Determinants of Tax Compliance in the Case of Small and Medium Enterprises

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The main objective of this study was to identify the determinants of tax compliance on small and medium enterprise taxpayers’: the case of kirkos subity Addis Ababa. The specific objective includes examining, the effect of tax rate, knowledge of tax system, fairness of tax system, and trust in government on tax compliance. The research used explanatory research methods. The primary data was collected using Likert scale questionnaires distributed to the small and medium enterprise owners and employees in kirkos sub city taxpayers. Dependent variable (Tax compliance) was measured in terms of complied to tax law that is registered timely, collect taxes by a legal receipt, file the tax returns in the actual filing date, compute the tax liability as per the tax rate specified in the law, paid the right amount of tax within the time frame stipulated in the tax law and have adequate records to complete tax returns and associated tax documentation. The predictor or independent variables were tax rate, tax knowledge, fairness of tax system, probability of being audited, and trust in government. The target population was 8013 from SMEs registered taxpayers. The researcher utilized stratified random sampling for taxpayers and purposive sampling techniques to select the participants. A sample size of 381 has been drawn from the tax population in Addis Ababa kirkos sub city SMEs. The descriptive statistics was used to analyze the tax compliance and inferential analysis (multiple regression analysis) to determine the cause and effect relationship Independent variables on dependent variable and to test the hypothesis. According to the regression output the knowledge of tax system, fairness of tax system tax audit and trust in government affect the tax compliance significantly and positively. The remaining variable tax rate negatively related with tax compliance and their contribution was statistically insignificant. All these independent variables are making 67.2% of the contribution for tax compliance. The results of this study also provide specific insights and enable policymakers to gain a better understanding of key variables that are significantly linked to tax compliance and enable them to implement appropriate strategies to minimize potentially harmful factors, as well as improve tax collections for their government. Thus, these factors should be given due consideration to enhance taxpayers’ compliance behavior and improve government’s revenue collection.



tax compliance, tax audit, Small and medium enterprises