increase evas 243 5.3 18.1 21.0 53.9 1.6 3.28403. .960821.
2 Detection inc. compli 242 0.4 0.4 4.1 70.0 25.1 4.1893 .55779
3 High detected nonpay 433 1.6 9.5 4.1 61.7 23.0 3.9506 .89398
4 Tax evasion is ethical 243 3.3 16.9 15.2 42.8 21.8 3.6296 1.09971
5 Composition of public 243 2.9 9.5 11.9 65.8 9.9 3.7037 .87827
F-ield work data, 2019

As a result the researcher has also interviewing the team leaders and, group discussion
who were concerned with the issues on the variable mentioned above on the economic
compliance.Seeing that the result the economic compliance is one of the most influential
on the tax payer’s attitude and compliance behavior.The result also in some caseses thet
agree with the respondents and in some cases they do not agree with the respondents
attitude. Therefore, it can be conclude that most of the taxpayers believed that the
government spending too much on something considered unnecessary or unbeneficial to
them then taxpayers was feel deceived and attempt to non-comply. As a result it needs
some remedial actions to adjust and on some cases it needs also an aware creation by the
concerned bodies on the percentage of tax revenue going on the costs of tax
administration.Comparatively efficient tax administrations may be spending up to 2% of
revenue on collection costs Proportion of GDP countries raise in the form of tax revenue.

4.2.2. Institutional assessment

Institutional Compliance in Table 4.7 was taken Only 5 variables out of 18 items were
captured in this study. These includes Tax laws are easy mean value =3.3827, SD
=.1.08979, Respect of your tax obligations Mean value=1.9424, SD= 1.10720,
Employees of revenue ethics mean value =1.9424, SD =1.06250, Revenue office gives
awareness mean value= 1.8724, SD =.62670, Treatment of tax office Preferred means
*value=1.9053, SD =.65814.In percentage also as indicated in Table 4:7, blow the
variables was measured using a 5-point Likert scale.Various Institutional Compliance had
been taken to check their influence on tax payer’s attitude and compliance behavior.
According to the survey result indicated in Table 4.7, the majority 60.5% the respondents
were agreed to that the easy tax law increase tax compliance and the rest 5.3% of the
respondents undecided 6.2% were Strongly agreed, 6.6% were said strongly disagreed

48
and 21.4% were said disagreed as each were selected. The findings shows that majority
of the tax payers if tax law easily understood and this may enhance tax
compliance.Number item 2 on the same table on respecting of tax payer on tax
obligations 1.2% strongly Disagree, 34.2% Disagree2.5%Undecided, 50.6% Agree and
11.5 % were said strongly agreed. .From this we can see that most of the respondents
were agreed respecting tax obligations.

The other 38.3 % strongly disagree, 46.9 % Disagree, 0.4% Undecided, 11.1 % Agree
and 3.3% were said strongly agreed on the Employees of revenue ethics. From this we
can see that most of the respondents 46.9 % were disagreed this shows that the employees
of revenue office not capable enough by in number, ability and ethics to be the tax system
transparent, equitable and modern.The other 22.2 % strongly disagree72.0 % Disagree,
2.9 % Undecided, 2.1% Agree and .8 % were said strongly agreed Revenue office gives
awareness for tax payers. The result shows that the Revenue office not gives awareness
for tax payers and, the training program initiated by the tax office has not contributing to
raising the awareness of the taxpayers on voluntary compliance. On The treatment of tax
office is equally and independent for all taxpayers 69.5% of the respondents were dis
agree on giving on the the issues.This indicates that there is no the treatement of tax
office is equally and independent for all taxpayers.

Table 4.7.Respondents rating the Institutional assessment

No Institutional factors N Rating Likert scale in % Mean SD

1 2 3 4 5

49
1 Tax laws are easy incco 243 6.6 21.4 5.3 60.5 6.2 3.3827 1.08979
2 Respect tax obligations 243 1.2 34.2 2.5 50.6 11.5 1.9424 1.10720
3 Employees ethics 243 38.3 46.9 0.4 11.1 3.3 1.9424 1.06250
4 Revenue office aware 243 22.2 72.0 2.9 2.1 .8 1.8724 .62670
5 Treatment of tax office 243 22.2 69.5 3.7 4.5 - 1.9053 .65814
Field work data, 2019

As a result the researcher has also interviewing the team leaders who were concerned
with the issues on the variable mentioned and focus group discussion above on the
Institutional Compliance on tax payer’s attitude and compliance behavior.The result of
interview indicates that the institutional compliance is one of the influential factors on tax
payer’s attitude and compliance behavior. The findings, therefore, shows that majority of
the tax payers if the tax law easily understood and this may enhance tax compliance in
respecting tax obligations and in other wise fear of judging the treatement of tax office
equally and independent for all taxpayers and voluntary compliance is promoted not only
by an awareness of rights and expectations of a fair and efficient treatment but also by
clear, simple and user friendly administrative systems and procedures.

4.2.3. Social assesment

As indicated in Table 4.8, Social Compliance was taken Only 2 variables out of 18 items
were captured in this study. These includes present tax system benefits mean value
=2.3539, SD =.1.00734, Friends & family affect taxpayers' Mean value=3.7366, SD= .
86518.In percentage also as indicated in Table 4:8 below the variables was measured
using a 5-point Likert scale. Social Compliance had been taken to check their influence
on tax payer’s attitude and compliance behavior.

From selected the present tax system benefits the rich and is unfair to the ordinary
working man or woman, this discourages tax compliance 18.1 % strongly Disagree, 21.08
% Disagree, 11.5 %Undecided, 49.4 % Agree and no were said strongly agreed.

From this we can see that most of the respondents were disagreed.This shows that the
present tax system benefits the rich and is unfair to the ordinary working man or woman,
this discourages tax compliance. On the 2nd item on the same table on Friends and family
50
was affect taxpayers' decision to comply or not.Accordingly the result 3.3 % strongly
Disagree, 8.6 % Disagree, 8.2 %Undecided, 70.8 % Agree and 9.1 % were said strongly
agreed. From this, it can be concluding that majority of the tax Payers agreed on the
influence of Friends and family was affect taxpayers' decision to comply or not.

Table 4.8.Respondents rating on the Social assessment

No Social Compliance N Rating Likert scale in % Mean SD

1 2 3 4 5
1 Present tax system benefits 243 18.1 21.08 11.5 49.4 - 2.3539 1.00734
2 Friends & family affect 243 3.3 8.6 8.2 70.8 9.1 3.7366 .86518

Field work data, 2019

As a result the researcher has also interviewing the team leader who was concerned with
the issues and focus group discussion on the variable mentioned above on the Social
Compliance.Seeing that the result Social Compliance is one of the most influential tax
payer’s attitude and compliance behavior.As the result it was supported by the
respondents of interviewers focus group discussion indicates that Social Compliance is
one of the most influential on tax payer’s attitude and compliance behavior Therefore it
needs some remedial actions by the concerned bodies to reduce the influence of Social
Compliance on tax payer’s attitude and compliance behavior to reduce the influence.

The perception of the fairness of the tax system among taxpayers is an important element
and, wasingness to voluntarily comply with the tax laws that depends in part on their
confidence that their friends, neighbors, and business competitors are paying their share
of taxes.

4.2.4. Individual assessment

Individual Compliance is one of the tax payers compliance in which on Table 4.8 was
taken only 6 variables out of 18 items were captured in this study. These includes easily
calculate tax liability Declaration mean value =2.7901, SD =.1.42628, Declaration

51
formats are simple Mean value=2.5802, SD= 1.02285, Easy to get the tax information
mean value =2.2058, SD =1.07893, Penalty high compliance high.mean value= 3.7819,
SD =.71420, personal financial problems evade tax mean value=3.7737,SD =.80431,
Financial distress prioritize financial needs mean value= 3.5967, SD= .93702.In
percentage also as indicated in Table 4:8, below the variables was measured using a 5-
point Likert scale. Individual Compliance had been taken to check their influence on on
tax payer’s attitude and compliance behavior. Accordingly the majority of the elements
of the Individual Compliance found to have influence on tax payer’s attitude and
compliance behavior. According to the survey result indicated in Table 4.8, the majority
33.7 % the respondents were disagreed to that the tax payers can easily calculate tax
liability, and the rest 29.6 % of the respondents agreed 0 .4 % were Strongly agreed, 18.9
% were said strongly disagreed and on the declaration formats are simple to fill 3.3 %
were said strongly disagreed as 66.7% Disagree, 4.1 % Undecided, 20.6 % Agree and 5.3
% were said strongly agreed on the declaration formats are simple to fill to tax payers.
.From this we can see that most of the respondents were disagreed this shows that the
Declaration formats are simple to fill to tax payers not simple for tax payers. The other
25.9 % strongly disagree, 49.0 % Disagree, 6.2 % Undecided, 16.5 % Agree and 2.5%
were said strongly agreed on the tax payers can easily get the necessary tax information
and updates. From this we can see that most of the respondents 49.0 % weredisagreed
this shows that tax payers can not easily get the necessary tax information and updates.

The other item 4 on the same table 2.1 % strongly disagree, 5.3 % Disagree, 10.3 15 %
Undecided, 77.0 % Agree and 5.3 % were said strongly agreed on the penalty rate and
enforcement undertaken by the tax authority is high which results in high compliance.
From this we can see that most of the respondents were agreed this shows that the penalty
rate and enforcement undertaken by the tax authority is high which results in high
compliance.

Table 4.9.Respondents rating on Individual assessment

No Individual factors N Rating Likert scale in % Mean SD

1 2 3 4 5

52
1 Easily calcul tax liability 243 18.9 33.7 8.6 29.6 .4 2.7901 1.42628
2 Declaration formats 243 3.3 66.7 4.1 20.6 5.3 2.5802 1.02285
3 Get the tax information 243 25.9 49.0 6.2 16.5 2.5 2.2058 1.07893
4 Penalty high compliance 243 2.1 5.3 10.3 77.0 5.3 3.7819 .71420
5 personal financial problems 243 3.7 6.6 4.1 79.8 5.8 3.7737 .80431
6 Distress financial needs 243 4.5 11.5 10.3 67.1 6.6 3.5967 .93702

Field work data, 2019

The other remaing item mentioned on the same table on number 5 and 6 indicates that
most of the respondents agreed on People who face personal financial problems are likely
to be more disposed to evade tax and financial distress would tend to prioritize their
financial needs and obligations first rather than pay taxes by 79.8 % and 67.1 %
respectively.As a result the researcher has also interviewing the team leaders who were
concerned with the issues on Individual Compliance on the variable mentioned
above.Seeing that the result Individual Compliance is one of the most influential on the
tax payer’s attitude and compliance behavior.

4.2.5. Discussion Document Review Results

Table 4.10 Dukem Town revenue collection trend 2009-2011.EC

fisical Year in EC Plan in (birr) Actual performance(in birr) %

2009 279.22million 205.6 million. 73.6
2010 352.6 million 272.5 million. 77.3
2011 . 415.5 million 350.1 million. 84.3
Total 1047.32 billion 828.2 billin 79.1
Source: Dukem Town Revenue Authority Annual Report

In Ethiopia, like any other developing countries, faces difficulty in raising revenue to the level
required for the promotion of economic growth tax to GDP ratio remained low at 13.4 %

53
 GTPII (2015) due to presence of negative voluntary compliance attitude or tax non-
compliance and poor tax administration (IMF, 2015) ) in Dukem town Revenue authority
as show in table 4.10 estimated a total of 1047.32 bilion birr three year as being the
expected total tax to be collected from tax payers , it was later established that only 828.2
billion birr was collected (79.1%). Revenue Authorities offices thought that a significant
portion of those that did not pay the correct amount of tax did so deliberately but that lack of
information was a contributory factor in low compliance. This is indicate that there is negative
tax compliance attitude is failure to comply with their tax commitment low tax
compliance is a challenge in the town.

Table 4.11 Dukem Town Audit performance trend 2009-2011.EC year

Year Taxpayers Tax files plan Audite % Palned collected % Audit

maintain auditor to be d file additional additional tax coverage
books of s staff audited tax in birr (in birr) %
accounts
(Category
A&B)
2009 359 4 260 191 73 25,200,000 17,660,553 70 52.3
2010 491 5 320 139 43 25,800,000 19,858,267 77 28.3
2011 623 7 216 193 89 25,800,000 24,500,000 84 31
Source: Dukem Town Revenue Authority Annual Report

54
Ethiopian tax policy is based on tax payers’ voluntary compliance i.e. self assessment.It
is geared towards promoting investment, supporting industrial development; and
broadening the tax base and decreasing the tax rate, at least maintaining the current
reduced tax rates compared to most other countries, in view of financing the ever-
growing needs of the government expenditure.

The main purposes of tax audit in improve future compliance and Deter non-
compliance.The demanding audit work, however, studies reveal today that tax auditors
account for approximately 10-15% of staff in many countries, compared to a desirable
target of 30%, which several countries with effective audit operations have found to be
necessary to ensure adequate audit coverage Internal Revenues Services (2009) but in
Dukem town %11 wich was under standard. In the same way, tax audit is increase with
compliance but in the town audit coverage average of three year was about 37.2 % wich
is very low and revenue authority could not found correct income of taxpayers.

CHAPTER FIVE

5. 0. SUMMARY, CONCLUSION AND RECOMMENDATION

5.1. Summary of Major Findings

In an attempt to meet the stated objectives of the research and to answer the research
question’s data were collected and analyzed in the previous chapters.A description survey
study with quantitative and qualitative research approach (mixed method) was employed,
and the related literature was reviewed. The respondent 243 in this study were employed
in Dukem town admistration. Different data collected tools were employed to carry out

55
the study including questionnaires, interview, group discussion and document review. All
the required data obtained through these tools were discussed, quantified, narrated and
described using logical arguments, triangulations.Therefore, and the analysis identified
the following major findings.

The study classifies the result of the tax payer’s attitude and compliance behavior in
different parts such as, economic, institutional, social and Individual factors assessment
and it arrived at the major findings.

1. Economic assessment had been taken to check their influence on tax payer’s
attitude and compliance behavior. Accordingly the Economic assessment factors
found to have influence on on tax payer’s attitude and compliance behavior.The
result of interviewing on the team leaders, group discussion and document review
were concerned with the issues on the variable mentioned above on the economic
assessment factors also shows that it is one of the most influential on the tax
payer’s attitude and compliance behavior. As a result it needs some remedial
actions to adjust and on some cases it needs also an aware creation core stone by
the concerned bodies.

Revenue authority and other responsible bodies should work to enhance voluntary
compliance by strengthen the audit capacity also an important issues to assure tax
compliance.Most of the taxpayers believed that the government spending too much on
something considered unnecessary or unbeneficial to them then taxpayers was feel
deceived and attempt to non-comply.

2. The institutional assessment consists of work environment, policy and manual

implementations.The study revealed that the institutional compliance have association
with tax payer’s attitude and compliance behavior in Dukem Town Administration.
According to the survey result discussed most of the institutional assessment was the
major contributory on tax payer’s attitude and compliance behavior.It includes
government policy that influence on tax payers, this include tax laws, and Respect of tax

56
obligations, employees of revenue ethics, and Revenue office gives awareness and
Treatment of tax office Preferred. Similarly the result of the interviews and group
discussion also confirmed the same aforementioned assessment of institutional on tax
payer’s attitude and compliance behavior. The findings shows that majority of the tax
payers if the tax law easily understood and this may enhance tax compliance in respecting
tax obligations and in other wise fear of judging the treatement of tax office equally and
independent for all taxpayers. The treatement of tax office is equally and independent for
all taxpayers.

3. With related to the survey result indicated major Social assessment that include The
present tax system benefits the rich and is unfair to the ordinary working man or woman,
this discourages tax compliance, and friends and family was affect taxpayers' decision to
comply or not. The results shows that the present tax system not benefits the rich and is
unfair to the ordinary working man or woman, this discourages tax compliance and
friends and family was affect taxpayers' decision to comply or not.

Result of interview; however, elaborate the Social compliance more pronounced. As the
result it was supported by the respondents of interviewers and focus group discussion
indicates that Social factors assessment are one of the most influential on tax payer’s
attitude and compliance behavior Therefore it needs some remedial actions by the
concerned bodies to reduce the influence of Social Compliance on tax payer’s attitude
and compliance behavior.

4. As indicated in this study, one of the researcher‘s basic investigation was focused on
assessing individual on issues related with on tax payer’s attitude and compliance
behavior, easily calculate tax liability, declaration formats are simple, easy to get the tax
information and penalty high compliance high.personal financial problems evade distress
prioritize financial needs so as to be rated by respondents.

57
From the result we can see that most of the respondents were agreed that the penalty rate
and enforcement undertaken by the tax authority is high which results in high
compliance.The other personal financial problems evade tax and distress prioritize
financial needs on People who face personal financial problems are likely to be more
disposed to evade tax and financial distress would tend to prioritize their financial needs
and obligations first rather than pay taxes by 79.8 % and 67.1 % respectively by agreeing
with individual assessment factors.The finding was supported by the interviewees group
discussion that most of them assured the result individual assessment is one of the most
influential on the tax payer’s attitude and compliance behavior. Document review also
assure there is negative tax voluntary compliance attitude is failure to comply with their
tax commitment low tax compliance is a challenge in the town and audit coverage is very
low and revenue authority could not found correct income of taxpayers.

5.2. Conclusion

Based on the summary of major finding, the following conclusions have been drawn:

The study covered the interaction between tax compliance and describing the result
classifies the tax payer’s attitude and compliance behavior in different parts such as,
economic, institutional, Social and Individual factors assessment as independent variables
i.e. tax rates, probability of being audited, perception of government spending, role of tax
authority, complexity of tax system, the influence of referral group, tax knowledge,
awareness of offences , penalties and personal financial constraints were found while tax
compliance was considered as dependent variables.The main objective of the study was
to assess tax compliance behavior of category ‘A’ and ‘B’ taxpayer’s in Dukem town
administration.Survey design was used with questionnaire interview and focus group
discussion as the tool of data collection ,selected sample size was 244.

58
The study analysis was used the descriptive statistics analysis.From the study findings
there is in the town believed that the current tax rates are not fair , equitable and so tax
rate must be have lower rates.Perception of fairness and equity of the tax system is also
found to have a significant on tax compliance behavior.The implication of this result is
that if the tax payers feel that their tax burden is higher than other people within the same
income group, their tax compliance probably decreases.Therefore it can be concluded
that taxpayers’ perception on compliance improves when taxpayers believe the tax
system is fair and equity, they believe that they receive something valuable for their
payments and when society shows no tolerance for tax evasion.Audit and compliance are
found to have a positive relationship in Allingham and Sandmo (2012) studies.

In this study tax audit and tax compliance has found to have a positive relationship.
From this it can be concluded that a high possibility of being audited could encourage
taxpayers to compliance.Complexity of the tax system was also found to have influence
on tax compliance behavior this study suggests that simplifying tax system is important
because it can enhance the tax payer to comply.Therefore complexity of the tax system
has partly contributed to tax payers’ non-compliance.

Role of tax administration was found an effect on tax compliance behavior.This could
imply that when taxpayer are highly trust the tax office decision making,competences of
service personnel's, ethics of the tax collector and all over the service provide by the
office was lead to tax payers wasing to comply. Other variables perception of government
spending, and the influence of referral group, awareness of offences and penalties and
personal financial constraints were influence with tax compliance.

The study concludes that tax knowledge and education has a significant on tax
compliance.It is therefore prudent for the tax system to enhance education on how to file
tax returns and the importance of paying.Based on the finding results, therefore, there are
negative perceptions which yet need to be changed to make the perception of respondents
completely tax payer’s attitude and compliance behavior friendly since it provide direct
evidence in tax compliance, and an indication of its magnitude effect. As indicated in this
study, one of the researcher‘s basic assessment was focused on assessing individual

59
factors influence on tax payer’s attitude and compliance behavior.Finally document
review also assure there is negative tax voluntary compliance attitude is failure to comply
with their tax commitment.Low tax compliance is a challenge in the town. Audit coverage
is very low and revenue authority could not found correct income of taxpayers.

5.3. Recommendations

According to the findings and conclusions drawn above, the following recommendations
are proposed for opportunities of the tax payer’s attitude and compliance behavior in the
studied areas of the Dukem town adimistration.

1. To the Revenue Authority of the town

For fairness or equity is to treat equal tax payers in equal circumstances in an equal way.
Tax equity and fairness is achieved through levying equal taxes on individuals who have
equal income but also each taxpayer should pay according to his ability.Similar treatment
and that all officials dealing with a given taxpayer would accord the same treatment so
that voluntary compliance behavior can be developed.Tax authorities should educate tax
payers on how to keep financial records, and complaining procedures during
injustice.Moreover by using different printed and electronic mass Medias such as
magazines, pamphlets, etc.the tax authorities ought to aware the rights and
responsibilities of tax payers and the benefits of tax payment for the development of the
country.Likewise, awareness creation should be extended to having consultative sessions
with elderly, religious leaders, prominent personalities in the society or other influential
individuals.

Additionally similar to schools at each levels of education.Therefore students can be

educated early in their career about tax responsibilities. As the study finding indicates
that probability of detection has a positive significant influence on tax compliance, it is
recommended that the tax authority should increase the number or frequencies of audits
or coverage, and auditor staff to assure tax compliance level of taxpayers.The Revenue
office should need to control the tax evasion by applying effective and efficient tax audit
based on reliable evidences and documents.Systems with low trust and power of

60
authority are most likely to be complied with.Therefore more trust and proper use of
power makes the taxpayers be more confident to obey their duties. This may encourage
taxpayers to voluntary tax compliance.

The study finds strong upkeep for the argument that enforcement influence highly on tax
compliance, thus there should be reasonable levels of fines and taxes to implement.These
way taxpayers been courage to comply since they was keep precise records for taxation
purposes in order to escape from fines and penalties. This way tax compliance levels was
increase.The authority should make the tax law and procedures simple, understandable,
transparent revenue authority is to ensure compliance with tax laws. Voluntary
compliance is enhanced when vibrant and efficient tax authority exists so the tax
authority needs to strengthen itself by educating and training its employees, by
computerizing its operations and devoting additional resources.

Enhance enforcement of the tax law-detect and deter domestic and off-shore based tax
and financial criminal activities.Tax Simplicity is another important indicator when
assessing the tax systems.The more complex a tax system, there are greater opportunities
for tax avoidance, evasion and other forms of abuse and also greater chance for exclusion
for non-tax experts who are unable to understand the system.This is to hammer in citizens
a sense of responsibility toward taxes.Therefore the tax authorities at levels of the town
adimistration have to build trust in the tax system, assessments and collection procedures
in the mind of resident as a whole and specifically to tax payers.

2. To the tax payers

To develop self confidence, self awareness and to develop positive perception about tax
compliance, continuous training of them selves should be designed and establish tax
payer networking in order to share their experiences with regard to tax compliance.

61
There is a need for tax payers to understand and accept their responsibilities of tax
compliance.There is also a need to publicize the tax burden carried by compliers versus
the burden that would be carried if everyone complied by upgrading their skill and
knowledge on tax payer’s attitude and compliance behavior.All the taxpayers should
express their citizenship on tax systems that and love to their country by paying their
taxes. (Fjeldstad, 2004) in the area compliance behavior and attitudes towards the tax
system may thus be affected by the behavior of an individual’s reference group such as
relatives, neighbors, and friends.Thus they explain people’s actions by assessing the
forces that impinge on the positions that they occupy within the system.

3. for the Future Researcher

Any study cannot be necessarily free from limitations to some extent. Accordingly there
are some limitations in present study.It is recommended that this type of study should be
conducted at national level by incorporating other types of taxpayers rather than Dukem
town admistration to gain a better understanding on the assessment of tax compliance at
a national level and also as identified by Kirchler (2007) there are fourteen main
assessment that affect tax payers’ voluntary compliance behavior but the current study
has used only ten variables out of the fourteen variables to check whether these variables
affects voluntary compliance of tax payers in the study area or not. The result from the
study shows that these are the assessment factors affecting voluntary compliance of tax
payers in Dukem twon adimistration.So interested researchers can extend the same topic
by incorporating more variables in to the model that are expected to affect taxpayers’
voluntary compliance behavior.Another possible research would be to change the sample
population to category “A” and Category “B” taxpayers by increasing the sample size
and then make a comparative study between taxpayers with book of accounts and
taxpayers who have no book of accounts to find out if there are any significant difference
between these groups of taxpayers’attitude towards and compliance behavior.The study
used descrpptive analysis the other may use multiple regression analysis.

62
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 APPENDIX -A

OROMIA STATE UNIVERSITY

School of Accounting and Tax administration
Department of Public Financial Management
Questionnaire to be filled by taxpayers
Dear Respondents

The purpose of this questionnaire is to collect data on assessment of tax payer‘s attitude
and compliance behaviors Case of category ‘A’ and, ‘B’ Dukem town administration in
244 tax payers complete a research paper in partial fulfillment of requirements for MA
Degree in Public Financial Management. To this end I kindly request that you was
complete the following short questionnaire regarding the stated objective. It was take no
longer than 10 minutes of your time.

I would like to bring to your attention that success of this study heavily depends on your
frank response to the question provided. The study was be helpful for taxpayers, tax
authorities as well as for policy makers.

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All the information that you provided was be kept confidential and used only for the
purpose of the study. The study is conducted by:
Awel Gole Fitora
Telephone 0912123563
Email: awelfitora @gmail.com
Kindly requesting you to give genuine response to all the questions hereunder, I am
grateful to your cooperation.
I Thank You!

Part one: General Instructions:

 There is no need of writing your name
 Tick () in the appropriate box provided
 Write your additional opinion on place provide
Part two: General information of the taxpayers and the business
1. Sex:  Male  Female
2. . Age of tax payer’s: Less 30  30 to 39  40 to 49  .50 to 59  60
years or more 
3. Educational background:
 First cycle, and below  Diploma  First degree  Second degree & above
4. Category of tax payer □ A □B
5. For how many years you are known as tax payer?  2 year and less  3-5years
 6- 10 years  More than 10 years
6. What is your position in the sector?  Owner Mangers  Accountant
.Other (Cashier, Salesman,)
7. When did you start business?  2 year and less  3-5years  6- 10 years 
More than 10 years

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 Par three: Questions related to Taxpayers’ General knowledge about
assessment Taxpayer’s attitude and behavior compliance
8. Why do you pay taxes? . To avoid disturbances (penalties and, sanctions)  In
the anticipation of public services.  It is an obligation towards the government.
Don’t know.
State if any _______________________________________________________
9. Considering your ability to pay, how do you think the amount of tax liability you have
paid?  Overstated  Understated  Normal
10. What are the major problems in tax system/ collection?
. Taxes revenues are not spent on public services Tax rates are too high.  There
are dishonest tax collectors. . Several tax items are levied at the same time.
.  Taxpayers are not wasing to pay taxes. State if any___________________________
11. How do see the tax law? 1. Good 2. Satisfactory 3 . It has a problem 4. 
Must to improve
Part Four: Assessment of taxpayer’s attitude and compliance behavior
Please tick () that best describes your response
1. Strongly Disagree 2.Disagree 3.Neutral. 4. Agree 5.Strongly Agree
No. Statements 1 2 3. 4 5
12 Tax rates are so heavy that tax evasion is an economic
necessity for many to survive.
13 If the probability of detection is high, tax compliance
was increase
14 There is high degree of being detected for non-payment
of tax compliance that is why you pay your tax
obligation
15 evasion is ethical if the probability of getting caught is
low
16 The composition of public spending provides necessary
goods and services that market does provide this
encourages tax compliance
17 Tax laws are easy to understand i.e. calculation of tax
filing and paying dates, this increase tax compliance
18 You know all what is required from you in respect of

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 your tax obligations
19 The employees of revenue office capable enough by
in number, ability and ethics to be the tax system
transparent, equitable and modern.
20 Revenue office gives sufficient awareness creation
training (tax education) to taxpayers

21 The treatment of tax office is equally and independent

for all taxpayers
22 Friends and family was affect taxpayers' decision to
comply or not
23 You can easily calculate your tax liability
24 Declaration formats are simple to fill
25 You can easily get the necessary tax information and
updates
26 The penalty rate and enforcement undertaken by the tax
authority is high which results in high compliance.
27 People who face personal financial problems are likely to be
more disposed to evade tax
28 The people in financial distress prioritize their financial
need rather than pay taxes
29. Please state any your possible solutions about how to improve taxpayer’s attitude
and compliance behavior…………………………………………………………………

Thank you for your cooperation

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 APPENDIX-B

Semi-structured Interview Questionnaire for head office/head

departments of Dukem Town Revenue authority on the selected Tax
payer s category “A’’ and “B’’
Dear respondents:
I am a student from the Oromia State University researching into the assessment of
taxpayer’s attitude and compliance behavior of selected category tax payer ‘A’ and ‘B’
in Dukem town Admistration. As part of my academic work, all the information collected
was kept confidential. Thank you in advance for giving your precious time and valuable
opinion!
Section A: Background Information of Respondents
1. Sex Femal  Male 
2. What is your Current Position in office:  Manager  Team leader 
worker?
3. Year of exprince?  2 year and less  3-5years  6- 10 years  More
than 10 year
4. Educational :  Certificate  Diploma  First degree  Second degree &
above

Section B: Interview Questions:

Influencing assessment taxpayer’s attitude and compliance

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1) How do you evaluate taxpayer’s attitude and compliance behavior in your revenue
authority  Very good  2 Good  satisfactory  poor
2) What are the majorassessment factors influencing taxpayer attitude and compliance
behavior to the tax rules and regulations?  1. Economic  2 Institutional  .
3social 4. individual
State if any-------------------------------------------------------------------------------------
3) Is heavy tax rate could make taxpayers non-compliance?  yes  no
If your answer is yes state reason?
4) If the probability of detection (audit) is high, compliance was increase?
 Yes  no
5) If your answer is yes what are trends audit of your revenue office performance? 
Low  high  midiuam?
State if any ……………………………………………………………………… ……
6) Is there positively significant relationship between Perception of government
spending and tax compliance?  Yes  no
7) What is most effective tool for making people more positive about tax in your
revenue authority  Education and training  law enforcement  penalty
8) How do you explain the facilities used to give tax related services to your tax
payers?
Number and qualified staffs, Availability of treatment of tax office is equally,
independent for all taxpayer and awareness on changing tax directives and guidelines
 Very Good  Good  satfactory  poor
9) Are Tax laws easy to understand i.e. calculation of tax filing and paying dates which
encourages tax compliance?  yes  no
If your answer is no state what to be improve?
……………………………………………………………………………………
10) Do you think equity and fairness of tax affect tax attitude and compliance behavior?
 Yes  no
If your answer is yes stat how…………………………………………………………
11. Do you believe that Friends and family was affect taxpayer’s attitude and behavior '
decision to comply?  Yes  no

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 If your answer is yes state how?
………………………………………………………………………………………
12. Is serious enforcement and penalty increase taxpayers’ attitude and compliance
behavior?
 Yes  no
If your answer is yes state your opinion how?
………………………………………………………………………………
13. Are tax payers who face personal financial problems likely to be more disposed to
evade tax?  Yes  no  some extent
If Any other suggestion or commemt please say some thing.

Thank you for your cooperation!

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 APPENDIX C
Semi-structured Interview Questionnaire for Focal Group Discussion

1. What tax complince means? What does it means to you?

2. What are the major influencing taxpayer’s compliance to the tax rules and
regulations?
3. Does the tax rate is discourage tax evasion?
4. How do you see services provided by the government in relation to tax
compliance of tax payer?
5. Do you think equity and fairness of tax affect tax compliance?
6. Do you believe that Friends and family was affect taxpayers' decision to comply?
7. Evading tax due to lack of ability to pay should not be considered as
crime/problem
8. Tax payers should evade tax if everyone is doing it

Thank you for your cooperation!

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