Kanbiro orkaido full mba research

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DILLA UNIVERSITY
SCHOOL OF GRADUATE STUDIES
DETERMINATS OF TAX COMPLIANCE ATTITUDE
WITH TAXATION: THE CASE OF CATEGORY “A”
TAXPAYERS IN GEDEO ZONE
BY
KANBIRO ORKAIDO DEYGANTO
MAY, 2017
DILLA, ETHIOPIA

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DETERMINATS OF TAX COMPLIANCE ATTITUDE
WITH TAXATION: THE CASE OF CATEGORY “A”
TAXPAYERS IN GEDEO ZONE
A THESIS SUBMITTED TO THE DEPARTMENT OF
ACCOUNTING AND FINANCE IN PARTIAL FULFILLMENT OF
THE REQUIREMENTS FOR THE DEGREE OF MASTER OF
BUSINESS ADMINISTRATION (MBA) IN FINANCE
BY
KANBIRO ORKAIDO
MAJOR ADVISOR
SUBRAMANIAN SHANMUGAM(PhD)
CO-ADVISOR
ERMIAS ERSEDO (MA)
MAY, 2017
DILLA, ETHIOPIA

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ACKNOWLEDGEMENT
First of all, my innumerable praise goes to the Almighty GOD for giving me the chance,
capacity and guidance throughout my life. Because nothing can be done without the help
of GOD. Several individuals and organizations deserve acknowledgement for their
contributions to this thesis work. My foremost appreciation and thanks goes to my main
advisor Dr. Subramanian Shanmugamfor his valuable and constructive comments,
suggestions and overall assistance of during the work of this study. My heartfelt thanks
also go to my co-advisor, Ato Ermias Ersedo for his professional advice starting from
topic selection to end stage of the thesis work. Then My great direct gratitude is also
extended to. Yonas Sandeba (PhD) andAshenafi Kebede (PhD), for their innumerable
and acknowledgeable comments through journey of this thesis effort. My deepest
gratitude also goes to my beloved wife Oshee Gehano, children and parents, who are
always with me in all aspects in general.
Furthermore, my heartfelt thanks also go to Mr. Negash Haile, Mr. Oda Yedata,
Mr.ddisu Karafo, Mr. Guye Nane, Ato Zegaye Shibru, and Mr. Admassu Fita, the staff in
Dilla University College of Business and Economics for helping me by giving necessary
assistance and moral support during the work of this thesis.
My gratitude also goes to all of my friends and classmates for their comments and
encouragement when I am in need of their assistance. I would like to extend my thanks to
Dilla University for sponsoring this study. My appreciations also go to all high directors’
of Gedeo Zone Tax Authority officers especially Mr. Wondimu Abera, and Gashaw
Getachew and category “A” taxpayers of the zone who randomly selected and help me by
responding the questionnaires required for the report of this study.
I am indebted to you all my gratitude and my God bless you all the other people helping
me during time of preparing this thesis work.

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TABLE OF CONTENTS
CONTENTS
PAGE
Approval sheet ………………………………………………………………………… i
Approval from advisor ………………………………………………………………… ii
Author’s declaration …………………………………………………………………… iii
Acknowledgement …........................................................................................................ iv
Table of contents …........................................................................................................... v
List of tables…................................................................................................................. vii
List of figures …............................................................................................................... ix
Acronyms …....................................................................................................................... x
Abstract …......................................................................................................................... xi
CHAPTER ONE......................................................................................................1
. INTRODUCTION ........................................................................................................1
1.1. Background of the study ......................................................................................... 1
1.2. Statement of the problem ........................................................................................ 3
1.3. Objectives of the study ........................................................................................... 5
1.3.1. General objective .......................................................................................5
1.3.2. Specific objectives .....................................................................................5
1.4. Research hypothesis ...............................................................................................5
1.5. Significance of the study ........................................................................................6
1.6. Scope of the study ..................................................................................................7
1.7. limitations of the study………………………………….………………………7
1.8. Organization of the study .....................................................................................7
CHAPTER TWO .......................................................................................................8
REVIEW OF LITERATURE .....................................................................................8
2.1. Theoretical literature review ...................................................................................8

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2.1.1. The meaning of tax compliance attitude…………….……….…………...…...8
2.1.2. Theories of tax compliance…………………………………………………….10
2.1.2.1. Monetary exchange theory …………………………………………...10
2.1.2.2. Social influence theory …………………………………….…………11
2.1.2.3. Political comparative theory……………………………...…………...12
2.1.2.4. Political Legitimacy theory ……………………………….…………13
2.1.2.5. Economic Deterrence theory………………………………………….13
2.2. Empirical literature review ...................................................................................13
2.2.1. Empirical review of researches on determinants of tax compliance…………...13
2.2.1.1. Demographic factors …….…………………………………………... 14
2.2.1.2. Institutional factors…………………………………………………....15
2.2.1.3. Social factors…………………….……………………………………17
2.2.1.4. Individual factors……………………………………………………...18
2.2.1.5. Economic factors ……………………………………………………19
2.3. Conceptual framework of the study……………………………………...23
CHAPTER THREE ......................................................................................................24
METHODOLOGY OF THE STUDY ….……..........................................................24
3.1. Study area.........................………..........................................................................24
3.2. Research design ……….........................................................................................25
3.3. Source and type of data .........................................................................................25
3.4. Population of the study.........................................................................................26
3.5. Sampling and sample size.....................................................................................26
3.6. Methods and procedure of Data collection ……………………………………...27
3.7. Model Specification………………………………….…………………………2
3.8. Description of the variable and their measurement ……………………………31
3.9. Methods of data analysis...................................................................................32
CHAPTER FOUR ...................................................................................................33
DATA ANALYSIS AND DISCUSSION OF RESULTS……............................33
4.1. Introduction.......................................................................................................33
4.2. Result of Descriptive Statistics.........................................................................33

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4.2.1. Characteristics of Respondents......................................................... 33
4.2.2. Type of Business and Year of Experience .........................................35
4.2.3. Taxpayers General knowledge .........................................................35
4.2.4. Summary statistics for Variables Incorporated in the model……….37
4.2.5. Cross tabulation Value of (COM) with each independent variable…41
4.2.6. Coefficient of correlation of (COM) & Explanatory variables….….49
4.3. Inferential statistics result and Discussion ...........................................50
CHAPTER FIVE………………………………………………………………58
5. SUMMARY, CONCLUSION AND RECOMMENDATIONS………….58
5.1 Summary of the Results ……………………………………………………58
5.1.1 summary of the results of descriptive statistics...............................58
5.1.2 summary of the results of inferential statistics............................... 60
5.2. Conclusions .................................................................................................64
5.3. Recommandations…………....................................................................... 67
5.4. Direction for the future Research ................................................................70
REFERENCES
APPENDICE I -Questionnaire English Version
APPENDICES II -Questionnaire Amharic Version

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LIST OF TABLES
TABLEPAGE
Table 3.1. Proportionate sample size from each Sites……………………………….......27
Table 3.2. Variable discerption and their unit of measurement………………………… 32
Table 4.1. Demographic characteristic of respondents………………………………….34
Table 4.2. Type of Business and Year of Experience in doing business………………...34
Table 4.3. Taxpayers General knowledge about taxation……………………………….36
Table 4.4. Summary statistics of variables incorporated in the model…………………37
Table 4.5. Cross table value of gender of respondents and compliance attitude………41
Table 4.6. Cross table value of age and compliance attitude………………………….42
Table 4.7. Cross table value of education level and compliance attitude……………...43
Table 4.8. Cross table value of tax knowledge and compliance attitude………………44
Table 4.10. Cross table value of perception on fairness and Equity and (COM)……....44
Table 4.10. Cross table value of simplicity of tax system and compliance attitude……45
Table 4.11. Cross table value of awareness on penalty and compliance attitude………46
Table 4.12. Cross table value of probability of being audit and compliance attitude…47
Table 4.13. Cross table value of perception on existing tax rate and (COM) …………47
Table 4.14. Cross table value of perception on tax authority efficiency and (COM) …48
Table 4.15. The coefficient of correlation of tax compliance attitude and explanatory.49
Table 4.16. Binary logistic Regression Result: Tax compliance attitude (COM)…….52

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LIST OF FIGURES
FIGURES PAGE
Figure 2.1. Conceptual Framework of the study ……………………………….…. 23
Figure 3.1. Administrative map of the study area ………………………………… 24

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LIST ACRONYMS
AGE: Age
APEN: Awareness on Penalty for Tax Evasion
𝜷 : coefficient of intercept term
CSA: Central Statistics Agency
E.C: Ethiopian Calendar
ECC: Ethiopian Chamber of Commerce
EDUC: Education
PFE: Perception on Fairness and Equity
FIRA: Federal Inland Revenue Authority
G.C: Gregorian Calendar
GDP: Growth Domestic Product
GTP: Growth and Transformation Plan
GEND: Gender
MoFED: Ministry of Finance and Economic Development
OECD: Organization for Economic Cooperation and Development
OCT: October
TAE: Tax Authority Efficiency
SIM: Simplicity of Tax System
SNNPRS: Southern Nations, Nationalities and Peoples Regional State
COMP: Tax Compliance Attitude
TKLDGE: Tax Knowledge
PTR: Perception on Tax Rate
PFE: Perception on Fairness and Equity
TPA: Theory of Planed Behavior
TRA: Theory Reasoned Action
U: Error term
US: United States
VAT: Value Added Tax

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ABSTRACT
The objective of this study was to identify the determinants of tax compliance
attitude with taxation, case of category ‘A’ taxpayers in Gedeo Zone. To this end,
the researcher used quantitative research approach and collected primary data
through structured questionnaire and secondary data by reviewing related
materials to achieve the objective of this study. Binary logistic regression model
was employed and both descriptive and inferential stat istics analysis were done
through Stata software application version 12.0 to present the results of this
study. Then, the result of this study showed that out of ten explanatory variables
incorporated in the model, eight variables such as gender, age, tax knowledge,
simplicity of tax system, perception on fairness and equity, awareness on penalty,
probability of being audit, and perception on tax rate were found to be
determinants of tax compliance attitude of taxpayers with taxation in the zone.
Whereas, education level and tax authority efficiency have no impact on tax
compliance attitude. Finally, the findings of the study may inform policymakers
about the determinants of tax compliance attitude towards tax system in the Zone,
supports to formulate constructive policy and make decisions related to tax
compliance issues in order to achieve the goal of raising required tax revenue to
promote the economic development of the country.
Kanbiro Orkaido
May, 2017
Keywords: Taxation, Determinants, Compliance Attitude, Binary Logistic Regression

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CHAPTER ONE
INTRODUCTION
1.1. Backgroundof the study
Lymer and Oats (2009) defined tax as “a compulsory levy, imposed by government or
other tax raising bodyon income, expenditure, andcapital assets for which the taxpayer
receives nothing specific in return.”Tesfaye (2015) stated that tax is the main component
of government revenue that will use to finance all the government expenditure to stabilize
the economy. But the amount of revenue to be generated by a government from taxes for
its expenditure program depends on the willingness of the taxpayers to comply with tax
laws of a country; Fjeldstad etal (2012). The result of experimental studies to investigate
tax payer’s noncompliance behavior in the US, Australia and Singapore indicated that
Singaporean tax payers had the lowest none compliance rate at almost 26 percent, while
Australian tax payers had the highest which was 45 percent. The findings suggested that
complete compliance was highest in Singapore 54 percent and lowest in Australia 30
percent. The US was in the middle in terms of both compliance and none compliance
rates. But, studies on compliance behavior would be less meaning full without
investigating the major factors leading such behavior (Mesfin,2016).
Accordingly, Jackson and Milliron (1986) in their previous review of 43 tax compliance
studies done from 1974 to 1985 identified that the fourteen factors like age, gender,
education, income level, source of income, occupation, reference group, ethics, fairness,
complexity, role of tax authority, penalty, probability of detection and tax rates are major
factors that affect tax compliance behavior. Taxation in developing countries is a
challenging issue and has attracted increasing attention in the last two decades. Many
problems observed like poor administration, failing to collect sufficient tax revenues, tax
structures where tax horizontal and vertical equity considerations are not integrated, lack

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of government and economic stability Tesfaye (2015). Besides, degree of tax compliance
in most these countries is affected by demographic, individual, social, economic and
institutional factors (Kirchler ,2007), (Loo,
2006).Sinceeachcountryhasitsownapproachtomanagingtaxcompliance attitude andeach
has differenttaxlawsand regulations for the factors affectingtaxcompliance attitude
appear tovaryamongcountriesPalil, (2010). Ethiopia, like any other developing
countries, faces difficulty in raising revenue to the level required for the promotion of
economic growth through making different tax reforms for improving revenue
generation, enhancing the efficiency of tax administration and improving equity in
the tax system. For example, the replacement of VAT to existing sale tax in January
2003 is one part of reform.Consequently, (Mesfin, 2016)this is due to the
complication of the procedure that tax payers follow to pay tax, unsatisfactory
treatment of tax payers by tax officials, tax payers low level of awareness regarding
indirect benefit from public revenue, negative image in public administration, lack of
social conscious in public and weakness in tax administration and unwillingness of
tax payers to comply with tax law. To this effect, Study done by (Belay, 2015) on
determinants of tax revenue from time series of (1992-2013) declared that the trend of tax
collection in Ethiopia is inconsistent, changing upward and downward depending upon
economic conditions.

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1.2. Statementof problem
Eventhoughtax revenue is the powerful instrument in the hands of the government for
transferring purchasing power from individuals to government to finance the public
expenditure,mostcitizens become unwilling topay theirtax
obligationinthecorrectamount, time and place due topresence of negative attitude.
Thentheytakeavariety ofactions toreducetheirtaxliability (Amina and Saniy, 2015).
Tax negative compliance attitude
isindividuals’failuretocomplywiththeirtaxcommitment.Hence, (Loo, 2006) broadly
categorizednegative compliance as failing to file a tax return; underreporting of taxable
income; overstating tax claims such as deductions and exemptions and failing to make
timely payment of tax liability.In contrary, positive tax compliance attitude is the
willingness of taxpayers to comply with tax laws. To this effect, (Das-Gupta and
Chattopadhyay, 2002)stated that compliance attitude with tax laws involves true
reporting of the taxable income; correct computation of the tax liabilities; timely filling of
tax returns and timely payment of the amount owing as tax obligation.
Tax negative complianceattitude is burning in developing countries, which reduces
revenue generation capability to amount planned to be collectedand leads to budget
deficit. To this end, (Giulia Met al., 2014) and (P. Ahlerup et al., 2015) argued that now
the governments of developing countries, especially sub- Sharan Africa countries collect
much lower proportions of their GDPs of tax revenue which is less than average is 16%.
Even if they have high capacity to raise tax revenue to promote their economic
development.
Ethiopia, like any other developing countries, faces difficulty in raising tax revenue
to the level required for the promotion of economic growth. Hence, according
toFDRE National planning commission (2016, pp. 108) tax to GDP ratiowhich was
collected in GTP I is 13.3% even if the government has been planned to raise
15.3% tax-to-GDPwhich is less than averagefor developed countries (25% -35%),

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(18%-25%) for developing countries and even less than (16%)average that of sub-Sharan
African countries.
The main reason of this low revenue collection performance is due to tax non-
compliance attitude of business income tax payerstax payers and poor tax
administration (IMF, 2015) andthis is why tax compliance attitude topic is an important
agenda in Ethiopia and needs an examination.
According to (Niway and Wondwossen, 2016) most researches on tax compliance
attitude issues were done in developed
countries.Therearefewresearchesdoneondeterminants oftax compliance attitude and
related issuesinEthiopia. For instance, theresearch doneby (Desta2010; Amina and
Saniy 2015;Tilahun and Yidersal 2014; and Mesfin 2016) on the same issue by on
incorporating nine explanator variables in their study and made different suggestions
about tax compliance attitude of taxpayers on different study areas.
But, this research different from the above reviewed researches by taking into account
one more additional factor, perception on tax rate which was not incorporated and tested
in previous researches. And also unlike the previous studies, current study employed logit
model and triedto fill time gap that the studies have been conducted earlier time does not
disclose the current impact that determinants of tax compliance attitude in Gedeo Zone.
When it comes to study area of current research, only one researcher,(Yonas,
2016)havedone inGedeo Zone byonlyconsidering one variable out fourteen determinants
of tax complianceattitude, using descriptive research approach, non-probabilitysampling,
not developing any econometric modelandfound out that tax payers have
positiveattitudetowardsthetaxation.
The current research is dissimilar withthat of (Yonas, 2016)by employing binary logistic
model to obtain reliable finding,incorporating more variables in the model, using
quantitative research approach, probabilitysampling technique and determine sample size
by the help of scientific formula which is more representative than that non-probability
sampling used in the above research. Therefore, aforementioned problems necessitate
this study to be carried out and doing this researchfillsthegap of methodologyand other

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gaps mentioned aboveabout determinants of taxcompliance attitudefromthetaxpayers’
perspective.
1.3. Objectives of the Study
1.3.1. General objective
The major objective of this study is to identify the determinantsof the tax compliance
attitude of taxpayerswithtax system in Gedeo Zone.
1.3.2. Specific objectives
In line with above general objective, the specific objectives of the study are:
 To test whether the demographic factors such as gender, age and education level
have impact on tax compliance attitude of category “A” taxpayers.
 To examine effect of individual factors such tax knowledge and awareness on
penalty on compliance attitude of taxpayers.
 To investigate the influence of social factor, perception on fairness and equity of
tax system on compliance attitude of taxpayers.
 To see the effect of institutional factors like simplicity of tax system and
organizational efficiency of tax authority on tax compliance attitude
 To confirm the impact of economic factors such as the probability of being audit
and perception on tax rate on tax compliance.
1.4. ResearchHypotheses
H1: Demographic factors such as gender, age and education level have impact on
tax compliance attitude of category “A” taxpayers.
H2: Tax compliance attitude is positively related with individual factors such tax
knowledge and awareness on penalty on of taxpayers.
H3: The social factor, perception on fairness and equity of tax system is
positively associated with compliance attitude of taxpayers.

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H4: Institutional factors like simplicity of tax system and organizational
efficiency of tax authority positive impact on tax compliance attitude
H5: The economic factors includethe probability of being audit and perception on
tax rate, have positive and negative impact on tax compliance attitude of
taxpayers respectively.
1.5. SignificanceoftheStudy
Tax revenueisfundamentaltotheexistenceof governments in developed, developing and
transitional forfinancingthebulkof servicesthatthey providefor public including
education, welfare, publicsafety,infrastructure, and other basic services. Improved
taxsystemadvancesthe incomes availableforsupportingpublic serviceswithout increasing
the current tax burden on compliant taxpayers. Additionally, improved taxationpromotes
thecitizen'ssatisfactionbyincreasingthe faith inthesystemand encouragingthe perception
that everyone pays its legal share. Theimpact of tax payer's attitude towards taxation
isthemajor factorthat determines the success ofatax system.Unless these causes of
negative compliance attitude addressedproperly, it may be difficult to design the good tax
systemthathelpstonarrow the existing gap of negative complianceattitude. Hence,
thisstudywould have significance to provide relevant informationon determinant factors
that affecting tax compliance attitude of tax payerstopolicymakersand other concerned
bodies in designing different polices on this issue.
Additionally, the researcher also believed that current study would contributes to
achievement growth and transformation plan of the country from period (2015/16-
2019/2020) by identifying factors influencing tax payers compliance attitude with tax
law so tax authorities can provide necessary training and awareness creation activities
which will increase positive tax compliance attitude of tax payers and make taxpayers to
voluntarily comply with taxation by decreasing negative compliance attitude in one hand
and increase tax revenue to GDP from current 13.3 percent to 17.2 percent to GDP as
planned by National Planning Commission (NPC) to be achieved during the GTP II on
other hand.

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Furthermore, the
studywasbelievedtomotivatethesignificanceforundertakingfurtherresearchonthe study
area and other places as this issue is not researched well by serving as literature review
document.
1.6. Scope ofthe study
The current study wasfocusedon examining tendeterminants of tax compliance attitude of
category “A” taxpayers in Gedeo includesage, gender, education level, tax audit,
perception on tax rate, perception on fairness and equity, simplicity of tax system, tax
authority efficiency, tax knowledge, and awareness on penalty.Because according
the“Federal Income Tax Proclamation No. 979/2016” category “A “tax are payers are
body or any other person having annual gross income of Birr 1,000,000or more
andforcedto prepare profit and loss statement and Balance sheet to declare their tax
liability, recommended by the government for self- assessment and they are also major
taxpayersout of two remaining categories. Really, the researcher believed that findings of
this study can be generalized for all other taxpayers in category” B” and “C” taxpayers in
the study area.
1.7.Limitations of the study
During undertaking this study, researcher faced some limitations. These include:
 Absence of respondents at planned time during data collection and unwillingness
of some respondents to properly respond and return the questionnaire
 Lack of sufficient time for wider scope of coverage of the stud to other areas.
1.8. Organizationof the study
This research paper was organized in to five chapters. Chapter one incorporates the
introductory parts including; background of the study, statement of the problem, research
questions, objective of the study, research hypothesis, significance of the study, scope
and limitations of the study, and organization of the remaining chapters. Chapter two
presents literature review with respect to the theoretical perspective and empirical studies

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on determinants of tax compliance. Followed by the third chapter whichdeals with
research methodology. Chapter four alsodeals withdata analysis and discussion of the
results, and the fifth chapter finallyholds summary of the results, conclusions,
recommendations and scope for further research. The research paper end with annexed
list of references, and data collection instruments.
CHAPTER TWO
LITERATURE REVIEW
2.1 TheoreticalLiterature Review
The source of reviews for the both theoretical and empirical literature was primary
(Gedeo Zone tax authority quarter, semi-annual performance and other annual reports,
secondary source (tax related text books, article journals, intenerate websites and literary
sources like dictionary, encyclopedias and cataloguesetc.
2.1.1 The meaning and concepts of tax compliance attitude
Even if the payment of tax is citizenship duty of every citizen whether natural or
artificial. It is not the case that all citizens positively accept the payment of tax (attitude
of taxpayers towards tax law has its own impact on compliance). To this effect, (Jackson
and Milliron, 1986) tax ethics and attitudes towards tax compliance have an influence on
the feeling towards tax evasion.
Also, (Song and Yarbrough, 1978) and (Pilal ,2010) in a tax system which is based
largely on voluntary compliance attitude and the tax payers’ standard of ethics is really
important issue. Ethics are a subjective phenomenon and the level of ethical behavior is
heavily reliant on how people perceive the behavior being considered as compliant or
noncompliant. It is expected that ethics encourages individuals to act according to them
and a taxpayer with a negative attitude towards tax law tends to be less compliant
(negative attitude) and otherwise. As founded by (Ajzen, 1991) the theory of reasoned

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action or the intention to evade will encourage a taxpayer to behave negatively toward
taxation and thus attempt to under-report income. As a result, it is difficult for tax
authority of any country to impose and collect tax at any time.Tax compliance means
following tax laws. It can be defined as the degree to which an individual taxpayer
complies with the tax rules of the country. The taxpayers’ willingness to obey tax laws in
order to obtain the economy equilibrium of a country is considered as tax
compliance(Andreoni. et al 1998). Compliance with the tax law typically means true
reporting of tax bases, correct computation of the tax liability, timely filing of returns and
timely payment of the amount due. Tax compliance can be described as the point at
which a taxpayer obliges to tax rules and regulations. James and Alley (2002, pp. 7)
pointed out that tax compliance is the willingness of individual and other taxable entities
to act in accordance with the sprit as well as letter of the tax law and administration
without the application of enforcement activity.
Alm (1991) and Jackson and Milliron (1986) defined tax compliance as the reporting of
all incomes and payment of all taxes by fulfilling the provisions of laws, regulations and
court judgments. (Singh, 2003) also defined tax compliance is a person’s act of filling
their tax returns, declaring all taxable income accurately, and disbursing all payable taxes
within the stipulated period without having to wait for follow-up actions from the
authority. More specifically, Tax compliance issue is behavioral matter that can take two
forms, positive or negative compliance attitude. To this end, Gebrie (2006 p.230) noted
that tax compliance attitude is an assumption or principle that tax payers will comply
with tax laws and, more importantly, accurately report their income and deductions
honestly if they have positive compliance attitude and otherwise.
Mc Barnett (2003) classified compliance into three forms, committed compliance,
capitulate compliance and creative compliance. Committed compliance is the willingness
to discharge tax liability by taxpayer without grumbling. while capitulate, compliance is
the reluctant in discharging of tax obligations by taxpayer and creative compliance refers
to any activity under taken by tax payers to reduce taxes by taking advantage of
possibilities to redefine income and deductible expenditures within the confine of the
law.

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Other researcher Kirchler (2007) argued that compliance might be voluntary or enforced
compliance. Voluntary compliance is made possible by the trust and cooperation ensuing
between tax authority and taxpayers and it is willingness of tax the taxpayerto comply
with directives and regulations of tax office. Compliance is enforced on taxpayers who
are unwilling to pay their taxes through the threat and application of audit and fine.
Tax compliance has also been segregate into two perspectives, namely compliance in
terms of administration and compliance in terms technique. Administrative compliance is
made up of reporting compliance, procedural compliance and regulatory compliance and
it is generally concerned with complying with the rule relating to loading and payment of
tax. Whereas, technical compliance is concerned with meeting up technical requirement
of tax laws in computation of tax charge(Alabede et al 2011).
Franzoni (2000) and Chatopadhyay and Das Gupta (2002) stated that compliance with tax
laws involves true reporting of the tax base; correct computation of the tax liabilities;
timely filling of tax returns and timely payment of the amount due as tax. Somewhat
behavior by the taxpayer opposing to the above constitutes tax noncompliance. To this
end(Kirchler et al, 2007) stated the arrangement is put in place through tax system to
ensure compliance.
2.1.2. Theories of tax compliance
Theories about taxpayer compliance behavior, together with the decision whether to pay
or not to pay taxes, have a tendency to reflect one of five theories that can be mentioned
to as: economic discouragement theory; monetary exchange model; political
accountability theory; social influences theory; comparative treatment theory; and
discouragement theory (Odd-Helge F et al., 2013).
2.1.2.1.Monetary exchange theory
According to (Cowell and Gordon 1988; Tilly 1992;Moore 2004) the fiscal exchange
theory suggests that the presence of government expenditures may motivates compliance
attitude and that governments can increase tax compliance by providing goods that
citizens prefer in a more efficient and accessible manner. Alm et al. (1992) noted that

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compliance increases with the availability of public goods and services. Accordingly, the
main concern of taxpayers is what they get directly in return for their tax payments in the
form of public services from government.
In this stance, (Moore, 2004) taxation and the provision of public goods and services are
interpreted as a contractual relationship between taxpayers and the government.
Individuals may pay taxes because they value the goods provided by the government,
recognizing that their payments are necessary both to help finance the goods and services
and to get others to contribute Fjeldstad and Semboja (2001).
The survival of positive benefits may increase the probability that taxpayers will comply
voluntarily, without direct pressure. Even though most taxpayers cannot assess the exact
value of what they receive from the government in return for taxes paid, it can be argued
that they have general impressions and attitudes concerning their own others’ terms of
trade with the government (Richupan,1987). It is then reasonable to predict that a
taxpayer’s behavior is affected by his/her satisfaction or lack of satisfaction with his/her
terms of trade with the government. Consequently, if the system of taxes is perceived to
be unjust, tax evasion may take place which is be considered as an attempt by the
taxpayer to adjust his terms of trade with the government policy.
2.1.2.3. Social impact theory
Desta (2010, p. 21) The issue of non-compliance is not only the question of society
relationship but also between citizen and/ group of citizen social communities their
existing social bond between societies and that bond determines their decision whether to
pay tax or not. Additionally, (Snavely, 1990) tax compliance attitude towards the tax
system is affected by the behavior and social norms of an individual’s reference group.
In this scenario compliance behavior, may therefore be affected by the behavior of an
individual’s people in group such as relatives, neighbors and friends. Thus, if a taxpayer
knows many people in groups important to him who evade taxes, their commitment to
comply will become weaker. To this end, theoretic research on hard behavior in
economic situations Banerjee (1992) and Sah (1991) also indicates that social influences
may affect compliance, in particular by affecting the perceived probability of detection.

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2.1.2.4. Comparative behavior theory
This ideal is based on equity theory and assumes that addressing inequities in the
exchange association between government and taxpayers would result in improved
voluntary tax compliance.
Taxpayers may not consider their relationship with the government in an emptiness
where both parties are the only group of actors. Correspondingly, they may not think
about their fellow citizens without considering their own relationship with the state. They
may also consider how the state treats them relative to their associated citizens. As stated
by (D’Arcy,2011) this judgment is likely to affect not only their judgment of the state,
but also how they view their corresponding citizens. If the state treats certain groups
preferentially, this may shade the citizen’s relationship with the state and the group
receiving favors. A crucial variable is then not just what a person gets from the state, but
what the person gets from the state and how the state treats the person relative to those
who are in the person’s wider national community. This social psychology model
highlights the importance of equity theory in the study of compliance and taxpayer
behavior.
2.1.2.5 Political legitimacy theory
Lastly, according to the political legitimacy theory, tax compliance is influenced by the
extent that citizens trust their government (Tayler 2006; Kirchler et al. 2008; Fauvelle-
Aymar 1999). Legitimacy could be described as belief or trust in the authorities and work
for the common good. Political scientists have addressed how political legitimacy and
civic identification are adopted. African countries that upon independence emphasized

13
building national over ethnic identity have been more successful than those who allowed
ethnicity to become the main character of politics (Persson, 2008).
2.1.2.6 Economic deterrencetheory
Under this circumstance, (Allingham and Sandmo 1972; Becker 1968) in their study
states that taxpayer’s behavior is influenced by factors such as the tax rate determining
the benefits of evasion, and the probability of detection and penalties for dishonesty
which determine the costs. This implies that if detection is likely and penalties are severe,
few people will evade taxes. In difference, under low audit probabilities and low
penalties, the anticipated yield to high evasion. The classical then predicts considerable
noncompliance attitude of tax compliance of tax payer.
Even if the model has been criticized for focusing exclusively on the coercive side of tax
compliance, at the disbursement of the consensual (Sandom, 2005), there is some
evidence to support the relevance of deterrence strategies to addressing to non-
compliance behavior of tax payers. For instance, the fear of getting caught or the
probability of detection by audit has been found in some contexts to be an effective
strategy to encourage truthful behavior of tax payer. The theoretical beliefs of economic
deterrence have also been widely adopted by tax administrations when emerging
enforcement strategies that rely principally on penalties and the fear of getting caught by
tax payers which leads to tax compliance.
2.2 Empirical Literature Review
2.2.1 Empirical review of researches on determinants of tax compliance attitude
Different authors have tried to classify factors affecting tax compliance behavior of tax
payers in different ways among these Kirchler (2007) and Loo (2006) divided these
factors into five main parts, namely:
1) demographic factors (age, education & gender); 2) institutional factors (the role of the
tax authority, simplicity of the tax system and administration and probability of
detection); 3) social factors (perceptions of equity and fairness, political affiliation and

14
changes on current government policy, referent groups); 4) individual factors (personal
financial constraints, awareness of offences and penalties) and 5)Economic factors (
perception on tax rates, income level, tax audits and perceptions of government
spending). The division into these categories is based on in the way which approached to
tax compliance from an interdisciplinary perspective which represents a wider
perspective of tax compliance determinants compared to other researchers. But in current
study the researcher reclassified factors with some modification as follow:
2.2.1.1. Demographics factors
Age: Ages as demographic factor of tax compliance have been long researched by many
researchers and findings are difference along the different studies. For example, Tittle
(1980), warneryd and walerud (1982) and wahlund (1992) postulate negative
associationbetween tax compliance attitude and age; older people are less compliant. In
contrast, Dubin, Graetz and Wilde (1987), chung and trivedi (2003) andargued that age
was positively related with tax compliance behavior of tax payers. However, there have
been a significant number of studies which found no relationship between age and
compliance (Porcaro, 1988; Mohani 2001) also found that older people are more
compliant than young people. Tilahun and Yidersal (2014) determined that older people
comply less if there is no equity and fairness in tax and change in government policy.
Gender: some studies found that males are more compliant than females though other
studies revealed contradictory results or no significant difference at all. To this end,
Hasseldine and Hite (2003) found that female taxpayers were more compliant than males.
However, the study reported that males were more compliant compared to females when
a negatively framed message was used, and females were more compliant than males
when a positively framed message was used. In dissimilarity, Richardson (2006)
suggested that gender has no significant impact on compliance across a study of 45
countries.
Early research by Tittle (1980) tested the tax compliance level of males versus females
reports that females are more likely to tax compliance. Traditionally females’ taxpayers

15
identified with conforming roles, moral restraints, and more conservative life patterns”
Jackson and Milliron, (1986). Since they are known by respecting all cultural, religious,
community general rules and village values and norms all these attributes may promote
higher positive tax compliance attitude.
Education level: education as part of life of every citizen has its own impact on
voluntary compliance attitude. preceding literature supports the direct, positive
relationship between educational level and taxpayer compliance behavior (Jackson and
Miliron 1986). (Chan, Troutman, and O’Bryan,2000) also suggested that education level
is directly linked to a likelihood of compliance. Educated taxpayers may be aware of non-
compliance opportunities, but their potentiality is better understanding of the tax system
as gender levels of moral development promote a more compliance behavior. In contrary,
Amina and Saniy (2015) find out that education has no any impact on tax compliance
attitude of tax payers .Different literature reviewed about tax compliance issue showed
that tax compliance burning agenda in all countries in the world especially in developing
countries like Ethiopia, identifying factors affecting tax compliance become constructive
for policy makers and tax authorities so doing this research valuable for this purpose and
it is different from other researches because it focused on identifying factors influencing
tax payers’ voluntary compliance in the study area.
2.2.1.2. Institutional factors:
Even though taxpayers are influenced by their economic status either to voluntarily
comply with taxation or not to comply tax authorities of every country also has their own
on impact on voluntary tax compliance attitude of citizen. Because, if the organizational
efficiency of tax institutions may poor or good accordingly the attitude of the taxpayers
may be positive or negative towards them. The evidence suggests that institutional factors
also play vital role in their compliance decisions Palil, (2010). The institutional factors
that may have an impact on taxpayers’ compliance are perceptions of the efficiency of the
tax authority, the simplicity of tax return as tax system more generally as well as the
probability of being detected.

16
Role of the tax authority: For many aspects of tax compliance, there is an argument in
literature as to how the effective operation of the tax system by the tax authorities’ cans
influences taxpayers’ compliance behavior. The role of the tax authority in minimizing
the tax gap and increasing voluntary compliance is clearly very important. Hassel dine
and Li (1999) exemplified that tax compliance is 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 decrease tax evasion. Besides, the study of Richardson (2008) also
suggested that the role of a government has a significant positive impact on determining
attitudes toward tax.
The simplicity of the tax system: As cited in Amina and Sinay (2015); Silvani and Baer
(1997) discuss the importance of the tax authority having a simple tax return and system
from the taxpayers’ point of view. While the word ‘simple’ carries multiple
interpretations, at least the majority of taxpayers require that the tax return should be as
simple as possible. The tax authority may assume its tax return is simple and easy to
complete but it may not be from the taxpayers’ point of view.
In addition, Silvani and Baer (1997) again added that simplifying the tax return will
encourage tax payers to complete the tax return on their own rather than employing a tax
agent and thus reducing compliance costs as the main feature of SAS is self-completed
tax returns and taxpayers come from various levels of backgrounds, therefore,
simplifying tax returns and administration system because taxpayers do not have to spend
much time in ascertaining the accuracy of the returns and calculating their tax liabilities.
Other authors (Mohani, 2001;1998; Silvani and Baer, 1997) also stated that simplifying
tax administration is important because it can facilitate efficient and enhanced
administration and reduce costs. In line with this the researcher expects there will positive
relationship between tax compliance behavior and simplicity of tax system.
Probability of detection: probability of detection plays a significant role in reporting
behavior of tax payers. Taxpayers will declarethe whole thing if they perceive that they
will be one of the taxpayer to be audited in a particular year (Riahi-Belkaoui, 2004;
Richardson, 2008). On the other hand, Slemrod et.al (2000). (Slemrod, Blumenthal and

17
Christian (1998) investigated the relationship between the probability of being audited
and the taxpayers’ responses. The research conducted indicated that taxpayers’ behavior
varied with respect to level of income and the probability of being audited played a
significant role in determining taxpayers’ evasion attitude. However, the direction of the
relationship was not clearly stated by Slemrod et.al (1988). Bergman (1998) examined
tax compliance attitude in Argentina using extensive campaigns and audits which will
increase the probability of detection among individual taxpayers. The results
recommendedthat as the probability of detection increased, taxpayers are encouraged to
comply with tax laws and accurately report their income
2.2.1.3. Social factors
Besides to economic and social factors affecting tax compliance attitude of citizen social
life of taxpayers has its own impact on compliance attitude. To this end, Lemessa (2005)
stated that the issue of noncompliance is not only a question of state-society relationships
but also a question of relationship between citizens or groups of citizens within local
communities. There is an existing social bond between the society and this bond
influences the members of the society in complying with the tax. These factors are ethics
and attitudes toward tax compliance, perceptions of equity and fairness, changes to
current government policy and referent groups. That is taxpayers may be influenced by
their peer groups to have compliance attitude or not with the tax law. Thesefactors were
discussed in the following section:
Perceptions of equity or fairness: one of the main principles of the taxation system
design is equity or fairness, which can be perceived through three dimensional views
horizontal equity (people with the same income or wealth brackets should pay the same
amount of taxes), vertical equity (taxes paid increase with the amount of the tax base or
taxable income) and Exchange Equity (expectation the same share of public service from
government for paying tax) (Wallschultzky 1984; Richardson, 2006). The perceived
fairness of the tax system also has an influence on the inclination towards tax evasion
(Jackson and Milliron, 1986; Richardson, 2008). By understanding the importance of the
fairness criterion, the Ethiopian government has continuously given attention to the issues

18
of tax policy of the country pursuant to the structural changes. For instance, the tax
authority has reduced the top employment income tax rate and business marginal income
tax rate from 40% (from 1991 to 1995) to 35% (from 1995 to until now) and from 40%
(from 1991 to 1995) to 30% (from 1995 to until now) respectively, with six tax brackets.
This is for encouraging individuals to work more and to address the issue of vertical
equity besides, the dividend tax rate reduced from 25% to 10% to encourage private
sectors to participate in share companies (FIRA, 2002).
Changes to current government policies: political stability and the ruling party in a
country might play a significant role in determining tax evasion behavior. For instance, if
an individual favors the ruling party, he might choose to be compliant because he
believes that the government is trusted, efficient and equitable. Conversely, a taxpayer
from the opposition party might be more non-compliant because he perceives that the
government is not on his side. Studies have disclosed that the government decisions and
changes to policies in accordance with the economic and political situation have a
significant impact on compliance. For example, a positive move made by political
situation has a significant impact on compliance. For instance, a positive move made by
the government such as an increase in tax rebate (Hasseldine and Hite, 2003) is likely to
increase taxpayers’ compliance.
Referent groups: there are limited research regarding referent groups such as family
members and friends have significant impact that referent group on tax
complianceattitude of tax compliance. For instance,Ajzenand Fishbein (1980) (in their
Theory of Reasoned action (TRA) and Theory of planned Behavior (TPB) hypothesized
that referent groups play a significant role in determining people’s intentions and
behavior regarding tax compliance. Decisions either to evade or not to evade tax
sometimes are influenced by family members or friends (Allingham and Sandmo (1972)
although the extent of the influence was not clearly stated in this research. Therefore, the
influence of referent groups is seemingly important in making a decision, particularly
involving monetary aspects and the obedience to laws
2.2.1.4. Individual factors

19
Decisions regarding either to evade or not to evade taxes are heavily reliant on taxpayer’s
personal judgment (Mohani 2001). Personal circumstantial factors like personal financial
constraints and awareness of penalties and offences are therefore likely to have a
significant impact on taxpayer compliance behavior.
Tax knowledge: the influence of tax knowledge on compliance behavior has been
described in various researches. The education received by taxpayers is an important
factor that contributes to the understanding about taxation especially regarding the laws
and regulations of taxation (Eriksen and Fallan, 1996). Previous studies have evidenced
that tax knowledge has a very close relationship with taxpayers’ ability to comply (Singh
and Bhupalan, 2001).
Ermias (2014) studied impact of tax knowledge on tax compliance in case of Durame
town and point out that tax awareness has a significant impact on tax compliance even
though the level of tax knowledge varies significantly among respondents. Mesfin (2016)
concluded that taxpayers are not paying their tax obligation on time due to lack of
awareness about tax. Another study, done by Redae B. and pr. Sekhon (2016) Tigray
regional state in their study result indicated that tax compliance behavior of tax payers
influenced by tax payers’ tax knowledge.
Personal financial constraints: personal financial constraints are believed to have an
impact on tax evasion as financial distress faced by an individual and may encourage him
to prioritize what has to be paid first as basic survival needs such as (foods, clothing,
housing etc.) or where immediate demand on limited income is enforced for instance,
perceived threat of action from money lenders rather than tax liabilities. People who face
personal financial problems are likely to be more disposed to evade tax. when compared
to people with less financial distress (Mohani and Sheehan, 2004; Mohani, 2001).
Awareness of offense and penalties: a theoretical economic model introduced by
Alligngham and Sandmo (1972) has clearly indicated that penalties as well as audit
probability have an impact on tax compliance behavior. The higher the penalty and the
potential audit probability the greater the discouragement for potential tax evasion. If the

20
taxpayers are aware of the offences they are committing when evading tax and the
consequences of being non-compliant taxpayers, they might reduce their tendency to
evade tax.
2.2.1.1. Economic factors
Tax rate:The effect of tax rate on tax compliance is mixed. According to (white and
Woodbury (1985) raising marginal tax rates will be likely to encourage taxpayers to
evade tax more. Park and Hyu (2003) in their empirical study also find that the increase
in tax rate strengthens the incentive to report less income to compensate the reduced
income. Put similarly, they find a negative relationship between tax compliance and tax
rate. Another study in 1980 by Tanzi used an econometric model to explain the
relationship between marginal tax rates and noncompliance by using aggregate data in the
united states, demonstrated that tax rates were negatively correlated with tax compliance
according to his data.
Opposite to the view there are some researchers who found out there is positive
relationship between tax compliance and tax rate. For instance, Yitzhaki (1974) fined a
positive relation between the tax compliance and high tax rate. Alm, et al., (1995) in their
experimental research fined respondents to be more compliance when the tax rate was
increased.
Put differently, Porcano (1988) and Baldry (1987), in their study find out there is not
relationship between tax compliance and tax rate. From this it can be said that the
relationship between tax rate and tax compliance from most empirical studies is negative
Kirchlere al, (2007). In line with this, the researcher in current study assumed that there
may be negative relationship between tax rate and tax voluntary compliance behavior of
tax payers.
Income level: In most researches income level is classified as one of demographic factors
affecting tax voluntary compliance but in current study it classified as economic factor
because, income earning capacity of a Peron or corporate citizen is depending on

21
economic aspect citizens. Even if Jackson and Milliron (1986) found that income level
has a mixed and unclear impact on compliance, but they did not clearly too inconsistent
findings. For instance, progressive tax rates might encourage the higher income group to
evade rather than the lower income group because of high tax rates which makes their
taxable income high, consequently, making the tax liabilities much higher than lower
income group.
In a country where income redistribution is not satisfactory, the higher income group
tends to evade more Mohani, (2001). Because the high-income earner might feel
deceived and unfairly treated Loo (2006) originate that high-income earners in Malaysia
are prone to evading tax whereas Torgler (2007) reported that lower income earners in
Western Germany were less compliant.
Tax audits: According to Palil (2010), tax audit could be an important stimulant to
increase tax compliance. This indicates that tax audit influence tax compliance. Audits
rates and the diligence of the audits could encourage taxpayers to be more prudent in
completing their tax returns, report all income and claim the correct deductions to
ascertain their tax liability (Palil et al. 2011).
Tax audit increases tax compliance because of deterrent effect of audit on the
noncompliance of taxpayers. Some studies by (Jackson and JAoue (1989); Shanmugam
(2003); Dubin, (2004) claimed that tax audits have a positive impact on tax evasions.
These findings suggest that in self-assessment systems, tax audits can play the crucial
role to increase voluntary compliance. Frequencies and strictness of audits could
encourage taxpayers to be more prudent in completing their tax returns, reporting all
income and claiming the correct deductions to ascertain their tax liability. In contrast,
taxpayers who have never been audited might be interested to under report their actual
income and claim false deductions.
Put similarly, the researcher in current study assumed that there may be positive
relationship between tax rate and tax voluntary compliance attitude of tax payers.

22
Perceptions on government spending:Taxpayers and especially those who pay high
amounts of tax will be sensitive to what the government spends their money on. If the
government is wisely spending the national revenue, for example, for basic facilities like
education, health and safety and public transportation tax payers feel positive and comply
but, if it is spending too much on something considered unnecessary or unbeneficial to
them or general public, then taxpayers will feel betrayed and attempt to evade.
A tax is (Bhatia, 1976; James, 2000) a compulsory levy and those who are taxed have to
pay the sums irrespective of any corresponding return of services or goods by the
government. Government needs financial resources to act as a government and play a role
that is expected from it by the public. So, what the government gives it must first take
away. The economic resources available to society are limited, and so an increase in
government expenditure normally means a reduction in private spending.
To this end,(James,2000) states that taxation is one method of transferring resources from
the private to the public sector. The role of taxes as an instrument that stabilizes the
economy, and reduces private demand so that resources can be released for public sector
use.
Generally, governments levy taxes for multiple of purposes, but mainly to raise funds in
order to cover public expenditures and on the other hand to properly allocate resources.
So, for its function and essence, tax is fundamentally important for the existence of a
government and a nation. Hence, the taxes that governments levy have to be governed by
certain principles. The government should prudently spend taxpayers’ money because the
way in which the government spends the money produces different levels of compliance.
To this end,(Palil, 2010) stated that taxpayer’s perceptions are potentially important
factor determining their compliance behavior.
Based on the above review, in current study the researcher assumed that there may be
positive relationship between perceptions of government spending and tax voluntary
compliance behavior of tax payers.
Summary of literature review

23
Even though thehistoryoftaxationisasoldasthatofstate formation,stilltherearegapsinevery
nation,particularly developing countries likeEthiopiaasfarastaxcompliance attitude was
concerned. Has tax gaps because of negative compliance attitude of most business
income tax payers.
Hence,theunderstanding oftax compliance attitudethatis why people tend
tocomply(positive compliance attitude) andwhy they tempt toevade (negative
compliance attitude) and the force underlying non-compliance attitude, gives a clear road
map to the solution of this very serious problem to policy makers and tax authorities.
Different literature reviewed about tax compliance issue is the burning agenda in all
countries in the world especially in developing countries like Ethiopia, identifying factors
affecting tax compliance attitude become constructive for policy makers and tax
authorities so doing this research is valuable for this purpose and it is different from other
researches because it focused on identifying factors influencing tax payers’ compliance
attitude in tax payers’ perspective.

24
2.3. Conceptual Framework of Determinants of Tax Compliance
Attitude
Figure: 2.1 source: own construct (2017)
NB: The variable in the circle at the middle (tax compliance attitude) is
dependent variable and the other variables (economic, social, institutional,
individual anddemographic factors) that listed in the rectangles
surrounding the dependent variables are independent variables.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1. Descriptionof the Study Area
The study area, Gedeo zone is found in the South Nation Nationality and People Regional
State (SNNP) of Ethiopia. It is located in 369 km from Addis Ababa to south on Addis

25
Ababa-Moyale international road and 90 km from Hawassa (capital city of the regional
state). Gedeo zone lies approximately between 50 53’N to 60 27’N Latitude and from
380 8’ to 380 30’ East, Longitude. It is characterized by sub-humid tropical climate and
receives mean annual rainfall 1500 mm with range of 1200 and 1800 mm. The mean
monthly temperature is 21.50C with mean monthly maximum and minimum temperature
of 250C and 180C, respectively. The zone has a population of 847,434 consisting of 107,
79360.48 or 12.72% urban and 73964039.52 (87.28%) rural inhabitants. Moreover, of the
total population 424,742 are men and 422,692 women (CSA, 2007). Livelihood of the
people in the zone is also dependent on agriculture and livestock production. Gedeo zone
is one of the major coffee and enset producing zones of the region and the country.
Thezoneisboundedby areas like, DaraWereda of sidam zonetothe north, Oromia
regiontotheeast,westandtothe south.Its administrative map looks like the following:
Figure:3.1. Administrative map of the study area
3.2. ResearchDesign
A research design is the strategy for the study andthe plan by which the strategy out.
Accordingly, (Kothari 2004) stated research design is the arrangement of conditions for
the collection and analysis of data in manner that aims to combine relevance to the
research purpose with economy. It is the conceptual structure with in which research is

26
conducted constituting a blue print for the collection, measurement and analysis of the
data. In current study the researcher used cross-sectional survey research designwith a
quantitative approach.Because, as stated by (Abiy et al., 2009, P. 36)“in quantitative
research approach it is possible to develop and employ mathematical models, theories,
and hypotheses relating to natural phenomena. The process of measurement is central to
quantitative research since it provides the fundamental link between empirical
observation and mathematical expression of an attribute”. i.e., in this approach, the
research problem is transformed to specific variables and hypotheses to be tested
quantitatively.
3.3. Data type and Source
In this research both primary and secondary datawere used. Theprimary
datawerecollected by structured questionnaire from sample tax payers.The
Secondarydata were obtained from review of revenue administration offices annual
reports, journals, text books, other related researches in library and internet websites
etc.
3.3. Population of the Study
According to “Federal Income Tax Proclamation 979/2016”there are three categories of
business income taxpayers. These are category “A” taxpayers have an annual gross
income of Birr 1,000,000 and more, category “B” taxpayer, having an annual gross

27
income of Birr 500,000 or more but less than 1,000,000 and finally category “C”
taxpayers, having an annual gross income of less than Birr 500,000.
The researcher considered three categories of taxpayers as clusters then selected category
‘A’ business income taxpayers of out of three clusters using cluster sampling because in
scenario of selecting sample from clusters “the groups are termed clusters in this form of
sampling and can be based on any naturally occurring grouping.” (Saunders, et al.,2009,
p.230).
According to Gedeo Zone Revenue Authority first quarter report of the year 2016, there
were total of 1,069 category taxpayers “A “business income tax payers in all eight tax
payers’ geographical residing areas such as (8 taxpyers in Bule wereda), (45 in
Dilla Zuria), (49 in Gedebe), (39 inYergachefe), (39 in Wongo) and (103 in
chochore), (657 in Dilla i.e., 16 at zone level and 641 in town administration) and
(129 taxpayers in Yergachefe twon) respectively which considered as study
population.
3.5. Samplingtechniques and sample size of the study
According to Kumar (2005, p.164) sampling is the process of selecting a few (a sample)
from large group (the study population) to become the basis for estimating or predicating
the prevalence of an unknown piece of information, situation or outcome regarding the
total population.
Todeterminethesamplesize fromtotal tax payers in the Zone,mathematicalformula of
Yamane (1967) was used bytakingintoaccountthetotal population,the sampling
errorandthe levelofreliability. Itisassumedthatthe sample would have95% reliability about
population and a sampling error was 5%. Thissimplestformulais: -
𝑛 = 𝑁/1 + ( 𝑒)2
∗ 𝑁
Where N= study population, n = sample size and e = error margin

28
Accordingly, sample was first determined from total target population by formula
of Yamane (1967) as follow:
291 = 1,069/1+ (0.05)2
∗ 1,069 and then to randomly select sample from eight each
area, the following formula of (Israel, 1992) was also used by the researcher and showed
in the following table 3.1. This is:
𝑛ℎ = ( 𝑁ℎ/𝑁𝑠) ∗ 𝑛
Where, nh = sample size from each site, Nh = total population in each area, Ns =
target population and n = sample size from target population.
Table 3.1 Determination of sample size from each area by applying formula
Sampling site Population ofeach site Sample size Calculations Samplesize from each site
Bule wereda 8 (8/1,069) *291 2
Dilla Zuria wereda 45 (45/1,069) *291 12
Gedebe wereda 49 (49/1,069) *291 13
Yergachefe wereda 39 (39/1,069) *291 11
Wonago wereda 39 (39/1,069) *291 11
Chochore wereda 103 (103/1,069) *291 28
Dilla town 657 (657/1,069) *291 179
Yerigachefe town 129 (129/1,069) *291 35
Total 1,069 (1,069/1,069) *291 291
Source: Author design (2017)
Therefore, the maximum sample sizefrom categoryA business income taxpayer was 291
taxpayers. The logic behind using clusterprobability sampling technique to select sample
form three clusters give equal chance to the alltaxpayers three categories and to select
representative sample for the study.
3.6. MethodsandProcedures of data collection

29
Inthisresearch, the researcher used both primary and secondary data. To collect
primary data structuredquestionnaireswere usedtocollectprimarydata
fromsampletaxpayersof the study sites. The questionnaire was prepared in both Amharic
andEnglish languages that helps to reduce language understanding barriers. The
questionnaires were adopted and developed with some modification from previous
similar studies such as (Pali (2010); (Tillahun and Yiedersal) (2014); (Niway and
Wondwossen (2016). Closeended questionnaires wereprepared in the formof likert-scale,
from lower probability to higher probabilityto make it easier for understanding, reduce
confusion inreading and answering the questionnaire by respondents.
The Secondarydata were obtained from review of revenue administration offices
annual reports, journals, text books, other related researches in library and internet
websites starts from very beginning to define terms, develop ideas, theories and
empirical literature review and development of conceptual framework of the study.
Then, total of 291 questionnaires were distributed to respondents by trained enumerators
under the supervision of the researcher.
3.7.Modelspecification
Tax compliance attitude is discrete random variable and dummy in nature that could be
measured through logit or binary logistic regression model. Accordingly, the researcher
has developed the model by driving logit function from odds ratio and incorporated

30
fourteen explanatory variables which disclosed as follows: COM is Function of [GEND,
AGE, EDUC, TAU, SIM, PFE, TAE, TKLDGE, PTR, and APEN]. Hence, the
researcher has developed the logistic regression model to achieve the objective of this
study.
Logistic regression is one of binary choice models (or dichotomous models), which is
designed to model the ‘choice’ between two discrete alternatives. This model essentially
describes the likelihood of observing success event (Y_i=1) is directly depends on
observed explanatory variables which are exogenous to the model. Tax compliance issues
is the two kinds attitude matter in its nature; tax payers may comply (compliant) or (non-
compliance).Taxpayers are assumed to be compliant if they assess themselves by
reporting their correct taxable income to tax authority (at right time, place, correct
amount and in appropriate manner) without any legal enforcement and it is their
willingness to comply with directives and regulations of authorities. In contrary,
taxpayers may have negative compliance attitude if they are enforced by tax authority on
thosewho are unwilling to pay their taxes at right time, place, correct amount and
incorrect manner through the threat and application of audit and fine. Therefore, based on
the above theoretical concept, the researcher developed the model.Since, dependent
variable, (i.e.,tax compliance attitude) is a binary outcome (dichotomous) variable and
treated as qualitative data and the researcher assumes one (1) for positive compliance
attitude, otherwise zero (0).For this data, logistic regression is appropriate model to
measure how explanatory variables (determinants of tax compliance attitude) affect
individual’s likelihood of having positive compliance attitude or negative compliance
attitude. Because the binary result variables violate some assumptions of linear regression
models such as (heteroskedastic and non-normal). The Logit function can be derived
from odds rations:
𝐥𝐨𝐠( 𝑶𝒅𝒅𝒔𝒓𝒂𝒕𝒊𝒐) = 𝐥𝐨𝐠 (
𝑺𝒖𝒄𝒄𝒆𝒔𝒔
𝑭𝒂𝒊𝒍𝒖𝒓𝒆
) = 𝒍𝒐𝒈 (
𝒚 𝒊=𝟏
𝒚 𝒊=𝟎
) = 𝜷 𝟎 + 𝒙𝒊′𝜷…………………. (3.1)
Where, 𝒚 𝒊 = 𝟏represents an individual “𝐢” is being compliant attitude (success), 𝒚 𝒊 =
𝟎represents an individual “𝐢” is being non-compliant (failure), 𝒙𝒊 is column vector of

31
explanatory variables (GEND, AGE, EDUC, TKLDGE, SIM, PFE, TAU, APEN, PTR,
and TAE,𝜷 is column vector of parameters (coefficients) to be estimated and 𝜷 𝟎 is the
intercept term. Equation (3.1) shows that natural logarithmic form of odds ratio depends
on observed explanatory variables.
Equation (3.1) can also be expressed in terms of probability:
𝒍𝒐𝒈 (
𝑷(𝒚 𝒊=𝟏)
𝑷(𝒚 𝒊=𝟎)
) = 𝒍𝒐𝒈 (
𝑷(𝒚 𝒊=𝟏)
𝟏−𝑷(𝒚 𝒊=𝟏)
) = 𝜷 𝟎 + 𝒙𝒊′𝜷…………………………………… (3.2)
Where, 𝑷(𝒚 𝒊 = 𝟏) is the probability of having positive compliance attitude and 𝟏 −
𝑷( 𝒚 𝒊 = 𝟏)is the probability of having negative compliance attitude. The stochastic
version of equation (3.2) can be formulated by adding disturbance error term:
𝒍𝒐𝒈 (
𝑷(𝒚 𝒊=𝟏)
𝟏−𝑷(𝒚 𝒊=𝟏)
) = 𝜷 𝟎 + 𝒙𝒊
′
𝜷 + 𝑼 𝒊 …………………………………………………. (3.3)
Where, 𝑼 𝒊 is stochastic error term which represents all unobservable factors of tax
compliance, and this model shows that odds ratios is not only depends on variables
incorporated in the model but also other factors which are not included in the equation.
By taking exponential (antilogarithm) both side of equation (3.3) and rearranging it we
have logistic function as follows:
𝑷( 𝒚 𝒊 = 𝟏)
𝟏 − 𝑷( 𝒚 𝒊 = 𝟏)
= 𝒆𝒙𝒑( 𝜷 𝟎+𝒙𝒊
′
𝜷+𝑼 𝒊)
𝑷( 𝒚 𝒊 = 𝟏) = (𝟏 − 𝑷( 𝒚 𝒊 = 𝟏))𝒆𝒙𝒑( 𝜷 𝟎+𝒙𝒊
′
𝜷+𝑼 𝒊)
𝑷( 𝒚 𝒊 = 𝟏) =
𝐞𝐱𝐩(𝜷 𝟎+𝒙𝒊
′
𝜷+𝑼 𝒊)
𝟏+𝐞𝐱𝐩(𝜷 𝟎+𝒙𝒊
′
𝜷+𝑼 𝒊)
………………………………………………… (3.4)
Equation (3.4) describes that the probability of being positive compliant attitude depends
on observed exogenous variables. This probability is positive and limited between 0 and
1 because the underlying model follows logistic distribution. The predicted probability of
positive taxcompliance attitude therefore can be expressed as:

32
3.8.Descriptionof variables and their scale of measurement
From the theoretical and empirical literature, traditional observable characteristics that
may influence the probability of having compliance attitude of tax payerswere
summarized with their respective unit of measurement in table 3.2below
Table 3.2Variables and their description
Variables Symbol Unit of measurement Expected sign/Hypotheses

33
Dependent variable
Tax compliance attitude COM Nominal
Explanatory variables
Gender of respondent
GEND
Nominal
+ (female taxpayers are compliant than
male taxpayers)
Age of respondent
AGE
ordinal
+ (high the age of tax payer,
Positive compliance attitude)
Education status of taxpayers
EDUC
ordinal + (high Education level, more positive
tax compliance attitude of tax payer)
Probability of being audit
TAU
Continuous + (high probability of being audit, high
positive tax compliance attitude)
Perception Simplicity of tax
system
SIM
Continuous
+ (high simplicity of tax system,
high the probability of having positive
tax compliance attitude)
Perception on fairness and equity
PFE
continuous
+ (positive perception on fairness of tax
system,high the probability of having
positive tax compliance attitude)
Organizational efficiency of tax
authority Tae
nominal + (high organizational strength,
high positives compliance attitude)
Tax knowledge of tax payers
TKLDGE
nominal
+ (high tax knowledge of tax of tax payer
up on attending taxeducation, high the
probability of having positivetax
compliance attitude)
perception on tax rate structure
PTR
nominal
- (negative perception on existing
tax rate high the probability of
having negative tax compliance
attitude
Awareness on Penalty for tax
evasion
APEN
Continuous
+ (high awareness on penalty for tax
evasion, high the probability of having
positivetax compliance attitude
Source: own construct, (2017)
3.9. Methods of data Analysis
After accomplishment of data collection procedure, it should have classified as per each
variable, the qualitative data was coded to be measured quantitatively. In this research
data, were analyzed by descriptive statistics such as maximum and minimum values,
average, correlation, frequency, percentage, variance and standard deviation and
inferential statistics (logistic regression) by the help of Stata Software package version 12
in order to get the reliable finding.
CHAPTER FOUR

34
DATA ANALYSIS AND DISCUSSION OF THE
RESULTS
4.1. Introduction
This chapter deals withanalysis of the data that was collected through
structuredquestionnaire from sampledcategory “A” taxpayers of the Gedeo Zone. To this
end, the researcher distributed total of two hundred ninety-one (291) questionnaires, from
which 2, 12, 13, 11, 11, 28, 179 and 35 questionnaires werer distributed to Bule,
DillaZuria, Gedeb, Yerirgachefe,Wonago, Chochere weredas and Dilla and Yerigachefe
towons respectively to collect adequate data that helps toeffectively undertake the study.
Out of the291 questionnaires distributed, except (2 questionnaires from DillaZuria
wereda), (3 from Gedeb wereda), (7 from Dilla town), (4 from Chochere wereda), and 5
Yirgachef town two hundred seventy (270) questionnaires were correctly filled and
returned. This implies that the response rate of the researchwasninety-two-point seventy-
eight percent (92.78%) which indicates most respondents were participated in the process
of data collection. Then, the data analysiswas done using the statistical software
application named Stata version 12 based on two hundred seventy (270)
questionnairescollected as follow:
4.2. The Result of Descriptive Statistics
4.1.1Characteristics of The Respondents
Table 4.1.Characteristics of The Respondents

35
Gender of the respondents Frequency Cumulative
Frequency
Percentage
Male 155 155 57
Female 115 270 43
Total 270 100
Age category of respondents Frequency Cumulative
Frequency
Percentage
Less than 30 73 73 27.03
31 to 40 100 173 37.04
41 to 50 63 263 23.33
50 years and above 34 270 12.59
Total 270 100.00
Educational status of respondents Frequency Cumulative
Frequency
Percentage
No formal education 27 27 10.00
Primary school education 70 97 25.93
Secondary school education 106 203 39.26
College diploma completed 43 246 15.93
Degree and Above 24 270 8.89
Total 270 100.00
Source: own survey (2017)
As shown in table 4.1 above the gender of the respondents shows 155 (57 percent) male
business owners and 115(43 percent) females. This implies the ratio of male business
owners to female is relatively high in the study area. This due to fact that in most
developing countries, especially Ethiopia males are more income earners and
participating in any types of business activities than female’s due to cultural influences
on females that hinders to participate in business and other productive activities.
With regarding to age of the respondents, 73 tax payers (27 percent) lies in age category
of (below 30), 100 respondents (37.04 percent) are ranges (31-40);63 (23.33 percent (41-
50) and 12.59percent (34) 50 age above. This implies that most tax payers are fall in
productive group which is relatively higher than other age category.

36
The education level factor of the respondents as shown in table 4.1 above 10 percent of
respondents have no formal education; 25.93 percent have attended the primary school
education; 39.26 percent have completed secondary school education; 15.93 percent of
the respondents have college diploma and 8.89 percent of the taxpayers have degree and
above. This displays that more of the respondents have completed primary and secondary
school education while, 10 percent and 8.89 percent of taxpayers’ have no formal
education and degree and above respectively. This shows that even if less percentage of
respondents have degree and above about 90 percent have attended formal education.
4.2.2 Type of Business and Year of experience
Table 4.2 Business activities in which the taxpayers participated
Business type Frequency Cumulative
Frequency
Percentage
Manufacturing 37 37 13.7
General merchandising 153 190 56.67
Service delivering 60 250 22.22
Agro-processing 20 270 7.41
Total 270 100.00
Business doing experience in
years
Frequency Cumulative
Frequency
Percentage
Less than 2years 39 39 14.44
3 to 5 years 96 135 35.56
6 to 9 years 84 219 31.11
More 10 years 51 270 18.89
Total 270 100.00
The table 4.2 above shows that about 13.7 percent of respondents were participated in
Manufacturing;56.67 percent of taxpayers are participated in general merchandising
(22.22 percent) were participated in Service delivering, and 7.41 percentwere participated
agro-processing respectively. As it is showed more than half of the respondents (56.67)
are dominantlyparticipated merchandising followed by Service 22.22 percent whereas,
very small percentage of respondents’ 7.41 percent inagro-processing and followed
13.7percent in manufacturing sectors of economic activities respectively. This is due to

37
fact that economic activities of developing countries in which business entities
participates especially,Ethiopia is more dominantly based on merchandising and Service
type of business activity and less at manufacturing.
As it can be seen from the above table 4.2shows the year of experience in which the
taxpayer stayed in doing their current business activity. Most respondent’s (85.56
percent) have year of experience three and above five years while less respondents’ year
of experience (14.44 percent) Less than 2years of experience. This implies that they may
have good experience in paying their tax liability and if successive work become better
the good result may have obtained because as year of experience their understanding
about taxation.
4.2.3. Taxpayers general knowledge about taxation
Table 4.3.Taxpayers general knowledge about taxation
Reasonwhy tax payers pay tax Frequency Cumulative
Frequency
Percentage
To avoid disturbance 43 43 15.92
In the anticipation of public service (to support
developmental projects done by gov’t
80 123 30.00
There is no opportunity to evade 25 148 9.26
It is an obligation towards the government 48 196 17.78
Tax liability is my citizenship responsibility 74 270 27.04
Total 270 100.00
The table 4.3 shows that when tax payers were asked about why they pay tax, total 74.82
percent of respondents have positive understanding about taxation of which (30 percent)
responded that they pay tax in the anticipation of public service, (17.78percent) said that
taxis an obligation towards the government, (27.04 percent) of tax payers were responded
that tax liability is their citizenship responsibility. This indicates that there is the positive
understanding about why business people pay tax and if the following works are done
probably the positive outcomes can be obtained. Whereas, few respondents
(25.18percent) out of which(15.92 percent) said that they pay tax to avoid disturbance
and (9.26 percent)responded that they pay tax they have no opportunity to evade which is
negative understanding about why citizen pays tax. From this concept, it can be

38
anticipated that these tax payers have negative understanding about why they pay tax
since their response on why they pay is negative.
4.2.4Summary statistics onvariables incorporated in the model
This part of descriptive analysis which summarizes the variable distribution of total
sample observation, mean, standard deviation, maximum and minimum values of total
responses.
Table 4.4: Summary statistics of the dependent variable and independent variables
Variable name Obs Mean Std. Dev. Min Max
COM 270 0.637037 0.4817472 0 1
GEND 270 0.5740741 0.4954008 0 1
AGE 270 2.214815 0.9822604 1 4
EDU 270 2.877778 1.078631 1 5
TKLDG 270 0.2851852 0.452341 0 1
SIM 270 3.401111 0.8465027 1 5
PFE 270 3.193037 0.7407845 1 5
APEN 270 3.105333 0.812367 1 5
TAU 270 3.088407 0.7848586 1 5
PTR 270 0.5888889 0.492949 0 1
TAE 270 0.4296296 0.4959425 0 1
Source: questionnaire (2017)
With regarding to tax compliance attitude (dependent variable), it was measured by
nominal scale through seven logically stated hypothetical questions based on work of
Pillal (2010) and Tillahun and Yiedersal (2014) with some modification of 1 to 4 Likert
scale from very lower probability to very higher probability. The responses from
ranges(1=strongly disagree) to (2 = disagree),were considered as (negative compliance
attitude and represented by 0)whereas, the responses ranges from (3= agree) and (4=
strongly agree)} were considered as of positive compliance attitude and represented by 1.
The reason for not including neutral as measure of attitude is thatas cited in (Kwok, 2012,
pp. 125)the neutral response option enabled people who were ignorant about or indifferent

39
to anissue to select no opinion or neutral instead of being forced to choose a response that
did not reflect their true beliefs (Johns, 2005).
Accordingly, the summary statistics table shows approximately 64 percent of sample
have positivecompliance attitude while the reaming 36 percent of total sample have
negative compliance attitude (see table 4.4). To estimate unknown population parameter
(the population mean) at 95% confidence level with 1.96 Z critical valuewill fall within
sample mean plus or minus z critical value multiplied by sample standard deviation
divided by square root of sample observation(n) or X ± 1.96 ∗ 𝑠/√𝑛 ).Hence, it was
determined by the formula, xx
ZXZX   to estimate the class interval of
population mean (µ). Therefore, the estimate can be given as,
xx
XX  96.196.1  . That can be calculated as: 0.637037 ± 1.96 ∗
(0.4817472/√270)Therefore, unknown population mean(µ) will lie in the class interval
from 0.579573327 to 0.694500673 orit can be decided that, at95% confidence level the
class ranges from 0.579573327 to 0.694500673 contains the population mean of positive
compliance attitude.
When it comes to explanatory variables incorporated in the study such as gender, age,
education status, tax knowledge, simplicity of tax system, perception on fairness and
equity, awareness on penalty, probability of being audit, perception on tax rate and tax
authority efficiency were discussed as follow:
The gender of respondents as one explanatory variable which is dummy variable
considered as (female respondent = 0) and male = 1) was already displayed in table 4.4
above showed that 57 percent of sample is males and the reaming 43 percent are females.
This implies that more than half sample observation or majority of respondents were
male tax payers.
The age of the respondents as independent as can be observed in the table 4.4 given the
average value of the age was 2.214815 which indicates the majority age of the
respondents falls within age interval of 31 to 40 and above years because it was coded as

40
(< 30 years = 1), (from 31 to 40 = 2), (41 to 50 years =3) and >50 = 4) to enter in to Stata
for analysis purpose. This conveys the majority of business income tax Payers were lie
productive (working) age in which citizen accumulates more wealth as much as possible
means if ability to work is more, the tax payers have capacity to generate or earn more
income and pay more business income tax to the government.
Education level of tax payers was also measured by ordinal scale that ranging education
status of respondents as (no formal education = 1), (primary school education =2),
(secondary and preparatory school education = 3), (TVET and college diploma =4) and
(first degree and above = 5). The average value of education level as showed in the above
table 4.5 was 2.877778 ≅ 3 indicates that majority of respondents have completed
secondary and preparatory school education. From this it can be discussed as the morality
of most tax payers may not more developed by education since their education status
were more concentrated on secondary and preparatory school and lower at degree and
above.
Tax knowledge of tax payers(TKLDG) as on the explanatory variables affecting tax
voluntary compliance attitude was measured on nominal base as dummy variable
represented by 0 = if tax payer attended tax education or training given tax authority and
represented by= 1 if tax payer has not attended tax education or training given tax
authority. The average of yes or no question was showed in the above table was
0.2851852 means the ≅ 29 percent of respondents were not attended the tax education
but the reaming 71 percent of the population were attended the tax education. This
implies that the majority of sampled profitable income tax payers tax obtained the
training provided by tax authority to enhance the awareness level of tax payers
concerning significance of tax in economic development of the country.
The simplicity of tax system (SIM) as factor affecting tax voluntary compliance attitude
was measured by nominal scale by five Likert scale from lower probability to higher
probability {(strongly disagree =1), (disagree =2), (neutral = 3), (agree = 4) strongly
agree =5)} the average six questions displayed in the above table 4.4was 3.401111 which
lied more than three. This indicates that majority of respondents stated their agreement

41
statements more than strongly disagree and disagree and implies that tax payers have
positive perception on simplicity of the tax system.
Along that line, perception on fairness and equity of tax system(PFE), was also measured
on the same base and showed in the above table implies that on average the agreement or
disagree was approximately which was falls around 3 the value of neutral that is neither
positive nor negative but indirectly will negative perception because not putting
agreement or being neutral in human behavior in a given situation by itself is negative
attitude of tax payer. Then awareness on penalty for evading tax on similar base of
measurement also showed in the above table 4.4 indicated that the average value is more
than three which implies taxpayers has more awareness on penalty. Accordingly, it
implied that more the awareness of respondents on penalty for evading tax liability, more
positive their voluntary compliance attitude of tax payers.
Besides, probability of being audit by tax authority(TAU) as one explanatory variable
that affecting tax compliance attitude of business income tax payers measured by the
scale of measurement with simplicity, perception on fairness and equity and awareness
on penalty and have average value of more than three which indicates that more
respondents have stated their positive agreement on questions asked to measure the
probability of being audit. This conveys that more the probability being audit of business
income tax payers by tax authority, good their voluntary compliance attitude.
With regarding to perception on tax existing tax rate(PTR) which one of the factors
affecting tax compliance attitude, it was measured by two questions which designed on
Likert scale {(1= strongly disagree), (2 = disagree), (3 = neutral), (4= agree) and (5=
strongly agree)} the response from strongly disagree to disagree were considered as
proxy to positive perception and represented by 1 and the response from agree to strongly
agree were taken as negative perception and represented by 0. The above table shows
that about 59 percent of sampled respondents have positive on existing tax rate and the
reaming 41 percent of respondents sampled has negative perception on existing tax rate.
This implies that majority of respondents had positive perception on tax rate.

42
Lastly, organizational strength of the tax authority(TAE) is measured by taking in to
account (service delivery capacity, tax collection, awareness creation and enforcement of
tax law) on ordinal scale basis from lower to higher probability (extremely poor =1),
(poor =2), (good = 3), (very good = 4) and excellent = 5) the responses such as
(extremely poor =1 and poor =2) were considered as poor efficiency and represented by 0
and the rest of responses such as (good = 3, very good = 4 and excellent = 5) were as
proxy for good efficiency and represented by 1. The average value of good efficiency as
already in the above table 4.4 showed approximately 43 percent that the tax authority
efficiency is good while the remaining 57 percent of sampled tax payers responded that
tax office’s efficiency in four aspects was poor. This indicates that the current tax
authority is poor and needs some improvement.
4.2.5The cross-tabulation value for dependent variable with each ten
independent variables incorporatedin the model
Table 4.5: Cross table value of gender and tax compliance attitude
Source:questionnaire (2017)
The above table 4.5 shows that out of 115 total female tax payers 85 (74 percent) have
positivecompliance attitude and the reaming 26 percent have negative tax compliance
attitude. When it compared with male respondents out of total 155 male respondents 87
or only 56 percent tax payers have positive voluntary compliance attitude and the
reaming 44 percent has negative voluntary compliance attitude. This indicates that
fromtotal business income tax payers more have positive compliance attitude than male
tax payers. (Females tax payers are more compliant than male tax payers).
Tax compliance attitude Female Male Total
Negative compliance attitude of tax payers 30 68 98
positive compliance attitude of tax payers 85 87 172
Total 115 155 270

43
Table 4.6: Cross tabulation value of age of respondents with tax compliance attitude
Source:questionnaire (2017)
Form above table 4.6 the comparison of compliance attitude among age categories were
shown. In the first age category (less than 30) out of 73 respondents only 35 (48 percent)
have positivecompliance attitude and the reaming 38 (52 percent) have negative
voluntary compliance attitude, from second age class from (31 to 40) out of total (100)
tax payers in this age class 66 respondents (66 percent) have positive voluntary
compliance attitude and the outstanding 34 percent have negative compliance attitude,
followed by age class of (41 to 50) years out of total 63 tax payers around 44 (70 percent)
have positive compliance attitude but the residual 19 (30 percent) have negative
voluntary compliance attitude and for age class above 50 years old out total 36
respondents lied in this class 27 (75 percent) have positive compliance attitude while the
outstanding 7 taxpayers (25 percent) have negative compliance attitude. This implies
that as age of tax payers’ increase, the positive compliance attitude of tax payers’
increases and negative compliance attitude decrease. Because compliance attitude
increased from 48%, 66%, 70%, 75% and decreased from 52%, 33%, 30%, 25% in age
class less 30, 31 to 40,41 to 50 and above 50 age class respectively. This means more
increase in age of taxpayer leads to more the increase.positive compliance attitude of tax
payers in the study area.
Tax compliance attitude Less than 30 31 to 40 41 to 50 Above 50 Total
Negative compliance attitude 38 34 19 7 98
positive compliance attitude 35 66 44 27 172
Total 73 100 63 36 270

44
Table 4.7: Cross tabulation value of education level of respondents
As displayed in the above table 4.7 the non-compliance attitude is higher for respondents
with no formal education than compliance attitude because out of 27 respondents that
have no formal education 15 (56 percent) have negative compliance attitude and the rest
12 respondents (44 percent) but tax voluntary compliance attitude increases as education
for tax payers that have formal education because70%, 66 %,63%, 58% positive
compliance attitude and (30, 34%, 37%, 42% negative voluntary compliance attitude for
primary,(secondary or preparatory school), (TVET or College diploma) and first degree
and above respectively. This implies that positive compliance attitudelevel was better for
tax payers who have formal education than those who have no formal education level but
negative compliance shows some increment that means positive tax compliance attitude
decreases as education level status of respondents increases and otherwise. This show
some reverse direction with compliance attitude
Tax
compliance
attitude
No formal
education
Primary
school
completed
secondary and
preparatory
school
completed
TVET
certificate
or college
diploma
First
degree
and
above
Total
Negative
compliance
attitude
15 21 36 16 10 98
positive
compliance
attitude
12 49 70 27 14 172
Total 27 70 106 43 24 270

45
Table 4.8: Cross tabulation value of tax knowledge of respondents
The above table 4.8 the proportion of tax payers that attended tax education (71%) was
higher than the tax payers that have not attended tax education (29%) and also the same is
true to their compliance attitude that showsthat respondents attended tax education that
provided by tax authority to tax payers have more positive compliance attitude than those
that do not attended tax education because tax knowledge of the respondents will have
increased as result of attending taxeducation. The positive tax compliance attitude of tax
payers was 73 percent but only 40 percent for respondents that not attended tax
education. This indicates that tax education has positive impact on tax compliance
attitude of tax payers.
Table 4.9: Cross tabulation value of simplicity of tax system
Source:own survey (2017)
It is obvious that simple the tax system, more it is to understand and follow to every tax
payer. Accordingly, the table 4.9 above shows that tax voluntary compliance attitude was
low at average value of less than three which was (23%) percent and (77%) percent at
average value of greater or equal to three. This means higher the value of agreement on
Tax compliance attitude Attended tax
education
Not attended tax
education
Total
Negative compliance
attitude
52 46 98
positive compliance attitude 141 31 172
Total 193 77 270
Tax compliance attitude Average value of less
or equal to three
Average value of
greater three
Total
Negative compliance attitude 48 50 98
positive compliance attitude 15 167 172
Total 63 217 270

46
positive questions about the simplicity of tax system, the simple the tax system and the
simple the tax system leads to higher positive compliance attitude. In other words, more
the tax system was simple more voluntary compliance attitude of tax payers because it
may essay to understand, follow fill the tax forms, less time to calculate tax liability and
self-assess which leads tax payers to report correct income tax out of their taxable
income. Furthermore, it conveys that simple the taxation of the country, more it boosts
the positive voluntary compliance attitude of tax payers.
4.2.4.6. Cross tabulation value of perception on fairness and equity in tax system
and compliance attitude
Table 4.10: Cross tabulation value of perception on fairness and equity in tax
system
It is known that fair the taxation and based on ability to pay principle, it will easy to
comply by citizen of the country. In line with this, the above table 4.10 displayed that less
the agreement on positive question asked about the, more the negative attitude on fairness
and equity in tax system but in this research respondents has negative attitude on equity
and fairness of tax system in general. Because, out of respondents have answered less
than or equal to three (63 percent) have voluntary compliance attitude and (63 percent)
Tax voluntary
compliance
attitude
Average value of less or
equal to threeon perception
on fairness and equity
Average value of greater
than three on perception of
fairness and equity
Total
Negative
compliance
attitude
30 68 98
positive
compliance
attitude)
53 119 172
To 83 187 270

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