RIFT VALLEY UNIVERSITY, ADAMA COMPUS

ASSESSMENT OF TAX PAYER’S ATTITUDE AND COMPLIANCE

BEHAVIOR THE CASE OF CATEGORY A AND B IN DERA TOWN
ADIMISTRATION

BY:

MOHAMMED JEMAL KEDIR

ID:- DDACA/0132010/18

A RESEARCH SUBMITTED TO THE DEPARTMENT OF BUSINESS AND

ECONOMICS FOR THE PARTIAL FULFILLMENT OF THE REQUIREMENT
OF BACHELOR OF ART (BA) DEGREE IN ACCOU NTING

ADVISOR: FARID H (MSc)

MARCH, 2021

ADAMA, ETHIOPIA

i
 CERTIFICATE

This is to certify that the thesis prepared by Mohammed Jemal entitled assessment of taxpayer’s
attitude and compliance behavior case of category “A” and“B”Dera town adimistration which is
submitted in partial fulfillment for the Degree of BA in Accounting with the regulation of the
University and meets the accepted standard with respect to originality and quality.
Name of _________________________________ Signature.......................Date.....................

ii
 Acknowledgment

I am indebted to Allah. My sincere thanks are kept to all my friends and course mates, especially
my finendswho supported me during my study. I am grateful to each entire Dera town Revenue
authority staff for their cooperation in providing me necessary information. I would like to
express my deepest appreciation to the taxpayer population for their cooperation. My warmest
gratitude is of course reserved for my families who were giving me invaluable encouragement
and support throughout my studie and, I am grateful to all whose works have been cited in this
thesis. Have my acknowledgement and appreciation.

iii
 ACRONYMS

ANOVA..........................Analysis of Variance
FDRE -……………....Federal Democratic Republic of Ethiopia
GDP - ……………….Gross Domestic Product
GTP - ………………..Growth and Transformation Plan
IMF -………………...International Monterey Fund
OECD ……………….Organization for Economic Cooperation and Development
PSEP -………………. Physical and Socio Economic Profile
SSA - ………………..Sub-Saharan Africa
SPSS…………………...Statistical Product and Service Solution
TOT-…………………Turn over tax
UN - …………………United Nation
UNDP -…………….. United Nation Development Program
USD-………………...United State Dollar
VAT- ………………..Value Added Tax

iv
Table of Contents
CERTIFICATE ............................................................................................................................... II
ACKNOWLEDGMENT................................................................................................................ III
ACRONYMS ................................................................................................................................. IV
TABLE OF CONTENTS ................................................................................................................ V
LIST OF TABLES ......................................................................................................................... VI
ABSTRACT................................................................................................................................ VIII
CHAPTER ONE .............................................................................................................................. 1
1. INTRODUCTION ........................................................................................................... 1
1.1. BACKGROUND OF THE STUDY .............................................................................................. 1
1.2. STATEMENT OF THE PROBLEM .................................................................................................. 2
1.3. OBJECTIVE OF THE STUDY ......................................................................................................... 3
1.3.1. General Objective1. ............................................................................................................... 3
1.3.2. Specific Objectives ................................................................................................................. 3
1.5. Significance of the study ........................................................................................................... 4
1.5.1. Future Researchers ................................................................................................................ 4
1.5.2. Researcher him self ................................................................................................................ 4
1.7. LIMITATIONS OF THE STUDY ..................................................................................................... 5
CHAPTER TWO ............................................................................................................................. 6
2. REVIEW OF RELATED LITERATURE ............................................................................... 6
2.1. INTRODUCTION ..................................................................................................................... 6
2.1.1. Theoretical of Tax .................................................................................................................. 6
2.1.2. Definition of Tax compliance ................................................................................................. 7
2.1.1.6. Assessment of Tax payers attitude and Compliance Behavior............................................ 7
2.1.1.6. Economic assessment .......................................................................................................... 8
2.1.1.7. Institutional assessment ...................................................................................................... 9
2.1.1.8. Social Assessment ............................................................................................................... 9
2.2. EMPIRICAL LITERATURE REVIEWS ........................................................................................... 9
2.2.1. Empirical studies from outside Ethiopia ................................................................................ 9
2.2.2. Empirical studies in Ethiopia............................................................................................... 10
2.2.4. Research gap........................................................................................................................ 11
2.3. CONCEPTUAL FRAMEWORK MODEL.................................ERROR! BOOKMARK NOT DEFINED.
CHAPTER THREE ....................................................................................................................... 13
3. RESEARCH METHODOLOGY............................................................................................... 13
3.2. RESEARCH DESIGN .................................................................................................................. 13
3.3. RESEARCH APPROACH ............................................................................................................. 13
3.3.1. Quantitative research approach .......................................................................................... 13
3.3.2. Qualitative research approach ............................................................................................ 13
3.4. POPULATION OF THE STUDY .................................................................................................... 14

v
3.4.1. Sampling Frame ................................................................................................................. 14
3.4.2 Sampling Unit ....................................................................................................................... 14
3.4.3 .sampling technique and Sample size .................................................................................... 14
3.7. DATA SOURCE ......................................................................................................................... 15
3.7.1. Primary data source ............................................................................................................ 16
3.7.2. Secondary data Source......................................................................................................... 16
3.8. METHOD OF DATA COLLECTION ............................................................................................. 16
3.12. DATA PROCESSING AND ANALYSIS....................................................................................... 16
CHAPTER FOUR.......................................................................................................................... 18
4. RESULT DISCUSSION AND DATA ANALYSIS.................................................................. 18
4.1. RESPONSE RATE ...................................................................................................................... 18
4.1.1. Gender Distribution of Respondents .................................................................................... 18
4.1.1.2. Age of Respondents ........................................................................................................... 19
4.1.1.5. Length of Stay in years of tax payer .................................................................................. 20
4.1.1.4. Tax payers category .......................................................................................................... 21
4.1.1.6. Respondents distribution by current positionin the sector ................................................ 21
4.1.1.7. Respondents distribution in bussiness Experience............................................................ 22
4.1.1.8. Why do Tax payers pay taxes ............................................................................................ 22
4.2. ANALYSIS OF MAJOR QUESTIONNAIRES ................................................................................. 24
4.2.1 .ECONOMIC ASSESSMENT .............................................................................................. 24
4.2.2. Institutional assessment ....................................................................................................... 25
4.2.3.Social assesment ................................................................................................................... 27
CHAPTER FIVE ........................................................................................................................... 29
5. SUMMARY, CONCLUSION AND RECOMMENDATION ...................................... 29
5.1. SUMMARY OF MAJOR FINDINGS ............................................................................................. 29
5.2. CONCLUSION ........................................................................................................................... 31
5.3. RECOMMENDATIONS ............................................................................................................... 32
6. REFERENCE ................................................................................................................. 34
APPENDIX -A............................................................................................................................... 36

List of Tables
Page
Table 3.1.Population and Sample size table……………………………………………30
Table4.1.Age group of respondents……………………………………………………38
Table 4.2.Level of Education of Respondent…………………………………………..39
Table 4.3.The respondents position in the sector……………………………………….41
Table 4.4.Responses on the amount of tax liability paid………………………………..43

vi
Table 4.5.Respondents rating on the Economic Compliance …………………………..45
Table 4.6.Respondents rating on Institutional Compliance……………………………...46
Table 4.7.Respondents rating on the Social Compliance………………………………..48
Table 4.8.Respondents rating on Individual Compliance………………………………..49
Table 4.9.Respondents rating on Individual………………………………………….....53
Table 4.10 Dera Town revenue collection trend …………………………………..53
Table 4.11 Dera Town Audit performance trend…………………………………….54

vii
ABSTRACT
Tax is important sources of public revenue.Public goods and services are normally subject to
collective consumption, thus requiring that we put some of what we earn into government
hands.However, as most of the developing countries, Ethiopia has been highly depending on
external aid and loan for funding its expansion events.The tax involvement to GDP remained
consistently low and is relatively reduction due to low tax compliance.The study was assessed
taxpayer’s attitude and compliance behaviors employed243 respondents were involved during
the assessment in order to met the study objectives with a special attention to selected tax
category “A” and “B”inDera townadimistration to its operation area. Chapter three was a bout
methodology in which the research designdescriptive survey research method was used by
employing both probabilistic and non-probabilistic sampling techniques descriptive design using
quantitative and qualitative approach questionnaire ,interview,focuse group discuson and pre
test alsoused.For data analysis by employing tools like MS-Excel, and SPSS have been used. The
collected data and analyzed was presented in the form of tables, figures frequencies and
percentage for the quantitative data and the study measures the central tendency by using mean,
standard deviation. According to the study, of assessment suchtax rate, tax, audit, perception of
government spending referent group perception on equity and fairness. In addion, the role of tax
authority tax complexity, tax knowledge awareness of offences and penalties personal financial
constraints were considered theassessment affecting taxpayer’s compliance. Finally, based on
the findings possible recommendations were given.These include, maintaining tax fairness and
equity, building capacity of the tax authority, conducting extensive awareness creation
programs, and providing social services to the general public.Revenue authorities at levels of the
town adimistration have to build trust in the tax system, assessments and collection procedures
in the mind of resident as a whole ,specifically to tax payers and strengthen the audit capacity
also an important issues to assure tax compliance.

Keywords: Tax compliance, Economic, Institutional, Social, and Individualassessment.

viii
 CHAPTER ONE
1. INTRODUCTION
1.1. Background of the study
Tax is important sources of public revenue. Public goods and services are normally subject to
collective consumption, thus requiring that we put some of what we earn into government hands.
Public goods are normally supplied by public agencies due to their natures of non-rivalry and
non-excludability. The nature of consumption of public goods is such that consumption by one
does not reduce consumption for others. Besides, consumption of public goods by an agent does
not exclude others from doing same. Such nature of public goods therefore makes them
impossible for private suppliers to avail them at market prices like other commodities. Tax is a
compulsory levy and those who are taxed have to pay the sums irrespective of any direct
corresponding return of services or goods by the government (Peter, 2013).
Government needs financial resources to act as a government and play a role that is expected
from it by the public (James, 2000).Taxation is one method of transferring resources from the
private to the public sector. The role of taxes as an instrument stabilizes the economy, and
reduces private demand when resources are released for public sector use. Taxes are not
payments for some special privilege granted or services rendered and are, therefore,
distinguishable from various other charges imposed for particular purposes under particular
powers or functions of government (Murphy, 2004).
Ethiopian Revenues and Customs Authority (2008 EC) tax is collected by federal, state or
regional governments. In Ethiopia, the tax revenue covers over 70% of the total government
expenditure (Fjeldstad 2016). Furthermore, the tax-to-GDP ratio (11%) is lower than the average
for developed countries tax systems (25-35%), developing countries (18-25%) and even of the
Sub-Saharan average tax system (16%) (Tigist 2017).Here it should be noted that, even if tax to
GDP ratios are not completely comparable because of differences among countries with respect
to the definition of tax base and rates, administrative capabilities and level of taxpayers'
awareness, such a comparison can be made in practice and used as indicative although not
conclusive (Yesgat,2009).Accordingly, assessing the tax burden of the Ethiopian government in
comparison with the Sub-Saharan African average indicates that the tax revenue performance of
the Ethiopian government is low.

1
Tax compliances in the Oromia region became the major reason for higher tax evasion and low
growth rate of tax revenue. According to the survey conducted by Teshome (2016) that out of
4,701 business people, only 514 business people were using receipts for their business
transaction. That means only 11 percent of the tax payer respect the regional tax law in terms of
issuing sale receipts.The numbers of business people that do not use any sale receipt were 3,548.
It is 75 percent of surveyed business people are avoiding tax. Further the tax audit conducted on
12,928 business people in 2010 collected additional Birr 1.6 billion.

The higher tax non compliances indicate the unfair and inefficient tax system in the region. The
above is true in Dera townadimistrationtax revenue collection has been constrained by the
significant number of problem like tax assessment problem, under performance, minimal number
of tax auditors and non compliance tax payer, etc. out of 72 business people, only 63 business
people were using receipts for their business transaction. That means only 12.5 percent of the tax
payer respect the regional tax law in terms of issuing sale receipts.(Report and plan document,
2009 E.C). The numbers of business people that do not use any sale receipt were 63. It is 87.5
percent of surveyed business people are avoiding tax. Further the tax audit conducted on
139business people in 2009 collected additional Birr 20 million. .

1.2. Statement of the problem

In Ethiopia, like any other developing countries, faces difficulty in raising revenue to the level
required for the promotion of economic growth, Hence, the country economy has been growing
at a rate averaging more than 10 percent, but the tax to GDP ratio remained low at 13.4 percent
in 2015 which is below the Sub Saharan African average of about 20 percent (e.g. Kenya
23%).None-compliance attitude reduces tax revenue generation capability to the amount planned
to be collected by government and leads to budget deficit the country.

The study of Mesele&Tesfahun (2016) in Desse town depicted that among the mainchallenges
the tax authority of town faces principally was taxpayers’ delay in taxdeclaration. Reducing
noncompliance can be effective if the reason for noncompliance bytax payers is well understood
which can be constructive tool to tax authority by providing them information and helping them
which strategy is appropriate and effective to increase tax compliance.

2
Category “A”, and “B” in Dera townadimistration because “A" and “B” taxpayers to high tax
payer’s, submit their balance sheets and income statements by keeping record to financial
accounting standards but it not mandatory for category “C” to keep the record of all business
activities and submitting profit or loss account and statement of financial position to tax authority
office at the end of tax year most of the time “A’’ and “B” category tax payer pay deferent tax
such that VAT, TOT obliged to keep or maintain books of account and they follow self-
assessment policy (Yousuf, 2012).

These tax payers shall submitted the tax declaration from the for authority at the time of
submitting the balance sheet and the profit and loss account for the tax payer with months from
the end of the tax payers tax year. Tax assessment of tax payer’s voluntary compliance with tax
law is complex on “A” and “B” category than category “C”.But“C” category pay tax after the
budgetary year of one month. Category “C” tax payer is paying tax annual profit tax only does
not have an additional obligation to declare VAT and TOT daily sales are estimated by a
committee of tax officials by asking the concerned taxpayer questions and also observing the
business location and the nature of the business.
Therefore bearing in mind the above problem, the researcher want to study analyze the
assessment of tax payer’s attitude and Compliance behavior.

1.3. Objective of the study

1.3.1. General Objective1.
The general objective of this study was toanalyze the assessment of tax payer’s attitude and
Compliance behavior in Dera town Administration
1.3.2. Specific Objectives
This study has the following specific objectives:
1. To examine taxpayers attitude and,compliance behavior
2. To assessthe service of institutionon taxpayer attitude and, compliance behavior.
3. To assess the level of voluntary tax compliance among the tax payers
4. To examine individual of taxpayer attitude and, compliance behavior

3
1.4. Research Question
Based on this study, there was answered through the following sub-questions:
1. What are the economic assessments that affect taxpayer’s attitude and, compliance behavior?
2. Istheservice of institutionhas influence on taxpayer attitude and, compliance behavior?
3. How affect tax collection, the voluntary tax compliance among the tax payers?
4. What are the assessments of socialdistress on taxpayer’s attitude and, compliance behavior?
1.5. Significance of the study
This study is aimed to have significant role as availing information related to areas of tax payer
attitude and compliance behavior.
1.5.1. Future Researchers
Other researchers may use this study as a baseline to conduct further research in the area and also
serve as a future reference for researchers on the assessment tax payer attitude and compliance
behavior
1.5.2. Researcher him self
It enables the researcher to acquire basic experiences and knowledge regarding several issues on
areas of assessment tax payer’s attitude and compliance behavior and, related aspects and the
tentative solutions provided by the researcher.
1.6. Scope of the study
This study was delimited in its scope to manageable size. Because of financial and experience
limitation, it was limited to the study. As a result, this study was delimited to organizations to
find out the these study analyses the assessment of tax payer attitude and compliance behavior in
oromia regional state with special reference (example) Dera town Administration .In particular
tax compliance of category “A” and “B” category tax payers were considered many tax
assessment can be considered to analyze tax payer attitude and compliance behavior of business
taxpayers in general. But in this study only ten tax assessment factors attitude and compliance
behavior such that tax rate, tax, audit, perception of government spending referent group
perception on equity and fairness, the role of tax authority tax complexity, tax knowledge
awareness of offences and penalties personal financial constraints were considered. While
studying the tax payer attitude and compliance, the present study considering only the practice
and its application in Dera townadimistration so that the scope was limited.

4
1.7. Limitations of the study
Limited awareness on tax payer’s, miss information was some of the limitations that the
researcher comes across, lack of cooperation of some business taxpayer respondents to complete
filling the questionnaire timely and to provide the required information wasa challenge to
conduct this study. The study wasused only some variables out of the many variables.The
practical weakness in the methodologies the researcher adapted on solution problem service for
social science (SPSS).The other limitation the study was only focused in town administration.
These all requires additional time to encourage and needed frequently to visit most of the
respondents.The researcher to overcome these likely a limitation conducted triangulation using
different sources of evidence.

5
 CHAPTER TWO
2. REVIEW OF RELATED LITERATURE
2.1. INTRODUCTION
This chapter presents a review of the related literatures concerning the definitions of tax,
definition of tax compliance, theories of empirical concepts, conceptual framework (CFW) of tax
compliance, assessmentof taxpayer attitude and, compliance, review of previous studies are
presented research gap and, conclusion is included.
2.1.1. Theoretical of Tax
Tax has been defined by various authorities and professionals in various ways. Conceptually, tax
can be defined or seen as a compulsory transfer of resources from the private to the public sector.
According to the World Bank (2010) reiterated that taxes are compulsory transfers of resources
to the government from the rest of the economy. Taxes are important sources of public revenue.
The existence of collective consumption of goods and services necessitates putting some of our
income into government hands. Such public goods like roads, power, municipal services, and
other public infrastructures have favorable results on many families, business enterprises,
industries and the general public. Public goods are normally supplied by public agencies due to
their natures of non-rivalry and non-excludability Ethiopian business chamber of commerce
(2005).
Taxes are compulsory levy by the tax subject (government) through her designated agent on the
tax subject (the tax payers). And another study by Lymer and Oats (2009) tax is defined as ‘a
compulsory levy, imposed by government or other tax raising body, on income, expenditure, or
capital assets, for which the taxpayer receives expenditure, or capital assets, for which the
taxpayer receives nothing specific in return. According to Ethiopian income tax proclamation
(2016) taxable business income would be determined per tax period on the basis of the profit and
loss account or income statement.
According to the Constitution of Federal Democratic Republic of Ethiopia (1995), revenue
sources are assigned between Federal government and Regional states.Regional states can
endorse their income tax proclamation and regulations based on the constitution in conformity
with the federal income tax proclamation. According to the federal income tax proclamation
(2016) taxpayers are categorized into three categories, namely category ‘A’, ‘B’, and ‘C’ based
on their volume of sales and form of business. Therefore, taxpayers with annual gross income of

6
Birr 1,000,000 or more are categorized under Category ‘A’ taxpayers, business income taxpayers
with annual gross income Birr 500,000 or more but less than Birr 1,000,000 are under category
‘B’ and business profit taxpayers with annual gross income less than Birr 500,000 are under
category ‘C’ taxpayers.
Taxable business income would be determined per tax period on the basis of the profit and loss
account or income statement. Accordingly, taxable business income of corporate businesses is
taxed at a flat rate 30% and other business (unincorporated individual businesses and PLCs)
taxpayers are taxed at a progressive rate 10% to 35%. The standard rate of VAT is 15% of the
value of every taxable transaction by a registered person and all imports of goods and services
other than those exempted.
2.1.2. Definition of Tax compliance
There is no standard all-embracing definition of compliance adopted across all tax Compliance
studies. For example, Kirchler (2007) stated that compliance might be voluntary or enforced
compliance. Voluntary compliance is made possible by the trust and cooperation between tax
authority and taxpayer and it is the wasingness of the taxpayer on his own to comply with tax
authority’s directives and regulations. However, in the presence of distrust and lack of
cooperation between authority and taxpayer, which creates tax hostile climate, authorities can
enforce compliance through the threat and application of audit and fine.
Another definition of tax compliance is a person’s act of filing 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 (Singh, 2003). For the purpose of this
study, tax non-compliance is defined as failure to comply with tax laws and/or report incorrect
income, the act of claiming incorrect deductions and exemptions and/or paying the incorrect
amount of tax beyond the stipulated time frame.
2.1.1.6. Assessment of Tax payers attitude and Compliance Behavior
Previous researcher had identified a number of assessments of tax payer attitude and, compliance
behavior. Regarding the research subject, the researcher waswant to investigate attitude that
affect tax compliance. To achieve this, the researcher reviews several researches and journals.
While reviewing, different scholars try to list out that compliance is influenced by numerous
assessment (Brook, 2004). Scholars identified these assessment as economic, social and
psychological (Kirchler, 2007). The assessment of tax payer attitude and compliance has been

7
classified differently by different researchers. But most of these classification overlap on one
another. By considering the most relevant one for this study, we classified them in to four major
groups: economic, institutional, social and individual factors.
2.1.1.6. Economic assessment
The tax payer attitude and compliance assessment associated with economic assessment such as
tax rates, tax audits and perceptions of government spending (Palil, 2010). The tax compliance
assementassociated with economic assess such as tax rates, tax audits and perceptions of
government spending are discussed as follows; previous studies examined the relationship of
tax rate and taxpayer attitude and compliance. Such as, Hai and See (2011) found that the high
tax rate causes high tax noncompliance. Tax payers who are aware that their tax rate is higher
than average tax rate paid by other have higher records of tax evasion.
Evidence suggests tax rates have mixed impact on tax compliance i.e. decreasing tax rates do not
necessarily. Increase in tax rates might have positive or negative impact on evasion and
increasing tax rates was not necessarily always decrease compliance behavior. Park and Hyun,
(2003) in their empirical study finds that the increase in tax rate strengthen the incentive to report
less income to compensate the reduced income .In other word they find a negative relationship
between tax compliance and tax rate. The contribution of tax audit on improving tax payer’s
compliance is significant among other measures taken by revenue authorities of the country
(Agumas, 2016). But, a study conducted by Ahmed &Kedir (2015) and Ahmed (2013) revealed
that audit has negative and significant effect on tax payers compliance behavior. The findings of
the study show that the higher the probability of detection, the lower the tax compliance level.
If the tax payers are informed that their fillings was be closely assess, there is a tendency for the
tax payer’s behavior to change in response to an increased probability of tax audited. In contrary,
the study of that the chance of being audited does not have any important impact on tax
compliance behavior.Government's legitimacy, the government's efficiency and the government's
credibility influence taxpayers' compliance and thus determine the tax revenue the government
can raise. Taxpayers can estimate the fair terms of trade between their private consumption and
government provision of public goods (Ahmed &Kedir, 2015).But the level of governmental
accountability and transparency and perception of government spending did not significantly
impact taxpayers’ attitudes.This means that the levels of accountability and transparency in

8
governance are matters that taxpayers have less regard for in their compliance decisionsAhmed,
A. (2013)
2.1.1.7. Institutional assessment
The role of the tax authority in minimizing the tax gap and increasing voluntary compliance is
clearly very important Dubbin, J.A. (2004). 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 .With regard to simplicity of tax
system, previous studies argue that simplest tax system encourage tax payers to voluntarily
comply with tax system (Palil, 2010), Complexity of tax system negatively affecting tax
compliance decision (Jayawardane& Low, 2016).

However, a study conducted by Ahmed &Kedir (2015) on investigation of the determinants of

tax compliance at Jimma zone category ‘A’ taxpayers using multiple rogation analysis showed
that simplicity of tax system has positive and insignificant effect on tax payer’s compliance
behavior. But, the studies OlatunjiOlaoye (2017) on determinants of tax compliance behavior of
tax payers indicated that the role of the tax authority was not significantly correlated with tax
compliance.
2.1.1.8. Social Assessment
There is an existing social bond between the society and this bond influences the members of the society
in complying with the tax. These assessmentsare perceptions of equity and fairness, changes to current
government policy and referent groups.Tax compliance assessment from a social perspective relates to
taxpayers’ wasingness to comply with tax laws in response to other people’s behavior and their social
environment (Torgler, 2007&Kirchler (2007).

2.2. Empirical Literature Reviews

2.2.1. Empirical studies from outside Ethiopia
Various researchers have studied on assessment of voluntary taxpayer attitude and compliance
behaviors internationally.They further argued that understanding tax rules lead to increased
perceptions of fair tax systems and tax compliance. Study made by Rizal Palil (2010) on ‘Tax
Knowledge and Tax payer attitude and Compliance in Self-Assessment System in Malaysia’ can
be summarized as follows. The study used inferential statics and multiple regression models.The
results indicated that tax compliance had influenced specifically by probability of being audited,
perceptions of government spending, penalties, personal financial constraints, and the influence

9
of referent groups. Other researchers Rizal Palil, Abdul Hamid &HizamHanafiah (2011) on
‘Factors affecting tax compliance behavior in self-assessment system’ can be summarized as
follows.
Finally, the research claims that education and religion are not statistically significant with tax
compliance status.Fjeldstad, Schulz-Herzenberg and Hoem (2012) on ‘People’s Views of
Taxation in Africa.A Review of Research on assessment of Tax payer attitude and
Compliance’ stated that compliance with tax depend on the taxpayers knowledge that they
cannot evade taxes and that the more individuals are satisfied with the public services provides
by governments the more the likelihood of tax compliance.They further stated that tax payer’
intentions for compliance was increase if they perceive the government utilizing revenue
generated form tax, otherwise they was became less committed towards compliance.
2.2.2. Empirical studies in Ethiopia
Most tax compliance studies to date are based on data from developed countries. There are few
studies that provide evidence from developing countries. The assessments of tax payer attitude
and compliance in Ethiopian are still under-explored area in the literature of tax compliance
behavior.As per the researcher access and knowledge, the previous study conducted in Ethiopia
by Lemessa (2007) on ‘assessment of Taxpayers’ voluntary Compliance with Taxation.

The case Study of Dire Dawa City, Ethiopia the study used in methodology is descriptive
statistics and the results showed that tax fairness and equity, organizational strength of the tax
authority, awareness level of the taxpayers, socio-cultures factors, and provision of social
services by the government were the assessment of taxpayers’ voluntary tax compliance.

Study made by Beza (2014) on ‘assessment of Tax Payer’s Voluntary Compliance with Taxation
in East Gojjam-Ethiopia. The study used methodology type is descriptive statistic and Pearson
correction and chi square. The selected sample size areas are category “A”,’B” and “C”
taxpayers and in his study results showed that there is no difference in their tax compliance
behavior between males and females, As well as between category of ‘A’, ‘B’ and ‘C’ taxpayers
and only perception of fairness and attitude towards taxation have positive and significant
correlation with tax compliance ,in addition to that, another study made by Tilahun and Yadersal
(2014) on ‘assessment of Taxpayer attitude and Compliance Behavior in Ethiopia.

10
Other variables such as perception of government spending, perception of equity and fairness,
penalties, roles of the tax authority and tax knowledge were not significantly correlated with tax
compliance at the time of this study. Study made by Amina Ahmed and SaniyaKedir (2015) on
‘Tax compliance and its assessment the case of Jimma Zone, Ethiopia can be summarized as
follows. The study was conducted with the aim of investigating the assessment of tax compliance
for the case of Jimma zone category ‘A’ taxpayers. By distributing total of 384 questionnaires to
category ‘A’ sample taxpayers, the study try to explore the main assessment of taxpayer attitude
and compliance.
The research gap above studies showed that comparisons of the studies conducted with various
researchers on similarly area of studies presented are that the justification part of those studies
address that findings are still debatable among different researcher. Hence, we looking at the
assessment of tax payer attitude compliance behaviors there seem to be a disagreement in the
findings. In some variables are Significant in one study also insignificant in another study. And
also from the previous empirical research found that the assessment of tax compliance has been
found to differ between countries. This means there is no universal findings are highlighted by
researchers pertaining to genuine tax complianceassessments among countries sharing similar tax
systems, and cultures.The case of Ethiopia is a good example for this situation.
2.2.4. Research gap
The research gap above studies showed that comparisons of the studies conducted with various
researchers on similarly area of studies presented are that the justification part of those studies
address that findings are still debatable among different researcher. Hence, we looking at the
assessment of tax payer’s attitude compliance behaviors there seem to be a disagreement in the
findings. In some variables are Significant in one study also insignificant in another study. And
also from the previous empirical research found that the assessment of tax compliance has been
found to differ between countries. This means there is no universal findings are highlighted by
researchers pertaining to genuine tax compliance assessments among countries sharing similar
tax systems, and cultures. The case of Ethiopia is a good example for this situation.

Therefore, this research is to fill the research gap that were not addressed by any one of the
earlier studies, specifically problems associated with tax payers and revenue authority in Dera
town and also this study initiation is needed to fill the literature gap regarding the assessment of
tax payes attitude and compliance behavior and contribute to the body of knowledge and, also
11
this study initiation is needed to fill the literature gap regarding the assessment of tax payers
attitude and compliance behavior.

Hence, this research has done at town administration levels ensuring facilitation and Voluntary
compliance.It is with this ground thatfindings,Conclusions and recommendation provide more
evidence assessment of tax payers’ attitude and compliance on selected Category ‘A’, and ‘B’ in
Dera town adimistration.

12
 CHAPTER THREE
3. Research Methodology
3.2. Research Design
Research design is the general plan of how the research questions were answed. It constitutes a
blue print for the collection, measurement, and analysis of the data, the main data analysis
methods used for this research was descriptive type such as tables, percentage theoretical and
indication analyised.Descriptive studies are non-experimental researches that describe the
characteristics of a particular individual, or a group. It deals with the relationship between
variables and development of generalizations and use of theories that have universal validity. It
also involves events those have already taken place and may be related to present conditions and
that it is possible to report what has happened or what is happening. (Kothari 2004).Then, the
strategy of this research was survey research for investigated social phenomena that collected
information from sample or whole population via questionnaire.This research strategy produces
information that was less detailed but extensive and could be fairly generalized to the population
from which sample was drawn.
3.3. Research approach
The research approach quantitative, qualitative and mixed methods using qualitative and
quantitative methods was helped in triangulating of data sources, in an approach that is
commonly referred to as mixed methods approach or mixed methods research (Creswell
2009).For the current study, this data collection method was chosen for the study because it
allowed the data to be collected in a short period of time.
3.3.1. Quantitative research approach
The quantitative research design helped to identified various challenging assessment factors of
tax compliance of Dera town Administration the quantitative features of research design, namely,
sampling design variables, research questions and data analysis and interpretation. Quantitative
design employs strategies of inquiry such as survey and collected data through standardized instruments
that are close- and open ended question and numeric data. Using statistical method, it generalizes about
the population from the sample.
3.3.2. Qualitative research approach
In a first phase, quantitative data are gathered through survey instrument and results further used
in a second phase of qualitative research. Accordingly, the connection or mixing occurred

13
between quantitative data analysis and the data collection of second phase research. The analysis
of quantitative data and its results helped to prepare qualitative interview questionsand focus
group discussion.
3.4. Population of the study
The study population of this research was taxpayers’ category “A” and “B” in Dera town.
According to FDRE, (2016).There was three categories of business income taxpayers based on
their annual gross income. These are “A”, “B” and ‘C’ categories respectively.Categories “A”
taxpayers is business entities that have an annual gross income of Birr 1,000,000 (one million
Birr thousand Birr) and more. Category “B” taxpayer being a person, other than a Company,
having an annual gross income of Birr 500,000 or more but less than 1,000,000 and category
“C”taxpayer being a person other than a Company, having an annual gross income of less than
Birr 500,000. From those, two tax payer categories ‘A and B are selected from the category
simple random sampling technique for the study. According to Dera town Revenue
Authorityadimistration report of the year (2016/17 G.C), there were total of 623 taxpayers
consists of 213 category “A”, taxpayers 410 category “B”, taxpayers business income taxpayers
in town . These werehaving taken as target population of this study by the author
3.4.1. Sampling Frame
The sampling frame for tax payers‟ includes the list of registered tax payers in the Dukam tawon
Revenue office that catagoriesed under Category “A” tax payers and Category “B” tax payers.
3.4.2 Sampling Unit
As it was try to be indicated in the above sampling frame the sampling unit of the research was
assessed of category “A” and “B” tax payers that listed category “A” and category “B”
independently from list of registered tax payers in the Dukam tawon Revenue office
3.4.3 .sampling technique and Sample size
For the purpose of this study, the tax payers were categorized in to two groups; these were tax
payer’s category A and tax payer’s category B. From these the study drawn randomly its each
sample unit from group just like a lottery means first I took tax payers list picked up one at a
time randomly till it became equal to the sample size needed kothar (2004). To determine the
sample size from total taxpayers in the town, mathematical formula of Yamane, T, (1987) used
by taking in to account the total population, the sampling error and the level of reliability. It is

14
 assumed that the sample washave 95% reliability about population and a sampling error was
5%.
This simplest formula is
n = __N______
1+N (e) ^2
Where; n is the sample size,
N _ is the population
E_ is the level of precisio n or sampling erro r= (0.05)
1_ is given coefficient
Regarding tax payer n=
n=244
Proportional sample, for each tax payer population
n ≈ 244, thus the sample of individual tax payer this study.
n= n1+n2
Where, n1 was category “A” tax payer and n2 was category “B” tax payers.

Table 3.1 Proportional Sampling for each of the two taxpayer category in the town
NO. Sampling category Business tax Using the Proportional sampling Sample size for each
group payer technique n=n1xn2/N tax payer

1 Category “A” 213 244/623x213 83

2 Category “B” 410 244/623x410 161

Total 623 n=244

Source: Dera revenue authority report 2013E.C

Q is the unit of analysis of individuals or tax payers and selected by proportional to the size
technique.
3.7. Data source
In this study primary data was used. Primary data collection is necessary when a researcher
cannot find the data needed from secondary sources, especially when the researcher is interested
in primary data about demographic characteristics, attitude/opinion/interest,
awareness/knowledge, intentions, motivation and behavior. Primary data refers to data originated
by the researcher for the specific purpose of addressing the research problem (Coper and
Schindler, 2008). It was what the researcher originally collected from the sample or target
population.

15
In this research, the primary data has collected by questionnaire. Primary data was the major
source of data for this research because there are almost no research works done on the
assessment of tax payer attitude and compliance in Dera town adimistration both empirically and
theoretically.
3.7.1. Primary data source
The primary data was collecting through structured questionnaireaninterviewand group
discussion.The questionnaire was consist of close-ended and a few open-ended questions to
understand category ‘A’ and ‘B’ taxpayers ‘opinions about the assessment of tax payers attitude
and compliance behavior in Dera townadmistration. The primary data sources category
‘A’and’,B’ tax payer of Dera town Revenue Authority.The interview and questionnaire items
were prepared in English and translated to Amharic or Afan Oromo.
3.7.2. Secondary data Source
The researcher used different documents in order to access accurate and reliable data. Documents
utilizes comprised of guidelines, directives, policies and regulations (regarding Assessment of
tax payers attitude and compliance behaviors ), books and journals (as literatures) and Dera
town Revenue Authority assessment of taxpayer document.
3.8. Method of Data Collection
In order to find sufficient and relevant information, both primary and secondary sources of data
were used. The primary sources of data were obtained from questionnaires that include both
open and closed-ended and also structured, semi structured questionnaires andgropudiscussion
was being employed. On the other hand, the secondary sources of data were collected from
books, internet and documents. In this regard, an assessment of documents which are related to
the areas of the study was made at the target assessment of tax payer attitude and compliance
behavior.The documents include proclamation, manual and other important documents were
assessed and journals. In this study, the main data collections instruments to gather relevant
information was questionnaire semi- structured interview and focus group discussion.

3.12. Data Processing and Analysis

After collecting the necessary data, from the source the data by descriptive statistical tools
tables, percentages, mean ,standard devation .figures, graphs, charts,was organized according to
their homogeneity; tailed, tabulated and analyzed to answer the basic research questions in

16
meaningful way. Both quantitative and qualitative data analysis methods used to in the study
according to the research questions contexts. Quantitative data which was collected through
questionnaire from tax payer was organized, tabulated and analyzed quantitatively by using
linkert scale to measure answers like (strongly agree, agree, average, disagree and strongly
disagree). Percentage and frequency used to analyze the personal information of the respondents
and answers like (Yes or NO) in similar way was employed to assess statistical significance
differences between respondents based on the nature of the questionnaire and also Ordinal
Logistic Regression was used to test the association between dependent and explanatory
variables. However, the qualitative data that was collected through interview from officialssemi
structured interviews (some general interview guide, close-ended questionnaire), focus group
discussion and information gathered from documents was narrated in words through content
analysis. Lastly, the researcher was also used SPSS 20 Version software to analyze the data.

17
 CHAPTER FOUR
4. RESULT DISCUSSION AND DATA ANALYSIS
This chapter deals with results and discussions of the data that were categorized into two parts.
The first part was the characteristics of the respondents which describe the study population by
sex, age, education, exprince in business, while the second part deals with the analysis of
findings of the study that were gathered through questionnaire interview and group discusio.The
data are collected and then analyzed in response to the problems posed in the first chapter of this
study.
4.1. Response Rate
The respondents were tax paper’s which were treated using questionnaire. The total
questionnaires being distributed were 244. Out of 244 questionnaires distributed to tax payer’s
243 questionnaires were returned in the time schedule. Therefore, this indicates that the overall
response rate of the study is 99.5%.
4.1.1. Gender Distribution of Respondents
Figure 4.1 below presents the distribution of respondents for the study. A sample of two hundred
fourty three (243) respondents responded to the administered questionnaire. Figure 4.1 below
shows that majority of the respondents (54.7%) were males whilst 4 5 .3 % were females. As
evidenced by the Figure 4.1.The results show a sample relatively skewed in favour of male test
subjects and this high ratio of males reflects the structure of income earners in the study
area.That is in most developing countries; including Ethiopia, husbands and single males are
responsible for the earning of income and providing money for wives to purchase goods and
services may be due to the cultural influences. The need to take both Sexes in the study was to
get the clear picture of men and women.

18
Figure 4.1: Gender Distributions of Respondents

5 4 .7 %

4 5 .3 %

Source: Field Survey, 2020

4.1.1.2. Age of Respondents
Table4.1 below shows the age distribution of respondents. The mean age of the respondents was
2.4650 with a standard deviation of 2.1070.According to the result 7 .8 % were age group of Lessthan

30years 51.9 % were age group of 31-40 years 30.0% were age group of 41-50years 6.6% were age
group of 51-60years 3.7 % were age group 61 and above and above years. From this the study
revealed that most of the respondents were between the ages of 31-40 years .This indicates that the
respondents composed of various age groups help to provide a complete picture of various group
of people and the majority of the tax payers fall in the working age group accounting 51.9 percent,
almost above half of the total populationon the assessment of tax payers, attitudes and
compliance behaviourin Dera town administration.
Table 4.1 Age group of respondents
Frequency Percent Valid Percent Cumulative
Percent
Valid Lessthan 30 19 7 .8 7 .8 7 .8
31-40 126 51.9 51.9 59.7
41-50 73 30.0 30.0 89.7
51-60 16 6 .6 6 .6 96.3
61 and above 9 3 .7 3 .7 100.0
Total 243 100.0 100.0

Source: Field Survey, 2020

19
4.1.1.3. Level of Educational status of the respondents
The results from Table 4.2 captured five (5) categories of educational background of the
respondent’s namely First cycle and below.Secondary school, Diploma, Degree , MA and
above.As illustrated in the table, majority of the respondents could read or write as compared to
those who could not. However, only few of them had attained a highest level of educational
background 3.7% with MA and above. It was found that most of the respondents (39.1%) had
Secondary school.Those with Diploma and Degree holders are respectively as follows 26.3% 11,
6 and 6.2%. This depicts that most of the responses on the assessment of tax pairs, attitudes and
compliance behaviourwas tapped into the base of respondents with First cycle and blow.
Table 4.2. Level of Education of Respondent
Frequency Percent Valid Percent Cumulati
ve
Percent
Valid First cycle and below 95 39.1 39.1 39.1
Secondary school 60 24.7 24.7 63.8
Diploma 64 26.3 26.3 90.1
Degree 15 6 .2 6 .2 96.3
MA and above 9 3 .7 3 .7 100.0
Total 243 100.0 100.0

Source: Field Survey, 2020

4.1.1.5. Length of Stay in years of tax payer
Regarding the number of year’s respondents had been spent in staying in of tax payers, the study
revealed as shown in Figure 4.3.That many of the respondents (60.1%) had spent more than 3-5
years in tax payers but time of starting business wasa 66% the defferent 6% tax payers not pay
on time this show that there is non-compliance of tax. About 21.8% of tax payers6-10 years, 11.9
% were more than 10 years, 6.2% were 2 year and less, respectively and almost more than half of
the tax payers are 3-5 years. It is important to emphasize that the number of years the majority of
respondents had stayed in the tax payers would factor into the information they had contributed
to this study. The length of years respondents had stayed in the tax payers is a good indicator to
suggest the possibility of them providing the requisite knowledge on issues concerning on the

20
assessment of tax pairs, attitudes and compliance behaviour in Dera town. This is also good
implication to get better understanding about the tax pairs, attitudes and compliance behaviour.

Figure 4.2, Length of Stay in years of tax payers

6 0 .1 %

2 1 .8 %

1 1 .9 %
6 .2 %

Source: Field Survey, 2020

4.1.1.4. Tax payers category
Figure 4.2.Below presents the distribution of respondents for the study. A sample of two hundred
fourty three (243) respondents responded to the administered questionnaire. Figure 4.2 below
shows that majority of the respondents (65.8%) were category of B while 34.2 % were category of
A. The results show a sample relatively skewed in favour of B test subjects. The need to take
both Categories in the study was to get the clear picture of ‘A’ and ‘B’.
Figure 4.2. Tax payers category
4.1.1.6. Respondents distribution by current positionin the sector
Table 4.3.The respondents position in the sector

Frequency Percent Valid Percent Cumulative

Percent
Valid Owner 163 67.1 67.1 67.1
Mangers 39 16.0 16.0 83.1
Accountant 24 9 .9 9 .9 93.0
Others 17 7 .0 7 .0 100.0
Total 243 100.0 100.0

Source: Field Survey, 2020

21
4.1.1.7. Respondents distribution in bussiness Experience
As indicated in Figure 4.4, in business exprienceexperience of the respondents’ was evenly
distributed by two year and less 8.2 %3-5years 66.3%6- 10 years 18.1% More than 10 years
7.4% respectively.Themajority of the respondents had work experience between 3-5 years to the
workenvironment thereby able to evaluate the situation in their business From this we can get
more information about the issues because most of the respondents were experienced as we seen
from the result and they had more information about tax payer’s attitude and compliance
behavior in the study area.
Figure 4.4.Respondents’ distribution in bussiness Experience

6 6 .3 %

1 8 .1 %
8 .2 % 7 .4 %

Source: Field Survey, 2020

4.1.1.8. Why do Tax payers pay taxes
Table 4.4: Responses on the why do you pay tax
Frequency Percent Valid Percent Cumulative
Percent
To avoid disturbances (penalties and, 42 17.3 17.3 17.3
sanctions)

In the anticipation of public services. 44 18.1 18.1 81.9

Valid
It is an obligation towards the 157 64.6 64.6 100.0
government.

Total 243 100.0 100.0

Source: Author, field survey, 2020

Table 4.4 shows when tax payers were asked why they pay taxes, 64.6percent of the respondents
said that they pay taxes because it is an obligation to the government or state and in the

22
 anticipation of public services from the government ( 18.1percent).This indicates there is a
negative understanding or non complince as to why people pay taxes and if successive works are
done probably better results can be registered.and the remaining 17.3percent of the respondents
said that they pay taxes to avoid disturbances.The response of others who said there is no
opportunity to evade, it indicates that they have the intention not to pay if they have the
opportunity to do so or their compliance behavior is questionable

Table 4.5 deeterminants of tax compliance level of tax payers

Determinants of Tax Compliance Level of Tax Payers

Tax Knowledge Simplicity of Attitude of Perceived Rewards
and Awareness th e ta x tax payer's governmen and
system towards t spending incentives
taxation

Pearson
1 .0 8 3 -. 0 5 1 -. 0 9 2 -. 1 1 9
Correlation
Tax Knowledge and Awareness
Sig. (2-tailed) .1 9 8 .4 2 8 .1 5 2 .0 6 5

N 243 243 243 243 243

Pearson **
.0 8 3 1 .1 1 5 .0 4 6 .2 1 4
Correlation
Simplicity of the tax system
Sig. (2-tailed) .1 9 8 .0 7 3 .4 7 4 .0 0 1
N 243 243 243 243 243
Pearson ** **
-. 0 5 1 .1 1 5 1 .3 9 5 .2 5 7
Attitude of tax payer's towards Correlation
taxation Sig. (2-tailed) .4 2 8 .0 7 3 .0 0 0 .0 0 0
N 243 243 243 243 243
Pearson ** **
-. 0 9 2 .0 4 6 .3 9 5 1 .4 9 0
Correlation
Perceived government spending
Sig. (2-tailed) .1 5 2 .4 7 4 .0 0 0 .0 0 0
N 243 243 243 243 243
Pearson ** ** **
-. 1 1 9 .2 1 4 .2 5 7 .4 9 0 1
Correlation
Rewards and incentives
Sig. (2-tailed) .0 6 5 .0 0 1 .0 0 0 .0 0 0

N 243 243 243 243 243

**. Correlation is significant at the 0.01 level (2-tailed).

The output in Table 4.5 indicates that the correlation among five different variables; the result
are correlation matrix of three variables. There are 25 cells in the above matrix. Among them

23
which is only three correlation coefficient of interested are; level of education, perceived
management spending and rewards and incentives are correlated with dependent variables of this
study .i.e. attitude of tax payers towards taxation.
Perceived management spending has positively correlated with attitude of tax payers towards
taxation. These positive correlation coefficients (0.002) and (0.000) indicates that there is
statistically significant relationship (P<0.05) or at any significance level. This imply that the
linear relationship between attitude of tax payers towards taxation with both level of education
and perceived management spending that the more who have level of education and perceived
management spending also have more income attitude of tax payers towards taxation. The
positive correlation coefficients of rewards and incentives (0.000) with attitude of tax payers
towards taxation revealed that if more rewards and incentives are given to tax payers, the more
attitude of tax payers towards taxation.
4.2. Analysis of Major Questionnaires
This section of the study was present the results of the surveyinterview and focus group
discussion about the tax payer’s attitude and compliance behavior. The result classifies the the
tax payer’s attitude and compliance behavior in different parts such as, economic, institutional,
Social and Individualcompliances.seventeen (18) items measuring the tax payer’s attitude and
compliance behavior were captured in this study. All the variables were measured using a 5-
point Likert scale (1=strongly disagree to 5=strongly agree.
4.2.1 .Economic assessment
On Economic Compliance in Table 4.6 was taken Only 5 variables out of 18 items were captured
in this study. These includes Tax rates increase evasion mean value =3.28403.,
SD=.960821Detection increase, compliance. Mean value=4.1893, SD= .55779, High detected for
nonpayment mean value =3.9506, SD =.89398, Tax evasion is ethical mean value= 3.6296, SD
=1.09971, Composition of public spending means value=3.7037, SD =.87827.In percentile also
as indicated in Table below the variables was measured using a 5-point
Likertscale.Variouseconomic compliance in tax payer’s attitude and compliance behavior had
been taken. According to the survey result indicated in Table 4.6on the variable when Tax rates
increase evasion also increases 5.3 % of the respondents strongly disagree 18.1 % disagree 21.0
% were undecided53.9 % were agreed, 1.6% were said strongly agreed, this implies that the tax
payers in the town believed that the current tax rates are not fair and equitable and so tax rate

24
must be have lower rates.On the Detection increase, compliance 70.0 % were said Strongly
Disagree.From this we can see that most of the respondents were agreed this shows that when the
detection of tax increases tax compliance increases.The findings, therefore, indicated that
majority of tax payer agreed a probability of detection was increase tax compliance.

The other on item number 3 on the same table on High detected for nonpayment 1.6% strongly
disagree, 9.5 % Disagree, 4.1% Undecided, 23.0% Agree and 61.7 % were said strongly agreed
on the issues. From this we can see that most of the respondents 61.7 % % were strongly agreed
this shows that most of the respondents were agreed that when the high detectetiontax
compliance increased.This implies that tax authority and other responsible bodies should work to
enhance voluntary compliance by strengthen the audit capacity.The other item mentioned on
number 4 and 5 Tax evasion is ethical and Composition of public spending is the same as
mentioned on the above discussion al most the respondents were agreed on.The above statistics
reveal that many of the respondents were of the opinion that in order to encourage tax
compliance is achieved; government should provide goods and services that market does not
provide.

As a result the researcher has also interviewing the team leadersand, group discussion who were
concerned with the issues on the variable mentioned above on the economic compliance.Seeing
that the result theeconomic compliance is one of the most influential on the tax payer’s attitude
and compliance behavior.The result also in some casesesthet agree with the respondents and in
some cases they do not agree with the respondents attitude. Therefore, it can be conclude that
most of the taxpayers believed that the government spending too much on something considered
unnecessary or unbeneficial to them then taxpayers was feel deceived and attempt to non-
comply.As a resultit needs some remedial actions to adjust and on some cases it needs also an
aware creation by the concerned bodies on the percentage of tax revenue going on the costs of
tax administration.Comparatively efficient tax administrations may be spending up to 2% of
revenue on collection costs Proportion of GDP countries raise in the form of tax revenue.
4.2.2. Institutional assessment
Institutional Compliance in Table 4.7 was taken Only 5 variables out of 18 items were captured
in this study. These includes Tax laws are easy mean value =3.3827, SD =.1.08979,Respect of
your tax obligationsMean value=1.9424, SD= 1.10720, Employees of revenue ethics mean value

25
=1.9424, SD =1.06250, Revenue office gives awareness mean value= 1.8724, SD =.62670,
Treatment of tax office Preferred means *value=1.9053, SD =.65814.In percentage also as
indicated in Table 4:7, blow the variables was measured using a 5-point Likertscale.Various
Institutional Compliance had been taken to check their influence on tax payer’s attitude and
compliance behavior. According to the survey result indicated in Table 4.7, the majority 60.5%
the respondents were agreed to that the easy tax law increase tax compliance and the rest 5.3%
of the respondents undecided 6.2% were Strongly agreed, 6.6% were said strongly disagreed and
21.4% were said disagreed as each were selected. The findings shows that majority of the tax
payers if tax law easily understood and this may enhance tax compliance.Number item 2 on the
same table on respecting of tax payer on tax obligations1.2% strongly Disagree, 34.2%
Disagree2.5%Undecided, 50.6% Agree and 11.5 % were said strongly agreed. .From this we can
see that most of the respondents were agreed respecting tax obligations.

The other 38.3 % strongly disagree, 46.9 % Disagree, 0.4% Undecided, 11.1 % Agree and 3.3%
were said strongly agreed on the Employees of revenue ethics. From this we can see that most of
the respondents 46.9 % were disagreed this shows that the employees of revenue office not
capable enough by in number, ability and ethics to be the tax system transparent, equitable and
modern.The other 22.2 % strongly disagree72.0 % Disagree, 2.9 % Undecided, 2.1% Agree and
.8 % were said strongly agreed Revenue office gives awareness for tax payers. The result shows
that the Revenue office not gives awareness for tax payers and, the training program initiated by
the tax office has not contributing to raising the awareness of the taxpayers on voluntary
compliance.On The treatment of tax office is equally and independent for all taxpayers 69.5% of
the respondents were dis agree on giving on the theissues.This indicates that there is no the
treatement of tax office is equally and independent for all taxpayers.

26
Table 4.7.Respondents rating the Institutionalassessment

No Institutional factors N Rating Likert scale in % Mean SD

1 2 3 4 5
1 Tax laws are easy incco 243 6.6 21.4 5.3 60.5 6.2 3.3827 1.08979
2 Respect tax obligations 243 1.2 34.2 2.5 50.6 11.5 1.9424 1.10720
3 Employees ethics 243 38.3 46.9 0.4 11.1 3.3 1.9424 1.06250
4 Revenue office aware 243 22.2 72.0 2.9 2.1 .8 1.8724 .62670
5 Treatment of tax office 243 22.2 69.5 3.7 4.5 - 1.9053 .65814
Field work data, 2020

As a result the researcher has also interviewing the team leaders who were concerned with the
issues on the variable mentioned and focus group discussion above on the Institutional
Compliance on tax payer’s attitude and compliance behavior.The result of interview indicates
that the institutional compliance is one of the influential factors on tax payer’s attitude and
compliance behavior. The findings, therefore, shows that majority of the tax payers if the tax law
easily understood and this may enhance tax complianceinrespecting tax obligations and in other
wise fear of judging the treatement of tax office equally and independent for all taxpayers and
voluntary compliance is promoted not only by an awareness of rights and expectations of a fair
and efficient treatment but also by clear, simple and user friendly administrative systems and
procedures.
4.2.3.Social assesment
As indicated in Table 4.8, Social Compliance was taken Only 2 variables out of 18 items were
captured in this study. These includes present tax system benefits mean value =2.3539, SD
=.1.00734,Friends & family affect taxpayers' Mean value=3.7366, SD= .86518.In percentage
also as indicated in Table 4:8 below the variables was measured using a 5-point Likert
scale.Social Compliance had been taken to check their influence on tax payer’s attitude and
compliance behavior.

From selected the present tax system benefits the rich and is unfair to the ordinary working man
or woman, this discourages tax compliance18.1 % strongly Disagree, 21.08 % Disagree, 11.5
%Undecided, 49.4 % Agree and no were said strongly agreed.

27
From this we can see that most of the respondents were disagreed.Thisshows that the present tax
system benefits the rich and is unfair to the ordinary working man or woman, this discourages
tax compliance.On the 2nd item on the same table on Friends and family was affect taxpayers'
decision to comply or not.Accordingly the result 3.3 % strongly Disagree, 8.6 % Disagree, 8.2
%Undecided, 70.8 % Agree and 9.1% were said strongly agreed. From this, it can be concluding
that majority of the tax Payers agreed on the influence of Friends and family was affect
taxpayers' decision to comply or not.

Table 4.8.Respondents rating on the Socialassessment

No Social Compliance N Rating Likert scale in % Mean SD

1 2 3 4 5
1 Present tax system benefits 243 18.1 21.08 11.5 49.4 - 2.3539 1.00734
2 Friends & family affect 243 3.3 8.6 8.2 70.8 9.1 3.7366 .86518

Field work data, 2020

As a result the researcher has also interviewing the team leader who was concerned with the
issues and focus group discussion on the variable mentioned above on the Social
Compliance.Seeing that the result Social Compliance is one of the most influential tax payer’s
attitude and compliance behavior.As the result it was supported by the respondents of
interviewers focus group discussion indicates that Social Compliance is one of the most
influential on tax payer’s attitude and compliance behavior Therefore it needs some remedial
actions by the concerned bodies to reduce the influence of Social Compliance on tax payer’s
attitude and compliance behavior to reduce the influence.
The perception of the fairness of the tax system among taxpayers is an important element and,
wasingness to voluntarily comply with the tax laws that depends in part on their confidence that
their friends, neighbors, and business competitors are paying their share of taxes.

28
 CHAPTER FIVE
5. SUMMARY, CONCLUSION AND RECOMMENDATION

5.1. Summary of Major Findings

In an attempt to meet the stated objectives of the research and to answer the research question’s
data were collected and analyzed in the previous chapters.A description survey study with
quantitative and qualitative research approach (mixed method) was employed, and the related
literature was reviewed. The respondent 243 in this study wereemployed in Dera
townadmistration. Different data collected tools were employed to carry out the study including
questionnaires, interview, group discussion and document review. All the required data obtained
through these tools were discussed, quantified, narrated and described using logical arguments,
triangulations.Therefore, and the analysis identified the following major findings.
The study classifies the result of the tax payer’s attitude and compliance behavior in different
parts such as, economic, institutional, social and Individual factors assessment and it arrived at
the major findings.
Economicassessment had been taken to check their influence on tax payer’s attitude and
compliance behavior. Accordingly the Economic assessment factors found to have influence
on on tax payer’s attitude and compliance behavior.The result of interviewing on the
teamleaders, groupdiscussion and document review were concerned with the issues on the
variable mentioned above on the economic assessment factors also shows that it is one of the
most influential on the tax payer’s attitude and compliance behavior. As a result it needs
some remedial actions to adjust and on some cases it needs also an aware creation core stone
by the concerned bodies.
Revenue authority and other responsible bodies should work to enhance voluntary
compliance by strengthen the audit capacity also an important issues to assure tax
compliance.Most of the taxpayers believed that the government spending too much on
something considered unnecessary or unbeneficial to them then taxpayers was feel deceived
and attempt to non-comply.
The institutional assessment consists of work environment, policy and manual
implementations.The study revealed that the institutional compliance have association with
tax payer’s attitude and compliance behavior in Dera Town Administration. According to the

29
survey result discussed most of the institutional assessment was the major contributory on tax
payer’s attitude and compliance behavior.It includes government policy that influence on tax
payers, this include tax laws, and Respectof tax obligations,employees of revenue ethics, and
Revenue office gives awareness and Treatment of tax office Preferred. Similarly the result of
the interviews and group discussion also confirmed the same aforementioned assessment of
institutional on tax payer’s attitude and compliance behavior. The findings shows that
majority of the tax payers if the tax law easily understood and this may enhance tax
compliance in respecting tax obligations and in other wise fear of judging the treatement of
tax office equally and independent for all taxpayers. The treatement of tax office is equally
and independent for all taxpayers.
With related to the survey result indicated major Social assessment that include The present
tax system benefits the rich and is unfair to the ordinary working man or woman, this
discourages tax compliance, andfriends and family was affect taxpayers' decision to comply
or not. The results shows that the present tax system not benefits the rich and is unfair to the
ordinary working man or woman, this discourages tax compliance and friends and family
was affect taxpayers' decision to comply or not.
Result of interview; however, elaborate the Social compliance more pronounced. As the
result it was supported by the respondents of interviewers and focus group discussion
indicates that Social factors assessment are one of the most influential on tax payer’s attitude
and compliance behavior Therefore it needs some remedial actions by the concerned bodies
to reduce the influence of Social Compliance on tax payer’s attitude and compliance
behavior.

30
5.2. Conclusion
Based on the summary of major finding, the following conclusions have been drawn:

The study covered the interaction between tax compliance and describing the result classifies
the tax payer’s attitude and compliance behavior in different parts such as, economic,
institutional, Social and Individual factors assessment as independent variables i.e. tax rates,
probability of being audited, perception of government spending, role of tax authority,
complexity of tax system, the influence of referral group, tax knowledge, awareness of offences ,
penalties and personal financial constraintswere foundwhile tax compliance was considered as
dependent variables.The main objective of the study was to assess tax compliance behavior of
category ‘A’ and ‘B’ taxpayer’s inDera town administration.Survey design was used with
questionnaire interview and focus group discussion as the tool of data collection ,selected sample
size was 244.

The study analysis was used the descriptive statistics analysis.From the study findings there is in
the town believed that the current tax rates are not fair , equitable and so tax rate must be have
lower rates.Perception of fairness and equity of the tax system is also found to have asignificant
on tax compliance behavior.The implication of this result is that if the tax payers feel that their
tax burden is higher than other people within the same income group, their tax compliance
probably decreases.Therefore it can be concluded that taxpayers’ perception on compliance
improves when taxpayers believe the tax system is fair and equity, they believe that they receive
something valuable for their payments and when society shows no tolerance for tax
evasion.Audit and compliance are found to have a positive relationship in Allingham and
Sandmo (2012) studies.

In this study tax audit and tax compliance has found to have a positive relationship. From this it
can be concluded that a high possibility of being audited could encourage taxpayers
tocompliance.Complexity of the tax system was also found to have influence on tax compliance
behavior this study suggests that simplifying tax system is important because it can enhance the
tax payer to comply.Therefore complexity of the tax system has partly contributed to tax payers’
non-compliance.

31
Role of tax administration was found an effect on tax compliance behavior.This could imply that
when taxpayer are highly trust the tax office decision making,competences of service
personnel's, ethics of the tax collector and all over the service provide by the office was lead to
tax payers wasing to comply. Other variables perception of government spending, and the
influence of referral group, awareness of offences and penalties and personal financial
constraints were influence with tax compliance.

The study concludes that tax knowledge and education has a significant on tax compliance.It is
therefore prudent for the tax system to enhance education on how to file tax returns and the
importance of paying.Based on the finding results, therefore, there are negative perceptions
which yet need to be changed to make the perception of respondents completely tax payer’s
attitude and compliance behavior friendly since it provide direct evidence in tax compliance, and
an indication of its magnitude effect. As indicated in this study, one of the researcher‘s basic
assessment was focused on assessing individual factors influence on tax payer’s attitude and
compliance behavior.Finallydocument review also assure there is negative tax voluntary
compliance attitude is failure to comply with their tax commitment.Low tax compliance is a
challenge in the town.Audit coverage is very low andrevenue authority could not found correct
income of taxpayers.

5.3. Recommendations
According to the findings and conclusions drawn above, the following recommendations are
proposed for opportunities of the tax payer’s attitude and compliance behavior in the studied
areas of theDera townadimistration.
1. To the Revenue Authority of the town
Tax equity and fairness is achieved through levying equal taxes on individuals who have equal
income but also each taxpayer should pay according to his ability.Similar treatment and that all
officials dealing with a given taxpayer would accord the same treatmentso that voluntary
compliance behavior can be developed.Taxauthorities should educate tax payers on how to keep
financial records, and complaining procedures during injustice.Moreoverby using different
printed and electronic mass Medias such as magazines, pamphlets, etc.the tax authorities ought
to aware the rights and responsibilities of tax payers and the benefits of tax payment for the
development of the country.Likewise, awareness creation should be extended to having

32
consultative sessions with elderly, religious leaders,prominent personalities in the society or
other influential individuals.

Additionally similar to schools at each levels of education.Thereforestudents can be educated

early in their career about tax responsibilities. As the study finding indicates that probability of
detection has a positive significant influence on tax compliance, it is recommended that the tax
authority should increase the number or frequencies of audits or coverage, and auditor staff to
assure tax compliance level of taxpayers.The Revenue office should need to control the tax
evasion by applying effective and efficient tax audit based on reliable evidences and
documents.Systemswith low trust and powerof authorityare most likely to be complied
with.Therefore more trust and proper use of power makes the taxpayers be more confident to
obey their duties. This may encourage taxpayers to voluntary tax compliance.

The study finds strong upkeep for the argument that enforcement influence highly on tax
compliance, thus there should be reasonable levels of fines and taxes to implement.These way
taxpayers been courage to comply since they was keep precise records for taxation purposes in
order to escape from fines and penalties. This way tax compliance levels
wasincrease.Theauthority should make the tax law and procedures simple, understandable,
transparentrevenue authority isto ensure compliance with tax laws. Voluntary compliance is
enhanced when vibrant and efficient tax authority exists so the tax authority needs to strengthen
itselfby educating and training its employees, by computerizing its operations and devoting
additional resources.

Enhance enforcement of the tax law-detect and deter domestic and off-shore based tax and
financial criminal activities.Tax Simplicity is another important indicator when assessing the tax
systems.The more complex a tax system, there are greater opportunities for tax avoidance,
evasion and other forms of abuse and also greater chance for exclusion for non-tax experts who
are unable to understand the system.This is to hammer in citizens a sense of responsibility
toward taxes.Therefore the tax authorities at levels of the town adimistration have to build trust
in the tax system, assessments and collection procedures in the mind of resident as a whole and
specifically to tax payers.

33
6. REFERENCE
Agumas, A. M. (2016). Impact of Tax Audit On Improving Taxpayers Compliance : Emperical
Evidence From Ethiopian, 2(12), 1–19.Survey.Public Administration Review. 38, pp.
442-52.
Ahmed, A. &Kedir, S. (2015). Tax Compliance and its Determinant: the Case of JimmaZone ,
Ethiopia. International Journal Of Research In Social Sciences, 6(2), 7–21.
Alm, J., G. H.McClelland &W. DSchulze 1992. Why do people pay taxes? Journal of Public
Economics,4 (8), 21-38
Allingham, M. G., &Sandmo, A. (2012). Income tax evasion: A theoretical analysis. and Society
Review, 25, 637–683
Alm, J. and Torgler, B., ‘Do Ethics Matter? Tax Compliance and Morality’, 2011, Journal of
Business Ethics, vol. 101, no. 4, pp. 635-651.
Amina, A., and Saniya, (2015). Tax compliance and its determinant the case of JimmaZone,Vol.
6,
Beza, M. (2014). Determinants Of Tax Payer’s Voluntary Compliance With Taxation In East
Gojjam-Ethiopia. Research Journal of Economics
Compliance In Real Estate Sector : A Case Of Real Estate Owners In NakuruTown , Kenya,
5(11), 1–1
Constitution of the Federal Democratic Republic of Ethiopia Proclamation No. 1/1995".
Dereje Lemma (2016) on ‘assessment of tax payer attitude and compliance behavior among
category “A” and “B” taxpayers in Hosanna Town
(Feld L.S FreyandTargler B., 2007).Rewarding Honest Taxpayers: Evidence on the Impacts of
Rewards from Field experiments. Paper presented on April 2007 on Managing and
Monitoring Compliance Development Volume Vol.5, issue number 15 .pp.268- 27
FDRE, 2016."Income Tax Regulation No.979/2016‟, Federal NegaritGazeta, Addis Ababa,
Ethiopia.
FDRE (2015).Growth and Transformation Plan II (GTPII)

Geletaw, T.T. (2017). Taxpayers’ Tax Compliance Behavior- Business Profit Taxpayers ’ of
Addis Ababa City Administration. Masters Thesis, 5(1).
IMF, 2015. The Democratic Republic of Ethiopia.Press Release. Country ReportWorking Paper

34
Jackson. B.R., and Milliron, V.C. (1986). Tax compliance research: Findings, problems, and
prospects. Journal of Accounting Literature, 5, 125-65
Kirchler, E., Hoelzl, E. and Wahl, 2007: Enforced versus voluntary tax compliance: The
‘‘slippery slope’’ framework, Journal of Economic Psychology, 29 (2008), pp. 210–225
Lemessa,T. , 2007. Determinants of Taxpayers’ Voluntary Compliance with Taxation: the case
study of Dire Dawa City
McKerchar, M.A. (2009). Sustaininggrowth in developingeconomies throughimproved
Taxpayer compliance: Challenges forpolicymakers and revenue authorities.eJournal of
Tax Research
Muoki, P., Corresponding, N., & Peter, O. R. (2014). Analysis Of Factors Affecting Tax Journal
of Accounting, Finance and Auditing Studies 5/1 (2019) 32-58
NiwayAyalewWondwossen, 2016.Determinants of voluntary compliance behaivorevedence
from SNNPR, Ethiopia. International Journal of Scince and Research, 5(12), pp. 967-973.
OECD (2008). SME tax compliance and simplification: Background note prepared for round
table discussion at the 1st meeting of the working group on taxation of SME investment.
Oromia, Horn Affairs, A multilingual magazine on the Horn of Africa, (Dr. TeshomePalil,
M.R.(2010).Tax Knowledge and tax compliance determinants in self assessments in
Malaysia,
Palil M. R., & Mustapha, A. F. (2011).Factors Affecting Tax Compliance Behaviour In Self
Assessment System, 5(33), 12864–12872.Https://Doi.Org/10.5897/Ajbm11.1742

Singh, (2003). The Malaysian self-assessment system of taxation: Issues and challenges. Tax
National, 1217.

Tadesse, G., &Goitom, A. (2014). Factors Influencing Taxpayers’ Compliance with The Tax
System: An Empirical Study In Mekelle City, Ethiopia. Ejournal of Tax Research, 12(2),
433–452

35
 APPENDIX -A
RIFT VALLEY UNIVERSITY, ASELLA COMPUS
Department of Business and Economics
Dear Respondents
The purpose of this questionnaire is to collect data on assessment of tax payer‘s attitude and
compliance behaviors Case of category ‘A’ and, ‘B’Dera town administration in 244 tax payers
complete a research paper in partial fulfillment of requirements for BA Degree in Accounting.
To this end I kindly request that you was complete the following short questionnaire regarding
the stated objective. It wastake no longer than 10 minutes of your time.
I would like to bring to your attention that success of this study heavily depends on your frank
response to the question provided. The study wasbe helpful for taxpayers, tax authorities as well
as for policy makers.
All the information that you provided was be kept confidential and used only for the purpose of
the study. The study is conducted by:
AwelGoleFitora
Telephone 0912123563
Email: awelfitora @gmail.com
Kindly requesting you to give genuine response to all the questions hereunder, I am grateful to
your cooperation.
I Thank You!
Part one: General Instructions:
 There is no need of writing your name
 Tick () in the appropriate box provided
 Write your additional opinion on place provide
Part two: General information of the taxpayers and the business
1. Sex: Male  Female
2. . Age of tax payer’s:Less 30  30 to 39  40 to 49  .50 to 59  60 years or
more 
3. Educational background:
 First cycle, and below  Diploma  First degree  Second degree & above
4. Category of tax payer □ A □B

36
5. For how many years you are known as tax payer?  2 year and less  3-5years  6- 10
years  More than 10 years
6. What is your position in the sector?  Owner Mangers  Accountant .Other
(Cashier, Salesman,)
7. When did you start business?  2 year and less  3-5years  6- 10 years  More
than 10 years
Par three: Questions related to Taxpayers’ General knowledge about assessment
Taxpayer’s attitude and behavior compliance
8. Why do you pay taxes? . To avoid disturbances (penalties and, sanctions) In th e
anticipation of public services.  It is an obligation towards the government. Don’t know.
State if any _______________________________________________________
9. Considering your ability to pay, how do you think the amount of tax liability you have paid?
 Overstated  Understated  Normal
10. What are the major problems in tax system/ collection?
. Taxes revenues are not spent on public services Tax rates are too high.  There are
dishonest tax collectors. . Several tax items are levied at the same time.
.  Taxpayers are not wasing to pay taxes. State if any___________________________
11. How do see the tax law? 1. Good 2. Satisfactory 3. It has a problem 4.  Must
to improve
Part Four: Assessment of taxpayer’s attitude and compliance behavior Please tick () that best
describes your response
1. Strongly Disagree 2.Disagree 3.Neutral. 4. Agree 5.Strongly Agree
No. Statements 1 2 3. 4 5
12 Tax rates are so heavy that tax evasion is an economic
necessity for many to survive.
13 If the probability of detection is high, tax compliance
was increase
14 There is high degree of being detected for non-payment
of tax compliance that is why you pay your tax
obligation
15 evasion is ethical if the probability of getting caught is

37
 low
16 The composition of public spending provides necessary
goods and services that market does provide this
encourages tax compliance
17 Tax laws are easy to understand i.e. calculation of tax
filing and paying dates, this increase tax compliance
18 You know all what is required from you in respect of
your tax obligations
19 The employees of revenue office capable enough by
in number, ability and ethics to be the tax system
transparent, equitable and modern.
20 Revenue office gives sufficient awareness creation
training (tax education) to taxpayers

21 The treatment of tax office is equally and independent

for all taxpayers
22 Friends and family was affect taxpayers' decision to
comply or not
23 You can easily calculate your tax liability

24 Declaration formats are simple to fill

25 You can easily get the necessary tax information and

updates
26 The penalty rate and enforcement undertaken by the tax
authority is high which results in high compliance.
27 People who face personal financial problems are likely to be
more disposed to evade tax
28 The people in financial distress prioritize their financial
need rather than pay taxes
29. Please state any your possible solutions about how to improve taxpayer’s attitude and
compliance behavior…………………………………………………………………

Thank you for your cooperation

38