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.