Determinants of Tax Compliance Behavior: A Case Study in Ethiopia

Abstract

Policymakers and tax authorities in developing countries face challenges in comprehending the determinants of tax-compliance behavior. This study employs empirical investigation to explore the factors that influence taxpayers’ voluntary and enforced tax compliance behaviors. Data were collected through a survey questionnaire distributed to 400 taxpayers using simple random sampling and analyzed using an ordered logit model. The results validate the assumptions of the slippery slope framework, showing that trust significantly impacts voluntary tax compliance and that a strong tax authority’s power contributes to more enforced tax compliance in Ethiopia. Additionally, the interaction between trust and power has a more significant effect on enforced tax compliance. This study also emphasizes the importance of improving trust in increasing tax compliance. Moreover, factors such as equity, fairness, tax knowledge, effective tax usage, and taxpayer morale contribute to tax compliance. By identifying factors that contribute to tax compliance, the findings of this research provide valuable insights for tax authorities in Ethiopia and other developing countries in devising strategies to combat tax evasion. This includes implementing a fair tax regime, enhancing the perceived value of public services financed by tax payments, increasing tax knowledge activities to help people understand the importance of paying taxes, and fortifying frameworks to minimize extravagant spending for maintaining public trust and ensuring effective and efficient use of taxpayers’ money.