PERCEPTION AND TAX COMPLIANCE

BEHAVIOR IN ETHIOPIA: EVIDENCE FROM

BUSINESS PROFIT TAXPAYERS IN WESTERN
OROMIA
A
THESIS
Presented to the Faculty of Business Studies of the
Punjabi University, Patiala
In Fulfillment of the Requirements
For the Degree of

DOCTOR OF PHILOSOPHY
IN
COMMERCE

by

​ KENO TELILA MIJENA

(Established Under Punjab Act No. 35 of 1961)

DEPARTMENTE OF COMMERCE
PUNJABI UNIVERSITY, PATIALA
July, 2020
ii
iii

DEDICATION
I dedicated this thesis to my mother Ogitu Galata and my lovely wife Malasu
Regesa.
iv

ABBERVIATIONS
AICPA American Institute of Certified Public Accountant
BSc Bachelor Science
BA Bachelor of Art
BoFED Bureau of Finance and Economic Development
BPR Business Process Re-Engineering
CGR Cumulative Revenue Growth Rate
EBC Ethiopian Broadcasting Corporation
EBR Ethiopia Birr
ERCA Ethiopia Custom and Revenue Authority
FDRE Federal Democratic Republic of Ethiopia
GDP Gross Domestic Product
IFRS International Financial Reporting Standard
IMF International Monetary Fund
IMT Intrinsic Motivation Theory
KMO Kaiser-Meyer-Olkin
LR Likelihood Ratio
MBA Masters of Art
MSc Masters of Science
MOFED Ministry of Finance and Economic Development
NFP Not for Profit Entities
NBE National Bank of Ethiopia
OECD Organization for Economic Cooperation and Development
ORA Oromia Revenue Authority
OPEDC Oromia Planning and Economic Development Commission
OBN Oromia Broadcasting News Net
OMN Oromia Media Net Work
PBC Perceived Behavioral Control
PHD Doctor of Philosophy
TOT Turn Over Tax
TIN Tax Identification Number
VIP Very Intelligent person
PEFA Public Expenditure and Financial Accountability
VAT Value Added Tax
PLC Private Limited Company
SAS Self Assessment Systems
SIGTAS Standard Integrated Government Tax Administration System
SNNPRS Southern Nation and Nationalities People Regional State
TVET Technical, Vocational Education and Training
TIN Tax Identification Number
TPB Theory of planned behaviour
UK United Kingdom
UNDP United Nation Development Program
UNICEF United Nations International Children’s Emergency Fund
USA United State of America
VAT Value Added Tax
VOA Voice of America

TABLE OF CONTENTS

DECLARATION I

CERTIFICATE II

ACKNOWLEDGEMENT III

DEDICATION IV

ABBREVIATIONS V

TABLE OF CONTENTS VI

LIST OF TABLES VIII

LIST OF FIGURES XIIII

CHAPTER ONE INTRODUCTION 1-30

CHAPTER TWO LITERATURE REVIEW 31-50

CHAPTER RESEARCH METHODOLOGY 51-77

THREE

CHAPTER FOUR REGULATORYFRAMEWORK ON BUSINESS INCOME 78-98

TAX

CHAPTER FIVE BUSINESS TAX REVENUE GROWTH IN WESTERN 99-119

OROMIA

CHAPTER SIX PERCEPTION OF BUSINESS PROFIT TAXPAYERS ON 121-176

TAX FAIRNESS

CHAPTER SEVEN BUSINESS PROFIT TAXPAYER’S COMPLIANCE 177-199

BEHAVIOUR

CHAPTER EIGHT SUMMARY OF FINDINGS, CONCLUSIONS, 200-233

RECOMMENDATIONS AND DIRECTIONS FOR
FUTURE RESEARCH

REFERENCES 234-247

APPENDEX i-xv
vi

LIST OF TABLES
Table No. Title Page
No.
Table 3.1 Sample Frame of the Research Work 59
Table 3.2 Procedure of Sample Determination 60
Table 3.3 Operational Definition of the Exogenous Variables 67
Table 4.1 Tax Power of the Federal and Regional Governments 84
Table 4.2 The Business Income Tax Rate 88
Table 5.1 The Extent of Business Tax Revenue of Western Oromia Compared 100
with Tax Revenue of Federal Regime
Table 5.2 The Extent of Business Income Tax Revenue Compared with Tax 101
Revenue of Oromia Region
Table 5.3 The Extent of Business Tax revenue of Western Oromia Relative to 103
Business Tax Revenue of Oromia Region
Table 5.4 The Extent of Tax Revenue of Western Oromia Compared With 105
Oromia and Federal States
Table 5.5 The Western Oromia Business Income Tax Compared With Direct Tax 106
of Federal Government
Table 5.6 The Extent of Government Revenue Compared with Expenditure 107
Table 6.1 Descriptive Analysis of Demographic Information 123
Table 6.2 Opinion of Respondent’s About The Yearly Income 125
Table 6.3 Accounting System of the Profit Taxpayers 126
Table 6.4 Taxpayer’s Views on Reasons for Disbursing Profit Tax 127
Table 6.5 Respondent’s Opinions on Tax Fairness, Knowledge, Complexity and 128
Compliance Behavuior
Table 6.6 Participant’s Views on the Magnitude of the Tax Fairness Dimension 132
Table 6.7 Respondent’s Opinions on the Magnitude of Their Tax Knowledge on 137
Business Income Tax Framework
Table 6.8 Respondent’s Opinions on the Magnitude of Complexity of 140
Business Income Tax Framework
Table 6.9 Communalities on Perception of Tax Fairness 142
Table KMO and Bartlett's Test on Perception of Tax Fairness 142
6.10
Table Anti-Image Correlations on Perception of Tax Fairness Construct 143
6.11
Table Rotated Component Matrix for the Perception of Tax Fairness 144
6.12
Table Communalities of Dimension of Tax Knowledge 145
6.13
Table KMO and Bartlett's Tests for Tax Knowledge 145
6.14
Table Anti-Image Matrices for Tax Knowledge Dimension 145
6.15
Table Rotated Component Matrix for Tax Knowledge 146
6.16
Table Communalities for Tax Complexity Dimension 147
6.17
Table KMO and Bartlett's Test for Tax Complexity Dimension 147
6.18
Table Anti-Image Matrices for Tax Complexity Dimension 147
6.19
Table Rotated Component Matrix for Tax Systems Complexity 148
6.20
Table Communalities for Compliance Behaviour Items 149
6.21

vii

Table 6.22 KMO and Bartlett's Test for Compliance Behaviour Items 150
Table 6.23 Anti-Image Matrices for Compliance Behaviour Items 150
Table 6.24 Anti-Image Matrices for Tax Knowledge and Tax Complexity 152
Table 6.25 Rotated Component Matrix for Compliance Behaviour Items 153
Table 6.26 Reliability Statistics Using Cronbach's Alpha 153
Table 6.27 Kendall's Correlation Matrix on Tax Fairness Dimensions and Fairness 154
Perception
Table 6.28 Kendall’s Correlation Matrix of Tax Knowledge and Fairness Perception 155
Table 6.29 Kendall’s Correlation Matrix of Tax Complexity and Fairness Perception 157
Table 6.30 ANOVA Results on Fairness Perception, Tax knowledge and Complexity 159
Table 6.31 The Influence of Tax Fairness Dimensions over Perceptions of Fairness 162
Table 6.32 The Extent of Influence of Tax Knowledge on Tax Fairness Perception 164
Table 6.33 The Influence of Complexities of Tax System on Fairness Perceptions 164
Table 7.1 The Views of Business Income Taxpayers about Their Tax Attitude and 178
Perceived subjective Norm
Table 7.2 The Views of Business Income Taxpayers on Their Tax Perceived 184
Behavioral control and Tax Morale
Table 7.3 Kendall’s Correlation Matrix on Tax Compliance Behaviour 185
Table 7.4 The Influence TPB, Tax Fairness Perception and Tax Morale on 187
Tax Compliance Behaviour
Table 7.5 The Influence Tax Knowledge and Complexity on Compliance Behaviour 190
 LIST OF FIGURE

Figure Title Page

No. No.
1.1 Map of The Study Area 24
3.1 Factors Affected Perceived Tax Fairness Perception 68
3.2 Factors Affected Tax Compliance Behaviour 69
4.1 Joint business profit tax sharing 86
5.1 The Extent of Business Income Tax Relative to Federal Tax Revenue 100
5.2 The Extent of Business Income Tax Relative to Oromia Tax Revenue 102
5.3 The Extent Of Business Tax Revenue Relative to Business Tax Revenue 104
of Oromia
5.4 The Extent of Tax Revenue By Administrative Structure 105
5.5 The Extent of Business Income Tax Relative to Direct Tax Of Federal Re 106
gime
5.6 The Ratio of Government’s Revenue to Expenditure 108
5.7 The Ratio of Local Tax Revenue to Oromia And Federal Regime 109
5.8 The Ratio of Business Tax Revenue to Tax Revenue of Oromia And 110
Federal
5.9 The Ratio of Local Business Tax to Business Tax of Oromia Region 111
5.10 The Ratio of Business Income Tax to Oromia And Federal Direct Tax 111
5.11 The Ratio of Tax Revenue of Oromia Region To Tax Revenue of Federal 112
6.1 Categorization of Business Income Taxpayers 125
6.2 Causes for Low Fairness Perception In Western Oromia, Ethiopia 130
6.3 Causes for Low Tax Compliance Behaviour in Western Oromia, Ethiopia 131

ix
 CHAPTER ONE
INTRODUCTION
1.0. BACKGROUND OF THE STUDY
The tax has become a part and parcel of all economic activities of human beings. The
history of taxation shows that most governments need tax revenues to thrive, and
indeed that they are unlikely to survive for long unless they ensure that sufficient
streams of taxation revenue ensue. Different people and organizations hold diverse
views about taxation: some may perceive it as a necessary evil to allow society to
function; others as infringing upon the rights and property of the individual or
collective; and many will feel that they pay too much in tax and/or have insufficient
influence over how their taxation monies are spent. However, what is indisputable in
contemporary society is the taxation lies at the very heart of government activity, and
it is tax revenue that permits a government to meet its social responsibilities
concerning the provision of public products and services. If a government is failing
to provide adequate levels of public goods and services, then the quality of life of the
majority of the communities that it serves can be affected adversely (Gilligan and Ri
chardson, 2005). Therefore, when government’s capability to gather tax revenue is
impaired, inevitably its capacity to provide public goods and services to its citizens is
also reduced, often leading to substantial hardship, especially in developing and
transitional economies. Successful collection of revenue from taxation is central to
providing the necessary infrastructures that allow for the continuing economic well-
being of a nation, whatever its relative level of growth. Furthermore, public goods
like public schools, hospitals, university, dams, roads, power, bridge and other
infrastructures are financed by revenue from taxes. In that case, every man and
women should willingly or unwillingly pay some amount of money in the form of
tax on the basic products he/she uses.
In an era of globalization, when capital is also fluid and transferable, whether in
collective or individual ownership, an increasing emphasis is being placed on
jurisdictions being able to preserve their taxation base. In turn, and especially given
the growing trend towards self-reporting in many jurisdictions, this is placing an ever
higher premium on the value of those normative motivations that prompt people and
businesses to comply with their taxation obligations. It may seem a ludicrously
simple point to make, but it is actually a multi-billion-dollar equation in global terms,
that the more that people are persuaded to be tax compliant, the more goods and
services their governments can provide to them from increased taxation revenue
flows and the lower will be the numbers of people facing criminal and/or other types
of sanction for their deviant tax behaviour. This in turn reduces costs of justice and
other public regulatory infrastructures and reduces the number of individuals that
undergo the trauma of a taxation prosecution (Gilligan and Richardson, 2005).
Besides this, Wenzel (2007) indicates that: "Taxation involved numerous
considerations of justice and fairness that includes perceived fairness of outcomes
(e.g., tax burdens, tax incidence and tax-funded advantage), fairness related to
treatment and procedures (e.g. thoughtful treatments and rights), policy, tax rate and
fairness of sanctions (e.g., punishments and amnesties)".
The aforesaid tax related situation is suitably warm and nebulous, but if it is all that
easy why do individual traders and enterprises need to avoid and evade their taxable
incomes via omission and commission? The deviant tax behaviour can infrequently
be made by accident, but under numerous instances decisions to be disobedient are
executed by rational actors on the basis of their expectations about the possibilities of
the extent of compensation originating from such manners and, on the other side of
the figurative ledger, the likelihoods that their behaviour or manners might be
assessed, discovered and impeached. That numerous traders and business entities do
evade and /or avoid their taxable incomes, occasionally on a regular basis, is a plan
beyond argument. So, the issue of under-reporting and over-reporting of business
expenses and revenues or noncompliance manners of the taxpayers may result from
the tax system itself and improper perception on tax fairness. According to the
slippery slope structure, the tax compliance manners and tax fairness are determined
by their trust in the power of the revenue authority. This framework stressed that, if
both trust and power are at a minimum extent, tax obedience behavoiur and
perception of fairness are supposed to be petite; taxpayers are acting ignorantly by
exploiting their benefit through avoiding and evading taxable revenue. On the other
hand, if the trust and power of the revenue authority augment, tax obedience and
fairness view are also expected to expand. Hence, this thesis investigated the fairness
perception of business income taxpayers and their tax compliance behaviour in
Ethiopia evidence from Western Oromia.
1.1.TAX FAIRNESS
The concept of tax fairness is normative and subjective because different literature
articulated differently. Based on various theories of tax fairness from works of
writing, the researcher narrated it as “a system of taxation that is equitable and
inevitable for all group of taxpayers.” According to the Ethiopian income tax system,
the term tax fairness is defined as the process of making enterprises and individual
traders “pay their fair share of tax.” In the same way, the Ethiopian income tax
system defines the phrase of tax fairness as the system of taxation understandable,
certain, equitable and desirable to every taxpayer. It has a potential effect on the
extent of tax compliance and important for tax policymakers. Generally, the notion of
tax fairness realized when the whole group of taxpayers pay fair share according to
their capacity in a certain and convenient situation of taxation environment.
The perceived income tax rate significantly diverge from the objective of tax rates
for the majority of taxpayers. The taxpayers might be motivated to pay their fair
share of tax to fund the efficient government. Hence, tax fairness is the taxpayers’
belief that the imposed tax is a fair tax and measured by procedural justice,
distributive justice, equity and equality. Tax evasion and avoidance are the best
options for those people; the tax system is unfair because taxpayers who believe that
tax administration is fair are respectful toward the system. Also, it is the useful tool
for combating tax evasion because citizen perception plays a crucial role in making
decisions towards increase or decrease tax rate of the country.
The American Institute of Certified Public Accountant (2007) expressed that in a free
and prosperous society, residents will by and large consent to impose demands when
political procedures furnish subjects with contribution concerning how and to what
degree they are saddled; authorities fill in as great stewards of the assets produced by
the expense framework and most communities see that tax rates and advantages are
dispersed in a reasonable and fair way. Then, it may not be possible to design and
administer a tax system that is absolutely fair and equitable in all aspects. In any
case, a tax framework that was commonly seen as reasonable and fair is an alluring
and attainable objective because, for the voluntary system to work successfully, the
people must be confident that taxes levied are fair and everyone pays his/her share.
The equity theory states that a particular tax system considered both the horizontal
equity-equal treatment of equals and vertical equity-the unequal treatment of
unequal. This implied horizontal equity theory ensured that fairness of the income
tax system while vertical equity theory intends to achieve the distributive justice
(Faizal and Palil, 2015). In the same way, the theory consists of two primary
dimensions, mainly; reciprocation, which entails that the individual cannot fairly
react unless their counterpart is acting fairly. The Allocation fairness is the second
components of equity theory represent the indirect provisions of economic resources
among particular groups and beneficiaries. Hence, the theory provided two notions of
fairness, particularly horizontal and vertical fairness which are fundamental for
allocation and distribution of public fiscal resources.
 In contrast, the theory enshrines the difficulty of the term equity and fairness because
of judgments as to whether or not a rule of action is fair and can be quite subjective.
In other words, in economist and legislators, perception toward equity is unlike
among individuals due to the judgment that depend upon their morals as well as
ethics. Besides, under a multifaceted economic and social environment, it might be
tricky to establish and monitor tax law that is fair and equitable in an absolute sense.
Nevertheless, a tax framework that is commonly seen as fair and impartial is alluring
and an achievable objective. Because the prior experience and the current context
guaranteed the fundamental of fairness in measuring and shaping the perception of
personal taxpayers concerning tax equity.
The essence of equity theory evaluates the fairness of the distribution outcomes by
comparing the benefits-received-to-their contributions-ratio with that of others in
their reference group. Besides, individuals found their interactions, as equitable if the
distributional outcomes were equal among those with similar contributions, in return,
result in horizontal fairness. The exchange inequalities occur whenever the taxpayers
perceive that their tax liabilities exceed benefits they obtained from the governments.
For instance, if what they disbursed is not matching what they received the idea of
justice or equity is not realized. The idea of unfairness became true when the amount
of disbursement is mismatched with the amount received. In other words, society
perceives the tax laws as justice when tax incidence, as well as burdens and benefits,
are dispersed in equitable and fair ways. This reciprocation equity is known as
exchange fairness. Also, equity toward taxation divided as horizontal equity, which
Tax Fairness
stated that individuals
Tax Knowledgewithin similar tax bracket pay the same amount of tax and
Tax Morale Perceived Behavioral
vertical Perception
equity, which
Dimension claim individuals within the highest income group disburse
General Tax system
control
more amount of tax. In other words, those who are rich should be treated as able to
complexity
Fairness
pay higher than lower groups of income earners. This proposition assured that the
Dimension
Tax business income tax fairness is achieved when the business taxpayers are treated
Exchange
Knowledge Tax Compliance
differently based on their level of business income or revenue.
Fairness Behaviour
Tax Fairness Retributive
Distributive justice theory deals with
Perception the redistribution of income within the political
Fairness
community. In the context of taxation, distributive justice refers to the feeling that
Tax system
Horizontal everyoneAttitudes
pays his fair Subjective
share of taxes,
normsand that one does not pay too much (or too
complexity
Fairness little). If society does not offer enough (tax funded) resources compared to the
Personal
amount of tax one must pay, this may lead to feelings of distributive injustice
Administrative Fairness
Vertical (exchange Fairness
inequity). It uses to measure the fair exchange of resources, benefits and
Fairness costs and how the taxpayer feels he/she is treated relative to others. Comparison of
one’s tax burden to that of others who pay less can also cause feelings of distributive
injustice (horizontal injustice).
Further, it measures fair distribution of punishment by tax legislators called
retributive fairness. Retributive justice stated that the penalty must match the crimes
committed by dishonesty business taxpayers because the communities perhaps
perceived the laws as justice if the reimbursements obtained are equal to any loss
involved within the communities at large. It disclosed perceived correctness of
sanctions imposed by the court on fraudulence business profit taxpayers. At the same
time, the equal opportunity principle illustrated link among justice racial integration
policies in a tax atmosphere.
Procedural justice theory depicted the fairness of the procedure used by the revenue
authority at the time of determination of taxable income and resolve tax matters. This
implies that the perception of business income taxpayers of procedural fairness also
get affected by the outcome of the dispute of taxation. Procedural fairness stands for
administrative honesty that indicates justice of income tax policies and procedures.

According to procedural justice, consistent, true, objective, as well as reverential

handlings of all taxpayers are fundamental components of perceived tax fairness. The
obedience of the taxpayers is augmented if they perceived that the benefit that they
have been obtained from the government is matched with their tax expenditure.
Similarly, the board feelings with taxpayers regarding the fairness of tax laws
influenced their tax compliance. Further, when the idea of fairness under taxation
have been perceived like this, it will absolutely affect the decision making procedure
of the revenue officers. The fairness perception with regard to procedure or process is
affected by lack of transparency, complicate tax system, adequate information service
and experts as well as reverential ways of audit committees.
The literature revealed the presence of a considerable correlation between the
perception of taxpayers regarding tax procedural fairness and judgment of the acts of
revenue departments. If individuals perceived a procedure adopted by the tax
authority to be unfair; they are more likely to challenge the authority’s decisions.
Furthermore, procedural fairness deals explicitly with the perceived fairness of the
process carried out in decision making and the perceived treatment of individuals
benefited from the outcomes. It postulated that taxpayers’ responses to their
understanding with tax systems are ingrained in their assessments of procedural
fairness of revenue administration bodies.
It asserted fairness of tax processes, enactment and interpersonal treatment of the
revenue authorities. It indicates that for one procedure to be perceived as fair or
justice, it should consider the above mentioned fairness principles. In the same way,
if taxpayers perceived that tax procedural fairness is violated, their fairness
perception and compliance behavoiur were reduced (Tyler, 2007).
Informational fairness is vital in the tax circumstances as it serves as a means to
evaluate whether the authority has made an accurate and objective decision about
final tax liabilities, enhances fairness of tax arrangement with regard to the
government tax expenditure program and distribution of tax revenue and gives the
impression that the authorities care about and respect citizens as they spend time on
providing society with sufficient information and explanations.

In brief, procedural justice is the process, techniques and procedures that used to
distribute the benefit and expenditures fairly among taxpayers. The distributive
equity decidedly influences tax payment attitude and motivation to obey taxation
among business enterprises. On the other hand, it has no considerable impact on
business people with higher individual standards. As a result, the problems of tax
fairness perception and tax compliance behavoiur of the income taxpayers have
gotten great attention from revenue administrations and tax professionals in the
country. Tax fairness and tax morale are basic because tax systems have been
perceived as fair, and high tax morale is required in order to obtain a high degree of
voluntary compliance (Richardson, 2006). In other words, good understandings of
taxpayer's fairness perception is essential for a tax expert to improve tax framework.
Perception of income tax fairness is one of the important components of tax
compliance activities. If taxpayers perceive that tax systems are not fair, they initiate
to avoid and evade tax payment. In like manner, they contended that if a citizen
repeatedly feels that the structure of the tax is injustice and unreasonably forced them
to disburse, it will be increasing the probability of circumventing the government
obligations. The taxpayers are divided into moral and immoral taxpayers. The
researcher described moral taxpayers as those individual and enterprises not
attempted otherwise carried out tax scams. On the other hand, the non-moral
taxpayers are expressed as those individuals and enterprises that executed tax scams
in particular tax ecosystem. Systematically, non-moral individuals and enterprise
taxpayers are less loyal and less truthful as compared to the moral taxable persons. In
view of that, if the individual and corporate taxpayers recognized that the tax
framework to be "very fair", they are more loyal and truthfulness relative to those
viewed the tax framework purely "fair" (Wilson, 2005). Moreover, immoral people
were more likely to cheat if they had a higher income.
Tax fairness and morale determined the levels of tax compliance with reporting
requirements. This means that the taxpayers' files required tax returns at the proper
time and that returns accurately report tax liability. To meet these objectives,
individuals must pay their taxes freely within a specified period. Likewise, high tax
morale and fairness perception of tax systems require from the taxpayers in order to
achieve a high degree of tax compliance acts. The perceived injustice triggers
behavioral adjustments in precisely the same area where the violation of justice has
occurred. However, grievances over being exposed to injustice may have even
broader consequences and also spill over to other spheres and causing adjustments
there.
The perceived fairness of the taxpayers directly influenced their compliance
behaviors, but through ethical attitudes, perceived fairness had indirect significant
influence on tax compliance behaviors. Serkan et al. (2012) generalized that tax
fairness perception indirectly influence the tax compliance behaviors of taxpayers in
a particular tax atmosphere. Also, the tax fairness realized in terms of justice of
process and outcomes as they are deeply subjective concepts and action of tax
fulfillment is mutually agreed upon and bargains on resource distribution (Rawlings,
2003).
Regarding this, Adam Smith established four maxims on taxes, one of which was the
need for equality in the tax system. Following the principles of Smith's (1971) were
broaden due to the instigation of the canons of simplicity, transparency, neutrality,
economy and efficiency to measure suitability of taxation schemes. Therefore, the
researcher identified ten features of tax fairness, namely, general fairness, horizontal
fairness, vertical fairness, personal fairness, exchange fairness, retributive fairness,
time-fairness, compliance fairness and informational fairness. Consequently, general
fairness is used to evaluate whether the business income tax system is entirely fair to
the taxpayers while exchange fairness is utilized to measure equality of their
contribution and benefit. Alternatively, horizontal fairness is represents equal tax
treatment of taxpayers in similar tax positions, whereas vertical fairness is portrays
ability to pay principle and impartiality of the tax rate. Evermore, retributive fairness
is applied to evaluate the legitimacy of the tax penalty imposed on fraudsters.
In contrast, personal fairness measure whether the business profit tax rule is
expedient to the profit taxpayers. Lastly, administrative fairness is used to determine
the extent of fairness of tax policy and procedure of the country in general and
Oromia region in particular. Thus, the researcher used seven basic concepts of tax
equity, particularly, general, horizontal, vertical, exchange, personal, administrative
and retributive fairness to discover the fairness perception of business profit
taxpayers in Western Oromia.

1.2. TAX KNOWLEDGE

The tax knowledge is defined as the extent of consciousness and understanding of the
taxpayers about tax rules and regulations of the country. Furthermore, it refers to the
procedures, by which the individual taxpayers and business organizations notice
about the tax regulatory framework and other tax information.
Tax knowledge reflects all the tax information which is used for work, proving
conclusively, so as to make different strategies which leads to accomplishment of
rights and obligations of the taxpayers. The taxpayers equipped with better
knowledge of taxation will be able to prepare required bookkeeping, mainly
statement of the financial potion, profit and loss statement as well as the statement of
cash flows to pay taxes. Moreover, enhancing taxpayers’ knowledge concerning
taxation recognized as one of the fundamental components of triumphant tax laws.
Most of the previous studies evidenced that knowledge of taxation plays a major role
in boosting tax fairness perception and tax compliance behavior. They provided that
accounting knowledge and tax knowledge significantly affected the tax compliance
behavior and fairness perception of the taxpayers. It means that tax knowledge can
potentially hearten taxpayers to be more cautious in effecting their taxable income.
Tax knowledge is necessary to increase public awareness, particularly in the field of
taxation laws, the role of tax in national development, and especially to explain how
and where the money collected is passed by the regime. More importantly, it is
necessary that current and future taxpayers are exposed to the roles that they could
play in developing the country. The extent of tax knowledge regarding tax is
significant in the ways by which societies realize the reality fundamental to taxation
and the linked feelings to taxation that is uttered. The influence of knowledge on tax
fairness perception and compliance behavior has been proven in various researches.
The knowledge of taxation is classified as tax knowledge obtained through normal
education or training and knowledge towards chances to avoid or evade taxation.
The perception of taxpayers regarding tax equity was critically affected by their
degree of general; technical and legal knowledge. General knowledge related to a
broad idea of the income tax system such as its purpose and the tax structure. Legal
knowledge emphasized taxpayers knowledge of regulatory aspects of the income tax
system, such as responsibility to submit their tax return forms timely and penalty for
non-compliance. Technical knowledge described the ability to fill and file tax return
forms. Also, the raises of knowledge of taxpayers negatively influence their fairness
perception that those taxpayers with the better knowledge do not pay and penalize
equally and obtained an adequate share of reimbursement financed by the tax. This
situation pointed out the distress of tax knowledge on the perceived tax fairness and
obedience behavior. Then, the researcher inspected three features of tax knowledge,
namely general knowledge, technical knowledge and legal knowledge to measure the
fairness perception and compliance behavior of the business income taxpayers in
Western Oromia.
1.3. TAX COMPLEXITY
The complexity of the tax system refers to the increase of sophistication of the tax
regulatory framework of the country. It is the product of difficulty of the tax system
to the taxpayers and other interest parties in the tax atmosphere.
The complexity of the tax system is fundamentally affected by tax compliance acts in
Africa (Gambo et al., 2014). The prior investigators described that those tax
contributors in Africa used additional one day than minimum worldwide hours for
the purposes of tax obedience in the tax self-fulfillment ecosystem. It arises due to
the sophistication in the tax environment. The inadequacy of compliance behavior
and inequality sight can be credited to complexity of the tax rule and regulations.
Equally, it contributes to the disobedience of the taxpayers as well as unfair views.
The tax authority can increase tax compliance by creating a more complex tax
system as faulty taxpayers might behave more honestly and follow certain rules
when uncertainty increases.
This situation reveals that the higher complexity of tax regulation, the more reluctant
the taxpayers would be pay their income taxes. It is not only about how complex the
words are contained in brochures and tax returns but also the complex step to
calculate the actual income tax itself. Tax reporting activity is also deemed to be
exhausting and complex for them to do. Making a more elaborate tax rule and
regulation as illegal players might act more honestly and follow specific rules when
uncertainty increases and helps them to reduce tax noncompliance. The taxpayers
viewed the complexity and fairness as the unique, however unsuited character of the
income tax system.
A simplifying tax rule and regulations probably enhance the extent of tax fulfillment
between taxpayers. Therefore, as they might have been highly realized the tax rule,
regulations and the tax structure, in return, the taxpayers declare their tax revenue
and calculate tax liabilities accordingly. Nonetheless, simplifying the tax law (and
thus collected a small amount of tax revenue) might not be an absolute method of
preventing tax evasion, and avoidance as taxpayers could not inevitably deem
sophisticated tax system to be unfair. It confirmed that emanating simple tax law
would not necessarily mean boost tax obedience because a lot of taxpayers observe
that tax systems are frequently complex and become encumbering to them. Thus, it
provided that the complexity of tax law was negatively and positively affects the tax
compliance behavior and perception of equity.
Moreover, the past works on taxation recommended that making of simple tax
systems has no significant effect on tax revenues. Still a self-completed tax return
demands a high degree of simplicity since taxpayers emanate from different
environments, level of education, income and exceptionally different level of tax
knowledge. So as to increase tax revenue and support taxpayers to fulfill their tax
returns correctly, tax administers must concurrently provide simple and tolerable
system of taxation.
The complexity of tax rule and regulation inflicts expenses to taxpayers,
administration of tax, affects successful implementation of the tax related policies,
grievance perception, low compliance and imperfect enforcement. Evermore, it
affects tax disobedience, tax education, income source, tax fairness and tax morale.
CHAPTER ONE
For example, procedural complexity negatively distresses fairness perception and
compliance behavior because it encourages offence and unwillingness to obey. The
INTRODUCTION
study identified two concepts of complexity, specifically, content complexity and
compliance complexity to evaluate the fairness perception and compliance activities
in the study area.
1.4. TAX MORALE
Tax morale is the intrinsic motivation of taxpayers to obey the tax rule and
regulations. It is one of the central components of tax compliance. The concept of tax
morale was introduced to establish a span between the perception individual taxpayer
has about the activities of other taxpayers, and their personal decision, and to what
extent, to evade their taxes, and to emphasize the importance of introductions. They
establish the presence of a high connection among perceived tax evasion and tax
morale (Frey and Torgler, 2007). The study clarified that an individual taxpayer is
strongly determined by what he or she understands and perceives to be the demeanor
of other taxpayers. If taxpayers perceive tax avoidance to be universal, their tax
morale diminishes; if they consider others to be truthful, their tax morale arises. The
taxpayer willing to pay the tax is increased if they perceive that the political
atmosphere is accurately represented and offered adequate public goods and services.
On the other hand, in a country where corruption is rampant, citizens have little
incentive to cooperate and tax morale.
The moral behavior is measured through moral sensitivity, moral judgment, moral
motivation and moral character or heartiness of ego, which cannot happen
sequentially. Moral sensitivity can be explained as the consciousness that our
performances might influence others. Through this moral, an individual envisages
the different activities and their impacts on others. The shortage of ethical or moral
sensitivity in knowing ethical subjects in the initial case may result in immoral
behavior. Accordingly, an individual assesses whether the behavior is morally correct
or else through moral verdicts. Furthermore, the precedence that an individual opts in
conducting actions inspires the notions of moral motivation under the model. At last,
an individual probably works immorally, only not as a result of he/she does not have
the awareness to know moral matters (moral sensitivity) or cannot measure the
correct performance (moral judgment) however, because that individuals do not set
moral values as precedence (moral motivation).
It indicated individual attitudes, understanding, norms, and motivations of disbursing
taxes. Also, it can be interpreted as an understanding of the principles and the values
that a person has the liability to pay taxes. Additionally, it is one of the basic
variables that influence tax compliance behavior of the taxpayers. Thus, it is
significantly affecting the degree of tax disbursement and tax related frauds such as
avoidance and evasions of taxes.
The morale or intrinsic motivation of profit taxpayers regarding tax disbursement is
amplified where and when revenue authority and its employees accept and indulgent
them with honesty and esteem. On the other hand, their tax morale or intrinsic
motivation on illicit tax practice augmented where and when revenue administers
highly use deterrence methods. In contrast, when the tax officials consider taxpayers
purely as ‘subjects’ who have to be forced to pay their dues, the taxpayers tend to
respond by actively trying to avoid otherwise reducing taxable profit (Frey and Feld
(2003). Therefore, it is important to determine the level of compliance with reporting
requirements. It means that, the taxpayers files require tax returns at the proper time
and that the returns accurately report tax liability. To meet these objectives,
individuals must pay their taxes freely within a specified period. It indicated that the
tax compliance behaviour of the taxpayers increased if their tax morale or internal
motivation is enlarged.
It is the motivation of the person to pay tax and use to measure the true
characteristics, willingness or moral obligation or belief of people in social
contribution in the form of paying taxes. It is approaching the compliance that
recognized the changing attitudes and behaviors of taxpayers in a particular
circumstance (Jayewardene, 2016). The notion of tax morale entails the joint
motivation to comply with the laws. It is explained as the attitude of set or the entire
taxpayers with regard to the problem of achieving or ignores of their tax
responsibilities; it is attached with the mentality of the people toward taxation and is
the foundation of their internal approval of tax responsibilities and recognition of the
autonomy of the state.
Intrinsic motivation to comply or internalized obligation to pay tax established tax
obedience. Paying taxes are considered to be a moral duty of citizens. Then again, it
is notified that levying taxes is morally justified and, thus, paying taxes is a moral
duty, only as long as those services are provided efficiently and fulfilled the demand
of the people (Kirchgassner, 2010). The research claimed that tax morale or intrinsic
motivation influences the ideal blend of strategy devices of prevention to fix tax
avoidance as well as fraud. Penalties and sanctions will often in place to help tax
authorities; however, there is doubt towards its magnitude and justice. Although
economic deterrence models completely relayed on exploit economic utility; social,
psychological models explain human behavior by describing the fundamental moral,
norms and beliefs. If tax punishment towards disobediences is severe, taxpayers
extrinsic motivations might be broadened; in return, their intrinsic motivations
towards tax compliance will be enhanced.

This reflects the types of tax rule and regulations applied by authorities with regard
to encouraging and discouraging the intrinsic motivation or morale of individuals.
Crowding effects in intrinsic motivation theory are highly pertinent in exploring the
relationship between tax morale (intrinsic motivation) of the taxpayers and their tax
compliance behavior. This elevated the primary extent of tax morale or intrinsic
motivation of tax payment, and the greater the crowding outcomes, the fewer power
is put on deterrence (penalty) and the greater reverentially individuals taxpayers are
treated.
Taken as a whole, tax morale and tax obedience behavior become one of the basic
agendas of the governments and tax administrations all over the world because all of
these countries demand sufficient income to advance the economy and the provision
of public services. These points confirmed the value of intrinsic motivation or tax
morale in exploring obedience behavior of business income taxpayers. An
examination of social and psychological factors like tax morale is significantly
important for Ethiopia as the country is experiencing dearth of finance due to tax
scams and the shadow economy.
1.5. TAX COMPLIANCE
It is a tax condition that takes place when all the necessary tax returns are filed at the
right time and the return forms truthfully stated taxable income according to the tax
codes, directives, rules and court decisions pertinent when the return is filed. Tax
compliance is divided in to three, namely, payment compliance, filing compliance
and reporting compliance. It has been measured by the fairness of taxable income;
the truthfulness of tax filing and correctness of financial reports that they provide for
tax disbursement. It motivated by a variety of factors, including the threat of
detection and punishment. This mean that increased in enforcement towards
taxpayers leads to increase in the level of their compliance behavior. On the other
hand, the high compliance behavoiur of the taxpayers preserved where the tax
administers are not focus on enforcement. The perception of quality of tax services,
financial situation, structure of tax, administrative excellence, ethical reasoning and
careers were considerably influenced the tax compliance behavior of taxpayers. Also,
it has a statistically significant relationship with tax professionals’ aggressive advice
and the compliance activities of honest taxpayers.
Theory of Planned Behavior (TPB) derived from the Theory of Reasoned Action
(TRA), which stated that the individual’s behavioral intention is derived from the
attitude and subjective norm. It is tricky to catch-up the overall individual’s
behavioral intentions simply through these two basic principles. In order to overhaul
the whole of TRA, TPB provided perceived behavioral control. It has helped to get
closer to the behavior of persons who believed they had only some control over
performing a specific behavior.
Perceived behavioral control reflects an individual’s perception of the ease or
difficulty in performing a particular behavior. Consequently, he specified that a
behavior that is easy to perform is high in perceived behavioral control, while one
that is difficult to perform is low in perceived behavioral control. Moreover, it
forwarded that an individual with high perceived behavioral control will be more
likely to perform the behavior in milieu than an individual with lower perceived
behavioral control. Perceived behavioral control is associated with the extent of
resources and skills that he or she possesses.
Theoretically, a person with more knowledge of tax will be considered as having
high perceived behavioral control than those with little knowledge. Therefore,
possessing good tax knowledge would enhance the resources and skills of taxpayers
to deal with their tax obligations (and whether or not to comply with them). The
decisions prepared by the tax persons (obey or disobey) come from easiness or
complicatedness, experiences, knowledge, competencies, resources, opportunities
and obstacles to execute the activity. According to TPB business income taxpayers’
obedience and disobedience behaviors depend on how easy or complicatedness of
income tax law, experiences, knowledge, competencies, resources, opportunities and
obstacles to carry out the activity. Likewise, the actual behaviors of the business
taxpayers towards profit tax default or payment are directly influenced by their
perceived behavioral control.
Subjective norm is the perception of individual with regard to known whether others
believe that he/she must or must not do the behavior correctly. This perception in
turn is a function of a person’s perceived expectation that one or more referents think
the individual should perform (or should not perform) the target behavior, and the
level of the individual’s motivation to comply.
The theory divided attitude in to two, namely affective and instrumental attitudes.
The theory expressed affective attitude as emotions such as feeling happy and sad or
guilty results from accomplishing some behavior. Instrumental attitude explained as a
more cognitive contemplation to which working some behavior can be beneficial.
Previous works revealed the existence of direct correlation among attitudes and
norms and tax compliance behavior. Thus, business taxpayers with more PBC,
attitude and subjective norm will be more likely to establish the intention to do the
tax behavior mainly tax compliance in milieu than taxpayers with lower PBC
towards tax compliance. This means that tax perception was the outcome of internal
and external factors such as tax knowledge, skills, time, opportunity and resources
available to an individual. In general, the study asserted that the model of this theory
was conducive to recognize factors that affect obedience behavior of the taxpayers in
the study place.
The tax disobedience of taxpayers is failure to a comply with tax laws and/or report
incorrect income, an act of claiming incorrect deductions, relief and rebates and/or
paying the incorrect amount of tax beyond the stipulated time frame. The two
indispensable approaches of tax obedience, mainly economics and behavioral
methods are used to examine the issues of compliance. The economic approach is
used to investigate obedience with regard to the costs of economy, incentives and
efficient allocation of economic resources. On the other hand, the behavioral
approach applies psychological and sociological factors so as to explore problems of
compliance, usually through emphasis on fairness (justice).
So, tax disobedience can be classified as unintentional and intentional disobedience.
The incidences of negative linkages among taxpayers fairness perception and tax
frauds as well as public resentments were documented in prior works. Accordingly,
Richardson (2015) notified that taxpayers' enthusiasm to obey with income tax laws,
if they accepted in a reverential and fair way by the tax administers. Alternatively,
the retributive and distributive justices were important to measure perceived fairness
and compliance behaviors of taxpayers. Thus, the better understanding of attitudes,
fairness perception and behavioral motivations of taxpayers pertaining to taxation
probably improves both their voluntary compliance and tax administration efficiency.
The importance of tax equality, equity and compliance behaviors has long been
recognized and continued to be the most frequently cited characteristics. Prior studies
(such as Dwyer and Williams, 2002, James and Alley, 2002, Bobek and Hatfield,
2003, Braithwaite and Ahmed, 2005, Erich et al., 2007, Richardson,2006, Blanthorne
and Kaplan, 2008; Cummings et al., 2008, Loo et al., 2008, Cornelissen et al., 2010,
Leonarda, 2011, Blaufus et al., 2013, Devos, 2012, Alabede, 2012, Ruhoma, 2015
and Jimenez, 2013) recognized the value of these variables to observe their influence
on tax fairness perception and compliance behavior.
1.6. BUSINESS TAX MOBILIZATION
Domestic resource mobilization refers to the process in which countries raise
domestic resources and spend these funds to provide goods and services to their
people. The major component of domestic resource mobilization is tax revenue,
specifically business income tax. This includes tax collection, non- tax revenues,
domestic borrowing, and from other domestic income sources, but it doesn’t
necessarily have to mean introducing new taxes or increasing the tax rates (United
Nation Development Program, 2016). It is the only dependable and long term source of
development financing in terms of sustainability and reliability for Ethiopia in
general and Oromia region in particular. It is widely accepted that international or
external financial sources and other inflows are not reliable and insufficient to
finance development plans and stimulate development in Ethiopia in general and
Oromia region in particular. There is a growing emphasis on internal resource
mobilization in Ethiopia to finance their development agendas. Internal revenue in
the form of tax increases the ability of governments to achieve long-term strategic
plan by enhancing fiscal sustainability.
Theories also support that raising internal revenues is the most practical approach to
achieve fiscal sustainability. Moreover, the remaining global financial and economic
crisis, as well as emerging financing needs such as migration, terrorism and other
global shocks has given new motivation for exerting efforts around internal revenue
mobilization particularly on taxation. However, Ethiopia has had difficulties in
mobilizing tax revenue for public expenditure from internal sources. It has been
evidenced that budget in Ethiopia, mainly Oromia region have been hampered by
low tax revenues including business income tax. As a result, escalating tax revenue,
specifically business tax mobilization is a policy priority for Ethiopia and Oromia
region. It was underlined that strengthening tax revenue collection is critically
imperative to achieve sustainable economic growth and efforts be geared towards
enhancing ability to augment public revenue from tax including business income tax.
In the last decade Ethiopia mainly Oromia has made heartening improvement in
collecting more revenues from tax incorporated business profit tax. However, there is
a challenge increasing the tax revenue proportionate to GDP; the tax to GDP ratio
remained low which is way below the Sub Saharan African countries. Although the
economy has been growing at a remarkable rate averaging more than 10 per cent, the
slow growth in the tax to GDP ratio suggests the growth in tax collection mainly
business income tax is not commensurate with the economic growth perhaps
indicating a huge untaxed potential as well as low tax base.
OPEDC (2019) disclosed that during the monetary year of 2018-19, agriculture
sector contributed about 53.81 per cent to GDP followed by service sector that
contributed 22.5 per cent and remaining share was contributed by manufacturing and
merchandising sectors with their 14.68 and 9.5 per cent respectively. Previous
information revealed the contribution of business profit tax to GDP was low as
compared to an employee income tax. According to the reports of OPEDC (2018) in
the financial year of 2018-19 regional tax revenue to GDP is less than 5.6 per cent
relative to 11.3 per cent of country's tax revenue to GDP. Similarly, the IMF (2018)
recognized that the country tax revenue to GDP ratio is accounted to 11.4 per cent
during the financial year of 2019-2020. Furthermore, Teshome (2017) investigated
that in 2017-18 the regional tax revenue to GDP was less than 2 per cent. Hence, this
type of tax collection is guaranteed that the revenue authority in Oromia region of
Ethiopia assemble inadequate amount of business income tax from the business
organization and individual traders.
Empirical evidence provided that per-capita income, structure of economy, inflation,
foreign direct investment, tax incentive and level of trade openness determine the tax base
and the extent of tax revenue mobilization in different countries.
Per capita income as a proxy for the overall economic development and
sophistication of the economic structure is expected to positively impact the tax
revenue. Structure of an economy is one of the key determinants of tax revenue, because not
all sectors are easy to tax. For instance, taxing the agriculture sector that is mainly dominated
by substance small holder faming is difficult. The same goes for informal services sector in
urban areas. On the other hand, a large amount of tax revenue could be secured from a
vibrant mining sector dominated by a few large firms. Likewise, the degree of trade
openness measured by the sum of exports and imports as a share of GDP is a key for
revenue performance. Due to low level of foreign trade, tax revenue from business
activities as well as international trade constitutes a little fraction of tax revenue in
Ethiopia.
Inflation as a general proxy for macroeconomic stability is believed to have an
impact on economic activities and has important implication on tax revenue
collection. Further, the impact of degree of indebtedness of a country on tax revenue most
of the time discussed in relation to the motivation it creates for authorities to collect more tax
in order to generate primary budget surplus to service the debt. Moreover, the literatures
show that the impact of foreign aid on revenue is still ambiguous. However, there are
some cases where aid is associated with conditions for trade liberalization, in which
case it affects the tax base. Also, the current account balance as an indicator of a
country’s external position and determinant of debt sustainability is an important
factor. A high current account deficit could negatively affect tax revenue through its
crowding out impact of consumption and investment and vice versa.
Foreign direct investment is recognized as one of the factors that help to explain variations in
tax revenue. One side of the argument focuses on the increased tax revenue expected from
increased investment. This argument formed the rationale behind tax incentives and policies
such as: low statutory rates and selective preferential tax treatment, like free zones, tax
holidays, and credit are associated with tax competition. (Drummond et al, 2011). On the
other hand, there are emerging literatures that show how Ethiopia mainly Oromia region
losing tax revenues includes income tax because of tax incentive such as exemptions. So, the
force of foreign directs investment on tax revenue mainly business tax is one of the matters
of tax revenue mobilization in the country in general and Oromia region in particular.
United Nation Development Program (2016) stressed that the domestic resource
mobilization in developing countries is challenged by a number of factors such as illicit
financial outflows, slow structural transformation in the economy, substantial tax incentives
like tax holidays and other exemptions. Accordingly, illicit flows of money is illegally
earned, transferred or utilized and does not include outflow of capital due to
macroeconomic and governance problems. The major sources of illicit money can be
commercial tax evasion, trade miss-invoicing including transfer pricing, criminal
activities such as drug trade, human trafficking, arms dealing, smuggling and
contraband, bribery and theft by corrupt governments. Generally, illicit fiscal outflow
is often driven by criminal activities by deliberately keeping away and hiding
transactions from the view of law enforcement agencies.
Tax evasion or tax avoidance can be the major component of illicit fiscal flows and
can be reduced or prevented through statutory anti avoidance rules if these rules do
not exist or ineffective. During the same period the UNDP documented that Ethiopia
is losing 6 per cent of its GDP every year in the form of illicit outflows. It proposed
that government policies should give attention and address the problem of illicit
flows to enhance mobilization of tax revenue specifically business profit tax.
Literature has pointed out that the sectoral composition of an economy has a significant
impact on tax revenue collection. Some sectors of the economy are easier to tax than the
others. For instance, in Oromia region the agriculture sector has been difficult to tax as it is
dominated by a large number of subsistence small holder farmers. One of the structural
factors that challenge tax revenue mobilization in Oromia is low income and high share of
agriculture in GDP. A large proportion of the population in Oromia region specially Western
Oromia in agriculture or informal sectors are difficult to tax because they have low incomes
(and expenditures) or are unregistered for tax. This implies that the longer the country or
region stay dominated by agriculture and informal sectors, the less they are able to increase
tax revenue mainly business income tax.
The other extensive challenge related to revenue from tax primarily business tax
mobilization is tax incentives. It found that tax collections remained weak despite
significant reforms principally due to capital flight, tax evasion and increase in tax
exemptions. For instance, currently, Ethiopia provided significant tax exemptions
and incentives such as tax holidays, tax credits, reduced income tax rates, and
accelerated depreciation allowances, concessions in export processing zones, import
duty waivers and full repatriation of revenues to attract investments. However, some
evidences show that tax incentives are not necessarily critical drivers of investment.
Further, tax related works claimed myriad of tax exemptions and incentives are
resulting in low effective tax revenue mobilizations in the country.
While tax incentives may promote economic activities and investments, tax
exemptions can complicate tax administration and erode the tax base and hence
exemptions need to be kept to minimum. Evermore, squat extent of savings, capital
flight, poor local economic governance and weak administrative system as well as
organizational capacities are oftentimes mentioned as challenges towards enhancing
tax revenue mainly business tax revenue mobilization in a particular tax atmosphere.
This is so an opportunity to take a stroll through theoretical and empirical findings in
the tax fairness perception and compliance behavior literature, focusing on the
business income taxpayers. The question about fairness perception and compliance
behavior is-why people cheat much than why they do.
Emotion played a significant role in keeping routines or rules intact. They are made
by norms of justice, fairness and appropriateness. Different rules and factors may
affect perception and behavior differently and perhaps cause a movement away from
the previous rules. Then, each type of taxpayer systematically disregards or agrees
with specific information. Based on the literature the researcher identified four types
of taxpayers namely social, intrinsic, honesty and evaders taxpayers. Thus,
The initial group of taxpayers are influenced by social norms, feel guilty when they
under-report and escape detection and feel ashamed when they under-report and get
caught. Moreover, they are very sensitive to people’s beliefs, especially those close
to them and react emotionally and strongly to perceived changes around them. These
groups of taxpayers can be seen as conditional co-operators. If they perceive that
others pay taxes, they tend to pay too, while on the other hand, a reduction in others
contribution reduces their willingness to pay. Satisfaction and behavior are linked not
only to the objective outcome level, but also, to outcome received in relation to those
which were judged to be fair. Increasingly, a perceived inequality between one’s
exchange and the exchange others get creates a sense of distress which causes anger
which in turn reduces the moral cost of evasion.
The second group of taxpayers or intrinsic taxpayers includes among others, the
feeling of obligation, which motivates a person without being forced. They are
sensitive to institutional factors, as, for example, the behavior of government, or tax
administrations. Positive actions by the government are intended to increase
taxpayers’ positive attitudes and commitment to the tax system, tax payment and thus
compliant behavior. When monitoring and penalties for non compliance increase,
individuals notice that the intrinsic motivation has increased, which on the other hand
crowds out intrinsic motivation to comply with taxes.
The third group of taxpayers or honest taxpayers not even consider searching for
ways to cheat at taxes, but, they always ready to perform their civic responsibility by
paying tax as and when due. Their behaviors do not respond to changes in the tax
policy parameters (as taxes, fine rate, and audit frequency). Thus, they are simply
predisposed not to evade.
The fourth group of taxpayers or tax evaders have low tax morale and motivation
towards disbursements of tax included business income tax. It can be argued that for
these taxpayers, the standard economic rational choice theory comes into play. They
always compare the expected value of evading taxes with the value of being honest.
Tax morale is a social phenomenon that is difficult to explain. Questions about tax
compliance are as old as taxes itself, and will remain an area of interest as long as
taxes exist. To understand the impact of a tax system, it is important to know who
complies with the tax laws as well as who does not.
Tax evasion is a large and growing problem in almost all countries. Economists see
the problem as one of rational decision made under uncertainty. This means that
cheating on taxes is a gamble paying off in low taxes or, with the probability of
detection ending in sanctions. Accordingly, the study was applied these terms of tax
since it investigated the fairness perception of business income taxpayers and
compliance behavior.
For instance, the presence of huge tax evaders in Ethiopia is acknowledged by the extent of
tax gap determined by UNDP in 2016. Because tax gap indicates the difference between
actual tax revenues collected and estimated / potential tax revenue based on prevailing
characteristics of an economy and income level. A more strict definition identifies the tax
gap as “the difference between tax collected and the tax that should be collected; the
theoretical liability, which is the tax that would be collected if all individuals and companies
complied. This aggregate gap is the sum of individual tax gaps, or components of the
aggregate tax gap. There is a considerable agreement among study outputs on taxation in
Ethiopia that there is huge potential to increase tax revenue.
As a result, the United Nation Development (2016) indicated that Ethiopia is known by low
tax collection or tax compliance relative to other African countries. The organization attested
the issues by comparing the tax gap of Ethiopia with Mozambique based the data of World
Bank and IMF. Reasons for tax gap range from policy choices by government to
administrative problems such as tax avoidance and weak administrative systems as well as
capacities. The UNDP further provided that Ethiopia has lost minimum USD 3.2
billion that ought to be collected from taxes, in 2014, which could be attributable to
factors including illicit financial flows, tax exemptions, informal sector and other tax
evasions. Accordingly, Ethiopia is losing around 10 per cent of its GDP in tax
evasion; the gap will be much higher. Therefore, the analysis indicated how much the
research on tax compliance behavior and fairness perception is required in Ethiopia in
general and Oromia region in particular.
Overall, to address the aforesaid tax challenges it demanded systematic
investigations from governments and stakeholders. Therefore, the research was
interested to lessen the problems of business income tax mobilization through
exploring the perceptions of the business income taxpayers towards tax fairness and
compliance behavior; examining the regulatory framework of business income tax
and the degree of government’s revenue generated from the business income
taxpayers in the last decade.
The challenge of tax collection mainly business income tax was initiated the
researcher to investigating factors that influenced perception of tax fairness and its
effects on compliance behavior together with subjective norm, behavioral control, tax
morale, tax knowledge and tax complexity in the context of profit taxpayers in
Western Oromia, Ethiopia.
Evermore, the reason increase the value of studying tax fairness perception, tax
compliance behavior, business income tax legal framework and the degree of income
tax mobilization specifically business income tax in the context of Western Oromia
of Ethiopia. The study addressed the objective by mixed research method primarily
quantitative and qualitative research approach. The data collected from both primary
and secondary sources of by self-administered questionnaires and published
materials on taxation of Ethiopia, Oromia region as well as world at large. In the end,
for the intent of this thesis, the phrase business income taxpayers and business profit
taxpayers were used in the same manner.
1.7. PERSPECTIVE OF OROMIA REGIONAL STATE

Figure 1.1
Map of the study area
Source: Compiled from https://www.pinterest.com/pin/407998047485056017
Since the 1990s, Ethiopia applied fiscal federalism in which power of the
government shared among federal and nine regional states included the Oromia
regional government. Oromia national regional state was formed by the 1995
constitution. It is the biggest and densely populated of all regions in a country with
about 363,375 square kilometers and 50,000,000 people. The region extends
crosswise innermost of Ethiopia and has borders with South Sudan and Kenya as
well as all states exclusive of Tigray. The capital city of Oromia regional state is
Finfinne. The legal language of the region is Afan Oromo. The fundamental rules
similar to tax proclamations were made by the regional council; practiced by the
judiciary and executive authorities on tax issues condoned from the powers of the
central state. As it granted legitimate personality the region had the power to make
relations and harmony with several domestic and limited international organizations.
The Oromia regional state was constitutionally separated into three. The initial
administrative body of the region represented regional budgetary and general audit
office; regional council and other sovereign agencies. Subsequently, Oromia region
administration disclosed twenty zone administrations with independent and
legitimate powers. Increasingly, the regional administrative segment recognized
about 180 district administrations. Thus, the Oromia region is alienated into districts,
village areas, city administrations and zones whereby zones and districts treated as a
backbone of state with notable duties of giving essential public goods and services.
The two basic actors of a fiscal scheme of Oromia region are Bureau of Finance and
Economic Development and Oromia Revenue Authority. So, the Bureau of Finance
and Economic Development (BoFED) formed by decree no.7-1992. Conversely, the
Oromia Revenue Authority (ORA) was created by regional proclamation no.175-
2005 so as to manage tax revenue and other financial resources of the regional
government. The authority had a vast number of segments across a region. For the
aim of study five biggest cities of West Wollega, East Wollega, Kellem Wollega,
Horroguduru Wollega and West Shewa Zones were considered.
In the country the power of taxation is divided into three categories, namely the
federal power of taxation' 'the state power of taxation' and 'concurrent power of
taxation.' Also, it prescribed conditions under which the regional governments could
acquire revenues via grant and subsidies. The power of taxation assigned to federal
and states resulted in exclusive revenue sources allocated to each level of
government (Asefa, 2015). The sharing of the direct tax and indirect tax in the
fraction of 50 per cent and 70 per cent impair revenue capacity of Oromia region as
most of the business organizations resided in a region disbursed their income tax and
indirect taxes at the federal level and other regions. Thereafter, these tax conditions
affected the concepts of benefits principle and distributive justice while most of these
organizations and individual traders obtained benefits from the region included
western part.
Notwithstanding the country constitutions clearly share the responsibilities of income
tax that includes business income tax among the two levels of governments, its
practice has lingered silently as a federal revenue office dominated the majority of
the tax activities. Due to this, the Oromia region regional government highly western
part was unable to provide enough public goods and services. Prior studies (for
instance, Nuguise, 2016; Geberegziber, 2007; Lencho, 2010; 2012; Assefa, 2015;
Girma, 2013, Mengeste, 2011 and Mentta, 2014) recognized that the current fiscal
federalism of Ethiopia impaired revenue and expenditures capacities of regional
government whereby Oromia principally Ambo, Nekemte, Gimbi, Shambo and
Dambidollo municipalities affected critically. More importantly, they have been
expressed that momentous responsibilities of revenue collection mainly income tax
was provided to a federal revenue bureau. Empirically, these kinds of taxation
atmospheres recognized as the fruits of vertical and horizontal fiscal inequities
among multiple state administrations. Thus, the researcher initiated to investigate the
issues of income tax regulatory framework implemented in western part and a
potential reason for an inequitable distribution and share of income tax, inadequate
fiscal autonomy of the local governments, perception of tax fairness, tax morale, tax
attitudes, tax compliance behavior and tax revenue growth rate.
The Oromia national regional state tax structure comprised direct tax and indirect
tax. The direct tax of the region comprised all income tax, namely employment
income tax (Schedule "A"); rental income tax (Schedule "B"), business income tax
(Schedule "C") and withholding income tax (Schedule "D") and exempted income
(Schedule "E"). But, the first two types of income tax covered all most all or 94 per
cent of the overall income tax of the region (Teshome, 2017). So, this was concrete
evidence for unable to collect adequate extent of business income tax from the whole
traders and companies in the Oromia region, particularly, western area.

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 CHAPTER TWO
REVIEW OF LITERATURE
This portion provided the review and cavernous examination of the prior works on
the ideas of fairness perception and compliance behaviors. So, it indicated the
theories of tax equity, compliance behaviour and tax morale. Ultimately, it disclosed
conclusion and gaps from the available tax-related works.
2.0. STUDIES ON TAX FAIRNESS PERCEPTION
AICPA (2007) explained that fairness and equities are fundamental to the particular
tax system. This institution indicated that exchange, process, vertical, time-related,
inter-group, compliance fairness and equity are basic ingredient of effective tax laws.
It further recommended that the policymakers and administers ought to provide vigor
attention to fairness at the time of designing and implementing tax rule. Finally, the
institution recommended that tax legislators and authorities must focus at least on
these basic notions of the tax fairness.
Azmi and Perumal (2008) identified that the perception of taxpayers about tax
fairness was critically influenced by the degree of tax compliance behavior. The
researchers provided that the tax system of Asian countries was characterized by the
general fairness, fairness of tax structure as well as self-interest. The study provided
that the level of education and difference in culture are the causes for the difference
in tax fairness perception and fairness dimensions among Malaysian and western
countries. It further recommended that recognizing motivation of the taxpayers and
budding fair tax laws and methods can affect obedience and will bring extra public
revenue and less administrative expense to the revenue authority. Lastly, the study
suggested that the legislators should focus on the fairness perception of the taxpayers
as justice of tax structure would encourage their tax obedience behviour.
Chittenden and Foster (2008) investigated the perspectives of fair tax in Hong
Kong. The study described that the tax system difficulty and uncertainty resulted in
unfairness of the income tax system. The research demonstrated that considering the
perceived authenticity of the income tax structure increased perception of tax
fairness. Thus, they stated that complexity of income tax laws was multidimensional
and significantly influenced the magnitude of perception of tax justice. The study
recommended the tax policymakers should consider the concepts of simplicity;
transparency,justice and tax burden at the time of developing and evaluating the
fairness of the tax system. Moreover, the researchers suggested that the legislators
ought to make flexible tax rule and regulation to offer a quick feedback to the
economic dynamism. In the end, the researcher suggested that the respective regimes
should enshrine the concept of neutrality in their communications with all members
of the society.
Kazemi (2008) depicted fairness as one of the important factors in the tax
environment as it affected the willingness of taxpayers to disburse or not to disburse
appropriate taxes. Further, he explained that tax fairness specified a dollar unit of the
revenue from tax shared among society in the form of road, school, security, health,
military, water and electricity. The study suggested procedural, distributive,
informational justice, interpersonal fairness, legitimacy and certainty for fairness of
the income tax scheme. Lastly, the research suggested informational, procedural and
distributive equities for the aim of improving tax rule as it was associated with
equity, simplicity and transparency of the tax system.
Kirchler et al. (2008) asserted that the structure of tax obedience was attainable
where the tax deterrence method was fair. The study expressed that fairness, tax
audit, attitude, knowledge, norms, penalty, tax rate and norm influenced the trust and
powers of tax administration. The study examined the distributive justice theory in
terms of exchange fairness and personal fairness. Besides, the research noticed that
the theory of procedural fairness disclosed bias suppression, consistency,
correctability, accuracy, representatives and ethicality principles. The research
proposed distributive and procedural justice theories and slippery slope framework
for determining fairness of distribution and procedures or equitable outcome and tax
obedience. The research further recommended that the regime must make a fair
system of taxation to diminish the extent of tax deviant behviour.
Perumal (2008) studied the perception of fairness and compliance behaviour among
Malaysian individual taxpayers. The thesis divulged that taxpayers in Malaysia had
moderate level of fairness perception as well as compliance behaviour. The study
disclosed two significant dimensions of tax fairness among Malaysians ,namely,
general fairness and self-interest. The researcher further recommended that the
policymakers should give attention to the general fairness and exchange fairness as
well as tax education in order to enshrine more tax compliance and tax morale in
Malaysia.
Doran (2009) examined the tax penalty and tax compliance behviour. He pointed out
that the complexity of the tax system had direct connection with the extent of
fairness, tax knowledge and compliance behavior. The study revealed that tax
knowledge and tax complexity were considerably influenced by fairness perception.
Furthermore, he explained that intricacy of the tax system was directly linked with
taxpayers knowledge and their fulfillment behavior. The investigator suggested that
the revenue authority must boost the tax knowledge of the taxpayers to increase their
perceived fairness and fulfillment behaviours.
Saad (2010) depicted that in Malaysia taxpayers perception of the income tax system
was fair. But, there was no indisputable evidence that such a perception influenced
the magnitude of tax compliance behavior. The study showed that tax knowledge and
tax complexity drastically affected the fairness perception of the taxpayers in
Malaysia. On the impact of the content and compliance complexities on the
perception of tax fairness, the researcher found a significant results and discussed six
dimensions of tax complication explicitly, vagueness, computation, change, detail
and form as well as bookkeeping. The study recommended that the responsible
bodies shall focus on the extent of tax knowledge, complexity, attitude and subjective
norms of the taxpayers while making the tax laws.
Abroat (2011) investigated the business profit taxpayers perception towards tax
fairness in Addis Ababa of Ethiopia. The research explored that the taxpayers tax
knowledge, tax fairness dimensions and tax complexity noticeably affected the
magnitude of taxpayers compliance behavior, fairness perception and attitude in
Addis Ababa. The thesis show that obedience behaviour and perceived fairness of
taxpayers in Addis Ababa was critically affected by the level of tax knowledge. The
study recommended that policymakers shall broaden the level of tax education,
enhance tax policy, community service and installed fair and equitable tax scheme.
Mukasa (2011) revealed that the knowledge of taxation and perceived tax justice had
causal association with the tax obedience behaviour of the taxpayers in Uganda. The
study explored the presence of positive and significant linkage among tax obedience
and fairness perception of the taxpayers. Also, it has indicated that the level of tax
compliance of the taxpayers was critically influenced by the perception of fairness.
The study suggested that focus should be given to perceived equity and tax
knowledge mainly exchange fairness and technical knowledge. Further he
recommended that the enhancement of knowledge of taxpayers and fairness
perception resulted in high tax compliance.
Saad (2011) explored the influence of the taxpayers knowledge both on fairness
perception and compliance behaviour in Malaysia. Thus, the researcher disclosed
that general knowledge, technical knowledge and knowledge of legal sanction
considerably affected the perceived fairness of taxpayers. Hence, the researcher
suggested these dimensions of tax knowledge for measurement of the whole
knowledge of taxpayers on the income tax scheme.
Zalalem (2011) studied the influence of tax education on tax compliance attitude in
Ethiopia, Addis Ababa. The researcher investigated that taxpayers tax knowledge
distinctly reduced their compliance behavior, fairness perceptions and attitudes in
Addis Ababa, Ethiopia. The study expressed that the obedience behavior and
perceived fairness of the taxpayer in the study location affected by the level of their
tax knowledge. The research suggested that policymakers ought to boost taxpayers
knowledge towards income tax in order to lift their tax self-fulfillment performance
and fairness perception.
Saad (2012) studied the perception of tax fairness and tax compliance behaviour
among Malaysia and New Zealand. The study found that the perceived fairness of
the taxpayers was influenced by their tax knowledge and tax complexity. With
reference to tax compliance behaviour, the study found that an obedience behaviour
of the taxpayers was considerably affected by degree of subjective norm and attitude
towards tax. In the end, the study recommended that taxpayers in Malaysia had a
good perception of tax equity in income tax laws as compared to New Zealand.
Serkan et al. (2012) disclosed that perception of tax fairness was an important
component of tax compliance. The study explained that taxpayers initiated to evade
taxes if they perceive tax framework unfair. Consistent with, the study described that
the equity theory of tax system ought to consider both horizontal and vertical
equities. In other words, the tax framework must preserve equal treatment of equal
and unequal treatment of unequal. This implied that horizontal equity ensured
fairness of a tax system while vertical equity aimed to achieve distributive justice. In
the end, the paper recommended that the policymakers must recognize both
horizontal and vertical equities in the tax system to increase the extent of tax
obedience of the taxpayers.
Thomas (2012) assessed the tax fairness dimensions in developing economies. The
study expressed that tax fairness is a key objective of the effective tax system.
Similarly, the tax fairness perception of taxpayers recognized by professionals as
vital for legislators as a result of the latent effect on taxpayers obedience actions.
Also, the thesis revealed that general fairness as one of the basic components of
fairness dimension in developed countries. Conversely, a small number of taxpayers
focused on their personal self-gain and a fair tax could be explained as one where the
immense tax burden imposed on the taxpayers who had strong financial position and
capacity to disburse the tax. The study suggested that the tax legislators must be
aware as to how individuals taxpayers will react to the amendment of the tax policies
and procedures.
Evans and Nam (2013) reviewed the effect of horizontal and exchange inequities on
the taxpayers tax report decisions. They evaluated complexity of tax systems on tax
lawyers, taxpayers and accountants. Thus, in the case of tax lawyers, the complexity
of the tax system described in relation to the level of intricacy of reading the tax
framework, understanding and interpreting tax rule and regulation in tax compliance.
With regard to taxpayers, they defined the complexity of the tax system in relation to
the time required and expenses incurred in fulfilling the existed tax rules and
regulations in a particular tax ecosystem. Concurrently, the researchers suggested
that the complexity of the tax system has required an accountant more time to make a
financial statement; tax planning, guidance and consultancies from particular tax
practitioner as well as authorities.
Gambo et al. (2014) attempted to evaluate the tax complexity and tax compliance in
African self-assessment environment. They explained that taxpayer in Africa was
going through an additional one day past worldwide normal hours on tax obedience
under tax self-assessment atmosphere. They proposed that a decent self-assessment
system ought to be basic and less difficult to make for the adequate dimension of tax
compliance among citizens. The study recommended that a better tax self-fulfillment
framework is required in order to attain adequate tax compliance performances.

Saad (2014) studied taxpayers view on tax knowledge, tax complexity and tax
compliance in Malaysia. The study explored that tax knowledge and perceived
difficulty of tax framework considerably affected perception of tax fairness.
Thereafter, the study investigated that tax knowledge and tax complexity views of
taxpayers considerably affected their noncompliance behaviour. Furthermore, the
research generalized that the influence of technical knowledge and perceived
complication of tax rules and regulations on perceived equity were inadequate in
study ecosystem. The research recommended that the administration should give
emphasis on the tax knowledge and complication of tax system in order to enhance
the tax fairness perception and obedience behaviour of the taxpayers.
Gberegbe et al.(2015) discovered the perception of tax fairness and personal income
tax compliance in Ken Saro Wiwa Polytechnic, Bor. The study investigated the
considerable correlation between perceived tax equity and individual tax obedience
performance. They depicted that self-interest and exchange with the government
were critically affected the tax compliance activities of individual members of staff.
The study proposed that tax legislators ought to boost the benefit of the community
and should facilitate employee income tax fulfillment behaviour by utilizing
appropriate methods of taxation.
Giray et al. (2015) explored that the structure of the tax system, inefficiency in the
tax system, tax morale, interaction with tax administration and use of public
expenditures were the components of perceived fairness in a particular environment.
As a result, the study pointed out that taxpayer perceptions were based on reciprocity
between their tax expenses and the government spending. Afterwards, they indicated
that perceived fairness in the tax system depended on a structure of the tax system,
interaction with the tax administration, inefficiency in the tax system, tax morale and
public expenditures. Further, tax compliance is a complex issue and can be explained
by economic and social factors. Thus, the concerned bodies ought to focus on
perception of tax fairness as it played important role in enhancing the taxpayers
voluntary tax compliance.
LeRoy and Herzenberg (2015) argued that tax fairness was not a rocket science
because it cannot solve all budgetary problems. The study stressed that in states
where tax systems were only slightly regressive, tax fairness would only be made a
small contribution to mate the required state's revenue. But, in numerous states, tax
justness can be a piece of the answer for unraveling basic financial deficiencies and
difficulties of the unjust development than a noteworthy part. They suggested that a
particular tax ecosystems must maintained tax fairness as it helped the states in
amplifying the taxpayers tax compliance and government revenue as well as
expenditure.
Gberegbe and Umoren (2017) identified the perception of tax fairness and personal
income tax compliance in Rivers State. The study investigated that perception of tax
fairness, distributive, procedural and retributive justices considerably affected the tax
compliance of taxpayers. Also, the thesis portrayed distributive equity in terms of
horizontal justice, vertical justices and exchange equity. The study suggested that the
revenue authority must increase the level of the government goods and services and
impose low penalty on the taxpayers so as to enlarge their compliance activities and
preserve fair tax penalty.
The aforementioned works recognized several notions of tax fairness, tax knowledge
and tax complication applicable in different countries in determining the fairness
perception of the taxpayers. They argued that diversity in tax fairness perception
result from diversity in social, cultural and economic development. These theoretical
distinctions and arguments motivated the current researcher to investigate perceived
equity of profit taxpayers in Oromia region from point of view of business income
tax law via horizontal fairness, vertical fairness, retributive fairness, exchange
fairness, personal fairness, administrative fairness and general fairness with legal
knowledge, technical knowledge, general knowledge; compliance complexity and
content complexity. Also, it helped the investigator to discover perception of
business income taxpayers in the viewpoint of the theories of equity, distributive
justice, retributive justice and procedural justice.
2.1. STUDIES ON TAX COMPLIANCE BEHAVIOUR
Thrived et al. (2004) investigated the influence of attitude, incentive and tax
compliance in Hamilton. The study claimed attitude, subjective norm, pecived
behavoural control as well as ethics significantly determined taxpayers intention to
comply to the tax code. It concluded that attitude of the taxpayers was considerably
linked with their tax obedient and disobedient behavior. However, subjective norm
influenced obedient behavoiur of the taxpayers only while perceived behavioral
control irrelevantly affected compliance behaviour. The study further recommended
that the legislators, revenue authority and researchers ought to consider theory of
planned behavior while inspecting the tax compliance behavior of taxpayers.
Torgler and Schaffer (2007) looked at the causes and consequences of tax morale.
They notified that multifaceted tax rule may result in accidental tax disobedience
activities as citizens faced issues as to recording the tax documents. They asserted
that multifaceted tax nature can lessen morale of taxpayers towards tax scam. The
researchers also notified also that such disobedience acts vary from other violations
seeing that they tend to contend accidental mistakes that were made on account of
confusions connected to the standards and principles of taxation. The researchers
further explained that the honest person perhaps incurred higher tax filling and tax
compliance costs, whereas, scammers either reduced costs or claimed that credits
without executing the suitable codes of tax. They provided that a lift in tax morale
improves moral costs of execute illicit activities towards tax and thus dwindle
inducement to tax frauds particularly tax avoidance and evasion. The study further
recommended that the policymakers should give emphasis on the tax morale or
intrinsic motivation in order to improve the tax compliance behavior of the
taxpayers.
Alabede et al. (2011; 2012) identified the determinants of the tax compliance
behavior model for Nigeria. The study discovered that behavioral belief or attitudes
of the individual towards tax frauds was negatively related to the fulfillment
behavior. It was notified that the acquiescence behaviour of the taxpayer was
significantly lifted as their financial situation increased. The researchers suggested
comprehensive tax model comprise Fischer’s, economic, psychological and social
models of tax compliance for the aim of increased tax compliance behaviour;
taxpayers services quality views; quality of public administration and diversity of
ethnicity of Nigerian taxpayers.
Palil and Mustapha (2011) classified tax knowledge model into seven, especially,
taxpayers responsibility and right, knowledge about employment income, dividend
and interest, personal relief, child relief, rebate and awareness on offence, penalty as
well as fine. The researchers affirmed the effectiveness of tax administrators relative
to tax knowledge as it assisted them in design tax education programs, simplify the
tax system and develop understanding of the taxpayers behavior. They recommended
tax knowledge for the aim of decreasing the tax avoidance behavior of the taxpayers
and tax officers in the tax ecosystem.
Saad (2011) analyzed tax fairness perception and compliance behaviour in Malaysia.
The study investigated that attitude and subjective norm considerably affected the
taxpayers compliance behaviour. Furthermore, the thesis confirmed the partial
usefulness of Theory of Planned Behaviour in estimated and elucidated the
compliance behavior of the taxpayers. The study further recommended Theory of
Planned Behaviour to realize taxpayers psychological matters in Malaysian tax
environment.
Samuel (2011) identified the tax morale as intrinsic motivation of the taxpayers
towards disbursement of tax in Nigeria. The researcher found a strong relationship
between taxpayer tax morale and their tax obedience behviour. The researcher
explained that positive activities by the tax administration are expected to build
citizens inspirational behavioral belief and responsibility of tax framework, tax
installment and obedience behavior. When monitoring and punishments for defiance
enlarge, people see that the inherent inspiration has expanded, which then again
swarms out intrinsic inspiration to obey to taxes. The study explained morale rules
and sentiments as guilt, shame, duty and fairness. The thesis suggested that the
revenue authority should provide adequate tax services to the taxpayers, especially
starting from bookkeeping to payment of the tax and top official must supervise the
works of the tax personnel in order to reduce abuse of the taxpayers.
Smart (2012) revealed that the taxpayers compliance behavior in Malaysia was
affected by noneconomic variables, akin to belief and attitude, personal, social and
societal norms as well as perception. The research pointed out that taxpayers and tax
agents generally perceive tax disobedience as less serious relative to the number of
other similar civil offenses. The research further recommended the social and
physiological issues like attitudes; behavioral intention, social and personal norm as
well as perceived behavioral control in boosting the taxpayer tax compliance
behavior and tax revenue.
Sapiei and Kasipillai (2013) studied the external tax professionals views on
compliance behaviour in Malaysia. The study expressed complexity of the tax
systems as one of the major factors distressing profit taxpayers tax compliance
behavior and causes tax evasion and avoidance. The study concluded that the tax
professionals considerably influenced taxpayers compliance behaviour. The
researchers recommended that future researcher must broaden the results by
conducting similar researches in developed and developing countries. Moreover, the
study recommended that the revenue authority must balance the complexity of the
tax system and supervise the activities of tax professionals while collecting the tax.
Boonyarat et al. (2014) found four antecedent variables, namely; tax fairness
perception, tax knowledge and understanding, attitude towards taxation and service
quality help to overcome deficit of income resulted from ineffective administrations
in developing countries. The study recommended that the concerned bodies must
make emphasis on the tax fairness perception, tax knowledge and understanding,
attitude towards taxation and service quality as they boosted efficiency of tax
collection, taxpayers satisfaction and their compliance behavior.
Delahunt and Sidereal (2014) explored the determinants of tax compliance
behavior in Bahir Dar city of Ethiopia. The research discovered that opinion on
government spending; perceived equality, the fairness of the tax schemes;
punishments; individual monetary limitation; changes recent government financial
strategies and referent groups considerably influenced tax compliance behaviour in
Amahara region. The study revealed that gender and the probability of being audited
have no significant effect on tax compliance behavior. Accordingly, the study
depicted that older people will comply less if there is no equity and fairness in the tax
system. The study suggested that the revenue authority should focus on tax fairness,
government spending, monetary limitation, referent groups, and fiscal reform as they
were major determinants of taxpayers compliance actions in Bahir Dar city of
Amhara region.
Lencho (2014) examined the Ethiopian income tax system, policy, design and
practice. The thesis recognized the concept of aggregating the profit, lack of making
own profit tax system, time of amending category of taxpayers, lack of making own
income tax in self jurisdiction, issue of unlicensed trade and complexity of profit tax
system, fairness and equality as major problems of Ethiopian income tax rules. The
thesis suggested that the government should introduce reform on internal
restructuring of the income tax scheme and harmonize the over-reliance among the
schedule of the income tax to boost the income taxpayers compliance behviour.
Nurlis (2015) explained that the tax knowledge and awareness have negative and
positive significant impacts on compliance behavoiur of the taxapyers. The
researcher explained that the magnitude of taxpayer obedience behavior hoists as
their tax knowledge was augmented. In the end, the study advised that the
policymakers should give concentration to the issues of voluntary compliance
behaviour and knowledge while formulating tax policy and procedure.
Nerway and Wondwossen (2015) studied the determinants of voluntary tax
compliance behavior in SNNPRS of Ethiopia. The researchers investigated that
knowledge of taxation, simplicity of tax form, tax management, perception of equity
and justices, government budget, likelihoods of tax audits and referral group were the
major determinant of compliance behaviour in Southern Ethiopia. But they did not
investigate the relationship between complexity, compliance behavoiur and fairness
perception. The study recommended that the revenue authority should focus on
knowledge of taxation, simplicity of tax form, tax management, perception of equity
and justices, government budget, likelihoods of tax audits and referral group as they
influenced the degree of the taxpayers voluntary obedience and tax revenue.
Yahaya (2015) examined the influence of perception of tax fairness on tax
compliance behaviour in Nigeria. The study showed that complexity of tax system,
tax fairness, tax responsibility significantly correlated with tax compliance behaviour
of the taxpayers. The research recommended that the relevant authorities should
review and simplify tax laws for the purpose of broadening understanding of
taxpayers and thus tax compliance behviour. The study further suggested that the
pertinent tax authorities should review and simplify the tax law for the taxpayers
understanding and obedience behviour.
Akalu (2016) explored determinants of compliance behaviour of corporate taxpayers
in Ethiopia. The study explored that the corporate taxpayers disobedience behaviour
had irrelevant association with the complication of the tax system, justice of tax
framework and deterrence action. The findings showed that inconvenient location,
complex tax return form and procedure and bureaucracy affected decision of tax
obedience negatively. The study recommended that policymakers should consider tax
compliance expenses and the income tax rate as they considerably determined the tax
disobedience behaviour of the taxpayers.
Daniel (2016) measured the tax compliance behavior of Small Scale Enterprises in
the Bass Local Government of Nigeria.The thesis found that the taxpayers social and
psychological factors considerably affected the taxpayers obedience action. The
study recommended that the revenue authority must provide training for the
taxpayers; boost the degree of tax audits and impose adequate penalty on the
noncompliance activities.
Fauziati et al. (2016) stated that people were generally sympathetic of vitals of the
tax rules and regulations ideas, like the progressive type of tax are insufficient. They
suggested that efforts should be made to improve taxpayers knowledge so as to
recover their tax compliance and thus government revenue generation potential. The
study further suggested that the revenue administers must focus on public attitude
and perception of tax fairness as they impair taxpayers tax compliance activities.
Kondelaji et al. (2016) analyzed the determinants of tax morale based on social
psychology theory. The study notified that tax morale was one of the most important
tools in promoting the compliance behavior of taxpayers. Moreover, the researchers
stated that trust in others had a significant positive effect on taxpayers intrinsic
motivation and self-esteem. The study indicated that individuals would consider tax
payment as a morale action if they believed others were truthful and pay their tax
correctly. The study further suggested that the legislators must increase tax morale of
the taxpayers as it affects their tax obedience behaviour.
Mitu (2016) indicated that the tax compliance behaviour of taxpayers was not only
explained by identification number and tax knowledge. The study concluded that
compliance behviour of the taxpayers was affected by tax policy, living standards,
level of legal tax knowledge, cultural level, faith, morals, customs and abilities of the
assessor to interpret the tax law. Furthermore, the research asserted that taxpayer
morale depends on their typology, norm and tax return form. The researcher
recommended that the revenue administers must consider taxpayers tax morale, tax
knowledge, norms and forms of tax return at the time of collecting the tax.
Oladipupo and Obazee (2016) studied knowledge, penalties and tax compliance of
the Small and Medium Scale Enterprises in Nigeria. The research recognized that the
knowledge of taxation crucially facilitated taxpayers tax fulfillment behviour than
tax punishment. The researcher recommended that government should do every
possible means to boost tax knowledge of the society and information through
integrated tax education in to the curriculum at all levels. Moreover, they noted that
the Small, Micro and Medium Enterprise owners must improve their knowledge and
awareness about taxation frequently.
Puspita et al. (2016) analyzed the behaviors of individual corporate taxpayers tax
obedience in Malang and Batu. The study discovered that the taxpayers perception of
fairness, tax lessoning, quality of service by revenue authority and knowledge
critically affected the companies tax compliance behaviour. The research concluded
taxpayers compliance behviour was considerably affected by perception of fairness,
tax lessening; quality of tax administer service and the level of tax knowledge. The
study suggested that the administers should focus on perception of fairness, tax
knowledge and quality of services to increase the taxpayers compliant behviour.
Redae and Sekhon (2016) inspected knowledge of the taxpayers and their tax
compliance behaviour in Ethiopia. The study pointed out that tax compliance
behaviour of the taxpayers was affected by tax knowledge in Tigray of Ethiopia. It
recommended that the policymakers and the revenue authority should know the
taxpayers tax knowledge as it influenced their tax noncompliance behavior. The
study further suggested that the revenue authority should stress the extent of legal
knowledge; general knowledge and technical knowledge of the taxpayers because
they are suitable to augment their tax compliance behavior.
Redae (2016) assessed tax morale of the taxpayers in Tigray region of Ethiopia. The
study acknowledged tax morale was fundamental to realize taxpayers tax obedience
behavior. He assured the existence of considerable linkage among morale of
taxpayers and their obedience behaviour in Tigray. The research suggested that
authority must broaden awareness of the taxpayers so as to enhance their capacity to
comprehend tax rule and regulation, tax rate, filing and date of tax disbursement and
tax audit and inquiry. Additionally, the researcher recommended that administrators
must make inclusive confident on the legality of declaring the taxable income of the
taxpayers.
Yildirim et al. (2016) studied the role of social norm on tax compliance behviour in
Turkey. The study recognized that the general justice influenced the level of
procedural equity while procedural justice predominantly influenced the normative
belief of taxpayers. They provided that under the rational choice model, taxpayers
maximize their personal gain and minimize their personal loss then stressed on
tax fairness. The researcher recommended the tax fairness perception because it was
imperative to increased tax revenue, tax compliance and abridged the cost of tax
collection.
Overall, the aforementioned studies acknowledged the values of theory of equity,
TPB and theory of intrinsic motivation in discovering the influence of tax fairness
perception, tax morale, subjective norm, behavioural control and attitude on the
compliance behavior of the taxpayers. Hence, the use of equity theory, TPB and
intrinsic motivation theory were found to be good enough for this study.

2.2. CONCLUSION AND GAP

st
In 21 -century, tax-related pieces of literature classified the fairness of taxation into
an assortment of dimensions aka general, vertical, horizontal, administrative,
exchange, personal, retributive and time-related fairness. Thus far, different tax
fairness, tax knowledge and tax complexity dimensions were infrequently addressed
in the Oromia region of Ethiopia. Moreover, no study considered the influence of
fairness perception, tax knowledge, tax complexity, attitude, subjective norm, tax
morale and behavioral control of taxpayers over their tax compliance behaviour in
Western Oromia of Ethiopia. Also, they generalized that citizens normally obey the
tax laws as much as the political process provided them with input as to how and to
what extent they are taxed; public officials served as good stewards of resources
generated by the tax system and most citizens perceived that tax burdens and benefits
were distributed in fair and equitable manners. Albeit, the issues of perception of tax
fairness and compliance behaviour continued to be the hub and the frequent agendas
CHAPTER TWO
of the governments, tax professionals, and researchers in developing countries
especially Ethiopia it lingers unsolved and cancer to the budget and economy of the
REVIEW OF LITERATURE
country. So far the importance of business profit taxpayers’ perception of fairness
and their tax compliance behavior, not overemphasized in the Oromia region of
Ethiopia,primarily western part. Looking on this ancestral problem in the Oromia
region, the study applied tax fairness and behavioral theories a.k.a. theory of equity,
distributive justice theory, procedural justice theory, retributive justice theory, theory
of planned behavior and intrinsic motivation theory because most of the prior studies
merely employed economic or psychological factors to assess tax compliance
behavior and fairness perception. Hence, this study attempted to investigate the
effects of these predictors over tax fairness perception of business income taxpayers
and their compliance behaviour in Western Oromia. The present study reduced the
holes towards tax fairness and compliance behaviour by investigating the business
profit taxpayers perception and behaviour depending on the dimensions of tax
fairness, knowledge,complexity, tax morale, attitude, subjective norm and behavioral
control.

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Page 50 of 289

CHAPTER THREE
RESEARCH METHODOLOGY
The present chapter intends to discuss the methodology utilized by a researcher to
address the main aim and question of the study. The research methodology was one
of the basic ingredients of the research and indicated the whole plan directed the
researcher in different phases of this work. Thereafter, it disclosed the research
philosophy, research design and population. Also, it offered sample size
determination, sampling frame, sample size, sources of data, methods of data
collection and analysis as well as interpretations.
3.0. NEED OF THE STUDY
Tax rules and regulations have been one of the critical aspects of country legal
system. Preserving the equity and fairness of the income tax legal framework is
imperative as it is the most crucial institutions and social agendas, economic, social
and political theories and realistic political philosophy. Thus, the designers of profit
tax rule frequently work on toning the efficient and effective implementations of
profits tax laws so as to mitigating unjustified antipathies within the society. Despite,
the major aim of the income tax is to collect adequate amount of public tax revenue
to fund the government expenditures, preserve socio-economic issues; enhance
distribution and allocation of the monetary resources; maintain the rules and
regulation as well as ascertain the extent of tax incentive, it is a must to enshrined the
fairness by principle of benefit, canon of ability to disburse; procedural justice;
retributive justice, distributive justice; fair tax incentives and objectives. Moreover,
the individual capacity to disburse income tax must vitally be viewed as the ability to
pay and reduce unfair perception meddling with the objectives that are considered
imperative by the measures of other people in the scrupulous tax environment.
Increasingly, since tax rules viewed as fair by taxpayers are essential to the economic
and political steadiness of the country, implemented fair tax rules against this
mysterious tax position is a remarkable matter. Nowadays, individual insights about
income tax system fascinated the attention of politician, economists, activists and
researchers throughout the globe in general and Western Oromia region of Ethiopia
such as Ambo, Nekemte, Gimbi, Dambidollo and Shambo towns in particular.
Consequently, based on the specific objectives for which profit taxes levied in
Western Oromia of Ethiopia, the ideas of perception of profit tax fairness and tax
compliance conduct are inescapably pervasive in nature and demanded gallantry
investigation. As per the best knowledge of researcher this is one of a single research
overtly available on investigating the business income taxpayers perception of tax
fairness; tax compliance behaviour, the regulatory framework of business income tax
rule and business tax revenue growth. Thus, the researcher is interested to narrow the
gaps by exploring factors influenced perception of fairness and its impacts on tax
compliance behaviour together with Theory of Planned Behaviour, tax morale,
knowledge and complexity in the context of business income taxpayers in Western
Oromia of Ethiopia. Also, the study will be the groundwork for the amendment of
the inequitable income tax system in the best interests of all stakeholders in the study
area.
3.1. OBJECTIVES OF THE STUDY
The overall objective of this study was to investigate the perception of business profit
taxpayers towards tax fairness and degree of their tax compliance behaviour in
Ethiopia emphasized on Western Oromia of Ethiopia, explicitly, Ambo, Nekemte,
Shambo, Gimbi and Dambidollo towns. Specifically, it addressed:-
1. To study regulatory framework on business profit tax system in Oromia region.
2. To study the growth of tax revenue regarding business profit taxpayer in Western
Oromia.
3. To observe business profit taxpayers opinions with regard to fairness perception,
tax knowledge, complexity of the income tax system and their compliance behaviour.
4. To investigate the influence of tax fairness dimensions, tax knowledge and
complexity of the income tax system on fairness perception of taxpayers in Western
Oromia.
5. To investigate the influence of fairness perception of taxpayers, tax morale, tax
knowledge, tax complexity, attitudes, subjective norm and percived behvioural
control on compliance behavior in Western Oromia.

3.2. RESEARCH QUESTION

In order to explore the main research problem, the focus of the research was on the
following main research question and three hypotheses.
How business income taxpayers in Western Oromia, Ethiopia perceived tax fairness
and compliance behaviour issues?
3.3. RESEARCH HYPOTHESES
The primary null hypothesis was designed to look into the levels of similarities and
disparities of the business income taxpayers perception concerning the fairness of
business income tax system, tax knowledge and complexity of the profit tax system
as well as compliance behavior as there were no similar studies on the same topics in
Western Oromia, Ethiopia. However, little studies were conducted to investigate
perception of taxpayers in limited areas of Ethiopia. For instance, only single study
was done to explore whether views of business income taxpayers in Addis Ababa
was identical on the magnitude of business profit tax fairness, tax knowledge and
complexity of the income tax system. Accordingly, the study pointed out that
taxpayers in Addis Ababa had dissimilar opinions toward fairness of the profit tax
system.
Moreover, previous studies conducted in both developed and developing countries
stated that perception of taxpayers about tax fairness, tax knowledge and complexity
of income tax system and compliance behavior varied due to level of economic,
social, cultural and geographical locations. Therefore, this study estimated that the
profit taxpayers in Western Oromia of Ethiopia had similar views concerned fairness
of the business income tax system as they were found in a single tax jurisdiction;
similar social, cultural, economic and political status. Evermore, preceding works
assessed levels of difference among taxpayers in different countries on perception of
tax fairness even though they found within divergent tax jurisdictions. So, it was
imperative to observe the level of perception on tax justice among business profit
taxpayers within an identical tax background. Consequently, as there was no similar
works in the selected areas the null hypothesis was recommendable. Eventually, this
research has abridged the gaps through contrast and tested the views of profit
taxpayers in diverse towns, but in the similar tax ecosystem via the following null
hypothesis.
• HO1: There is no significant difference among business profit taxpayers with
regard to the level of opinion of fairness perception, tax knowledge, complexity of
the income tax system and their compliance behaviour in Western Oromia.
Various theories (for instance, equity, procedural, distributive) and studies (such as
Ferry et al., 2015) on tax fairness suggested that general fairness; exchange fairness;
horizontal fairness; vertical fairness; retributive fairness; personal fairness and
administrative fairness are vital for evaluated perceived tax fairness of the taxpayers.
Accordingly, general fairness relates to an overall fairness evaluation of the income
tax system. On the other hand, exchange fairness was concerned with the reciprocal
exchange between taxpayers and the government, while horizontal fairness deals
with equal tax treatment among taxpayers in similar economic positions. In contrast,
vertical fairness assessed based on the ability to pay principal and preference for tax
rate structure, either flat rate or progressive rates. Retributive fairness was concerned
with the fairness of punishment imposed while personal fairness leads to an
individual judgment about whether the income tax system was favorable to them.
Lastly, administrative fairness was related to the content of the tax law (policy
fairness) and procedures employed by the tax authority (procedural fairness). Some
of the studies in the prior part investigated general knowledge; technical knowledge
and knowledge of legal sanctions were the three basic dimensions of the knowledge
that influence fairness perception of taxpayers. So, general knowledge related to a
broad idea of the income tax system like its purpose and tax structure. In other
words, legal knowledge emphasized on taxpayers knowledge of the regulatory
aspects of the income tax system such as the responsibility to submit their tax return
forms timely and the penalty for noncompliance. Lastly, technical knowledge
concerned with taxpayers ability to fill and file their tax return forms by themselves.
Studies (such as Loo et al., 2008) found different results concerned the influence of
tax knowledge on taxpayers business incomes tax fairness perception.
The preceding works documented mixture of the complexity of the income tax
scheme incorporated the computational, forms, compliance, rule and procedural
complexities and low level of readability that affected taxpayers perception toward
tax justice and suggested complexity in tax environment arise due to increased
sophistication. Even though this was tangible evidence for the role of tax fairness,
knowledge and tax complication dimensions in measured equity perception of the
taxpayers, as per my understanding the issue was not overemphasized in Ethiopia.
Astoundingly, as per my expertise no similar studies conducted in the Oromia region
specifically western part. Moreover, previous works accomplished in other countries
documented mixed opinions on the effect of these predictors over tax fairness
perception. Thus, as there was no enough evidence to come up with the extent of
their influence on business income taxpayers perception of tax justice in the western
portion of Oromia region of Ethiopia, the following null hypothesis was favorable.
❖ HO2: Tax fairness dimensions, tax knowledge and complexity of the business
income tax system do not have significant influence on business profit taxpayer's
fairness perception.
The third null hypothesis intended to look into the social and psychological factors
that affect the business taxpayers tax compliance behaviour because there was no
identical study on the identical matter in Western Oromia of Ethiopia. Nevertheless,
previous studies (such as Niway and Wondwossen, 2015 and Redae, 2016) carried
out in Tigray and Southern Ethiopia explored that the tax compliance behaviour was
considerably affected by few demographic, economic and psychological factors.
Besides, various theories (such as theory of planned behaviour, theory of intrinsic
motivation and theory of equity) and studies (for instance, Saad, 2011, Samuel, 2011
and Smart, 2012) on tax compliance behaviour recommended that perception of tax
fairness, tax knowledge, tax morale, the complexity of tax system, intention to
comply, attitudes, subjective norm and perceived behavioral control are essential for
evaluating the tax compliance behaviour of the taxpayers. Although this was
substantial evidence for the value of the predictors of the theory of planned
behaviour, intrinsic motivation and equity theories in measuring the tax obedience
behaviour of the business profit taxpayers, as per my experience the matter was
unnoticed in Ethiopia in general and Western part of Oromia in particular. Evermore,
earlier research works accomplished in other countries recognized mixed results on
the impacts of these predictors over tax compliance behaviour. Thus, as there was no
adequate evidence to come up with the magnitude of their influence on business
income taxpayers tax compliance behaviour in the western portion of Oromia region
of Ethiopia, the following null hypothesis was constructive.
❖ HO3: Fairness perception, tax morale, tax knowledge, tax complexity, attitudes,
subjective norm and perceived behavioral control towards compliance do not
have significant influence on business profit taxpayer's compliance behaviour.
3.4. SCOPE OF THE STUDY
The study was focused on investigating the fairness perception and tax compliance
behaviour of business income taxpayers in Oromia Regional State of Ethiopia, in the
western part particularly in the Wollega and West Shawa zones. The business profit
taxpayers of Category A and Category B were the targeted groups for primary data
collection in the study area. Moreover, the research was focused on assessing the
degree of business tax revenue growth between 2007-08 and 2016 -17 in Oromia
Region of Ethiopia, in the western part mainly in the Wollega and West Shawa zone
administrations. Evermore, the study examined the regulatory framework of the
business income tax in the study environment. Ultimately, tax general and operation
managers and tax audit team leaders were interviewed to further enrich the data.
3.5. RESEARCH PHILOSOPHY AND DESIGN
To address the main objective of the study, the mixture of positivism and non-
positivism basic research frameworks were used because the positivist approach was
stressed on empirical means (objectivity) to create the knowledge on the issues and
explore whether there were associations between the factors. On the other hand, the
non-positivism approach was more subjective in nature and presented a detail
understanding of association as well as helped the researcher to enhance the finding
from a perspective of a quantitative research approach. The mixed approach was
implemented to gather data that was not obtained by a distinct method. Further, the
researcher used the mixed method because in a quantitative method the investigator
utilized and tested the assumptions, questions and theories to create information on
the factors. Subsequently, a qualitative method was one in which the inquirer made
the knowledge claim depended on the constructivist points of view through the
connotation of the individuals encounters, social and verifiable ideas with the aim of
building up a hypothesis.
In this study, self-administer inquiries (quantitative instrument) was used to measure
the association among tax fairness dimensions; tax knowledge dimensions and tax
complexity dimensions; tax morale; attitudes; subjective norms; perceive behavioral
control (independent variable) and perception of fairness and their tax compliance
behaviour (dependent variables). In chorus, the fairness perception and compliance
behaviour which were the central issues of this work investigated through in-depth
interview with the tax authority at Nekemte, Gimbi, Danbi Dollo, Ambo and Shambo
towns of Oromia region, Ethiopia.
In the end, the study incorporated quantitative and qualitative research approaches to
utilize the advantages of both techniques as the major concept of this study wasn't
realized by a single method. More subtly, the researcher used the twin research
approach for the reason that it enabled one method to update another method either
in design or in the interpretation of the research outputs.
3.6. SOURCES, TYPE AND COLLECTION OF DATA
A. Sources and type of data
Both primary and secondary sources of data were used in the study. It adopted the
primary sources of data via survey research instrument because it was essential when
the investigator was not obtaining demanded data from the secondary sources. The
study further desired in primary data regarded socio-physiological features such as
attitude; perception; interest, knowledge, intention, motivation and behaviour of the
profit taxpayers. The primary data included piece of information obtained through
self-administered questionnaire and in-depth interview, whereas secondary sources
incorporated constitution, proclamations, journals articles, tax reports, tax manuals
and webpages. Generally, the sources and the kind of data utilized by the researcher
considerably determined the reliability and validity of data as well as the quality of
the outputs.
B. Data collection instrument
The questionnaire was the method for drawing out, recording, collecting information
and useful when the researcher wishes to gather a large amount of factual and
simplistic data quantified and made into statistical evidence (Creswell, 2003). Hence,
the data was collected by means of self-administered questionnaire whereby a
combination of close and open-ended as well as likert scales was found to be suitable
methods for data collection. The use of self-administered questionnaires had many
advantages like time-saving; cost-wise and not required as many skills to administer
questionnaires in interviews (Sekaran, 2010). Auxiliary, the study was used certain
tax fairness, knowledge and tax complexity dimensions to measure business income
taxpayer's perception of fairness. The items of every measurement tested by 5-point
likert scale, whereby 5=strongly agree; 4=agree; 3=neutral; 2=disagree; 1=strongly
disagree. In general, the study used questionnaires because it helped a researcher to
contrast the participants even personally given that participants provided identical
questions. More delicately, it facilitated the quality of data and made data process
becomes easier.
Likert scale used to observe certain response patterns to examine whether there was a
problematic response set that emerges as indicated by restricted variability in
responses (Marczyk et al., 2005). The researcher classified an ordinal scale into five
for both dependent and independent variables. Accordingly, the perception of
fairness measured by five ordinal scales extended from "very fair" to "very unfair"
whereas tax compliance behaviour evaluated by five ordinal scales extended from
"very high compliant behaviour" to "very low compliant behaviour". The tax
knowledge evaluated by five ordinal scales extended from "very insufficient" to
"very sufficient" whereas tax complexity evaluated by five ordinal scales extended
from" very high complicated" to "very low complicated". In spite of the self-
administered questionnaires, this research employed in-depth interview to presented
sufficient information to the data obtained through the survey questionnaires.
Besides, the study has selected this method due to the sensitivity of the environment
of fairness perception and tax compliance behaviour. These question was formulated
with reference to the topic predominately tax fairness perception; tax knowledge; tax
complexity; tax morale, subjective norms and compliance behaviour. Moreover, the
questionnaire was divided into three segments. Firstly, it indicated general
information about the respondents and their comments on fundamental subjects of
the study. Secondly, it intended determinants of fairness perception and compliance
behaviour. Thirdly, it deals with interview questions provided to the fifteen revenue
officers. After that, the questionnaire adopted from research works of Abroat (2011),
Saad (2011) and Smart (2012). Eventually, to check the reliability and validity of the
instruments, the researcher applied pilot test and Cronbach's alpha as it enshrined
reliability and uniformity of the measurements.

3.7. SAMPLING TECHNIQUES AND SELECTION

It was the common practice in research to use the sample to generalize about the
targeted population. Thus, the target population for this study comprised groups "A
and B" business income taxpayers in the Western Oromia, Ethiopia. According to the
revenue departments at a selected atmosphere, there were 2,420 categories A and B
taxpayers. Hence, the study utilized a multi-stage proportionate stratified sampling
method because it guaranteed that all characteristics in the population are reflected in
sample drawn and size. Based on zone administration, participants are stratified into
Kellem Wollega, Horroguduru Wollega, East Wollega, West Wollega and West
Shewa. After that, depended on the city administration, they stratified as Nekemte,
Gimbi, Dambidollo, Shambo and Ambo towns. Gradually, the researcher classified
them as manufacturing, merchandising and service giving business. Eventually, each
sector grouped as "A" and "B" business profit taxpayers. Finally, the representative
of the population was randomly selected from each band.
Table 3.1
Sample Frame of the Research Work
S/N Municipal Category “A” Income Category “B” Income Total
administration Taxpayers Taxpayers
1 Gimbi 113 230 343
2 Nekemte 396 680 1076
3 Dambidollo 75 120 195
4 Shambo 75 78 153
5 Ambo 394 259 653
GrandTotal 1053 1,367 2420
Source: Revenue authority
The total of 300 participants were deliberately selected from all stratum and
objectively and proportionally placed among groups of population based on the
following reasons: The first reason was its bigger population of 2,420 registered
Category A and B business income taxpayers in the Western Oromia which may
make it tricky for the researcher to administer; the second justification was the fact
that business taxpayers consists of the entire sectors from a variety of forms of the
business organization, specifically partnership, sole proprietorship and corporation;
thirdly, it has an opportunity to include a more different stratum, including the
manufacturing, service providing and merchandising businesses in various areas of
Western Oromia Zones such as West Wollega, East Wollega, Kellem Wollega,
Horroguduru Wollega and West Shawa and the fourth reason was that the selection of
sample size was frequently made in view of statistical meticulousness, practical
matters, and geographical distance, existing effort, cost and time. Moreover,
multistage-stratified-proportionate size determination was used because the method
is usually used where the probability of a unit being selected is proportional to the
size of the ultimate group, giving higher stratum a higher chance of selection and
smaller stratum a lower possibility. In this study the subsequent formula from Abroat
(2011) was employed in addition to a variety of methods for determining the proper
sample size.

But, the researcher distributed questionnaires to 320 profit taxpayers to augmented

response or else diminished low response rate from the inadequacy of data. Table 3.2
indicates the entire procedure of sample size determination and selection. It also
highlights the total number of business income taxpayers in Western Oromia. It can
be seen from the table that the variable of interest was category of business income
taxpayers in the five town administrations.
Table 3.2
Procedure of Sample Determination
S/N Proportion Sample size Category Towns
1 396/2420 x 300 = 49 Category “A” Nekemte
680/2420 x 300= 85 Category “B” Nekemte
2 113/2420 x 300 = 14 Category “A” Gimbi
230/2420 x 300= 29 Category “B” Gimbi
3 75/2420 x 300= 10 Category “A” Dambidollo
75/2420 x 300= 10 Category “B” Dambidollo
4 75/2420 x 300= 10 Category “A” Shambo
78/2420 x 300= 11 Category “B” Shambo
5 394/2420 x 300= 49 Category “A” Ambo
1. 259/2420 x 300= 33 Category “B” Ambo
Total 2420 300
Source: Revenue authority
To address the second objective, the researcher used 10 years tax report of the town;
federal and Oromia region revenue authorities starched from the monetary years of
2007-08 to 2016-17. The study just focused on tax report of a decade as there was no
organized data towards profit tax in Oromia region in general and western part in
particular in the subsequent years due to political, economic and social unsteadiness.
For the purpose of the interview, the researcher intentionally selected 15 tax officers
from the five tax departments in Western Oromia because each office is administered
by three persons, namely tax general and operation managers and tax audit team
leaders. The officers were interviewed to further check if there was any substantial
disparity on tax fairness perception and tax obedience behaviour among the revenue
administers and profit taxpayers in Western part of Oromia. Moreover, tax general
and operation managers and tax audit team leaders were interviewed to further enrich
the data.
3.8. METHOD OF DATA ANALYSIS AND PRESENTATION
For the purpose of data analysis and presentation, the study used appropriate data
analysis methods and tools such as descriptive and inferential analysis executed by
SPSS-24, STATA-12 and excel.
3.8.1. Descriptive Analysis
Descriptive analysis employed to measure the characteristics of the variables. It
presented the data in a logical and meaningful way by percentage, frequency, mean,
standard deviation, graph plus table. Thus, descriptive analysis was provided initial
notions on how the business income taxpayers perceived income tax law primarily
business income tax in contexts of tax fairness; tax knowledge; tax complexity; tax
morale and tax compliance behaviour. The frequency and percentage were computed
on demographic information and personal opinion about tax fairness, knowledge,
complication, tax morale and tax attitude, intention to comply, subjective norm and
perceived behavioral control presented in the form of tables and graphs. Afterwards,
the mean and standard deviation are calculated with SPSS-24, STATA-13 and excel
tools.
A. Mean
It was the most universal measure of central tendency and value which the researcher
obtained by dividing the total of the values of various given constructs in a series by
the sum of constructs. It's calculated by the following formula.

B. Standard deviation
It was one of the extensively used methods to evaluate the distribution of sequence
and the square root of the average of squares of deviations obtained from the
arithmetic average. Hence, it computed by the following formula.

​
C. Revenue growth rate
The tax revenue growth rate is employed to compute trend of the government
revenue collected from the business income taxpayers in the form of income tax and
other tax revenue stretched from 2007-08 to 2016-17. Therefore, the study used the
following formula:

​
Where,
RGP= Tax revenue growth percentage,
X1 = Amount of tax revenue in current periods,
X2= Amount of tax revenue in the prior period,
N= Number of years ​
D. Exponential Growth Rate
It is the cumulative growth rate computed for a particular period on the basis of the
value of a parameter for entire years.

Where,
EGR= Exponential growth rate
Exp= Exponents of the computed value
lnbf= lan of final value
lnai= lan of initial value
t= period
1=constant
E. Average Weighted Scores
The average weighted scores have been computed by assigning weighted as 1, 2, 3,4
and 5 to very unfair, unfair, neither fair nor unfair, fair and very fair. The same
weighted applied for tax compliance behavoiur, knowledge and complexity. The
formula is depicted as follows:

W= Average Weighted Score

Σ= Symbol for summation
w= Weight given to an attribute
fw= Number of respondents attached weight to the attribute
3.8.2. INFERENTIAL ANALYSIS, VARIABLES AND MODELSPECIFICATION
With regard to inferential analysis, one way ANOVA, F-test, z (t) test, p>z (p) and
Kendall's correlation matrix analysis were used to check whether the respondents had
distinct otherwise similar opinion on the level of profit tax fairness and compliance
behaviour and the predictors considerably affected dependent variables. Furthermore,
they are employed to measure correlation between predictors and observed variables.
3.8.2. 1. Regression analysis
This study applied an ordered logistic regression model since it discovered the
business income taxpayer tax fairness perception and compliance behaviour. The
ologit was utilized to foresee an ordinal endogenous variable given at least one gratis
exogenous factor. Also, it used any variables of interest as ordinal that researcher
ranked based on their values, but the real distance between the categories was
unidentified and one or more of the independent variables are continuous, categorical
and ordinal (Das and Rahman, 2011). Supplementary, the study applied this model
because it envisaged the perception, behaviors and belief of the taxpayers subject to
business income tax laws. More and more, the ordinal dependent variable had
measured on 5-point likert scales based on the general fairness; vertical fairness;
exchange fairness; horizontal fairness; personal fairness; administrative fairness and
retributive fairness; general knowledge; legal knowledge and technical knowledge;
compliance complexity and content complexity; tax morale; tax attitudes; subjective
norm and perceived behavioral control.
The study further used ordered logistic regression to rank values based on perception
of profit taxpayers concerned tax fairness and obedience behaviour and responses are
collected and reported as ordered categories. Likert scale observation mainly survey
respondents had asked to rate level at which they disagreed or agreed with the given
statements on the scales extended from 5 to 1. In the end, it implemented this model
since the model of ordered categorical data is oftentimes more parsimonious than
models of the general multinomial data.
The model is provided with a list of log-likelihoods at the end of the whole iterations
and used the maximum likelihood for estimation. So, the primary (0) and next
iterations realized the log-likelihood of unfilled model with the predictors. Besides, it
realized the number of observations implemented in the ordered logistic regression
model (Bruin, 2006). The output was provided with the coefficients, standard errors,
z (t) -tests and associated p-values and confidence interval. In the ologit model, the
probe > chi2 has represented the probability of the obtained likelihood ratio test
measurement. The parameter of the Chi2 distribution used to test the null hypothesis
was defined by the degree of freedom in the line, Chi2 (). This was the log-likelihood
of the fitted model and used likelihood ratio of Chi2 whether all predictors regression
coefficients in the model were simultaneously zero and in tests of nested models.
Consequently, the study used the following ordered logistic formula adopted by
Williams (2019).
a) The continuous latent variable Y* formula in ordered logistic regression model

Where,
Y*= Functions of another variable, not measured
K = Parameters that need to be estimated
κ = Greek letter Kappa denote various threshold points of continuous variables, Y*
β= Coefficient of the ith predictors
X= Predictors in the model
e= Residual error term
b) The Ordered Logits Model estimates part of the above,

Where,
Z= Predicted Values
K= Parameters that need to be estimated
β= Coefficient of the ith predictors
κ = Greek letter Kappa denote various threshold points of continuous variables, Y*
c) It has been used to estimate the probability that the unobserved variable Y* falls
within the various threshold limits.

Where,
Y= Observed ordinal variable
Xi= Predictors variables in the model
Exp= Exponents of parameters
P= Probability of Yith
M= Threshold parameters
K = Parameters that need to be estimated
β= Coefficient of the ith predictors

M-1= Cutoff terms to estimate the probability that Y will take on a particular value.

d) Chi-Square
The study used the Chi-square test statistics to measure model fitness, disparity
between the sample and fitted co-variances matrices and hypothesis as well as the
difference between observed and expected values of every group of parameters in
the model.

Where,
= Chi2 estimate
O = Observed frequencies
E = Expected frequencies
3.8.2.2. Variable specification
3.8.2.2.1. Specification of dependent variables
The dependent variables of this study included the perception on tax fairness and tax
compliance behaviour.
A. Tax fairness perception:
It was insights and feelings of the business income taxpayers pertaining to the extent
of equity of Ethiopia and Oromia income tax system. More subtly, it was the feelings
of business income taxpayers on whether fair or unfair aspects of the income tax
system are influenced by their prior experiences, information and resentments.
B. Tax compliance behaviour:
It was a tax condition takes place when all the necessary tax returns filed at the right
time and the return forms truthfully stated taxable income according to the tax codes,
directives, rules and court decisions pertinent when the return is filed.
3.8.2.2.2. Specification of independent variables
A. Tax fairness perception:-It was operationalzed and measured with the general
fairness, exchange fairness, horizontal fairness, vertical fairness, retributive fairness,
personal fairness, administrative fairness; general knowledge, legal knowledge,
technical knowledge; compliance complexity and content complexity.
B. Tax compliance behaviour: - It measured by the tax fairness perception, attitude,
tax knowledge, tax complexity, tax morale, subjective norms and behavioral control.

3.8.2.2.3. The operational definition of independent variables

Table 3.3
Operational Definition of the Exogenous Variables
SNO Name Code Meaning Expected
Result
1 Horizontal HFR Equal taxation of equal returns. +
Fairness
2 Vertical VFR Higher taxation of higher returns. +
Fairness
3 General GFR Taxpayer’s judgments on whether or not the tax system +
Fairness was generally fair.
4 Retributive CHAPTER THREE
RFR Fairness of punishments if taxpayers disobey. +
Fairness
5 Exchange RESEARCH METHODOLOGY
EFR Fairness of benefit relative to taxpayer’s contributions. +
Fairness
6 Personal PFR Perception of whether or not the tax system convenient to +
Fairness him or her.
7 Administrative AFR Fairness of tax policy and procedures. +
Fairness
8 General GKE A broad idea of taxpayers on the income tax system. +
Knowledge
10 Legal LKE Taxpayer’s knowledge of the regulatory aspects of the +
Knowledge profit tax system, such as responsibility to submit their
tax return forms timely and penalty for non compliance.
11 Technical TCH Taxpayers ability to fill and file their tax return forms by +/-
Knowledge themselves.
12 Compliance COP The process of keeping records, filling tax return forms +/-
Complexity and making tax payments.
13. Content CTEN The complexity of the documents and relevant tax laws. +/-
Complexity
14 Attitude ATT Taxpayer’s evaluation of performing the behavior, which +/-
often contains affective and instrumental attitudes.
15. Subjective SB Refers to taxpayer’s perception of the expectations of the +/-
Norms people who were important to him or her, whether he or
she should or should not comply with tax laws or
perform certain tax behaviour.
16 Behavioural PB Taxpayer’s perception of how easy or difficult he/she +/-
control perform the tax compliance behaviour.
17 Tax Morale TM The intrinsic motivation of taxpayers to acts or not to act +/-
on unpleasant tax conditions.
18 Instrumental ISA Indicate a more cognitive consideration to which +/-
Attitude executing particular behaviour would be beneficial.
19 Affective AFA Deals with emotions like feeling happy, sad or guilty, if
Attitude accomplishing particular behaviour.
Source: Assembled from the literatures

3.9. CONCEPTUAL FRAMEWORK

The conceptual framework of tax fairness perception depended on key dimensions of
tax fairness, knowledge and complexity. On the other hand, the conceptual
framework of tax compliance behaviour depended on perception of fairness, tax
knowledge, complexity and morale and the indicators of the theory of planned
behaviour identified in the portion of the review of related literature. Thus, the initial
diagram pointed out the influence of general fairness, vertical fairness, exchange
fairness, horizontal fairness, personal fairness, administrative fairness, retributive
fairness; general knowledge, legal knowledge, technical knowledge, content and
compliance complexities on perception of tax fairness.
Figure 3.1
Factors Affected Perceived Tax Fairness Perception
 Source: Adopted from Saad (2011)

With reference to tax compliance behaviour, the theory of planned behaviour stated
that attitude, perceived behaviour control and perceived subjective norms persuaded
the actual behaviour of individuals through their intention to comply. Even though
this the facts, the current study investigated the direct influence of attitude, perceived
behaviour control and subjective norms together with the perception of tax fairness,
tax morale, tax knowledge and complexity over their tax obedience behaviour.
Likewise, the study realized whether attitude, perceived behaviour control and
subjective norms of the profit taxpayers directly affected their tax compliance
behaviour. The rationale for an investigated the direct influence of these variables
over tax compliance behaviour was that previous studies simply looked at pressure of
attitude, perceived behaviour control and perceived subjective norm on tax
compliance behaviour in intention to obey. Subsequently, most of them merely
recognized the significant influence of attitude and subjective norm on tax
compliance action of taxpayers. Thus, the next conceptual framework revealed the
effect of fairness perception, tax knowledge, tax complexity, attitudes, subjective
norm, perceived behavioral control and tax morale on tax obedience behaviour.
Figure 3.2
Factors Affected Tax Compliance Behaviour

Source: Modified from Ajzen (1991)

3.10. MODEL SPECIFICATION
The probability of the tax fairness perception was the function of general fairness,
vertical fairness, exchange fairness, horizontal fairness, personal fairness,
administrative fairness, retributive fairness, general knowledge, legal knowledge and
technical knowledge, compliance complexity and content complexity. Moreover, the
probability of compliance behaviour was the function of perception of tax fairness,
tax knowledge, tax complexity, tax morale, attitudes, subjective norm and perceived
behavioral control.

Under the following models xi were represented factors that affected perception of
fairness issue and tax compliance behaviour for i=1, 2...12 and 1, 2….6 respectively.
The initial model used to look at the relationship among general fairness, vertical
fairness, exchange fairness, horizontal fairness, personal fairness, administrative
fairness, retributive fairness; general knowledge; legal knowledge and technical
knowledge; content complexity and compliance complexity and dependent variable
(perception of tax fairness). However, the study was divided the primary model into
three to observe an individual influence of dimensions of tax fairness, tax knowledge
and tax system complexity on the profit taxpayers perception of tax justice. Also, the
model utilized to investigate the extent of correlation among variables. In the end, the
model was adopted from Saad (2011) and Abroat (2011). With reference to a
qualitative aspect of information, data collected through the interview was analyzed
qualitatively.
Model “A”: TFP = α0 + β1 X1+ β2 X2 + β3 X3 + β4X4 + β5X5 + β6X6 + β7X7 +ei
Where, TFP= Tax Fairness Perception; βi=Coefficient for Xi
X1= General Fairness X4= Retributive Fairness
X2 = Personal Fairness X5= Horizontal Fairness
X3= Vertical Fairness X6=Administrative Fairness
X7 = Exchange Fairness ei= Residual errors

Model "B": TFP =α0 + β1 X1+ β2 X2 + β3 X3 +ei

Where,
TFP= Tax Fairness Perception, βi= Coefficient of Xi,
X1= General Knowledge X2 = Legal knowledge
X3= Technical knowledge ei= Residual errors
Model "C": TFP = α0 + β1 X1+ β2 X2 +ei
Where, TFP= Tax Fairness Perception, βi= Coefficient of Xi
X1= Compliance complexity X2 = Content complexity
ei= Residual errors
Regarding the tax compliance behavoiur, the first model is used test the influence of
perception of fairness, tax morale, attitudes, subjective norm and behavioral control
on their tax compliance behaviour while the second model is used to evaluate the
influence of tax knowledge and tax complexity over their tax fulfillment behavoiur.
Model 1: TxCB= α0 + β1 X1+ β2 X2 + β3 X3 + Β4 X4 + β5X5 + ei
Where, TxCB =Tax compliance behaviour, βi= Coefficient of Xi
X1= Fairness perception X4= Tax morale
X2= Subjective norm X3= Attitude
X5= Perceived behavioral control ei= Residual term
Model 2: TxCB= α0 + β1X1+ β2X2+ei,
Where,
TxCB =Tax compliance behaviour
βi= Coefficient of Xi
X1= Tax knowledge
X2= Tax complexity

3.11. SCALE AND EXECUTION OF QUESTIONNAIRES

3.11.1. Scale of measurement
There are four types of measurement scales namely nominal, ordinal, interval and
ratio scale Nardi (2006) and Chan (2013) explained nominal scale as a characteristic
which had no numerical or order meaning. Further, ordinal scale refers to data which
can be arranged in a certain order. The number assigned to each group can illustrate
the hierarchy among the groups. Likert scale was one of an ordinal scale. Thus, the
researcher applied a 5-point likert scale in order to gather the relevant data regarding
basic variables of research. However, to analyze the items of measurement of each
variable, the average score of each variable was needed. By then, the figure derived
from the SPSS-24 had transformed in to an interval scale, a scale which had
mathematical and numbered properties can be counted (Nardi, 2006). At last, the
study was selected the likert scale, because it is easy to use and manage; respondents
can easily understand and correctly answer the basic questions. Auxiliary, there was
higher reliability of data collected through a likert scale.
3.11.2. Execution of questionnaires
The research merely applied the self-administered questionnaire to collect data from
the selected business income taxpayers in Western Oromia. The reasons were that the
participants are not ready to accept other forms of data collection instruments as they
were traders and busy for their own purposes and simplicity. Additionally, most of
the participants had no sufficient knowledge to fulfill the required pieces of
information. The questionnaire classified into three segments. Firstly, it was used to
collect general information from respondents and their annotations on the justice of
profit tax, tax knowledge, complexity, and compliance behaviour. Secondly, it was
focused on a lot of data about the perception of business income taxpayers regarding
the fairness of profit tax, a framework of tax complexity and tax knowledge and
compliance behaviour. Thirdly, the study used an in-depth interview to amassed data
from fifteen managers of the selected towns’ revenue authorities.
Even though the researcher has desired to collect data from three hundred business
profit taxpayers, the questions personally delivered to 320 business income taxpayers
in key towns of Western Oromia, Ethiopia to the increased reliability and validity of
data. Further, the taxpayers asked for the adequate time to complete these questions.
The majority of them demanded an average of three months to complete the
questions in response, a researcher personally allocated questions to each participant.
Increasingly, the investigator sustainably verified with the participants and requested
them if they started, filled and completed these questions.

Prior and after distributed questionnaire, the researcher checked the instrument and
backed to participants due to uncompleted questionnaire, part of pages were missing;
little discrepancy between responses, quite fabricated responses, unreadable answers
and responses pattern. Out of 320 questionnaires distributed to the participants the
researcher only considered 300 for data analysis. Initially, the number of inadequate
responses was 30 which was less than the actual sample size needed for the final
work. Therefore, the researchers edited the data and returned to the area in ordered to
adjust five inadequate responses from the profit taxpayers at Ambo, Nekemte, Gimbi
and Dambidollo towns and replaced by neutral values. Once the response reached
maximum threshold, the researcher discarded the extra 20 questionnaires added to
advance the dependability of the instruments.
After the data was collected it is must for the researcher to translate them into a more
viable form for analysis via appropriate data processing techniques. The researcher
used data processes, particularly validated the data, checked questionnaires, edited
acceptable questionnaires, coded the questionnaires, transcribed data, cleaned data,
established data, statistically adjusted the data, stored data and analyzed data to make
the data ready for analysis and interpretation. Validity exists when data measured
what they are supposed to measure. If they failed to do so they mislead and not
accepted (Hair et al., 2010). Therefore, to reduce the vagueness and ambiguity, then
enshrine the validity of the instrument, the study applied pilot test. Evermore,
Cronbach's alpha coefficient had executed to evaluate the reliability and uniformity
of measurement in the constructs. At long last, the researcher assigned code for the
total indicators to measure the subjects of study like strongly agree (5), agree (4),
neutral (3), disagree (2) and strongly disagree (1).

3.12. LIMITATION OF THE STUDY

Even though the study was tried to dealt with the issues of tax equity, tax knowledge,
the complexity of income tax laws and tax obedience behaviour, it might have the
following shortcomings: -
1. There may be biasness in the information given by the participants regarding
some questions;
2. The essential features were identified from an extensive literature review, but
some fundamental features may be missed as perceived by the taxpayers and
revenue officers;
3. The taxpayers and tax officers may have concealed the facts due to the nature
of taxation and secrecy standards;
4. Some of the business income taxpayers have not cooperated and assisted in the
filling of the questionnaire forms;
5. To cover the whole taxpayers in Oromia region of Ethiopia can be difficult to
the researcher to certain extent; and
6. There can be more aspects of tax fairness, tax knowledge, tax system
complexity and tax compliance which may be missing in this research.
3.13. THE SCHEME OF THE STUDY
The study classified into eight chapters. These were:-
Chapter-I: Introduction: This part indicates an overview of the subjects of the
study specifically tax fairness perception, tax compliance behaviour, tax morale,
regulatory framework and tax revenue growth rate as well as a scenario of study area.
Chapter-II: Review of Literature: This portion presents a theoretical structure
applied to achieve the objective of the thesis. Further, it revealed a brief examination
of the earlier works on the essential subjects of the paper chiefly perception of tax
equity, compliance behaviour, tax knowledge and scheme of tax complexity and
morale.
Chapter-III: Research Methodology: Under this section, an investigator presented
research philosophy and design; sampling technique, methods of data compilation
and analysis; kinds of data sources; aim, importance plus constraint of the study.
Chapter-IV: Regulatory Framework: It indicates a write examination and
discussion towards the regulatory structure on the income tax exclusively business
income tax practiced in western Oromia, Ethiopia.
Chapter-V: Business Tax Revenue Growth Rate in Western Oromia: This part
discloses the extent of tax revenue collected in a decade from the taxpayers, mostly
business profits taxpayers in the western part, Oromia, Ethiopia.
Chapter-VI: Tax Fairness Perception: This piece presents output on the views of
business income taxpayers on dimensions of tax fairness; knowledge and complexity
and their influence on perception of tax fairness in western Oromia, Ethiopia.
Chapter-VII: Tax Compliance Behaviour: This part reveals result in the sights of
business income taxpayers towards compliance behaviour and the factors influenced
their obedience actions in western Oromia, Ethiopia.
Chapter-VIII: Summary, Conclusion and Recommendations: In this segment, the
researcher provided a summary of findings, conclusion and suggestion on the
findings of the thesis.

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Page 77 of 289
 CHAPTER FOUR
REGULATORY FRAMEWORK ON BUSINESS
INCOME TAX
In this chapter, the researcher examined the regulatory framework on business profit
taxes of Oromia region, Ethiopia. Notwithstanding a topic was realized as one of the
major public agendas in Oromia region, to the best of my information no comparable
studies executed on regulatory framework of income tax mostly business income tax.
So, this portion initiated to lessen the gaps by investigating the regulatory framework
of the income tax,mainly business profit tax in the milieu of Western Oromia. For the
intent of this part, the study implemented a qualitative research approach as it has
gathered the data from proclamations, regulations, articles and webpages related to
income tax.
4.0. CURRENT DEVELOPMENTS IN PROFIT TAX FRAMEWORK
The Ethiopia, Oromia national regional government frequently adjusted the income
tax so as to increase revenue and expenditure capacities, tax services, capital
accumulation and self-finance capability of public projects as well as poverty
reduction throughout the country. Thus, the government has changed the structure of
profit tax administration; income tax collection procedures and regulatory framework
towards income tax. More importantly, the government has undertaken diverse
improvements with regard to the regulatory framework of income tax fundamentally
business income tax encompassed the new income tax proclamation no’s 202,203
and 979; introduction of schedule “E” of exempted incomes represented the business
revenues freed from the business profit tax and other tax. Moreover, the recent
development regarding the income tax, principally business income tax of Oromia
region of Ethiopia is disclosed adoption of BPR, IFRS, cash registered machine, e-
tax system, TIN, SIGTAS, the establishment of the Ministry of Revenue, the
separation of Oromia Revenue Authority from the Bureau of Finance and Economic
Development of Oromia, management fees, tax incentive, single window services of
taxpayers and upward reform of the excise tax structure. Generally, the government
has executed several tax reforms in relation to direct tax and indirect tax for the
intent of increasing domestic revenue and decreasing the extent of illicit business as
well as public debt.
4.1. PERSPECTIVE OF PROCLAMATIONS No. 979-2016 AND 202-2016
The Federal and Oromia region income tax proclamation no 979-2016 and 202-2016
has been implemented in Ethiopia and Oromia since July-2016. Hence, the content
and structure of the income tax regulatory framework of the two levels of regime was
very analogous because the regional’s tax system is derived from the central state.
The only difference among the two regulatory frameworks was the language and
logical order of articles and sub-articles. Proclamation no. 202-2016 separated into
eleven parts. Initially, it indicated general concepts such as definition, category of
taxpayers, establishment and residence, sources of incomes, scope, schedule and
obligations of the income taxes. Secondly, it discussed Schedule “A” of an
employment income tax, the imposition of the tax, rates and taxable income. Thirdly,
it recognized Schedule “B” of rental income tax along with the ways of tax, rate,
taxable income, sub-leases and notification for rent of a new building. Fourthly, it
presented Schedule “C” business income tax. In view of that, this schedule is divided
into six chapters. The First Chapter indicated ways of imposing a tax on business
profit, tax rate, taxable income, allowable and disallowable expenses and loss carry
forwards. The Second Chapter disclosed accounting system of categories “A and B”
business profit taxpayers, adjustment of system, financial institutions, insurance
companies, doubtful expenses and long term contracts. The Third Chapter described
about corporation, change of management of a company and reorganizations.
Chapter Four of this schedule indicated the meaning of mining and petroleum
operations; contractors, licensees, constraint, deductions on exploration,
development, rehabilitation, reinvestment and indirect transfers of ownership rights.
Chapter Five of this schedule provided global tax like foreign tax credit on foreign
incomes, losses, thin capitalizations and treaties. The Sixth Chapter of the business
income tax pointed out presumptive profit tax and tax on global air transportation
and business residences. The fifth part of the proclamation revealed Schedule “D” of
withholding tax. So, it showed other income tax that imposed on none resident’s
technical fees, royalties and entertainers. Additionally, it noticed royalties, dividends,
interests, income from games wing, causal of rentals, gain on disposal of particular
investment assets, windfall income, repatriated income and other incomes. The sixth
part of the proclamation disclosed Schedule “E” of an exempted income. In part
seven, the proclamations explains common provisions on the acquisition, disposition,
costs, book value, consideration, deferral gain and losses on fixed assets, registration
as well as transfer of assets. In part eight, it disclosed how to alleviate tax
malpractice such as tax avoidance and tax evasion happens related to the business
profit and transfer pricing. In section nine, it pointed out tax administration
procedures and standards on bookkeeping of profit taxpayers, declaration, profit tax
assessment, profit tax disbursements, improvement of import and profit tax imposed
against the global air transportation. In the end, this edict uttered regulations,
directives, appeal procedures and transitional provision as well as effective date on
the income taxes. More subtly, in this piece, the researcher empirically investigated
the regulatory framework on the Schedule “C” of Business Income Tax of Oromia
region in the context of Western Oromia, Ethiopia.
4.2. NATURE, STRUCTURE AND CHALLENGES OF BUSINESS PROFIT TAX
4.2.1. Nature of Oromia Region Profit Tax Regulatory Framework
The regulatory framework on the profit tax was an arrangement of the legal system
of an independent state that comprised of the rules and regulations, legal procedures
and organizations irrespective of the extent of legal institutes and an advancement of
state’s legitimate scheme. Therefore, the income tax mainly business profit tax
system of Oromia, Ethiopia was vigorous as it was filled with the profit tax
assessment, collection, procedures, audit, judgment, proclamations, constitution and
administration. Currently, Ethiopia applied fiscal federalism under which the powers
of government were shared among the federal, nine regional governments and two
city administrations. For that reason, the revenue administration offices are divided
into two explicitly federal and regional revenue authorities. The regional revenue
administration was subjected to regional’s council while federal revenue
administrations were accountable to the Ministry of Revenue and people's
representative. Furthermore, the power of taxation mainly business income tax is
classified as federal, regional, concurrent and undesignated powers of tax. Thus, the
revenue authority of Oromia regional government is formed to govern the whole
direct tax and indirect tax under the jurisdiction of the region included western
division.

The major income tax, mainly business income tax system of Oromia region,
Ethiopia, originated from three sources explicitly legislative, executive and judiciary
structure of the government. Hence, they required to devise and preserved fair
income tax system that maintain the equal distribution of tax revenue, improve
economic development, boost services of the taxpayers and reduce illegitimate
business. Increasingly, the income tax regulatory framework explained that the share
of tax revenue mainly business income tax between the federal and regional regimes
should be executed in line with the canons of independence, equity, uniformity,
adequacy, integration, coordination, economy, efficiency and accountability. So, the
direct tax and indirect tax are distributed among the two levels of government in line
with Articles 96, 97, 98 and 99 of the country's constitution.
Table 4.1
Tax Power of the Federal and Regional Governments
Articles Tax jurisdiction
 96 Federal government tax power
97 Regional government tax power
98 Concurrent power of tax
99 Undersigned power of tax
Source: 1995 FDRE Constitution
Table 4.1 disclosed Articles 96, 97, 98 and 99 relating to federal, regional, concurrent
and undesignated powers of taxation in turn. This constitution indicated three
principles that the government used to allocate income tax revenue among the two
levels of states. The first principle expressed that taxes which had inter-state base
imposed by union administration. Secondly, it expressed that tax with local base that
are imposed by the state administration. Thirdly, it affirmed the exclusive powers to
federal state on income tax not presented either under state or concurrent tax groups.
Fourthly, it disclosed undesignated power of income and other taxes approved by the
council of minister if needed.
As a result, federal government’s revenue authority had the power to collect profit
tax from the international business, personal income tax and the chance of winning
prizes, profit tax from air, train and marine transport activities. Additionally, the
central government collected an employee income tax, sales taxes and other taxes
from own organizations, private limited company included partnership and
corporations across the country,mainly Western Oromia. On the other hand, the
revenue authority of Oromia regional state included western part collected business
profit tax and other tax from the business enterprises and sole traders within a region.
Albeit the second principle provided income tax with a local base to regional state,
various numbers of enterprises actively worked in the regional state, especially
western area willingly or unwillingly paid business profit tax to the federal revenue
departments and other regions.
The Oromia Regional State Constitution of 1995 Article 47 stated that state regime
had the powers to collect employee income, rental, properties, profit, personal
income and sales tax from enterprises owned by the regional government; rural land
use fee, agricultural income tax from farmers not incorporated in an organization; tax
on income from inland water transportation, royalty and rent of land collected from
mining activities, charges and fees on licenses and services issued by a region. This
shows that Oromia regional government’s revenue authority merely collected income
tax from small and micro scale enterprises, sole proprietorship and partnership not
organized in the forms of private limited companies and corporations or bodies.
Likewise, most of the tax revenues (income tax and indirect tax) in the Oromia
region particularly western part paid at the federal revenue authority.
The tax rates that were levied on joint taxes were fixed at federal government by the
house of the federation. As indicated under Figure 4.1 the proportion of joint
business income tax shared among the federal and regional governments equally.
Therefore, profit and dividends taxes prorated among the two levels of governments
in the ratio of 50:50. In other words, 50 per cent of business profit taxes from private
limited companies and big mining plus petroleum was provided to the federal
government while the remaining 50 per cent given to the regional state. Concerning
royalty from big mining and petroleum industries, 60 per cent was given to a central
state and the remaining 40 per cent was provided to the sub-national state.
Moreover, employee income tax and indirect tax were prorated among the two levels
of governments in the ratios of 50:50 and 70:30 respectively. This means that 50 per
cent of personal income tax and 70 per cent of indirect taxes were provided to the
federal government while the remaining 50 per cent and 30 per cent of personal
income tax and indirect tax was given to Oromia regional state. However, practically,
the powers of the concurrent and undesignated income and other taxes abused by the
central government whereby the Oromia regional state incorporated western area was
greatly affected for nearly three decades. Seeing that, most of the concurrent income
and other tax encompassed undesignated taxes utterly collected by the revenue
departments of the federal regime or else Oromia but completely transferred and
utilized by the central government.
Thus, these principles were not properly implemented as the majority of the income
tax and profit tax powers are condensed in the hands of the central government. This
was one of the issues that influenced the power of local government in Oromia
region included the western part towards the income tax and other taxes primarily
business income tax. Because the business income tax system of Oromia region
particularly western area was mostly emulated of the federal income tax and business
income tax rules. Moreover, the constitution put major powers of income tax and
other taxes, specifically business profit taxes in the hand of central revenue offices to
the extent that incapable to realize whether the country has adopted schemes of the
fiscal federalism.
More and more, a very low revenue ratio and fiscal autonomy compared to the
volume of trade in the study atmosphere acknowledged the profound reliance of
western part on regional and federal subsidies. Due to this, the sovereignty of sub-
national government was relatively low towards the collection of income and other
taxes basically business income taxes. This testified that the tax largely business
profit tax compilation autonomy of Oromia region purposely selected local
governments was reasonably squat in Ethiopia.
Figure 4.1
Joint Business Profit Tax Sharing Ratio

Source: FDRE tax regulations

4.2.2. Structure of Oromia Region Profit Tax Regulatory Framework
The Oromia National Regional State has adopted schedule types of income tax
system including employee income, rental income, business income, miscellaneous
income and exempted income tax. The regulatory framework on the Schedules of
Oromia income tax mainly business profit tax were modified from time to time for
the intent of enlarge services for the taxpayer, uphold equity, diminish illicit
economy, enshrine economic growth and development, harmonization and
modernization of income tax systems, boost communication and coordination,
broaden tax rates and bases; strengthen income tax administrations and enhance tax
obedience acts in repose, generate ample amount of tax revenue to cover the
recurrent and capital expenditures.

To address these objectives, the revenue administrations in Oromia national regional

state chiefly western part utilized different proclamations, regulations and directives.
As a result, Article 47 of the Constitutions of Oromia region sub-articles (i, j, k, l, m,
and n) exposed the powers of state towards taxes. Article 95, 96, 97, 98 and 99 of the
country's constitution recognized income and other taxes powers of both federal and
regional states. Furthermore, the income tax proclamations implemented in Oromia
regional government mostly desired atmosphere incorporated proclamation number
74-2003, 37-2004, 92-2005, 99-2005,134-2008, 202-2016 and 203-2016 and 979-
2016.

The income tax framework of the Oromia regional administration is comprised of

direct tax specifically an employment income tax; rental income tax; business
income tax; withholding income tax and exempted income represented by the capital
letters “A, B, C, D and E”. In view of that, in Western part of Oromia, Ethiopia the
Schedule “C” is headlined as business income tax because it applies on sole
proprietors, partnerships and corporation forms of business entities. More subtly, the
new income tax proclamation of Oromia region no.202-2016 has defined business
income as every form of economic benefit, including nonrecurring gains in cash or
in-kind from whatever sources derived and in whatever form paid, credited, or
received from every activities. Similarly, it is defined as a monthly/annual profit tax
levy every month/year at prescribed rates, on every person in respect of his income
for relevant periods. Thus, the income is determined with reference to a person's
residential status and places of accrual or receipt of that income as well as revenues.

“The word businesses indicates product or buy and sell of goods and services for an
intention to generate profit or revenue. In other words, this legal document expresses
the word business as to make or buy and sale of the goods and services for the
intention of maximizing revenues."
Tax on income must be levied against the taxable income of the business
organizations and individual traders. With the exclusion of tax rates, most of the
regulations on Schedule “C” were universal to both sole proprietors and corporate
entities or bodies. The proclamation on the business profit tax should be
implemented in every tax period at rates notified under article 20 of the
proclamation. Hence, the business organizations structured as bodies (corporations
and partnerships) were taxed at a flat rate of 30 per cent. According to the
proclamation no. 202-2016 Article 20, sub-article 1 and 2, the sole proprietorships
are taxed at the progressive tax rates extend from 0 to 35 per cent. In Table 4.2 those
enterprises that earned about 7,500 birr were exempted from business profit tax. On
the contrary, those businesses that earned between 7201 birr and 19,800 birr; 19,801
birr and 38,400 birr; 38,401 birr and 63,000 birr; 63,001 birr and 93,600 birr plus
93,601 birr and 130,800 birr were taxed at rates of 10 per cent, 15 per cent, 20 per
cent, 25 per cent and 30 per cent respectively. Lastly, those businesses that earned
over 130,800 Ethiopian birrs were taxed at a rate of 35 per cent. Furthermore, the
Oromia regional government’s revenue authority incorporated Ambo, Nekemte,
Gimbi, Shambo and Dambi Dollo divisions had being implemented a subsequent
progressive business income structure on the whole business enterprises. However, in
Oromia, Ethiopia there is no exceptional income tax regulatory framework relating to
corporation aka bodies.
Table 4.2
The Business Income Tax Rate
Annual Taxable income from Business Rate
Over EBR To EBR ​
0 7,200.00 0.00
7,201.00 19,800.00 10.00
19,801.00 38,400.00 15.00
38,401.00 63,000.00 20.00
63,001.00 93,600.00 25.00
93,601.00 130,800.00 30.00
Over 130,800.00 35.00

Source: Proclamation No. 202-2016 Article 20 of Oromia region

Under sub-article (1) the proclamation stated that micro and small scale enterprises
disbursed their profit tax in line with rates arranged in sub-Article (2). Articles 21
and 22 revealed that the taxable income of a business for a particular tax year is
reduced by their gross deductions allowed by proclamation. Hence, the total profit
tax of business enterprises and individual traders pointed out aggregated revenues
that the business enterprises and sole traders generated from various business
activities. This income included:
“Total earnings of the business revealed a sum of business revenue that the business
enterprises and individuals traders obtained from buy and sell off stock, gross fees
generated from provided services, gain on disposal of enterprises assets (except
trading made by taxpayers during year) and every other amount made by taxpayers
during the monetary year." To a great extent, it is expressed the business incomes as
revenues from businesses activities, professional functions, vocational, occupational
and all other activities considered as trade by the commercial code of Ethiopia and
Oromia region.
The decree allowed certain deductions for the business profit taxpayers such as any
expenditure that the taxpayers reasonably incurred to generate, secure and maintain
revenues embrace under profit of business; expense that business enterprises spent
while trades and disposed stocks; bad debt expense subject to article 30, amounts of
fixed and intangibles asset; deprecation expenses; loss on disposal of business assets;
loss carry forwards, interest expenses recognized in a taxable income of business and
donation that the taxpayers provided for domestic charities and societies, disasters,
sovereignty and integrity of the country evidently Oromia. Moreover, Article 28
pointed out unequivocal lists of expenditures that the taxpayers do not deducted from
their business revenues. Ultimately, it was explained that business profit tax keeps
out any profit and gain taxed under other schedules of income tax.
Afterwards, based on their annual turnovers the regulatory framework of Schedule
“C” categorized the business profit taxpayers into three. It is categorized them for
intent of book-keeping obligations and assessment of the profit tax. Hence, Category
“A” is notified the business profit taxpayers either body or any other person reported
an annual business income of more than 1,000,000 Ethiopian birrs while Category
“B” being a person other than a body reported an annual business income of 500, 000
or more excluded 1,000,000 birrs. Category “C” taxpayer was being a person except
body earned a total yearly business income of less than 500,000 Ethiopian birrs.
This Schedule is applied principle of tax self-assessment, although the involvement
of revenue departments in the assessment process was quite extensive in the Oromia
region mostly western area. The first two categories are legally subjected to the rule
of tax self-assessment, uphold the books of accounts, fill tax return forms and pay
profit taxes. Subsequently, the edicts no.979-2016 and 202-2016 of the Federal and
Oromia regional governments explained that sole proprietors or companies shall
apply their own fiscal (accounting) years which had a period of 12 months. It was
pointed out that taxpayers must inform or applied to tax authority in written form if
they proposed to change accounting years. Then, an authority approved and noticed
in written forms if he/she believed that the change doesn’t alter the correct
calculation of the income tax. The administration decided whether the taxpayers
must sustain within similar category of the tax group. In view of that, the Oromia
regional state income tax regulations provided a chance to change their category
within three years. Although, it was not performed within six years as a result it
considered as one of the major reasons for the unfairness of the business profit tax
and inadequate revenue of the government.
Article 34 of edict recommended simple tax system for Category “B” business profit
taxpayers incorporated application of the cash basis of accounting and 100 per cent
of depreciation of plant and intangible assets. Thus, taxpayers under this category
asked for profit or loss statements and statement of financial positions. As a result,
their tax revenues required reviews by the auditors in return executed tax assessment
based on declaration and information offered by the taxpayer for corroborates
numerical and methodological correctness of declared tax liability.
On the other hand, part nine of this edict indicated the presumptive type of business
taxes or Category” C” profit taxpayers. Accordingly, it required them to disburse
their business profit tax based on estimation scheme called standard assessment.
Thus far, if they provided the financial reports, assessment by estimation is
unacceptable. Hence, Category ‘C’ business profit taxpayers frequently disbursed at a
fixed rate on revenues estimated by tax offices. Individuals who assess tax revenue
are dispensed by an authority to estimate daily sales of taxpayers. The estimates have
been done through the best of their judgment and objectivity then predicted amount
of sales in a day changed to yearly proceeds based on working days in a month. With
reference to self-assessment on business profit tax systems, Lencho (2014) stressed
that Category “C” or small business enterprises and individuals traders were suffered
by lack of brawny standard assessment. More clearly, it has been indicated small and
micro-enterprises or hard-to-tax groups liberated from the regime of tax self-
assessment ambience.

Part four and five of the income tax decree described business profit (income) tax on
mining and petroleum operation and international tax (foreign tax credit for foreign
business income). For that reason, article 36 stated that rate of income tax imposed
on licensee or contractor accounted to 25 per cent whereas licensee or non-resident
sub-contractor must withhold 10 per cent of their income and pay to revenue
administration. In contrast, at the time of computed the table income, the revenue
offices considered allowable deduction related to the cost of mobilization and
demobilization of natural resources.
4.2.3. Challenges of Oromia Region Profit Tax Scheme
Evermore, the Oromia region income tax proclamation no. 74-2002 indicated that all
potential citizens with underlying tax responsibilities ought to get a tax identification
number. Empirically, the accuracy of tax registrations and collection towards the
individual traders and business organizations reflect by quality of registration
scheme, the neutrality of penalty, preparation and supervision of tax audit as well as
scammer inspection. Hitherto challenges to the revenue authority in the study area
are discovered whether individual traders and enterprises granted tax identification
number involved in legitimate business and all active individuals in the business
environment are registered. Thus, researcher disputed the efficiency of revenue
authority in the Oromia mainly western division vis-à-vis registered the whole
businesses buried from an arrangement because the competence of income tax
assessment and declaration verified by the correctness of the taxable income and
ability of tax administration to incorporate an entire potential business activities.
Regarding the extent of income tax and other tax collected from business income
taxpayers, the revenue authority has guaranteed sensible figures of individuals and
businesses are disregarded from tax intentionally otherwise accidentally.
Pertaining to taxpayer’s dishonesty on income tax arrangement, proclamation
disclosed penalties of break the registration and declaration of taxable income.
Because of that, proclamation noticed freeze of their assets on tax defaulted,
administrative and criminal punishments. The scheme of the business profit tax
presented punishments on the newly listed noncompliant income taxpayers in the
context of ill declaration and file. On initial tax, disobedience acts performed by the
taxpayers’ the revenue offices provided about 10 per cent incentives towards penalty,
but in the next monetary period, they ought to completely obey assessment and
declaration. If the taxpayers disobey profit tax codes they are required to complete
the whole punishment being practiced. Furthermore, the income tax proclamation
informed the auditors to apply risk-based audit model. For the aim of determining the
extent of risk of the taxpayer's mainly profit taxpayers the authority categorized them
as high, medium, low and no risks. The maximum threshold for risks is established to
30 points. Thus, the comprehensive audit method yearly applied adjacent to the
taxpayer with the risk of greater than 15 points. The high risk taxpayers groups stand
for profit, value-added and employee income tax like suppliers of coffee, big hotels
and contractors. In contrast, the simple tax audit method placed on taxpayers scored
default risks between 2 to 15 in return; they treated as low and medium risk groups.
The income tax proclamation no. 202-16 and tax proclamation administration no.
203-16 had specified appeal procedures. The Federal and Oromia income tax law
contained three stages of dispute resolutions. Initially, the profit taxpayers required to
appeal in 10 consecutive days to the complaints committee concerned issues of tax
assessment. Following the review of fundamental profit tax matters, the committee
required to report solutions and waiver of punishments to the responsibly bodies. In
case the decisions by the initial committee disproved, the taxpayers requested the
appeal commission within 30 days by disburse 50 per cent of penalty in anticipation
of the decision. The tax appeal commission embraced three individuals from the
revenue, trade and president offices and two individuals added from the regional
chamber of commerce. Accordingly, the appeal commission had an obligation to
affirm, lessen and/or vacate the appeal.
This type of partial procedural measure was unreasonable in the concept of the
Chamber of Commerce for the reason that taxpayers disbursed 50 per cent and 100
per cent of penalties in advance. Despite the fact that it was refundable in case the
decision will be favored of taxpayer partial practice was unfair and unacceptable due
to unwarranted pressure of revenue office. Consequently, the taxpayers prejudice to
relinquish the appeal at the very initial step of the appeal process. Thirdly, the
unhappy party with the decisions of the appeal commission conceivably appeal to the
court on ardor that it is wrong with whichever challenge of the rule into 30 days. But
prior to applying for the court, the taxpayers ought to deposit 100 per cent of the tax
obligation. Following the decision, the court must replay the case to appeal tax
commission. Appeal for an upper court of appeal from the conclusion of the lower
court of plea might be made by one of the parties within extra 30 days.
For instance, during the monetary year of 2012-13, about 65 per cent of the
taxpayer's case passed in the goodwill of the revenue authority. Thereafter, in
August-2017 at 8:30 Pm via VOA Amharic program the former Prime Minister Mr.
Hahilemaryam Desaleng affirmed that about 40 per cent of the assessment on the
business profit tax was incorrect. Similarly, one of an employee in the Nekemte
revenue department explained that in an identical period, the office accepted about
2,150 cases from taxpayers whereby 650 cases had been realized as accurate matters.
Thus, these bigger percentages of pledge confirmed attachments of revenue
administration in court procedures and increased resentments on the objectivity and
justice of court proceedings as well as penalty on the taxpayers.
Moreover, the tax enforcement scheme of the Oromia region was divided as lift and
no lift penalty. The lift penalty imposed on those business income taxpayers that
reduced taxable income by half or 50 per cent. The range of this tax enforcement
scheme was extended from 30 per cent to 70 per cent. For example, if a particular
taxpayer reported his/her business revenue of 40,000 Ethiopia birrs as 20,000 birrs,
the taxpayer penalized 50 per cent of the correct balance of 40,000 Ethiopia birr. Due
to this, it has been considered as a minimum tax punishment method in Ethiopia in
general and Oromia region in particular.
Conversely, the no lift penalty scheme is depended on the concept of the time value
of money. It further imposed against those profit taxpayers that botched to provide
invoices or else issued wrong invoices to their customers and used the defective cash
register machine. The amount of no lift tax enforcement plan was formally fixed to
20,000 birrs. Moreover, if business profit taxpayers were not providing appropriate
financial report to the revenue authority within a specified time, they ought to punish
50,000 Ethiopia birrs. Consequently, the researcher inspected several anomalies in
dispute resolution strategies of the business income tax since it was very complicated
and had a mini capacity to avoided or else reduced the level of deviant tax behaviour
in the study environment.
The piece of empirical evidence guaranteed that the scheme of tax penalty of a
particular country must encourage tax self-compliance behaviour but not motivate
tax scam. To observe this evidently, suppose that business taxpayer counseled that
there are considerable ability and opportunity for excluding 100,000 Ethiopia birrs
from taxable income through incorrect invoicing and sale suppressions recognize that
the greater lawful react for that reason is a penalty of 20,000 birrs. In the same way,
the current tax enforcement method of the Oromia region offers the taxpayer binary
alternatives regarding disbursement of profit tax. Accordingly, including the 100,000
birrs in gross profit will cost taxpayer 30,000 (100,000 x 0.30). On the other hand,
excluding the 100,000 Ethiopia birrs, even with the expectation that he/she will
concede the issue if the government raises it on audit, will cost her 20,000 birrs.
Therefore, excluding tax revenue unmistakably has the financial value of 10,000
Ethiopia birrs than including it in a tax report form. Thus, the taxpayer gets the merit
of 10,000 birrs using the loophole of the tax enforcement method of Oromia region.
Once more, if the business taxpayer advised that there are the extensive capacity and
opportunity for generating 800,000 Ethiopia birrs by delay the report of 1,500,000
birrs of taxable income for four months and the superior lawful react, therefore, is a
penalty of 50,000 birrs. The taxpayer has two alternatives. If taxpayers provided the
financial report within the stated period, it will cost a taxpayer 525,000 birr (1500,
000 x 0.35) or penalized 50,000 birrs for not comply. Therefore, delaying a financial
report and investing amount for specific tax periods have more monetary advantage
for the taxpayers. This type of tax enforcement plan increased the chance of tax
frauds or noncompliance action and retributive injustice in the country in general and
Oromia region in particular. Increasingly, the scheme was intricate to both taxpayers
and tax administrations as it has inflicted them to spend extra time, effort and costs.
Finally, the concept of addition and division of the revenue of a business entity,
complexity of income tax framework, lack of contemporary income tax system, time
of reform the income tax laws, narrow base of income tax, unlicensed business
function, profit and other taxes sharing powers and ratio, repetition of deduction
among schedules, mode of tax assessment, unmerited penalty scheme and
inconsistent of tax administration were recognized as significant bottleneck of
Oromia income tax regulatory framework being implemented in Western Oromia.

4.3. CONCLUSION
The study concluded that Oromia Revenue Authority and Ministry of Revenue
employed diverse regulatory frameworks, namely proclamations nos’. 74-2003,
37-2004, 92-2005, 99-2005,134-2008, 202-2016, 203-2016 and 979-2016 for the
intent of collecting and managing the income tax throughout the Oromia region.
Besides, the researcher concluded that income tax mainly the business income tax
in the Western of Oromia is governed by Articles 47, 95, 96, 97, 98 and 99 of
Oromia regional and Federal regime’s Constitutions as they exposed the powers
of states on income tax and other tax revenues.
The study generalized that the income tax structure in study place contained five
schedules of income tax that organized as “A, B, C, D and E” in reply exposed
employee income tax, rental income tax, business income tax, other income tax
and exempted income tax sequentially. Evermore, a Schedule “C” of profit tax is
headlined as a business income tax that expressed as every form of economic
benefit comprising the nonrecurring gains in cash or in-kind from whatever
sources derived and in whatever forms paid, credited or received from the
business activities.
The researcher concluded that the income tax regulatory framework of the
Oromia region elucidated the term business as producing, buying and selling of
goods and services by the organization for the intention of maximizing profit.
Regarding the income tax rate, the study concluded that the profit tax regulatory
framework required partnership and corporate forms of business to pay their
profit tax at a flat rate of 30 per cent. Similarly, the study concluded that the
regulatory structure of a region entailed the other business organizations to
disburse their business income tax at progressive tax rates of 10, 15, 20, 25 and
30 per cent adjacent to their business revenues of 7201.00 Ethiopia birrs to
19,800.00 Ethiopia birrs; 38,400.00 Ethiopia birrs to 63,000.00 Ethiopia birrs;
63,001.00 Ethiopia birrs to 93,600.00 Ethiopia birrs and 93,601.00 Ethiopia birrs
to 130, 800.00 birrs sequentially. Afterwards, it is uttered that those businesses
that earned revenues of over and above 130,800 Ethiopia birrs ought to pay at 35
per cent and freed enterprises with revenue of less 7,500 birr.

The researcher summarized that the regulatory framework of the business income
tax specified the meaning of profit and business, income tax rate, period,
assessment techniques, deduction, penalties and accounting system.
The revenue department in Western Oromia of Ethiopia has executed two types
of assessments of business profit taxpayers. So, a giant mainstream of provisions
on the income tax regulation is dedicated to the issues of the business income tax
because it is enshrined certain tax self- measurement standards such as
accounting systems, assessment method and problem resolution scheme.
The study further concluded that the profit tax regulatory framework in a research
ecosystem somewhat recognized canons of equity, ability, economy, simplicity,
neutrality, certainty, productivity, diversity, coordination and benefit. However,
the study was finalized that unseemly implantation of these canons and objectives
wane perceived fairness, tax obedience conducts and the revenue potential of the
Oromia Regional Government in general and western part in particular.
The study concluded that the tax offices in the study area used SIGTAS to
confirm the disobedience behaviour of the business income taxpayers, but the
uniformity of the administrations dubious because of diminutive capacity, skilled
personnel and internet connection as well as the likelihood of fewer linkages
between taxpayers and administrations.
It concluded that it was comparatively easier to locate cases on the business profit
tax than other income tax regulatory framework but it’s dispute resolution
strategies were probably complicated to the profit taxpayers and administrations,
increased the opportunity of tax frauds and retributive injustice because it caused
additional tax compliance time, effort and costs.
The researcher concluded that most portion of the recent penalty scheme merely
necessitates the business income taxpayers to validate self-assessment reports
with greater but multifaceted legitimate panorama, the policymakers were unable
to modified and fashioned a scheme of tax penalty that precisely employed
against every under-reporting tax liability of profit taxpayers attributable to
conditions that they were not sagaciously and in good faith judgment, to be
honest, and made tax punishment devoid of sympathetic inspirations of the
taxpayers to obey the tax liability. For the majority of the business profit
taxpayers in Western Oromia of Ethiopia, the financial reports were made by the
authorized accountants and practitioners. However, the business income tax
regulatory framework does not stress on punishments of authorized accountant or
practitioner for preparing wrong financial reports and every imperfect of the
income of the taxpayers or non-disclosed situation that the report prepared were
not rational and in good faith believed to be truthful.
Concerning presumptive business profit taxpayers, the study concluded that the
Oromia Revenue Authority and Ministry of revenue has not properly utilized the
canons of standard assessment such as fairness, certainty, honesty, transparency,
convenient, accountability and simplicity during estimation of their the business
tax obligations due to an arbitrary estimation of taxable income as well as diverse
groups of taxpayers in this category.
Finally, complexity of the business profit tax, inadequacy of modern income tax
system, business tax incentive plans, narrow base of business tax, unlicensed
business, untaxed potential, income tax powers and ratios, repetition of
deductions, incompetent mode of assessment of business tax and inequitable
deterrence practice were identified as the major defies of business income tax
regulatory framework in the Oromia Region of Ethiopia.
 References
Constitution of Oromia National Region State, Proclamation No.1 1995, article 47 (e,
i, j, l and m).Megeleta Oromia No.12.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 96.Federal Negarit Gazeta, 1st Year.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 97.Federal Negarit Gazeta, 1st Year.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 98.Federal Negarit Gazeta, 1st Year.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 99.Federal Negarit Gazeta, 1st Year
Federal Democratic Republic of Ethiopia, Proclamation No. 979 2016.Federal
Negarit Gazeta, Extra Ordinary Issues.
Oromia National Region State Income Tax Proclamation No. 74-2002.
Oromia National Region State Income Tax Proclamation No.74/2003.
Oromia National Region State Income Tax Proclamation No.37/2004.
Oromia National Region State Mining Income Tax Proclamation No.92/2005.
Oromia National Region State Rural Land Use Payment and Agricultural Activity
Tax Amendment No .99/2005.
Oromia National Region State Income Tax Proclamation Amendment No.134/2008 .
Oromia National Region State Income Tax Proclamation No.202/2016.
Oromia National Region State Income Tax Administration Proclamation
No.203/2016.
Voice of America Amharic Program News Report August -22-17 at 8:30 Pm
Taddese Lencho (2014). The Ethiopian Tax Income System: Policy, Design and Pract
ice,Tuscaloosa,Alabama,pp.1-603.​
Page 98 of 289
 ​​

CHAPTER FIVE
BUSINESS TAX REVENUE GROWTH IN
WESTERN OROMIA
In Oromia, Ethiopia though tax reforms were undertaken by Government from time
to time to boost tax revenue, previous statistical evidence revealed that the
contribution of tax to the government’s total revenue to GDP was low. More
evidently, the fiscal reports disclosed that in the western part of Oromia region,
Ethiopia the amount of revenue collected by the Government from the business
profits taxpayers was volatile and low as compared to public expenditure. So,
Teshome (2017) pointed out that in the fiscal year of 2017-18 regional’s tax revenue
to GDP was less than 2 per cent as compared with 11.3 per cent of tax revenue to
GDP recognized at the level of a country. For instance, in 2019 Dr. Abiy Ahmad
Prime Minster of Ethiopia informed that ratio of tax to GDP accounted to 10 per cent
in most of the fiscal year. Hence, this type of tax practice noticed the possibility of a
mismatch between the extent of business functions and the degree of honesty
taxpayers because of affiliated business enterprises with top government officials; the
great extent of illicit commerce and high untaxed groups. Even though these were
tangible pieces of evidence, diminutive studies have been conducted vis-à-vis an
assessment of the growth of tax revenue in the viewpoint of business taxpayers in
CHAPTER FOUR
Western Oromia. Hence, the present Chapter focused on assessing the business tax
revenue growth in Western Oromia. The data was covered for ten years of tax reports
REGULATORYFRAMEWORK
provided by Western Oromia, Oromia region and Federal government. Overall, the
major part of secondary data sources included tax statistics and other pertinent tax
materials. ON BUSINESS INCOME TAX

5.0. FINDINGS ON TAX REVENUE GROWTH

Table 5.1
 The Extent of Business Tax Revenue of Western Oromia Compared with Tax
Revenue of Federal Regime (In Million Birr)

Years Western Oromia Federal State Total Tax Revenue

Business % Other % Total % Total Tax % Amount %
Income Tax Change Taxes Change Tax Change Change Change
2007-08 20.23 - 17.76 - 37.99 - 22,550.8 - 22,571.03 -
2008-09 25.88 28 21.67 22.02 47.55 25.16 27,822.4 23.38 27,848.28 23
2009-10 32.54 26 25.23 16.43 57.77 21.49 41,212.1 48.13 41,244.64 48
2010-11 40.76 25 31.45 24.65 72.21 24.99 58,348 41.58 58,388.76 42
2011-12 65.33 60 37.61 19.59 102.94 42.56 86,042.2 47.46 86,107.53 47
2012-13 77.44 16 40.28 7.09 117.72 14.36 99,940 16.15 100,017.44 16
2013-14 106.67 38 61.09 51.66 167.76 42.51 123,179.4 23.25 123,286.07 23
2014-15 147.00 20 65.98 8.00 212.98 26.92 147,540.2 19.78 147,687.2 20
2015-16 178.05 21 79.42 20.37 258.07 21.17 190,519.6 29.13 190,697.65 30
2016-17 183.38 3 83.56 5.22 266.94 3.44 276,338.2 45.04 276,521.58 45
EGR 24.66 25 21.53 28.48 28.46
Source: MoFEC as cited by (UNICEF), NBE and ORA
Figure 5.1
The Extent of Business Income Tax Relative to Federal Tax Revenue

Source: MoFEC as cited by (UNICEF), NBE and ORA

Table 5.1 indicates total revenue collected by the federal government and Western
Oromia and it also highlights the business income tax mobilized by Western Oromia.
It can be seen from the table that total tax revenue increased from 22,571.03million
birr in 2007-08 to 276,521.58million birr in 2016-17 showing the growth rate of
28.46 per cent. The total tax revenue of federal government increased from
22,550.8million birr of 2007-08 to 276,338.2million birr in 2016-17 showing the
growth rate of 28.48 per cent. The total tax revenue of Western Oromia increased
from 37.99million birr in 2007-08 to 266.94million birr in 2016-17 at a growth rate
of 21.53 per cent. The business income tax and other tax revenue of Western Oromia
lifted from 20.23million birr and 17.76million birr in 2007-08 to 183.38million birr
and 83.56million birr in 2016-17 at a growth rate of 24.66 per cent and 25 per cent
sequentially. Therefore, business income tax revenue of Western Oromia slightly
increased at a lower growth rate as compared to that of other tax revenue, but at a
higher growth rate as compared to total tax revenue of the study area. Furthermore,
the business income tax increased at a lower growth rate compared with the entire
tax revenue of the federal government.
In Figure 5.1 total tax revenue lifted at a higher rate of 42.56 and 47 in 2009-10 and
2011-12 respectively. But, it augmented at the lowest rate of 16 and 20 in 2012-13
and 2014-15 in turn. The tax revenue of the central regime increased at a greater rate
of 48.13 and 47.46 in 2008-09 and 2011-12 respectively. The total tax revenue of
Western Oromia amplified at a higher rate of 42.56 and 42.51 in 2011-12 and 2013-
14 in turn. However, it augmented at the lowest growth of 3.44 per cent in 2016-17.
The business tax revenue and other tax revenue of Western Oromia lifted at highest
growth of 60 per cent and 51 per cent in 2011-12 and 2013 -14 respectively. But, it
provided diminutive growth of 3 per cent and 5.22 per cent in 2016-17 in turn. The
exponential growth rate of other tax revenue of Western Oromia confirmed that the
public revenue from other taxes is somewhat in a better position as compared to that
of business tax revenue. So, the business income tax and tax revenue increased at
diverse rates between 2007-08 and 2016-17.

Table 5.2
Years Western Oromia Oromia Region Total Tax
Revenue
 Business % Direct % Indirect % Total % Amount %
Income Change Tax Change Tax Change Tax Change Change
Tax
2007- 20.23 - 578.40 - 457.01 - 1,035.40 - 1,055.63 -
08
2008- 25.88 28 744.23 28 417.23 -9 1,161.46 12 1,187.34 12.18
09
2009- 32.54 26 941.29 27 517.10 24 1,458.39 26 1,490.93 25.57
10
2010- 40.76 25 1,355.47 44 631.05 22 1,986.51 36 2,027.27 35.21
11
2011- 65.33 60 2,109.65 56 885.20 40 2,994.85 51 3,060.18 50.76
12
2012- 77.44 16 2,748.05 30 1,149.20 30 3,897.25 33 3,974.69 30.10
13
2013- 106.67 38 3,758.71 37 1,782.31 55 5,541.02 42 5,647.69 42.20
14
2014- 147.00 20 5,304.51 41 1,983.66 11 7,288.17 32 7,435.17 31.51
15
2015- 178.05 21 6,500.10 23 2,090.54 5 8,590.64 18 8,768.69 17.87
16
2016- 183.38 3 6,583.14 1.3 2,278.41 9 8,861.55 3 9,044.93 3.16
17
EGR 24.66 17.43 23.95 45 24
The Extent of Business Income Tax Revenue Compared with Tax Revenue of
Oromia Region (In Million Birr)
Source: OPEDC and ORA
Table 5.2 indicates the evaluation of the business tax revenue in Western Oromia as
compared to that of the Oromia region for the last ten years. It can be observed from
the table that total tax revenue augmented from 1,055.63million birr in 2007-08 to
9,044.93million birr in 2016-17 showing the growth rate of 24 per cent. The total
amount of tax revenue of Oromia region amplified from 1,035.40million birr of
2007-08 to 8,861.55million birr in 2016-17 at a growth rate of 45 per cent. Similarly,
the direct and indirect tax revenues of Oromia region rose from 578.40million birr
and 457.01 in 2007-08 to 6,583.14million birr and 2,278.41million birr in 2016-17 at
a growth rate of 17.43 per cent and 23.95 per cent respectively.
The business income tax of the study place increased from 20.23million birr in 2007-
08 to 183.38million birr in 2016-17 at a growth rate of 24.66 per cent. Hence, the
whole business income tax of Western Oromia lifted at lowest rate corresponding to
the entire tax revenue and amplified at a higher rate as compared to that of the direct
and indirect tax revenues of Oromia region.
Figure 5.2
The Extent of Business Income Tax Relative to Oromia Tax Revenue

Source: OPEDC and ORA

Figure 5.2 divulges that in 2011-12, the business income tax; direct tax revenue and
total tax revenue increased at higher growth of 60 per cent, 51.66 per cent and 42.56
per cent respectively. In 2011-12 and 2013-14 indirect tax revenue and total tax
revenue of Oromia region reported at higher growth of 55 per cent and 51 per cent
respectively.
In 2016-17 business income tax, direct tax revenue and indirect tax revenue as well
as total tax revenue increased at a very small rate. This may be the fruit of public
antipathies on the income tax framework reform and political instability in Oromia
region in general and western part in particular. It affirmed that most of the business
taxpayers in Western part of Oromia paid a little amount of business income tax as
 compared to that of tax revenue collected at the level of Oromia region. Besides, it
recognized the presence of high tax defiance, negative tax beliefs, compliance costs
and inadequate services of taxpayers in Ethiopia in general and Oromia region in
particular. Thus, the researcher claimed the issue as one of paramount indicators for
political disorder and low level of infrastructure development in Ethiopia.
Table 5.3
The Extent of Business Tax revenue of Western Oromia Relative to Business Tax
Revenue of Oromia Region (In Million Birrs)

Years Western Oromia Oromia Region Total Business Tax

Business income tax % Business income tax % Amount %
Change Change Change
2007-08 20.23 - 58.31 - 78.54 -
2008-09 25.88 28 87.48 50 113.36 44.33
2009-10 32.54 26 135.02 54 167.56 47.81
2010-11 40.76 25 237.81 76 278.57 66.25
2011-12 65.33 60 524.07 120 589.4 1.12
2012-13 77.44 16 716.11 37 793.55 34.64
2013-14 106.67 38 1,188.90 66 1,295.57 63.26
2014-15 147.00 20 1,386.00 17 1,533 18.33
2015-16 178.05 21 1,604.77 16 1,782.82 16.30
2016-17 183.38 3 1,740.10 8.43 1,923.48 8
EGR 24.66 40.44 37.69
Source: OPEDC and ORA
Table 5.3 denotes the extent of business tax revenue compared with business tax
revenue of Oromia region between 2007-08 and 2016-17. In Western Oromia of
Ethiopia the business income tax fluctuated throughout the study period. It can be
noticed from the table that revenue of government from business tax increased from
78.54million birr in 2007-08 to 1,923.48million birr in 2016-17 showing the growth
rate of 37.69 per cent. In the same way, the entire business tax revenue of Western
Oromia of Ethiopia and Oromia national regional state lifted from 20.23million birr
and 58.31million birr of 2007-08 to 183.38million birr and 1,740.10million birrs in
2016-17 showing the growth rate of 24.66 per cent and 40.44 per cent in turn. The
total business income tax revenue of Western Oromia lifted at low growth rate of
24.44 per cent as compared to 37.69 per cent of growth rate of the total business tax
revenue. Likewise, the business tax revenue of Western Oromia enlarged at a little
growth rate of 24.66 per cent as compared to 40.44 per cent of business income tax
of Oromia region. The business tax revenue of Oromia region increased at a higher
growth rate of 40.44 per cent compared with 37.69 per cent of the entire revenue of
government from business income tax.
Figure 5.3
The Extent of Business Tax revenue Relative to Business Tax Revenue of
Oromia

Source: OPEDC and ORA

In Figure 5.3 reveals that during 2011-12 the business tax revenue provided a higher
growth of 120 per cent and 60 per cent in Oromia region and the study area
respectively. According to the evidence of the Oromia revenue authority during this
period, the business income tax revenue increased at the highest growth rate because
of public awareness, political stability, favorable investment environment, deterrence
methods as well as adoption of BPR. In 2016-17 the business tax revenue in Western
Oromia and Oromia region realized at the lowest rate of 3 per cent and 8.43 per cent
respectively. As a result, in a decade the amount of business income tax revenue
recognized in the study site was low as compared to that Oromia region.

Table 5.4
The Extent of Tax Revenue of Western Oromia Compared With Oromia and
Federal States (In Million Birrs)
Year Western Oromia Oromia Region Federal State Total Tax Revenue
Total Tax % Total Tax % Total Tax % Amount %
Change Change Change Change

2007-08 37.99 - 1,035.40 - 22,550.8 - 23,624.19 -

2008-09 47.55 25.16 1,161.46 12 27,822.4 23.38 29,031.41 22.90
2009-10 57.77 21.49 1,458.39 26 41,212.1 48.13 42,728.26 47.18
2010-11 72.21 24.99 1,986.51 36 58,348 41.58 60,406.72 41.37
2011-12 102.94 42.56 2,994.85 51 86,042.2 47.46 89,139.99 47.57
2012-13 117.72 14.36 3,897.25 33 99,940 16.15 103,954.97 16.62
2013-14 167.76 42.51 5,541.02 42 123,179.4 23.25 128,888.18 23.30
2014-15 212.98 26.92 7,288.17 32 147,540.2 19.78 155,041.35 20.30
2015-16 258.07 21.17 8,590.64 18 190,519.6 29.13 199,368.31 28.60
2016-17 266.94 3.44 8,861.55 3 276,338.2 45.04 285,466.69 43.19
EGR 21.53 23.95 28.48 29

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Figure 5.4
The Extent of Tax Revenue by Administrative Structure

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Since 1991 in Ethiopia the economic and political responsibilities mainly direct and
indirect taxes obligation are shared among local, regional and central government.
Table 5.4 shows the amount of total revenue mobilized by local, Oromia region and
federal government between 2007-08 and 2016-17. It can be viewed from the table
that the aggregate revenue from tax amplified from 23,624.19million birr in 2007-08
to 285,466.69million birr in 2016-17 showing the growth rate of 29 per cent. By the
same token, tax revenue of local, Oromia region and central regime enlarged from
37.99million Ethiopian birr, 1,035.40million Ethiopian birr and 22,550.8million
Ethiopian birr in 2007-08 to 266.94million Ethiopian birr, 8,861.55million Ethiopian
birr and 276,338.2million Ethiopian birr in 2016-17 showing the growth rate of 21.53
per cent, 23.95 per cent and 28.48 per cent sequentially. Consequently, tax revenue of
the study area increased at a little growth rate of 21.53 per cent corresponding to
23.95 per cent and 28.48 per cent of Oromia region and federal respectively.
Figure 5.4 depicts that total tax revenue of federal Oromia and local government
increased at the higher growth rate of 51 per cent, 47.46 per cent and 42.56 per cent
 in turn. In 2016-17, tax revenue of Western part and Oromia region reported at a low
growth rate of 3 per cent and 3.44 per cent in turn. The researcher argued that
Western Oromia has little powers towards tax collection in general and business
income tax in particular. Equally, the outputs assured that the Oromia region has also
low powers of direct and indirect taxes collection compared with the federal
administration. Commonly, it showed the incidence of horizontal fiscal imbalance
Ethiopia.
Table 5.5
The Western Oromia Business Income Tax Compared With Direct Tax of
Federal Government (In Million Birrs)
Years Western Oromia Federal Government Total Income Tax
Business % Direct Tax % Amount %
Income Tax Change Revenue Change Change
2007-08 20.23 - 7,024.0 7,044.23 -
2008-09 25.88 28 9,231.2 31.42 9,257.08 31.41
2009-10 32.54 26 13,812.2 50.00 13,844.74 49.56
2010-11 40.76 25 20,215.2 46.40 20,255.96 46.31
2011-12 65.33 60 32,031.5 58.50 32,096.83 58.46
2012-13 77.44 16 35,229.3 10.00 35,306.74 10
2013-14 106.67 38 44,855.1 27.32 44,961.77 27.35
2014-15 147.00 20 58,554.6 30.50 58,701.6 30.56
2015-16 178.05 21 71,843.9 22.70 72,021.95 22.69
2016-17 183.38 3 81,410.4 13.37 81,593.78 13.29
EGR 24.66 27.76 15.83
Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA
Figure 5.5
The Extent of Business Income Tax Relative to Direct Tax of Federal Regime

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Table 5.5 exposes total amount of income tax derived in the sort of business income
tax and direct tax by federal and local government in the study period. It can be
picked up from the table that total income tax grew from 7044.23million birr in
2007-08 to 81,593.78million birr in 2016-17 showing the growth rate of 15.83 per
cent. The business income tax and direct tax increased from 20.23million birr and
7024.0million Ethiopian birr of 2007-08 to 183.38million Ethiopian birr and
81410.4million Ethiopian birrs in 2016-17 at a growth rate of 24.66 per cent and
27.76 per cent in turn. The business tax revenue of Western Oromia increased at a
higher growth rate proportionate to a growth rate of income tax revenue, but at a
lower growth rate proportionate to 27.76 per cent of direct tax revenue of the federal
regime. Figure 5.5 highlights that in 2011-12 business tax revenue of Western
Oromia presented a high growth of 60 per cent compared with 58.5 per cent of direct
taxation of federal administration and 58.46 per cent of the whole income tax
respectively. In 2016-17 business tax revenue of Western Oromia and federal state
realized at low growth rate of 3 per cent and 13.37 per cent in that order.
Table 5.6
Years Government’s Revenue % Government’s Expenditure %
Change Change
2007-08 1,168.09 - 5,873.91 -
2008-09 1,338.69 15 7,522.85 28.72
2009-10 1,674.50 25 8,914.67 18.5
2010-11 2,338.85 40 11,189.79 25.52
2011-12 3,591.27 54 19,287.04 72.36
2012-13 4,961.97 38 24,233.21 25.65
2013-14 7,132.12 44 27,897.04 15.11
2014-15 9,164.19 28 35,771.86 28.23
2015-16 10,445.11 14 44,577.27 24.62
2016-17 10,595.57 1.42 52,808.16 18.46
EGR 46 45
The Extent of Government Revenue Compared with Expenditure
(In Million Birr)

Source: OPEDC

Table 5.6 reveals the magnitude of public revenue as compared to that of expenditure
in the study periods. Therefore, the revenue and expenditure of Oromia region
augmented from 1,168.09million birr and 5,873.91million birr in 2007-08 to
10,595.57million birr and 52,808.16million birr in 2016-17 at growth rate of 46 per
cent and 45 per cent respectively. Thus, the growth rate indicated that public
expenditure and revenue all most all increased at an equivalent rate. On the other
hand, in the study periods the degree of government revenue and expenditure
changed at diverse rates.

Figure 5.6 discloses that the government expenditure and revenue increased at higher
rates of 72.65 per cent and 54 per cent in 2011-12 respectively. On the other hand,
the public revenue and expenditure increased at a lower rate of 1.54 per cent and
15.11 per cent in 2016-17 and 2013-14 in turn. This type of trend can be considered
as the tangible evidence for lack of voluntary obedience behavior, unfairness
perception, shadow economy, tax fraud, narrow income tax base and inadequacy of
modern tax system in the Oromia region of Ethiopia.
Figure 5.6
The Ratio of Government’s Revenue to Expenditure

Source: OPEDC
For instance, the PEFA report of the World Bank and MoFED on the Oromia region
for 2006-07, 2007-08, 2008-09, 2010-11, 2011-12 and 2012-13 affirmed inadequacy
of tax revenue as compared to that of public expenditure. The Bank has confirmed
that the performance of ORA was irrelevant in 2011-12 and 2012-13. Because out of
the entire 22.1million birr and 36.3million birr of regional’s revenue, the office only
collected about 18.8 per cent from tax.
African Heroes.com reported that the Ethiopia economy is overloaded by the foreign
and domestic debts of $52 billion twice of Uganda's GDP. Besides, the report
guaranteed that currently, the country's public debt exceeds 65 per cent of the
country's GDP. In other words, the extent of revenue of the government from tax
primarily business income tax simply covered for about 45 per cent of the whole
expenditure of the country.
More evidently, the recent report of the World Bank provided that in 2015-16, 2016-
17 and 2017-18, the extent of public debt accounted for 53.4 per cent 54.4 per cent
and 53.72 per cent of country’s GDP in turn. Then, the report indicated that in 2014-
15, 2015-16, 2016-17, 2017-18 and 2018-19 tax revenue dropped to 12.7 per cent,
12.5 per cent, 11.6 per cent,11.3 per cent and 11.5 per cent while public expenditure
augmented by 17.3 per cent, 18.4 per cent, 18.3 per cent,17.7 per cent and 11.7 per
cent during the same periods respectively. The Bank projected that tax revenue and
expenditure to GDP would increased by 11.8 per cent and 17.6 per cent, and 17.5 per
cent and 17.7 per cent in 2020 and 2021 respectively.
Empirical evidence provided that this kind of tax performance is happened due to
weedy tax administration, impediment of utilization of tax revenue, mounted tax
policy; drop in trade tax and other revenues, untaxed tax prospective as well as
unproductive tax ecosystem. The findings indicated an incidence of complication of
the income tax regulatory framework given that complexity of tax plan oftentimes
viewed as unfair, inefficiency and tedious. Similarly, it justified injustice of the
scheme of the income tax because a fair tax environment is identified by a large
amount of government’s revenue. Generally, these pieces of evidences boosted
confidence of the researcher to look at business income taxpayers perceived fairness
and obedience behavior jointly with the trend of business tax revenue and business
income tax regulatory framework in Western Oromia of Ethiopia.
Figure 5.7
The ratio of Local Tax Revenue to Oromia and Federal Regime

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Figure 5.7 demonstrates the percentage of local administration tax to tax revenue of
Oromia region and the federal government between 2007-08 and 2016-17. It can be
observed from the figure that the ratio of tax revenue of Western Oromia to tax
revenue of Oromia region and central state recognized at a lofty growth rate of 4 per
cent and 0.17 per cent in 2008-09 respectively. On the contrary, the share of Western
Oromia to tax revenue of Oromia region and federal regime reported at a low growth
rate of 2.93 per cent and 0.10 per cent in 2014-15 and 2016-17 serially. Therefore,
the ratio of Western Oromia to public revenue was diminutive in the research period.
The outputs asserted that large numbers of business income taxpayers in Western
Oromia refused to declare their tax rightly. Increasingly, it exposed the problem of
tax planning because the trend was identical in most of the research periods.
Figure 5.8
The Ratio of Business Tax Revenue to Tax Revenue of Oromia and Federal

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Figure 5.8 shows the ratio of business income tax of the local state to tax revenue of
Oromia region and federal regime. The figure showed that percentage of business
profit tax to tax revenue of federal and Oromia region rose by 0.094 per cent and
2.23 per cent in 2015-16 and 2008-09 as well as 2009-10 respectively. But, it
diminished at a great extent of 0.01 per cent and 1.98 per cent in 2014-15 and 2013-
14 respectively. On the subject of tax revenue of federal state, the ratio was
diminutive all through the period as compared to the Oromia regional government.
The findings testified that majority of business organizations in Western Oromia
calculatedly or accidentally disbursing income tax and other taxes to other tax
jurisdictions in the country.
This can be accepted as one of the concrete pieces of justifications for the provisions
of limited powers and responsibilities towards the collection of income tax and other
taxes to local tax regime; the involvement of unproductive and vain tax management
as well as uncertain tax matters in the study atmosphere.
Figure 5.9
The Ratio of Local Business Tax to Business Tax of Oromia Region
Source: OPEDC and ORA

Figure 5.9 reveals the ratio of business income tax of the study place to Oromia
region. Thus, it increased at highest ratio of 30 per cent in 2008-09 and little ratio of
11 per cent in 2015-16 and 2016-17 respectively.
Figure 5.10
The Ratio of Business Income Tax to Oromia and Federal Direct Tax

Source: OPEDC, MoFEC as cited by (UNICEF), NBE and ORA

Figure 5.10 exposes the ratio of business income tax of the study area to the direct
tax revenue of Oromia regional state and federal government. It shows that the ratio
of business income tax in Oromia region and federal direct tax revenue enlarged by
3.5 per cent and 0.28 per cent in 2008-09 in turn. The ratio of business income tax of
Western Oromia to direct tax of Oromia and the federal government increased at the
lowest rate of 0.20 per cent and 2.79 per cent in 2010-11, 2011-12 and 2016-17
respectively.
In the last decade, the contribution of business enterprises in the form of business
profit tax to direct tax was very low in Ethiopia in general and Oromia region in
particular. Also, the findings attested that business enterprises in Ethiopia mainly
Western Part of Oromia do not properly disburse their business profit tax in the last
ten years. Moreover, it justified that the extent of income tax from business
taxpayers reduced because of political instability, market boycott and tax fraud in
Ethiopia in general and Oromia region in particular.
More evidently, on 23-01-2019 Abebe who is the current Ministry of Revenue of the
country on OBN TV Afan Oromo program assured that the office was collected taxes
mainly business income tax from 60 per cent of the business organizations. In other
words, 40 per cent of the business organizations engaged in a business environment
knowingly and unknowingly had not paid their tax in Western Oromia, Ethiopia.
Figure 5.11
The Ratio of Tax Revenue of Oromia Region to Tax Revenue of Federal
Source: OPEDC, MoFEC as cited by (UNICEF) and NBE

Figure 5.11 exposes the ratio of tax revenue of Oromia region to tax revenue of the
federal regime. Thus, in 2014-15 and 2015-16 it has made the highest contribution of
5 per cent to tax revenue of the country. The ratio declined to 3 per cent in 2011-12,
2012-13 and 2016-17. For the four tax years, it remained silent at 4 per cent.
Accordingly, the findings guaranteed slow change of the tax revenue mobilization
capacity in Oromia region as well as the country in the last fiscal years.
The study generalized that the extent of direct tax revenue collected from income
taxpayers primarily business profit taxpayers was positive and low relative to the
extent of the industry in the region as well as the country. Additionally, the findings
verified the problems of tax planning and collection in Ethiopia in general and
Oromia in particular. However, relative to the amount of business activities, business
organizations, traders and economic resources the ratio was very little. For instance,
Mentta (2014) disputed that a regional state vastly depended on the funds transferred
from federal regime. Hence, according to the distributive justice theory redistribution
of more fiscal revenues incorporated income tax from the Oromia regions to other
places devoid of enshrining the needs of low-income families and infrastructure
development in Western Oromia of Ethiopia affected their revenue capability. In the
same way, the researcher realized that these issues are the critical indicators for the
provision of poor quality of public goods and services, high vertical fiscal imbalance
and instability of Oromia region particularly study place.
Asefa (2015) argued that the affluent regions failed to provide the basic public goods
and services to a citizen due to horizontal fiscal imbalances across regions whereby
Western Oromia region suffered a lot. He stated that the total share of the regional
government revenue between the financial years of 2002-03 and 2009-10 accounted
to 20 per cent of the overall revenue of a country. Moreover, the researcher argued
that the powers of regional government regarding taxation were small relative to a
federal government.
For example, in 2005 and 2008 the federal government collected about 73 per cent
and 77 per cent of tax revenue in turn. Therefore, apart from Finfinne, all regional
states collected merely 23 per cent of the whole tax revenue obtained in the monetary
periods of 2005 and 2008. Amazingly, out of country’s tax revenue collected in these
times, Oromia region had contributed about 5 per cent and recognized as the more
revenue contributor portion of the country. Hence, one cannot surprise if the desired
government only assembled 3.04 per cent and 0.23 per cent relative to the whole
direct tax revenue of the Oromia region and the federal government. Maybe this was
the product of putting the basic sources of powers of taxation included income tax
under the federal tax jurisdiction.
Girma (2013) quarreled that 1995 constitution provided the responsibility of major
income tax and other taxes for the federal under which only tax on global trade and a
dominant share of domestic indirect taxes covered about 64 per cent of the country's
tax base. Also, the researcher argued that 80 per cent of other non-tax revenue was
collected by the central administration. Given that, this was one of the supreme
reasons for the effect of the fiscal decentralization of Ethiopia on local and regional
government revenue and expenditure capacities.
5.1. CONCLUSION
An assessment of growth rate of the local government tax revenue, especially
Ambo, Nekemte, Shambo, Gimbi, Dambidollo municipalities was covered for the
total amount of business profit tax and tax revenue collected from the business
profit taxpayers in a decade. Therefore, the study concluded that degree of local
government revenue generated from the business income taxpayers in the forms
of direct and indirect taxes mainly business income tax was low relative to the
extent of enterprises and economic resources in Western Oromia of Ethiopia.
The Western Oromia specifically Ambo, Nekemte, Shambo, Gimbi and Dambi
Dollo towns were struggling to raise their revenue from direct tax and indirect
taxes, but the analysis confirmed that the authorities were claiming a low amount
of business income tax revenue relative to the federal and Oromia region tax
revenue in general and employee income tax in particular. The study concluded
that the revenue of government from tax unsettled between 2007-08 and 2016-17.
Between 2007-08 and 2016-17 the revenue authority in Western Oromia of
Ethiopia collected a sum of 1,341,330,000million Ethiopia birr in the forms of
business income tax and other taxes. From the entire 1,341,330,000birr acquired
from business income taxpayers, profit tax reported at 65 per cent while indirect
taxes accounted to 35 per cent.

The study concluded that the tax revenue of Western Oromia enlarged from
37.99million Ethiopian birr in 2007-08 to 266.94million birr in 2016-17 showing
the growth rate of 21.53 per cent. The business income tax and other taxes of the
study location increased from 20.23million birr and 17.76million birr in 2007-08
to 183.38million birr and 83.56 million birr in 2016-17 showing the growth rate
of 24.66 per cent and 25 per cent in turn.
The researcher generalized that entire revenue of the government from tax
increased from 22,571.03million Ethiopian birr in 2007-08 to 276,521.58million
Ethiopian birr in 2016-17 showing the growth rate of 28.46 per cent. The tax
revenue of federal government amplified from 22,550.8million Ethiopian birr of
2007-08 to 276338.2million Ethiopian birr in 2016-17 showing the growth rate of
28.48 per cent. The study further concluded that the direct tax revenue of the
federal state increased from 1,073.39million Ethiopian birr in 2007-08 to
9,128.49million Ethiopian birr in 2016-17 showing the growth rate of 45 per
cent.
With regard to Oromia region, the study finalized that the tax revenue augmented
from 1,035.40million birr of 2007-08 to 8,861.55million birr in 2016-17 at the
growth rate of 23.95 per cent. The Oromia national regional state revenue from
direct and indirect taxes enlarged from 578.40million birr and 457.01million birr
in 2007-08 to 6,583.14million birr and 2,278.41million birr in 2016-17 at the
growth rate of 27.53 per cent and 17.43 per cent respectively.
The study further concluded that the whole revenue of the Western Oromia from
business income tax augmented from 78.54million Ethiopian birr in 2007-08 to
1,923.48million Ethiopian birr in 2016-17 at a growth rate of 37.69. The total
business income tax of Western Oromia and Oromia regional government
increased from 20.23million birr and 58.31million birr of 2007-08 to
183.38million birr and 1,740.10million birrs in 2016-17 at growth rate of 24.66
per cent and 40.44 per cent respectively.
The business tax revenue of the study area augmented at a little growth rate of
24.66 per cent compared with 40.44 per cent of growth rate documented at the
level of Oromia regional state. Hence, the study concluded that the total business
income tax revenue lifted at a low growth rate as compared to that of overall
business tax revenue reported in the study period.
Government revenue from the income tax increased from 7,044.23million birr in
2007-08 to 81,593.78million birr in 2016-17 at growth rate of 15.83. Thus,
revenue from business income tax and direct tax increased from 20.23million birr
and 7024.0million birr of 2007-08 to 183.38million birr and 81410.4million birrs
in 2016-17 at growth rate of 24.66 and 27.76 in turn. So, the business income tax
in Western Oromia increased at higher growth rate of 24.66 per cent in proportion
to 15.83 per cent of the entire growth rate but at lesser growth rate relative to
27.76 per cent of direct tax revenue of the central government.
Between 2007-08 and 2016-17 the revenue and expenditure of Oromia region
amplified from 1,168.09million birr and 5,873.91million birr in 2007-08 to
10,595.57million birr and 52,808.16million birr in 2016-17 at growth rate of 46
per cent and 45 per cent respectively. In 2011-12 the expenditure and revenue of
the regional government provided a higher rate of 72 per cent and 52 per cent. On
the other hand, in 2016-17 the revenue and expenditure reported at very lower
rates of 1.42 per cent and 18.46 per cent respectively. Thus, in most of the
selected period, government expenditure exceeded revenue in the study area.
It concluded that tax revenue of Western Oromia to tax revenue of Oromia region
and the central state, reported at high growth rate of 4 per cent and 0.17 per cent
in 2008-09 respectively. The share of Western Oromia to tax revenue of Oromia
region and federal regime documented at a low growth rate of 2.93 per cent and
0.10 per cent in 2014-15 and 2016-17 serially. Thus, the researcher concluded
that the ratio of Western Oromia to public tax revenue was diminutive in the
research period. The outputs asserted that large numbers of business income
taxpayers in Western Oromia refused to declare their tax rightly. Further it
exposed the problem of tax planning because the trend was identical in most of
the research periods.
The findings showed that the percentage of business income tax to tax revenue of
federal and Oromia region increased by 0.094 per cent and 2.23 per cent in 2015-
16 and 2008-09 as well as 2009-10 respectively. But, it diminished at a great
extent of 0.01 per cent and 1.98 per cent in 2014-15 and 2013-14 respectively.
The ratio of business income tax of the study place to Oromia region increased at
highest ratio of 30 per cent in 2008-09 and little ratio of 11 per cent in 2015-16
and 2016-17 respectively.
In 2008-09, the ratio of business income tax in Oromia region and federal direct
tax revenue enlarged by 3.5 per cent and 0.28 per cent in turn. The ratio of
business income tax of Western Oromia to direct tax of Oromia and the federal
government increased at the lowest rate of 0.20 per cent and 2.79 per cent in
2010-11, 2011-12 and 2016-17 respectively.
The study concluded that tax revenue primarily business income tax shortfall in
2014-15, 2015-16 and 2016-17 was a fruit of public antipathies on upward
income tax framework improvement and political instability in Oromia region in
particular and Ethiopia in general. The condition justified that most of the
business taxpayers in Western Oromia of Ethiopia paying a little amount of
business income tax as compared to that of tax revenue of Oromia region. It
pointed out the presence of high tax defiance, beliefs and compliance costs in
Western Oromia between 2007-08 and 2016-17.
Though there are large domestic and international business enterprises in Oromia
of Ethiopia, the state is being derived most of the tax revenue from immaterial
sources of income and indirect taxes in positions that universally intricate and
need extra effort, time and costs to collect. For instance, the Office of Auditor
General and ORA recognized that most of the private organizations in Oromia
included study place paying their business income and other taxes at the federal
and other regions because of getting TIN from those tax atmospheres.
In the last decade, the contribution of business enterprises in the form of business
profit tax to direct tax was very low in Ethiopia in general and Oromia region in
particular. The study further concluded that the business enterprises in Ethiopia
mainly Western Oromia do not properly disburse their business profit tax in the
last ten years. In the same way, it justified that the extent of income tax from
business taxpayers reduced because of political instability, market boycott and
tax fraud in Ethiopia in general and Oromia region in particular.
According to the distributive justice theory redistribution of more fiscal revenues
incorporated income tax from the Oromia regions to other places devoid of
enshrining the needs of low-income families and infrastructure development in
Western Oromia affected their tax revenue collection capability. In the same way,
the researcher realized that these issues are the critical indicators for the
provision of poor quality of public goods and services, high vertical fiscal
imbalance and instability of Oromia region particularly study place.
Generally, the study concluded that unfair and complex tax law, lofty tax
rebelliousness, small infrastructure development; illegal flow of public money;
political unsteadiness; under-reporting of business revenue; unlicensed trade;
counterfeit sale register machine; ineffective administration; bogus invoicing;
unproductive tax incentive; failed to properly exercise power of taxation on the
whole business enterprises; designation of small power of taxation to the local
and regional regime; narrow tax structure and bases as well as sluggish structural
transformation of economy were the products of inadequate revenue collection in
the study place. Regarding this, the Ministry of Revenue via OBN TV confirmed
that the office control about 124 unlicensed and illegal businesses in a country
incorporated Oromia.
 References
Adanech Abebe (2019). The Issues of Tax Collection. OBN TV Afan Oromo news
report on 23-01-2019 at 10:59PM, Addis Ababa, Ethiopia.
Abiy Ahimad (2019). Conference held in Addis Ababa on Tax Collection Movement
with Taxpayers in Ethiopia. Ethiopia Broaching Corporation news
report at 8:00 Pm
African Heroes.com report on Ethiopia economy, July 6, 2019.
Abu Girma Moges (20113).Fiscal Federation and Its Discontents: Theory and Policy,
International symposium on Ethiopia development studies, Addis
Ababa, Ethiopia, pp 1-25.
Deribe Assefa (2005).Fiscal Decentralization on Ethiopia: Achievements and Challe
nges, Public Policy and Administration Research, Vol.5, No.8, pp1-
14.
Federal Democratic Republic of Ethiopia Ministry of Finance and Economic Develo
pment PEFA Assessment Report Oromia Government, October,2010.
National Bank of Ethiopia Annual report 2014-15
National Bank of Ethiopia Annual report 2016-17
Oromia Planning and Economic Development Commission Statistical Report, 2018.
Oromia Revenue Authority report in Ambo, Nekemte, Gimbi, Dambidollo and
Shambo Town’s administrations, 2017
Teshome A. (2017).The Structure of Tax and Rational of Resent Business Income
Assessment in Oromia Planning and Economic Development Commi
ssion, pp.1-6.
Tadewos Mentta (2014).Federal state Fiscal Relation: The Ethiopian Experience: A
Descriptive of the Southern Nation, Nationalities and Peoples Region
al Sta, Journal of economic and sustainable development, Vol, 5(11),
pp.1-10.
United Nations Development Programme Ethiopia (2016). Prospects of Tax
collection in Ethiopia, Working paper, pp1-17.
CHAPTER FIVE
World Bank report no. PGD55 on Ethiopian growth andcompetitiveness,2015.
BUSINESS
World Bank PEFA Assessment Report on Oromia TAX REVENUE
Regional Government Financial
Management Performance, June 2015.​
GROWTH IN WESTERN Page 119 of 289

OROMIA
 CHAPTER SIX
PERCEPTION OF BUSINESS PROFIT
TAXPAYERS ON TAX FAIRNESS
6.0. INTRODUCTION
The issues of tax fairness had received a great consideration throughout the world
included Ethiopia, Western Oromia because tax systems should be perceived as fair
in order to obtain a high degree of voluntary tax compliance; enhance efficiency and
effectiveness of tax system. Consequently, any research that disclosed the culture or
country-specific dimensions of taxpayer’s perception of fairness were very crucial
for a policymaker to encourage the ideas of tax self-assessments standards and tax
morale.
Nevertheless, to the knowledge of a researcher so far merely few studies were carried
out on similar issues in Ethiopia, mainly Oromia region. For instance, Abort (2011)
identified multiple fairness dimensions and their effects on fairness perception jointly
with common knowledge and tax system complication and concluded that the
business income tax system of Ethiopia was unfair to the profit taxpayers in Addis
Ababa city and their fairness perception was persuaded by the magnitude of tax
knowledge, tax systems complexity and six fairness dimensions. But until recently
no study was conducted in the Oromia region more importantly western area on the
 identical matters though there were huge public resentments and anecdotes on the
income tax system. Hence, the overall aim of this chapter was to investigate
perceived fairness of business income taxpayers in Ethiopia experience from
Western Oromia.
The researcher looked at the influence of horizontal fairness, vertical fairness,
personal fairness, administrative fairness, exchange fairness, retributive fairness,
general fairness, legal knowledge, technical knowledge, general knowledge,
compliance complexity and content complexity on the perception of tax fairness. In
view of that, the study examined the level of their perceptions on equity, tax
knowledge and complication of the business income tax system. Additionally, it
examined whether their opinions regarding justice of the business income tax law
were multidimensional.
To address this objective, the study employed mixed research approaches in common
with primary and secondary sources of data. For the purpose of data analysis, the
researcher employed ordered logistic regression (ologit) and descriptive statistics
included table, graph, average weighted score, mean and standard deviation
performed by Excel, SPSS-24 and STATA-13. Kendall’s correlation matrix was
implemented so as to test associations among predictors and perception of tax
fairness. One-way ANOVA was used to test the degree of similarity or dissimilarity
of opinions between the business income taxpayers pertaining to the notions of tax
fairness, knowledge and complexity. Firstly, it deals with descriptive analysis on the
general information and comments of respondents on tax fairness, knowledge, and
complexity and compliance behaviour. Secondly, it pointed out descriptive analysis
on the influence of horizontal fairness, vertical fairness, personal fairness,
administrative fairness, exchange fairness, retributive fairness, general fairness, legal
knowledge, technical knowledge, general knowledge, compliance complexity and
content complexity on fairness perception. Thirdly, it deals with an inferential
analysis. Fourthly, it pointed out interpretation of interview results. Fifthly, it
disclosed the conclusion based on the findings.

6.1. FINDINGS ON THE TAX FAIRNESS PERCEPTION

Table 6.1
Descriptive Analysis of Demographic Information
1. Respondent’s responses on their ages
Response Frequency Percentage
Less than 20 years 30 10.00
Between 20-40 years 188 63.00
Between 40-60 years 64 21.00
Over 60 years 18 6.00
Total 300 100
2. Respondent’s responses on their gender
Male 233 77.00
Female 67 23.00
Total 300 100
3. Respondent’s responses on their marital status
Marriage 248 83.00
Single 49 16.00
Divorce 3 1.00
Total 300 100
4. Respondent’s responses on their Level of education
Illiterate 3 1.00
Elementary 8 2.67
High school 93 31.00
Preparatory 76 25.33
TVET 55 18.33
Degree 65 21.67
Others degree - -
Total 300 100
5. Respondent’s responses on types of their business
Manufacturing business 27 9.00
Merchandising business 101 34.00
Services giving business 172 57.00
Total 300 100
6. Respondent’s responses on the form of their business enterprises
Sole proprietorship 111 37.00
Partnership 86 29.00
Share company 59 19.00
Private limited company 44 15.00
Total 300 100
7. Participant’s opinions on Sources of Revenues
Sales Revenue 128 43.00
Services Revenue 172 57.00
Total 300 100
8. Respondent’s views on their responsibility in the company
Owner 245 81.67
Manager 33 11.00
Other professionals 22 7.33
Total 300 100
Source: Primary data

The first question was requested to recognize the age of the respondents.
Consequently, 84 per cent of them were of the age group of 20 years-60 years. On
the other hand, 10 per cent of the participants were less than 20 years of age, while
only 6 per cent of respondents were over 60 years of age. As indicated in the above
Table 6.1, 77 per cent and 23 per cent of the respondents were males and females
respectively. Thus, all most all of the traders or businessmen in Ethiopia mainly
Western Oromia were dominated by the male. In connection with their marital status,
83 per cent of the respondents were married while 16 per cent of the participants
were single. Conversely, in Western Part of Oromia about 1 per cent of the
participants surveyed had vacated their marital relationship. Regarding their level of
education, about 31 per cent and 25.33 per cent of the participants completed high
school and preparatory school in turn. Besides, 21.67 per cent and 16.67 per cent of
the participants were first degree and diploma holders’ respectively. Afterwards,
about 3.66 per cent of the participants were Master degree holders whereas 2.67 per
cent of the respondents completed primary school. Astonishingly, none of the
participants are learned others degree such as Ph.D. Hence, most of the taxpayers,
business income taxpayers had little knowledge of taxation as the course of taxation
was formally and broadly provided at degree level in Western Oromia, Ethiopia.
With regard to the types of enterprises, about 57 per cent, 34 per cent and 9 per cent
of the respondents involved on services, merchandising and manufacturing sectors
respectively. With reference to forms of their business organizations, 37 per cent of
the respondents disclosed their organizations were sole proprietorship whereas 29 per
cent of them indicated that their business enterprises were partnership. Subsequently,
19 per cent and 15 per cent of the taxpayers told that their companies were Share and
private limited companies in turn. Regarding sources of their revenue, about 57 per
cent of them generated their revenues from services business activities and 43 per
cent of business income taxpayers derived their business revenues from sales of
goods. Moreover, 81.67 per cent and 11 per cent of the participants were the owners
and managers of the business enterprises in that order. The remaining 7 per cent of
participants were other delegated professionals in organizations of the taxpayers.
 Figure 6.1
Categorization of Business Income Taxpayers

Source: Primary Data

As revealed in Figure 6.1, about 66 per cent of the respondents were of category "B"
business income taxpayers and the remaining 44 per cent of the respondents were
considered from big business enterprise or category “A”. Hence, most of income tax,
mainly business income tax in Western part of Oromia region, Ethiopia collected
from medium and small business enterprises.
Table 6.2
Opinion of Respondent’s About The Yearly Income (In Ethiopian Birr)
Responses Frequency Percentage
Category” B” Profit Taxpayers
5,00,000 -600,000 141 84.00
600,001- 1000,000 27 16.00
Total 168 100
Category” A” Profit Taxpayers
1,000,001- 3,000,000 113 86.00
Over 3000,000 19 14.00
Total 132 100
Source: Primary Data
About 84 per cent of category “B” business profit taxpayers believed that their
annual business income ranged between 500,000 and 600,000 Ethiopia birr whereas
16 per cent of them responded that their yearly business income was in between
600,001 and 1,000,000 Ethiopia birr. In contrast, about 86 per cent of group “A”
business income taxpayers in the study atmosphere responded that their annual
business income was found between 1,000,001 and 3,000,000 birr and the rest 14 per
cent of them notified that their annual business income was realized at more than
3,000,000million Ethiopian birr. This showed that the revenue authority in the study
ecosystem collected most of the income tax from group “B” profit taxpayers.

Table 6.3
Accounting System of the Profit Taxpayers
Taxpayers Views on their Accounting Record
Response Frequency Percentage
Yes 279 93.00
No 21 7.00
Total 300 100
Taxpayers opinion on who prepare a book of accounting for them
Accountants 187 67.00
Auditors 25 9.00
Others professionals 67 24.00
Total 279 100
Participant’s views on the degree of supports they obtained from the revenue authority
Yes 105 35.00
 No 195 65.00
Total 300 100
Source: Primary Data
In Table 6.3, about 93 per cent of the business income taxpayers in Western Oromia
implemented proper accounting systems while 7 per cent of them yet had not
established proper accounting system. Accordingly, out of two hundred seventy-nine
business taxpayers who installed accounting system, none of them prepared financial
reports by themselves. So, 67 per cent, 24 per cent and 9 per cent of the taxpayers
responded that their financial reports were prepared by accountants, other
professionals and auditors respectively. This notified that the majority of the
categories "A" and "B" business profit taxpayers in Ethiopia and Oromia region
implemented accounting system required by revenue authority. This was
acknowledged that most of them have no sufficient tax knowledge and experience on
the concept of financial report principles. In contrast, 7 per cent of the business profit
taxpayers had yet not adopted basic accounting system because of shortage of
accounting education, experience, time and wanting of interests.
Thus, these outcomes notified the tax preparers, advisors and accountants directly or
indirectly participated and encouraged the taxpayers towards illegitimate tax practice
because most of business taxpayers responded that their financial reports were
prepared by these individuals and institutions. In the same way, the result was
magnified that preparers, advisors and accountants were major engineers and actors
for wanting the level of tax compliance behaviour in the study area than taxpayers
since most of the respondents assured their tax return forms have been prepared by
these individuals and institutions. Eventually, the findings proposed that government
ought to design strong deterrence methods for protecting both taxpayers and
preparers, advisors or accountants from tax malpractices. In connection with a
support that they obtained from revenue authority, 65 per cent of the taxpayers
notified that their revenue office had not provided any help in association with
payment of the business income tax.
On the contrary, 35 per cent of the taxpayers stated their revenue authority provided
an adequate support on the disbursement of business income tax. This means that the
revenue offices in these locations has assisted and encouraged the business profit tax
payer on payment of income tax.
Table 6.4
Taxpayer’s Views on Reasons for Disbursing Profit Tax
Parameters Frequency Percentage
Fear of penalty 121 40.33
Compulsory nature of tax and government obligations 39 13.00
Tax morale 32 11.00
For public goods and services 48 16.00
For economic development 60 20.00
Total 300 100
Source: Primary Data

With regard to the purpose of disbursement of the income tax, as pointed out in Table
6.4 about 40 per cent of the business income taxpayers commented that they paid
profit tax due to fear of penalties while 20 per cent of the respondents paid their tax
mainly business income tax for the aim of economic development. Conversely, 16
per cent of the taxpayers disbursed their tax explicitly the business profit tax for
public goods and services while 13 per cent of the participants paid profit tax due to
the compulsory nature of taxation and government obligation and the remaining 11
per cent of the respondents explained the payment of tax largely profit tax in terms of
morale obligation. Hence, this pointed out that the majority of the taxpayers mainly
business income taxpayers in Western Oromia disbursed their tax liabilities due to
dread of penalties and sanctions.
 Table 6.5
Respondent’s Opinions on Tax Fairness, Knowledge, Complexity and
Compliance Behavuior
Respondent's notes on the level of fairness of the business income tax system
Responses Frequency Percentage AWS
Very unfair 97 32.30

2.75
Unfair 82 27.30
Neither unfair nor fair 3 1.00
Fair 58 19.30
Very fair 60 20.00
Total 300 100
Kendall’s coefficient of concordance (W) =0.54,
Chi-Square= 80.76, df =5, 5 per cent significant level
Respondent's views on the level of complexity of the business income tax system
Highly complicated 80 27.00 2.52
Complicated 135 45.00
Neither complicated nor uncomplicated 3 1.00
Uncomplicated 15 5.00
Highly uncomplicated 67 22.00
Total 300 100
Kendall’s coefficient of concordance (W) =0.98, Chi
Square = 146.51, df =5, 5 per cent significant level
Participant’s comments on their degree of tax knowledge
Very insufficient 125 42.00 1.95
Insufficient 82 27.00
Neither insufficient nor sufficient 4 1.33
Sufficient 71 23.67
Very sufficient 18 6.00
Total 300 100
Kendall’s coefficient of concordance (W) =0.97,
Chi-Square = 145.015, df =5, 5 per cent significant level
Comments of profits taxpayers on their extent of tax compliance behaviour
Very low compliant behaviour 147 49.00 2.25
Low compliant behaviour 29 10.00
Reasonably low compliant behaviour 33 11.00
Practical compliant behaviour 83 27.70
Very high compliant behaviour 8 2.00
Kendall’s coefficient of concordance (W) =0.579, Chi
Square = 86.56, df =5, 5 per cent significant level
Total 300 100
Source: Primary Data
These questions were asked to discover the perception of business profit taxpayers
on the extents of tax fairness, tax knowledge and complexity as well as compliance
behaviour in Western Oromia.
As indicated in Table 6.5, 32.3 per cent, 27.3 per cent, 20 per cent and 19.3 per cent
of the participants were commented the current business income regulatory
framework of Oromia was very unfair, unfair, very fair and unfair in turn. Then, 1
per cent of the respondents failed to identify whether the present income tax system
of Oromia was fair or unfair to taxpayers. The aggregated percentage of 60 per cent
towards very unfair and unfair attested the presence of a high degree of unfairness
views among taxpayers in the Western Oromia. In contrast, the joint percentage of 39
per cent towards fair and very fair items represented equity of the business profits tax
rule. Also, the Average Weighted Score of 2.75 on tax fairness revealed the existence
of very unfair perception of the income tax system in Western Oromia. The Kendall’s
concordance coefficient at 0.05 significant level assured most of the respondents
were extensively agreed that the current profit tax system of Oromia was very unfair.
Therefore, the current income tax system of Ethiopia in general and Oromia in
particular is not fair enough for most of business income taxpayers.
Regarding the complexity of the income tax system, about 45 per cent, 27 per cent,
22 per cent, 5 per cent and 1 per cent of the respondents postulated that the current
business income tax law of Oromia region was complicated, highly complicated,
highly uncomplicated, uncomplicated and neither complicated nor uncomplicated to
the profit taxpayers respectively. Similarly, the total percentage of 72 towards highly
complicated and complicated indicated that the business income tax rule of Oromia
was greatly complex to profit taxpayers. The Average Weighted Score of 2.52
disclosed the presence of a very complex business income tax system in Oromia. The
Kendall’s concordance coefficient at 0.05 considerable level indicated most of the
participants were remarkably agreed that the current business income tax system of
Oromia was very complex to the profit taxpayers. Therefore, the majority of the
respondents revealed that the business income tax rule of Oromia region was highly
complex to taxpayers in study place.
In connection with tax knowledge, 42 per cent, 27 per cent, 23.67 per cent and 6 per
cent of the participants remarked that the business income taxpayers in Western
Oromia had very insufficient; insufficient; sufficient and very sufficient knowledge
on income tax regulation sequentially. A 1.33 per cent of the participants said that
business income taxpayers in Oromia region had neither sufficient nor insufficient
knowledge of business income tax law. The Average Weighted Score of 1.95 pointed
out the prevalence of very insufficient knowledge of income tax in the Western
Oromia. The Kendall’s concordance coefficient at 0.05 significant level depicted
most of the respondents greatly agreed that the income taxpayers in Oromia had very
low level of knowledge. This was acknowledged that most of the business income
taxpayers in Oromia had no adequate level of general knowledge, legal knowledge
and technical knowledge towards the income tax regulatory structure.
Regarding tax compliance behaviour, about 49 per cent, 11 per cent and 10 per cent
of the respondents noticed that the tax obedience performances of the income
taxpayers in Western Oromia were very low, practical and low respectively. Then
again, 27.7 per cent and 2 per cent of the respondents assured that the compliance
conducts of the profit taxpayers in the study site were very high and high in turn. The
Average Weighted value of 2.25 has shown the existence of very low compliance
behavior in Western Oromia. The Kendall’s concordance coefficient at 0.05 critical
level indicated majority of the respondents noticeably agreed that the tax compliance
behavior of the business income taxpayers in Western Oromia was very low.
This type of tax circumstance recognized the existence of high and low degrees of
tax noncompliance and compliance behaviors in the Oromia Region of Ethiopia.
Evermore, this situation is affirmed by the extent of public revenue collected from
business profit taxpayers in Oromia region in a decade. More decidedly, the result is
attested by the percentage of tax revenue and public debt to GDP in the last years at
the federal in general and Oromia region in particular.
Figure 6.2
Causes for Low Fairness Perception in Western Oromia, Ethiopia

Source: Primary Data

As revealed in Figure 6.2 the researcher asked further question to know the basic
factors that harmed the degree of their tax fairness perception and tax compliance
behavior in Ethiopia mainly Western Oromia. 20 per cent and 19 per cent of the
respondents depicted that fairness perception of profit taxpayers in Western Oromia
dropped due to inequality of tax and benefit as well as taxpayers in a similar situation
paying differently in turn. 15 per cent and 13 per cent of them exposed that fairness
perception of business income taxpayers declined as a result of unwarranted penalty
and higher income earners infrequently paying higher income tax respectively.
Identical or 7 per cent of the respondents pointed out that the perceived fairness of
 the business income taxpayers in Western Oromia diminished due to inadequate
knowledge and implantation of unsuitable tax policy and procedures. In the same
way, equal or 5 per cent of the participants disclosed that their perceived fairness
declined due to ineffective tax administration, tax frauds and complexity of the tax
system. Therefore, the study magnified the area whereby the Ministry of Revenue
and Oromia Revenue Authority emphasized at the time of developing and/or
implementing a tax system in general and business income tax in particular.
​Figure 6.3
Causes for Low Tax Compliance Behaviour in Western Oromia, Ethiopia

Source: Primary Data

In Figure 6.3 the participants notified participants’ responses on factors that affect tax
obedience behaviors of business income taxpayers in Western Oromia. Accordingly,
15 per cent, 12 per cent, 10 per cent, 9 per cent, 8 per cent, 7 per cent , 6 per cent, 5
per cent and 2 per cent of the respondents pointed out that the compliance behavoiur
of profit taxpayers in study place impaired by lack of capacity, unfair income tax
system, political inequality, inadequate knowledge of taxation, tax frauds, theory of
planned behavoiur, complexity of income tax system, infrastructure development,
inadequate tax morale, shadow economy, lack of attitude towards tax and negligent
behavior respectively. In general, this finding clarified points on which the tax
legislator and revenue authority take into consideration during the business income
tax reform, assessment, declaration and audit.
Table 6.6
Participant’s Views on the Magnitude of the Tax Fairness Dimension

Items Code Mean St. deviation

I believe the government utilizes a reasonable amount of tax GFR1 2.26 1.349
revenue to achieve social goals, such as the provision of benefits for
low-income families.
I believe everyone pays their fair share of income tax under the GFR2 2.59 1.417
current income tax system
I think the government spends too much tax revenue on GFR3 3.18 1.556
unnecessary welfare assistance.
I receive fair value from the government in return for my income EFR1 2.43 1.348
tax paid (e.g. benefits)
It is fair that low-income earners receive more benefits from the EFR2 3.03 1.559
government compared to high-income earners.
The income tax that I have to pay is high relative to the benefits I EFR3 3.17 1.607
receive from the government.
An individual with similar amounts of income rarely pays a similar HFR1 3.31 1.612
amount of income tax.
I believe it is fair for me to pay a similar share of income tax HFR2 3.15 1.648
compared with other taxpayers earning an equivalent amount of
income.
It is fair that equals before tax are equals after tax. HFR3 2.68 1.478
It is not fair that high-income earners are subject to tax at VFR1 3.34 1.588
progressively higher tax rates than low-income earners.
It is not fair that low-income earners are taxed at a lower rate than VFR2 3.38 1.593
middle-income earners.
The share of the total income tax paid by high-income earners is VFR3 3.11 1.565
much too high.
It is fair that individuals who deliberately evade paying their taxes RFR1 3.14 1.592
should be penalized with the more amount of penalty regardless of
the amount of tax evaded.
To be fair, the degree of punishment for evading tax should depend RFR2 3.14 1.587
on the degree of non-compliance.
I believe the initial late payment penalty on the unpaid tax, imposed RFR3 2.94 1.611
on non-compliant taxpayers under the current tax system, is fair.
I believe that I have not paid my fair share of the tax burden under PFR1 3.07 1.651
the current profits tax system.
Compared to other taxpayers, I pay more than my fair share of PFR2 3.21 1.632
income tax.
Middle-income earners are paying their fair share of income tax. PFR3 2.73 1.414
There are several ways available to me to correct errors in the AFR1 2.46 1.389
calculation of my tax liability, if necessary, at no additional cost.
The administration of the income tax system by the revenue AFR2 2.54 1.533
authority is consistent across years and taxpayers.
Valid N (listwise) 300

Source: Primary data

In Table 6.6 the business income taxpayers in Ethiopia exclusively Western Oromia
had mixed perception in connection with tax fairness dimensions. The researcher
evaluated the magnitude of fairness perception of business profit taxpayers in the
context of general fairness, horizontal fairness, vertical fairness, exchange fairness,
personal fairness, retributive fairness and administrative fairness. Also, it realized
whether the fairness perception of business income taxpayers in the Oromia region
was multi-dimensional in nature.
To understand the perception of business income taxpayers on the level of general
justice of the business income tax system, the researcher used GFR1, GFR2, and
GFR3. Thus, their mean values of 2.26, 2.59 and 3.18 revealed the existence of
unfair perception on the degree of general fairness of the income tax regulatory
framework. Moreover, it showed that the administrative bodies used more amount of
profit tax for the purpose of needless welfare; not utilized a sensible sum of the
income tax on obligatory public issues and to certain level business enterprises in
Western Oromia not disbursed their fair share of profit tax in specified tax period.
To realize their perceived exchange fairness, the study used EFR1, EFR2 and EFR3.
In view of that, the mean values of 2.43 and 3.17 indicated that the business income
taxpayers in Ethiopia specifically Western Oromia has not received proper benefits
from Government relative to their contributions in the form of income tax that
included business income tax also. On the other hand, the mean value of 3.03
revealed the existence of positive perception on the levels of the business income tax
plan. Thus, the business profit taxpayers in Ethiopia mostly Western Oromia
perceived a recent business income tax law of the country and Oromia practically
wrecked theory of distributive justice vis-à-vis exchange justice. Empirically, failed
to receive an adequate public benefit from their regime proportionate to an amount of
disbursed tax causes distributive injustice or exchange injustice. For example,
Richardson (2005) argued taxpayers perception on fairness will be enlarged if they
received equitable benefit from their government comparative to contributions and
vice versa. Besides, Wenzel (2007) argued if the percentage of payment is not equal,
societies are unhappy and tries to equalize them by various disbursement
mechanisms. With reference to exchange fairness, AICPA (2007) had told taxpayers
expected to obtain adequate airports, bridges, highways, schools, public buildings
and hospitals in the long run but not an exact value within a short budget period.
Thus, the researcher claimed that lack of receiving proper assistance, goods and
services from the federal and Oromia regional and local regimes was one of the
major causes for perceived exchange injustice in a study atmosphere.
To measure perception of the business income taxpayers on horizontal fairness,
researcher used HFR1, HFR2 and HFR3. Hence, these items used to identify whether
the individuals and business enterprises within similar incomes paid equal amount of
income taxes; whether they believed in paying identical income tax with equivalent
income earners and whether they have been perceived equal before tax as identical
with equal after tax. Accordingly, respondents had partly unfair perception towards
horizontal fairness because the mean values of 3.31 and 2.68 for HFR1 and HFR3
told the business income tax system of Oromia of Ethiopia usually not imposed equal
amount of tax on individuals and business enterprises within a similar level of net
income as well as considered equal before taxes was same with equal after tax.
Conversely, the mean value of 3.15 for HFR2 pointed out that profit taxpayers in
Western Oromia believed in paying identical income tax with the equivalent income
earners in the region as well as country. The same findings explored by Abrot (2011)
on the business profit taxpayers in Addis Ababa. Moreover, equity, distributive and
procedural justices’ theories expressed that in horizontal justice individuals/business
enterprises with a similar level of income must be paid similar tax. On the subject of
the vertical equity, the researcher employed VFR1, VFR2 and VFR3 to gauge
perception of fairness. Thus, their average values of 3.34, 3.38 and 3.11 notified that
an incidence of unfair perception concerned vertical equality of business income tax
system of Oromia of Ethiopia. The participants perceived that higher-income earners
taxed lower than otherwise equally with the lower-income earners in the study place.
Alternatively, the category "A" and "B" taxpayers criticized for paying too much
amount of income tax compared to category “C” profit taxpayers in the study
location. Besides, the respondents had unjust insight regarding (VFR3) since it
exposed the ratio of the whole profit tax disbursed by more revenue earners was too
lofty. The respondents perceived that the present business income tax system of
Oromia was unfair as they imposed too high and little profit tax on the higher and
lower-income earners in turn. Over the whole, the two cases were against the equity
theory since it explained higher income earners must be taxed at high-income tax rate
relative to low income groups. Concurrently, the findings indicated the business profi
t taxpayers in the selected area viewed business income tax laws of the Oromia
region as short of vertical equity.
To investigate perception of the business profit taxpayers towards retributive justice,
the study implemented RFR1, RFR2 and RFR3. Hence, the mean values of RFR1
(3.14) and RFR3 (2.94) showed that in Western Oromia their perception was
negative towards retributive fairness of income tax regulatory structure. Contrary to
this, the mean value of RFR2 (3.14) expressed participants in the study atmosphere
had positive perception with reference to retributive justice of the business income
tax law. For instance, RFR1 stated that the levy of an excessive sanction on the
individual and business enterprises calculatedly reduced taxable income is fair and
RFR3 expressed imposed sanctions on primary delayed business profit taxpayer was
fair in the context of Western Oromia. In contrast, the mean value of 3.14 for RFR2
realized fair views of profit taxpayers on retributive equity. Thus, their mean values
revealed to certain extent revenue offices in Western Oromia of Ethiopia imposes
unsuitable sanctions on profit taxpayers compared to their tax noncompliance actions
since retributive justice theory recognized that to be fair income tax systems must
encourage proper penalty under particular tax ecosystems.
The PFR1, PFR2 and PFR3 used to realize the views of profit taxpayers on whether
the business income tax system upheld personal equity among the taxpayers. Thus,
PFR1 was required to identify the perception of taxpayers on whether he/she recently
disbursed appropriate or fair profit tax in the study tax atmosphere. Therefore, the
mean value (3.07) of PFR1 pointed out individuals profit taxpayer perceived that
they were not disbursed fair profits tax in Western Oromia. By the same token, it
indicated business profit taxpayers in Oromia specifically in Ambo, Nekemte, Gimbi,
Dambidollo and Shambo municipalities considered as paid excess amount of income
tax primarily business profits tax. The PFR2 was asked to recognize their perception
whether they disbursed the excess amount of income tax as compared to that of their
counterpart. The average value (3.21) for PFR2 confirmed that the individual profit
taxpayers considered themselves as payers of an excess profits tax. Eventually, PFR3
was examined whether middle or group “B” profit taxpayers were disbursed their fair
profit tax. Thus, its mean value of 2.73 revealed the group "B" profit taxpayers
somewhat paid their fair business income tax relative to higher or group “A” income
taxpayers in Western Oromia. Consequently, the participants have been perceived
that the recent profit tax laws of Oromia region were reasonably inequitable on the
subject of personal equity as literatures notified that fairness perception of taxpayers
critically affected their motivation to evade and avoid tax.
Furthermore, the study applied AFR1 and AFR2 to explore the level of fairness
pertaining to the business income tax administration. AFR1 was used to know
whether multiple methods were available in the study area to adjust errors occurred
at the time of computed taxable income without additional expenses, effort and time.
Accordingly, the mean value of 2.46 for AFR1 practically posited an existence of
few alternative methods in revenue offices in Western Oromia to adjusted errors
devoid of additional expenses effort and time. By the same token, it revealed a
shortage of options for the taxpayers to correct income tax issues occurred
unintentionally at the time of assessed and calculated taxable incomes.
In addition, it was revealed profit taxpayers incurred additional expenses, efforts and
time to correct errors at a time of calculated and registered their profit tax liabilities.
Hence, this affirmed the breaches of equity, certainty and importantly convenient
principles in Oromia primarily western area. In contrast, AFR2 asked to investigate
whether the revenue authorities in Western Oromia applied indistinguishable policies
and procedures on the whole taxpayers in the same tax group. Hence, an average
value of AFR2 (2.54) disclosed the revenue offices in the western segment of
Oromia, Ethiopia principally Ambo, Nekemte, Gimbi, Shambo and Dambidollo
towns moderately not applied an identical tax policy and procedures on whole profit
taxpayers in a given tax period. These exposed the revenue authority in Western
Oromia moderately had not followed justice, certain and convenient tax policies and
procedures at a time of tax assessment and declaration.
Hence, the business income taxpayers perceived that the business profit tax system in
Oromia region as well as country oftentimes not suitably implemented in a western
piece mostly Ambo, Nekemte, Gimbi, Shambo and Dambidollo towns. More subtly,
the revenue authority in Western piece of Oromia region ruined the concepts of
procedural justice because the procedural justice theory stressed that to be fair the tax
systems applied proper tax policies and procedures during the determination of the
taxable income of taxpayers.
In general, this finding confirmed that the perceived justice of the business income
taxpayers towards income tax law of the Oromia region was unfair even if its
magnitude was distinct. Hence, it impaired the perception of business income
taxpyers regarding the magnitude of the horizontal fairness, general fairness,vertical
fairness, exchange fairness, retributive fairness, personal fairness and administrative
fairness. Moreover, it approved fairness perception of the business income taxpayers
in Oromia region, fundamentally Ambo, Nekemte, Gimbi, Shambo and Dambidollo
towns is multidimensional in nature. As a consequence, the findings indicated the
application of dimensions of tax fairness suggested by AICPA, equity, distributive
and procedural justices’ theories.
Evermore, the researcher has been posited one of the critical causes for the 2016-17
business enterprises, merchants, students, people strikes and boycott on the upward
income tax reform in Oromia was the outgrowth of inequitable income tax chiefly
business profits tax regulatory schemes. For instance, the business owners in Oromia
region vigorously expressed their resentments and uncertainties on the fairness of
income tax framework by the idiom “Gibiraa fi gidiraa isaa dadhabneerra!” meaning
that “We drained tax and its depression!” Thus, this short phrase accredited how
much the recent income tax included the business income tax system of the Oromia
region, Ethiopia was inequitable to them.
Table 6.7
Respondent’s Opinions on the Magnitude of Their Tax Knowledge on
Business Income Tax Framework
​Observations Code Mean St. deviation
The business income tax system is a legitimate way for the GKE1 3.47 1.57
government to collect revenue to manage an economy.
To my knowledge, individuals are not subject to a single flat rate of GKE2 2.69 1.381
income tax under the current tax system.
As far as I am aware, non-compliant taxpayers can be excessively LKE1 3.31 1.582
penalized not to repeat, if found guilty of evading tax.
I believe that individuals not always prosecuted for not complying LKE2 2.88 1.541
with the income tax laws similar to other criminal offense
As far as I am aware, everyone who earns income sourced in this TCH1 3.40 1.654
country is taxable, regardless of whether that person is a resident or
not.
I am sure that I am required to file a tax return on interest income TCH2 2.99 1.476
that I earn from money deposited in a bank account as it will be
subject to income tax at source.
To my knowledge, I can deduct all personal expenses in calculating TCH3 2.97 1.536
my tax liability.
I have little idea about the deductions that I can claim as a taxpayer TCH4 3.18 1.541
in the computation of my tax liability.
I believe that I am not abiding by the deadline for the submission of TCH5 3.33 1.537
tax return form (s) (in case of having other income, such as rental
and business income), as the deadline is only a guideline and does
not result in penalties.
Valid N (listwise) 300
Source: Primary data
Table 6.7 pointed out perception of respondents on the extent of general knowledge,
legal knowledge and technical knowledge of the income tax system. The business
income taxpayers had relatively low extent of general knowledge, legal knowledge
and technical knowledge on the income tax particularly business income tax law.
Therefore, their perception disclosed business profit taxpayers in Western Oromia
had inadequate legal tax knowledge and technical tax knowledge on business income
tax rule. The mean values of 3.47 and 2.69 for the constructs GKE1 and GKE2 on
general knowledge indicated that income taxpayers in Western Oromia, Ethiopia
comparatively contained adequate general knowledge towards profit tax regulation.
The mean values of 3.31 and 2.88 for the observations LKE1 and LKE2 on legal
knowledge revealed that profit taxpayers in the study area had reasonably low degree
of legal knowledge on the business income tax rules. Afterwards, the average values
of 3.40 and 2.99 for the indicators TCH1 and TCH2 on technical knowledge pointed
out that business profit taxpayers contained practical technical knowledge towards
profit tax legal framework in Ethiopia in general and Western Oromia in particular.
In contrast, the average values of 2.97, 3.18 and 3.33 for the constructs TCH3, TCH4
and TCH5 over technical knowledge disclosed that the business income taxpayers in
Western Oromia had moderately little technical knowledge of income tax scheme.
So, their mean values have been acknowledged that the business profit taxpayers in
Oromia region predominantly Ambo, Nekemte, Gimbi, Dambidollo and Shambo
cities had dispersed perceptions on the dimensions of tax knowledge. Also, it
affirmed that business profit taxpayers in Western Oromia had comparatively
wanting knowledge of taxation. Generally, the finding was justified by their mixed
views on the factors that prejudiced perception and fulfillment behaviour of income
taxpayers in Oromia region, Ethiopia.
Table 6.8 depicted that the business income taxpayers in Oromia had different views
on the degree of compliance complexity and content complexity of business profit
tax system. The first item used to measure the extent of the complexity of terms and
words in income tax publications and proclamations. Hence, the mean value of 3.38
pointed out that the content of tax publications and proclamations on income tax
incorporated business income rules written with the complex terms and words. The
second observation has provided to examine whether the sentences in the business
income tax proclamations and guiding principles hardly extensive and user-friendly.
A mean value of 3.24 reflected that the sentences in the income tax law of Oromia
region were extremely long and not user-friendly for the profit taxpayers in western
area included Ambo, Nekemte, Gimbi, Dambidollo and Zambia towns. Therefore,
the business income taxpayers in Western Oromia Region of Ethiopia perceived that
the ingredients of income tax law were very complex and users’ unfriendly for actors
in the tax location.
The third factor asked to discover whether tax rule of business income tax in study
place was clear for taxpayers particularly business profit taxpayers. For that reason,
an average value of 2.44 for this parameter affirmed a content of the present Oromia
region business income tax proclamations were not well clear and simple to them.
Then, the fourth construct requested to identify whether profit taxpayers in Western
Oromia demanded assistances from the other individuals on the profit tax matters. In
view of that, a mean value of 3.40 for this factor was confirmed that the taxpayers
included profits taxpayers habitually demands assistances from others to deal with
income tax matters. This pointed out that the business income tax system was
complex to taxpayers to handle and preformed income tax issues independently in
accordance with the proclamations.
With reference to the compliance complexity of income tax rule, the respondents in
the research atmosphere had multiple perception. The primary construct was asked to
explore whether the participants had a problem in executing and filled the tax return
forms properly. An average value of 2.79 notified that the business profit tax system
was complex to them to executed and recorded financial reports properly in a
monetary period.
The second observation was investigated whether the business income tax structure
was tedious to them to maintain all books of accounts if they required to do so.
Accordingly, a mean value of 3.21 disclosed business income tax structure was
tedious to prepare and provided all pertinent books to the revenue authority within
the specified fiscal year. The third factor has identified whether the profit taxpayers
in Oromia primarily western part made a lot of efforts to understood the explanation
given in the guiding books and other explanatory tax materials. Thus, a mean value
of 3.05 confirmed the business profit taxpayers tried to comprehend the explanation
given in revenue authorities guiding books and other tax materials. This means that
they made a lot of efforts to understand and executed income tax forms provided by
the revenue authorities in Oromia of Ethiopia.
The mean value of compliance complexity about the income tax schemes of Ethiopia
and Oromia region affirmed existences of sensible impediment on the calculation of
tax revenues, expenses; reports and disbursement of the income tax liability. Thus,
the finding was concrete evidence for the complication of profits tax laws mainly
business income tax system of the research environment. Additionally, the finding
avowed that perceived fairness of business income taxpayers in Oromia, Ethiopia
mainly western part was multi-dimensional in nature. Over the whole, the finding
was consistent with their annotations on the degree of complication of income tax
plan laws; regulatory frameworks on the income tax and reasons for limited level of
fairness perception as well as obedience behavior.
Table 6.8
Respondent’s Opinions on the Magnitude of Complexity of Business Income Tax
Framework
​Observations Code Mean St. deviation
I think the term used in tax publications (e.g. revenue authority CTEN1 3.38 1.586
booklet) and in tax return forms are difficult for people like me to
understand.
The sentences and wording in the business income tax return guide CTEN2 3.24 1.567
are lengthy and not user-friendly.
The rules related to business income tax are clear. CTEN3 2.44 1.458
Most of the time I need to refer to others for assistance in dealing CTEN4 3.40 1.609
with income tax matters.
I have a problem with completing and filing the tax return form(s), COP1 2.79 1.441
if they are required.
I find it is tedious to maintain all my relevant records for the whole COP2 3.21 1.577
year for tax purposes (if I have to complete the tax return form(s)).
I do have to make a lot of effort to understand the explanations COP3 3.05 1.622
given in revenue department guide books and other similar
explanatory materials.
Valid N (listwise) 300
Source: Primary Data

6.2. FACTOR ANALYSIS

Next to codification, the researcher has transcribed data to transmit the coded data to
computer applications; cleaned data to augment the consistency and accuracy of data
through SPSS-22 and excel sheet. Finally, the data have been statistically adjusted
and stored by multivariate techniques, for instance, principal component and factor
analysis. Hence, the researcher performed factors analysis as the factor loading
recognized a correlation between the original variables or factors which were keys to
understand the nature of particular constructs. The squared factor loading pointed out
the proportion of variance in initial predictors that portrayed by a component.
6.2.1. Tax fairness perception items
Factor analysis was expressed as the statistical technique used by the researchers to
compact the large groups of variables into fewer dimensions as well as components.
Component analysis was the factor model in which the factors were based on the
total variance and a unity one was used in the diagonal of the correlation matrix as
well as all the variance was common or shared. It indicated the Eigen Value, factor
loadings and factor rotation. The researcher used this method to evaluate whether the
constructs in the study were the correct indicators and measurements for factors in
the theoretical construction. Thus, this study employed the extraction method;
Varimax with Kaiser Normalization and rotation methods. Given that, the constructs
with a correlation coefficient of fewer than 0.5 excluded from a table of rotated
components matrix.
The researcher used communality to evaluate the sum of variance that a variable
shared with other variables being considered from the principal component analysis
and rotation method. In view of that, the value of communality of final indicators
assured fitness of an extraction of principal component analysis. Further, it indicated
the entire amount of variances that the original factors shared with all variables
included in the analysis and forecasted the variance in individual variable described
by the factors. Therefore, the value of communality for more variables was set at
greater 0.30 and 0.50 (Hair et al., 2010). Hence, as pointed out under Table 6.9 the
amount of variance for the constructs of tax fairness perception dimensions were
properly expressed by common factors. For instance, the communality of .658 for
VFR2 indicated that 65.8 per cent of the variance of the perception of taxpayers on
vertical fairness was described by this construct.

Table 6.9
 Communalities on Perception of Tax Fairness
Items Initial Extraction
PFR1 1.000 0.658
VFR1 1.000 0.41
RFR1 1.000 0.557
VFR3 1.000 0.531
RFR2 1.000 0.484
AFR1 1.000 0.493
HFR2 1.000 0.56
VFR2 1.000 0.507
RFR3 1.000 0.688
AFR2 1.000 0.675
HFR3 1.000 0.562
EFR3 1.000 0.333
Extraction Method: Principal Component Analysis.
Source: By researcher
The study was used Kaiser-Meyer-Olkin (KMO) to measure the adequacy of sample
unit and computed it for both sole and manifold predictors. It stood for proportions of
the squared relationship between the factors to squared partial connection among the
factors. Likewise, the measure of sample adequacy is computed for the entire
correlation matrix and individual variable in order to determine the appropriateness
of the factor analysis. Thus, as the value of KMO close to 1 the patterns of
correlation were relatively compacted, so the factor analysis yielded distinct and
reliable solutions for a model. According to Hair et al. (2010), its minimum value
should be 0.5 and below 0.5 confirmed inappropriateness of the factor analysis. As
reported in Table 6.10 the aggregated value of Kaiser-Meyer-Olkin for the whole
indicators of perception of tax fairness dimensions was 0.575. Consequently, the data
was appropriate to conduct the factor analysis on the predictors of the perceived tax
fairness.
Table 6.10
KMO and Bartlett's Test on Perception of Tax Fairness
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.575
Bartlett's Test of Approx. Chi-Square 160.397
Sphericity
df 66
Sig. 0.000
Source: By researcher
In Table 6.11 the KMO statistics at the individual level can be checked at the
diagonals of the anti-image correlation matrix. Thus, the diagonal of the anti-image
matrix for individual indicators of perception of fairness pointed out the adequacy of
sample for factor analysis at the threshold of 0.50. However, for HFR3 and RFR3,
the researcher considered 0.433 and 0.437 to enshrined content validity because an
identical result had documented in the works of Saad (2011), Mukasa (2011), Smart
(2012) and Abdul (2013).
Table 6.11
Anti-Image Correlations on Perception of Tax Fairness Construct
Constructs PFR1 VFR1 RFR1 VFR3 RFR2 AFR1 HFR2 VFR2 RFR3 AFR2 HFR3 EFR3
PFR1 .507a -0.153 -0.138 0.06 0.002 -0.08 -0.122 0.1 0.148 0.035 -0.013 -0.031
VFR1 -0.153 .671a -0.134 -0.002 -0.094 -0.043 -0.005 -0.083 0.015 0.023 0.025 -0.043
RFR1 -0.138 -0.134 .604a -0.178 0.035 -0.058 0.014 -0.149 -0.083 -0.054 0.087 -0.115
VFR3 0.06 -0.002 -0.178 .622a -0.036 0.001 -0.064 -0.106 0.02 0.051 -0.021 -0.027
RFR2 0.002 -0.094 0.035 -0.036 .549a -0.1 -0.041 -0.104 -0.171 0.032 0.095 0.025
AFR1 -0.08 -0.043 -0.058 0.001 -0.1 .629a -0.033 -0.044 -0.095 0.146 0.029 -0.006
HFR2 -0.122 -0.005 0.014 -0.064 -0.041 -0.033 .603a -0.079 -0.04 -0.026 -0.09 -0.177
VFR2 0.1 -0.083 -0.149 -0.106 -0.104 -0.044 -0.079 .577a 0.103 -0.016 -0.105 -0.089
RFR3 0.148 0.015 -0.083 0.02 -0.171 -0.095 -0.04 0.103 .433a -0.06 -0.104 -0.09
AFR2 0.035 0.023 -0.054 0.051 0.032 0.146 -0.026 -0.016 -0.06 .517a -0.066 0.016
HFR3 -0.013 0.025 0.087 -0.021 0.095 0.029 -0.09 -0.105 -0.104 -0.066 .437a 0.047
EFR3 -0.031 -0.043 -0.115 -0.027 0.025 -0.006 -0.177 -0.089 -0.09 0.016 0.047 .645a
a Measures of Sampling Adequacy(MSA)

Source: By researcher
In this study Bartlett’s test of sphericity was used to diminish the data to make it
ready for factor analysis. Thus, the Chi-Square of 160.397 at p< 0.000 indicated the
existence of sufficient correlation and variance among the variables in the data set. In
that case, the null hypothesis was rejected at 0.000 critical level. Also, the study was
used Eigen value to measure the amount of variance in the data set at the specific
value of greater than or equal to one (1>). For that reason, personal fairness (PFR),
vertical fairness (VFR), retributive fairness (RFR), administrative fairness (AFR) and
horizontal fairness (HFR) have scored the Eigen values of 1.289, 1.288, 1.217, 1.097
and 1.020 in turn. Thus, the data was fit for analysis since the Eigen values of these
components were greater than one.
The study has named the variables based on the magnitude of the loading factor of
the particular indicators. The initial variable, personal fairness was derived from
PFR1, VFR1, RFR1 and EFR3 with a load of 0.637, 0.617, 0.587 and 0.40
respectively. The second factor, vertical fairness formed from VFR3 and VFR2 with
factor loads of 0.725 and 00.682 respectively. The third aspect of the fairness
measurement mostly retributive fairness was derived from RFR3 and RFR2 with
factor loads of 0.779 and 0.617 sequentially. The fourth construct, horizontal fairness
was designed from HFR2 and HFR3 with the factor loading values of 0.708 and
0.664 in turn. The fifth factor, administrative fairness was originated from AFR2 and
AFR1 with loading factors of 0.802 and 0.597 sequentially. Hence, as indicated
under Table 6.12 the five components were adequate for the purpose of recognized
perception of the business income taxpayers on tax fairness as they explained about
54 per cent of the cumulative variance. Broadly, personal fairness, vertical fairness,
retributive fairness, horizontal fairness and administrative fairness had explained
15.22 per cent, 10.73 per cent, 10.14 per cent, 9.14 per cent and 8.50 per cent of
variance respectively.
Pertaining to the percentages of cumulative variance, the first factor personal fairness
explained about 15.217 per cent of fairness perception, second factor vertical fairness
explained about 25.949 per cent of tax fairness perception, third factor retributive
fairness explained about 36.088 per cent of tax fairness perception, fourth factor
horizontal fairness described about 54 per cent of fairness perception together with
fifth factor, administrative fairness explained about 45.231 per cent of tax fairness
perception respectively. Thus, the designed constructs properly measured tax fairness
perception thus assured construct validity and content validity of research work.
Accordingly, the above-mentioned validities were fully or else partially supported by
the works of Abroat (2011); Mukasa (2011), Saad (2011) as well as Kazemi (2008)
because they realized identical constructs to measured the perception of tax fairness.
Moreover, Richardson (2006) has been stated that items with correlation values of
greater than 0.5 considered from the rotation table to guaranteed validity of a
particular model. However, general fairness and exchange fairness were excluded
from the model because of insufficiency of the factor loadings.
Table 6.12
Rotated Component Matrix for the Perception of Tax Fairness
Items 1 2 3 4 5
PFR1 0.637
VFR1 0.617
RFR1 0.587
EFR3 0.40
VFR3 0.725
VFR2 0.682
RFR3 0.776
RFR2 0.663
HFR2 0.708
HFR3 0.664
AFR2 0.802
AFR1 0.597
Eigen Value 1.826 1.288 1.217 1.097 1.020
% of variance CHAPTER
15.217 10.732 SIX
10.193 9.143 8.499
Cumulative % 15.217 25.949 36.231 45.671 53.73

PERCEPTION OF BUSINESS
Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser
Normalization. a. Rotation converged in 9 iterations.

PROFIT
Source: By researcher TAXPAYERS ON TAX
FAIRNESS
6.2.2. Tax Knowledge
Again, this study applied multivariate principal component analysis to assure sample
adequacy, correlation and variance by means of extraction and rotation methods. In
Table 6.13, the variance was uttered correctly at the commonality of greater 0.50.
Table 6.13
Communalities of Dimension of Tax Knowledge
Items Initial Extraction
GKE1 1.000 .637
GKE 1.000 .643
 LKE2 1.000 .650
TCH4 1.000 .625
TCH5 1.000 .565
LKE1 1.000 .519
Extraction Method: Principal Component Analysis.

Source: By researcher
Table 6.14
KMO and Bartlett's Tests for Tax Knowledge
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.571
Bartlett's Test of Approx. Chi-Square 67.532
Sphericity
Df 15
Sig. 0.000

Source: By researcher ​
The aggregate value of the Kaiser-Meyer-Olkin measure of sampling adequacy for
the whole items of tax knowledge was 0.571. KMO statistics at each level had
evaluated at diagonals of an anti-image correlation matrix, in return, all items of tax
knowledge were considered as their values exceeded the threshold of 0.50. Thus, the
data was suitable to perform the factor analysis and correctly determined the validity
of the constructs. Afterwards, the Bartlett’s test statistics of 0.571 and Chi-Square of
67.532 at P< 0.000 leaded the researcher to reject the null hypothesis as it recognized
the existence of adequate correlation and variance between the chosen variables.
Table 6.15
Anti-Image Matrices for Tax Knowledge Dimension
Items GKE1 GKE2 LKE2 TCH4 TCH5 LKE1
GKE1 .562a -0.276 -0.017 0.001 -0.130 0.086
GKE2 -0.276 .572a 0.028 -0.072 -0.063 -0.004
LKE2 -0.017 0.028 .499a -0.013 -0.050 -0.031
TCH4 0.001 -0.072 -0.013 .565a -0.254 0.068
TCH5 -0.130 -0.063 -0.050 -0.254 .584a 0.022
LKE1 0.086 -0.004 -0.031 0.068 0.022 .610a
a. Measures of Sampling Adequacy(MSA)

Source: By researcher

In Table 6.16, the whole factors explicitly general knowledge, legal knowledge and
technical knowledge jointly described 60.63 per cent of business income taxpayers’
fairness perception in Western Oromia. The first component “technical knowledge”
described about 25.93 per cent of the business income taxpayers’ fairness perception
while second construct “general knowledge” described about 17.84 per cent of the
business income taxpayers’ fairness perception. Finally, the third component, “Legal
knowledge” explained about 16.86 per cent of business profit taxpayers’ perception
of fairness in the study area. Regarding the cumulative variance, the first factor
mainly technical knowledge explained about 25.927 per cent of perception of tax
fairness, the second factor, namely general knowledge explained about 43.767 per
cent of perception of tax fairness and the third-factor legal knowledge explained
about 60.63 per cent of perception of tax fairness. In view of that, they used to
measure an overall influence of tax knowledge on perceived fairness of business
income taxpayers. The study selected components with Eigen value of greater than or
equal to one (> 1). This validity was supported by the works of Saad (2011) and
Abdul (2013) as they had applied similar constructs to evaluate perception of tax
fairness. Accordingly, taking the works of Richardson (2006) and Smart (2012) as
evidence, the researcher extracted indicators with the correlation coefficient of more
than 0.5 or closed to 0.50. Hence, anchored in the outcome of the principal
component analysis, the study has used these factors to observe their affects on the
perception of tax fairness.
Table 6.16
Rotated Component Matrix for Tax Knowledge
Constructs 1 2 3
TCH4 0.786
TCH5 0.723
GKE2 0.800
GKE1 0.790
LKE2 0.766
 LKE1 0.655
Eigen Value 1.556 1.070 1.012
% of variance 25.927 17.840 16.864
Cumulative % 25.927 43.767 60.631
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization
Rotation converged in 4 iterations

Source: By researcher

6.2.3. The Complexity of The Business Income Tax System

The researcher utilized analogous techniques with that of perceived tax fairness and
knowledge dimensions so as to verify the adequacy of sampling for the construct of
the complexity of business income tax system. As pointed out in Table 6.17, the
values of communality for the whole constructs of complication of the profits tax
regulatory frameworks were more than 0.5. Thus, the communalities of 0.608, 0.605,
0.565 and 0.568 for constructs COP2, COP1, CTEN3 and CTEN1 revealed that the
variance of compliance and content complexities explained about 60.8 per cent, 60.5
per cent, 57.5 per cent and 56.8 per cent of perception of the business taxpayers on
profits tax complexity respectively.
Table 6.17
Communalities for Tax Complexity Dimension
Constructs Initial Extraction
COP2 1 0.608
COP1 1 0.605
CTEN3 1 0.565
CTEN1 1 0.568
Extraction Method: Principal Component Analysis.
Source: By researcher
In Table 6.18 the total value of Kaiser-Meyer-Olkin measure of sampling adequacy
was 0.50 for all indicators of content and compliance complications of the income
tax systems. As a consequence, the data was apt to make factor analysis and initiated
the investigator to establish valid constructs as well as rejected null hypothesis at
Chi-Square of 19.446 and P< 0.003. This outcome recognized the existence of ample
correlation among the variables and offered the researcher opportunity to executed
data analysis. As designated in Table 6.19, the diagonal anti-image matrixes for all
indicators with less than 0.5 have been disregarded from the factor analysis.
Table 6.18
KMO and Bartlett's Test for Tax Complexity Dimension
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.504
Bartlett's Test of Sphericity Approx. Chi-Square 19.446
Df 6
Sig. 0.003

Source: By researcher

Table 6.19
Anti-Image Matrices for Tax Complexity Dimension
Constructs COP2 COP1 CTEN3 CTEN1
COP2 .502a -0.213 -0.011 0.006
COP1 -0.213 .503a -0.017 0.016
CTEN3 -0.011 -0.017 .507a 0.133
CTEN1 0.006 0.016 0.133 .505a
a. Measures of Sampling Adequacy(MSA)
Source: By researcher
As presented in the rotated component matrix, the two major components elucidated
59 per cent of fairness perception. The primary component, compliance complexity
elucidated about 31 per cent of fairness perception of income taxpayers while content
complexity described about 28 per cent of fairness perception of profit taxpayers.
Further, the cumulative variance of the compliance complexity determined about 31
per cent of fairness perception whereas content complexity described about 58.68 per
cent of a variable. Ultimately, the thesis was valid to execute an ologit analysis to
examine the influence of the compliance complexity and content complexity of the
income tax framework over tax fairness perception in Western Oromia.
Table 6.20
Rotated Component Matrix for Tax Systems Complexity
Constructs Component
1 2
 COP2 0.780
CTEN2 0.777
COP3 0.754
CTEN3 0.752
Eigen Value 1.227 1.20
% of variance 30.672 28
Cumulative % 30.672 58.675
Extraction Method: Principal Component Analysis.
Rotation Method: Varimax with Kaiser Normalization.
a. Rotation converged in 3 iterations.

Source: By researcher ​
Generally, to a greater extent factor analysis was indicated comparable dimensions of
tax fairness, knowledge and complexity used by previous studies like Richardson
(2006); Mustapha (2010), Saad (2011) and Abroat (2011). However, this thesis was
examined an independent influence of tax fairness, tax knowledge and complexity
dimensions on perception of tax fairness similar to Mustapha (2010) and Saad (2011)
but against Abroat (2011). Except for HFR3, RFR3 and LKR2 these factors had
selected based on aggregated value of greater than 0.50 and >1 for Kaiser-Meyer-
Olkin; rotated component matrix and Eigen value sequentially. To determine the
validity of construct a study focused on the cumulative variance of factors within the
research structure. Then, the multivariate method by means of principal component
analysis mostly factor analysis assured adequacy of sample, correlation, variance and
construct as well as content validities of the data. Lastly, concerned dimension of tax
knowledge and tax system complexity it was identical with Saad (2012; 2014).

6.2.4. Tax Compliance Behaviour

The next tables show the results of factor analysis on tax fulfillment behavior. Hence,
a communality of the indicators in Table 6.21 exposed the presence of adequate
statistical variances in the model. For instance, communality of 0.693 for AFA3
revealed that 69.3 per cent of the variance in taxpayer attitude was described by this
item.
Table 6.21
Communalities for Compliance Behaviour Items
Constructs Initial Extraction
AFA3 1.000 0.693
ISA1 1.000 0.639
ISA3 1.000 0.646
SB3 1.000 0.590
SB8 1.000 0.531
SB9 1.000 0.603
PB3 1.000 0.638
PB4 1.000 0.660
PB7 1.000 0.603
TM4 1.000 0.866
COP1 1.000 0.59
LKE1 1.000 0.462
CTEN3 1.000 0.456
TCH4 1.000 0.569
TCH5 1.000 0.484
GKE2 1.000 0.417
Extraction Method: Principal Component Analysis.
Source: By researcher
In Table 6.22 the value of KMO on the whole factors was >0.57. Despite, the value
of Bartlett’s Test of Sphericity with a Chi-Square of 175.434 and P<0.000 pointed
out that correlation and variance among the indicators were statistically significant.
In other words, it was revealed that the correlation and variance among the constructs
were adequate to executed data analysis. With regard to the tax knowledge and
complexity, the amount of Bartlett’s Test of Sphericity with a Chi-Square of 125.202
and P<0.000 revealed that the variance between the predictors have been statistically
considerable. Evermore, a 0.665 amount of KMO provided that the correlation was
considerable among the predictors in the model.
Table 6.22
KMO and Bartlett's Test for Compliance Behaviour Items
Measurement TPB and tax morale Tax knowledge and
 complexity
Kaiser-Meyer-Olkin Measure of Sampling Adequacy. 0.570 0.665
Bartlett's Test of Approx. Chi-Square 175.434 125.202
Sphericity
df 45 15
Sig. 0.000 0.000
Source: By researcher
As indicated under Table 6.23 and 6.24 the diagonal comprised MSA for every
variables and the off-diagonal represented the partial linkage between the variables in
the model. Hence, all indicators with more than 0.50 were considered from the factor
analysis where the construct with the smallest value vacated at every stage. However,
the study shifted the values of AFA3 and PB3 from 0.471 and 0.492 to near number
0.50 for the intent of simplicity. Besides, the measure of sample adequacy argued that
the association of an individual construct with a threshold value of greater than 0.50
was acceptable.
Table 6.23
Anti-Image Matrices for Compliance Behaviour Items
Items AFA3 ISA1 ISA3 SB3 SB8 SB9 PB3 PB4 PB7 TM4
AFA3 .50a 0.090 -0.020 0.061 -0.068 0.092 -0.199 0.033 -0.074 -0.045
ISA1 0.090 .584a -0.238 -0.045 -0.083 -0.038 -0.020 -0.006 0.035 -0.006
ISA3 -0.020 -0.238 .542a 0.085 -2.700 0.055 -0.179 -0.087 -0.090 0.047
SB3 0.061 -0.045 -0.085 .616a -0.205 -0.262 0.072 0.014 -0.045 -0.020
SB8 -0.068 -0.083 -2.700 -0.205 .661a -0.122 -0.082 -0.108 -0.059 0.031
SB9 0.092 -0.038 0.055 -0.262 -0.122 .584a -0.131 0.040 -0.117 -0.135
PB3 -0.199 -0.020 -0.179 0.072 -0.082 -0.131 .50a 0.041 0.084 -0.080
PB4 0.033 -0.006 -0.087 0.014 -0.108 0.040 0.041 .549a -0.242 -0.064
PB7 -0.074 0.035 -0.090 -0.045 -0.059 -0.117 0.084 -0.242 .564a 0.024
TM4 -0.045 -0.006 0.047 -0.020 0.031 -0.135 -0.080 -0.064 0.024 .530a
a. Measures of Sampling Adequacy(MSA)
Source: By researcher
​
Table 6.24
Anti-Image Matrices for Tax Knowledge and Tax Complexity
Items COP1 LKE1 CTEN3 TCH4 TCH5 GKE2
COP1 .649a -0.22 -0.232 0.022 -0.089 -0.08
LKE1 -0.22 .665a -0.119 -0.074 -0.134 0.051
CTEN3 -0.232 -0.119 .683a -0.045 -0.03 -0.112
TCH4 0.022 -0.074 -0.045 .649a -0.22 -0.149
TCH5 -0.089 -0.134 -0.03 -0.22 .677a -0.137
GKE2 -0.08 0.051 -0.112 -0.149 -0.137 .669a
a Measures of Sampling Adequacy(MSA)

Source: By researcher
After examining the adequacy of sample and correlation among the variates, the
study applied rotated component matrix to recognized principal components via
Varimax with Kaiser Normalization and rotation method. The row of Eigen value in
Table 6.25 revealed the sum of squared loading for factor at the level of more than or
equals to one (>1). Then, five factors with Eigen value of >1 had extracted from a
table of the total variance. Components 1,2,3,4, 5, 6 and 7 had Eigen values of 1.818,
1.286, 1.215, 1.171, 1.00, 1.868 and 1.11 respectively. Thus, the data was appropriate
for the factor analysis in return, deleted indicators with insufficient loading from the
model. In table 6.25 the first component particularly perceived subjective norm was
included SB3, SB9 and SB8 whereas the second component, perceived behavioral
control formed from PB 4 and PB7. The third factor, tax attitude comprised ISA1,
ISA3, AFA3 and PBC3. The fourth factor, tax morale was established from TM4.
Lastly, factors 5 and 6 have been derived from COP1, LKE1 and CTEN3 and TCH4,
TCH5 and GKE2. Afterwards, all other indicators with less than 0.4 of factors
loading had deleted from the model.
Factor loading was recognized correlation between the original variables or factors
that are keys to understanding the nature of particular constructs. The squared factor
loading pointed out the proportion of equal variance in initial predictors that were
portrayed by a component.
In the rotated component matrix the major components elucidated about 65 per cent
and 50 per cent of business profit taxpayers’ compliance behaviour in the context of
subjective norm, behavioral control, attitude, tax morale, knowledge and complexity.
Hence, the primary component, perceived subjective norm was elucidated 18.18 per
cent of compliance behaviour whereas perceived behavioral control explained about
12.86 per cent of tax compliance actions. Afterwards, attitude toward tax and tax
morale had explained about 12.145 per cent and 10 per cent of tax obedience actions
in turn. So, these constructs were valid for ologit analysis; test of the null hypotheses
and investigation of the influence of TPB jointly with the perception of tax fairness
and morale over their tax compliance behaviour.
With regard to cumulative variance percentage, perceived subjective norm, perceived
behavioral control, attitude toward tax and tax morale explained about 18.177 per
cent, 31 per cent, 55 per cent and 64.672 per cent of the tax obedience behavoiur of
the business profit taxpayers respectively.
With reference to tax knowledge and complexity, the primary factor, tax knowledge
explained 31.13 per cent of compliance behavoiur while the tax complexity uttered
their compliance behaviour about 49 per cent.
The study has treated the perception of fairness as one of the independent variables
in a conceptual framework to recognize its influence over tax compliance behaviour
together with other desired predictors. This made the current research different from
Saad (2011; 2012) and Abrot (2011). On the other hand, this research work is unique
from prior studies in added tax morale, whole tax knowledge and tax complexity in
the constructs. In the end, the thesis investigated the influence of perception of tax
equity, perceived subjective norm, perceived behavioral control, attitude towards tax,
tax morale, tax knowledge and complexity of profit tax system over compliance
behavoiur.
Table 6.25
Rotated Component Matrix for Compliance Behaviour Items
Constructs 1 2 3 4 5 6
SB3 0.749
SB9 0.707
SB8 0.642
PB4 0.792
PB7 0.750
ISA1 0.773
ISA3 0.755
AFA3 0.803
PB3 0.688
TM4 0.925
COP1 0.731
LKE1 0.678
COTEN3 0.562
TCH4 0.755
TCH5 0.662
GKE2 0.641
Eigen Value 1.818 1.286 1.215 1.00 1.868 1.11
% of variance 18.177 12.863 12.145 10 31.132 18.495
Cumulative % 18.177 31 55.193 64.67 31.13 49.63
Source: By researcher
6.3. TEST OF RELIABILITY
According to Hair et.al (2010) reliability indicated the degree to which a variable or
the group of variables was consistent in what it is proposed to evaluate. If diverse
measurements had considered, the reliability of the constructs ought to be steady in
their values. This differed from the validity in that it does not link to what must be
evaluated rather how it assessed. Moreover, Cronbach’s alpha measure of reliability
with a value of 0.60 to 0.70 supposed to be the minimum tolerability. For the
purposes of this thesis, the items of equity, distributive justice, procedural justice;
intrinsic motivation and TPB theories were utilized concurrently to determine their
effects on fairness perception and obedience behaviour. Additionally, the conceptual
model considered tax knowledge and tax complexity dimension to look into their
influence on perception of tax fairness.
For the aim of study, sixteen independent variables were selected to measure their
influence on business profits taxpayers’ fairness perception and obedience behavoiur.
Thus, ten out of sixteen predictors’, particularly, personal fairness, vertical fairness,
horizontal fairness ,administrative fairness, retributive fairness, general knowledge,
legal knowledge, technical knowledge, compliance complexity as well as content
 compliance have been measured by means of Saad (2011), Abroat (2011), Smart
(2012) and Chang (2013). In contrast, perception of tax fairness, tax morale, tax
knowledge, tax complexity, attitude, subjective norm and behavioral control had
utilized to measure their impacts on tax compliance behaviour. Therefore, the study
used Cronbach’s alpha coefficient of greater than 0.60 as recommended by Hair et al.
(2010). Thereafter, the values of internal reliability for the overall indicators of
perception of fairness and tax compliance behaviour accounted to 71 and 70 in turn.
Hence, the instruments were reasonably reliable and measured what they supposed to
evaluate in the model.
Table 6.26
Reliability Statistics Using Cronbach's Alpha
Variables N of Items
Perception Of Tax Fairness 0.7059 (71%) 36

Tax Compliance Behaviour .6919 (70%) 34

Source: By researcher
6.4. INFERENTIAL ANALYSIS
6.4.1. Correlation Analysis
This part determined the strength of correlation among variables under the research
framework by means of Kendall’s correlation matrix at 2-tailed considerable level.
Table 6.27
Kendall's Correlation Matrix on Tax Fairness Dimensions and Fairness
Perception
Variables Coef. TFR PFR VFR RFR HFR AFR
Pereption of Tax Fairness Coefficient 1 .095* .093* 0.08 .106* 0.071
Sig. (2-tailed) . 0.027 0.03 0.062 0.014 0.097
Personal Fairness Coefficient .095* 1 0.001 -0 0.018 0.012
Sig. (2-tailed) 0.027 . 0.983 0.931 0.636 0.76
Vertical Fairness Coefficient .093* 0.001 1 -0 0.007 0
Sig. (2-tailed) 0.03 0.983 . 0.927 0.863 0.996
Retribitive Fairness Coefficient 0.08 -0 -0.004 1 0.013 0.003
Sig. (2-tailed) 0.062 0.931 0.927 . 0.735 0.938
Horizontal Fairness Coefficient .106* 0.018 0.007 0.013 1 0.001
Sig. (2-tailed) 0.014 0.636 0.863 0.735 . 0.977
Adiministrative Fairness Coefficient 0.071 0.012 0 0.003 0.001 1
Sig. (2-tailed) 0.097 0.76 0.996 0.938 0.977 .
* Correlation is significant at 0.05 level (2-tailed).

Source: By researcher
The Kendall’s correlation matrix coefficients of 0.095, 0.093, 0.08, 0.106 and 0.071
and their adjacent p-values of 0.027, 0.03, 0.062, 0.014 and 0.097 for the personal
fairness; vertical fairness; retributive fairness; horizontal fairness and administrative
fairness had acknowledged the presence of statistically strong positive relationships
among predictors and fairness perception in Western Oromia respectively. Due to
their factor loading, the study was not tested the correlation between general fairness,
exchange equity and perception of fairness. The result entailed that personal fairness;
vertical fairness; retributive fairness; administrative fairness and horizontal fairness
positively added to the fairness perception of profit taxpayers in Western Oromia.
Though the kinds of tax fairness dimension and their correlation with perception of
tax fairness was distinct from one country to another country in different studies,
most of the prior works documented the values of the aforesaid tax fairness notions
to boost perception of tax justice. For instance, the theories of equity, distributive and
procedural justices notified fairness perception of taxpayers depended on the extent
of retributive fairness; exchange fairness; horizontal fairness; vertical fairness;
procedural fairness and policy equities. Consequently, this finding was warranted by
theories of equity, distributive justice and procedural justice since they had realized
the role of fair benefit, penalties, procedures, distributions and policies in improving
tax fairness perception profit taxpayers. In the end, the findings attested that the
profit taxpayers at the study place considered profit tax rule as fair if it recognized
personal fairness, vertical equity, retributive equity, administrative equity, horizontal
equity, exchange equity and general justice.
Table 6.28
Variables Coef. TFP TCH GKE LKE
Perception of Tax Fairness 1 0.082 .162** .105*
 Sig. (2-tailed) . 0.057 0 0.015
Technical Knoweldge Coefficient 0.082 1 -0.011 0.017
Sig. (2-tailed) 0.057 . 0.776 0.657
General Knowledge Coefficient .162** -0.011 1 -0.01
Sig. (2-tailed) 000 0.776 . 0.886
Legal Knolwedge Coefficient .105* 0.017 -0.006 1
Sig. (2-tailed) 0.015 0.657 0.886
** Correlation is significant at 0.01 level (2-tailed).
* Correlation is significant at 0.05 level (2-tailed).

Kendall’s Correlation Matrix of Tax Knowledge and Fairness Perception

Source: By researcher
Table 6.28 affirmed positive and significant correlation among technical knowledge,
general knowledge, legal knowledge and tax fairness perception at 0.01 and 0.05 at
two-tailed significance levels. So, Kendall’s correlation coefficients of 0.082, 0.162
and 0.105 with the p-values of 0.05, 0.000 and 0.015 on technical knowledge,
general knowledge and legal knowledge had confirmed the existence of statistically
strong connection between the predictors and perception of tax fairness in Western
Oromia. Equally, tax fairness perception of taxpayers in Western Oromia has grown
with increase in general knowledge, legal knowledge and technical knowledge. This
was concrete evidence for the importance of tax knowledge in advance tax fairness
perception of business income taxpayers in Oromia. Afterwards, the predictors were
significantly uncorrelated as their relationships were statistically exact at 0.05 two-
tailed p-values. Increasingly, fairness perception in Western Oromia had a very
strong correlation with the general knowledge and legal knowledge than technical
knowledge seeing that their p-values were 0.000, 0.015 and 0.05.
This finding was similar with some of the prior works in the literature review as they
founded significant correlation between taxpayers’ tax knowledge and their fairness
perception. However, most of those studies were assessed correlation of common
knowledge of tax with perceived tax fairness of taxpayers than individual dimension.
Besides, partially it was identical with Saad (2011) because the study founded a
critical linkage between legal knowledge, technical knowledge and perceived tax
fairness. It was unrelated with Tan and Chin-Fatt (2007) given that they have been
failed to investigate statistically momentous correlation between tax fairness
perception and taxpayers’ knowledge in Malaysia. Subsequently, certain studies had
investigated the indirect relationship between tax knowledge and exchange fairness
perception. So, the perception of business income taxpayers in Western Oromia of
Ethiopia was multidimensional nature as to tax knowledge.
Table 6.29
Kendall’s Correlation Matrix of Tax Complexity and Fairness Perception
Variables Coef. TFP COP COTEN
Perception of Tax Fairness Coefficient 1 .117** -0.084
Sig. (2-tailed) . 0.006 0.05
Compliance Complexity Coefficient .117** 1 -.091*
Sig. (2-tailed) 0.006 . 0.02
Content Complexity Coefficient -0.084 -.091* 1
Sig. (2-tailed) 0.05 0.02 .
** Correlation is significant at 0.01 level (2-tailed).
* Correlation is significant at 0.05 level (2-tailed).

Source: By researcher
Table 6.29 revealed an incidence of statistically considerable correlation between
compliance complexity, content complexity and perception of tax justice at 0.01 and
0.05 2-tailed significant levels. Hence, Kendall's correlation coefficients of 0.177 and
0.084 with their p-values of 0.006 and -0.05 for the compliance complexity and
content complexity had recognized the presence of positive and negative correlation
among predictors and tax fairness perception respectively. The finding of this thesis
was reported significant and positive correlation among obedience complexity and
perceptions of tax fairness. Conversely, it realized the occurrence of significant and
negative correlation among content complexity and perception of fairness. Equally,
the tax fairness perception of taxpayers in Oromia region increased with increase in
compliance complexity. On the other hand, their perceived fairness declined with
increase in content complexity of business income tax laws. This was a good reason
for the values and inconvenience of the complex income tax rule for perception of
the taxpayers’ in the study environment. To some extent, the result of this study was
identical with previous works since they were determined significant correlation
among taxpayers’ fairness perception and complexity of income tax law. Utterly, the
result was acknowledged the vital of determined the magnitude of complication of
the income tax laws mainly business income tax rule and regulation on the insight of
the income taxpayers in the Western Part of Oromia region.
6.4.2. Results of Regression Models
The study was used an ordered logits regression to explore the degree of influence of
general fairness, horizontal fairness, retributive fairness, vertical fairness, personal
fairness, exchange and administrative fairness, general knowledge, legal knowledge
,technical knowledge, compliance complexity and content complexity on the fairness
perception of the business income taxpayers in study ecosystem. More importantly,
the study independently regressed dimensions of tax fairness, tax knowledge and
complexity on tax fairness perception. The regression model adjusted depended on
the outcome of multivariate techniques specifically factor analysis. Thus, general
fairness and exchange fairness excluded from the model because of their factor
loadings.
1. Test of Hypothesis
Null Hypothesis 1: There is no significant difference among the business profit
taxpayers with regard to the level of opinion of fairness perception, tax knowledge,
complexity of income tax system and their compliance behaviour.

Table 6.30
ANOVA Results on Fairness Perception, Tax knowledge and Complexity
Measures Mean F P-value Significance Level
Personal Fairness 1.4 1.37 0.24 Insig at 0.05
Vertical Fairness 2.95 3.03 0.018 Sig at 0.000
Retributive fairness 1.77 1.79 0.10 Sig at 0.10
Horizontal fairness 3.6 3.73 0.0056 Sig at 0.000
Administrative fairness 1.44 1.45 0.21 Insig at 0.05
Technical knowledge 1.55 1.56 0.10 Sig at 0.10
General knowledge 4.27 4.47 0.0016 Sig at 0.01
Legal knowledge 1.94 1.96 0.10 Sig at 0.10
Compliance complexity 2.48 2.53 0.0404 Sig at 0.05
Content complexity 2.857 2.93 0.0212 Sig at 0.01
Source: By researcher
As discussed in a piece of descriptive statistics, business income taxpayers in
Western Oromia had distinct perceptions on the magnitude of general fairness;
personal fairness; retributive fairness; exchange fairness; administrative fairness;
horizontal fairness; vertical fairness; general knowledge; legal knowledge; technical
knowledge; compliance and content complexities towards income tax framework.
However, the outcome of the one-way ANOVA indicated that the business income
taxpayers in the study atmosphere had statistically significant distinct perceptions on
the extent of retributive fairness, vertical fairness and horizontal fairness. Similarly,
the one-way ANOVA designated that the business income taxpayers in the Western
Part of Oromia had statistical considerable diverse perception on the extent of
technical knowledge, general knowledge, legal knowledge; compliance complexity
and content complexity. In connection with an administrative fairness and personal
fairness, the perception of business income taxpayers was not considerably dissimilar
in the study environment. With reference to general fairness and exchange fairness,
the researcher hasn't tested the level of disparity or similarity as they excluded from a
regression analysis based on their factor loading.
This research is similar to Abroat (2011) except for administrative fairness, personal
fairness, genera fairness and exchange fairness. Furthermore, this study was different
from his thesis as he checked discrepancy of taxpayer opinions on broad knowledge
and tax complexity than individual dimensions. It varied from Saad (2011) as the
researcher founded significant different views on genera fairness and personal
fairness among Malaysia and New Zealand income taxpayers. Alternatively, it was
similar to Saad (2011) since the study explored diverse views on horizontal fairness,
legal knowledge, general knowledge and content complexity as well as compliance
complexity. The result of this thesis was dissimilar with Gilligan and Richardson
(2005) as they had discovered diverse perceptions on general fairness among Hong
Kong and Australia.
Overall, the initial null hypothesis “There is no significant difference among the
business profit taxpayers with regard to the level of opinion on tax fairness, tax
knowledge and complexity of an income tax system dimensions in Western Oromia”
was rejected in the case of vertical fairness, horizontal fairness, retributive fairness,
technical knowledge, general knowledge, legal knowledge, compliance complexity
and content complexity. But, the study was accepted this hypothesis in the context of
personal fairness and administrative fairness. Thus, it provided an answer for the
basic question “how business income taxpayers in Western Oromia perceived the
level of business income tax fairness”. Thereafter, it revealed that business income
taxpayers in Western Oromia had multidimensional perceptions on the magnitude of
the business income tax fairness, tax knowledge and tax complexity.
2. Test of Hypothesis
Null Hypothesis 2: Tax fairness dimensions, tax knowledge and complexity of
business income tax system do not have significant influence on business profit
taxpayers fairness perception.
To test this hypothesis, the study utilized an ordered logistic regression or ologit.
Also, the study examined the influence of the personal fairness (PFR); vertical
fairness (VFR); retributive fairness (RFR); administrative fairness (AFR); horizontal
fairness (HFR); technical knowledge (TCH); general knowledge (GKE) ; legal
knowledge (LKE); compliance complexity (COP) and content complexity (CTEN)
on perceived fairness of income taxpayers. The endogenous variable or tax fairness
perception (TFP) indulgenced as ordinal in the hypothesis that the level of PTF had a
natural ordered (very unfair to very fair), however, the distance among the adjacent
degree was not known. Hence, the researcher analyzed and interpreted an ologit
coefficients; LR chi2, Prob > Chi2, z (t) and P>|z|(p).
Thus, Model “A” applied to test the influence of the tax fairness dimensions
namely personal fairness (PFR), vertical fairness (VFR), retributive fairness (RFR), a
dministrative fairness (AFR) and horizontal fairness (HFR) on perception of tax
fairness (PTF). Model “A”:“Tax fairness dimensions do not have significant
influence on the business profit taxpayers’ fairness perception in Western Oromia”
Ologit TFP PFR VFR RFR HFR AFR
List of Iteration Log Likelihood
Iteration 0: log likelihood = -450.65574
Iteration 1: log likelihood = -439.42138
Iteration 2: log likelihood = -439.39175
Iteration 3: log likelihood = -439.39175
Model Summary
Ordered logistic regression ​ Number of obs =300
​ LR chi2 (5) = 22.53
​ Prob > chi2 =0.0004
Log likelihood = -439.39175 Pseudo R2 =0.0250
Parameter Estimates
Table 6.31
The Influence of Tax Fairness Dimensions over Perceptions of Fairness
Taxes fairness perception Coef. Std. Err. z P>z Significant level
Personal Fairness .2295098 .1067471 2.51 0.032 Sign at 0.05
Vertical Fairness .2430913 .1042136 2.02 0.010 Sign at 0.01
Retributive Fairness .172824 .1020031 1.69 0.09 Sign at 0.10
Horizontal Fairness .2466694 .1065116 2.32 0.021 Sign at 0.05
Administrative Fairness .2144175 .1082375 1.98 0.045 Sign at 0.05
/cut -.9278192 .1302772. (Ancillary parameters)
/cut2 -.1394792 .1186639
/cut3 .0820694 .1184551.
/cut 1.052219 .1334454
The results were significant at 1% ,5% and 10%
Source: By researcher
The ordered logistic regression produced the log-likelihood at every iteration and
applied the highest likelihood estimation indicated an iterative process in the model.
Hence, the iteration 0 told the log probability of an empty model that is, a model
devoid of predictors. The succeeding iteration told that independent variable(s) are
incorporated in a model construct. Finally, a construct is converged, then, the
outcome is fashioned because the variance between the consecutive iteration was
diminutive.
Moreover, in Table 6.31, the number of observations in the model was 300 because
there were no missed value vis-à-vis measurements of perception of business income
tax fairness. The LR Chi2 (5) disclosed the likelihood ratio of the Chi-square test that
minimum one of the independent variables’ coefficients was diverse from zero in the
model. The number in the bracket (5) pointed out the degree of freedom of the Chi2
distribution applied to check the LR Chi2 statistics explained by the number of
independent variables in ologit model. Prob > Chi2 = 0.0004 revealed the possibility
of obtained the likelihood ratio test statistics as extreme as, or more so than the
included in the null hypothesis whereby the null hypothesis was that all of an ologit
regression coefficients under the model were identical to zero. Therefore, the thesis
generalized that the model was fitted, in return, rejected the null hypothesis at LR
Chi2 of 22.53, degree of freedom of 5 and p-value of 0.0004 respectively.
The findings notified that PFR, VFR, RFR, HFR and AFR had momentous impact on
the magnitude of the perceived fairness of the business income taxpayers in Western
Oromia. Evermore, the Chi2 of 22.53 with a p-value of 0.0004 revealed the model
was statistically significant in the whole situations. Thus, personal fairness; vertical
fairness; retributive fairness, horizontal fairness and administrative fairness were con
siderably influenced the magnitude of tax fairness perception of business profit
taxpayers in Western Oromia. The positive coefficients of the predictors pointed out
that the likelihood of the business profit taxpayers perceived profits tax fairness in
Ethiopia primarily Western Oromia increased with elevate in the extent of horizontal
fairness, vertical fairness, personal fairness; administrative fairness and retributive
fairness.
PFR is the ordered log coefficient estimation for a single unit raise in personal
fairness on the expected fairness perception given other predictors held stable in the
model. So, if the purpose of the revenue authority of Oromia region is to broaden the
magnitude of personal fairness of profit taxpayers by single unit, ologit coefficient on
the fairness perception would be expected to increase by 0.2295098 keeping the
other predictors stable in the model.
VFR is ordered log coefficient estimate for a single unit lift in vertical fairness on the
expected perception of tax fairness provided that other variables remain constant in
the model. So, a single unit increase in vertical fairness would be result in a
0.2430913 unit lift in the log odd ratio of being in a higher perception of fairness
while other predictors remain silent in the model. If the intent of the revenue
authority is to increase business income taxpayers vertical fairness by 1 per cent, its
log odd coefficient of being in a higher fairness perception would increase by 0.24
per cent while other predictors remain stable in the model.
RFR is ologit coefficient estimate for a single unit elevate in retributive fairness on
the expected perception of fairness given that other independent variables remain
steady in the model. Thus, if the focus is to boost retributive fairness of the business
income tax system by one unit, an ologit coefficient on the fairness perception would
be expected to increase by 0.172824 unit keeping the other variables flat in the model
construct.
HFR is ologit coefficient estimation for a sole unit augment in horizontal fairness on
the expected degree of tax fairness perception given that other predictors stay stable
in the model. If the intent is to enlarge horizontal fairness of the business profit tax
law by single unit, an ologit coefficient on the tax fairness perception would be
anticipated to amplify by 0.2466694 unit keeping the other predictors stable in the
construct.
AFR is ologit coefficient estimation for single unit increase in administrative fairness
on the expected magnitude of perception of fairness provided that other predictors
remain stable in the regression model. Hence, for units enlarge in this independent
variable the Oromia revenue authority would be estimated a 0.2144175 unit lift in
fairness perception of business profit taxpayers keeping the other predictors constant
in the construct.
Finally, by connected Z test statistic of the predictors personal fairness (2.51);
vertical fairness (2.02); retributive fairness (1.69); horizontal fairness (2.32) and
administrative fairness (2.98) and with their parallel p-values of 0.032, 0.010, 0.09,
0.021 and 0.045 the research was partially rejected a null hypothesis “Tax fairness
dimensions do not have significant influence on the business profit taxpayers fairness
perception in Western Oromia.” Hence, the fairness perception of the business
income taxpayers in Western Oromia was considerably influenced by the extent of
horizontal fairness, vertical fairness, personal fairness, administrative fairness and
 retributive fairness.
Model “B”:“Tax knowledge does not have significant influence on business profit
taxpayers’ fairness perception in Western Oromia.”
Under this, the study was tested the influence of tax knowledge mainly general
knowledge, legal knowledge and technical knowledge on the perceived fairness of
the business income taxpayers in Western Oromia. Further, the thesis employed
ordered logistic regression model to identify their level of influence on the fairness
perception of the business income taxpayers in the study atmosphere.

Ologit TFP TCH GKE LKE

List of Iteration Log-Likelihood

Iteration 0: log likelihood = -450.65574

Iteration 1: log likelihood = -437.33143
Iteration 2: log likelihood = -437.29166
Iteration 3: log likelihood = -437.29165
Model Summary
Ordered logistic regression Number of obs = 300
LR chi2 (3) = 26.73
Prob > chi2 = 0.0000
2f
Log likelihood = -437.29165 Pseudo R = 0.0297
Parameter Estimates
Table 6.32
The Extent of Influence of Tax Knowledge on Tax Fairness Perception
Tax Fairness Perception Coef. Std. Err. z P>|z| Significant level
Technical Knowledge .228242 .1048147 2.18 0.029 Sign at 0.05
General Knowledge .4186974 .0106638 3.93 0.000 Sign at .01xx
Legal Knowledge .2964356 .1070542 2.77 0.006 Sign at .01 xx
/cut1 -.9367457 .1309025 (Ancillary parameters)
/cut2 -.1385904 .1188401
/cut3 0846027 .1186568
/cut4 1.062394 .13416
*The results were significant at 1% and 5%
Source: By researcher
In Table 6.32 the iteration 0 presented the log possibility of empty model that is, the
model lacking basic predictors of the study. Consequently, the subsequent iterations
assured that the independent variable(s) are integrated into the model construct. As
the iteration closed to zero the model is converged in that case the regression results
had produced automatically. Thereafter, as reported in Table 6.32 the LR Chi2 (3) for
perception of tax fairness realized the model is fitted and the null hypothesis is
rejected at 0.001 considerable level as the whole degree of freedom, Chi2 and p-
value have been 3, 26.73 and 0.0000 successively. This type of ordered logistic
regression output told that the model was statistically significant in all situations.
Likewise, based on p-value from the likelihood ratio statistics of Prob < =0.00001
the researcher generalized that minimum one of the ologit coefficients in the
construct was free from zero.
TCH is the ordered log coefficient estimation for single unit increase in technical
knowledge on the expected fairness perception extent given general knowledge and
legal knowledge of the taxpayers were held stable in the model. Therefore, if the
intention is to improve technical knowledge of the business income taxpayers by one
unit, an ologit coefficient on the perception of tax fairness would be estimated to
augment by 0.23 unit keeping general knowledge and legal knowledge constant in
the model.
GKE is ordered log coefficient estimate for one unit amplify in general knowledge
on the expected perception of tax fairness level given technical knowledge and legal
knowledge were held steady in the model. So, single unit increase in general
knowledge would result a 0.42 unit amplify in the ologit coefficient of being in
higher fairness perception of income taxpayers where technical knowledge and legal
knowledge were remained stable in the model. If the aim of the revenue authority is
to enlarge the magnitude of general knowledge of the business profits taxpayers by
single unit, an ologit coefficient on perception of tax fairness would be anticipated to
enlarge by 0.42 unit where technical knowledge and legal knowledge are remain
constant in the model.
LKE is an ologit coefficient estimate for single unit growth in legal knowledge of on
the expected perception of tax fairness extent provided that technical knowledge and
general knowledge were lingered steady in the model. So, one per cent increase in
legal knowledge would cause a 0.296 unit increase in the ologit coefficient of being
in higher fairness perception of profit taxpayers where technical knowledge and
general knowledge are linger fixed in the model. More subtly, for single unit increase
in the level of technical knowledge, general knowledge and legal knowledge one can
be acknowledged 0.23, 0.42 and 0.30 units increase in the level of fairness perception
of business taxpayers in Western Oromia respectively.
More and more, if the purpose of revenue department in Ethiopia mainly Western
Oromia is to enlarge the degree of income taxpayers technical knowledge, general
knowledge and legal knowledge on business profit tax system by one unit, an ologit
coefficient on perception of tax fairness would be expected to increase by 0.23, 0.42
and 0.30 units sequentially.
In the end, by linked z (t) test statistic of the predictors technical knowledge
(2.18); general knowledge (3.93) and legal knowledge (2.77) with their parallel p-
values of 0.029, 0.00 and 0.006 null hypothesis “Tax knowledge does not have
significant influence on business profit taxpayers fairness perception in Western
Oromia.” has been rejected at considerable level of 0.01.
Accordingly, the researcher notified that the log odd ratio of the technical
knowledge, general knowledge and legal knowledge significantly explained the
perception of the business income taxpayers towards income tax system of Oromia
region in Ethiopia. Overall, the perceived equity of the income taxpayers primarily
business income taxpayers in the study environment significantly affected by the
level of tax knowledge, explicitly technical knowledge, general knowledge and legal
knowledge.
Model C”:“Complexity of the business income tax system does not have significant
influence on the business profit taxpayers’ fairness perception in Western Oromia”
Ologit TFP COP CTEN
List of Iteration Log Likelihood
Iteration 0: log likelihood = -450.65574
Iteration 1: log likelihood = -445.03571
Iteration 2: log likelihood = -445.02939
Iteration 3: log likelihood = -445.02939
Model Summary
Ordered logistic regression Number of obs = 300
LR chi2 (2) = 11.25
Prob > chi2 = 0.0036
f2
Log likelihood = -445.02939 Pseudo R = 0.0125
Parameter Estimate
Table 6.33
The Influence of Complexities of Tax System on Fairness Perceptions
Tax Fairness Perception Coef. Std. Err. z P>|z| Significant level
Compliance Complexity .2757621 .0103575 2.66 0.008 Sign at 0.01
Content Complexity -.2203237 .1086087 2.03 0.042 Sign at 0.05
/cut1 -.908397 .1286648 (Ancillary parameters)
/cut2 -.1417264 .1170671
/cut3 . 073776 .1168192
/cut4 1.019309 .1316379
*The results were significant at 5%
Source: By researcher
In Table 6.33 Chi-Square of 11.25 with a p-value of 0.0036 revealed that a model
was statistically significant in all conditions and scarcity of multi-collinearity among
the predictors. COP was specified an ologit coefficient estimate for a single unit raise
in a degree of compliance complexity on the perception of tax fairness, given content
complexity of the income tax system remain constant in the model. The positive
coefficient for COP depicted that likelihood of perceived fairness did increase in
business income tax system compliance fairness. So, if an aim was to increase the
extent of compliance complexity in income tax system of Ethiopia and Oromia
region by one unit, ologit coefficient for the perception of fairness towards profit
taxpayers in Western Oromia would be expected to increase by 0.28 units holding
content complexity stable in a model. In contrast, CTEN was indicated ologit
coefficient estimate for a single unit increase in a degree of the content complexity
on the expected perception of profit tax fairness extent, given compliance complexity
lingers constant in a model. Consequently, the negative coefficient for CTEN pointed
out that the complexity of the business income tax increased the probability of
having agony perceived fairness by profit taxpayers in Western Oromia.
If the focus is to boost content complexity of Ethiopia and Oromia region income tax
system by one unit, ologit coefficient on the perception of profit tax fairness with
reference to profit taxpayers in Western Oromia, Ethiopia would be expected to
decrease by 0.22 units held the compliance complexity stable in the construct.
Furthermore, for a single unit increase in "COP" one can be expected a 0.28 increase
in fairness perception whereas for a unit increase in content complexity (CTEN) the
perceived fairness of business profit taxpayers can be declined by 0.22. Similarly, as
a compliance complexity of the business income tax structure is decreased by one
unit in Ethiopia, the unfairness perception of the business income taxpayers in
Ethiopia, Western Oromia would be expected to rise by 0.28 units and their
perception of tax fairness would be dropped by the same amount. After that, as the
content complexity of the business income tax rule is increased by single unit, the
unfairness perception of profit taxpayers would be augmented by 0.22 units.
By connected z (t) test statistic for the predictors’ the compliance complexity (2.66)
and content complexity (2.03) with parallel p-values of 0.008 and 0.042, the thesis
was entirely rejected the null hypotheses “C” “complexity of income tax system does
not have significant influence on the business profit taxpayers fairness perception in
Western Oromia”. Hence, the perceived compliance complexity (COP) and content
complexity (CTEN) were positively and negatively influenced the business income
taxpayers perception of income tax fairness in Ethiopia, mainly, Ambo, Nekemte,
Shambo, Gimbi and Dambidollo towns.
By and large, based on z (t) test statistic for the predictors of personal fairness (2.07);
vertical fairness (2.57); retributive fairness (1.71); administrative fairness (2.19);
horizontal fairness (2.40); technical knowledge (2.18); general knowledge (3.93);
legal knowledges (2.77); compliance complexity (2.66) and content complexity
(2.06) with their connected p-value of less than 0. 01, 0.05 and 0.10, the researcher
has rejected the second null hypothesis “Tax fairness dimensions, tax knowledge and
complexity of income tax systems do not have significant influence on business
profit taxpayers perception of tax fairness in Western Oromia” and concluded that
regression coefficient of the explanatory variables were found to be statistically
significant in describing their influence on the perception of profit tax fairness.
Furthermore, the recent finding was partially documented in the developed and
developing nations such as USA, UK, Australia, Turkey, New Zealand, Nigeria,
Egypt, Malaysia and Nigeria, Kenya as well as Uganda and other parts of Ethiopia.
Evermore, this outcome was evidence for the applicability of equity, procedural
justice, distributive justice and retributive justice theories in Oromia region.
6.5. INTERVIEW RESULT
The researcher conducted a personal interview with a limited number of managers at
respective town’s revenues authority. The purpose of an interview was to reduce
biased results from merely considering the viewpoints of taxpayers. In other words,
the revenue administers were also offered an opportunity to talk their side of stories
regarding the degree of the income tax fairness, tax knowledge and complexity of the
income tax systems. The theme of an interview emphasized on perception of tax
managers in selected revenues offices. With regard to the selection of interviewees,
the invitation was purposely provided to fifteen officers in revenue offices in each
town revenue office. The researcher considered three people from each revenue
department purposely. The schedule of an interview was prepared based on their
interest. Surprisingly, all of the participants were males with a BA degree and above
in tax-related fields. With regard to their marital association, they were in a
relationship or married. Subsequently, most of the participants had a moderate
experience of tax collection and administrations.
With regard to tax fairness, the participants asked to give their views on the extent of
the fairness of the business income tax system of Ethiopia, Oromia region. Thus, six
officers said that “the current business income tax system was comparatively unfair
as the region as well as their town’s revenue authority collected significant amount of
profits tax from sole business, small and medium scale enterprises.” They have been
elaborated that “one of the major factors affected the degree of income tax fairness
was that majority of big business enterprises organized in the forms of private limited
and share companies in our towns, zones and region have been disbursed their profit
taxes at ERCA though they were obtained considerable benefit from towns.” Further
“the lower-income earners paid excesses income tax compared to higher-income
earners because these groups were reduced their income tax through overstated and
understated business expenses and revenues on their book of account; disregarded
invoices otherwise issued wrong invoices to their customers and used defective cash
registered machine.” “The income tax rule like business profit tax somewhat unfair
because of the negative relationship among a little number of revenue authority and
income taxpayers, affiliated business enterprises with certain higher officials, top
officials installed none value-added task positions to obtained illicit benefit and the
shadow economy.” Moreover, the officers believed that “high degree of mismatch
between taxpayer’s contributions and level of infrastructure such as health care,
economic development and industries in study areas can be other major factors
impaired profit taxpayers fairness views in Ethiopia mainly Western Oromia.”
"Sometimes penalties imposed on a certain number of business taxpayers were either
too high or less because of deliberate implementation of inaccurate tax procedures
and policies to obtained illegal benefit from decisions." Also, the respondents
stressed that “public resentments on the equity of income tax included the business
income tax had increased following 2016-17 upward income tax reform in Oromia
region, Ethiopia.”
Moreover, they have been “disclosed that inappropriate categories of the taxpayers;
tax rate, penalties; tax procedures, belatedly revision of taxpayer’s income tax group,
frauds, seasonality of their business activities, government’s long-term growth and
development plan were the major causes for the unfair perception in Ethiopia,
Western Oromia.” Accordingly, they told that” inappropriate tax bracket is one of the
major challenges of income tax fairness and certainty in the study atmosphere.”
Finally, these six interviewees are stated that “it is a must for-profit taxpayer to
disbursed business income taxes, other taxes in one fiscal period and collected value
(VAT) from their clients in ineffective tax ecosystem.” Thus, the income tax law of
Ethiopia is not only short of fairness but certainty, economic, productivity and
convenience principles as their opinions affirmed an incidence of lack of time-related
fairness, general fairness, vertical fairness, horizontal fairness, exchange fairness,
retributive fairness, policy and procedural fairness and personal equity.
On the other hand, four respondents explained that “the existed business income tax
system Oromia of Ethiopia is fair enough to taxpayers “except some injustice actions
related to sanctions and tax administrations.” “The recent business income tax
systems of the Oromia region of Ethiopia realistic and okay, equal, in return,
maintained fairness principles among the individuals." Therefore, "it is correct,
certain, equal, we considered it as fair tax law." They have been concluded that
"although the government was tried to preserve all types of fairness dimensions in
the income tax mostly business profit tax system yet the problem is experienced at
certain revenue offices.” As a consequence, the researcher realized that the business
income tax system of Oromia region was fair in all matters to the taxpayers except
for administrative fairness, procedural and retributive equities.
Three respondents said, "We think that how to imposes, how to collects, when to
collects and how to uses taxes are matter the fairness perception of the taxpayers.”
Besides, “the business income tax system normally fair, however, the only problem
we do have is ineffective and inefficient spending of the government in Oromia
particularly western part.” Particularly, what happened in the last three fiscal years in
Ethiopia and Oromia region particularly our city acknowledged the injustice of
exchange as majority of the government's budget used for allowances of security or
military personnel.” In addition, they uttered that, “each year the revenue
departments in our towns, zones and region collected a huge sum of money in the
forms of direct and indirect taxes but we don’t say where all this money has gone.”
Our towns received little services than ever before, hitherto enormous incomes taxes
and indirect taxes were amassed each year compared with our neighbors”. Hence,
their opinions were an indicator for inappropriate utilization of public funds from
taxes. Generally, their perceptions recognized the inadequacy of general fairness and
exchange fairness under Oromia income tax regulatory framework.
Two of the respondents explained that “income tax is fair but certain officers under
our tax environment do not esteem taxpayers as results taxpayers mainly profit
taxpayers are not happy with the tax method and taxpayer’s services.” Miraculously,
the majority of the respondent's attested that participation of public bodies on shadow
economies as the major challenge of equity of income tax laws in Ethiopia, Oromia
regional state.
Regarding the business income taxpayers tax knowledge, all most all of the
participants confirmed that the majority of the income taxpayers had insufficient
general knowledge, legal knowledge and technical knowledge of taxation. On the
other hand, few respondents’ pointed out that the business income taxpayers in
Ethiopia and Oromia region predominantly Western Oromia had ample general
knowledge, legal knowledge and technical knowledge of income taxes.
On the subject of the complexity of the income tax scheme, nine participants
“realized that complexity of income tax system as the somber hassle to the taxpayers
as well as tax officers comparative to their extent of education, knowledge and
experiences.” These respondents argued that “the current income tax rules mainly
business income tax system was more difficult to none tax experts.” Additionally,
they had said that “in Oromia of Ethiopia business income tax system, many of the
complexities are rooted “in defining the terms business, income, aggregation or
splitting of incomes and the scheduler nature of the income tax “, that is concern with
imposing, assessing and calculating the taxable income of individuals and business
enterprises.” “This is happened by structural challenges associated to tax
administrations because the classifications of income tax powers among the federal
and regional governments not well clear and understandable to the taxpayers and
officers" "Many none value-added, unproductive and futile administrative potions
established in way it provided opportunities for the fraudsters’ taxpayers and top
public officials.”
Three of them described the matters “sure.....sure! “We believed that the business
income tax system of Ethiopia and Oromia region is complex for administration.”
“Especially, procedures of tax collection are very complicated because we required
collecting VAT (15percent) for the federal government; TOT (2percent) for regional
government, profit tax, municipality tax, sport and Red Cross contributions and
preserve them in separated box.” The remaining participants expressed the issue “We
think it was usual for the tax rules to be complex.” “Indeed tax laws tend to be
multifaceted technically so as to relinquish frauds for example tax evasions and
avoidances as well as illegal financial flows”. Additionally, the interviewees said”
No! No...! I believed the current business profit tax rule is very clear and easy to
comply.” The only gap we found is that “gap on heartened the legal documents to
taxpayers and shortage of training for both taxpayers and officers.” Also, they had
started, “the situations provided opportunities for taxpayers to left high-income tax
categories only by understated and overstated their business revenues and expenses.”
Overall, the views of the business taxpayers and revenues authorities adequately
unique concerned the level of profit tax fairness, tax knowledge and complication of
income tax regulatory framework in the western division of Oromia region.
6.6. CONCLUSION
For the purpose of the study, the study used descriptive statistics, ordered logistic
regression, multivariate principal component of factor analysis, ANOVA and
Kendall’s correlation matrix. The data was obtained from 300 business income
taxpayers and 15 tax officers by means of self administered questionnaires and
in-depth interview respectively. To test the reliability of data the study used
Cronbach’s alpha coefficient.
As it elaborated in a portion of descriptive statistics, it has been concluded that
the profit taxpayers in Western Oromia of Ethiopia had distinct perception on the
magnitude of tax fairness, tax knowledge and tax complexity dimensions
primarily general fairness, exchange fairness, personal fairness, retributive
fairness, administrative fairness, horizontal fairness and vertical fairness; legal
knowledge, general knowledge ,technical knowledge; compliance complexity
and content complexity of the profit tax regulatory framework and arrangement.
Based on an outcome of one-way ANOVA, the study concluded that the business
profit taxpayers in the study environment had statistically significant divergent
perception on the extent of retributive fairness, vertical fairness, horizontal
fairness, general knowledge, technical knowledge, legal knowledge, compliance
complexity and content compliance of business income tax system of Oromia
region, Ethiopia. Conversely, the degree of perception of the business income
taxpayers on the level of administrative and personal justice was statistically
similar. Regarded the general and exchange fairness’ a researcher has not tested
the level of similarity or disparity as they excluded from the model due to their
loading factors of component analysis. Howbeit, depending on outcomes of the
descriptive statistics on the general and exchange equities, the researcher
concluded that business income taxpayers had dissimilar perception on the
extent of general fairness and exchange fairness in Western Oromia.

Further, this outcome was acknowledged by the annotations of the taxpayers and
interviewers as they assured the presence of multiple views among business
profit taxpayers and revenue officers on the magnitude of justice of income tax
regulatory framework. Thus, the researcher rejected the initial null hypothesis
“there is no significant difference among business profit taxpayers with regard to
the level of opinions of fairness perception, tax knowledge and complexity of the
income tax system in Western Oromia” in the angle of retributive fairness,
vertical fairness, horizontal fairness, compliance complexity, content complexity,
technical knowledge, general knowledge as well as legal knowledge of business
income tax system of Oromia region.
With regard to the degree of fairness of the business income tax framework of
Ethiopia and Oromia regional state, the researcher concluded that most of the
profit taxpayers in Western Oromia viewed magnitude of the fairness of business
income tax rule and regulation as required. Consequently, the findings affirmed
the perception of profit taxpayers in Western Oromia of Ethiopia was unfair vis-
à-vis horizontal fairness, vertical fairness, personal fairness, retributive fairness,
administrative fairness, exchange fairness, and general fairness in dissimilar
critical levels.
The researcher concluded that vertical fairness, personal fairness, horizontal
fairness, administrative fairness and retributive fairness were significantly and
positively correlated with the fairness perception of business income taxpayers in
the Western portion of Oromia in Ethiopia. Afterwards, most of the business
income taxpayers in the study environment commented that the fairness of the
business income tax scheme diminished because profit taxpayers in a similar tax
conditions were taxed differently, higher-income taxpayers were not actually
paying higher tax, excessive tax penalty, inadequate benefits relative to business
income tax, inapt implementation of income tax policy and procedure, ineffective
structure of income tax administration, tax frauds, complexity of income system
and inadequate tax knowledge.
More subtly, the study investigated that in the study ambience tax fairness
perception of business income taxpayers was significantly affected by the extent
of horizontal, vertical, retributive, personal and administrative fairness. So, the
null hypothesis “tax fairness dimensions do not have significant influence on the
business profit taxpayers fairness perception in Western Oromia, Ethiopia” has
been rejected in the context of horizontal fairness, vertical fairness, personal
fairness, retributive fairness and administrative fairness.
The business income taxpayers in Western Oromia, Ethiopia had low degree of
general knowledge, legal knowledge and technical knowledge of the concerned
income tax schemes of Oromia. In the same way, business income taxpayers in
Western Oromia had an insufficient knowledge of the income tax included
business income tax system. Therefore, the study concluded that the fairness
perception of business income taxpayers in the Western part of Oromia, Ethiopia
was positively and critically affected by the degrees of technical knowledge,
general knowledge and legal knowledge. Then, the study concluded that technical
knowledge, general knowledge and legal knowledge of income taxpayers was
positively and strongly connected with perceived tax fairness in the study
ecosystem. Hence, the researcher has rejected a null hypothesis: “tax knowledge
does not have significant influence on the fairness perception of business profit
taxpayers in Western Oromia” in the perspective of technical knowledge, general
knowledge and legal knowledge.
With reference to profit tax system complication, it was concluded that the
perceived tax fairness of the business profit taxpayers was considerably impaired
by the extent of content complexity and compliance complexity of the income tax
mainly business income tax law of Oromia region, Ethiopia. In other words, the
researcher concluded that complication of the income tax system drastically
affected the fairness insight of business income taxpayers in Western Oromia.
Furthermore, the study concluded the compliance complexity of the business
income tax system was positively associated with tax fairness perception of the
business income taxpayers. The content complexity of the business income tax
law was negatively associated with fairness perception of the business income
taxpayers in Western Oromia. In the same way, they perceived the degree of
content and compliance complexities of the income tax rule was highly complex
to them to calculate and reported their taxable income at optimum compliance
costs and time as well as efforts.
The researcher concluded that a fairness perception of business profit taxpayers
in Western Oromia, Ethiopia was considerably influenced by the extent of
compliance complexity and content complexity of profits tax law in diverse
directions. Thus, null hypothesis “complexity of income tax systems does not
have significant influence on the business profit taxpayers fairness perception in
the study area was rejected in cases of compliance complexity and content
complexity.”
Broadly, the researcher partially rejected the second null hypothesis “Tax fairness
dimensions, tax knowledge and complexity of business income tax system do not
have significant influence on the fairness perception of business profit taxpayers
in Western Oromia, Ethiopia”. Utterly, the findings concluded that the perceived
fairness, tax knowledge and complexity of the business income tax law in the
context of Western Oromia, Ethiopia were multidimensional in nature.
From the analysis of the interview results with a representative of tax officers, the
study concluded that the officers had a mixed perceptions of the tax fairness, tax
knowledge and tax complexity of the business income tax system. The revenue
officers had fears on ten types of tax justice dimensions, especially horizontal
fairness, time fairness, vertical fairness, personal fairness, informational fairness,
exchange fairness, compliance fairness, general fairness, retributive fairness and
administrative fairness. Thus, the judgement of the revenue officers assured
multiple aspects of perception of taxpayers on equity of business income tax and
provided a signal to government on the aspects of the income tax regulatory
framework that required enhancements.
While discussing about tax knowledge of the business income taxpayers, officers
approved inadequacy of knowledge of profit tax primarily technical knowledge,
legal knowledge and general knowledge. Thus, the researcher concluded this
issue was even fear for some of the revenue administers who are required to deal
with arduous profit tax issues in the work region.
The tax officers also perceived that the present business profit tax scheme was
complex. Most of the tax officers in Western Oromia claimed that while the
business net income tax system itself is naturally complex, the enormous extent
of time of reports to be completed in complying with their tax obligations further
raised the difficulty. Thus, the researcher concluded that the income tax system of
Oromia has been knocked for being desperately complex to taxpayers in general
and business profit taxpayers in particular.
Albeit, tax reforms has been continuously undertaken to optimize complexity of
the business income tax system, perhaps the benefits of such schedules were not
yet visible, in the point of view of both taxpayers and officers. For that reason,
the views of the officers also confirmed that content and compliance complexities
of the business income tax system to taxpayers and certain personnel.
Bearing on the influence of predictors of fairness perception of profit taxpayers,
most of the officers normally believed that horizontal fairness, exchange fairness,
vertical fairness, administrative fairness, personal fairness, retributive fairness,
technical knowledge, legal knowledge, common knowledge, content complexity
and compliance complexity of income tax rule have contributed to the unfair
perception of the business income taxpayers.
Most of the officers were unhappy with the government spending of revenue of
tax, lack of disclosure of public expenditure, imposition of penalties on genuine
mistakes, taxpayer right to query and make corrections, taxpayers’ services, the
administration of tax repayments, tax incentive, illicit invoice and the lack of
coordination of staff.
In the context of complexity of the income tax system, some of revenue officers
disputed that the scheme was simpler for taxpayers. In terms of their knowledge
of the business income tax scheme, taxpayers appeared to have inadequate
knowledge of technological and legal aspects of the income tax system.
Ultimately, the study concluded that a mixed opinion on the influence of aspects
of tax fairness, knowledge and complexity on fairness perception was also picked
out by tax administers. On the other hand, the thesis concluded that while most of
the revenue officers agreed that dimensions of tax fairness, knowledge and
complexity has an influence on fairness perception of the profit taxpayers, others
argued that predictors have now contributed to the unfairness perception of
business taxpayers.
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Page 176 of 289
 CHAPTER SEVEN
BUSINESS PROFIT TAXPAYERS COMPLIANCE
BEHAVIOUR
7.0. INTRODUCTION
For the last decades, several studies on tax compliance, presented noteworthy ideas
and knowledge towards the tax compliance behavior, however yet there were many
deficits in comprehending how to enshrine, elucidate and manage tax disobedience in
a particular tax atmosphere. In contrast, to date numerous tax pieces of literature and
theories give numerous concepts and outputs about tax compliance behaviour;
nevertheless, get hold of common concepts and outputs on the tax obedience were
still unsolved worldwide mostly Western Oromia, Ethiopia. Also, they provided
similar views with regard to the complex nature and dearth of tax compliance
behaviour as it is drastically influenced by assorted behavioral factors autonomously
or in blend with the other factors. So, this study examined the influence of the
variables of the theory of planned behaviour largely attitudes, perceived subjective
norm and behavioral control with the perception of tax fairness and tax morale on a
compliance behaviour of profit taxpayers facts from Western Oromia, Ethiopia.
Evermore, a framework of theory of planned behaviour applied under several studies
to catch antecedent to act on certain behavior in a particular environment. Though
this is fact on the ground, an application of TPB in the milieu of tax compliance
behaviour was at infancy in Western Oromia, Ethiopia. For instance, as per my
paramount understanding and experiences so far diminutive studies were examined
the effects of TPB on compliance behaviour in Ethiopia except for western part.
Thus, the overall objective of this section explored the extent of business profit
taxpayers compliance behaviour in Ethiopia facts from the Western part of Oromia.
Moreover, the study examined the level of correlation of tax compliance behaviour
with the perception of tax fairness; tax knowledge; tax complexity; tax attitude;
perceived subjective norm; perceived behavioral control and tax morale towards tax
obedience. In the end, the researcher provided a conclusion to various stakeholders in
a particular tax atmosphere.

7.1. FINDINGS ON TAX COMPLIANCE BEHAVIOUR ​

Table 7.1
The Views of Business Income Taxpayers about Their Tax Attitude and
Perceived subjective Norm
Items Code Mean Std.
Deviation
ATTITUDE
1. I would be upset much if I overstated and understated the business AFA1 3.43 1.592
expenses and income even if it is my share.
2. I would feel guilty if I overstated and understated the business AFA2 3.43 1.617
expenses and income.
3. AFA3 2.50 1.365
I would feel pleased if I overstated and understated the business exp
enses and income successfully.
4. The likelihood of being audited by the revenue office is low. ISA1 3.26 1.614
5. It would be financially beneficial for me to over and understate the ISA2 2.94 1.549
business expenses and incomes.
6. Sometimes I claim the full deduction, including the amount I paid for ISA3 2.99 1.632
my family trip.
7. Sometimes I attempt to over and understate the business expenses and ISA4 3.14 1.524
revenues.
8. I would try to deduct the little amount of my business expenses while ISA5 3.44 1.594
I usually claim the actual deduction.
SUBJECTIVE NORM
1. My family and peers suspect me that I overstate business expenses. SB1 2.97 1.445
2. My family and peers reject that I should only claim the actual SB2 3.32 1.549
 business expenses.
3. My family and peers believe of my decision to overstate the business SB3 2.93 1.455
expenses.
4. My family and peers overstate their business expenses even if we SB4 2.82 1.409
found within a similar tax situation.
5. My family and peers think that I should understate my business 2.95 1.458
income. SB5
6. My family and peers question that I should only claim the actual SB6 3.07 1.420
business income.
7. My family and peers reject of my decision to understate the business SB7 3.28 1.426
income.
8. My family and peers overstate their business revenues even if we SB8 3.10 1.422
found within a similar tax situation.
9. My family and peers over and understate their net loss and income SB9 2.91 1.451
even if we found within a similar tax situation.
Valid N (listwise) 300

Source: Primary Data ​

Table 7.1 recognized the views of business income taxpayers on the magnitude of
attitudes, subjective norms, perceived behavioral control, tax morale and perception
of fairness. The researcher measured their tax compliance behavior based on
unpleasant and agreeable tax conditions, for example, over and understatement of the
business expenses and revenues. Accordingly, the participants had mixed opinions
regarding perception of tax fairness; attitude; tax morale; subjective norm and
perceived behavioral control.
They requested to give opinion in relation to over and understatement of business
revenues, expenses; net profit and loss; behavior and tax morale issues on financial
report. Accordingly, the instrumental and affective attitudes used to measure their
general attitude towards the disbursement of the profit tax. This revealed that
business income taxpayers in Western Oromia, Ethiopia had both positive and
negative attitudes towards current business profit tax system. It was one of the
reasons for the deficiency of taxpayers obedience behaviour in Ethiopia especially
Ambo, Nekemte, Gimbi, Dambidollo and Shambo towns of Oromia region. The first
and second items of an affective attitude (AFA) were asked to identify whether the
taxpayers were worried, guilty and unhappy if they over or understated their business
expenses and revenues as well as net income or loss. Hence, the identical mean of
3.43 for AFA1 and AFA2 recognized that the business income taxpayers in Ethiopia
mainly Western Oromia a.k.a. Ambo, Nekemte, Gimbi, Dambidollo and Shambo had
positive affective attitude on the disbursement of business profit taxes. On the
contrary, a mean value of 2.50 for AFA3 indicated that the affective attitude of profit
taxpayers towards the disbursement of profit tax was comparatively negative.
The items of instrumental attitude inquired to identify whether the respondents had
fear audit of revenue office due to over and undervalued business expenses, revenues
and net income or loss. Thus, the mean of 3.25 and 2.51 for ISA1 and ISA2 showed
meager of instrumental attitude because the attitude of the individual had negative or
positive impact on the behaviour of curiosity. Therefore, the negative feeling towards
the income tax regulatory framework increased the tax noncompliance acts while the
positive feeling reduced the extent of tax disobedience performance. Consequently,
the mean values of affective and instrumental attitudes indicated that a broad attitude
of the business income taxpayers in Western part, Oromia region, Ethiopia was
reasonably low regarded disbursement of their business income taxes. More subtly,
profit taxpayers in Oromia region, Ethiopia encountered sagacious behavior on
business income tax obedience and disobedience.

With regard to behavioral beliefs and intention to obey or disobey with the business
income tax laws, the researcher asked whether the respondents frequently claimed
nondeductible expenditures together with the allowable one and whether they
attempted to over and undervaluation of their operating expenses and revenues, net
income or losses or claimed the actual one. Thus, the mean values of 3.44, 3.14 and
2.99 for ISA5, ISA4 and ISA3 revealed the existence of high behavioral intention
and instrumental attitudes towards defying business income tax obligations through
illicit revenue and expenses; net income or losses. Thus, this finding considered as
one of the objective shreds of evidence for the presence of high probability of
business income tax disobedience behavior in Western Oromia. For the reason that
TPB explained individual’s intention to act on scrupulous actions indicate vigilance
preparation to execute that scrupulous actions. Likewise, this theory affirmed the
more behavioral intention on certain behaviour, greater possibility that the behaviour
will be executed by the individuals. Afterward, in taxation atmosphere, the more
behavioral intention and belief to execute tax scams by business taxpayers included
profit tax, the higher likelihoods of tax noncompliance behavior by them. Therefore,
most of business income taxpayers in Western Oromia, Ethiopia attempted tax frauds
by under and overvaluation of the business revenues, expenses or net income and
losses in the form of sales suppressions and illicit invoicing if they got the
opportunities to do so.
To identify their perceived subjective norms towards disbursement of profit tax, the
researcher used SB1, SB2, SB3, SB4, SB5, SB6, SB7, SB8 and SB9. Accordingly,
this predictor designed to explore whether the referent groups like families, friends
and neighborhoods had concern over and undervalued their business expenses and
revenues or net incomes and losses by way of sales suppressions and dishonest
invoicing. Concurrently, the researcher asked whether respondents deduce their
referent groups on tax frauds too. Hence, the mean values of 3.07, 2.97, 2.93, 2.95
and 2.91 for SB6, SB1, SB5 and SB9 justified the presence of illicit normative belief
or perceived subjective norms on business income tax fulfillment amongst
respondents sequentially. In other words, the business income taxpayers in Western
Oromia suspected one another on tax frauds similar to over and undervaluation of the
operating income and losses by means of sales suppressions and issues of untrue
invoices.
Hence, this was an indicator of the prevalence of diminutive profit taxpayers tax
fulfillment behavior in Western Oromia in view of the fact that they alleged each
other pertaining to business profits tax disobedience. In contrast, the average values
of 3.32, 3.28 and 3.10 for SB2, SB7 and SB8 attested an incidence of moderate
positive normative belief or perceived subjective norms between business income
taxpayers in the study place on profit tax disbursement behaviour. Thus, it was
affirmed that particular group of the business income taxpayers in Western Oromia,
Ethiopia had a reasonable degree of business profit tax payment behaviour. This
result depicted that profit taxpayers in Western Oromia, Ethiopia had mixed
normative beliefs or subjective norms regarded business income tax obedient and
disobedient actions.
For instance, TPB described normative beliefs or subjective norms as the belief on
whether a huge number of others believe he or she will act on a particular behavior.
According to TPB as the business income taxpayers in Western Oromia, Ethiopia
suspected their referent groups akin to families; friends and neighborhoods vis-à-vis
defiance of payment of business income tax, greater that they executed the behaviour
too. More delicately, if the nearby business enterprises and traders alleged friends,
families and neighborhoods related to business income tax scams; the probability that
they disobey the income tax regulatory frameworks was high too. Hence, the
researcher confirmed that most of business income taxpayers in Ethiopia especially
Western Oromia included Ambo, Nekemte, Gimbi, Dambidollo and Shambo towns
had low degree of income tax voluntary compliance actions in the context of
subjective norms.
In Table 7.2 the study used ten items expressly PB1, PB2, PB3, PB4, PB5, PBC6,
PBC7, PB8, PB9 and PB10 to measured the perceived behavioral control of business
profit taxpayers depended on tax fraud situations such as over and understatements
of their business revenues and expenses. Accordingly, the mean values of 2.95, 2.92,
2.78, 2.69, 2.67, 2.62 and 2.59 of PB8, PB6, PB4, PB9, PB3, PB1, PB10 and PB5
represent that perceived behavioral control of business income taxpayers towards
business profit tax obedience were practically low in the study tax environment.
Conversely, the average values of 3.34 and 3.25 for PB2 and PB7 realized the
presence of modest business profit tax compliance behavior in Ethiopia primarily
Western Oromia incorporated Ambo, Nekemte, Gimbi, Dambidollo and Shambo
towns. Hence, the mean values for PB6, PB4, PB9, PB3, PB1, PB10 and PB5
realized the incidence of sound illicit business profit tax compliance or defiance
behavior in Ethiopia primarily Western Oromia.
The theory of planned behavior stressed that the control beliefs of an individual
towards particular action increased with increase in knowledge, skills, confidence
and resources vice versa. Thus, the researcher postulated that the business income
taxpayers control belief of towards business tax defiance activities in Ethiopia
especially Western Oromia decreased because of shortage of knowledge than their
confidence and resources. Hence, the study postulated that the control beliefs or
perceived behavioral controls of business profit taxpayers in Western Oromia,
Ethiopia in relation to over and understatements of business expenses and losses or
revenues and net incomes were diminished due to their low levels of tax knowledge
and skills but increased because of the confidence and resources.
However, as indicated in Table 7.2 a particular number of business income taxpayers
in the study areas had high control belief pertaining to under and overstatements of
their business return and expenses. Thus, the outcome disclosed that the business
income taxpayers in Western Oromia of Ethiopia had diverse behavior of obedience
or disobedience on business profits tax regulatory framework. Similarly, the findings
attested that the business profit taxpayers in Western Oromia included Ambo,
Nekemte, Gimbi, Dambidollo and Shambo cities had high, moderate and diminutive
behavioral control or control belief in connection with the disbursement of profit tax
due to their tax knowledge, skills, confidences and resources.
The mean values of 2.97, 2.93, 2.88, 2.81 and 2.79 for the indicator TM1, TM6,
TM5, TM3 and TM4 disclosed the incidence of low level of tax morale in Ethiopia
sensationally Western Oromia in return inadequate tax obedience behavior. However,
the average value of 3.17 and 3.08 for TM7 and TM2 acknowledged the presence of
moderate tax morale and obedience behaviour in the study atmosphere. The result
revealed business income taxpayers in Ethiopia mainly Oromia region Ambo,
Nekemte, Gimbi, Dambidollo and Shambo municipalities had inadequate intrinsic
motivation on the disbursement of business income tax. Furthermore, it revealed the
occurrence of mixed tax morale specifically negative and positive intrinsic
motivations about business tax compliance actions. Increasingly, this finding assured
by the theory of intrinsic motivation as it justified that taxpayers intrinsic motivation
on profit tax disbursement is persuaded their tax voluntary obedience and
disobedience actions.
Eventually, perception of tax fairness expressed an incidence of humble disobedient
behavior in Western Oromia because most of the respondents suggested that the
current business income tax system of Oromia region, Ethiopia practiced in Western
Oromia was unfair. With regard to this, the previous works assured that taxpayers
voluntary compliance behaviour increased if their perceived tax system of the land is
fair in every matter. On the contrary, the disobedience behaviour of the taxpayers
amplified if they perceived that the business income tax system is unfair in nature.
Moreover, small perceived tax fairness considerably affected compliance behaviour
of profits taxpayers though its extent was diverse globally. Hence, the finding was
similar with their observation on the main causes for limited business income
taxpayers compliance behavior in Western Oromia of Ethiopia.

Table 7.2
The Views of Business Income Taxpayers on Their Tax Perceived Behavioral
control and Tax Morale
Items Code Mean Std.
Deviation
PERCEIVE BEHAVIORAL CONTROL
1. With my tax knowledge and resources, it is very easy for me to PB1 2.67 1.474
overstate business expenses in my tax return form successfully.
2. Due to my limited tax knowledge and skills, it is hard for me to PB2 3.34 1.529
overstate business expenses in my tax return form successfully.
3. I couldn’t successfully omit business expenses in my tax return form PB3 2.69 1.388
if I wanted to.
4. With my knowledge, confidence and resources, I have difficulty in PB4 2.92 1.496
overstating my business losses in my tax return form successfully.
5. There are no strong barriers that prevent me from overstating my PB5 2.59 1.374
business expenses in my tax return form successfully.
6. With my knowledge of tax, confidence and resources, it is definitely PB6 2.92 1.471
easy for me to declare the extra amount of revenue in my tax return
form successfully.
7. Due to my limited knowledge, skills and resources, it is hard for me to PB7 3.25 1.510
omit the revenue in my tax return form successfully.
8. I couldn’t successfully omit the extra amount of revenues in my tax PB8 2.95 1.460
return form if I wanted to.
9. With my tax knowledge, skills and resources, I have difficulty to omit PB9 2.78 1.411
extra net income in my return from successfully.
10. There are no strong barriers that prevent me from understating my PB10 2.62 1.401
income in my tax return form successfully.
TAX MORALE
1. Trading or exchanging goods or services with friends or neighbours TM1 2.97 1.492
and not reporting it in your tax form.
2. Reporting your main income fully, but not including small outside TM2 3.08 1.491
income.
3. The income tax is so heavy that tax compliance is an economic TM3 2.81 1.405
necessity for many to survive.
4. Not reporting some earnings from investment or interest that the TM4 2.79 1.477
government would not be able to find out.
5. Being paid in cash for a job and then not reporting it in your tax TM5 2.88 1.519
form.
6. I contribute income tax only for development and social services of TM6 2.93 1.428
my region.
7. I don't fear the resentments and rumors of society if need to cheat on TM7 3.17 1.497
profit tax.
Valid N (listwise) 300

Source: Primary Data

Evermore, the results of descriptive statistics on TPB, perception of tax justice and
morale acknowledged the presence of assorted business profit taxpayers behavior
related to payment of business income tax in Ethiopia; Western Oromia incorporated
Ambo, Nekemte, Gimbi, Dambidollo and Shambo city administrations. In the end,
the finding supported by an outcome of the assessment of tax revenue growth rate
between the monetary years of 2007-08 and 2016-17.
Concerning the influence of TPB, tax fairness perception and tax morale on tax
compliance behaviour, this study partially identical with preceding works such as
Ajzen (1991), Barnet (2001), Forest and Sheffrin (2002), Thrived et al. (2004), Torgl
er and Schaffer (2007), Torgler et.al (2007), Loo et al.(2008),Rizal (2010), Mustapha
(2010), Samuel (2011), Saad (2011;2012), Smart (2012), Nanta (2013), Boonyarat et
al. (2014), Redae and Sekhon (2015); Nurlis (2015), Yahaya (2015), Diaz (2015), B
arineka et al. (2015), Hosseini et al. (2016), Yildirim et al. (2016), Ebimobowei and
Elizabeth(2016), Puspita et al. (2016), Kibret (2016) and Daniel (2016). For instance,
Saad (2010; 2011; 2012) explored that the tax obedience behaviour of business profit
taxpayers was critically affected by their tax fairness perception, attitude and
subjective norm. More evidently, Smart (2012) investigated that the tax fulfillment
behaviour of taxpayers was considerably affected by the extent of perceived behavior
al control and attitude. Increasingly, Samuel (2011) discovered several momentous
connections among tax morale and tax fulfillment behaviour. In the end, Daniel
(2016) expressed that taxpayers obedience acts were critically affected by the extent
of social psychological issues.
7.2. INFERENTIAL ANALYSIS
7.2.1. Correlation Analysis
Table 7.3
Kendall’s Correlation Matrix on Tax Compliance Behaviour
Variables Coefficient TxCB TFP SB PB ATT TM
Tax Compliance Behavoiur Coefficient 1 .106* -0.042 -0.03 .089* -0.1
Sig. (2-tailed) . 0.028 0.336 0.524 0.043 0.1
Tax Fairness Perception Coefficient .106* 1 -0.041 -0.04 -0.042 0.01
Sig. (2-tailed) 0.028 . 0.337 0.365 0.319 0.82
Subjective Norm Coefficient -0.336 -0.041 1 0.003 0.003 0
Sig. (2-tailed) 0.042 0.337 . 0.94 0.945 0.92
Perceived Behavioral Control Coefficient -0.028 -0.039 0.003 1 -0.014 0.01
Sig. (2-tailed) 0.376 0.398 0.9 0.936 0.711 0.95
Attitude Coefficient .089* -0.042 0.003 -0.01 1 -0
Sig. (2-tailed) 0.043 0.319 0.945 0.724 . 0.69
Tax Morale Coefficient -0.073 0.01 0.004 0.006 -0.016 1
Sig. (2-tailed) 0.095 0.817 0.921 0.873 0.686 .
* Correlation is significant at the 0.05 level (2-tailed).
Source: By researcher
Table 7.3 revealed that the magnitude of correlation between the predictors and tax
compliance behaviour of business income taxpayers in the study area. Accordingly,
Kendall’s correlation matrix coefficient of 0.106 and p-value of 0.028 for tax fairness
(TFP) revealed that the correlation between the predictor and compliance behaviour
was significantly positive at 0.001 2-tailed critical level. A Kendall’s correlation
matrix coefficient of 0.127 and its p-value of 0.043 disclosed that the relationship
between tax attitude (ATT) and tax compliance behaviour statistically significant
positive in Western Oromia, Ethiopia at 0.05 2-tailed considerable level. The
Kendall’s correlation matrix coefficient of -0.336 and its p-value of 0.042 recognized
that the connection between negative subjective norms and tax compliance behaviour
was substantial and negative in Western Oromia at the critical level of 0.05 two
–tailed. Further, Kendall’s correlation matrix coefficient of -0.073 and its p-value of
0.095 recognized that the connection between negative morale and tax compliance
behaviour was substantial and negative in Western Oromia, Ethiopia at the critical
level of 0.10 two –tailed.
In other words, the correlation between profit taxpayers positive tax morale or
intrinsic motivation and their tax obedience performance was sagaciously strong and
positive in Western Oromia, Ethiopia. Therefore, the researcher stated that positive
intrinsic motivation had a statistically positive and significant association with tax
compliance behavior of the business income taxpayers in Western Oromia. Finally,
based on illicit tax conditions, the correlation between the tax compliance behaviour
of business income taxpayers and subjective norms has been significant while
behavioral control was statistically inadequate and negative in the study atmosphere
at two-tailed p-values. Boldly, if the business income taxpayers primarily business
income taxpayers in the Western Oromia, Ethiopia had developed normative beliefs
and control beliefs on illicit business acts their tax fulfillment activities are declining
and vice versa.

7.2.2. Regression Analysis

Test of Hypothesis No.3
Hypothesis 3: Fairness perception, tax morale, attitudes, subjective norm and
perceived behavioral control, do not have significant influence on business profit
taxpayers compliance behaviour in Western Oromia.
Thus, the summary of ologit model in Table 7.4 indicated the degree of influence of
tax fairness perception (TFP), subjective norm (SB), perceived behavioral control
(PB),attitude (ATT) and tax morale (TM) on their tax compliance behaviour (TxCB).
Ologit TxCB TFP SB PB INS ATT TM
Iteration Log Likelihood
Iteration 0: log likelihood = -381.10552
Iteration 1: log likelihood = -374.01887
Iteration 2: log likelihood = -373.91701
Iteration 3: log likelihood = -373.91694
Iteration 4: log likelihood = -373.91694
Model Summary
Ordered logistic regression ​ Number of obs = 300
​ LR chi2 (6) = 109.78
​ Prob > chi2 = 0.0000
Log likelihood = -373.91694 ​ f2
Pseudo R = 0.0179
Parameter Estimate

Table 7.4
The Influence TPB, Tax Fairness Perception and Tax Morale on
Tax Compliance Behaviour
Tax Compliance Behaviour Coef. Std. Err. z P>z Significant level

Tax Fairness Perception .07205 .0313377 3.71 0.021 Sign at 0.05

Subjective Norm -1.098731 .1099661 9.99 0.000 Sign at 0.01
Perceived Behavioral Control -.0621751 .1099417 0.57 0.572 Insgn at 0.05
Attitude .2572488 .0108224 2.38 0.017 Sign at 0.05
Tax Morale -.2020892 .1114975 1.81 0.070 Sign at 0.10
/cut1 .1832381 .1552963 (Ancillary parameters)
/cut2 .5866157 .1579972
/cut3 1.084899 .1661859
/cut4 3.930931 .3930831
The results were significant at 1 %, 5% and 10%

Source: By researcher
The Chi2 of 109.78 with a p-value of 0.0000 or (< 0.05) revealed that the model was
statistically significant. The entire variables in the ologit model were suitable at p
values of less than 0.05. Thus, ologit model has helped the researcher to reject a null
hypothesis in the context of perception of fairness, subjective norm, attitude and tax
morale at significant levels of 0.01, 0.05 and 0.10.
For a single unit increase in predictors of PTF one can expect a 0.0721 increased in a
higher level of tax compliance behaviour, given all of the other variables in the
model were held constant. Further, for one unit enlargement in negative subjective
norm; one would expect a 1.09 increase in the log odd coefficient of being in a
higher level of tax noncompliance behaviour, given all of the other predictors in the
model stayed permanent. In other words, single unit increase in positive subjective
norm (SB); one would expect a 1.09 widespread in the coefficient of being in a
higher level of tax obedience behaviour, given all of the other predictors in the model
stayed stable.
Subsequently, for a single unit increase in the predictors of attitude (ATT), one can
expect a 0.26 increase in a higher level of compliance behaviour, given all of the
other variables in the model remained stable. For a one-unit increase in negative tax
morale (TM), one can expect a 0.20 decrease in a higher level of tax compliance
behaviour, given that all other variables in the model were held constant. In the same
way, if the intrinsic motivation of profit taxpayers on tax omissions and commissions
was raised by one unit, their tax disobedience behaviour will also amplify by 0.20.
Conversely, the findings indicated that positive tax morale or intrinsic motivation of
the taxpayers considerable increases in profit taxpayers tax obedience behaviour.
Therefore, the perception of tax fairness, subjective norm, tax attitudes and tax
morale were considerably influenced the business income taxpayers tax obedience
and disobedience behavior in Ethiopia particularly Western Oromia included Ambo,
Nekemte, Gimbi, Dambidollo and Shambo towns.
According to the ologit output, perception of tax fairness had a positive and
substantial connection with the compliance behaviour of business income taxpayers .
Similarly, the coefficient of this exogenous variable was positive, means that a force
of perception of tax fairness on compliance behaviour in Ethiopia and Oromia region
mainly Western Oromia was significant at p-value of 0.05. Finally, business profits
taxpayers fairness perception was affected their compliance behaviour in Ethiopia
especially Western Oromia. Because of that, the findings entailed that improvement
of the business income taxpayers’ perception about fairness lead to improvement of
tax acquiescence behavior.
The study found a positive and statistically significant correlation among attitude of
the profit taxpayers and their tax compliance behaviour in Western Oromia of
Ethiopia. Therefore, attitudes toward taxation significantly influenced the degree of
the profit taxpayers compliance, as well as noncompliance action as their "Z and P"
values, were 2.38 and 0.017 respectively. In contrast, as the level of a positive
attitude toward tax obedience increases, their tax acquiescence behaviour will also
increase. This situation indicated most of the business income taxpayers in Western
Oromia had low attitudes towards business profit tax.
A positive perceived subjective norm influenced the tax compliance behavoiur of the
profit taxpayers positively while negative subjective norm negatively affected their
compliance behavoiur in Western Oromia of Ethiopia. Also, the findings pointed out
that the effect of perceived behavioral control of the business income taxpayers on
their compliance behavior was statistically irrelevant in Western Oromia of Ethiopia.
Similarly, the descriptive statistics section revealed the presences of normative
beliefs and behavioral control among participants with reference to over and/or
understatements of their business expenses, losses, revenues and incomes by means
of sale suppressions and illegal invoicing but minor in case of perceived behavioral
 control.
Overall, tax fairness perception (TFP), attitudes (AT), subjective norm (SB) and tax
morale (TM) were statistically significant while perceived behavioral control (PB)
not as its P-value was more than the statistical thresholds. So, the outputs of an ologit
model motivated the researcher to partially reject the null hypothesis “fairness
perception, tax morale, attitudes, subjective norms and perceived behavioral control
towards compliance do not have significant influence on profit taxpayers compliance
behavior in Western Oromia.”
For that reason, the twin indicators of the theory of planned behavior significantly
influenced the business income taxpayers compliance behaviour in Western Oromia,
Ethiopia were subjective norm and attitudes. Hence, it has testified the partial
implication of theory of planned behaviour in Oromia, Ethiopia primarily in western
the part. In the end, the study acknowledged the role of equity theory, TPB and IMT
in improving the business income taxpayers tax obedience behavior in Ethiopian
taxation system.

. Ologit TxCB TKE TCLEX

Iteration Log Likelihood
Iteration 0: log likelihood = -381.10552
Iteration 1: log likelihood = -376.69366
Iteration 2: log likelihood = -376.68906
Iteration 3: log likelihood = -376.68906
Model Summary
Ordered logistic regression Number of obs = 300
LR Chi2 (2) = 8.83
Log likelihood = -376.68906 Prob > chi2 = 0.0121
f2
Parameter Estimate Pseudo R = 0.0116
Table 7.5
Compliance Behaviour Coef. Std. Err. Z P>z Significant level
Tax Knowledge .0894853 .1078367 0.83 0.407 Insig at 0.05
Tax complexity -.3128954 .1095677 2.86 0.004 Sign at 0.01
/cut1 -.0354788 .1169 (Ancillary parameters)
/cut2 .3644531 .1187731
/cut3 .8543346 .1272564
/cut4 3.647398 .3596102

The results were significant at 1 %

The Influence Tax Knowledge and Complexity on Compliance Behaviour
Source: By Researcher
In Table 7.5 LR Chi2 (2) of 8.83 indicated the likelihood ratio of Chi-square test that
at least one of the predictors regression coefficients was different from to zero in the
model. The number 2 in the bracket revealed the degree of freedom of the Chi2
distribution that was implemented to check the probability of Chi-square statistics
and was measured by the sum of independent variables in the model construct. Thus,
at iteration 0, the Stata fits a null model, that is the intercept-only model.
Subsequently, it proceeds on to fit the filled model and stops the iteration procedure
once the disparity in log-likelihood between successive iterations become rationally
less. Ultimately, the auxiliary log - likelihood of -376.68906 was revealed once more.
So, it can be utilized in contrast of nested models. Moreover, 300 at the top of the
table indicated that all observations in the data set were used in the ultimate analysis.
The Likelihood ratio of 8.83 with p-value of 0.0121 revealed the model as an intact
was statistically substantial in relation to the unfilled model without predictors. Thus,
the study generalized that the model was fitted, in return, rejected the null hypothesis
at LR Chi2 of 8.83, degree of freedom of 2 and p-value of 0.0121 in turn. The
2
pseudo-R of 0.0116 is also given. The cut-points are ancillary variables exposed at
the base of the result and indicated where the latent variable is cut to create the five
groups that the researcher examined in a data model.
TKE is ologit coefficient estimation for a sole unit augment in tax knowledge on the
expected degree of tax compliance behavoiur given that other predictors stay stable
in the model. If the goal is to broaden knowledge of business income tax law by one
unit, an ologit coefficient on the tax compliance behavoiur would be anticipated to
increase by 0.089 units keeping predictor, tax complexity stable in the construct. But,
it was not significant at critical level of 0.05.
TCLEX is ologit coefficient estimation for single unit amplify in tax complexity on
the expected degree of tax compliance behavoiur provided that tax knowledge
remain stable in the regression model. Hence, for units augment in the business
income tax complexity the Oromia revenue authority would be estimated a -0.313
unit declined in compliance behavoiur of business profit taxpayers keeping predictor,
tax knowledge constant in the construct. The profit tax complexity was considerably
influenced the extent of tax compliance behavoiur of the business income taxpayers
in Western Oromia of Ethiopia. The negative sing indicated that the tax complexity
negatively affected the tax compliance behavoiur of profit taxpayers in the study
area.
In connection with the correlation, the model indicated that high tax complexity had
critical negative correlation with compliance behaviour in Western Oromia, Ethiopia.
In general, by linked Z test statistic of predictors’ tax knowledge (0.83) and tax
complexity (2.86) with their parallel p-values of 0.407 and 0.004, the hypothesis “tax
knowledge and tax complexity do not have considerable influence on the tax
compliance behaviour of the business profit taxpayers in Western Oromia, Ethiopia.”
was partly rejected. Progressively, in the study atmosphere, the tax compliance
behaviour of business income taxpayers was drastically influenced by the magnitude
of business income tax scheme complexity.
Overall, the researcher has rejected the “HO3: Fairness perception, tax morale, tax
knowledge, tax complexity, attitudes, subjective norm and perceived behavioral
control towards compliance do not have significant influence on the business profit
taxpayers tax compliance behavior” in case of fairness perception, tax morale, tax
complexity, attitudes, subjective norm except tax knowledge and behavioral control.

7.3. INTERVIEW RESULT

An in-depth interview conducted with a circumscribed number of tax officers at
respective revenue authority in Western Oromia. The intent of an interview was to
shrink biased results from just taking the point of views of taxpayers. In the same
way, the revenue administers were also provided an opportunity to speak their side of
evidences involving the degree of the business income tax fairness, tax knowledge
and complexity of the income tax systems as well as TPB. The topic of an interview
emphasized on perception of tax officers in selected revenues offices on the tax
compliance behaviour of the business income taxpayers. With respect to the selection
of interviewees, the invitation was purposely provided to fifteen officers in every
municipality tax office. The thesis considered three tax administers from every
revenue department purposely. The agenda for an interview was made based on their
involvement. Amazingly, all of the participants were males with a bachelor degree
and above in tax-related subjects. With respect to their marital association, they were
in a relationship or married. Afterwards, most of the participants experienced a
moderate experience of tax collection and governing bodies.
In connection with the levels of business income taxpayers compliance behaviour,
nine participants affirmed that “profit taxpayers had inadequate behaviour to comply
with the business income tax laws in particular and tax laws in general because they
paid tax due to fear of penalties, lack of communication and coordination among the
taxpayers and revenue department, tax knowledge, complexity of income tax law,
inappropriate tax method and illegal benefit, poor tax services and tax administration
costs." For instance, on the meeting with high-income group taxpayers conducted in
Addis Ababa on September 2019, the Ministry of Revenue indicated that out of 167
high-income earners taxpayers audited in the last fiscal year, the tax auditors assured
that only three taxpayers provided appropriate tax reports forms.
That, in other words, means that 98 per cent of the higher income earners taxpayers
deliberately or inadvertently provided an incorrect financial report to the revenue
authority. More and more, the information from the Ministry of Revenue indicated
that the existence of huge tax scams in return, high tax noncompliance behaviour in
Western Oromia of Ethiopia.
With reference to theory of planned behaviour, the officers argued that “the business
income taxpayers compliance behaviors in the study atmosphere affected by their
behavioral control and normative belief as well as intention to obey on the income
tax regulatory framework because oftentimes they give bribe, attempts tax frauds,
resisted and complains a disbursement of income tax in groups.”
On the other hand, six respondents stated that “reasonable number of the business
profit taxpayers in Western area of Ethiopia complied with the income tax laws by
providing all the required tax return forms within the predetermined period.” Their
opinion pointed out that certain group of the business income taxpayers had high tax
obedience behavoiur in the study place. Thus, the perception of tax officers and the
business profit taxpayers acknowledged the incidence of low levels of perceived tax
fairness and profit tax compliance action in Ethiopia and Oromia region incorporated
Ambo, Nekemte, Gimbi, Dambidollo and Shambo towns. Moreover, their opinions
disclosed the existence of mixed opinions concerned the degree of business income
taxpayers’ compliance behaviors and fairness perception.
Ultimately, majority of the participants believed that the disobedience performance
of the income taxpayers in Western Oromia of Ethiopia happened due to resentments
on degree of the business income tax fairness, lack of tax knowledge, complexity of
income tax, inadequate allocation and utilization of public funds by government on
public good and services, tax fraud, ineffective administration, tax attitude, inexact
control and normative beliefs of the taxpayers. More importantly, this enshrined that
taxpayer noncompliance behavior in Western Oromia executed by the help of tax
practitioners and advisors as they prepared financial report for the bulk of taxpayers.

7.4. CONCLUSION
The study used both quantitative and qualitative type of data. For data analysis
and interpretation, the study used descriptive and inferential analysis. The data
analysis was executed by SPSS-24, STATA-13 as well as Excel statistical tools.
The study employed principal component analysis and Cronbach’s test for data
reduction and measuring the validity as well as reliability of the data. The
research further used Kendall’s correlation matrix, ANOVA and ordered logistic
regression. Evermore, the study conducted in depth interview with fifteen or 15
revenue administers in Western Oromia. Alternatively, the prior tax researches,
disputed that the obedience conducts of the taxpayers affected by socio-
psychological parameters. So, this chapter reported the views of 300 business
income taxpayers and 15 tax officers on the extent of tax compliance behavior of
business income taxpayers and the factors that influenced their compliance
activities based on socio-psychological predictors.
In Ethiopia, the regime attempted to boost the extent of tax fulfillment of
individual traders and organizations with tax rule in general and profit tax rule in
particular. But, the amount of public revenue evaded and avoided by the
taxpayers mainly business taxpayers was considerable. As a result, the economy
of Ethiopia was highly financed by the external sources during the last decades.
Currently, Ethiopia regime in general and Oromia regional government in
particular repeatedly looked for new methods of enhancing the magnitude of tax
compliance activities of taxpayers in a country. Albeit amplified level of tax audit
and penalties can augment the tax obedience, they are expensive plan to practice
against the taxpayers. This situation enforced various stakeholders to look for
various mechanisms and factors that influenced the tax obedience, in response,
perhaps support the regime in develop new methods of tax collection and
compliance. In the past, the tax obedience of the individuals and enterprises
explored by means of economic parameters. Even if, they provided that the
economic parameters support the regime in boost the tax obedience behavoiur of
the taxpayers, they also proposed that their tax obedience behavoiur is not merely
affected by economic parameters.

The outputs of this research revealed that tax compliance behavoiur and decision
of business income taxpayers in Ethiopia mainly Western Oromia was affected
by socio-psychological factors for instance perception of tax justice, tax morale,
subjective norm, tax attitude, perceived behavioral control, tax complication and
knowledge. Therefore, the researcher concluded that the obedience conduct of
business income taxpayers in Ethiopia especially; Western Oromia was not
merely a meaning of tax structure and tax audit, but perception, motivation, belief
as well as norms at distinct levels.
The investigator concluded that the business profit taxpayers perception of tax
fairness, subjective norm, tax attitude and positive tax morale had a positive and
considerable relationship with the tax compliance behaviour in the context of
Western Oromia. On the contrary, in the study atmosphere inadequate fairness
perception, subjective norm, tax attitude and tax morale had negative critical
correlation with tax obedience behaviour of the business income taxpayers in the
viewpoint of intolerable income tax forms like overstatement of expense or net
loss and understatement of business revenue or net income by means of sale
suppression and wrong invoicing.
The research concluded the business profit taxpayers tax compliance behavior in
Ethiopia mainly Western Oromia incorporated Ambo, Nekemte, Gimbi, Shambo
and Dambidollo towns was considerably affected by the extent of perception of
fairness, tax complexity, subjective norm, attitudes (affective and instrumental
attitudes) and tax morale apart from tax knowledge and behavioral control.
Nonetheless, the results of descriptive analysis and in-depth interview indicated
the presence of negative perceived behavioral control and low tax knowledge
towards tax compliance behaviour in Western Oromia of Ethiopia. Thus, the
investigator has finalized the tax compliance behaviour of the business income
taxpayers in Western Oromia determined by the social and physiological factors
such as: equity theory; TPB and IMT.
The results from interviews conducted in Oromia revenue authority at western
part were presented qualitatively. The outputs propose that the Western Oromia
tax administers had fears about the tax fairness perception, attitude, perceived
subjective norm, tax morale as well as behavioral control of the taxpayers in
general and business profit taxpayers in particular. Consequently, the revenue
administers in the study site were not gratified with the current tax compliance
behavior of business income taxpayers in Ethiopia in general and Oromia region
in particular.
The researcher concluded that disobedience behaviour of the business taxpayers
was result from the business income taxpayers themselves and government or tax
administers because tax officers believed that the low compliance behavoiur of
the business income taxpayers in Western Oromia was the product of resentments
on amount of business income tax fairness, lack of tax knowledge, complexity of
income tax system, improper utilization of public funds by government on basic
goods and services, tax fraud, tax education, tax incentive plan, ineffective tax
administration, tax attitude, inexact control and normative beliefs of the taxpayers
as well as lack of modern tax mechanism.
Depend on the horizons of the tax officers and business income taxpayers, the
study concluded that majority of the business income taxpayers in Western
Oromia had experienced low degree of compliance behaviour as a result of
resentments on adequacy of tax fairness, complexity of income tax system,
inadequate utilization of community fund, inefficient tax administration, lack of
tax knowledge, shortage of implementation of good governance principle, lack of
taxpayers attitude towards tax disbursement, wrong control and normative beliefs
on disbursement of income tax, poor taxpayers service, inappropriate tax methods
and tax morale, implementation of unsuitable tax policies and procedures,
unhealthy communication and coordination among business taxpayers and
revenue department, lack of capacity, negligence behavior of the taxpayers on
payment of profit tax, political inequality, shadow economy and lack of
infrastructure development in study atmosphere. Especially, the study generalized
that the business taxpayers decisions whether to obey or disobey were the effect
of tax fairness, attitudes toward obedience, subjective norm, tax morale, tax
complexity, behavioural control, tax knowledge and distributive, procedural as
well as retributive justice.
Overall, the researcher rejected a HO3“ Fairness perception, tax morale, tax
 knowledge, tax complexity, attitudes, subjective norm and perceived behavioral
control towards compliance do not have significant influence on business profit
taxpayers compliance behaviour.” in case of fairness perception, tax morale, tax
complexity, attitudes and subjective norm.
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Page 199 of 289

 CHAPTER EIGHT
SUMMARY OF FINDINGS, CONCLUSIONS,
RECOMMENDATIONS AND DIRECTIONS
FOR FURTHER RESEARCH
8.1. SUMMARY OF FINDINGS
8.1.1. The broad idea of the research work
The objectives of this research, as depicted in the third chapter of the thesis, are to
get a clear perception of fairness and tax compliance behaviors in Western Oromia of
Ethiopia in the viewpoint of Categories "A and B" business taxpayers. The main
reasons behind this study were that as per my greatest information and understanding
so far, no similar study conducted on identical topic in Western Oromia. The area
was known by high possibilities of public resentments and unhealthy perception on
the income tax, inadequate public goods and services; lofty possibility of tax frauds,
illicit trade and shadow economy. Furthermore, the area was recognized by high
economic resources, political unsteadiness and limited infrastructural development.
To address this, five objectives were focused on:

1. To study regulatory framework on business profit tax system in Oromia region.

2. To study the growth of tax revenue regarding business profit taxpayer in Western
Oromia.
3. To observe business profit taxpayers opinions with regard to fairness perception,
tax knowledge, complexity of the income tax system and their compliance behaviour.
4. To investigate the influence of tax fairness dimensions, tax knowledge and
complexity of the income tax system on fairness perception of taxpayers in Western
Oromia.
5. To investigate the influence of fairness perception of taxpayers, tax morale, tax
knowledge, tax complexity, attitudes, subjective norm and perceived behavioral
control on compliance behavior in Western Oromia.

In order to address the primary objective, the study applied a qualitative research
approach as it has gathered the data from proclamations, regulations, articles and
webpages related to profit tax. To attain the second objective, the study covered for
ten years of tax reports provided by Western Oromia, Oromia region and Federal
government revenue offices.
To attain the last three objectives, the following main null hypotheses were tested.
1. There is no significant difference among business profit taxpayers with regard to the
level of opinion of fairness perception, tax knowledge, complexity of the income tax
system and their compliance behaviour in Western Oromia.
2. Tax fairness dimensions, tax knowledge and complexity of the business
income tax system do not have significant influence on business profit
taxpayer's fairness perception.
3. Fairness perception, tax morale, tax knowledge, tax complexity, attitudes,
subjective norm and perceived behavioral control towards compliance do not
have significant influence on business profit taxpayer's compliance
behaviour.
The study utilized both primary and secondary sources of data. The study selected
300 profit taxpayers and 15 officers by multi-stage-stratified-proportionate-sampling,
simple and purposive sampling techniques in turn. The data was analyzed by means
of descriptive statistics and inferential analyses. For this, SPSS-24, STATA-13 and
Excel tools were used.
8.1.2. Findings on the regulatory framework
The researcher summarized that the business profit tax system was relatively well
and governed by proclamation, constitution and regulation. The major sources of
business profit tax system in Western of Oromia of Ethiopia were proclamations,
regulations, articles and constitutions made by legislative, executive and judicial
organs of the government. However, the main foundation of the Oromia business
income tax regulatory framework was a legislative unit of government. The
business income tax assessment and collection activities in Oromia region in
general and Western Oromia, for instance, Ambo, Nekemte, Gimbi, Dambidollo
and Shambo towns in particular performed by the Oromia revenue authority.
Consequently, the regulatory framework of profit tax includes proclamation no’s.
74-2003, 37-2004, 92-2005, 99-2005, 131-2007, 134-2008, 202-2016, 203-2016
and 697-2016. Moreover, the income tax, mainly business income tax in Western
Oromia governed by articles 47, 95, 96, 97, 98 and 99 of the Constitutions of the
Oromia region and the central state.
The study summarized that the Oromia region is implemented scheduler kinds of
income tax scheme, mainly Schedules "A, B, C, D and E" that represented
employee income tax, rental income tax, business income tax, others income tax
and exempted income tax successively.
The study summarized that a Schedule “C” of profit tax is headlined as a
business income tax that expressed as every form of economic benefit comprising
the nonrecurring gains in cash or in-kind from whatever sources derived and in
whatever forms paid, credited or received from the business activities. The study
further summarized that the income tax regulatory framework of Oromia
elucidated the term “business” as producing or buying and selling of goods and
services by the organization for the intention of maximizing profit.
The study summarized that profit tax regulatory framework required partnership
and corporate forms of business to pay their profit tax at a flat rate of 30 per cent
and the other business organizations at progressive tax rates of 10, 15, 20, 25 and
30 adjacent to their business income of 7201.00 Ethiopia birrs to 19,800.00
Ethiopia birrs; 38,400.00 Ethiopia birrs to 63,000.00 Ethiopia birrs; 63,001.00
Ethiopia birrs to 93,600.00 Ethiopia birrs and 93,601.00 birrs to 130, 800.00 birrs
sequentially. Afterwards, it is uttered that those businesses that earned income of
over and above 130,800 birrs ought to pay at 35 per cent and freed enterprises
with income of less 7,500 birr.
 The researcher summarized that the regulatory framework of the business income
tax specified the meaning of profit and business, income tax rate, period,
assessment techniques, deduction, penalties and accounting system.
The study summarized that the revenue department in Western Oromia of
Ethiopia has executed two types of assessment of business profit taxpayers. So, a
giant mainstream of provisions on the income tax regulation is dedicated to the
issues of the business income tax because it enshrined certain tax self-
measurement standards such as accounting system, assessment method and
problem resolution scheme.
The study further summarized that the profit tax regulatory framework in a
research ecosystem somewhat recognized canons of equity, ability, economy,
simplicity, neutrality, certainty, productivity, diversity, coordination and benefit.
However, the study generalized that unseemly implantation of these canons and
objectives wane perceived fairness, tax obedience conducts and the revenue
potential of the Oromia region in general and western part in particular.
The study abridged that the tax offices in the study area are used SIGTAS to
confirm the disobedience behaviour of the business income taxpayers, but the
uniformity of the administrations dubious because of diminutive capacity, skilled
personnel and internet connection and the likelihood of fewer linkage between
taxpayers and administrations.
It summarized that comparatively easier to locate cases on the business profit tax
than other income tax regulatory framework but it’s dispute resolution strategies
are probably complicated to the profit taxpayers and administrations, increased an
opportunity of tax frauds and retributive injustice because it causes additional tax
compliance time, effort and costs.
The researcher summarized that most portion of the recent penalty scheme
merely necessitates the business income taxpayers to validate self-assessment
reports with greater but multifaceted legitimate panorama, the policymakers were
unable to modified and fashioned a scheme of tax penalty that precisely
employed against every under-reporting tax liability of profit taxpayers
attributable to conditions that they were not sagaciously and in good faith
judgment, to be honest, and made tax punishment devoid of sympathetic
inspirations of the taxpayers to obey the tax liability. For the majority of the
business profit taxpayers in Western Oromia of Ethiopia, the financial reports
were made by the authorized accountants and practitioners. However, the
business income tax regulatory framework does not stress on punishments of
authorized accountant or practitioner for preparing wrong financial reports and
every imperfect of the income of the taxpayers or non-disclosed situation that the
report prepared were not rational and in good faith believed to be truthful.
Concerning presumptive business profit taxpayers, the study summarized that the
Oromia revenue authority and Ministry of revenue has not properly utilized the
canons of standard assessment such as fairness, certainty, honesty, transparency,
convenient, accountability and simplicity during estimation of their the business
tax obligations due to an arbitrary estimation of taxable income as well as diverse
groups of taxpayers in this category.
Finally, complexity of the business profit tax, inadequacy of modern income tax
system, business tax incentive plans, narrow base of business tax, unlicensed
business, untaxed potential, income tax powers and ratios, repetition of
deductions, incompetent mode of assessment of business tax and inequitable
deterrence practice were identified as the major defies of business income tax
regulatory framework in the Oromia Region of Ethiopia. The gap of the Oromia
region income tax regulatory framework is somewhat the same with issues
addressed by Lencho (2013; 2014) about the federal income tax law.
For that reason, the study abridged that the regulatory framework of business
income tax being utilized in Western Oromia to some extent, is not in line with
the concepts of fairness, convenient, certainty, benefit, productivity, neutrality,
efficiency, effectiveness and ability to pay. The study further summarized that the
CHAPTER SEVEN
impediment was the product of uncertainty,and inconvenient on the nature and
accurate meanings and implementation of tax policies and hierarchies among
multiple goals and principles of business profit tax in Oromia included western
BUSINESS PROFIT TAXPAYERS
area unbelievably remote from the concept and procedures of regulatory
framework. In the end, it was affirmed by a small number of researchers,
COMPLIANCE BEHAVIOUR
administers, professionals and shareholders as they questioned whether revenue
authority ,mainly western division treated and implemented them honestly and
fairly.
8.1.3. Findings on business tax revenue growth rate
The extent of government tax revenue generated from the profit taxpayers in the
forms of the business income tax and others tax revenue in Western Oromia was
low relative to the number of the business organizations and economic resources.
The revenue authority in the desired part collected about 1,341.3million Ethiopia
birr in kinds of business profit tax and other tax revenue. Because of that, from
the total 1,341.3million birr obtained from business profit taxpayers, business
income tax reported at 877.28million birr or 65 per cent while other tax revenue
recognized at 464.05million birr or 35 per cent. Thus, it was shallow as compared
to that of the revenue of the federal and regional state.

The amount of income tax mainly business income tax collected from income
taxpayers lingered less than the governments expenditure stipulate for the
national and regional economic growth. At all levels of government, the extent of
tax revenue, especially direct and indirect tax revenues is fluctuating throughout
the desired period.
The tax revenue of Western Oromia amplified from 37.99million Ethiopian birr
in 2007-08 to 266.94million birr in 2016-17 showing a growth rate of 21.53 per
cent. The business income tax and other taxes of the study location augmented
from 20.23million birr and 17.76million birr in 2007-08 to 183.38million birr and
83.56 million birr in 2016-17 showing the growth rate of 24.66 per cent and 25
per cent in turn.
The entire revenue of the government from tax enlarged from 22,571.03million
Ethiopian birr in 2007-08 to 276,521.58million Ethiopian birr in 2016-17
showing the growth rate of 28.46 per cent. The tax revenue of federal augmented
from 22,550.8million Ethiopian birr of 2007-08 to 276338.2million Ethiopian
birr in 2016-17 showing the growth rate of 28.48 per cent. The study further
summarized that the direct tax revenue of the federal enlarged from
1,073.39million birr in 2007-08 to 9,128.49million birr in 2016-17 showing the
growth rate of 45 per cent.
In Oromia regional state the tax revenue augmented from 1,035.40million birr of
2007-08 to 8,861.55million birr in 2016-17 at the growth rate of 23.95 per cent.
The Oromia national regional state revenue from direct and indirect taxes
enlarged from 578.40million birr and 457.01million birr in 2007-08 to
6,583.14million birr and 2,278.41million birr in 2016-17 at the growth rate of
27.53 per cent and 17.43 per cent respectively.
The whole revenue of Western Oromia from business income tax increased from
78.54million Ethiopian birr in 2007-08 to 1,923.48million Ethiopian birr in 2016-
17 at a growth rate of 37.69. The total business income tax of Western Oromia
and Oromia regional government increased from 20.23million Ethiopian birr and
58.31million Ethiopian birr of 2007-08 to 183.38million Ethiopian birr and
1,740.10million Ethiopian birrs in 2016-17 at growth rate of 24.66 per cent and
40.44 per cent respectively.
The business tax revenue of the study area augmented at a little growth rate of
24.66 per cent compared with 40.44 per cent of growth rate documented at the
level of Oromia regional state. Therefore, the study summarized that the total
business income tax revenue augmented at a low growth rate as compared to that
of overall business tax revenue reported in the study period.
Government revenue from the income tax increased from 7,044.23million
Ethiopian birr in 2007-08 to 81,593.78million Ethiopian birr in 2016-17 at
growth rate of 15.83. Thus, revenue from business income tax and direct tax
increased from 20.23million Ethiopian birr and 7024.0million Ethiopian birr of
2007-08 to 183.38million Ethiopian birr and 81410.4million Ethiopian birrs in
2016-17 at growth rate of 24.66 and 27.76 in turn. So, the business income tax in
Western Oromia increased at higher growth rate of 24.66 per cent in proportion to
15.83 per cent of the entire growth rate but at lesser growth rate relative to 27.76
per cent of direct tax revenue of the central government.
Between 2007-08 and 2016-17 the revenue and expenditure of Oromia region
amplified from 1,168.09million Ethiopian birr and 5,873.91million Ethiopian birr
in 2007-08 to 10,595.57million birr and 52,808.16million Ethiopian birr in 2016-
17 at growth rate of 46 per cent and 45 per cent respectively. In 2011-12, the
expenditure and revenue of the regional government provided a higher rate of 72
per cent and 52 per cent in turn. Alternatively, in 2016-17 the revenue and
expenditure reported at very lower rates of 1.42 per cent and 18.46 per cent
respectively. Thus, in most of the selected periods, the total government
expenditure exceeded revenue in the study area.
The tax revenue of Western Oromia to tax revenue of Oromia region and the
central state, reported at high growth rate of 4 per cent and 0.17 per cent in 2008-
09 respectively. The share of Western Oromia to tax revenue of Oromia region
and federal regime documented at a low growth rate of 2.93 per cent and 0.10 per
cent in 2014-15 and 2016-17 in turn. Thus, the researcher generalized that the
ratio of Western Oromia to public tax revenue was diminutive in the research
period. The outputs asserted that large numbers of business income taxpayers in
Western Oromia refused to declare their tax rightly. Further it exposed the
problem of tax planning because the trend was identical in most of the research
periods.
The percentage of business income tax to tax revenue of federal and Oromia
region increased by 0.094 per cent and 2.23 per cent in 2015-16 and 2008-09 as
well as 2009-10 respectively. But, it diminished at a great extent of 0.01 per cent
and 1.98 per cent in 2014-15 and 2013-14 respectively.
The ratio of business income tax of the study place to Oromia region increased at
highest ratio of 30 per cent in 2008-09 and little ratio of 11 per cent in 2015-16
and 2016-17 respectively.
The ratio of business income tax in the Oromia region and federal direct tax
revenue enlarged by 3.5 per cent and 0.28 per cent in 2008-09 in turn. The ratio
of business income tax of Western Oromia to direct tax of Oromia and the federal
government increased at the lowest rate of 0.20 per cent and 2.79 per cent in
2010-11, 2011-12 and 2016-17 respectively.
The tax revenue primarily business income tax shortfall in 2014-15, 2015-16 and
2016-17 was an outgrowth of public antipathies on upward income tax
framework improvement and political instability in Oromia in particular and
Ethiopia in general. The condition warranted that most of the business taxpayers
in Western Oromia paying a little amount of business income tax as compared to
that of tax revenue of Oromia region. Furthermore, the researcher summarized
that the findings revealed the existence of tax deviant behaviour, and high
obedience costs in Western Oromia between 2007-08 and 2016-17.
The simple growth percentage and the exponential growth rate have shown that
the magnitude of tax revenue,mainly business tax revenue collected in Western
Oromia are shallow as contrasted to that of the federal government and Oromia
region.
Though there are large domestic and international business enterprises in Oromia
of Ethiopia, the state is being derived most of the tax revenue from immaterial
sources of income and indirect taxes in positions that universally intricate and
need extra effort, time and costs to collect. For instance, the Office of Auditor
General and ORA recognized that most of the private organizations in Oromia
included study place paying their business income and other taxes at the federal
and other regions because of receiving TIN from those tax atmospheres.

In the previous decade, the contribution of business enterprises in the form of

business profit tax to direct tax was very low in Ethiopia in general and Oromia
region in particular. The study further shortened that the business enterprises in
Ethiopia, mainly Western Oromia do not properly disburse their business profit
tax in the last ten years. In the same way, it justified that the extent of income tax
from business taxpayers reduced due to political instability, market boycott and
tax frauds in Ethiopia in general and Oromia region in particular.
Along with distributive justice theory redistribution of more fiscal revenues
incorporated income tax from the Oromia region to other places devoid of
enshrining the needs of low-income families and infrastructure development in
Western Oromia of Ethiopia affected their tax revenue collection capability. In
the same way, the researcher realized that these issues are the critical indicators
for the provision of poor quality of public goods and services, high vertical fiscal
imbalance and instability of Oromia region, particularly study place.
By and large, the study summarized that unfair and complex tax law; lofty tax
rebelliousness; small infrastructure development; illegal flow of public money;
political unsteadiness; under-reporting of business revenue; unlicensed trade;
counterfeit sale register machine; ineffective administration; bogus invoicing;
unproductive tax incentive; failed to properly exercise power of taxation on all
business enterprises; designation of small power of taxation to the local and
regional regime; narrow tax structure an sluggish structural transformation of
economy were the products of inadequate revenue collection in the study place.
Regarding this, the Ministry of Revenue via OBN TV confirmed that the office
 control about 124 unlicensed and illegal businesses in a country incorporated
Oromia.
8.1.4. Findings on the influence of tax fairness dimensions on perceived fairness
The fairness perception of business income taxpayers in Oromia regional state,
Western Ethiopia was multi-dimensional and low towards the income tax framework.
So, in Western Oromia of Ethiopia, the extent of the business profit taxpayers
perception of equity was critically correlated with personal fairness, vertical fairness,
retributive fairness, horizontal fairness and administrative fairness. Therefore, the
study summarized that the relationship between the predictors and fairness
perception was positive and statistically considerable in the study place.
The researcher summarized that in Western Oromia, Ethiopia business income
taxpayers fairness perception was drastically influenced by the magnitude of
personal fairness, vertical fairness, horizontal fairness, retributive fairness and
administrative fairness. However, the business income taxpayers in the study areas
had considerable diverse opinions on the extent of vertical fairness; horizontal
fairness as well as retributive fairness barring personal fairness and administrative
fairness. The researcher has not checked the level of influence of general and
exchange equities on fairness views of the profit taxpayers because of their factor
loadings.
The outcomes of the descriptive statistics and interview acknowledged the scanty and
incidence of diverse perception on the general fairness and exchange justice in the
study atmosphere. Accordingly, the study summarized that the officers had a mixed
perception of the tax fairness of the business profit tax scheme. The revenue officers
had worries on horizontal fairness, time fairness, vertical fairness, personal fairness,
informational fairness,exchange fairness, compliance fairness, general fairness, retrib
utive fairness and administrative fairness. Accordingly, the judgment of the revenue
officers assured multiple aspects of perception of the business taxpayers on equity of
business income tax and provided a signal to regime mainly Ministry of revenue on
the aspects of the income tax regulatory framework that required enhancements.
The study summarized that most of the officers were unhappy with the government
spending of revenue of tax, lack of disclosure of public expenditure, imposition of
penalties on genuine mistakes, taxpayer right to query and make corrections,
taxpayers services, administration of tax repayments, tax incentive, illicit invoice and
lack of coordination of staff.
On the influence of predictors of fairness perception of the business profit taxpayers,
it summarized that most of the tax officers normally believed that lack of horizontal
fairness, exchange fairness, vertical fairness, administrative fairness, personal
fairness and retributive fairness of income tax rule have contributed to the unfair
perception of the business income taxpayers.
In the end, the study abridged that a mixed opinion on the influence of aspects of tax
fairness, knowledge and complexity on fairness perception was also picked out by
tax administers. On the other hand, the research generalized that while most of the
revenue officers agreed that dimensions of tax fairness, tax knowledge and tax
complexity has an influence on fairness perception of the profit taxpayers, others
argued that predictors have now contributed to the unfairness perception of business
taxpayers.
The findings of this research work recognized by Gilligan and Richardson (2005),
Kazemi (2008), Perumal (2008), Saad (2010; 2011), equity theory, distributive
justice theory; retributive justice theory and procedural justice theory. For instance,
in Australia, Kirchler (2003) merely emphasized on personal fairness, on the other
hand, Gilligan and Richardson (2005) stressed on special provisions, general, tax rate
and personal interest fairness’. In Malaysia and New Zealand taxpayers Saad (2010;
2011) was assessed fairness anchored in general, vertical, horizontal, administrative,
exchange, personal and retributive equities. In Addis Ababa of Ethiopia, Abroat
(2011) observed general fairness, vertical fairness, horizontal fairness, administrative
fairness, exchange fairness and personal fairness while Belay and Viswanadham
(2015) investigated horizontal fairness, general fairness, personal fairness, vertical
fairness, retributive fairness and administrative fairness in Amahara of Ethiopia.
Kirchler (2007); Azmi and Perumal (2008) and Yildirim et al. (2016) explored that
the general fairness and exchange with the government; attitudes; progressive versus
flat tax rate; self-interest and retributive fairness dimensions of tax fairness were
imperative to measure the perception of taxpayer's fairness. But, the current study
failed to test the extent of influence of exchange fairness and general fairness over
perception of tax fairness. They summarized that tax fairness contained at least
retributive, exchange, horizontal and vertical equities. So, the type of aspects of tax
fairness and the magnitude of their influence on the taxpayers fairness perception
were diverse across the globe.
8.1.5 Findings on the influence of tax knowledge on perception of tax fairness
The business income taxpayers in Western Oromia Regional State of Ethiopia are
considered as having no sufficient technical knowledge, legal knowledge and general
knowledge on the income tax law mainly business profit tax scheme. The study
summarized that the revenue officers had a mixed perception of tax knowledge of the
business profit taxpayers. The study explored positive and strong correlation among
perceived fairness and technical knowledge, legal knowledge and general knowledge
in the research environment. Thereafter, the fairness view of the business income
taxpayers in Western Oromia Regional State of Ethiopia such as Ambo, Nekemte,
Gimbi, Dambidollo and Shambo municipalities was critically influenced by the
extent of technical knowledge, legal knowledge and general knowledge.
Furthermore, the business profit taxpayers in the study site had considerable and
diverse opinions on the magnitude of technical knowledge, legal knowledge and
general knowledge.
The tax officers approved inadequacy of knowledge of profit tax primarily technical
knowledge, legal knowledge and general knowledge. In terms of their knowledge of
the business income tax scheme, the researcher summarized that taxpayers appeared
to have inadequate knowledge of technological and legal aspects of the income tax
system.
Further the researcher summarized that issue was even fear for some of the revenue
administers who are required to deal with arduous profit tax issues in the work
region. Hence, the outcomes of the study supported by preceding literatures (for
instance, Mohani, 2003; Richardson, 2006; Zelalem, 2011, Sapie and Kasipillai,
2013; Niway and Wondwossen, 2015; Puspita et al., 2016; Redae, 2016; Oladipupo
and Obazee, 2016; Fauziati et al., 2016 and Mitu, 2016) in view of the fact that, they
accredited the values of tax knowledge to the tax fairness perception and compliance
action of the taxpayers. In contrast, this finding was different from certain prior
works of literature (for example, Tan and Chin-Fatt, 2000 and Mukasa, 2011)
because they explained that tax knowledge and perceived tax fairness had a feeble
relationship. Afterwards, the findings partially acknowledged by Palil and Mustapha
(2011) because they divided tax knowledge into seven dimensions, particularly
responsibilities and rights; knowledge about employment income; dividend and
interest; personal relief; child relief; rebates and awareness on offense, penalty and
fine.
The outputs of the current study were identical with Saad (2011; 2012) because she
explained that the fairness perception of income taxpayers in Malaysia and New
Zealand significantly affected by the extent of technical knowledge, legal knowledge
and general knowledge. Increasingly, Abrot (2011) and Zalalem (2011) explained
that the taxpayers tax knowledge considerably influenced their perception of tax
fairness in Addis Ababa. However, the current findings different from their outputs
in observing the separate effects of technical knowledge, legal knowledge and
general knowledge on perception of business profit taxpayers regarding the fairness
of the profit tax framework.
8.1.6. Findings on the influence of tax complexity on tax fairness perception
The result of the study revealed multiple correlations among the perception of tax
fairness and complication of the income tax regulatory framework. The study
summarized that the profit taxpayers and the revenue officers had a mixed perception
of the complexity of business profit tax scheme. Hence, a compliance complexity of
the income tax system had positive and substantial correlation with the profit
taxpayers fairness views because an optimum level of complexity in the income tax
law boosts their views of the compliance fairness. Conversely, a content complexity
had a negative and significant relationship with the perception of tax equity in the
research atmosphere. That, in other words, means that as content complexity of the
income tax framework is increased in Western Oromia, Ethiopia their fairness views
decreased because of increased in compliance cost, effort and time. So, the fairness
view of the business income taxpayers in Western Oromia was considerably affected
by the magnitude of compliance and content complexities of profit tax rules.
The tax officers also perceived that the present business profit tax scheme was
complex. Most of the tax officers in Western Oromia claimed that while the business
net income tax system itself is naturally complex, the enormous extent of time of
reports to be completed in complying with their tax obligations further raised the
difficulty. Thus, the researcher summarized that the income tax system of Oromia has
been knocked for being desperately complex to taxpayers in general and business
profit taxpayers in particular. Albeit, tax reforms has been continuously undertaken
to optimize complexity of the business income tax system, perhaps the benefits of
such schedules were not yet visible, in the point of view of both taxpayers and
officers. For that reason, the views of the officers also confirmed that content and
compliance complexities of the business income tax system to taxpayers and certain
personnel. The study further summarized that some of revenue officers disputed that
the scheme was simpler for taxpayers.
The result partly approved in the earlier works, for example, Chittenden and Foster,
(2008); Saad (2011); Evans and Nam (2013); Gambo et al. (2014); Yahaya (2015),
Samuel (2015) and Akalu (2016). Similarly, Saad (2011) identified that ambiguity;
computations; change laws; detail complexity; accounting record and forms
complexity arose from confusing taxpayers and instruction. Furthermore, Chittenden
and Foster (2008) discovered various kinds of complication akin to compliance,
forms, procedural and computational complexities. Thus, the study was partly
analogous to these works as it discovered diverse directions regarding the influence
of compliance and content complexities on the perceived fairness of the business
profit taxpayers.
8.1.7. Findings on the influence of fairness perception, tax knowledge, tax
complexity, TPB and tax morale on tax compliance behaviour
The outputs of the study showed that perception of tax fairness; tax complexity, tax
attitudes, tax morale and subjective norm were drastically influenced their tax
obedience behaviors in the study site. Accordingly, perception of tax fairness; tax
attitudes, tax morale and subjective norms critically associated with the business
income taxpayers compliance behaviour in the study location. Subsequently, based
on distasteful tax conditions tax morale and subjective norm had statistically
significant and negative correlation with the business profit taxpayers tax compliance
behaviors in Western Oromia, Ethiopia. However, the influence perceived behavioral
controls and tax knowledge adjacent to tax compliance behaviors of business profit
taxpayers was statistically inconsiderable in Western Oromia, Ethiopia.
In Ethiopia, the regime attempted to boost the extent of tax fulfillment of individual
traders and organizations with tax rule in general and profit tax rule in particular. But,
the amount of public revenue evaded and avoided by the taxpayers mainly business
taxpayers was considerable. As a result, the economy of Ethiopia was highly
financed by the external sources during the last decades. Currently, Ethiopia regime
in general and Oromia regional government in particular repeatedly looked for new
methods of enhancing the magnitude of tax compliance activities of taxpayers in a
country. Albeit amplified level of tax audit and penalties can augment the tax
obedience, they are expensive plan to practice against the taxpayers. This situation
enforced various stakeholders to look for various mechanisms and factors that
influenced the tax obedience, in response, perhaps support the regime in develop new
methods of tax collection and compliance. In the past, the tax obedience of the
individuals and enterprises explored by means of economic parameters. Even if, they
provided that the economic parameters support the regime in boosting the tax
obedience behavoiur of the taxpayers, they also proposed that their tax obedience
behavoiur is not merely affected by economic parameters.
The outputs of this research revealed that tax compliance behavoiur and decision of
business income taxpayers in Ethiopia mainly Western Oromia was affected by
socio-psychological factors for instance perception of tax justice, tax morale,
subjective norm, tax attitude, perceived behavioral control, tax complication and
knowledge. Therefore, the researcher concluded that the obedience conduct of
business income taxpayers in Ethiopia especially; Western Oromia was not merely a
meaning of tax structure and tax audit, but perception, motivation, belief as well as
norms at distinct levels.
The investigator summarized that the business profit taxpayers’ perception of tax
fairness, subjective norm, tax attitude and positive tax morale had a positive and
considerable relationship with the tax compliance behaviour in the context of
Western Oromia. On the contrary, in the study atmosphere inadequate fairness
perception, subjective norm, tax attitude and tax morale had negative critical
correlation with tax obedience behaviour of the business income taxpayers in the
viewpoint of intolerable income tax forms like overstatement of expense or net loss
and understatement of business revenue or net income by means of sale suppression
and wrong invoicing.
The research summarized the business profit taxpayers tax compliance behavior in
Ethiopia mainly Western Oromia incorporated Ambo, Nekemte, Gimbi, Shambo and
Dambidollo towns was considerably affected by the extent of perception of fairness,
tax complexity, subjective norm, attitudes (affective and instrumental attitudes) and
tax morale apart from tax knowledge and behavioral control. Nonetheless, the results
of descriptive analysis and in-depth interview indicated the presence of negative
perceived behavioral control and low tax knowledge towards tax compliance
behaviour in Western Oromia of Ethiopia. Thus, the investigator has finalized the tax
compliance behaviour of the business income taxpayers in Western Oromia
determined by the social and physiological factors such as: equity theory; TPB and
IMT.
The results from interviews conducted in the Oromia revenue authority at western
part were presented qualitatively. The outputs propose that the Western Oromia tax
administers had fears about the tax fairness perception, attitude, perceived subjective
norm, tax morale as well as behavioral control of the taxpayers in general and
business profit taxpayers in particular. Consequently, the revenue administers in the
study site were not gratified with the current tax compliance behavior of business
income taxpayers in Ethiopia in general and Oromia region in particular.
The researcher summarized that disobedience behaviour of the business taxpayers
was result from the business income taxpayers themselves and government or tax
administers because tax officers believed that the low compliance behavoiur of the
business income taxpayers in Western Oromia was the product of resentments on
amount of business income tax fairness, lack of tax knowledge, complexity of
income tax system, improper utilization of public funds by government on basic
goods and services, tax fraud, tax education, tax incentive plan, ineffective tax
administration, tax attitude, inexact control and normative beliefs of the taxpayers as
well as lack of modern tax mechanism.
Depend on the horizons of the tax officers and business income taxpayers, the study
concluded that majority of the business income taxpayers in Western Oromia had
experienced low degree of compliance behaviour as a result of resentments on
adequacy of tax fairness, complexity of income tax system, inadequate utilization of
community fund, inefficient tax administration, lack of tax knowledge, shortage of
implementation of good governance principle, lack of taxpayers attitude towards tax
disbursement, wrong control and normative beliefs on disbursement of income tax,
poor taxpayers service, inappropriate tax methods and tax morale, implementation of
unsuitable tax policies and procedures, unhealthy communication and coordination
among business taxpayers and revenue department, lack of capacity, negligence
behavior of the taxpayers on payment of profit tax; political inequality, shadow
economy and lack of infrastructure development in study atmosphere. Especially, the
study generalized that the business taxpayers decisions whether to obey or disobey
were the effect of tax fairness, attitudes toward obedience, subjective norm, tax
morale, tax complexity, behavioural control, tax knowledge and distributive,
procedural as well as retributive justice.

The outputs of this research revealed that tax compliance behavoiur and decision of
business income taxpayers in Ethiopia mainly Western Oromia was affected by
socio-psychological factors for instance perception of tax justice, tax morale,
subjective norm, tax attitude, perceived behavioral control, tax complication and
knowledge. Therefore, the researcher summarized that the obedience conduct of
business income taxpayers in Ethiopia especially; Western Oromia was not merely a
meaning of tax structure and tax audit, but perception, motivation, belief as well as
norms at distinct levels. The study further summarized that policymakers and tax
professionals ought to give an attention to the wide applicability of equity theory,
distributive justice theory, procedural justice theory, retributive justice theory,
intrinsic motivation theory and theory of planned behavior together with the
economic models because they considerably influenced the perceived tax fairness
and tax compliance behavior of business profit taxpayers in Western Oromia,
Ethiopia.
The result on the influence of attitude, perception of fairness, tax knowledge, tax
complexity, tax morale, subjective norm and perceived behavioural control on
business profit taxpayers tax obedience behaviour seldom consistency with
(Barnet,2001; Thrived et al.,2004;Torgler and Schaffer,2007; Samuel,2011; Palil and
Mustapha,2011; Igbeng et.al,2012; Saad,2010;2012; Smart,2012; Boonyarat et al.,20
14; Delahunt and Sidereal,2014; Diaz,2015; Nurlis,2015; Yahaya,2015; Akalu,2016;
Ebimobowei and Elizabeth,2016; Faizal and Palil,2015; Daniel et al.,2016; Kondelaji
et al.,2016; Redie,2015; Mitu,2016; Puspita et al.,2016; Redae and Sekhon, 2016;Yil
dirim et al., 2016;Kuria and Omboi, 2016). Consequently, the present findings have
increased confidence of a researcher on the imperativeness of studying the regulatory
framework of business income tax; extent of business tax revenue growth; perceived
tax fairness and tax compliance behavior of the profit taxpayers in Western Oromia
Region of Ethiopia.
Overall, the researcher rejected a HO3“ Fairness perception, tax morale, tax
knowledge, tax complexity, attitudes, subjective norm and perceived behavioral
control towards compliance do not have significant influence on business profit
taxpayers compliance behaviour.” in case of fairness perception, tax morale, tax
complexity, attitudes and subjective norm.

8.2. CONCLUSIONS
The regulatory framework of Oromia regional state business income tax was
developed in line with the articles 47, 97, 98 and 99 of the constitution. Hence, the
revenue authority of Oromia regional government have to collect income tax, mainly
business profit tax from rural land fee; agricultural income tax; profit and sales tax
from individual and business enterprises owned by regional government; tax on
income from inland water transportation; properties owned by regional
administration; royalty, income tax on mining activities, charges and fees on licenses
and little from private limited companies as well as corporation. Similarly, the
revenue authority of Oromia in the study area has to collect tax primarily business
income tax from high informal and very low formal business enterprises and sole
traders.
Currently, income tax in the Western of Oromia region governed by a separate body
called Oromia revenue authority in line with income tax proclamation and
administration no.202-16 and 203-16. The recent income tax proclamations no.202-
16 and 979-2016 defined income as all kinds of financial benefit together with the
nonrecurring gains in cash or else in kind from whatever sources obtained and in
whatever form paid, credited or received from business organizations and individual
traders.
The income tax system in the study area is the scheduler denoted by the letters “A, B,
C, D and E”. For that reason, the researcher concluded that the income tax in Oromia
of Ethiopia divided as Schedule “A” of employee income tax; Schedule “B” of rental
income tax; Schedule “C” of business income tax; Schedule “D” of other income tax
and Schedule “E” of exempted income from taxes. Moreover, the study concluded
that the proclamation categorized the business income taxpayers subject to Schedule
“C” as “A”, “B” and “C” depends on their yearly turnovers or business revenues.
Evermore, the income tax proclamation of the Oromia region revealed meaning of
profit, business, income tax rate and period; assessment techniques; accounting
system; deduction and penalties if they failed to obey with the income tax regulatory
framework.

The overall objective of Oromia regional government business profit tax regulatory
framework are devises to increase public tax revenue and optimize public
expenditure, improve the living standard of the communities, encourages export and
import, hearten saving and investment, reduce harmful consumptions, advance the
economic growth and development, enhance capital accumulation and equity, reduce
unemployment, illicit flows of fund, tax fraud and gloom economy; redefining the
power of income tax, improve effectiveness and efficiency of revenue department,
broaden base of the income tax, boost taxpayers services and contemporary income
tax system.
The business income tax system of study ecosystem recognized the basic principles
of taxation for example equity, ability to pay, simplicity, neutrality, certainty,
productivity, benefit, diversity and coordination. However, this study revealed that
the ill-mannered implantation of theses income tax principles and goals in the
Western Oromia Region of Ethiopia distress the perceived tax fairness, tax
compliance behaviour and obedience cost, domestic revenue and expenditure
abilities of a government. In addition, the ill-mannered implantation were the
primary reasons for the ambiguities and antipathies of nature and practicality of the
profit tax policies, principles and hierarchies among multiple goals and canons of
profit tax in the Western Oromia region of Ethiopia.
The profit tax regulatory framework of Oromia region of Ethiopia was not much
emphasized how to tax the business organizations and individuals operated in
different regions due to the dearth of legal arrangements addressed manifold incomes
allege towards the persons run companies in numerous regions. The concept of
addition (gross) of the income of the business taxpayers required the business
enterprises or sole proprietors to add all of their income from different sources
together to determine taxable income in meticulous schedule. Similarly, the concept
of addition is not strongly gone and applied beyond regional boundaries and vague to
add incomes of the business organizations and traders executed business in the
vicinity of regional towns as it is complex to get sufficient and objective evidence
and inconsistency of administration. Thus, this study determined that since the
implementation of the e-revenues system and e-invoices are current phenomena in
the study area, the concept of aggregating multiple revenues of business entities is
tricky to manage appropriately. It is even difficult to levy a proper profit tax on the
sole or organizations doing business in the identical city, district as well as zone
because of an inadequate adoption of the contemporary income tax system.
It is complex to easily differentiate Schedule of the business income tax from other
schedules because of a scope limitation. For instance, Schedule “C” is overlapped
with a Schedule “B" because a piece of income of rental property charged to
Schedule "B," some to Schedule "C" and Schedule "D". Therefore, the issues of
aggregate or segregate the taxable income from multiple companies owned by an
individual within a single tax environment and taxed in diverse schedules as well as
categories were one of the basic gaps of the Oromia region’s income tax regulatory
framework because it caused lots of doubts in process of business income tax
collection.
The scope of Schedule “C” business profit or income tax also clashed with Schedule
“D” of other income tax because the business organizations may concurrently earn
their revenue from technical and management fees, income from rental of properties,
undistributed profit, repatriate profit, interest and royalties, dividends, windfall gain,
undistributed profit and repatriate profit, interest as well as other income. Thus, the
researcher concluded that final withholding tax rates passionately different which
over and above being sources of injustice by their very business operations and
gives some business profit taxpayers unnecessary reward by letting them structure
their affairs in such a way that their profit will be filed in a category coerce to a
smallest rate. For instance, it is an obligatory to a book publishing company to
comprise revenue from sales in a Schedule "C" business profit tax and royalties
earned in the sale of similar books by others in Schedule "D." Therefore, the
researcher concluded that burden and rates of tax on these profit tax schedules
significantly unequal and influenced the level of tax fairness, government revenues
and provide opportunities for avoidance and evasions to the business taxpayers.
Increasingly, the investigator concluded withholding taxes posed inequality among
the business profit taxpayers in the identical tax category because one taxpayer may
tax in different tax jurisdictions.
The income tax proclamation no.203-2016 explained the concept of business as any
industrial, commercial, professionals or vocational activities performed for the
intention of profit maximization in long and short terms other than rendering of
services as employees and rent of building. Thus, this study determined that the
meaning required modification as it is against the principles of the Scheduler income
tax framework and treated the whole activities of individuals and business enterprises
in the Western portion of Oromia region as business profit tax.
Pertaining to Category "C" business income taxpayers, notwithstanding income tax
law required the revenue department in the Western Oromia region to the diligence
of fairness, transparency and application of simple procedures at the time of income
tax estimations, many profit taxpayers and professionals have complained the
matters. Hence, the study concluded this is caused by improper determination of
taxable income of the taxpayers in the Western Ethiopia of Oromia region. Currently,
there are more than ninety small groups of business income taxpayers in this cluster.
Thus, the study was concluded that regulatory framework on the business income tax
of Oromia region is slightly applied unfair way and policies against business income
taxpayers in Category “C”.
The study settled that time, procedure, content and compliance of a current business
income tax framework was complex in nature as most of the taxpayers and officers
are under-educated in the study environment. For example, the business taxpayers
required disbursing municipality and business profit taxes; Red Cross and Sports
contributions together with tax. Moreover, they required to collect 15 per cent of
VAT and transferred to the authority at the end of a month. Therefore, a regulatory
framework of business income tax impaired equity, convenient and certainty
principles since it is multifaceted to the taxpayers and officers.
The business income tax system of Ethiopia particularly that of Oromia was not
emphasized otherwise condoned the issues of unlicensed trade and Not- for -Profit -
Entities engaged in the business-type activities. For instance Ms. Abebe told the
rd
Oromia Broadcasting Network Television on January 23 , 2019 in Afan Oromo (i.e.
The official language of Oromia Regional State): "Currently the revenue office
collected the business income tax just from 60 per cent of business organizations and
traders." That, in other words, means that the income tax law disregarded about 40
per cent of those entities actively engages in a business atmosphere where Western
Oromia was not strange. Hence, the study finalized that many business organizations
and traders in study area avoided and evaded profit tax using the gaps of the business
income tax regulatory framework.

The study revealed that the revenue and tax power of Oromia region mainly Ambo,
Nekemte, Gimbi, Dambidollo and Shambo municipalities; business tax fairness and
compliance behaviour drastically eroded by the inapt implementation of tax incentive
strategies in Ethiopia .i.e. the ways of sharing income tax mainly business income tax
and indirect taxes among the Federal government and Oromia region ignored the
principle of benefit in return influenced the self-financing capacity of the regional
and local government. For example, the Director of the Oromia Revenue Authority
depicted the Oromia Broadcasting Network Television as follows “though the office
is planned to collect income tax and indirect taxes from entire business enterprises
the outcome was unacceptable.”
The study concluded that the channels of tax disputed settlement seem to restrict an
appeal process and are short of transparency to the cases having something to do
with assessment by the tax authority and discouraged taxpayers from challenged the
actions of a tax authority.
The extent of business income tax revenue and other tax revenue collected by
Western Oromia between the year 2007-08 and 2016-17 were small as compared to
the percentage of the business tax revenue, direct tax revenue and total tax revenue
recognized at the levels of the federal and Oromia region. Furthermore, the revenue
authority is being collected business profit tax and other tax revenue from the sole
business, micro and small enterprises. Likewise, the regime was being derived profit
and other taxes from the insignificant sources of income tax in the circumstance that
complex to collect despite the fact that these areas were the hub of the big domestic
and international business in the country.
An assessment of growth rate of the local government tax revenue, especially Ambo,
Nekemte, Shambo, Gimbi, Dambidollo municipalities was covered for the total
amount of business profit tax and tax revenue collected from the business profit
taxpayers in a decade. Hence, the study concluded that degree of local government
revenue generated from the business income taxpayers in the forms of direct and
indirect taxes mainly business income tax was low relative to the extent of
enterprises and economic resources in the Western Oromia Region of Ethiopia.

The Western Oromia specifically Ambo, Nekemte, Shambo, Gimbi and Dambi Dollo
towns were struggling to raise their revenue from direct tax and indirect taxes, but
the analysis confirmed that the authorities were claiming a low amount of business
income tax revenue relative to the federal and Oromia region tax revenue in general
and employee income tax in particular. The study concluded that the revenue of
government from tax unsettled between 2007-08 and 2016-17.
Between 2007-08 and 2016-17 the revenue authority in Western Oromia of Ethiopia
collected a sum of 1,341,330,000 million Ethiopian birr in the forms of business
income tax and other taxes. From the entire 1,341,330,000 million Ethiopian birr
acquired from business income taxpayers, profit tax reported at 65 per cent while
indirect taxes accounted to 35 per cent.
The tax revenue of Western Oromia enlarged from 37.99million Ethiopian birr in
2007-08 to 266.94million birr in 2016-17 showing the growth rate of 21.53 per cent.
The business income tax and other taxes of the study location increased from
20.23million birr and 17.76million birr in 2007-08 to 183.38million birr and 83.56
million birr in 2016-17 showing the growth rate of 24.66 per cent and 25 per cent in
turn.
The entire revenue of the government from tax increased from 22,571.03million
Ethiopian birr in 2007-08 to 276,521.58million Ethiopian birr in 2016-17 showing
the growth rate of 28.46 per cent. The tax revenue of federal government amplified
from 22,550.8million Ethiopian birr of 2007-08 to 276338.2million Ethiopian birr in
2016-17 showing the growth rate of 28.48 per cent. The study further concluded that
the direct tax revenue of the federal state increased from 1,073.39million Ethiopian
birr in 2007-08 to 9,128.49million Ethiopian birr in 2016-17 showing the growth rate
of 45 per cent.
With regard to Oromia region, the tax revenue augmented from 1,035.40million birr
of 2007-08 to 8,861.55million birr in 2016-17 at the growth rate of 23.95 per cent.
The Oromia national regional state revenue from direct and indirect taxes enlarged
from 578.40million birr and 457.01million birr in 2007-08 to 6,583.14million birr
and 2,278.41million birr in 2016-17 at the growth rate of 27.53 per cent and 17.43
per cent respectively.
The whole revenue of the Western Oromia from business income tax augmented
from 78.54million Ethiopian birr in 2007-08 to 1,923.48million Ethiopian birr in
2016-17 at a growth rate of 37.69. The total business income tax of Western Oromia
and Oromia region increased from 20.23million birr and 58.31million birr of 2007-
08 to 183.38million birr and 1,740.10million birrs in 2016-17 at growth rate of 24.66
per cent and 40.44 per cent respectively.
Government revenue from the income tax increased from 7,044.23million birr in
2007-08 to 81,593.78million birr in 2016-17 at growth rate of 15.83. Thus, revenue
from business income tax and direct tax increased from 20.23million birr and
7024.0million birr of 2007-08 to 183.38million birr and 81410.4million birrs in
2016-17 at the growth rate of 24.66 and 27.76 in turn. So, the business income tax in
Western Oromia increased at higher growth rate of 24.66 per cent in proportion to
15.83 per cent of the entire growth rate but at lesser growth rate relative to 27.76 per
cent of direct tax revenue of the central government.
Regarding tax revenue and expenditure, the study concluded that between 2007-08
and 2016-17 the revenue and expenditure of Oromia region amplified from
1,168.09million birr and 5,873.91million birr in 2007-08 to 10,595.57million birr
and 52,808.16million birr in 2016-17 at a growth rate of 46 per cent and 45 per cent
respectively. In 2011-12 the expenditure and revenue of the regional government
provided a higher rate of 72 per cent and 52 per cent. On the other hand, in 2016-17
the revenue and expenditure reported at very lower rates of 1.42 per cent and 18.46
per cent respectively. Thus, in most of the selected period, government expenditure
exceeded revenue in the study area.
The findings showed that the percentage of business income tax to tax revenue of
federal and Oromia region increased by 0.094 per cent and 2.23 per cent in 2015-16
,2008-09 as well as 2009-10 respectively. But, it diminished at a great extent of 0.01
per cent and 1.98 per cent in 2014-15 and 2013-14 respectively.
It concluded that tax revenue of Western Oromia to tax revenue of Oromia region
and the central state, reported at high growth rate of 4 per cent and 0.17 per cent in
2008-09 respectively. The share of Western Oromia to tax revenue of Oromia region
and federal regime documented at a low growth rate of 2.93 per cent and 0.10 per
cent in 2014-15 and 2016-17 serially. Thus, the ratio of Western Oromia to public tax
revenue was diminutive in the research period. The outputs asserted that large
numbers of business income taxpayers in Western Oromia refused to declare their tax
rightly. Furthermore, it exposed the problem of tax planning because the trend was
identical in most of the research periods.
The revenue authority incapable to collected business profit tax and other tax due to
disappearance and use of inappropriate register machine, incapable to recognized
taxable income, provision of inaccurate sales invoice and penalty, inadequate
supervision, shadow economy, lack of communication and coordination, wrongly
discharge of benefit principle, unlicensed trade, affiliated business with top officials,
lack of tax knowledge, huge variance between benefit and contribution, feeble
taxpayers services and none value-added managerial positions, unsuitable income tax
assessments and estimations procedures on sales as well as services revenues,
existence of narrow income tax base, upward revisions of the business income tax
rules at the time of political and economic distress, modern tax system and unfair tax
incentives.
The tax revenue primarily business income tax shortfall in 2014-15, 2015-16 and
2016-17 was a fruit of public antipathies on upward income tax framework
improvement and political instability in Oromia region in particular and Ethiopia in
general. The condition justified that most of the business taxpayers in Western
Oromia of Ethiopia paying a little amount of business income tax as compared to that
of tax revenue of Oromia region. It pointed out the presence of high tax defiance,
beliefs and compliance costs in Western Oromia between 2007-08 and 2016-17.
Though there are large domestic and international business enterprises in Oromia of
Ethiopia, the state is being derived most of the tax revenue from immaterial sources
of income and indirect taxes in positions that universally intricate and need extra
effort, time and costs to collect. For instance, the Office of Auditor General and ORA
recognized that most of the private organizations in Oromia included study place
paying their business income and other taxes at the federal and other regions because
of getting TIN from those tax atmospheres.
The study determined that in the last decade the contribution of business enterprises
in the form of business profit tax to direct tax was very low in Ethiopia in general
and Oromia region in particular. Additionally, the business enterprises in Ethiopia
mainly Western Oromia did not properly disburse their business profit tax in the last
ten years. Similarly, the extent of income tax from business taxpayers reduced
because of political instability, market boycott and tax fraud in Ethiopia in general
and Oromia region in particular.

According to the distributive justice theory redistribution of more fiscal revenues

incorporated income tax from the Oromia regions to other places devoid of
enshrining the needs of low-income families and infrastructure development in
Western Oromia affected their tax revenue collection capability. In the same way, the
researcher realized that these issues are the critical indicators for the provision of
poor quality of public goods and services, high vertical fiscal imbalance and
instability of Oromia region particularly study place.
The study concluded that unfair and complex tax law, lofty tax rebelliousness, small
infrastructure development, illegal flow of public money, political unsteadiness,
under-reporting of business revenue, unlicensed trade, counterfeit sale register
machine, ineffective administration, bogus invoicing, unproductive tax incentive,
failed to properly exercise power of taxation on the whole business enterprises,
designation of small power of taxation to the local and regional regime, narrow tax
structure and bases as well as sluggish structural transformation of economy were the
products of inadequate revenue collection in the study place. For example, the
Ministry of Revenue told OBN TV that the Revenue office of Oromia found about
124 unlicensed and illegal businesses.
The study was affirmed that the perception of the business income taxpayers in
Western Ormia was unfair in the context of horizontal, vertical, personal, retributive,
administrative, exchange and general fairness at different levels. The study explored
the presence of significant positive correlation between predictors, vertical fairness,
personal fairness, horizontal fairness, administrative fairness, retributive fairness and
perception of fairness. However, the researcher has not tested the levels of influence
of exchange fairness and general fairness on the perception of fairness because of
their factor loadings. Conversely, the results of descriptive statistics and interview
pointed out that business income taxpayer in the study environment had low level of
view on exchange fairness and general fairness.
The profit taxpayers in Ethiopia, specifically Western Oromia had a low degree of
views regarding general knowledge, legal knowledge and technical knowledge of the
income tax rule. Also, it was notified that fairness perception of the business income
taxpayers in Western Oromia included Ambo, Nekemte, Shambo, Gimbi and
Dambidollo towns was critically affected by their technical knowledge, general
knowledge and legal knowledge of business income tax scheme. Hence, the
researcher concluded that the perceived fairness of business income taxpayers in
Western Oromia had positive and strong linkages with their technical knowledge,
general knowledge and legal knowledge of the income tax system.
The perceived fairness of the business profit taxpayers in Western Oromia was
considerably affected by the levels of content complexity and compliance complexity
of the business income tax regulation in the Oromia region. Subsequently, the study
revealed the presence of strong positive and negative relationship between the
compliance complexity and content complexity of the business income tax system
and fairness perception sequentially. Besides, the researcher concluded that the
content and compliance complexities of the business income tax law of Oromia
region of Ethiopia are intricate to the income taxpayers in general and business
income taxpayers in particular, to report their taxable income accurately.
The business profit taxpayers in the Western Oromia had low level of tax compliance
behaviour because of inadequate fairness perception, tax knowledge, tax system
complexity, subjective norms, perceived behavioral control, tax attitudes and morale
at diverse magnitudes.
The only predictors that considerably affected compliance behaviour of the business
income taxpayers in Western Oromia included tax attitudes, perception of tax
fairness, tax complexity, tax morale and subjective norm. Also, the research explored
significant positive associations among tax fulfillment behaviour and tax attitude,
perceptions of fairness and positive tax morale in the study areas. On the contrary,
the study was discovered negative critical linkages among negative tax morale and
subjective norm of the profit taxpayers tax compliance behaviour. The study
investigated negative correlation among complexity of income tax system and tax
compliance behavoiur. Howbeit, based on illegal tax practices the influence of
behavioral control of business income taxpayers on tax performance was irrelevant in
the context of Western Oromia.
Regarding tax compliance behaviour, participants attested a presence of insufficient
extent of tax obedience behaviors and lofty noncompliance due to TPB, petite tax
morale, perceived equity, tax knowledge and high income tax complexity, tax frauds
and gloom economy. The outputs encouraged the researcher to conclude that most of
the business income taxpayers in the study areas initiated to avoid and evaded taxes
merely if there were genuine tax reasons.
By related the outputs of a theory of planned behaviour with intrinsic motivation,
equity, distributive justice, procedural justice, retributive justice theories, the study
concluded that business profit taxpayers in Western Oromia of Ethiopia develop the
negative intrinsic motivation, attitudes, behavioral control and normative beliefs, and
grievance perception of tax justice in ineffective and inefficient business income tax
thought.
8.3. SUGGESTIONS
Based on the results of the thesis, the researcher provided the following suggestions:
The study discovered that if the Oromia revenue authorities want to overcome the
issues of business income tax collection as indicated in the income tax
proclamation effectively and efficiently it is important to properly implement the
canons of taxation.
The government shall stress on ability to pay, benefit, equity, certainty,
convenience and economy principles at the time of business income tax
amendment and implementation than only focus on generating more amounts of
fund to convene economic growth and development plans as they are vital to
resolve the short and long term economic, social and political issues; lessen tax
compliance costs and negative perception of public resentments akin to 2016-17
anti-tax complaints staged in different areas of Ethiopia, specifically, Oromia
region.
To address the uncertainty of the business income tax regulatory framework,
individuals and business enterprises should be wholly informed about the time,
place and who disburse tax and sum of tax they require to pay. Similarly, the
Oromia revenue authority should indicate the detail of information and
procedures taxpayers can expect in order to minimize ambiguities on income tax
along with formal education and community media campaign to improve their
attitudes, norm, intention and perception on the cost of making tax-related scams.
The revenue authority and policymakers have to reform the concepts of business,
aggregate or segregate the whole incomes of the taxpayers and harmonize scope
of the income tax. For example, it is reliable if the Federal and Oromia revenue
authorities create a new income tax schedule through brings together schedules
“A and C” and part of schedule "B" by calling it “Labor and Earned Income” and
taxed at a progressive income tax rate. Constantly, it is healthier if they
amalgamate part of schedules "B and D" into a new schedule by calling it
“Income from Capital” as they are passive incomes.
It is very essential if Oromia revenue authority and the Ministry of revenue
merge a number of income taxes in schedule "D" subject to multiple tax rates and
taxed at a uniform rate of withholding, for example, gain on disposal of
investment assets, royalty, income from causal of rental, interest and premium
based their nature to lessen their collisions with business profit tax.
The Oromia revenue authority should rightly apply constitution, proclamation,
directive issued on tax assessments, tax audit and enforcement and revenue
sharing among federal and regional government in order to optimize and
harmonize the regulatory framework of income tax primarily business income
tax. Moreover, the Oromia revenue authority should highly focus on how to
manage revenue from a mixture of business activities owned by a single person
in the diverse zones and regions to reduce tax noncompliance through
implementing e- revenue systems; e-invoices; cheque and other modern tax
system.
It is crucial for the regime to devise a punishment method that accurately
explains the taxpayers tax obedience behavior by means of deterrence and norm
models consistent with the inspiration of the taxpayers since the recent penalty
scheme merely necessitates income taxpayers to validate self-assessment reports
with greater but the multifaceted legitimate panorama.
For the taxpayers, the financial report of the majority of the business income is
completed by accountants or practitioners. The authorized accountant or
practitioner must be subject to punishment for preparing a report regarding the
tax effects of a transaction and misstatement of taxable income. Furthermore, tax
administers, judges and officers should be liable for wrongly demanding
substantive arrangements and roughly imposing punishments on the business
profit taxpayers and stakeholders.
The taxpayers should pay tax liability according to the current income tax mainly
business income tax system since revenues from tax can help the government in
providing public goods and services; and taxpayers who generate income from
sources falling in multiple schedules must be subject to the self - assessment
regime in which they compelled to provide whole profit and pay the appropriate
tax due in a progressive income tax rate.
It is healthier if the Federal and Oromia regional government broaden the tax
base by increasing the structural changes in the economy similar to the extent of
micro and small scale enterprise; agricultural sectors dominated by small framers
and informal sector; incorporate all the undesignated income tax in the regional
tax jurisdiction and revise the definitions of income; optimize the extent of tax
incentive plans; limit the extent of shadow economy and reduce the current
revenue sharing ratios.
It is advisable for the Federal and Oromia revenue authority to create new firms,
facilitate trade and reduce or else avoid tax incentive strategies in order to widen
the base of income tax. Since the investors accept high tax burden if there are
adequate infrastructure development, adequate finance, stable market, stable
economy, stable tax structure and political condition, efficiency, location-specific
profit opportunities, quality of labor and business-enabling location than more tax
incentive plans. For example, if the Oromia regional government provide
adequate location-specific-profit opportunities to the investors in Western
Oromia, it is unwise to offers tax incentive because it harms revenue from the tax
in general and profit tax in particular.
The effective way to increase tax awareness and tax knowledge of the staff and
the business taxpayers in the tax environment is to provide short term training
focusing on communication and coordination; accounting system; tax self-
assessment system; modern income tax structure in the vein of e- revenues; e-
payment systems and e-invoices systems.
It is important for the parties in tax atmosphere to put into practice new tax
system mainly data recording technology or electronic financial tools like cash
register machine, computerized point of sales methods (Smartphone and tab-
based) to immediately record, store and protects sales revenue from the work of
zappers and Phantomware.
It is appropriate for those revenue authorities to install electronic tax
administration systems, for example, e-payment, e-invoices, electronic data
transfer system; online tax assessments procedures, online tax compliance, online
tax monitoring activities, online tax payments, online tax registration and revenue
collection systems via mobile payment, electronic billing machine system and
ATM for the aim of accurate and timely tax disbursement, tax clearing and
optimum tax expenses for government and taxpayers.
It is worthwhile for the federal and Oromia regional government to react to
problems associated with tax compliance behavior, fairness perception and lower
tax revenue from the participation of politician, VIP and military personnel on
the business type activities mainly shadow economy and illicit flows of currency
by strongly limit or else enforce them to engage in the legal business thus pay fair
share of their income tax.
The revenue department and taxpayers in Oromia regional state of Ethiopia tax
ecosystem has to try their best to fix the gaps between periods of generating the
business profit and collection of income tax from traders through amending the
income tax system under the umbrella of the constitution of the land so as to
collect income tax from all the business organizations similar to PLC and
corporations in the region mainly Western Oromia.
To relinquish the challenges of the Category “C” business tax income taxpayers,
it is reliable for the Oromia tax authority to appropriately follow basic criteria,
such as fairness, transparency, convenient, certainty, honesty, accountability and
simplicity at times of estimation of profit tax obligation, condense ninety groups
of taxpayers in this arrangement and devise simple income tax report scheme.
The study explored that the perception of the business income taxpayers in
Western Oromia of Ethiopia was considerably explained by vertical fairness,
personal fairness, exchanges fairness, administrative fairness, retributive fairness,
horizontal fairness, general fairness, general knowledge, legal knowledge,
technical knowledge, content complexity and compliance complexity of the
income tax system at diverse degree. Thus, it is advisable that the Ministry of
revenue and Oromia revenue authority improve their fairness perception through
preserve equity, distributive justice, procedural justice and retributive justice
theories; technical knowledge,general knowledge, legal knowledge;optimizes
content complexity and compliance complexity of income tax scheme prior to
taking legal measure against the taxpayers.
The study discovered that the business income taxpayers perception of tax equity,
attitudes, tax morale, positive subjective norm and profit tax system complexity
were critically influenced their tax obedience behaviour in Western Oromia of
Ethiopia. So, the best approach to the revenue authority and policymakers in
Oromia region of Ethiopia is to focus on profit taxpayers economy, social and
psychological features such as perceived tax justice, tax attitudes, tax morale,
subjective norm and behavioral control at the time of designing and improving
tax rule in general and business profit tax rule in particular that will enlarge
fairness perception, tax knowledge, tax complexity, tax morale, attitudes;
subjective norm in return tax compliance behaviour and public revenue.
The Oromia revenue authority shall, at all time, act with transparency, integrity
and in a way that perception on business profit tax system are fair and not to rely
more on legal enforcement such as penalties and audit instead stress more on how
and when to improve the taxpayers perception, knowledge, attitudes, beliefs and
use optimum mixed methods (formal and informal sanctions) in the enforcement
plan.
It is essential for the Ministry of revenue and Oromia authority to digitalizing the
communication with the taxpayers by services differentiation and adoption of an
integrated management accounting system required to automating large volumes
of taxpayer interactions.The Oromia revenue authority should expand customized
and differentiated digital platforms (such as mobile channel and voice biometric)
to satisfy the needs of the taxpayer, including providing easy access to tax
services since it assists tax officers to speedily recognize the source of taxpayer
discontent and solve the problem more economically.
The Ministry of revenue should implement an early warning system and extreme
modelling such as light touch and algorithm approaches using machine learning
rather than a full audit to identify the top predicting factors of a successful audit,
bankruptcy of taxpayers or revenue losses and, then circumvent the extent of tax
debt and cost of debt collection efforts by focusing on the debt with the best
chance of recovery.
It is vital for the Ministry of revenue and Oromia revenue authority to works
with, scholars and tax professionals on the agendas of taxation and formulate
independent tax research institutions in order to solve income tax framework
issues, mostly business profit tax system. It is recommendable if the revenue
authorities design a broad anti-tax avoidance law with Ministry of Revenue;
Office of Auditors General, revenue authorities of closest regions, zones and
districts in order to administer cross border illicit business.
The vital method for future researchers who are willing to carry out the research
in the area of tax equity and tax obedience is reapplied equity and psychological
theories to investigate best insight on factors that improve fairness perception and
tax compliance behaviour of the whole taxpayers, tax auditors and other
professionals in Oromia region, Ethiopia. It is crucial to the further researchers to
conduct interviews with all stakeholders in a tax environment and apply new
models to widen the findings.
8.4. DIRECTION FOR FURTHER RESEARCH
At the time of executing the current study, certain features are excluded in
perspective of the thesis intention and other constraints. Furthermore, the outputs
give valuable signals on the foundation of which the subsequent issues of tax can
be desired for the further research works.
1. The effects of the modern tax system on the perception of equity and tax
compliance behaviour in Ethiopia;
2. Comparative investigation of perception of equity and compliance
behaviour among Ethiopian and other African countries;
3. Further study on causes of tax unfairness perception and noncompliance
 demeanor in Oromia region, Ethiopia;
4. The impacts of tax incentive plan on perceived fairness and tax compliance
behaviour in Ethiopia;
5. Studies on fairness perception and tax compliance behaviour of public
sector;
6. Study on fairness of indirect taxes of Ethiopia;
7. Study on the influence of tax knowledge, tax complexity and TPB on the
taxpayers obedience behaviour in Ethiopia via structural equation
modelling;
8. Study on the regulatory framework of Ethiopian tax;
9. Comparative investigation on the magnitude of tax collection in Ethiopia
and other African countries;
10. Study on quality of taxpayer services in Ethiopia and gloom economy and
11. The effect of electronic tax system on tax revenue and taxpayer services.

Page 234 of 289

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urnal ofBusiness,Economics and Law,Vol.8(1).
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SNNPR, Gedio Zone, Ethiopia, International Journal of Commerce a
nd Management Research, Volume 2(3),pp.129135.Retrieved March,
2018, from www.managejournal.co.
Sumonkanti Das and Rajwanur M Rahman (2011). Application of Ordinal Logistic
Regression Analysis in Determining Risk Factors of Child
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Taxpayer’ Towards the Tax System: Case Study. Scholar’s journal
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Tadesse Getacher Engida and Goitom Abera Baisa(2014).Factors Influencing taxpay
ers’ compliance with the tax system: An empirical study in Mekelle
City, Ethiopia, e-journal of Tax Research Vol. 12(2), pp. 433-452.
Tadewos Mentta(2014).Federal-state Fiscal Relation: The Ethiopian Experience: A
Descriptive of the Southern Nation, Nationalities and Peoples Region
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No.11, 2014, pp1-10.
Tilahun Aemiro Tehulu and Yidersal Dagnaw Dinberu (2014). Determinants of Tax
compliance Behaviour in Ethiopia:The case of Bahir Dar city
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Structural Equation Modelling the Role of Social Norms in Tax Com
pliance:A Study from Turkey. International Journal of Humanities a
nd Social Science Invention, Vol.5(12), pp. 81-89.

REPORTS
Abiy Ahimad (2019). Conference held in Addis Ababa on Tax Collection Movement
with Taxpayers in Ethiopia. Ethiopia Broaching Corporation news
report at 8:00 Pm.
Adanech Abebe (2019). The Issues of Tax Collection. OBN TV Afan Oromo news
report on 23-01-2019 at 10:59PM,Addis Ababa ,Ethiopia.
African Heroes.com report on Ethiopia economy, July 6, 2019.
American Institute of Certified Public Accountant (2007).Guiding Principle for TAX
Equity and fairness: Issued by the Tax Division of the American
Institute of certified public accountant, PP.1-10.New York, NY
10036-8775.
Abu Girma Moges (2013).Fiscal Federation and Its Discontents: Theory and Policy,
International symposium on Ethiopia development studies, Addis
 Ababa, Ethiopia, pp 1-25.
World Bank report no. PGD55 on Ethiopian growth andcompetitiveness,2015.
World Bank PEFA Assessment Report on Oromia Regional Government Financial
Management Performance, June 2015.
Voice of America Amharic Program News Report August -22-17 at 8:30 Pm.
United Nations Development Programme Ethiopia (2016). Prospects of Tax collectio
n in Ethiopia, Working paper, pp1-17.
Bruin, J. (2011). The New test command to compute new test online, month FEB.
Downloaded March,2017,from https://www. stats.idre.ucla.edu/stat/s
tata/output/mlogit, clear.
Constitution of Oromia National Region State, Proclamation No.1 1995, article 47 (e,
i, j, l and m).Megeleta Oromia No.12.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 96.Federal Negarit Gazeta, 1st Year.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 97.Federal Negarit Gazeta, 1st Year.
Constitution of Federal Democratic Republic of Ethiopia, Proclamation No. 1, 1995,
articles 98.Federal Negarit Gazeta, 1st Year.
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st
articles 99.Federal Negarit Gazeta, 1 .
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Negarit Gazzette Extra Ordinary Issues.
Federal Democratic Republic of Ethiopia Ministry of Finance and Economic Develo
pment PEFA Assessment Report Oromia Government, October,2010.
National Bank of Ethiopia Annual report 2014-15.
National Bank of Ethiopia Annual report 2016-17.
OECD (2012). Reducing Opportunities of Tax Non-Compliance in The Underground
Economy. Forum on Tax Administration: SME Compliance sub-
Ground.
Oromia National Regional State Administrative Divisions. Downloaded March,2018,
from https://www.pinterest.co.
Oromia National Region State Income Tax Proclamation No. 74-2002.
Oromia National Region State Income Tax Proclamation No.74/2003.
Oromia National Region State Income Tax Proclamation No.37/2004.
Oromia National Region State Mining Income Tax Proclamation No.92/2005.
Oromia National Region State Rural Land Use Payment and Agricultural Activity
Tax Amendment No .99/2005.
Oromia National Region State Income Tax Proclamation Amendment No.134/2008
Oromia National Region State Income Tax Proclamation No.202/2016, pp.1-55.
Oromia National Regional State Income Tax Proclamation No.203/2016,pp.1-86.
Oromia Revenue Authority report in Ambo, Nekemte, Gimbi, Dambidollo and
Shambo Town’s administrations, 2017.
Oromia Planning and Economic Development Commission statistical report, 2018.
Ramaswami Parameswaran (2005). Public Finance and Taxation,Addis Ababa, Ethio
pia, pp-2262.

WEBSITES
http://www.oromiyaa.gov.et/web/revenu-biro
http://www.erca.gov.et/
https://www.facebook.com/Oromia-National-Regional-State-Revenues-Authority-609.
https://www.whereisdoc.com
http://www.obnoromia.com/
https://scholar.google.co.in
https://www.worldbank.org/ etc
https://www.researchgate.net/publication/48382697
http://ejournal.ukm.my/pengurusan/article/download/2141/1605
https://www.sciencedirect.com/science/article/pii/S2452315117303752
https://www.emeraldinsight.com/doi/abs/10.1108/13590790510624783?journalCode=jfc
https://platform.almanhal.com/Files/Articles/75476
http://seap.usv.ro/annals/ojs/index.php/annals/article/viewFile/473/466
ttps://www.springer.com/cda/content/document/cda
https://www.researchgate.net/publication/268266248
https://canterbury.libguides.com/rights/theses
www.isorjournals.org
http://Psychologie.Univie.Ac.At/Kirchler
www.questjournals.org.
http://dx.doi.org/10.1108/13590790510624783
http://ec.europa.eu/taxation_customs/taxation/tax_cooperation/mutual_assistance/direct_tax
_directive/index_en.htm.
www.erices.es.
http://www.academicjournals.org/JAT.
http://epublications.bond.edu.au/rlj.
https://stats.idre.ucla.edu/stat/stata/output/mlogit, clear.
www.iiste.org.
htt://saspjournals.com/sjebm.
http://www.nutritionj.com/content/10/1/124.
https://www.researchgate.net/publication/260544306.
URL:http://dx.doi.org/10.5296/jml.v7i2.699.
10.5923/j.economics.2013032.04.
www.iosrjournals.org.
www.iiste.org
http://www.scrip.org/journal/ib.
http://ec.europa.eu/taxation customs/taxation/tax cooperation/mutual assistance/direct tax
directive/index en.htm
http://www.scrip.org/journal/ib.
https://www.pinterest.com/pin/407998047485056017
https://www.pinterest.co.
https://www.pinterest.com/pin/407998047485056017
www.crema-research.ch.
http://Psychologie.Univie.Ac.At/Kirchler.
www.iosrjournals.org.​
Page 247 of 289
 APPENDIX I:
ENGLISH VERSION QUESTIONNAIRES
PUNJABI UNIVERSITY
PATIALA, INDIA
DEPARTMENT OF COMMERCE

Business Income Taxpayers survey instrument (English version)

Dear Participant,

This Thesis is entitled as “Perception and Tax Compliance Behaviour in Ethiopia”:

Evidence from Business Profit Taxpayers in Western Oromia.” The researcher is Mr.
Keno Telila Mijena who is currently a PhD (in Commerce) student at the Punjabi
University, Patiala, India.

The fundamental objective of this thesis is to comprehend how business profit

taxpayers in Western Part of Oromia mainly Ambo, Nekemte, Shambo, Gimbi and
Dambi Dollo towns perceived business profits tax fairness and compliance behaviour
issues. The researcher seeks to gather pertinent information from randomly selected
business profit taxpayers by means of self-administered questionnaire.

Participation in this thesis is completely based on your willingness. The self-

administered questionnaire results will be recorded anonymously and strict
confidentiality will be maintained. Individual responses will not be identified in the
investigator’s PhD thesis.

For additional information, please contact KENO TELILA MIJENA by the

subsequent address: Tel: 0924-41-95-95 and E-mail: qanotelila@yahoo.com
With kind regard!
Keno Telila Mijena
Researcher and lecturer at
Wollega University, Ethiopia

PART I: GENERAL INFORMATIONS

1. Your age?

A. Less than 20 years old

B. Between 20-40 years of old

C. Between 40-60 years of old
D. Above 60 years of old
2. Gender :
A. Male
B. Female
3. Relationship :
A. Marriage
B. Un marriage
C. Divorce
4. Level of Education:
A. Illiterate
B. Primary education
C. High school
D. Preparatory
E. TVET
F. First degree
G. Others
5. Types of your business organization:
A. Manufacturing business
B. Service giving business
C. Merchandising business
6. Form of your business organization:
A. Sole proprietorship
B. Partnership
C. Share Company
D. Private limited company
7. Sources of your income:
A. Sales revenue
B. Services revenue
8. Your responsibility in the business?
A. Owner
B. Manager
C. Other professionals
9. Your category of profit tax:
A. Category “B”
B. Category “A”

10. Your annual taxable income for category “B”

A. 5,00,000-6,00,000 EBR
B. 6, 00,001-1000, 000 EBR

11. Your annual taxable income for category “A”

A. 1,000,001-3,000,000
B. Over 3,000,001
12. Do you have accounting systems?
A. Yes
B. No

13. If your answer for question number 12 is YES who prepare it?
A. Auditor
B. Accountant
C. Other professionals
14. Is the revenue administer provides appropriate support for you?
A. Yes
B. No
15. Why you pay tax?
A. Fear of penalty
B. Compulsory nature of the tax
C. Government obligation
D. Tax morale
E. For infrastructures
F. For public goods and services
G. For economic development
H. For security issues
16. Please provide your opining on the following matters:
16.1. How you observe the fairness level of Oromia Region business income tax
systems?
A. Very unfair
B. Unfair
C. Nither unfair nor fair
D. Fair
E. Very fair
16.2. If your answer is very unfair for question number 16.1 what are the causes?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
17. How you scrutinize the extent of complexity of Oromia Region business income
 tax systems?
A. Very complicated ​
B. Complicated
C. Nither complicated nor uncomplicated
D. Uncomplicated
E. Very Uncomplicated

18. What is the level of your knowledge towards the Oromia region business income
tax systems?
A. Very insufficient knowledge
B. Insufficient knowledge
C. Nither sufficient nor insufficient
D. Sufficient knowledge
E. Very sufficient knowledge
19. How rate the business income taxpayer’s tax compliance behaviour?
A. Very low compliant behaviour
B. Low compliant behaviour
C. Reasonably low compliant behaviour
D. Reasonable compliance behaviour
E. Very compliance behaviour

If your answer is very low what are the causes?

__________________________________________________________
__________________________________________________________
__________________________________________________________
PART: II
QUESTIONNAIRE ON BASIC VARIABLES OF THE STUDY
Please state your agreement or disagreement to the statements listed in the
following table and please tick (√).
Variable Strongl Disag Neutr Agree Stron
y ree al (3) (4) gly
disagre (2) Agree
e (5)
(1)
TAX FAIRNESS DEMESSION
GENERAL FAIRNESS (GFR)
I believe the government utilizes a reasonable
amount of tax revenue to achieve social goals, such
as the provision of benefits for low-income families.
I believe everyone pays their fair share of income
tax under the current income tax system
I think the government spends too much tax revenue
on unnecessary welfare assistance.
EXCHANGE FAIRNESS (EFR)
I receive fair value from the government in return
for my income tax paid (e.g. benefits)
It is fair that low-income earners receive more
benefits from the government compared to high-
income earners.
The income tax that I have to pay is high relative to
the benefits I receive from the government.
HORIZONTAL FAIRNESS (HFR)
An individual with similar amounts of income
rarely pays a similar amount of income tax.
I believe it is fair for me to pay a similar share of
income tax compared with other taxpayers earning
an equivalent amount of income.
It is fair that equals before tax are equals after tax.

VERTICAL FAIRNESS(VFR)
It is not fair that high-income earners are subject to
tax at progressively higher tax rates than low-
income earners.
It is not fair that low-income earners are taxed at a
lower rate than middle-income earners.
The share of the total income tax paid by high-
income earners is much too high.
RETRIBUTIVE FAIRNESS(RFR)
It is fair that individuals who deliberately evade
paying their taxes should be penalized with the
more amount of penalty regardless of the amount of
tax evaded.
To be fair, the degree of punishment for evading tax
should depend on the degree of non-compliance.
I believe the initial late payment penalty on the
unpaid tax, imposed on non-compliant taxpayers
under the current tax system, is fair.
PERSONAL FAIRNESS(PFR)
I believe that I have not paid my fair share of the tax
burden under the current profits tax system.
Compared to other taxpayers, I pay more than my
fair share of income tax.
Middle-income earners are paying their fair share of
income tax.
ADMINISTRATIVE FAIRNESS (AFR)
There are several ways available to me to correct
errors in the calculation of my tax liability, if
necessary, at no additional cost.
The administration of the income tax system by the
revenue authority is consistent across years and
taxpayers.
TAX KNOWEDGES DIMENSION
GENERAL KNOWLEDGE (GKE)
The business income tax system is a legitimate way
for the government to collect revenue to manage an
economy.
To my knowledge, individuals are not subject to a
single flat rate of income tax under the current tax
system.
LEGAL KNOWLEDGE (LKE)
As far as I am aware, non-compliant taxpayers can
be excessively penalized not to repeat, if found
guilty of evading tax.
I believe that individuals not always prosecuted for
not complying with the income tax laws similar to
other criminal offense
TECHNICAL KNOWLEDGE(TCH)
As far as I am aware, everyone who earns income
sourced in this country is taxable, regardless of
whether that person is a resident or not.
I am sure that I am required to file a tax return on
interest income that I earn from money deposited in
a bank account as it will be subject to income tax at
source.
To my knowledge, I can deduct all personal
expenses in calculating my tax liability.
I have little idea about the deductions that I can
claim as a taxpayer in the computation of my tax
liability.
I believe that I am not abiding by the deadline for
the submission of tax return form (s) (in case of
having other income, such as rental and business
income), as the deadline is only a guideline and
does not result in penalties.
TAX COMPLEXITY DIMENSION
CONTENT COMPLEXITY(CTEN)
I think the term used in tax publications (e.g.
revenue authority booklet) and in tax return forms
are difficult for people like me to understand
The sentences and wording in the business income
tax return guide are lengthy and not user-friendly.
The rules related to business income tax are clear.
Most of the time I need to refer to others for
assistance in dealing with income tax matters.
COMPLIANCE COMPLEXITY(COP)
I have a problem with completing and filing the tax
return form(s), if they are required.
I find it is tedious to maintain all my relevant
records for the whole year for tax purposes (if I
have to complete the tax return form(s)).
I do have to make a lot of effort to understand the
explanations given in revenue department guide
books and other similar explanatory materials.
ALTITUDES (ATT)
Affective attitude( AFA)
I would be upset much if I overstated and
understated the business expenses and income even
if it is my share.
I would feel guilty if I overstated and understated
the business expenses and income.
I would feel pleased if I overstated and understated t
he business expenses and income successfully.
INSTRUMENTAL ATTITUDE (ISA)
The likelihood of being audited by the revenue
office is low.
It would be financially beneficial for me to over and
understate the business expenses and incomes.
Sometimes I claim the full deduction, including the
amount I paid for my family trip.
Sometimes I attempt to over and understate the
business expenses and revenues.
I would try to deduct the little amount of my
business expenses while I usually claim the actual
deduction.
SABJECTIVE NORM(SB)
My family and peers suspect me that I overstate
business expenses.
My family and peers reject that I should only claim
the actual business expenses.
My family and peers believe of my decision to
overstate the business expenses.
My family and peers overstate their business
expenses even if we found within a similar tax
situation.
My family and peers think that I should understate
my business income.
My family and peers question that I should only
claim the actual business income.
My family and peers reject of my decision to
understate the business income.
My family and peers overstate their business
revenues even if we found within a similar tax
situation.
My family and peers over and understate their net
loss and income even if we found within a similar
tax situation.
PERCEIVE BEHAVIOURAL CONTRO
L(PB)
With my tax knowledge and resources, it is very
easy for me to overstate business expenses in my
tax return form successfully.
Due to my limited tax knowledge and skills, it is
hard for me to overstate business expenses in my
tax return form successfully.
I couldn’t successfully omit business expenses in
my tax return form if I wanted to.
With my knowledge, confidence and resources, I
have difficulty in overstating my business losses in
my tax return form successfully.
There are no strong barriers that prevent me from
overstating my business expenses in my tax return
form successfully.
With my knowledge of tax, confidence and
resources, it is definitely easy for me to declare the
extra amount of revenue in my tax return form
successfully.
Due to my limited knowledge, skills and resources,
it is hard for me to omit the revenue in my tax
return form successfully.
I couldn’t successfully omit the extra amount of
revenues in my tax return form if I wanted to.
With my tax knowledge, skills and resources, I have
difficulty to omit extra net income in my return
from successfully.
There are no strong barriers that prevent me from
understating my income in my tax return form
successfully.
TAX MORALE(TM)
Trading or Exchanging goods or services with
friends or neighbours and not reporting it in your
tax form.
Reporting your main income fully, but not including
small outside income.
The income tax is so heavy that tax compliance is
an economic necessity for many to survive.
Not reporting some earnings from investment or
interest that the government would not be able to
find out.
Being paid in cash for a job and then not reporting it
in your tax form.
I contribute income tax only for development and
social services of my region.
I don't fear the resentments and rumors of society if
need to cheat on profit tax.
 APPENDIX II:
AFAN OROMO VERSION QUESTIONNAIRES
PUNJABI UNIVERSITY
PATIALA, INDIA
DEPARTMENT OF COMMERCE
GAAFFII QORANNOO
Ani barsiisaa Yunivaristii Wallagaa kutaa barnoota “Accounting and Finance”
kanaan ta’e carraa barnoota Ministeerri barnootaa naaf kenne fayyadamuun biyya
ffaa
Hindii Yunivaristii Punjaabi kan Pati’alaatti argamutti barnoota digrii 3 (PhD)
Faayinansiin barataan jira. Haluma kanaan, yeroo ammaa qorannoo mata dureen isa:
”PERCEPTION AND TAX COMPLIANCE BEHAVIOUR: EVIDENCE
FROM BUSINESS PROFIT TAXPAYERS IN WESTERN OROMIA” jedhu irra
tti magaloota Naqamtee,Gimbii, Danbi Doolloo,Amboo fi Shambootti kaffaltoota
gibiraa Garee “A” fi “B” fudhaadhee dalaguuf wixinee qorannoo xumuren jira. Itti
fufuun, qorannoo kun rakkoo dhimmoota gibiraafi taaksii irraatti uummata Oromoo
mudaachaa jiraan furuuf faayidaa guddaafi karooraa fulduraaf bu’aa olaanaa waan
buusuuf gaaffii armaan gaditti eeramaan kana naa guutuun deeggersa keessan akka
naaf gootaan kabajaan isiin gaafadha.
Gama biraan, qorannoo kana hojjedhee xumuruuf deebiin isiin naaf lattaan
murteessaa waan ta’eef akka na gargaartaan maqaa waaqayyoofi lammummaan isiin
gaafadha. Maaqaa keessaa barreessuun hin barbaachisu. Akkasumas oddeeffannoon
naaf laattan iccitiin itti fayyadama waan ta’eef soodaa tokko malee waan yaada
keessaanii deebisuu dandeessu. Sababiin isaas, odeeffannoon isiin naaf lattaan
dhimma barnootaa qofaaf oola.

Xumura irratti, qorannoon kun rakkoo amma uummata Oromoo gibira kaffaluun
walqabatee mudate furuuf waan oluuf odeeffannoo dhugaa ta’e qofa akka naaf
lattaniif kabajaafi jaalala obbolummaan isiin gaafadha.

Akkasumas odeeffannoo dabalataaf yoo barbaadan lakkoofsa bilbilaafi imeelii

armaan gadiin na qunnamuu dandeessu.
✓ Lakkoofsa mobaayilii: +251924419598
✓ Imeelii: qanotelila@yahoo.com
Nagaa Wajjiin!
Qannoo Taliilaa Miijanaa
Qoraataafi Barsiisa
Yunvaarsitii Wollagaa

KUTAA 1FFAA
GAAFFII WAALII GALAA
Adaraa Keessan saanduqa waa’ee keessaan ibsu keessatti mallattoo {√} kana
ka’aa
1. Umurii keessan/kee:
A. Waggaa 20 gad
B. Wagaa 20-39
C. Waggaa 40-59
D. Wagaa 60 ol
2. Saala:
A. Dhiira
B. Dhalaa
3. Hariiroo:
A. Kan fudhee/herumete
B. Qarree/Qerroo
C. Kan hike/te
4. Sadarkaa barnootaa?
A. Hin baranne
B. Sadarkaa 1ffaa
C. Kutaa 9-10
D. Qopha’ina
E. TVET
F. Digirii
G. Kan biroo

5. Gosi dhaabbata keessani?

A. Dhaabata Omooshaa

B. Dhaabata Tajaajilaa
C. Dhaabata bittaa-gurhurtaa
6. Hundefamni dhaabata keeti/keessani kan seeraan isinif heyyamame?
A. Dhaabata nam-tokke
B. Dhaabata gamtaa
C. Dhaabata itti gafatamummaan isa daanga’e
D. Kubaaniya ​
7. Maddi galii keessani inni ijoon?
A. Gurgurtaa
B. Tajaajila
8. Ga’een dhaabata keessatti qabdan?
A. Abbaa qabeenyaa
B. Bulchaa
C. Hojjetaa
D. Kan biroo
9. Kaffala gibira galii
A. Garee “A”
B. Garee “B “

10. Gibira galii duraa kan waggaa garee “B”

A. Qr 5,00,00-6,00,000
B. Qr 6, 00,001-1000, 000

11. Gibira galii duraa kan waggaa garee “A”

A. Qr 1,000,001-3,000,000
B. Qr 3,000,001
12. Galmee herregaa qopheeffachuu dandeessu?
A. Eyyee
B. Miti
13. Deebiin keessaan eyyee yoo ta’e eenyutu isnii dalaga?
A. Ogeessaa odiitii
B. Hojjeeta Herregaa
C. Ogeessota biro
14. Wajjiira galii irraa namni dhufee isiin gargaaru jiraa?
A. Eyyee
B. Miti
15. Gibira maaliif kaffaltu?
 A. Addabbii sodaadhe
B. Tajaajila hawwasummaaf
C. Dhiisuu wanaan hin dandeenyyeef
D. Dhirqama mootumaa waan ta’eef
E. Moraalii isaa hin qabu
F. Bu’uraalee misoomaa
G. Taajajila hawwaasaa
H. Guddina dingdeefi nageenya
16. Adaraa yaada waantoota armaan gadii irratti qabdan naaf barreessa!
16.1. Walqixummaa sirna gibira galii yeroo ammaa akkamitti ilaaltu?
A. Bayyee qixa miti
B. Qixa mit
C. Yaada hin qabu
D. Qixaadha
E. Baayyee qixaadha
16.2. Debiin keessan gaaffii 16.1 baay’ee qixa miti yoo ta’e sababa isaa tarreessaa:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
17. Cimina ykn walxaxummaa sirna gibira galii yeroo amma akkamitti ilaaltu?
A. Baayyee walxaxaadha
B. Wal xaxaadha
C. Yaada hin qabu
D. Walxaxaa miti
E. Baayyee walxaxaa miti
18. Dandeetti sirnal gibira galii keessanii akkamiti ibsitu?
A. Baayyee Hin Qabu
B. Hin Qabu
C. Yaada hin qabu
D. Qaba
E. Baayyee Qaba

19. Fedhaafi amaloota kaffaltoota gibiraa galii akkamitti ilaaltu?

A. Fedha Baayyee Xiqqoo
B. Fedha Xiqqoo
C. Ga’amatti Xiqqoodha
D. Fedha Ga’aa
E. Fedha baayyee guddaa
20. Debiin keessan gaaffii 5ffaa baay’ee baayyee xiqqoodha yoo ta’e sababa isaa
tarreessaa:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
FFAA
KUTAA 2
Adaraa keessaan gaaffiin armaan gadii dhimma ilalacha walqixummaa(Fairness)
gibira galii (Fairness perception of income tax systems) qorachuufi addaan baasuuf
waan na fayyaduuf deebiin keessaanatti mallattoo (ü)kana itti naaf godhaa.

​ Baay’e Sirri Wala Sirriid Baay’e

​Yaadoota e sirrii i ba (3) ha(4) e
miti(1) miti sirriidh
(2) a
(5)

Walqixummaa Walii Gala Ilalchise

Akka kotti mootummaan gibiraa galii sassabamuu
tajaajiloota hawwasaa kan akka maatii harka
qalleessa gargaruufaafi itti fayyadamaa jira
Akka yaada kotti lammii hundi galii gibiraa isarraa
eegamu akka seeraafi danmbii gibiraa galii
kaffalama jira
Akka yaada kotti mootummaan gibiraa galii
kaffaltootarraa funaanu baay’ee isaa dhimmootaafi
wantoota baay’ee hin fayyanne irraatti baasaa
(olchaa) jira.
Walqixummaa Galii Gibiraa Fi Faayidaa
Mootummaa Irraa Deebisne Argannu
Ani mootummaa irraa faayidaa(tajaajila) gibira galii
ani kaffaluu wajjiin walgitu argachaan jira
Lammiin gibira galii xiqqoo ykn gareen “C” n
kaffalaan warra gudaa garee A fi B kaffalanirra
faayidaa guddaa argachuun sirriifi seera qabeessa.
Gibirri galii ani kaffalaa jiru faayidaan an
mootummaarraa argadhu wajjiin yeroon madalu
baay’ee caala(guddaadha)
Walqixummaa Habalakaa
Akka yaada kotti namni galiin waliqixaa gibira
galii walqixaa kaffaluun sirriifi amansiisaadha
Akka ilalacha kootti gibira galii warra galii
walqixaa argadhuu wajjiin qixa kaffaluun koo
sirriidha
Akka ilalacha kootti walqixummaa gibira duraafi
boodaa tokkoodha.
Walqixummaa Gadee
Akka ilalcha kotti namonni galii olaanaa ykn
guddaa argatan warra xiqqoo argatan caalaa
kaffaluun sirrii fi dhugaadha miti.
Akka ilalcha kotti namonni galii xiqqoo argatan
namoota galii isaanii guddu galeessa ta’anii gadi
kaffaluun sirriifi dhugaa miti
Gibira galii walii galaatti sassabamee keessaa
ga’een warra galii guddaa argatanii ykn gareen “A”
garmalee guddaadha (baay’eedha)
Walqixxummaa Adabii
Akka ilalacha kotti namoonni itti yadanii
waliindha’uun gibira dhoksanitti adabbii isa olii itti
muruun gaariifi gitawaadha.
Adabbiin sirriidha jechuunf adabichi badii seera
gibiraa rawwachuu dhabuu wajjiin wal gituu qaba.
Akka ilalacha kotti namoota yeroo jalqabaaf
dubbatti hafanii kaffalan adabuun sirriidha
Walqixummaa Dhuunfaa
Akka ilalcha kotti ani gibira narraa eegamu akka
seerafi sirna girba galii yeroo ammaatti kaffalaan
jira
Ani namoota biraa wajjiin of madalee yeroon ilaalu
gibira galii guddaan kan galii koo wajjiin wal hin
madaallee kaffalaan jira.
Namoonni galii giddu galeessaa ykn gareen “B”n
gibirarraa eegamu sirriitti kaffalama jiru
Walqixummaabulchiinsa gibiraa (Administrative
fairness)
Baasii tokko malee rakkoo galii gibiraa shallagu
uumamaan sirreessuuf maloota hedduutu qopha’ee
jira akka wajjiira galii keenyaatti
Waajjirri galii magalaa kootii sirna bulchiinsa
gibiraa namoota hundaaf baroota adda addaaf
tokkoo ta’eefi walfakkaatu faayaamu.
Dandeetti Gibiraa
Dandeetti Walii Gala
Sirni galii gibiraa karaa seera qabeessa
mootummaan dinagdee biyyitti ittiin tasgabeessuuf
galii sassaabuudha.
Akka hubannaa kootti namni galii walqixaa
hunduu akka seera gibira galii yeroo ammaatti
gibiraa galii walfakkataa kaffalaa jira
Dandeetti Seera
Akks hubannaa kootti namni gibira hate gibira
hatuun isaa yoo itti raga’ame hidhamuu
qaba.Akkasumas seeraafi heera gibiraa rawwachuu
waan dideef akkuma yakkoota biroo fula seeraatti
dhiyaachuu qaba
Akka hubannaa kootti guyyaan gabaasa qajelfama
waan ta’eef guyyaa gabasatti galmee bu’aa gibiraa
agarsiisuu gabasuun dirqama miti sababa kanafiis
adabamuun hin qabu. Fakkeenyaaf, bu’aa kiraa
manaafi daldalaa irraa
Dandeetti Teekinikaa
Akka dandeettii kootti lammiin naannoo oromiyaas
ta’e ka biraan galii naannoo kanarraa argatu
galiisaa/sheerraa gibira galii kaffaluun dirqama
qaba
Galii dhala maallaqaa baankii ka’achuun argadhutti
gibira kaffaluun dirqama akka hin taane gutummaa
gutuutti nan beeka. Sababiin isaas galii biraatti waan
dabalameef.
Akka dandeetti kootti baasii dhunfaa kootii yeroo
gibira galii shallagu irraa hirrisuun qaba
Akka hubannaa kootti baasii wantootaa yeroo gibira
shallagu hirrachuu qaban ilalchisee dandeetti ga’aa
hin qabu
Baasii yeroo gibira galii shallagu irraa hirrachuu
qaban sirriitti hin beeku
Cimina Ykn Hulfatina Sirna Galii
Gibiraa
Hulfatina Qabiyyee Sirna Galii Gibiraa
Akka yaada kotti jechoota maxxansaa kan akka
seera,qajeelfama gibiraafi formii gabasaa bu’aa
gibiraa namoota akka kootiif hubachuuf baay’ee
ulfataadha
Akka yaada kotti himootniifi jechootni seeraafi
qajelfamni gibira galii ittiin barraa’an baay’ee
dheeraa waan ta’eef salphaatti fayyadamuunfi
hubachuuf rakkisaadha.
Serriifi sirni gibira galii baay’ee ifaadha
Yeroo rakkoolee gibiraa wajjiin walqabachuun na
mudatan namoota biroorraa gorsan barbaachisa
Ulfatina ykn Cimina
Formii gibira galii guutee xumuruuf rakkoo hin
qabu yoo gutuun narraa eegame
Galmee gibira kan waggaa gutuu galmeessuun natti
ulfata ,na yadeessa yoon ofiin gutee fixuun narraa
eegame
Barreeffamootafi qajeelfamoota waajjira galii
kennaman dubbisee hubachuuf hamilee baay’ee hin
qabu
Amala
Amala Dhoksaan Waan Badaa Gochuu
Baasii daldalaa koo sobee yoon ol kaase baay’ee na
dhiphisa
Baasii daldalaa koo sobee yoon ol kaasee ykn
dabale yakkamtummaatu natti dhaga’ama
Baasii koo yoon olkaase ykn dabale baay’ee na
gammachiisu
Amala Tilmamaan Waan Badaa Gochuu
Carraan oditerri gibiraa galmee herregaa koo odiiti
gochuu baay’ee xiqqoodha
Baasii daldalaa koo sobee itti dabalee olkaasuun
koo faayidaa ykn bu’aa maallaqaa guddaa naaf hin
argamsiisu yoo godhe.
Yeroo tokko tokkoo baasii koo hundaa kan maatii
koofi imalaaf baase dabalee hirrisuun naaf ta’a
Baasii daldalaa koo itt dabalee olkaasuu naan fedha
Dhunfaan Duudaafi Safuu Sodaachu
Maatiifi hirriyoonni koo akka namaa baasii daldalaa
isaa sobee olkaasuutti naan shakkan.
Maatiifi hirriyyoonni koo akka waan an baasii
daldalaaf sirriitti baasee irraa hirrifadhuutti hin
fudhatan
Maatiifi hirriyoonni baasii daldalaa koo sobee
dabale naaf hin fudhataan
Maatiifi hiriyyoonni koo haala walfakkattu keessa
yoo taaneyyuu baasii daldalaa isaanii ni dabaluu
Maatiifi hirriyoonni koo akka waan an galii daldalaa
koo gadi buuseetti na fudhatan
Maatiifi hirriyyoonni koo akka waan an galii
daldalaa sirri gabaasuttii na hin fudhataam
Maatiifi hirriyoonni koo akka an galii daldalaa koo
sobee gadi buusuuf na hin jajjabeessu
Maatiifi hirriyoonni koo haal waal fakkaatu keessa
yoo taane iyyuu galii daldalaa isaani hin dabalaan.
Maatiifi hirriyoonni kasaaraafi bu’aa daldalaa isaani
sobaan olkaasuu yookaan gadi busuu jedheen hin
yaadu haal waalfakkaatuu keessatti yoo taaneyyuu
Humana,Qabeenyaafi Dandeetti Irratti
Hunda’uun Waan Yakkaa Hojjechuu
Akka dandeetti gibiraa ,ofitti amanamuummaafi
qabeenyaa kootti baasi daldalaa koo sobee
olkaasuun baay’ee natti salpahata
Dandeetti gibiraa,Oifitti amanumammaa fi
qabeenyaa xiqqoo wanaan qabuuf baasii daldalaa
koo sirritti sobee olkaasuun baay’ee natti ulfaata
Baasii dabalataa galmee herregaa koo keessaa naan
hambisa yoon barbaadeef.
Dandeetti gibiraa, oifitti amanumammaa fi
qabeenyaa baasi daldalaa koo olkaasuun baay’ee
natti hin ulfaatu.
Baasii daldalaa koo sobee olkaasuuf waan gufuu
natti ta’u hin jiru.
Akka dandeetti gibiraa, ofitti amanumammaa fi
qabeenyaa kootti galii daldalaa koo sirritti sobaan
olkaasuuf baay’ee natti hin ulfaatu.
Dandeetti gibiraa, Ofitti amanumammaa fi
qabeenyaa xiqqoo wanaan qabuuf galii daldalaa koo
sirritti sobaan olkaasuuf baay’ee natti ulfaata.
Galii dabalataan argaadhuu ibsa qabinsa herregaa
keessa naan hambisa yoon barbaade
Dandeetti gibiraa,Oifitti amanumammaa fi
qabeenyaa koottii galii dabalataan argadhu galmee
herregaa irraa hambisuu na rakkisu
Galii daldalaa koo sobee olkaasuuf waan gufuu natti
ta’u hin jiru.
Hamilee Gibira Kaffaluu
Meeshaa fi tajaajila maatii kootti gurguree galmee
herregaa gibira galitti hin dabalu
Yoo kaffalaan gibiraa galii gibiraarraa xiqqoo yoo
hambise rakkoo baay’ee hin qau.
Gibirri galii ulfataadha garuu kanaaf gibira seeraan
kaffaluun dhimma nama hundaa miti
Mootummaan waan na hin argineef galii dhala
baankiifi hojii invastimaantii tokko tokko hundaa
hin gabaasu
Carraa dhukfachuu yoo argadhe illee gibira hin
dhofadhu
BIBLIOGRAPHY
Ani gibira dhimmoota hawwasummaa fi guddina
naannoo kootii qofaafan kaffala
Gibira dhoffachuu yoon barbaade namoota naannoo
kootii sodaadhe hin dhiisu

​
 APPENDIX- III
PART III:
Listing of Interview Questionnaire for Revenue Administers.
Keno Telila, PhD candidate
​ Mobile: +251924-4195-
98
E-mail: qanotelila@yahoo.com
Dear respected interview respondents:
I am a PhD scholar at the University of Punjabi, India. I am carrying out an
interviews with revenue administers in Western Oromia, Ethiopia to gather piece of
data demanded for my PhD thesis titled: Perception and Tax Compliance Behaviour
in Ethiopia: Evidence From Business Profit Taxpayers in Western Oromia. Under
this interview, you are being requested questions with reference to business income
taxpayers tax fairness perception and their tax compliance behaviour together with
tax knowledge, tax systems complexity, tax morale and TPB in western Oromia,
Ethiopia. During the interview, I will listen to and transcribe your responses. The
transcripts from all the interviews will be used to sketch various conclusions in
summative ways, without any reference to exact contributors. So, your name and
your office name or any identifier will not appear in any of the output of the thesis.
Part -I: Demographic information of the tax administers
1. What is your level of education?
2. How long have you worked as revenue administer?
3. Your marital status?
Part -II: Tax fairness perception, tax knowledge and tax system complexity
a) What do you think of the present profits tax systems chiefly business income tax?
a) Is it fair or unfair? Could you please elucidate on the aspects that you think it is fair
or unfair.
b) What are the factors affected the fairness perception of profit taxpayers at your tax
environment?
c) How do you rate your tax knowledge mainly general, legal and technical knowledge
of the profit taxpayers? Which aspect of tax knowledge that you believe that profit
taxpayers are wanting of? Do you imagine that profit taxpayers have an adequate
extent of tax knowledge?
d) How do you view the complexity of the profit tax system? Does the magnitude of
complexity lead to fairness perception?
e) Do you think all categories of business income earners are being treated fairly under
the present profits tax scheme?
PART III: Tax compliance behaviour
1. Do you think that generally taxpayers from categories “A and B” obey the profit tax
rules and regulations?
2. How do rate income taxpayers mostly business income taxpayers tax compliance
behaviour? Could you please explicate on the factors affected their compliance
behaviour?
3. Do you think that tax compliance behaviour is influenced by taxpayer’s tax morale
and TPB such as subjective norms, perceived behavioral control, attitude and tax
fairness perception?
4. Any other annotations?
 ​
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