Journal of Business and Administrative Studies

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.