INSTITUTE OF TAX AND CUSTOMS ADMINISTRATION

DEPARTMENT OF TAX AND CUSTOMS ADMINISTRATION

Assessmentsof Category ‘A’ Tax Payers Compliance: The Case of Arada

Sub-City small tax payer’sbranch office.

Research proposal

By

KalkedanNegatu

ID.NO.016/04

Advisor:

Mr. TesfalemDerso(MSC)

February, 2015

Addis Ababa, Ethiopia

 1. Introduction

Taxes plays an important role in the budget of any economy, and one of the main reasons why
government imposes taxes is to generate income to manage the economy and redistribute the
resources again to the public at large. Over the years, the Ethiopia government has under taken
various revenue administration reforms to achieve its objectives of revenue collection. One of the
measures that have been implemented in order to increase revenue collection in Ethiopia was the
introduction of self-assessment system (SAS) and its objectives is to increase voluntary tax payer
compliance, reducing tax authorities’ burden of assessing tax returns and increase tax collection
efficiency by reducing tax collection costs (Masinde and Makau, 2010).

1.1 Background of the study

Tax payer compliance towards taxation has evoked great attention among many revenue and
customs authority in the world especially in developing countries. However, it is debate on what
has been done towards the study of factors that determines taxpayer compliance behavior
towards the tax system in developing countries to increase their budgets in terms of huge revenue
collection at the expense of studies(Trivedi&Shehata, 2005).

Hostility towardstax compliance by the taxpayers date back to the history of taxation. Taxes are
considered a problem by every tax payer. Hostile tax payers behavior implies that a given a
chance tax payers would not comply with tax laws. Perhaps, understanding factors that
determines tax payer compliance behavior towards taxation would be a solution to the problem
of voluntary tax payers compliance. Thus, one of the purposes of this research to highlight the
factors that determine tax payers compliance behavior towards the tax system and to show how
they affect tax compliance. In explaining tax payers compliance behavior- the reason why tax
payers comply and do not comply with the existing tax laws, regulation, directives, there are two
classes of theories:-economic based theories, which emphasize/ mainly on incentives, and
psychology based theories that emphasize on attitude (Trivedi&Shehata, 2005).

However, despite various administrative reform level of tax payer compliance have still
remained low.
1.2 Back Ground of the Study area

Arada sub-city small tax payers office in one of the government administration that has the
responsibility to collect tax in order to increase the government revenue. It has 225 female and
122 male employees which implement the government policy to collecting sufficient fund from
the sub city of Arada. Arada sub-city small tax payers office was established as an independent
body to accomplish its mission of collecting the revenue generated by the sub-city’s economy
efficiently and effectively. The sub-city revenue authority deals with category ‘A’ category ‘B’
and category ‘C’ tax payers. on the other hand, the authority has three main functional processes.
These are: revenue assessment and collection, tax audit and enforcement and tax payer
education. There are also supportive teams and officers like planning and evaluation, information
technology (IT). Generally, even if the all department works towards ensuring tax payers
compliance behavior there are non compliance problems that the organization is facing.

1.3. Statement of the Problem

Tax payer’s non-compliance behavior is a substantive universal phenomena that transcends
cultural and political boundaries, and it takes place in all societies and economic systems. There
are many studies that explain the behavior of tax payer compliance in a more realistic situation.
They focus on economic and non-economic factor as a determinant of tax payer compliance
behavior (Nicoleta 2011). Despite the fact that the majority of tax payer likely to make every
effort to comply with the law, non compliance is inevitable to some degree in the tradition of tax
compliance research, a number of economic factors have been considered important for
explaining tax compliance:- such as, the level of actual income, tax rate, tax benefits, tax audit,
audit probabilities, fines and penalties. The non-economic factors include the willingness to pay
for public provision, public education, tax morale, tax information etc. (Micoleta 2011).
According to GetanehMihret 2011, studied on tax audit practice in sufficient numbers of the
required highly skilled and appropriately paid audit practitioners, absence of a sound institutional
audit practice, illegal cooperation between tax payers and auditors, lack of clear political support
for the tax administration, and the deficiencies of an appropriate legal and judicial environment.
also contribute for noncompliance of business taxpayers.
Several other factors such as social values, policy morality people perception about the fairness
of the tax system also determine the behavior of tax payers towards taxation (Bird, 2003).

Tax theories suggest that taxpayers areamoralutilitymaximizers. Henceeconomic

theoriesemphasize increased audits and penalties as asolution to compliance problems
(Trived&Shehata,2005).Psychology theories of tax compliance assume thatpsychological factors
including moral and ethicalconcerns are also important to taxpayers and sotaxpayers may comply
even where the risk of audit islow. Psychology theories de-emphasize audits andpenalties and
instead focus on changing individual attitudes towards tax system(Erard& Ho 2002; Cobham,
2005). On the other hand poor administration, failing to collect sufficient tax revenues, taxstructures where
tax horizontal and vertical equity considerations are not integrated, lack of government andeconomic stability,
low capacity of taxadministration to monitor compliance among taxpayers are the factors for noncompliance
with the tax law (Tanzi, 2000)
It has been noted by wall Schutzky (1993) in James (2000) that, most of the attention in area of
tax payer compliance behavior has been devoted to why some tax payer do not comply rather
than others do. The degree of non-compliance of tax payer can be measured in terms of the
difference between actual revenue and that which would be received if there were 100 percent
compliance (James, 2000).This study tries to focus on why do tax payer do not comply towards
taxation.
Even though, Ethiopian modern taxation is not older than half a century, it has under gone
several legal amendments, but the tax system of the country is still mainly depends on legal
enforcement rather than voluntary tax payer compliance to achieve its objectives and
goal(GetanehMihret, 2011)
In Ethiopia, tax payers exhibit different level of tax compliance. The extent of the impact of
taxpayers compliance behavior as well as factors that determines their compliance behavior is
not well understood.Ethiopia, like any otherdeveloping countries, faces difficulty in raising
revenue to the level required for the promotion of economicgrowth. Hence, the country has been
experienced a consistent surplus of expenditure over revenue forsufficiently long period of time.
To address this problem, the government introduced the imposition of tax(direct and indirect),
among others; as major and important sources of public revenue. However, thisimposition of tax
couldn’t still bring the required result due to a number of reasons such as lack of
clearunderstanding about the tax system by the taxpayers, taxpayers don’t comply with their tax
obligation, hostilitybetween the taxpayers and tax officials, negative attitude of taxpayer towards
the tax system, that is,understating their taxable income by significant amount,... etc. For these
reasons, the actual amount of taxcouldn’t be collected properly (Tadele, 2010).
Since, depending mainly on legal enforcement may not work always and forever and even
difficult to achieve the intended goal of the revenue authority, the revenue authority must follow
a participatory and holistic approach toaddress the issue of tax payer voluntary compliance
towards taxation. Thus, understanding the factors that determine the tax payer compliance and
non-compliance behavior towards taxation in Arada sub-city small tax payers office is a key to
further motivating and assisting tax payer’s compliance behavior, and designing appropriate
strategies to deal with tax payer non-compliance behavior. Thereforeaddressing those factors that
determine taxpayers compliance behavior towards taxation will be the primary purpose of this
research.

1.4. Research Question

The study will attempt to deal with the following basic research questions:-

1. What are the factors that affect category “A” taxpayer’s compliance behavior in Arada
sub-city small tax payer’s branch office?
2. What is the level of category “A” tax payer’s compliance inArada sub-city small tax
payer’s office?

3. How is the ability of Arada sub-city small tax payer’s branch office to interpret and
implement the tax laws and regulations?

1.5. Objectives of the Study

1.5.1. General Objectives
The central objective of the study is to assess the factors that determines tax payers
compliance behavior towards taxation in Arada sub-city small tax payers branch office.

1.5.2. Specific Objectives

In order to meet the general objectives of the study, the specific objectives of the study will
include the following:-
  To identify the factors that determines taxpayers compliance behavior in the sub-
city revenue office
 To indicate the level of category “A” taxpayers compliance in Aradasub-citysmall
tax payers office

 Identify the gap between interpreting the tax law and implementation of the tax
law.

1.6. Significance of the Study

For the government:- the recommended possible solution of the problem and the importance
understanding those factors that determines tax payers compliance behavior can be used as an
input for future policy formulation as well as for successful utilization voluntary taxpayers
compliance for increasing the governmentrevenue that help the government to finance public
security, health, education, and infrastructure. The finding of this study willalso help the
government to institute the necessary legislative and administrative measures to enhance tax
payer compliance behavior in cases of voluntary compliance and enforce compliance in cases of
tax payers non-compliance.

For the society:- the general welfare of the people will be improved once the government
implements the recommended solutions. As aresult of the effectives of voluntary tax payers
compliance, the revenue of the government will be increase and this will be allocate to meet
more of the society’s basic needs and to the growth of the country’s economy that benefit the
public at large.

For the researcher :- the experience in carrying out this researcher will enhance and enrich the
knowledge of the researcher , and will also encourage other researcher who have the interest on
the subject to do further study ,it is also very opportunity for us to understand the factors that
determines taxpayers compliance behavior looks like practically.Moreover, it is also significant
for the sub-city administration by addressing voluntary taxpayerscompliance behavior problem
by using the out puts of the study.
1.7. Scope of the Study
Addis Abeba city administration has tensub-city; to come up with all these administrative level
of the city administration in this specific study is very difficult in terms of time, resources and
cost. Moreover, investigating all angles of the topic in a single study is also very much difficult.
According to the council of ministers Business income tax regulation No. 78/2002 article 18, tax
payers are divided into three categories “A”, “B”, “C”. Individuals or companies incorporated
under the laws of the country having an annual turnover of birr 500,000 or more are in category
“A”. individuals or enterprises, which have legal entity whose annual turnover of more than birr
100,000-500,000 are under category “B” and those business enterprises whose annual turnover is
estimated to be up to birr 100,000 are under category “C”.

Thus, the study focuses on Arada sub- city small tax payers office ‘category A’ tax payers. In the
scope of study much emphasis, is given to thosefactors that determines taxpayers compliance
behavior towards taxation and it will covers the past three consecutiveannual report from
revenue collection performance of category “A” taxpayers report during the period of 2013 to
2015.

1.8 Limitation of the Study

The quality of the output of this study will be depends up on the genuine responses from the
respondents. But there is suspicion that the respondents may not give their genuine response
because of their perception that they are suspect by the government, and they will face problems
from the government.

In addition, shortage of time and lack of funds may have its own impact on the qualities of this
study output.

On the other hand, thestudy will be focus on category ‘A’ tax payers and one sub-city of Addis
Abeba city administration only. Thus no detailstatistical analysis willperform due to small
number of respondents and lack of time as well as lack of budget.

The other possible source of the limitation of this study will be included the following:-

 Shortage of time to collect sufficient date because of the sensitiveness and secrecy
of taxpayer non-compliance behavior towards taxation.
 Lack of budget to cover and examine each and every element that aids for the
quality of the research.
 Lack of some important data as they are not carefully recorded and kept
 Lack of experience of the researcher
To overcome, the above limitation the researcher made maximum efforts to make
this research more feasible and quality research by reducing the effect of these
limitation on the finding, conclusion and recommendation of the study.
1.9. Research Design and Methodology
The section of this study shows details of the research design, sampling method as well as the
manner in which the data will be collected and analyzed for this study.
1.9.1. Research Design
To deal with the research problems and to answer the research question, the researcher will be
use descriptive methodology of research, which is one type of qualitative research methodology.
The rationale to use descriptive research method is due to the researcher has no control on the
variable of the study.Moreover “descriptive research methodology studies are concerned with
describing the characteristics of a particular individual, or a group, specific prediction, with
narration of facts and characteristics concerning individual, group or situation”. (C.R Kothari,
2004). Thus, the nature and purpose of the research involves description of factors that
determines taxpayer’s compliance behavior towards taxation, description of records, analysis of
procedure, interpretation of finding, and comparing and contrasting different opinion as it is.
Thus, the convenient design that will be considers suitable for this study is probability simple
random sampling and non-probability purposive sampling.

1.9.2. Population and Sampling

1.9.2.1. Population
The population of the study will be total category ‘A’ tax payers of Arada sub city small tax
payer’s office, according toJanuary(2008).EC monthly report they are2563 Innumber.Category
‘A’ tax payers of the sub-city will be selected out of the three category of tax payer for
generalization of the subject under study based on sample study. Thus, the target population of
this study will be all employees and category ‘A’ tax payers of sub-city’s revenue authority.

1.9.2.2. Sampling and Sampling Techniques

The study will bapplyprobability sampling technique. The target populations of this study in
Arada sub-city small tax payers office will be 2910 in number from this 2563 of them are
category ‘A’ tax payers and 347 are employee of the sub-city’s revenue authority as stated on
January(2008).EC monthly report of the office. To make the sample representative the researcher
will use simple random probability sampling due to financial and time constraints.

Sample Size
Because of the population is high there is constraint of time and budget. The
researcher prefer the following formula considering e=10%among the target
population.Yamane (1967:886) provides a simplified formula to calculate sample
size.

Using this formula the sample size determination is as follows

N
n= 2 Where, N= population
1+ N ( e)
2910
n= 2 =97 n= sample size
1+2910 (.1)

e=the researcher will tolerate level of significance up to 10 percent

. 1.9.3Sources of data

The sources of data in this study will be primary and secondary data sources. In order to meet
research objectives the data type of the study will be both quantitative and qualitative in nature,
this will allow the researcher to get information from both qualitative and quantitative data.

1.9.3.1Primary data
To arrive at effective conclusion of the study and to identify the main problems of the study, the
researcher gathered data from primary sources . The researcher gather the primary data from the
targeted tax payers and tax experts of the office. It is believed that the targeted respondents
provided relevant information and the success of the study will depends on the response they
provide accurately and trustfully.

1.9.3.2Secondary Data
The secondary data will be collected from Addis Abebacity administration revenue Authority,
Arada sub- city small tax payers office by annual, semiannual or quarterly tax payer compliance
behavior reports, relevant research reports, written documents, books, journals and relevant
material.
1.9.4Method of data collection
The method of data collection is greatly depending on the character, type and nature of the
problem under study. Thus, the study will be based on primary and secondary sources. In order
to get adequate, complete and reliable data, the researcher will use appropriate instruments of
data gathering. The primary data will be gathered through questionnaires and unstructured
interview.Where as, the secondary data will be gathered from the existing and available
documents like reports, written material, organizational information and other related documents.

The primary data of the study will be collected through the following data gathering tools.
Questionnaires

Questionnaires will be distributed to all employees of the sub-city revenue authority and to the
selected category “B” taxpayers.
Interview
For the purpose of the study some selected higher official will be conducted through unstructured
interview.

1.9.5Method of data Analysis and Presentation

The data collected will be analyzed using statistical tools like: tables, charts, graphs and
percentages. In addition to this, the qualitative data will be interpreted using quotations and
discussions.

1.10. Definition of key terms

Tax Compliance: is the willingness of tax payer to pay their taxes according to the tax
law(kirchler,2008).
Voluntary Tax Compliance: is an assumption that tax payer will stay in compliance with tax
laws and accurately report their income amounts and tax deduction fairly and honestly(Andreoni
et al.,1998)
Non-Compliance: is the failure to meet tax obligation as per tax law(Kirchler,2008)
Tax Assessment: is the process of determining tax liability based on the income obtained or
based on information declared by tax payers and information obtained from different sources
(Misrak, 2012).
Category ‘A’ Tax Payer: tax payers whose annual income or sales is greater than Br.500,000

1.11 Organization of the Study

The research will be three chapters .chapter one presents the introduction part containing back
ground of the study, statement of the problem, objective of the study, basic research question,
scope of the study, limitation of the study, significance of the study, and research design and
methodology. Chapter two presents critical review of related literature with various argument
made by various researchers. The last chapter of thepaper, will be cover the results of the
study,conclusion, and recommendation of the study.

2. REVIEW OF RELATED LITERATURE

2.1. Introduction
Tax payer compliance is a complex term to define. According to Brown and Mazur (2003), tax
payer compliance is multi-faceted measure, and theoretically, it can be defined by such as
payment compliance, filing compliance, and reporting compliance.Organization for economic
co-operation and development (2001) advocates dividing compliance in to categories in
considering definition of tax compliance. These categories are administrative compliance,
technical compliance, reporting compliance. The theoretical view of tax payer compliance
behavior is to mean adhering or not adhering to the tax laws, regulations and directives which are
different from one country to another and the goal of tax administration is to foster voluntary tax
payers compliance behavior and hence reduce the difference between tax paid and owed for all
tax payers.

In this literature review basic concepts about tax compliance, factors determines tax payer
compliance behavior such as attitude of tax payer, socio-cultural, political, legal, administrative
and ethical issues will be addressed. The empirical work of various researchers and other
reference materials are used to have basic conceptual frame work of the subject matter.

2.2. Definition of Tax Compliance

The definition of tax compliance in its most simple form is usually cast in terms of the degree to
which tax payer comply with tax law (James 1999). However, like many such concepts, the
meaning of compliance can be seen as a continuum of definition. One suggestion is that the
degree of non-compliance may be measured in terms of ‘tax gap’.

The exact meaning of tax compliance has been defined in various ways. For example, Andreoni
et.al. (1998) defined tax payer compliance as the tax payers willingness to obey tax law in order
to obtain the economic equilibrium of a country, and it is determined by ethics, legal
environment and other situational factors at a particular time and place. Similarly, tax
compliance is also defined by several tax authorities as the ability and willingness of tax payers

to comply with tax law, declare the correct income in each year and pay the right amount of
taxes on time.

2.3. Tax Payer Non-Compliance

Tax payer non-compliance is defined as a failure to comply with tax laws and/or report incorrect
income, the act of claiming incorrect deduction, relief and paying the incorrect amount of tax
beyond the stipulated time frame (Mold et al, 2011).

2.4. FactorsThat Determine Tax Compliance.

Tax payer compliance behavior towards taxation may be defined as tax payer’s own personal
view about taxes and acting according to their perception, and it may be positive or negative
views towards taxation. The outcome of positive view is tax payer compliance behavior and
negative is tax-payer non-compliance behavior. Thus, the following are the factor that
determines the tax payers compliance behavior towards taxation(Mold et al, 2011).

2.4.1. Political Determinants of Tax Compliance

The political determinants of tax payer compliance behavior are the complexity of tax law, the
complexity of the tax system, and the fiscal policy. It is the level of complexity than can
turnawell-intentioned taxpayers in to avoider or evader. The structure of the tax system can also
hinder tax payers’ willingness to comply, if they perceive the system as being too bureaucratic
with a high tax burden, and a high number of taxes. In addition, an inefficient fiscal policy and
low quality of public goods make tax payer think twice before paying the entire share of their tax
liabilities(Trivedi and Shehate ,2005).

In addition trust in tax officials, corruption of tax officials, overall level of satisfaction with
politicians, and individual’s perception about their country’s level of democracy are also the
factors for determining taxpayers compliance behavior(Ibid).

2.4.2 Economic Factor That Determine Tax Compliance

Tax payer’s compliance behavior is also influenced by their Selfish rational activity maximizes
who, following the optimal strategy to evade and avoid taxes as a means of obtaining the best
outcome. According to, Becker’s seminal work (1968), evading and avoiding taxes is no longer
seen as a criminal activity, but a rational utility maximizing strategy used by the tax payer when
the benefits of successful evasion and avoidance value is more than the cost of being audited,
detected and fined. Thus, the probability of audit, fines, tax rates and income of the taxpayers are
the factors for determining tax payer compliance behavior towards taxation( Becker’s seminal
work,1968).

2.4.3 Social Factor That Determines Tax Compliance

Tax payer compliance behavior towards taxation is thought to be affected by the behavior and
social norms of individual’s reference group (Snavely, 1990). It is reasonable to assume that
human behavior in the area of taxation is influenced by social interaction much in the same was
as other forms of behavior (Snavely, 1990). Thus, taxpayerscompliance behavior towards the tax
system may therefore be affected by the behavior of an individual’s reference group such as
relatives, neighbors and friends. Therefore, if a tax payer knows many people in groups
important to him who evade taxes, his/her commitment to comply will be weaker on the other
hand, social relationships may also protect individuals from engaging in evasion in fear of social
sanctions imposed once discovered and revealed publicly(Snavely, 1990)

In addition to the above stated factors, there are also other factor that determines taxpayers
compliance behavior towards taxation such as principles of taxation, organization strength of tax
authorities, awareness of tax payer, socio-psychological factor and others. Hence the above
stated determinant of taxpayer compliance behavior is not exhaustive, and it will be discussed in
detail by the researcher in the related literature review part of the research.
According to Trivedi and Shehate (2005), economic theories suggest that tax payer make
calculation of economic consequences of different compliant alternative in order to choose those
alternative that maximize their expected after tax return/ profit. Hence, economic theories
emphasize increasing tax audit and penalties as a solution to tax compliance problems.

Psychological theories of tax compliance assume that moral and ethical concerns are also
important to tax payer in which the tax payer may comply even where the risk of tax audit is low,
and this theory focus on changing individual attitude towards the tax system or taxation rather
that tax audits and penalties.

Triivedi and Shehate (2005) concluded that some taxpayers behavior may follow economic
theories while others may follow the psychological theories and a mixture of the two is also
possible.

2.4.4. Administrative Factors That Determine Tax Compliance

The role of the tax administrator in minimizing the tax gap and increasing voluntary compliance
is clearly important Hasseledine and Li (1999) illustrated this placing the government and the tax
authority as the main party that need to be continuously efficient in administering the tax system
in order to minimize tax evasion.

According to Bird and Old Man (1967), no tax will work effectively, unless its administrators
maintain an aggressive attitude with respect to the correctness of the tax payers’ action. Rational
and efficient procedure improvement in relation with the public and in the daily contacts between
tax official and tax payer, can operate to increase the public respect for the tax administration.
Moreover, once the tax administration has been placed a sound basis, it is a position to assert that
compliance must be forth coming.(Bird and Old Man, 1967).

On the other hand, poorly drafted forms, long waiting lines and even charges for acquiring them,
bureaucratic hassle in processing the case, redness from officials, cumber some appeal
procedures, and the like, can repel the most loyal tax payer (Ibid). moreover, the ways in which
revenue authorities interact with tax payers and their own employees have an impact on public
perception of tax system and the degree of tax payers voluntary compliance.
(GezahegneEredatie, 2012).
2.4.5 Legal Factors That Determine Compliance
Legal factors is also an important determinants of tax compliance, in the following weWilldraw
attention on tax law complexity. People’s understanding of tax law is an important factorwhich
shapes their disposition to comply. As the law is intricate, taxpayers become reluctant intrying to
understand the provisions contained by the tax law. They often find tax law a burden dueto its
byzantine wording and perceive it rather as a foreign language. Their level of
comprehensiondepends itself on the education. Plenty of studies have shownthat higher-educated
people understand better the meaning of tax liabilities and the aim ofgovernmental policies and,
as a consequence, they comply more (Schmölders, 1960; Song andYarbrough, 1978; Spicer and
Lundstedt, 1976).
The lack of tax law comprehension engenders distrust and non-compliance. Knowing
that,different countries have undertaken long and complexendeavors to simplify the tax law, i.e.,
to rewrite the tax regulations into plain language by usinglogical structures. Despite the huge
number of attempts, they had little effect on the improvement ofthe tax law grasped by ordinary
citizens, business owners, or even by tax authorities, and almost noimpact on the increase of tax
compliance. Poking fun at the failed endeavors of reducing the tax lawperplexity, USA
congressman Delbert L. Latta points out “I hold in my hand 1,379 pages of taxsimplification”
(US News and World Report, 23 December 1985, cited in E. Kirchler, 2007: 8).
Some studies show that the complexity of tax law creates uncertainty in taxpayers ‘minds,thus
raising tax compliance levels. Beck et al. (1991) report that compliance increases along
withincome uncertainty. Moreover, Snow and Warren (2005) conclude that compliance levels
increasewhen taxpayers are uncertain about how many non-compliance acts an audit can detect.
The uncertainty of tax law due to multiple changes generates itself a lack of certainty in thefiling
behavior and punishment aversion. Hence, most taxpayers hire tax lawyers and preparers.
They are called to give expert advice on the correct filling in of the tax returns (Sakurai and
Braithwaite, 2003).
Ironically, tax law is difficult to understand and gives birth to uncertainty not only
forordinarycitizens but also for tax authorities (Kirchler, 2007). Poor tax knowledge and
theuncertainty of the tax law offer authorities improper conditions in deciding to which
extenttaxpayers’ behavior is legal and where exactly is the boundary between right and wrong in
theapplication of tax law provisions. By the same token, different studies support the idea that it
isextremely difficult to delineate exactly a behavior that is in line with “the letter of the law”
(e.g.,Marshall et al., 1998; Owens and Hamilton, 2004).

Time Schedule

Duration in (months)
No Activities November January February March April May June
1 Selection of the research
topic
2 Developing research
proposal and first draft
submission
3 Research proposal final
draft submission
4 Data collection
5 Data editing and coding
6 Data analysis and
summary findings
7 Conclusion and
recommendation
8 Preparation of final
draft
9 Submission of the first
draft
10 Collection of the draft
give to advisor
11 Submission of paper
and presentation
Budget Schedule

No Description Quantity Unit Price Total Price

.
1 Paper 3 pad 120. 360.00
2 Pen 12 5.00 60.00
3 Transportation 500 500
4 Typing 240 4 960
5 Photocopy 150 0.50 75
6 Printing 150 0.75 112.50
7 flash 1 150 150
8 Mobile card 100 100.00
9 Other Expense 600 600
Total 2917.5

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Tanzi,V.(2000). Inflationary Expectations, economic activity, taxes and interest rates.The

American Economic Review, 36, 12621.

Trivedi, v.u, scehata, m. and mestelman.Attiudes, incentive and tax compliance, Canadian tax
journal, issue 53(1)/2005,pp 29-61.

Wubshet,A. (2011). Tax payers’ perception towards fairness: Personal Business profit Tax
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Yamane T. (1967), Statistics: an Introductory Analysis, (2nded). New York: Harper and Row.

+
 Annex 1
Ethiopian Civil Service University
Institute Of Tax and Customs Administration
Department Of Tax and Customs Administration
Questionnaire on Assessments of Category “A” Taxpayers Compliance to
Category “A” Taxpayers.

Sir/Madam,
This study is conducted in partial fulfillment of the requirements for the B.A degree in Tax and
customs administration in ECSU. Its main objective is to assess category” A” taxpayers’
compliance.
Please answer every question. The questionnaire seeks basic factual information and you can
tick the option that you choose or write your answer on the blank space provided. Space is
provided at the end of the questionnaire for you to add further comments or explanations. I
would promise u that all information you provide would be strictly confidential.

I thank you very much in advance for your cooperation.

Researcher’s Name: KalkedanNegatu
Position: BA student at ESCU
Telephone: 0913-58-09-22

I. Personal Data

1. Age________
2. Sex: Male Female
3. Ethnicity____________ Religion_______________
4. Marital Status: Single Married Divorced
 5. Family size_______
6. Level of education_______
7. Type of business_______________
8. For how many years you were in business? _______
9. For how many years you are known as tax payer? ________

I. Questions related to factors that affect tax compliance

1. Do you have awareness regarding business income tax rate in Ethiopia?

Yes □ No □
No Question 5 4 low 3 4 high 1
moderate
very low very high

2. If your previous answer is yes,

what do you think about the tax
rate in Ethiopia?

3.Do you think that the taxes you are paying are based on your ability to pay?

Yes □ No □

4.Is the tax you pay is understated or over stated?

Understated o Overstated o

3. What do you think about the impact of high tax rate? Please use the “ √“ sign

No.

1 Affects voluntary compliance

 2 Leads to evasion

3 Affects the decision to stay on business `

4 It makes no difference

If any other, please specify

______________________________________________________________________________
______________________________________________________________________________
____________________________________________________________

4. Do you keep proper records?

Yes □ No □
5. If your response for no. 4 is “Yes”, do you expect that the tax return you declare will be
audited?

Yes □ No □
6. Do you have an experience being audited by the tax office?

Yes □ No □
7.If your response for no 6 is “Yes”, how many times have you been audited?

Three times per year twice a year □ once a year □ not at all □
8. Will you be penalized if you do not comply with the provisions of the laws and regulations?

Yes □ No □
 No Question 5 4 low 3 4 high 1
moderate
very low very high

9. If your previous answer is yes,

what do you think about the
penalty level?

10 . What offenses are to be the reason for a taxpayer to be penalized?

Late filing □ Underreporting □ Please specify if any □

Other _________________________________________________________________

No Question Very Satisfactory Moderate Unsatisfactory Very

Satisfactory unsatisfactory

11. What is the

level of
utilization of
tax collected by
a government?

12. Should people with higher income pay higher tax?

Yes □ No □
13. Should people with the same income pay the same tax?

Yes □ No □
14. Do all people you know in business pay the correct taxes timely?

Yes □ No □
15. If your previous answer is “No” what are the reasons ? _____________________

______________________________________________________________________________

16.If there is no penalty or legal enforcement, is there a possibility that you may not pay tax?

Yes □ No □
17 .Do you know why you pay taxes?

Yes □ No □
18 . Why do you pay taxes (check all that apply)?

To avoid disturbances (penalties, sanctions) □

In the anticipation of public services □
There is no opportunity to evade □
It is an obligation towards the government □
Don’t know □
State if any, _____________________________________________________________
________________________________________________________________________

19 . Have you ever taken any training on business income tax regarding your rights and

responsibilities? Yes □ No □
 No. Question Fair enough Moderate Poor

20. How much aware are you about your

rights and responsibilities regarding
business income tax?

21. How do you obtain your awareness about rights and responsibilities?

From tax education conducted by the office □

By own effort such a reading proclamations and different medias □
From both □
No. Question Very good Good Moderate e Poor

22. How do you measure the

way of giving tax education
by the revenue office

_______________________________________ ___________________________________

23.Do you think you are getting comparable social services from government for the tax you
have paid?

Yes □ No □
24. Does the political system have impact on taxpayers’ compliance behavior towards the tax
system?

Yes □ No □
II. Questions related to level of tax compliance
1.How do you evaluate the compliance level of category ‘A’? Please use the “ √“ sign
High Low

2.What do you think about category ‘A’ taxpayers’ voluntary compliance behavior?
Excellentfair

Goodpoor

3.How do you evaluate the honesty and loyalty of these taxpayers to the tax system?

Excellentfair

Goodpoor

4. Which of the following is the most serious crime? (Rank them 1-6)
Kidnapping Tax fraud/evasion
Drunken driving Stealing someone’s mobile
Hit and run Bribery
5.If there is no penalty or legal enforcement, is there a possibility that you may not pay a tax?
Yes No
6. Do you feel guilty if you are evading tax, provided that you remain unnoticed?
Yes No
7. Have you paid your current tax obligation? If your answer is no, go to the next question.
Yes No
8.What could be your reason for not paying your tax obligation (check all that
applies)?
It is unfair/ beyond my ability.

I face no problem by doing so.

I have no sufficient disposable income

Since the payment period already passed, now I afraid of the penalty

Expecting amnesty or write off

If you have other reasons you can mention them here______________________

__________________________________________________________________________
_________________________________________.
9.How do you guess the size of taxpayers who are not willing to pay taxes?

Many Few

Insignificant None

III. Questions related to the ability of Arada sub city to implement and
interpret tax laws and regulations
1.What is the level of administrative efficiency in Arada sub city revenue office in interpreting
and implementing tax laws and regulations?

Efficiency Moderate

Very efficient Inefficient

Efficient Very inefficient

2.Does the revenue office interpret and implement the tax laws and regulations accordingly?

Yes NO

3.Do you think the tax law is complex?

YesNO

4 . If there is no legal enforcement is there a possibility that you may not pay tax?

Yes □ No □
 No. Question Agree Disagree

5. The severity of sanction and penalty

ensures tax compliance

No. Question 5 4 3 2 1
neither complex
very simple simple very
complex

6. What is the simplicity level

of tax laws and
administration in
Walkaytworeda revenue
office?

7. How do you evaluate the strength of the tax authority with respect to the following
parameters?

No. Question Excellent Good Moderate Poor

1. Revenue collection

2. Law enforcement

3. Awareness creation

4. Service delivery

8 . Rate the following measures that should be undertaken to improve tax compliance ?

Possible measures Agree Disagree

Strengthening legal enforcement and penalties

 Improving relationship with the public

Educating the taxpayers and conducting consultation

sessions

Providing necessary information to taxpayers

regarding the provisions of services and utilization of
tax revenue

Reducing tax rates and making the collection

procedures simple and transparent

If there is any other that needs to be improved please state, ______________________

______________________________________________________________________________

Thank You for Your Time!!!

Annex 2
Ethiopian Civil Service University
Institute Of Tax and Customs Administration
Department Of Tax and Customs Administration
Questionnaire on Assessments of Category “A” Taxpayers Compliance for
Employees of Aradasub-city small tax payer’s branch office.

Sir/Madam,
This study is conducted in partial fulfillment of the requirements for the B.A degree in Tax and
customs administration in ECSU. Its main objective is to assess category” A” taxpayers’
compliance.
Please answer every question. The questionnaire seeks basic factual information and you can
tick the option that you choose or write your answer on the blank space provided. Space is
provided at the end of the questionnaire for you to add further comments or explanations. I
would promise u that all information you provide would be strictly confidential.

I thank you very much in advance for your cooperation.

Researcher’s Name: kalkedanNegatu
Position: BA student at ESCU
Telephone: 0913-58-09-22
I. Personal Data

10. Age________
11. Sex: Male Female
12. Ethnicity____________ Religion_______________
13. Marital Status: Single Married Divorced
14. Family size_______
15. Level of education_______
16. position_______________
17. For how many years you work in this office? _______
I. Questions related to factors that affect tax compliance
1.Do you think all the tax payers know why they pay taxes?
Yes No

Ser.N Question Excellent Good Fair Poor

2 What do you think about category“A” tax payer’s
compliance behavior Towards taxation?

3 How do you evaluate the honesty and loyalty of these

 Tax payers to the tax system?

Ser.No Question Agree Strongly Moderately disagree Moderately Strongly

Agree disagree

4 Tax payers think tax is

unfair
5 Taxpayers evade tax if
possible
6 The severity of
sanctions and penalties
Ensure category “A”
taxpayers compliance.
7 Tax amnesty
encourages
noncompliance
evasion.

8. Who is to blame for the”A” tax payer’s compliance (check all that applies)?
Tax authority

City Administration

Taxpayers

Why?________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
______________.
9. Do you think that social and cultural factors have an impact on tax compliance?
Yes No
If your answer is yes, state how it affects________________________________
________________________________________________________________
__________________________________________________________________________
II. Questions related to level of tax compliance
1.How do you evaluate the compliance level of category ‘A’? Please use the “ √“ sign
High Low

2. How do you guess the size of taxpayers who are not willing to pay taxes?

Many Few

Insignificant None
3.What do you think about category“A” tax payer’s compliance behavior Towards taxation?

Excellentfair

Goodpoor

3. How do you evaluate the honesty and loyalty of these taxpayers to the tax system?
Excellent fair

Good poor

III. Questions related to the ability of Arada sub city to implement and
interpret tax laws and regulations
1. How do you evaluate the strength of the tax authority with respect to thefollowing
parameter ?
Excellent Good Fair Poor

Service delivery

Tax collection efficiency

Law enforcement

Awareness creation
2. What are the major problems in tax system/ collection (thick all that apply)?

Tax revenues are not spent on public services.

Tax rates are too high.

There are dishonest tax collectors.

Several tax items are levied at the same time.

Taxpayers are not willing to pay taxes.

If you have any, mention it

here---------------------------------------------------------------------------------------------------------------
---------
3.What is the level of administrative efficiency in Arada sub city revenue office in interpreting
and implementing tax laws and regulations?

Efficiency

Very efficient

Efficient

Moderate

Inefficient

Very inefficient

4.Does the revenue office interpret and implement the tax laws and regulations accordingly?
 Yes □ NO □
5. Do you think the tax law is complex?

Yes □ □
NO

No. Question Agree Disagree

6. The severity of sanction and penalty

ensures tax compliance

No. Question 5 4 3 2 1
neither complex
very simple simple very
complex

7. What is the simplicity level

of tax laws and
administration in Arada sub
city revenue office?

8. How do you evaluate the strength of the tax authority with respect to the following
parameters?

No. Question Excellent Good Moderate Poor

1. Revenue collection

2. Law enforcement

3. Awareness creation

4. Service delivery
 9. Rate the following measures that should be undertaken to improve tax compliance ?

Possible measures Agree Disagree

Strengthening legal enforcement and penalties

Improving relationship with the public

Educating the taxpayers and conducting consultation

sessions

Providing necessary information to taxpayers

regarding the provisions of services and utilization of
tax revenue

Reducing tax rates and making the collection

procedures simple and transparent

10.If there is any other that needs to be improved please state, ______________________

________________________________________________________________________
______

11. The non-compliance of taxpayers can put the credibility and trustworthiness of the revenue
administration under question mark.

Strongly Agree Moderately disagree

Moderately agree Stronglydisagree

 Annex 3

Ethiopian Civil Service University

Institute Of Tax and Customs Administration
Department Of Tax and Customs Administration

Interview Questions to Top Tax Officials

Sir/Madam,
This study is conducted in partial fulfillment of the requirements for the B.A degree in Tax and
customs administration in ECSU.Its main objective is to assess category” A” taxpayers’
compliance. The research will be carried out on your responses and other relevant data.
The purpose of this interview is to obtain your perceptions and views regarding various aspects
of taxation. It forms a major part of the research and the information you will give enable me to
analyze why taxpayers comply and/or why not they comply with the tax law. Your cooperation
to respond is very important to this study. Finally, I would promise u that all information you
provide would be strictly confidential.
I. Questions related to factors that affect tax compliance
1. What do you say about tax payer’s compliance behavior towards taxation in Arada sub-
city small tax payer’s office?
2. What are the factors that determine tax payer compliance behavior towards taxation?
4.Does the non-compliance of other taxpayers have a negative impact on complaint tax
payers compliance behavior?
5.Does the Revenue office take appropriate corrective measures on noncompliant taxpayers?

II. Questions related to level of tax compliance

1. Do you think all tax payers respect tax laws and regulations?
2.How do you guess the size of taxpayers who are not willing to pay taxes?
3. Do you think if there is no penalty or legal enforcement, is there a possibility that tax
payers may not pay tax?
4. How do you evaluate the honesty and loyalty of tax payers to the tax system?
III. Questions related to the ability of Arada sub-city revenue office to
implement and interpret tax laws and regulations

1. What should be done in the future by the authority to improve the tax payer compliance
behavior?
2. What is your recommendation for enhancing tax payer compliance behavior?

3. Which of the following measures should the government undertake in order to improve
category “A” tax payer’s compliance behavior towards taxation?

4. Do you have trust in the employees of Revenue Agency?

5. Do you think all employees of the office are implementing and interpreting tax laws
properly?
6.What is the level of administrative efficiency of Arada sub city in interpreting and
implementing tax law?
 Table of Contents
TitlePages

1. Introduction.........................................................................................................................................1

1.1 Background of the study....................................................................................................................1

1.2 Back Ground of the Study area......................................................................................................2

1.3. Statement of the Problem.............................................................................................................2

1.4. Research Question.......................................................................................................................4

1.5. Objectives of the Study................................................................................................................4

1.5.1. General Objectives...............................................................................................................4

1.5.2. Specific Objectives..............................................................................................................5

1.6. Significance of the Study.............................................................................................................5

1.7. Scope of the Study.......................................................................................................................6

1.8 Limitation of the Study....................................................................................................................6

1.9. Research Design and Methodology.............................................................................................7

1.9.1. Research Design..................................................................................................................7

1.9.2. Population and Sampling....................................................................................................7

1.9.2.1. Population........................................................................................................................7

1.9.2.2. Sampling and Sampling Techniques................................................................................8

1.9.3. Sources of data.....................................................................................................................9

1.9.3.1. Primary data.....................................................................................................................9

1.9.3.2. Secondary Data................................................................................................................9

1.9.4. Method of data collection....................................................................................................9

1.9.5. Method of data Analysis and Presentation.........................................................................10

1.10. Definition of key terms..........................................................................................................10

1.11 Organization of the Study..............................................................................................................10

2. REVIEW OF RELATED LITERATURE............................................................................................11

 2.1. Introduction....................................................................................................................................11

2.2. Definition of Tax Compliance...................................................................................................11

2.3. Tax Payer Non-Compliance.......................................................................................................12

2.4. Factors That Determine Tax Compliance..................................................................................12

2.4.1. Political Determinants of Tax Compliance.......................................................................12

2.4.2 Economic Factor That Determine Tax Compliance..................................................................12

2.4.3 Social Factor That Determines Tax Compliance.....................................................................13

2.4.4. Administrative Factors That Determine Tax Compliance........................................................14

2.4.5 Legal Factors That Determine Compliance............................................................................14

References

Time schedule

Annexes

Annex 1

Annex 2

Annex 3