Evaluation of Ethiopian Tax Administration System: emphasis on taxpayer compliance

Abstract

Voluntary compliance with tax laws of taxpayers is believed to be shaped by two major streams of factors: economic and social-psychological. Many countries of the world including Ethiopia try to emphasize the economic deterrence approach in which the belief is that taxpayers pay taxes only because they fear audit and the subsequent sanctions. The social-psychology approach to taxation, on the other hand, takes the position that taxpayers’ (non)compliance decision is influenced by justice perception, how they value government expenditure, how they feel they are treated by the revenue authority, and so on. In this study we concisely went over the historical evolution of taxation in Ethiopia, assessed the culture of voluntary compliance, looked at how taxpayers perceive service delivery by the revenue authority, and evaluated the fairness perception of the Ethiopian tax system. Data for the study were gathered primarily through questionnaire distributed to 200 (162 usable ones returned) taxpayers and unstructured interview with selected officials from the revenue authority. Secondary sources such as journal articles, reports of the World Bank, IMF, and MoFED were also consulted. We used descriptive data analysis method. Both economic and social-psychological factors are found to influence taxpayers’ (non)compliance decision in so far as those respondents’ responses indicate.

Keywords: Tax administration, Voluntary compliance, Taxpayers’ services, Tax system fairness