Determinants of Tax Compliance of Micro and Small Business Enterprise (MSE) Category “C” Taxpayers, the Case of Gurage Zone, Ethiopia

Abstract

This study sought to identify the determinant of tax compliance in Ethiopia, specifically focusing on Micro and Small business enterprises operating in the Gurage zone. The researcher outlined a detailed literature review and identified the variables for this research to be tax rate, tax knowledge, tax compliance cost; the attitude of Micro and small enterprises and tax system. The research employed both descriptive and explanatory research design. A sample size of 325 was used from a population of 1726 micro and small business enterprises category “C” taxpayers in the Gurage zone. Data was collected using questionnaires and the structured interview. The collected data was consequently analyzed using Statistical Package for Social Scientist software (SPSS V.22) and the findings of the research presented using tables, various chart types and graphs. The results showed that tax rate, tax knowledge, tax compliance cost, the attitude of SME's and tax system significant determine tax compliance of taxpayers. Tax rate, Tax system and compliance cost predominantly affect tax compliance. Concerning the cost of tax compliance, the study revealed that Micro and Small businesses incur different costs such as salary of accountants, fees to tax consultants, cost of stationeries, etc. that contributed for their non-compliance and estimation of Micro and Small Enterprises tax is another problem-related tax system. However, the taxpayers do feel and strongly agree that the taxation system in Ethiopia is in great need of improvement. The study then recommended that the current tax law should be amended to incorporate provisions that grant special tax incentives to MSEs to improve voluntary tax compliance by MSE taxpayers. The study also recommended that the ERCA should disseminate information on the tax rate and tax system more frequently to improve the levels of tax know-how for voluntary tax compliance.