Economic and Social Factors of Voluntary Tax Compliance: Evidence from Bahir Dar City

Abstract

The study was conducted with the aim of identifying economic and social factors of tax compliance behavior in Bahir Dar city administration business income taxpayers. Voluntary compliance behavior of the taxpayers is affected by various factors and identifying these factors in order to maintain voluntary compliance at satisfactory level and treating the factors accordingly should be the central premises of any tax system. Research approach with explanatory research design is used in the study by employing stratified random sampling to select the participants. This study was conducted by using 248 business income taxpayers from which the data was collected from through questionnaires and unstructured interviews. The results showed that factors such as fairness of the tax system, penalty, tax rate, perceptions of government spending and compliance cost were found to be the determinant factors that affect taxpayer’s voluntary compliance. And therefore it is suggested that maintaining tax fairness, appropriate and moderate levels of penalty, spending the tax revenue on important and social projects, keeping tax rates to the minimum as much as possible and keeping compliance costs to the minimum can enhance the voluntary compliance of taxpayers.