Determinants of tax compliance: the case of jimma town

Abstract

This study was conducted with the aim of identifying the determinants of tax compliance in Jimma town. The target populations of the study were category B taxpayers of Jimma town which were 1143 in number. A sample of 288 category B tax payer was taken using proportional stratified sampling followed by random sampling from each strata. The' category B taxpayers were stratified into merchandise (retailer and wholesaler), service sector and manufacturing (process) according to their field of work. By distributing a total of 288 questionnaires to Category B sample taxpayers of the town, the study tried to explore the main determinants of tax compliance and how these determinants are related with tax compliance. Tables, graphs and charts were used to present the result of the analysis. Pearson correlation matrix and Logistic regression model was used to identify the main factors that determine tax compliance. The findings of the study shows that tax rate, probability of detection, penalty rate, reference group and tax knowledge are significant determinants of tax compliance. In general, it is recommended that the tax authority and other responsible bodies; to increase taxpayers' awareness which help to enhance the level of voluntary compliance of taxpayers, evaluate the detection method, analyze and evaluate the taxation system in order to investigate the loopholes. This will help to enhance the level of compliance which helps taxpayers to comply voluntarily through all possible ways.