Factors Contributing to Tax Evasion: the Case of Small and Medium Enterprises in Addis Ababa City Administration

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The study's objective was to determine the elements that influence tax evasion in Addis Ababa’s Small and Medium Enterprises. In addition to using purposive and stratified sample procedures, the research used both descriptive and explanatory research designs. Questionnaires and interviews were used to collect the primary data for the study, and it was then analyzed using descriptive and inferential statistics. Just 310 out of the 371 surveys questionnaires that were collected from randomly chosen taxpayers were fully completed, returned, and used in the research. The study's findings demonstrated that tax evasion is positively and significantly impacted by the negative attitudes of taxpayers regarding taxes, the cost of tax compliance, and corruption. Yet, tax knowledge, tax fairness, and tax fines and enforcements each have a negative and significant impact on tax evasion. The most positive and substantial impact on tax evasion is caused by negative attitudes of taxpayers regarding taxes from the six predictor factors. The study then made the suggestion that in order to reduce the expense of tax compliance, the tax authority should make sure the tax system is clear and straightforward. The study also recommended that the government use taxpayer funds wisely and transparently, communicate with taxpayers about tax programs to promote the benefits of paying taxes in order to improve tax compliance and reduce tax evasion, in order to change the negative attitude developed by taxpayers toward tax.