Abstract

The study is conducted with the aim of identifying the determinants of tax compliance behavior in Bahir Dar city administration business income taxpayers with special reference to category “A” and “B” taxpayers. The voluntary compliance behavior of the taxpayers is affected by various factors and identifying these factors in order to maintain voluntary compliance at satisfactory level and treating the factors accordingly should be the central premises of any tax system. Mixed research approach with explanatory research design is used in the study by employing stratified random sampling to select the participants. The sample size is determined to 248(99 category ‘A’ and 149 category ‘B’) business income taxpayers by using Yemane’s (1967) formula of sample size determination. The researcher has collected primary and secondary as well as qualitative and quantitative data through questionnaires and unstructured interviews and from city’s tax authority data base. The collected data was analyzed by using STATA14 and SPSS20 software and correlations and regression analyses are made to find answers for specific objectives. Given the ordered ranking of information related to the dependent variable (tax compliance), ordered logistic regression model is used to identify determinants of tax compliance in Bahir Dar city. According to the study, factors such as fairness of the tax system, penalty, organizational strength of the tax authority, perceptions of government spending and compliance cost were found to be the determinant factors that affect taxpayer’s voluntary compliance. Finally the study recommends maintaining tax fairness, appropriate and moderate levels of penalty, building the tax authority’s capacity, spending the tax revenue on important and social projects and keeping compliance costs to the minimum.