Determinants of Business House Rental Income Taxpayers’ Compliance with Tax System in Afar Region, Northeast Ethiopia

Abstract

The biggest impediment to the Ethiopian government’s ability to raise revenue by its means to the required level is the lack of taxpayers’ compliance behavior with the tax system. Therefore, this study examines the key determinants of taxpayers’ compliance behavior with the tax system in the Afar regional state. To this end, two purposively selected woredas (Awash and Aba’ala) and one city administration (Samara-logia) were used. Primary data were collected from 404 randomly selected respondents. The ordered logistic regression model was used to analyze the factors that determine tax compliance. Results show that tax knowledge, probability of detection, perception of government spending, organizational strength of the tax authority, fairness of the tax system, and simplicity of the tax system have positive effects on tax compliance, whereas tax rates have a negative effect on tax compliance in the Afar regional state. As a result, it is suggested that the tax authorities launch effective and brief awareness-development and tax education programs for the general public and taxpayers in particular. The tax system, notably the tax return, tax forms, and tax rules, should be simplified by the tax authorities so that they are readily understood by taxpayers. Furthermore, the tax authorities should be powerful enough to effectively and efficiently enforce the tax laws, and to ensure tax fairness, their tax liability must be determined by their ability to pay. Lastly, the government must maintain accountability and transparency in how tax revenue is dispensed, as well as deliver social services to the public efficiently and intelligently so that taxpayers have faith in and a favorable attitude toward the taxes they pay and the tax system.

What matters for the efficiency of Micro Business Tax Collection? Evidence from the Eastern Part of Ethiopia.

“…At the time of the revised assessment result announcement by the tax authority, microbusinesses under the presumptive taxation method created widespread public protest and outcry over the amount of their tax liability, and there was also hectic activity at tax authorities across the country having the greatest number of microbusiness taxpayer complaints (Workneh et al, 2019). Actually, the revised tax assessment was unexpected for microbusinesses because what was estimated six years ago changed dramatically, which contributed to taxpayer confusion about the revised amount of tax liability (Getachew, 2019). The 2022 microbusiness tax collection announcement also faced the aforementioned issues (World Bank, 2023) To summarize, the empirical ndings found in studies related to microbusiness tax collection are as follows: unclear tax legislation, ine ciencies of tax administration, corruption, lack of knowledge of taxpayers, high rate of evasion, lack of competency of the tax authority, inadequate awareness, lack of follow-up, overestimation of daily sales at the time of assessment, lack of taxpayer honesty to provide accurate information to the assessing committee, and non-registration of microbusinesses.…”