Factors Contributing to Tax Evasion: The Case of Small and Medium Enterprises in Addis Ababa City Administration
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Date
2022-06-06
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A.A.U
Abstract
The main objective of this study was to identify the factors contributing to tax evasion, focusing on Small and Medium enterprises operating in the sub-cities of Addis Ababa. The researcher outlined a detailed literature review and identified seven variables for the study, four from the economic deterrence theory elements (i.e., tax penalties and enforcements, tax audits, tax authority’s efficiency, tax compliance cost) and three from psychological theory factors (i.e., tax fairness, tax awareness and taxpayers’ attitude towards tax). Descriptive research designs and a mixed research approach were used in this study to answer the research questions. The taxpayers were stratified into small and medium enterprises. The primary data was collected from 353 owners or managers of SMEs by using questionnaires and from 20 auditors of Ministry of Revenue through structured interviews and analyzed using descriptive statistics. The result of the study showed that negative taxpayers’ attitude towards tax and tax compliance costs have positive effect on tax evasion. But tax audit, tax awareness, tax authority’s efficiency, tax fairness and tax penalties & enforcements have negative effect on tax evasion respectively. From the seven predictor variables included in this study negative taxpayers’ attitude towards tax has the largest positive effect on tax evasion. The study recommended that in order to reduce tax evasion of small and medium enterprises by changing the negative attitude developed by taxpayers toward tax, the tax authority might be able to raise taxpayers awareness through training, improve the behavior of the tax collectors or assessors, and also provide a clear procedures to the taxpayers how tax system works and how their tax is calculated and by how much tax rate.