ETHIOPIAN CIVIL SERVICE UNIVERSITY

College of Finance Management and Development

Department of Public Financial Management and
Accounting

Extension Program
Factors Affecting Tax Evasion in Ministry of Revenues: The Case
of Large Taxpayers Branch Office
By: Molla G/Giorgis
ID.No ECSU1901248
Supervisor : Delesssa Daba (PhD)
A thesis submitted to the Extension Program, college of
Management and Development Ethiopian Civil Service
University in Partial fulfillment of the Requirement for the
Award of Master‟s Degree in Accounting and Finance.
March, 2022
Addis Ababa,
Ethiopia
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 Declaration
I the undersigned, Registration Number/ I.D. Number ECSU1901248 do hereby declare that

this thesis is my original work and that it has not been submitted partially; or in full, by any

other person for an award of a degree in any other university/institution.

Name of Participant: Molla G/Giorgis

Signature……………………. Date 04/05/2022

This Thesis has been submitted for examination with my approval as College supervisor.

Name of Advisor Delesa Daba (Phd)

Signature……………………. Date……………

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 Approval
The undersigned certify that they have read and hereby recommend to the Ethiopian Civil

Service University to accept the Thesis submitted by Molla G/Giorgis and entitled “Factors that
cause Tax Evasion: The Case of Federal Democratic Republic of Ethiopian Ministry Of revenue
Large Taxpayers Branch Office”, in partial fulfillment of the requirements for the award of a
Master‟s Degree in Accounting and Finance

Name of Supervisor Delesa Daba (Phd) Signature ………………Date…………………

Name of Internal Examiner ……………..Signature…………. …….Date………………

Name of External Examiner……………Signature……………..….Date……………

Name of Head of Department …………Signature…………………. Date…………….

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 Abstract
The study was intended to identify determinant causes of tax evasion within the large taxpayer’s branch
office of the Federal Government of Ethiopia Ministry of Revenue. It is challenging to deliver high-
quality, uniform public goods and services as needed because tax evasion is such a serious issue. The
target population was the whole registered and recently active taxpayers. From this population, 155
sample sizes were selected by the sampling technique formula used by Masuku (2014). The researcher
selected the respondent's inconvenient way which is the quota sampling method. However, 147
questionnaires were returned. The collected raw data was analyzed using the descriptive method which
was supported by an excel spread sheet. The selected variables such as tax rate, probability of detection,
penalty rate, and the complexity of tax system, perceived role of government, peer influence on tax
evasion, age, gender, and educational factors were theoretically expected that they are the main factors.
The research also suggested that efforts be made by branch offices concerning revisiting the perceived
high tax rates, engaging in a national campaign to raise awareness and increase knowledge about the
benefits of voluntary compliance, enhance the percentage of audit coverage of taxpayers, penalize
defaulters, simplify tax laws, close tax law loopholes, and, train tax auditors and other concerned
employees of the branch office.

Key words: Tax evasion, main factors, and tax education

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 Acknowledgements
First and foremost, I want to thank the Almighty God, the Father of Jesus, for choosing me as a
new generation to be a royal priesthood, a holy nation, and to live forever with him.

Next, I'd like to express my heartfelt gratitude to my advisor, Delesa Daba (Ph.D.), for his
unwavering support, critical and constructive feedback, and insightful suggestions throughout
the entire research planning, implementation, and manuscript preparation process, as well as his
enthusiastic cooperation.

Despite his busy schedule, I appreciate his dedicated work in supervising this study project.

I'd also like to thank the employees of the Ministry of Revenue's Large Taxpayers Branch
Office for their valuable cooperation and willingness to spend their valuable time filling out the
questionnaire and responding to supporting questionnaires during a busy and peak period of
customer service. I'd like to express my gratitude to Ato Niguse Mengesha for his financial and
moral support throughout the training.

I also like to thank my wonderful wife W/ro Abrhet Mehary and my Encouraged Sons (Yonas,
Israel, Bereket, and Ermias) for motivating and sponsoring me.

Finally, I'd want to thank my daughter Tinbit Molla for her quiet cooperation while I was
writing this thesis.

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 Table of Contents
Declaration ................................................................................................................................................... i

Approval ...................................................................................................................................................... ii

Abstract ...................................................................................................................................................... iii

Acknowledgements .................................................................................................................................... iv

List of tables................................................................................................................................................ ix

List of figures ............................................................................................................................................... x

List of Appendices....................................................................................................................................... xi

List of Acronyms/abbreviations................................................................................................................. xii

CHAPTER ONE: INTRODUCTION ................................................................................................................ 13

1.1 Background of the study ........................................................................................................... 13

1.2 Statement of the problem ......................................................................................................... 15
1.3 Research questions.................................................................................................................... 17
1.4 Objectives of the study .............................................................................................................. 18
1.4.1 General objective of the study .......................................................................................... 18
1.4.2 Specific objective ............................................................................................................... 18
1.5 Significance of the study............................................................................................................ 18
1.6 Scope of the study ..................................................................................................................... 19
1.7 Description of the Study Area ................................................................................................... 20
1.8 Limitation of the study .............................................................................................................. 20
1.9 Organization of the Study.......................................................................................................... 21
CHAPTER TWO: REVIEW OF RELATED LITERATURE ................................................................................... 22

2.1 Theoretical Literature Review ................................................................................................... 22

2.1.1 Ethiopian tax policy ........................................................................................................... 22
2.1.2 Tax Evasion ........................................................................................................................ 22
2.1.3 Why Do Taxpayers evade tax? .......................................................................................... 22
2.1.4 Risk level of the taxpayer .................................................................................................. 23
2.1.5 Methods for estimating the extent of tax evasion ............................................................ 23
2.2 Why should we take care of tax evasion? ................................................................................. 27
2.3 Empirical Literature Review ...................................................................................................... 27

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 2.3.1 Tax ..................................................................................................................................... 27
2.3.2 History of Taxation in Ethiopia .......................................................................................... 27
2.3.3 Tax Evasion ........................................................................................................................ 29
2.3.4 Causes of tax evasion ........................................................................................................ 29
2.3.5 Determinants of tax evasion ............................................................................................. 30
2.4 Conceptual framework .............................................................................................................. 35
2.5 Summary and Knowledge Gap .................................................................................................. 36
CHAPTER THREE: RESEARCH DESIGN AND METHODOLOGY ..................................................................... 38

3.1 Introduction ............................................................................................................................... 38

3.2 Operational definition of variables............................................................................................ 38
3.3 Research Design ........................................................................................................................ 38
3.4 Research approach .................................................................................................................... 39
3.5 Population and Sample.............................................................................................................. 39
3.6 Population, sample, and sampling techniques.......................................................................... 39
3.6.1 Sample size ........................................................................................................................ 40
3.6.2 Sampling techniques ......................................................................................................... 40
3.7 Research Approach.................................................................................................................... 41
3.8 Type of data and data collection tools and method ................................................................. 42
3.9 Data analysis techniques ........................................................................................................... 42
3.10 Ethical considerations in the study ........................................................................................... 43
CHAPTER FOUR: DATA ANALYSIS AND FINDINGS...................................................................................... 44

4.1 Introduction ............................................................................................................................... 44

4.2 Demographic data ..................................................................................................................... 44
4.3 Analysis of data results concerning the variables ..................................................................... 46
4.3.1 Effects of tax evasion on resource accumulation of individuals, public service,
and government debt. ....................................................................................................................... 46
4.3.2 Impacts of tax Rate on tax evasion.................................................................................... 47
4.3.3 Impacts of income levels of taxpayers on tax evasion ...................................................... 48
4.3.4 Impacts of inflation rate on tax evasion ............................................................................ 49
4.3.5 Impacts of the probability of detection and capacity of investigation ............................. 50
4.3.6 Effects of penalty on tax evasion....................................................................................... 52
4.3.7 Impacts of the complexity of tax law and its administration system on tax evasion ....... 53

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 4.3.8 Impact of perceived roll of Government on the use of tax revenue to public service on
tax evasion ......................................................................................................................................... 54
4.3.9 Impacts of taxpayer’s attitude to government programs on tax evasion ......................... 56
4.3.10 Impacts of Peer influence on tax evasion.......................................................................... 57
4.3.11 Impacts of age, gender and education level of taxpayer of taxpayers on tax evasion ..... 58
4.4 Interpretation and Discussion ................................................................................................... 61
4.4.1 Effects of tax evasion on accumulation of individuals wealth .......................................... 61
4.4.2 Impacts of tax Rate on tax evasion.................................................................................... 61
4.4.3 Impacts of income levels of taxpayers on tax evasion ...................................................... 61
4.4.4 Impact of inflation on tax evasion ..................................................................................... 62
4.4.5 Impacts of the probability of detection and capacity of investigation ............................. 62
4.4.6 Effects of penalty on tax evasion....................................................................................... 63
4.4.7 Impacts of the complexity of tax law and its administration system on tax evasion ....... 63
4.4.8 Impact of perceived roll of Government on the use of tax revenue to public service on
tax evasion ......................................................................................................................................... 64
4.4.9 Impacts of taxpayer’s attitude to government programs on tax evasion ......................... 65
4.4.10 Impacts of Peer influence on tax evasion .......................................................................... 65
4.4.11 Impacts of age, gender and education level of taxpayer on tax evasion .......................... 65
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION....................................................... 68

5.1 Summary of Major Findings ...................................................................................................... 68

5.2 Conclusion ................................................................................................................................. 68
5.3 Recommendation ...................................................................................................................... 69
5.3.1 Recommendations for practice ......................................................................................... 69
5.3.2 Recommendations for further study ................................................................................. 70
REFERENCE ................................................................................................................................................ 72

ANEXES ...................................................................................................................................................... 76

Annex 1 Amharic Questionnaire ............................................................................................................... 76

Annex 2: Questionnaire prepared for sample of taxpayers. ....................................................................... 2

ANNEX 3: Questionnaire presented to officials and team leaders of the branch office. ............................ 7

Annex 4: Budgets ....................................................................................................................................... 12

Annexes-5: Activity scedules ..................................................................................................................... 12

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viii
 List of tables
Table 2.1: Inflation rate in Ethiopia for 5 years

Table. 4.1: Demographic data

Table 4.2: Summary of respondent’s Educational level, Position in the organization, Year of experience
and Nature of businesses;

Table 4.3: Effects of tax evasion on resource accumulation of individuals, public service, and
government debt

Table 4.4: Impacts of tax rate on tax evasion

Table 4.5: Impacts of income levels of taxpayers on tax evasion

Table 4.6: Impacts of inflation on tax evasion

Table 4.7: Impacts of the probability of detection and capacity of investigation

Table 4.8: Effects of penalty on tax evasion

Table 4.9 Impacts of the complexity of tax law and its administration system on tax evasion

Table 4.10: Impacts perceived role of government on the use of tax revenue to public service on tax
evasion.

Table 4.11: Impacts of taxpayer’s attitude to government programs on tax evasion.

Table 4.12: Impacts of peer influence on tax evasion

Table 4.13: Impacts of the age of taxpayers on tax evasion

Table 4.14: Impacts of gender of taxpayers on tax evasion

Table 4.15: Impacts of education of taxpayers on tax evasion

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 List of figures
Fig 2.1: Causes of tax evasion

Fig. 4.1: Graph of respondents demographic data

Fig. 4.2: Graph of Summary of respondent‟s Educational level, Position in the organization,
Year of experience and Nature of businesses;

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 List of Appendices
Annex 1: Amharic Questionnaire

Annex 2: Questionnaire prepared for sample of taxpayers

Annex 3: Questionnaire presented to officials and team leaders of the branch office.

Annex 4: Budgets

Annexe-5: Activity schedules

Annex 6: Data coding sheets

Annex7: letter of recommendation from ECSU To LTO

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 List of Acronyms/abbreviations
ECC Ethiopian Chamber of Commerce

MoR Ministry of Revenue

GDP Gross domestic product

IMF International Money fund

TRA Theory of Reasoned Action

TPB Theory of Planned Behavior

ERCA Ethiopian Revenue and Customs Authority

LTO Large Taxpayers branch Office

EEA Ethiopian Economic Association

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 CHAPTER ONE: INTRODUCTION
1.1 Background of the study
Tax is one of the ways to finance government expenditures and it has been an important
component of government revenues. The share of tax in total revenues and the amount of
tax collected differs among countries and they depend on the structure of the economy in
each country. (Tabandeh, 2012)

In developed and developing countries, business owners, government workers, service

providers, and other organizations are forced by the government to pay a tax for a long
period in human being history, and no one can escape from the tax system of the country.

The existence of collective consumption of goods and services necessitates putting some of
our income into government hands. Such public goods like roads, power, municipal
services, and other public infrastructures have favorable results for many families, business
enterprises, industries, and the general public. Public goods are normally supplied by public
agencies due to their natures of non-rivalry and non-excludability. (ECC. 2005)

Tax evasion affects the economy of the whole world. Internationally researchers have
written different views, for example, James A. & Mathias K. (2020) Wrote that tax evasion
is central to public economics. Its most obvious impact is reduced tax collections, thereby
affecting the taxes that compliant taxpayers face and the public services that citizens
receive. Beyond the revenue losses, evasion leads to resource misallocation when people
alter their behavior to cheat on their taxes, such as their choice of hours to work,
occupations to enter, and investments to undertake. Moreover, governments have to expend
resources to detect, measure, and penalize non-compliance. Noncompliance alters the
distribution of income in arbitrary, unpredictable, and unfair ways, and it affects the
accuracy of macroeconomic statistics.

Since all nations are victims of this illegal act different scholars of Africa have also stated
about impacts and causes or factors of tax evasion. Malaysian researchers group, Razieh et
al.(2012) in their journal article, Titled “Causes of Tax Evasion and Their Relative
Contribution in Malaysia, January 2013”. Underground Economy, tax burden, and higher
tax rate are more determining factors of tax evasion in the U.S. Other important factors
associated with tax evasion include inflation rates; the income of the taxpayer; the

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unemployment rate; the size of the government and the intensity of regulations; and trade
openness. Among a large number of studies related to tax evasion, only a limited number of
these studies investigated the phenomena of tax evasion in Malaysia. Among these studies,
the researcher could point to the study from the references used for the research that
investigated the influence of tax education on tax avoidance and tax evasion by using the
questionnaire method. In another study, the researcher tried to recognize the size of hidden
income and tax evasion in Malaysia. As Razieh et al cited in their research the research of
Fatt and Ling (2008) investigated the relationship between tax practitioners' perception, tax
audit, and tax evasion, and also others discussed the ethics of tax evasion. To our
knowledge, there has been no study that has investigated the main factors that affect tax
evasion and the importance of each factor on tax evasion for Malaysia. (Tabandeh, 2012)

As the article by Yonas et al, (2021, p. 9) states, tax evasion in this zone was different due
to the difference in the government legitimacy, audit coverage, and perception of corrupt
tax officials. There is also a significant association between being audited and detection
possibility perception of taxpayers which urges for increasing audit frequency by revenue
authorities. For their observation, the corruption score results in relating it to the evasion
attitude they have found that there is an inversion relationship. They identified that; those
taxpayers who do have a positive attitude do have a lower corruption score. Based on their
understanding they conclude that evaders intentionally hide the existing corrupt character
of tax officers since they facilitate or are willing to facilitate the evasion attempts by
taxpayers. In their research, the independent variables or expected factors of tax evasion,
Zone, Category of the taxpayer, educational level, peer influence, tax rate, tax system, and
the role of the Authorized accountant was found to be significant at 1%, 5% and 10%
significant level, while the remaining seven variables were not significant in explaining the
variations in the dependent variable. ( Yonas, et al. 2021)

Tewodros. S. (2021) also in his research; determining the factors that cause tax evasion in
Addis Ababa city Revenue Authority, the case of Gulele Subcity Category “A” and “B”
Taxpayers Branch Office by The formation of Ethiopian Revenue and Customs Authority
signals the Ethiopian government‟s commitment to establishing a modern tax and customs
administration system. Previously, Google Sub City Small Taxpayers Revenue and
Customs Office were established as a branch office of the authority following proclamation

14
No 587/2008, but, now it is administered by the Addis Ababa city government revenue
authority.

As though tax evasion infects the majority of the taxpayers, the Ethiopian ministry of
revenue had been going through different reforms to prevent tax evasion, for example, the
establishment of ERCA by the proclamation No 587/2008, after a lapse of 8 years the tax
administration proclamation No 983/2016 was set to administer all tax types and income
tax proclamation No286/94 was replaced by proclamation 979/2016, with the change of tax
rate to minimize tax evasion and collect the required amount of tax revenue. Following
this, their regulations and directives were declared to the tax system. However, it requires
continuous reform to achieve the required goal of revenue collection. As the result, the new
governmental reform has also declared to Split ERCA into two organizations (Customs
Authority and Ministry of revenue) in 2018. The total sum of reforms and amendments is
to collect tax revenue from the economy as much as possible minimizing Tax Evasion.

The large taxpayers‟ branch office has a department of risk management to categorize
taxpayers according to their risk to evade tax. However, still, now tax is not being collected
as the potential of the economy. This is why the researcher intended to identify the major
factors of tax evasion. as different scholars and researchers stated the main factors of tax
evasion, globally, or trends of different countries in Africa and different administrative
regions of Ethiopia, the Large Taxpayers branch office of the Ministry of Revenue has its
character the factors of tax evasion and the most prior one may differ.

This researcher, taking experience from the above-cited research and articles of different
scholars as well as the nature of the branch office is initiated to identify the dominant
factors of tax evasion within the branch to provide significant input in type and prior
factors in the way provide important recommendations in prevention of tax evasion to
revise the existing tax system and way of handling the taxpayer. The branch office also will
give prior attention to the critical causes of tax evasion. As the result, it helps to increase
the annual tax revenue. (Tewodros, 2021)

1.2 Statement of the problem

Tax evasion is a global scenario irrespective of any attribute of a country and has been
experienced in both developed as well as developing countries. Unless nations can mitigate

15
and minimize the magnitude of tax evasion, it will be difficult to overcome illicit financial
activities & cash flows and drain channels of corruption. Yonas, et al. (2021)

As per the above article, Yonas Sendaba and his group's tax evasion includes all unlawful
activities by a taxpayer with the motive of minimizing tax liability. It occurs when
taxpayers intentionally failed to execute their tax responsibility. It is an intentional
violation of laws and it is evident in situations where tax liability is fraudulently reduced,
or false claims are filled on the revenue tax form. Tax evasion does not only minimizes
government revenue but also harms the current and future economic development of the
country. Whether evaders understand or not, they share the problem of the society caused
by tax evasion. Most public goods provided by the government are financed by revenue
collected from the tax.

As the collection of revenue from tax and customs minimizes, the government is forced to
minimize the provision of goods and services to the general public. As the result, related
factors of development are affected. However, the factors of tax evasion are not well
identified; there are indicators of the presence of tax evasion and its effects. Therefore, this
research tries to investigate major factors of tax evasion and prioritize these factors for
better recommendation to the concerned body and contribute to the improvement of the tax
system.

Due to the problem of tax avoidance and evasion is inherent in all tax systems, tax
compliance is growing as an international concern for tax authorities and public
policymakers as tax evasion seriously threatens the capacity of the government to raise
public revenue. Recently, W/o Adanech Abebe, who is the former minister of the ministry
of revenue, has been announced a list of business owners who have evaded their income.
Ethiopian Ministry of revenue announced that Ethiopia has lost 14 billion birrs in tax
evasion in which 135 companies involved and the minister office will follow the case by
the court (Source: Walta Television, Feb 27, 2019 G.C). There are also complaints from
taxpayers about the tax system and its administration which is providing by the tax revenue
office that leads them to minimize their income as well as overstating their expenses. Of
course, there is a study that has been conducted on determinants of factors that causes tax
evasion in category “A” taxpayers but, the researcher could not find a study that has been
conducted determinants of factors that causes tax evasion in category “A” and “B”

16
taxpayers. Given this, therefore, the study is interested to undertake on the subject of
determining the factors that cause tax evasion in Addis Ababa city revenue authority
category “A” and “B” taxpayers, with special reference to Gulele sub-city branch office.
(Tewodros, 2021)

Moreover, the earlier study, Tewodros. (2021) focused on the specified sub-city of Addis
Ababa, but factors at this level get little attention because of the nature of the taxpayers
registered within this sub-city compared to the private limited companies, their awareness
level, compliance behavior, nature of their management system, exposure to government
higher officials to know what is being done by the revenue collected from taxpayers, the
volume of transaction they run and others. Hence, researches must be done at large Federal
taxpayers levels since they are the significant sources of government revenue to identify
and examine the determining factors of tax evasion. Thus, identification of location-
specific factors and problems is essential to fill the gap in the field and assist the efficient
tax collection endeavors of the branch office. Thus, the first motive to undertake this
research was to fill the research gap that was not addressed by any one of the earlier
studies, specifically determining factors of tax evasion within the Ministry of Revenue
Large taxpayer's branch office.

1.3 Research questions

Acquiring from the above different researches, the research tries to answer the following
questions.

What are the impacts of tax rate and level of income on tax evasion?
How does inflation affects tax evasion?
What are the effects of the complexity of the tax system such as penalty and
probability of detection on tax evasion?
What is the relationship between the perceived role of government and tax
evasion?
How does attitude and perception of taxpayers on tax evasion determine to
act on tax evasion?
What are the effects of age, gender, education level of taxpayers and pear
pressure on tax evasion?

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 1.4 Objectives of the study
1.4.1 General objective of the study
The general objective of the study is to identify the determinant causes of tax evasion in the
Ministry of Revenue Large Taxpayers branch office.

1.4.2 Specific objective

This study tries to address the following specific objectives:

To identify the impact of tax rate and level of income on tax evasion.
To indicate whether inflation affects tax evasion or not.
To show effects of the complexity of the tax system such as penalty and
probability of detection on tax evasion.
To detect the relationship between the perceived role of government and tax
evasion.
To determine the effects of attitude and perception on tax evasion.
To identify the effects of age, gender, education level of taxpayers and pear
pressure on tax evasion.

1.5 Significance of the study

The large Taxpayers Branch Office is the prior beneficiary of this study. the branch office
will find the feedback of major determinants of tax evasion, as the result, it designs a
strategy for prevention of tax evasion and improves tax administration and takes measures
to be undertaken regarding those determinants. Ethiopian Ministry of Revenue also with
this recommendation of the research if the main determinant of tax evasion is due to the tax
system, and the tax procedure it tries to revise the tax system, concerning tax laws and
procedures to improve the tax revenue and contributes for the achievement of the 2022
goals and vision of the minister.

The country underwent a deficit in its government budget. Two main reasons can be
identified for the consistent government budget deficit in the country. The first is related to
the huge government expenditure in the country. The issue of satisfying a society is up to
the government. More than ever, since the last two decades, the Ethiopian government has
been exposed to a sky-scraping disbursement on road construction, health and education
sectors. The government gives a great deal of attention and allocated an enormous budget

18
to satisfy the continuing infrastructural demand of the nation. The second reason is rather
associated with extremely low government revenue from taxes. The government tax
collection performance is too low compared to its spending. This is partly due to the so-
called tax evasion and lack of awareness among the citizens that income from taxes is
finally used up for public development and partly owing to the low level of development of
the nation which in turn influences the tax revenue negatively (Teamrat K. G., 2021).

Therefore the government is beneficiary through this research to support the Minster in
designing and improving strategies and for the achievement of the goals and vision of the
minister for the prevention of tax evasion to minimize tax fraudulent acts, as a result, the
budget deficit caused by less collection of tax revenue will be minimized. The study helps
the researcher to empower how to write a thesis and related topics. The findings of the
study will help as an initial insight for tax offices, for researchers, and any concerned
parties who are interested in further investigation.

1.6 Scope of the study

The study is limited to only the Ministry of Revenue, Large Taxpayers Branch office.
According to the Federal Income Tax Proclamation No. 979/2016, the taxpayers registered
in LTO are key and figurative taxpayers of the country. However, the number of taxpayers
registered in the Federal Government is large in number; it is difficult to include the whole
taxpayers in the study due to different constraints. These are budget, characteristics of the
taxpayers, location of taxpayers‟ premises. Therefore the research is limited to focus only
at this branch office studying with a population of 639 taxpayers registered within this
branch. The study covered profit tax, value-added tax, and withholding tax collected by the
branch office whereas personal income tax, turnover tax, and excise tax type are excluded
from the study. The selection of these three-tax types was based on the availability and
adequacy of sample units and the ability to manage the work within the specified time
frame.

The study is limited to only the Ministry of Revenue, Large Taxpayers Branch office.
According to the Federal Income Tax Proclamation No. 979/2016, the taxpayers registered
in LTO are key and figurative taxpayers of the country. However, the number of taxpayers
registered in the Federal Government is large in number; it is difficult to include the whole
taxpayers in the study due to different constraints. These are budget, characteristics of the

19
taxpayers, location of taxpayers‟ premises. Therefore the research is limited to focus only
at this branch office studying with a population of 639 taxpayers registered within this
branch. The study covered profit tax, value-added tax, and withholding tax collected by the
branch office whereas personal income tax, turnover tax, and excise tax type are excluded
from the study. The selection of these three-tax types was based on the availability and
adequacy of sample units and the ability to manage the work within the specified time
frame.

1.7 Description of the Study Area

This research was done in Ethiopian Ministry of Revenue Large taxpayers‟ branch office.
This branch office comprises 639 active taxpayers in different sectors. Ethiopian Ministry
of Revenue segmented the taxpayers registered for the Federal Government found in Addis
Ababa city in to three levels as large taxpayers, medium taxpayers and small taxpayers
branch offices according to their annual turnovers. Taxpayers segmented under large
taxpayer‟s branch office are those with annual turnover of for manufacturing and
construction business organizations average turnover of three years above 50 million and
financial institutions and other business organizations average turnover of 100 million. The
second segmentation is Medium taxpayer‟s branch office in which those whose average
annual turnover of three years is 3-50 million and 3-100 million Ethiopian birr respectively
likewise. The last and third segmentation of taxpayers is small taxpayers branch office
those with average turnover of three is below the specified amount above.

The major tax revenue of the country is collected from those registered in this branch office
large. This is why the researcher interested to study in this branch office to contribute an
input for further researchers and the branch office in suggesting recommendation after the
end of the research based on the crucial findings.

1.8 Limitation of the study

This study has its own limitations which are encountered at various stages. The primary
limitation of the study is the challenge of finding the right person at the right time.
Secondly, lack of access the right data. Thirdly, due to the time and financial constraints of
the study, this research is limited to the Ethiopian Ministry of Revenue Large taxpayer‟s
branch office only. Therefore, it is difficult to generalize the results of the findings to the
over all branches of the Ministry. Some taxpayers were not voluntarily responding

20
concerning questionnaires inclining towards the behavior of taxpayers. Other limitations of
this research were experience of the researcher, the sample frame of the target population,
the reliability of respondent taxpayers to provide a reliable response, and the way the data
has been collected.

However, these limitations may not block conducting the intended research and convince
the respondent taxpayers by using some confidentiality assurance mechanisms, such as not
displaying any data by the name of the taxpayer and using indirect questions. Even if it was
ceasing, Corona Virus pandemic (COVID-19) was also another limitation for distributing
and collecting the questionnaire.

The researcher tried to minimize the limitations accordingly. To get the right respondents,
the researcher had tried to select from the managers and regular employees of the
companies. Some of the required resources were also supported by the branch office. It was
also tried to create secured environment for respondents by using COVID-19 prevention
mechanisms.

1.9 Organization of the Study

This research paper is organized into five chapters each incorporating topics and subtopics.
Chapter one consists of the introductory part of the study. It states the background of the
study, statements the problem, the research questions, objectives of the study, significance
of the study, scope of the study, and description of the study area and limitation of the
study. Chapter two sets the footing of the study. It reviews existing literature on
determining the factors of tax evasion-related issues to extract useful and relevant
information and concepts. It also forms the theoretical basis and constructs an analytical
framework drawn from the theoretical concepts. Chapter three deals with research area
description, methods of the study such as research strategy, sample size, and sampling
techniques. It also describes the tools for sources of data, data type, and data analysis
techniques. Chapter four is the core of this study, which presents the data collected
statistical analysis. Chapter five finalizes the study with a summary, concluding points, and
by drawing some recommendations.

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 CHAPTER TWO: REVIEW OF RELATED LITERATURE
2.1 Theoretical Literature Review

2.1.1 Ethiopian tax policy

Ethiopian tax policy is based on taxpayers‟ voluntary compliance i.e. self-assessment. It is
geared towards promoting investment, supporting industrial development; broadening the
tax base, and decreasing the tax rate, at least maintaining the current reduced tax rates
compared to most other countries, given financing the ever-growing needs of the
government expenditure. MoR has the mission for the accomplishment of these policy
objectives (MoR, May 2019 ).

2.1.2 Tax Evasion

Morse Matthew, (2015), in his article Titled “Effects of Tax Evasion in the United States”
referring Dictionary.com, As, “the nonpayment of taxes, through the failure to report
taxable income.” Mathew identifies tax evasion and avoidance through, Cornell University
is right to specify the illegality of matters regarding avoidance tactics. Currently, under
United States law, tax avoidance is a completely legal practice, but the caveat to avoidance
is where the line is drawn between avoidance and evasion.

For there to be an understanding of tax evasion and its damage caused to the government,
tax evasion needs to be defined and explained in basic terms. Defines tax evasion as
Cornell University Law School goes further to describe this nonpayment as “using illegal
means to avoid paying taxes”, which can involve “an individual or corporation
misrepresenting their income to the Internal Revenue Service.” So from this, it can be said
that tax evasion is the act of an individual who conscientiously refuses in some or many
ways or means to pay taxes owed to a governmental entity.

2.1.3 Why Do Taxpayers evade tax?

Scholars especially economists agreed that tax evasion may be considered a technical
problem that exists in the tax collection system, whereas psychologists believed that tax
evasion is a social problem for the countries. Tax evasion practices are more worsen in
developing countries than when we compare against the developed countries. Tax evasion

22
is like a pandemic for the countries because they are unable to control it. Therefore,
governments were negatively affected by tax evasion to improve the life standard of its
citizens and to allocate a budget for public expenditure, and it became a disease for the
country‟s economy and estimated to cost 20% of income tax revenue. Several factors may
lead taxpayers to engage in tax evasion. Among the factors, tax knowledge, tax morale, tax
system, tax fairness, compliance cost, attitudes toward the behavior, subjective norms,
perceived behavioral control, and moral obligation are major factors. Other factors have
also a significant effect on taxpayers to engage in tax evasion practice such as capital
intensity, leverage, fiscal loss, compensation, profitability, contextual tax awareness,
interest rate, inflation, average tax rate, gender, and ethical tax awareness on tax evasion
(Muhammad Muazzam, 2012).

2.1.4 Risk level of the taxpayer

All taxpayers do not evade tax intentionally, the risk level of taxpayers and tax type is quite
different. In the tax audit manual of (MoR. May 2019), the risk is explained as “the risk
parameters indicate that the taxpayer is risky across the different tax types (Corporate tax,
VAT and Excise, duty), it is expected that the scope will be comprehensive
(Comprehensive audit). However, studies by the IMF observed that comprehensive audits
are costly since they require a lot of investment in-person audit hours and may require
extensive tax and specific industry knowledge that the tax authorities may not
possess”(MoR, Tax Audit Manual, May 2019).

2.1.5 Methods for estimating the extent of tax evasion

Economic opinions consistently agree that tax evasion is often measured through the
shadow economy ( hidden economy), which is defined as that part of the gross domestic
product (GDP) that is not declared for any reason and is not included in the official
statistics. Therefore, this part of GDP is generally not subject to any form of taxation, and
this is the main link between hidden economic activity and tax evasion: it is defined as that
part of the shadow economy that, if it were declared, would have been entered into the
official burden of the tax. It is also known as the illegal behavior that a taxpayer perpetrates
by circumventing tax laws in order not to pay some or all of the tax they owe. Furthermore,
it can be known as the illegal use of the tax system that intentionally avoids paying the
actual tax owed. This differs from tax avoidance, which is defined as the legal use of the

23
tax system for the benefit of individuals or institutions to reduce the amount of tax due
through the law. The government may allow tax avoidance to achieve certain economic and
social goals, such as reducing the tax on the profits of some sectors to encourage investors
to invest in those sectors. Thus, tax avoidance differs from tax evasion only regarding legal
cover, whereas they share economic and social effects. Determining the actual value of tax
evasion is difficult; it cannot be measured directly due to its illegal nature, which
necessitates secrecy, and the difficulty of accessing its data. However, several indirect
methods can be used to estimate its size, which often depend on estimating the shadow
economy first and estimating tax evasion afterward. Some of these methods are outlined
below.

2.1.5.1 The expenditure–income discrepancy approach:

Is based on the existence of discrepancies in different estimates of GDP, according to
whether the estimate is produced by the expenditure approach or the income approach. The
existence of the discrepancy is due to the existence of the shadow economy. The physical
approach method: is based on the idea of a relationship between the use of specific inputs,
such as the number of electricity units used in production, and the value of production. For
example, when the actual value of the number of electricity units used in production is
higher than the actual value of production disclosed, this indicates the existence of a
shadow economy. The labor market approach: is based on a comparison between expected
employment rates and officially registered employment rates. Any difference found is the
result of employment in the shadow economy. The cash transactions approach: which
assumes that high tax rates stimulate tax evasion? This evasion is facilitated by the use of
cash to conduct commercial transactions, so if it is demonstrated that a change in the use of
cash is closely related to tax rates, this change can be considered an indicator of a change in
the scope of hidden economic activity, and, therefore, the size of the hidden economy can
be estimated based on demand for cash.

One of the most popular methods for estimating the extent of tax evasion in various
countries is the multiple indicators and multiple causes model, which relies on the idea that
the shadow economy is a variable that depends on multiple variables and has multiple
indicators simultaneously. Thus, using the system of structural equations, it is possible to
estimate the shadow economy and then the extent of tax evasion.

24
 2.1.5.2 The currency demand approach:
Assumes that the desire to avoid paying taxes is the main reason for individuals and
institutions tending to use cash instead of official bank accounts to conduct their
commercial transactions. This method uses estimates of the demand for currency in the
presence and absence of taxes. The purpose is to determine the size of the increase in the
demand for currency that results from the presence of taxes to estimate the size of the
shadow economy and then tax evasion.

This study is based on the related local and international empirical studies, such as the
study of Alkhadour, which aimed to estimate the size of the shadow economy in Jordan
from 1976 to 2010. There is also the study of the Jordanian Economic and Social Council
that assessed tax evasion in Jordan applying several methodologies. The study also touched
on the causes of tax evasion in Jordan and ways to reduce them. Another study with a
similar interest is the study of Alghazo, which addressed the issue of the macroeconomic
impacts of tax evasion in Jordan. At the level of international studies, the study of Bushra
and Rauf assessed the size of tax evasion in the Pakistan economy by estimating the
shadow economy using the monetary approach. Moreover, Petanlar et al. aimed to estimate
the size of tax evasion in Iran during the period 1971-2007 through direct and indirect
methods.

Regarding the most important factors that lead to tax evasion, many previous studies have
shown that the idea of tax evasion begins with the taxpayer's sense of injustice that is
concerned with the tax system as well as the fact that public resources, public goods, and
public services are not fairly distributed among individuals, which increases the tendency
towards tax evasion. The most important factors that reinforce the taxpayer's sense of
injustice and the trend towards evasion are stated as follows:

2.1.5.2.1 Tax and Financial Factors:

Some empirical studies conducted in various regions of the world have concluded that there
is a positive and statistically significant effect of tax rates on tax evasion. Allingham and
Sandmo are among the pioneers who have concluded that cutting taxes and broadening the
tax base have improved the tax compliance behaviors of taxpayers. Therefore, subsequent

25
research has found that increasing tax rates lead to a higher tax burden on taxpayers and,
thus, will ultimately prompt some taxpayers to adopt behaviors of tax evasion.

2.1.5.2.2 Administrative Factors:

These are the factors linked to the tax system. For example, there are a large number of
types of taxes, the lack of transparency and fairness, and the lack of tax penalties which are
tough enough to ensure that legal accountability becomes a means of deterrence against tax
evasion and encourages tax compliance provided that those penalties do not exceed the
permissible limit. Spicer and Lundstedt clarified that a potential increase in tax evasion
penalties leads to a lower level of potential tax evasion behaviors. Other administrative
factors include loopholes in tax laws, lack of auditor‟s reviews of tax returns, and low
levels of knowledge, skills, and experience on the part of tax assessors and collectors.

2.1.5.2.3 Economic Factors (the Level and

Components of Income):
Fluctuations in taxpayers‟ incomes affect the decision to evade taxes, especially if these
fluctuations are expected to increase and if they are compatible with the levels of political
and economic power in a matter which would lead to corruption. In addition, the
components of income play a major role in tax evasion, in the sense that evasion decreases
if salaries and wages are declared, especially in the public sector. Furthermore, tax evasion
increases if income is not declared, especially in the private sector.

2.1.5.2.4 Demographic Factors (Gender, Age, and

Education):
Demographic characteristics often affect the decision to evade taxes, and previous studies
have shown that the motivation to evade taxes is higher among males than among females.
About age, it has been found that the elderly tend to be more compliant with taxes than
young people, who tend to take risks and are less sensitive to the penalties for tax evasion.
Moreover, a relationship has been found between the level of education and tax
compliance, where tax evasion increases as educational levels decrease. In addition, it is
higher in contexts where there is insufficient education about the tax system and its
economic importance (Abdullah M. Ghazo, 2021).

26
 2.2 Why should we take care of tax evasion?
It is clear that individuals evade taxes, but why should we care? Why not just raise taxes
enough to cover the evasion? In principle, the same amount of revenue could be collected
in a system with evasion and high rates as in one with no evasion and lower rates. There are
three reasons why we care about tax evasion and should want to reduce it (Jonathan
Gruber).

2.3 Empirical Literature Review

The empirical literature is simply referring to evidence from different sources of
observation and report. There are several studies conducted in the field of determinants of
tax evasion and its relationship. Because of tax evasion, the collected tax revenue by the
government and financing on public goods and services has been reduced year to year in
developed and developing countries.

2.3.1 Tax
Ethiopian Chamber of Commerce states about taxes that, taxes are important sources of
public revenue. The existence of collective consumption of goods and services necessitates
putting some of our income into government hands. Such public goods like roads, power,
municipal services, and other public infrastructures have favorable results on many
families, business enterprises, industries, and the general public. Public goods are normally
supplied by public agencies due to their natures of non-rivalry and non-excludability. The
nature of consumption of public goods is such that consumption by one does not reduce
consumption for others. Besides, the consumption of public goods by an agent does not
exclude others from doing the same. Such nature of public goods, therefore, makes them
impossible for private suppliers to avail them at market prices like other commodities.
Government intervention in the supply of public goods is therefore inevitable and can only
be done if the public pays taxes for the production and supply of such goods (ECC, 2005).

2.3.2 History of Taxation in Ethiopia

Resources were allocated among the various sectors of the economy differently in the
imperial and revolutionary periods. Under the emperor, the government dedicated about 36
percent of the annual budget to national defense and maintenance of internal order. Toward
the end of the imperial period, the budgets of the various ministries increased steadily while
tax yields stagnated. With a majority of the population living at a subsistence level, there

27
was limited opportunity to increase taxes on personal or agricultural income. Consequently,
the imperial government relied on indirect taxes (customs, excise, and sales) to generate
revenues. For instance, in the early l970s taxes on foreign trade accounted for close to two-
fifths of the tax revenues and about one-third of all government revenues, excluding
foreign grants. At the same time, direct taxes accounted for less than one-third of tax
revenues.

The revolutionary government changed the tax structure in 1976, replacing taxes on
agricultural income and rural land with a rural land-use fee and a new tax on income from
agricultural activities. The government partially alleviated the tax collection problem that
existed during the imperial period by delegating the responsibility for collecting the fee and
tax on agriculture to peasant associations, which received a small percentage of revenues as
payment. Whereas total revenue increased significantly, to about 24 percent of GDP in
l988/89, tax revenues remained stagnant at around l5 percent of GDP. In l974/75, total
revenue and tax revenue had been l3 and 11 percent of GDP, respectively. Despite the 1976
changes in the tax structure, the government believed that the agricultural income tax was
being underpaid, largely because of under assessments by peasant associations. The
government levied taxes on exports and imports. In 1987 Addis Ababa taxed all exports at
2 percent and levied an additional export duty and a sur-tax on coffee. Import taxes
included customs duties and a 19 percent general import transaction tax. Because of a
policy of encouraging new capital investment, the government exempted capital goods
from all import taxes. Among imports, intermediate goods were taxed on a scale ranging
from 0 to 35 percent, consumer goods on a scale of 0 to l00 percent, and luxuries at a flat
rate of 200 percent. High taxes on certain consumer goods and luxury items contributed to
a flourishing underground economy in which the smuggling of some imports, particularly
liquor and electronic goods, played an important part. Although tax collection procedures
proved somewhat ineffective, the government maintained close control of current and
capital expenditures. The Ministry of Finance oversaw procurements and audited ministries
to ensure that expenditures conformed to budget authorizations. ( Yohannes & Sisay, 2009)

28
 2.3.3 Tax Evasion
Morse Mathew, in his article titled “Effects of Tax Evasion in the United States” referring
Dictionary.com as, “the nonpayment of taxes, as through the failure to report taxable
income.”

Mathew More identifies tax evasion and avoidance through, Cornell University is right to
specify the illegality of matters regarding avoidance tactics. Currently, under United States
law, tax avoidance is a completely legal practice, but the caveat to avoidance is where the
line is drawn between avoidance and evasion.

In order for there to be an understanding of tax evasion and its damage caused to the
government, tax evasion needs to be defined and explained in basic terms. Defines tax
evasion as Cornell University Law School goes further to describe this nonpayment as
“using illegal means to avoid paying taxes”, which can involve “an individual or
corporation misrepresenting their income to the Internal Revenue Service.” So from this it
can be said that tax evasion is the act of an individual who conscientiously refuses in some
or many ways or means to pay taxes owed to a governmental entity.

2.3.4 Causes of tax evasion

Different scholars have different investigations for factors of tax evasion. Group of
researchers, Razieh T., et al. On their studies of 2012 and (2013) in Malaysia, on Titles:
Estimating Factors Affecting Tax Evasion in Malaysia and Causes of Tax Evasion and
Their Relative Contribution in Malaysia respectively studied on the variables of tax
Burden, size of the Government, inflation rate, trade openness, and income of taxpayers,
however, the prior cause of tax evasion is the income of the taxpayers ( Razieh T. et
al.2012 &2013).

Muhammad Muazzam Mughal, *Muhammad Akram from Hailey College of the

Commerce University of Punjab, Lahore-Pakistan in their article of Journal of Economics
and Behavioral Studies, stated that the top five causes of tax evasion are:

No public enlightenment campaign, Lack of adequate tax incentives, Poor Relationship of

Taxpayers & Authority, the proliferation of taxes and Illiteracy of tax calculation.

29
 2.3.5 Determinants of tax evasion
Kanbiro O. (2018). Has Cited studies of different scholars in his research titled „Factors
Influencing Taxpayers‟ Voluntary Compliance Attitude with Tax System: Evidence from
Gedeo Zone of Southern Ethiopia. Therefore the researcher has cited these references
literature review as follows:

2.3.5.1 Demographic Factors

Demographic factors like age, gender, and education have long been researched by
different authors. Regarding the impact of age on tax compliance attitude findings are
different along with the different studies. Kanbiro O., (2018), in his article titled „Factors
Influencing Taxpayers‟ Voluntary Compliance Attitude with Tax System: Evidence from
Gedeo Zone of Southern Ethiopia‟. Kanbiro O.,in his conclusion According to Pearson
correlation Matrix result out of fourteen variables incorporated in the model, eight variables
such as gender of taxpayers, age, lack of tax knowledge, simplicity of the tax system,
awareness on penalty for evading tax, income level, tax audit and perception on tax rate
were significantly correlated with tax voluntary compliance attitude. Results of the Binary
logistic regression analysis also suggested that voluntary compliance attitude is
significantly influenced by gender of taxpayers, age, lack of tax knowledge, and simplicity
of the tax system, awareness on penalty for evading tax, tax audit, and perception on tax
rate. This study similarly evidenced that, other variables such as education level and role
and efficiency of tax authority were not significant determinants of tax compliance attitude

As Kanbrio cited in his study, Wahlund, R.(1992) and Wärneryd, K.E Postulate a negative
association between tax compliance attitude and age; older people are less compliant. In
contrast, Dubin, J. A. argued that age was positively related to the tax compliance attitude
of taxpayers. However, there has been a significant number of studies that found no
relationship between age and compliance Praeger, Torgler, B., 2007. And Mohani, A.,
2001 is also cited to show that older people are more compliant than young people.
Concerning the gender of taxpayers‟ study done Hasseldine, J., and Hite. 2003 found that
female taxpayers were more compliant than males. Indifference, others suggested that
gender has no significant impact on the compliance attitude of taxpayers.

30
 2.3.5.2 Individual Factors
Kanbiro O. has also discussed individual differences in tax evasion and cited the following
studies to assure the relevance of individual differences to evade or not to evade taxes are
heavily reliant on taxpayer‟s personal judgment Mohani, A. (2001) Personal circumstantial
factors like tax knowledge, personal financial constraints, and awareness of penalties and
offenses are therefore likely to have a significant impact on taxpayers‟ compliance attitude.
The influence of tax knowledge on compliance behavior has been described in various
researches. Previous studies have evidenced that tax knowledge has a very close
relationship with taxpayers‟ ability to comply, Singh,V. and Bhupalan, R., (2001), Ermias
Ersodo. (2014), Mesfin. B. (2016) and Redae B. (2016) concluded that tax knowledge has
a significant impact on the tax compliance attitude of the taxpayers. Personal financial
constraints are believed to have an impact on tax evasion as financial distress faced by an
individual and may encourage him to prioritize what has to be paid first as basic survival
needs such as (foods, clothing, housing, etc.) People who face personal financial problems
are likely to be more disposed to evade tax. When compared to people with less financial
distress. With regard to Awareness of offense and penalties, a theoretical economic model
introduced by studies clearly indicated that penalties, as well as audit probability, have an
impact on tax compliance behavior. The higher the penalty and the potential audit
probability the greater the discouragement for potential tax evasion. If the taxpayers are
aware of the offenses they are committing when evading tax and the consequences of being
non-compliant taxpayers, they might reduce their tendency to evade tax.

2.3.5.3 Social Factors

Besides demographic and individual factors affecting the tax compliance attitude of
citizens, the social life of taxpayers has its own impact on compliance attitude. As per the
findings of Dejene M. ,Lemessa B. and Dawit G.M(2014) stated that the issue of
noncompliance is not only a question of state-society relationships but also a question of
the relationship between citizens or groups of citizens within local communities. There is
an existing social bond between the society and this bond influences the members of the
society in complying with the tax. These factors are perceptions of equity and fairness,
changes to current government policy, and referent groups. Perceptions of equity or
fairness: one of the main principles of the taxation system design is equity or fairness,

31
which can be perceived through three-dimensional views of horizontal equity, vertical
equity, and Exchange Equity. (Expectation the same share of public service from the
government for paying tax. The perceived fairness of the tax system also has an influence
on the inclination towards tax evasion [. With regard to changes to current government
policies as one factor that affect the tax compliance attitude of taxpayers, studies have
disclosed that the government decisions and changes to policies in accordance with the
economic and political situation have a significant impact on compliance. For example, a
positive move made by the political situation has a significant impact on compliance
attitude. For instance, a positive move made by the government such as an increase in tax
rebate [25] is likely to increase taxpayers‟ compliance. A referent group (peer influence)
has its own impact on the compliance attitude of taxpayers. Ajzen, I., and Fishbein, M.
(1980) in their Theory of Reasoned Action [TRA] and Theory of Planned Behavior [TPB]
hypothesized that referent groups play a significant role in determining people‟s intentions
and behavior regarding tax compliance. Decisions either to evade or not to evade tax
sometimes are influenced by family members or friends. Therefore, the influence of
referent groups is seemingly important in making a decision, particularly involving
monetary aspects and obedience to laws.

2.3.5.4 Institutional Factors

The evidence suggests that institutional factors' role of the tax authority, simplicity of tax
system, and probability of detection also play a vital role in their compliance decisions. The
role of the tax authority in minimizing the tax gap and increasing voluntary compliance is
clearly very important. Dubbin, J.A. (2004) exemplified that tax compliance is placing the
government and the tax authority as the main party that needs to be continuously efficient
in administering the tax system in order to decrease tax evasion. Besides, the study of
Richardson, G. (2008) also suggested that the role of a government has a significant
positive impact on determining attitudes toward tax. Concerning the simplicity of the tax
system Silvani, C., and Baer, K., (1997) discussed the importance of the tax authority
having a simple tax return and system from the taxpayers‟ point of view encourages the
taxpayers to comply with tax law. In the conclusion of Dejene, M.et al in their journal
article titled ”Evaluation of Ethiopian Tax Administration System: Emphasis on taxpayer
Compliance” suggests that, explored how taxpayers view the tax administration system in
terms of securing voluntary taxpayers‟ compliance, taxpayers‟ understanding of the tax

32
system, the taxpayers‟ services provided by the revenue authority, and the fairness
perception of the taxpayers.

2.3.5.5 Economic Factors

The effect of the tax rate on tax compliance is mixed. According to Woodbury D. (1985)
raising marginal tax rates will be likely to encourage taxpayers to evade tax more. Their
empirical study also finds that the increase in tax rate strengthens the incentive to report
less income to compensate for the reduced income. Another study in Tadesse, G. and
Goitom A. (2014) used an econometric model to explain the relationship between marginal
tax rates and noncompliance by using aggregate data in the United States, demonstrated
that tax rates were negatively correlated with tax compliance according to his data.
Opposite to the view, there are some researchers who found out there is a positive
relationship between tax compliance and tax rate. As Put differently, Praeger and Torgler,
B., 2007 in their study find out there is no relationship between tax compliance and tax
rate. In most researches income level is classified as one of the demographic factors
affecting tax compliance but in the current study, it is classified as an economic factor
because the income earning capacity of a Person or corporate citizen is depending on the
economic aspect of citizens. For instance, progressive tax rates might encourage the higher
income group to evade rather than the lower income group because of high tax rates which
makes their taxable income high, consequently, making the tax liabilities much higher than
the lower-income group. In a country where income redistribution is not satisfactory, the
higher-income group tends to evade more. According to Mohani, A. 2001, tax audit could
be an important stimulant to increase tax compliance. This indicates that tax audits
influence tax compliance. Audits rates and the diligence of the audits could encourage
taxpayers to be more prudent in completing their tax returns, report all income and claim
the correct deductions to ascertain their tax liability. Tax audit increases tax compliance
because of the deterrent effect of audit on the non-compliance of taxpayers. Some studies
claimed that tax audits have a positive impact on tax evasions. Citizens will be sensitive to
what the government spends their money on. If the government is wisely spending the
national revenue, for example, for basic facilities like education, health and safety, and
public transportation taxpayers feel positive and comply but, if it is spending too much on

33
 something considered unnecessary or unbeneficial to them or the general public, then
taxpayers will feel betrayed and attempt to evade.

Many researchers (Crane and Nourzad 1986; Fishlow and Friedman 1994; Caballe and
Panade 2004) conclude that the inflation rate is the main factor that causes tax evasion.
High inflation causes taxpayers to avoid paying tax in an effort to maintain the purchasing
power of their income. Inflation rates are calculated as the percentage change in the
consumer price index (Razieh T.et al (2013).

According to table 2.1, the inflation rate in Ethiopia is rising with each passing year.Table
2.2 also displays the branch office for large taxpayers' revenue collection growth rate as a
comparison.

Table 2.1 Inflation rate in Ethiopia for 5 years

Year Inflation Rise of

rate inflation
2016 6.63
2017 10.7 4.07
2018 13.83 3.13
2019 15.84 2.01
Source: https://www.macrotrends.net/countries/ETH/ [Accessed 28 June 2022].

Table 2.2 Annual growth of revenue collection in LTO

Non-tax Grow
revenu total Growth th
Year direct tax indirect tax e performance In Birr In %

perfor
Performance mance
performance (Milion) (Milion) (Milion) (Milion)
2015/16 30,568.55 29,998.57 60,567.12
2016/17 34,439.48 33,770.55 68,210.03 7,642.91 13%
2017/18 40,103.74 34,101.78 74,205.52 5,995.49 9%

2018/19 48,301.18 37,601.65 65.31 85,968.14 11,762.62 16%

2019/20 51,456.07 36,846.63 81.81 88,384.51 2,416.37 3%

2020/21 73,666.16 48,409.45 91.76 122,167.37 33,782.86 38%

Source :Large Taxpayers Branch Office

34
 2.4 Conceptual framework
The empirical theory of tax evasion states about different findings of researchers on the
causes of tax evasion. all researchers do not have the same conclusion on all factors. Some
researchers take the factors as determinant ones the others take as they are no significant.
For instance; Wahlund, R.(1992) and Wärneryd, K.E. state that cited to show that older
people are more compliant than young people. Hasseldine, J., and Hite. 2003 found that
female taxpayers were more compliant than males. Others suggested that gender has no
significant impact on the compliance attitude of taxpayers.

As per the researchers cited in the empirical reviews they had stated that in different angles
like the dependency is expressed as the following.

Institutional factors

 Structure
 Probability of detection
 Penalty,
 Complexity of tax system, and
perceived role of government
Individual Factors

 Knowledge
 Financial Social factors
constraints
 Awareness of  Bond of society
penalties &  Perception
Tax evasion

Economic factors
Demographic factors
 Inflation
 Age, gender &
 Tax rate
education
 Income level

Source: What Determines Tax Evasion Attitude. Yonas Sendaba 2021 and self-modification.

Fig2.1, Causes of tax evasion

35
As the above figure indicates different researchers have not different sights on independent
variables of tax evasion. Almost all said on each of the factors listed. But, their difference
is whether the factors are significance or not.

Therefore the researcher is intended to find the validity of the variables considered by the
former researchers on factors of research in his part.

2.5 Summary and Knowledge Gap

The researcher tried to identify various arguments to justify determinant factors of tax
evasion and its relationship. As a result of tax evasion, governments are faced with a lack
of sufficient revenue, which leads to inadequate funding of public services and the burden
placed on citizens. There is a trend to treat taxpayers depending on the experience of the
experienced officials and employees of the branch office. The finding, conclusions and
recommendations of the research paper may not be accepted by the branch. The gap
between tax revenues and public expenditures is unbalanced due to tax evasion and other
factors such as unwise utilization of resources. Tax evasion can be determined through four
key determinants as it is known as Fischer's Model of tax compliance. This includes:

 Institutional factors/ Structure (Probability of detection, Penalty, Complexity of tax

system, and perceived role of government).
 Economic factors(tax rate, income level)
 Social factors (Attitude and peer influence of tax evasion)
 Demographic factor (Age, Gender and Education).

According to the tax researchers‟ argument, income components (source and level)
significantly determine tax evasion. However, empirical evidence has shown that salaries
and wages alone minimize tax evasion. The other determinants are tax rates were widely
recognized as the most important determinant of tax evasion. Empirical evidence
concerning the effects of tax rates and tax evasion has a positive significant effect.
The probability of detection and punishment is widely accepted as a hindering force to
encourage the compliance of taxpayers. Aligning to this some empirical studies argue that
these two factors do not promote voluntary compliance.

The other determinant is complexity of the tax system promotes tax evasion. Regarding to
this it states that taxpayers seem to find a departure loophole constantly. If the government

36
does not provide essential public goods and services, citizens are not preferred to pay
regulatory taxes. And after that, evasion can have an effect. The demographic factor that
determine tax evasion are young taxpayers, who are more willing to take risks and are less
sensitive to sanctions because age socialization affects citizens' attitudes towards tax
evasion. The tendency of gap between men and women to change the effects of gender on
tax evasion is not significant, and general taxation knowledge (tax education) has an
important effect by complying with legitimate rules and procedures.

The findings of various researchers on the impact of a determinant on tax evasion are not
conclusive. Therefore, this attracted the attention of the researcher. In terms of the
researchers' knowledge, the examination of various scholastics has not specifically
included selected determinants of tax evasion. This also leads the researcher to analyze key
determinants and how to relate with tax evasion and fill the finding gaps.

37
 CHAPTER THREE: RESEARCH DESIGN AND
METHODOLOGY
3.1 Introduction
This chapter presents a research methodology guide. It contains the research design,
population, sample and sampling method, data collection methods and tools, validity and
reliability of the instrument, research procedure, and data analysis methods.

3.2 Operational definition of variables

Tax evasion was identified whether it has relation with tax rate, level of income using
respondent tax payers and inflation from different sectors registered at the large taxpayer‟s
branch office. It is also tested impact of the complexity of tax system and the impact of
penalty and probability of detection on tax evasion. The other key operational activity of
the research is identifying relationship between the perceived role of government and tax
evasion by collecting data from respondent taxpayers using relevant questionnaire. The
final one is to find out the perception of taxpayers on tax evasion and why are taxpayers
evading tax whether tax evasion is enhanced by gender, age difference and provision of tax
education by the tax office.

3.3 Research Design

As Zahara A.( 2020), cited in her research Creswell & Plano C.(2007) stated about research
design that a research design is a procedure for collecting, analyzing, interpreting, and
reporting data in research studies. Therefore the researcher is intended to investigate the
prior factors of tax evasion so the researcher planned a causal research method. Causal
research explains what is sometimes called a “cause and effect” relationship. The cause is
going to be referred to as the „independent variable‟; the variable that is affected is referred
to as the „dependent variable‟. The target population for this study is the total taxpayers of
this branch office (LTO). The questionnaires were prepared for the selected sample which
had been responded independently by the respondents. For better findings and conclusions
the research questionnaires were also prepared for team leaders and process coordinators of
the branch office /especially those who are in tax operation and Legal Enforcement
Department of the branch office/.

38
 3.4 Research approach
The study was carried out by using both the qualitative and quantitative methods of the
research approaches. A qualitative approach was used for only to enrich the quantitative
data collected and to amplify the explanations, and to increase the confirmatory of the
information investigated in quantitative approach. Alternatively, self-administered survey
was used in the quantitative approach for the reason of its flexibility in asking questions
and its evaluation of the responses.

3.5 Population and Sample

Ideally, samples are selected on random bases indicating the representativeness of the
population. The intention of this study is to generalize the findings to all large taxpayers of
the Federal government of Ethiopia in the Ministry of Revenue Large Taxpayers Branch
Office. To obtain the relevance and accuracy of research findings, the sample design is
structured as follows. The target population of the study is Large Taxpayers who are active
in the 2021/22 tax period within the branch office.

As Ketema, D. 2016 stated in his thesis, in respect of sample frame, the sample frame from
which potential respondents are to be drawn is to be representative of the population of
interest. The sample design provides the basic plan and methodology for selecting the
sample. In a sample design, a sample selection about broader potential respondents giving
the equal chance of selection is vital in increasing the representativeness of the sample.
Therefore, the total population used to determine the sample is all active large taxpayers of
the branch office.

3.6 Population, sample, and sampling techniques

The targeted population of the study is the whole taxpayers under the branch office, which
are 639 in number. This study constitutes several types of taxpayers who are investing in
different sectors. By considering cross-sectional data for evaluation according to the nature
of their business, these include import, export, wholesale trade, constructions, service, etc.

Moreover, these taxpayers were also considered to be higher taxpayers having an annual
turnover of more than 50 million ETB according to the final segmentation of the Ministry
of revenue. (የገቢዎች ሚኒስቴር፣2012)

39
 3.6.1 Sample size
Another point to be raised here about sample design is the sample size. The choice of
sample size is based on the reliability of the result of a study. However, this does not mean
that a large sample size always leads to a high level of accuracy rather it is to indicate that
sample size is one of the factors that contribute to the credibility of the survey estimate. For
the choice of sample size, different researchers have different opinions. For instance, some
researchers noted that the choice of sample size is normally made after considering
practical issues and available resources (e.g. cost and time). According to Ary et. al.
(2002), all things being equal, larger sample size is a better representative of the
population. On the other hand, Fowler (1984) noted that there is no single precise way for
the determination of sample size hence there are a number of inadequacies for deciding on
sample size. Therefore, it is better to decide the sample size by considering the different
goals to be achieved by a particular study, the sample size used by other researchers on
similar studies, for example, Wubshet (2011), and by considering practical issues like
availability of time, resources and the size of the population to be studied. Fowler (1984)
indicated that for a population, the level of precision increases steadily up to sample sizes
of 150 to 200. But the total size ratio of n /N is about the population is 639 selecting 150-
200 makes the precision better because it is 24 %-31% from the population. Even though
the target population is small the researcher has taken the sample size of 155 which is
24.26% of the population. This is also quota sampling method of data selection was used.

As stated above, the sample size that has been used in the survey is 155 large taxpayers
found in the Large Taxpayers Branch Office. Administration In order to substantiate the
information obtained from the 155 large taxpayers, tax consultants and officers in the
branch had been participants. To ensure the representativeness and to identify the factors
tax evasion, the population of large taxpayers found in MoR were included in to business
sectors, namely manufacturing, Construction, Financial institutions, import & export and
service giving. quota sampling technique was used in order to ensure all characteristics in
the population are reflected in the sample selected.

3.6.2 Sampling techniques

This research has a total target population of 639 taxpayers‟ (source: The LTO branch
office customer service process). Masuku (2014) provides a simplified formula to calculate

40
sample sizes Z considering A 95% confidence level and P = 0.05 is assumed concerning
the level of confidence that the results revealed by the survey findings are accurate. What
this means is the degree to which we can be sure the characteristics of the population have
been accurately estimated by the sample survey. The following formulation had been used
to decide the sample size (n).

The following formulation was used to decide the sample size (n).

n = N / [1 + N ( e )2]

Where;

n- is the sample size,

N- is the population size, and

e -is the level of precision. When this formula is applied to the above sample, we get.

n = N / [1 + N (e) 2]

Masuku, in his International Journal of Economics, Commerce and Management titled

”SAMPLING TECHNIQUES & DETERMINATION OF SAMPLE SIZE” has chosen the
precision level between .05(5%) and 0.1(10%). In this research taking the precision level
0.07(7%),

The sample size will be n=N/((1+N(e)2))

n= 639/ ((1+639(0.07)2))

n= 155

Therefore the sample size of the research is 155 business organizations. (Masuku, Micah B,
2014)

3.7 Research Approach

The study was carried out using both qualitative and quantitative aspects of the research
approaches. The data collected from the respondents (taxpayers) was analyzed in a
qualitative way the other data collected from the branch office was treated in a quantitative
way for triangulation and to enrich the explanation of key informants‟ opinions to increase

41
the confirmatory of the information investigated in quantitative approach. Alternatively, the
self-administered survey was used in the quantitative approach for the reason of its
flexibility in interviewing and disc using with these target respondents and its evaluation of
the responses. Within the quantitative approach, the questionnaires were distributed and
filled independently by the respondents.

3.8 Type of data and data collection tools and method

Primary data collection is essential although a researcher cannot find the information
wished from secondary sources. Correspondingly, the data acquired for this research was
collected from primary sources through a self-administered questionnaire prepared using
five-point Likert scale where 1= strongly disagree, 2 = disagree, 3 = neutral, 4 = agree and
5 = strongly agree. Respondents of the questionnaire are manager, and employee of the
company. Because of their scattered location of their premises, better collection method is
used that is presenting the questionnaire to the respondents when they go to the branch
office for monthly declarations. Because of their location it was difficult to select
respondents randomly or stratified method or other probability method rather it was
preferred to use non probability sampling method. However the sample size is determined
by the formula of sampling technique from the available target population it was difficult
and costly to use probability method. For the purpose of triangulation, key informant
questionnaires were presented to 25 team leaders and process owners of the branch office.
Various implicit and proxy questions were used for accumulating information on tax
evasion. The data collection was managed with the distribution of questionnaires
personally at the branch office and the major data collected from the respondents were
personal profile, demographic variables, and responses on determinants of tax evasion.

3.9 Data analysis techniques

Excel spreadsheet was used to find mean and standard deviation of the respondents has
been applied to process quantitative data obtained from the structured questionnaire. Each
descriptive method of analysis had been used to investigate the impacts (effects) the
structured variable that help to determine the determinant of tax evasion variables which
can be independent and dependent are taken into consideration to observe the independent
variables dedication on tax evasion.

42
 3.10 Ethical considerations in the study
Research ethics refers to the type of agreement that the researcher enters with the research
participants. It was clearly announced to the participants that the study has an obligation on
the protection from stress, harm, or danger; right to privacy; confidentiality; and honesty
with professional colleagues and oral informed consent was obtained from research
participants. Each questionnaire was administered together with a letter providing
explanation and assurance that all information provided will be treated confidentially and
their identity kept anonymous from Ethiopian Civil Service University and institutional
consent from the Large Taxpayers Branch Office of Ministry of Revenue.

43
 CHAPTER FOUR: DATA ANALYSIS AND FINDINGS
4.1 Introduction
This chapter contains demographic information from respondents, as well as data
presentation and analysis in the form of graphs and tables. It also provides insights into the
study's data presentation, analysis, and debate. Descriptive statistics were used to analyze
the data (mean and standard deviation). 155 questionnaires were distributed using the data
sampling method described in Chapter 3. 147 questionnaires were returned, accounting for
94.84 percent of the total. The findings are presented in tabular summaries, graphs, and a
discussion of the implications follows the summaries.

4.2 Demographic data

Gender, age, marital status, educational level, respondents' position, year of experience, and
sort of business were among the responder characteristics.
Table. 4.1 Demographic data
Gender Male 81 55%
Female 66 45%
Total 147 100%
Age 18-35 87 59%
36-50 53 36%
51 and above 7 5%
Total 147 100%
Marital Status Maried 38 26%
Single 109 74%
Total 147 100%

200 147 147 147

150 109
81 87
100 66 53 38
50 7
0
Male Female Total 18-35 36-50 51 and Total Maried Single Total
above
Gender Age Marital Status

Source: self modified

Fig. 4.1 Graph of respondents demographic data

44
Table 4.2 Summary of respondent’s Educational level, Position in the organization,
Year of experience and Nature of businesses;
Number %ge
Graduate 83 56%
Educational back
Non-graduate 64 44%
ground
Total 147 100%
Manager 29 20%
Position Employee 118 80%
Total 147 100%
0-5 Years 65 44%
6-10 Years 39 27%
Experience 11-15 Years 34 23%
15 & above 9 6%
Total 147 100%
Import/Export 34 23%
Manufacturing 21 14%
Construction 27 18%
Nature of
Financial Institution 5 3%
Business
Service providers 42 29%
Other 18 12%
Total 147 100%

160 147 147 147 147

140 118
120 83
100 64 65
80 39 42
60 29 34 34 21 27
40 9 5 18
20
0
Manager
Non-graduate

0-5 Years

Import/Export

Construction
Graduate

15 & above
Total

Total

6-10 Years

Total

Other
Employee

Total
11-15 Years

Manufacturing

Service providers
Financial Institution

Educational Position Experience Nature of Business

background
Source: Self modified

Fig. 4.2 Graph of Summary of respondent’s Educational level, Position in the organization, Year of
experience and Nature of businesses;

45
 4.3 Analysis of data results concerning the variables
The findings of the statistical analysis and data interpretations utilizing mean and standard
deviations are presented in this section.
The self-administered questionnaire was created and presented on a five-point Likert scale,
with 1 indicating strong disagreement, 2 indicating disagreement, 3 indicating neutrality, 4
indicating agreement, and 5 indicating strong agreement.
A corresponding questionnaire was administered to several branch office personnel for the
aim of triangulation.
The study classified the range of scores obtained on the five-point Likert scale as follows: a
variable with a mean score greater than 3.0 was classified as agree/strongly agree, a mean
score of 3.0 was classified as neutral, and a mean score less than 3.0 was classified as
strongly disagree/disagree on the Likert scale. Data is collected from the branch office's
lower officials in addition to the responses of respondent taxpayers.
Officials are asked questions that support the questionnaire given to the taxpayers who
responded. For each question, there are two options (Yes or No).

4.3.1 Effects of tax evasion on resource accumulation of

individuals, public service, and government debt.
Table 4.3 Effects of tax evasion on resource accumulation of individuals, public
service, and government debt
n=147 Frequency and Tot Mea St.D.
Percentage of each
al n
respondents under each
weight Fre
Statement: Tax Evasion 1 2 3 4 5 que
ncy
1 The expansion of tax evasion increases the amount 10 15 10 51 61 147 3.94 1.21
of resources accumulated by the individuals.

2 The expansion of tax evasion reduces the amount 5 9 6 45 82 147 4.29 0.98
of public services supplied by the government
3 Tax evasions lead the government to unnecessary 9 4 6 59 69 147 4.25 1.00
debt to bridge the fiscal gap.

The overall mean and Std. Dev. of tax evasion 4.16 1.06

46
As shown in Table 4.3 when the statement "The expansion of tax evasion increases the
number of resources accumulated by individuals." was presented to respondents, 17 percent
strongly disagreed and disagreed, 76 percent agreed and strongly agreed, and the remaining
7% were indifferent.
This indicates that the respondents agreed that tax evasion improves the accumulation of
resources for certain persons, with an average (mean) of 3.94 and a standard deviation of
1.21.
For the remaining statements, the respondents agreed with 87 percent and disagreed with 9
percent for the effect of tax evasion on government-provided public services and leading
the government into excessive debt, 4.29 and 4.25 on average, with standard deviations of
0.98 and 1.00, respectively. This means that tax evasion has an influence on public
spending.

Similarly, supporting questions for the above response were presented to the officials of the
branch, such as the accumulation of resources by individuals due to tax evasion, the
government falling into unneeded debt, and the government ceasing to provide public
goods; all interviewees responded "YES." Officials from the branch office backed up the
taxpayers' responses. It suggests that resource buildup leads to an unequal economic level
in society, a government budget deficit, and the government falling into an unneeded debt
trap as a result.

4.3.2 Impacts of tax Rate on tax evasion

According to table 4.4 in the questionnaire response, No 4, 57 percent of respondents
disagree with the idea that "Taxpayers evade tax if tax rates are too high," 17.0 percent
agree, and 26% are indifferent, or the mean of the response is 2.49 standard deviation is
1.37, indicating that the majority of respondents disagree with the impact of high tax rates
on tax evasion. However, 78 percent of respondents believe that an unfavorable tax rate
encourages tax cheating in Question 5.
To summarize, both surveys have different effects on tax evasion, indicating that an unfair
tax rate has an impact on tax evasion but a high tax rate does not. This implies that
taxpayers are not complaining about high tax rates, but rather about tax rates that are unfair.
All of the branch office's target team leaders and process owners agreed that if the tax rate

47
 is unfair, tax evasion will increase. The branch office's team leaders and process owners are
looking for a reasonable tax rate, as an unjust rate would aggravate tax evasion.
Table 4.4 Impacts of tax rate on tax evasion
n=147 Frequency and Percentage Tot Me St.D
of each respondents under
each weight al an .
Fre
Statement: Impacts of tax Rate 1 2 3 4 5 que
ncy
4 Taxpayers evade tax if tax rates are too 25 59 38 16 9 147 1.37
2.49
high.
5 The tax rate is unfair which enhances tax 11 13 9 55 59 147 1.22
3.94
evasion.
The overall mean and Std. Dev. of tax evasion 3.21 1.29

4.3.3 Impacts of income levels of taxpayers on tax evasion

Respondents agree that ability to pay tax and tax liability grows over time, as shown in
table 4.5 with a mean of 3.93 and a standard deviation of 1.16 the ratio of the respondents
is 78% agree and strongly agree , where as 14% is dis agree and strongly dis agree.
With an average (mean) of 3.12 and a standard deviation of 1.41, respondents agreed with
the statement "Taxpayers with higher business income are more evasive," at a rate agree
and strongly agree 44% and dis agree and strongly disagree 36%. While the mean and
standard deviation of the response to query No 8 are 2.86 and 1.37 respectively the
percentage rate is 35% agree and strongly agree and 48% disagree and strongly disagree.
It implies that large corporations are more secretive than small corporations.
The target respondents agreed 44% of the time, disagreed 36% of the time, and were
undecided 20% of the time. As a result, since the majority of them agreed that higher-
income businesses are more evasive, the majority is used to draw conclusions.
People believe that taxpayers who earn more profits should not evade taxes because their
income is increasing, but the results show that taxpayers with higher business incomes are
more evasive than those with lower incomes.

48
 The perception of people is, that those taxpayers who are earning more profits should not
evade taxes since their income is increasing but the result indicates that taxpayers with high
business incomes are more evasive than those who are earning smaller income.
In general income level of business owners affect tax evasion, which means noncompliance
of business organizations, is affected by their income level. The result indicates averages of
the mean and standard deviations of the response to the three questionnaires (6, 7, and 8)
are 3.30 and 1.32 respectively. This inclines to decide the agreement of respondents is that,
as income level raises non-compliance of business organizations increases.
However, there are many other constraints (such as inflation) the team leaders and process
owners agreed on their own contribution, to increase annual revenue.

Table 4.5 Impacts of income levels of taxpayers on tax evasion

n=147 Frequency and Percentage of Total Mea St.D.
each respondents under each
Freque n
weight
Statement: Impacts of income levels 1 2 3 4 5 ncy

6 Considering your ability to pay tax 8 12 13 63 51 147 3.93 1.16

increased over time, your tax liability
is also increased
7 Taxpayers with higher business income 31 22 29 29 36 147 3.12 1.41
are more evasive.
8 Taxpayers with smaller business 29 41 26 24 27 147 2.86 1.37
income are more evasive.
The overall mean and Std. Dev. of 3.30 1.32
tax evasion

4.3.4 Impacts of inflation rate on tax evasion

As shown in table 4.6 the rate of inflation was used as a variable, and questionnaires were
sent to taxpayers who responded. 'Inflation affects consumers but not suppliers,'
'Government does not consider inflation while collecting tax,' and 'As inflation grows, the
tax to be paid should be increased.'
According to the Likert scale, 11 percent of respondents disagreed with the first statement,
while 86 percent agreed with the second statement and the remaining 3% were neutral.
For the second statement, 12 percent disagreed, 86 percent agreed, and the remaining 2%
were undecided. The respondent taxpayers responded to the last and third statements on

49
 this variable, with 78 percent agreeing, 18 percent disagreeing, and the remaining 4% not
responding.
These responses had an average mean and standard deviation of 3.86 and 1.16,
respectively.
This implies that taxpayers are aware of the impact of inflation on their tax obligations.
In addition to this finding the annual collection of revenue indicated in table 4.6 shows
Table 4.6 Impacts of inflation on tax evasion
n=147 Frequency and Percentage Total Mea St.D.
of each respondents under Freque n
each weight
ncy
Statement: Impacts of inflation 1 2 3 4 5

9 Inflation affects the consumers but 7 9 5 70 56 147 3.87 1.13

doesn’t the suppliers.
10 Government is considering inflation 11 6 3 52 75 147 3.97 1.11
while collecting tax.
11 As inflation rises tax to be paid should 11 15 6 54 61 147 3.74 1.23
be raised.
The overall mean and Std. Dev. of
tax evasion

4.3.5 Impacts of the probability of detection and capacity of

investigation
As shown in table 4.7 the average mean value and standard deviation of the three
questionnaires are 3.20 and 1.40, respectively. In response to the first questionnaire, 31
percent disagreed and strongly disagreed, while 60 percent agreed and strongly agreed.
The results of the second questionnaire were 63 percent disagree and strongly disagree, 27
percent agree and strongly agree, and the rest were neutral. In this variable, 70% agree and
strongly agree with the statement presented to respondent taxpayers, 21% disagree and
strongly disagree, and the remaining is neutral. As previously stated, if the mean value of
the questionnaire is three or greater, the agreed-upon statement will be the conclusion of
the respondent's response. If it is less than three, the conclusion will be in conflict with the
assertion.
Furthermore, based on the average mean value and standard deviation of the three
questionnaires mentioned above, the overall conclusion of the response to the statement,

50
 "Impacts of the probability of detection and capacity of inquiry of all income reports on tax
evasion," is accepted and strongly agreed upon. Tax evasion can be reduced to the greatest
extent possible if tax audits are conducted correctly and taxpayer income is managed on an
annual or monthly basis.
Tax evasion can become a habit if fraudulent taxpayers are not afraid of being caught while
evading.
According to the respondent officials, 84 percent believe that "taxpayers may not evade tax
if the likelihood of being audited is high." And 92 percent of them agreed that auditor
professionalism increases taxpayer compliance. This implies that the likelihood of
taxpayers being audited increases taxpayer compliance.
In this tax year, 622 taxpayers were evaluated according to the measuring standard based
on secondary data collected from the LTO Risk and Legal Compliance Strategy Process.
As a result, their risk level was determined, with 153 taxpayers classified as high risk, 283
classified as medium risk, and 186 classified as low risk, representing 25%, 45 percent, and
30%, respectively.
In this regard, the branch office audit department has audited 137 taxpayers to date. As a
result, the performance of auditing high-risk taxpayers is 89.5 percent through April 2022.
Even if the annual performance is perfect, the remaining medium risk cannot be addressed
today.
Table 4.7Impacts of the probability of detection and capacity of investigation
n=147 Frequency and Total Mean St.D.
Percentage of each
Frequ
respondents under each
weight ency

Statement:Impacts of the probability 1 2 3 4 5

of detection
12 Taxpayers might not be evade tax if the 18 28 13 50 38 147 3.42 1.42
probability of detection is high.

13 The tax administration office has the 49 43 16 24 15 147 2.41 1.48

capability to investigate all income
reported by the taxpayers.
14 Tax evasion is habitual if probability of 15 15 12 51 54 147 3.78 1.31
getting caught is low.

51
The overall mean and Std. Dev. of 3.20 1.40
tax evasion

4.3.6 Effects of penalty on tax evasion

Four questionnaires were distributed to the respondents, as summarized in table 4.8 below.
The questionnaires addressed the penalty rate, legal enforcement, taxpayer awareness of
penalties, and the impact of the previous penalty on self-payment of future tax. In the
present, 39 percent of respondents disagreed or strongly disagreed. For the first statement,
52 percent agree and strongly agree, while 12 percent disagree and strongly disagree. For
the second statement, 85 percent agree and strongly agree, 13 percent disagree and strongly
disagree, and 73 percent agree and strongly agree; for the third statement, 20 percent
disagree and strongly disagree, and 64 percent agree and strongly agree.
The mean and standard deviations of the response data were (3.29, 1.38), (4.14, 1.12), and
(3.73, 1.12), respectively. The mean 3 and above on the Likert scale in this study indicates
agree and strongly agree with the statement presented. As a result, the data's average mean
value is 3.49, implying a high penalty rate that discourages tax evasion. Taxpayers
responded that good legal enforcement saves the government money by preventing tax
evasion. in addition to this assertion Knowing about tax penalties and having paid them
encourages taxpayers not to evade taxes.

Supporting the above idea, 18/25 (72 percent) of the branch office's team leaders and
process owners agreed that a high penalty rate can deter tax evasion. 'A good legal
enforcement practice increases taxpayers' tendency,' was another point presented to those
officials. And all of the respondents agreed that taxpayers can have a positive attitude
toward compliance if there are strong and sustainable tax laws and equally serving legal
enforcement.

Table 4.8 Effects of penalty on tax evasion

n=147 Frequency and Total Mean St.D.
Percentage of each
Freq
respondents under each
weight uenc
Statement: Effects of penalty 1 2 3 4 5
y

52
15 If the penalty rate is high, there is no 25 32 13 29 48 147 3.29 1.38
possibility that taxpayers evade tax.
16 A good legal enforcement practice increase 9 9 4 56 69 147 4.14 1.12
your tendency on tax compliance.
17 Taxpayers who have an awareness of penalties 12 7 21 76 31 147 3.73 1.28
for tax evasion is more compliant.

18 The penalty that taxpayers have paid in the 10 19 24 66 28 147 3.56 1.33
past, affects the liability of tax that will be
paid in the next compliance behavior.
The overall mean and Std. Dev. of tax 3.68 1.28
evasion

4.3.7 Impacts of the complexity of tax law and its

administration system on tax evasion
Table 4.9 and which follow the four statements presented to respondent taxpayers, inquire
about the impact of the tax system's complexity on tax compliance. Tax evasion will occur
if there is no self-compliance with the tax law. Despite the fact that the statements have the
same intent, the approach differs, which is why the second (No 17) statement shows that
the mean (average) and standard deviation of the occurrence of responses are 2.70 and
1.42, respectively. This indicates that the tax system's consistency varies across years and
tax centers (branches). However, respondents agree or strongly agree with the other
statements, resulting in an average mean of 3.63 and a standard deviation of 1.25.

In general, respondents believe that there is a negative relationship between tax compliance
and the complexity of the tax system. That is, as the complexity of the tax system increases,
so does the likelihood of compliance.
Statements1 Complexity of tax system creates an obstacle to comply with tax law; 2. Tax
administration system in the authority is consistent with each other across years; and 3. If
tax laws are easy to understand, it encourages tax compliance; were presented to
incorporate the view of branch officials on the questionnaire presented to respondent
taxpayers.
So, while all respondents agreed on the first and third statements, 5(20%) of respondents
disagreed and 2(8%) did not respond on the second statement. This implies that if the tax
system is not clear to all taxpayers, it leads to tax evasion.

53
Table 4.9 Impacts of the complexity of tax law and its administration system on tax
evasion
n=147 Frequency and Total Me St.D.
Percentage of each
Freque an
respondents under each
weight ncy

Statement: complexity of tax law and 1 2 3 4 5

its administration system
19 Complexity of tax system creates an 10 15 9 53 60 147 1.22
obstacle to comply the tax law. 3.94
20 Tax administration system in the 29 38 43 22 15 147 1.42
authority is consistent with each other 2.70
across years.
21 Other professionals are required to assist 8 10 10 59 60 147 1.11
in formulating tax liabilities due to 4.04
unclear treatment of tax systems.
22 If tax laws are easy to understand it 10 16 11 59 51 147 1.24
encourages tax compliance. 3.85
The overall mean and Std. Dev. of tax 3.63 1.25
evasion

4.3.8 Impact of perceived roll of Government on the use of tax

revenue to public service on tax evasion
Taxpayers expect transparent government spending and visible results from their tax
payments.
So, the respondents agree or strongly agree with the statement in table 4.10 'If the
government spends too much tax revenue on unnecessary expenditure, it encourages tax
evasion.' with an average (mean) of 3.54 and a variability or standard deviation of 1.24.
This means that if the government's use of the resource is transparent and free of
corruption, tax evasion will be reduced. The second perception of taxpayers about
government is that it should provide a fair public good. If the expected one is supplied
fairly, it prevents tax evasion. The respondents responded on the Likert scale with an
average (mean) of 4.16 or a standard deviation of 1.02.

54
 On the other questionnaire, respondents strongly agreed or agreed that if a fair tax system is
in place, tax evasion is reduced, with an average (mean) of 4.07 and a standard deviation of
1.05 on the Likert scale.
In general, taxpayers' perceptions of the government tax system, resource utilization, and
the provision of equitable public goods all have an impact on tax collection. The three
questionnaires' average mean value and standard deviation are 4.06 and 1.10, respectively.
As a result, the response implies that if the government implements a good tax system, it
should spend resources on providing goods to the public, and wise resource utilization
improves taxpayer compliance.

This is also related to the response of the branch office's team leaders and process owners
to the statements presented to them, which focuses on the prioritization of expenditure, the
provision of government goods and services as much as the collected tax and fair collection
of tax from the taxpayers. All respondents agreed that if the government prioritizes
spending collected tax revenue, taxpayers' attitudes toward compliance with tax laws and
regulations improve, and if taxpayers believe the tax system is fair to all taxpayers, they are
less likely to engage in tax evasion.
However, 80 percent of respondents agreed with the statement "unnecessary consumption
of government resources encourages tax evasion." the remaining respondents disagreed and
are neutral, confirming the above-mentioned taxpayers' perception.
Table 4.10 Impacts perceived role of government on the use of tax revenue to
public service on tax evasion.
n=147 Frequency and Total Me St.D
Percentage of each
Freq an .
respondents under each
weight. uenc
Statement: perceived role of government 1 2 3 4 5 y

23 If the government spends too much tax 11 15 7 53 61 147

revenue on unnecessary expenditure it 3.94 1.24
encourages tax evasion.
24 If peoples are getting comparable public 6 8 7 62 64 147
services from the government for, they tax 4.16 1.02
paid, it enhances taxpayer‟s compliance.
25 If taxpayer‟s perceptions of tax fairness 5 9 7 75 51 147
increases, the level of tax evasion will also 4.07 1.05
decrease.

55
The overall mean and Std. Dev. of tax 4.06 1.10
evasion

4.3.9 Impacts of taxpayer’s attitude to government programs

on tax evasion
Table 4.11 present five questionnaires to respondents regarding taxpayers' attitudes toward
government programs on tax evasion. As there is good governance and its contributions on
tax compliance, the contribution of government programs on tax compliance, own
responsibility of tax payment, compliance due to fear of penalty, and effective tax low
discourages tax evasion were presented to the respondent taxpayers and the response was
analyzed, with the result showing an average of mean 3.89 and standard deviation 1.19.
If respondents agree and strongly agree with the statement presented, it implies that
voluntary compliance can be promoted not only by penalizing fraudulent taxpayers, but
also by developing clear, simple, and user-friendly tax administration systems and
procedures. Prioritized government programs based on public interest also increase
voluntary tax payment compliance.

This is also supported by the response of the branch office's lower officials to the presented
statement, 'a good political system has a positive impact on taxpayers' attitude toward tax
evasion.' The expansion of illegal cash register machines and illegal manual receipts is due
to the government's loss of control and society's lack of awareness; this viewpoint is
supported by 100% and 72% of respondents, respectively.

Table 4.11 Impacts of taxpayer’s attitude to government programs on tax evasion.

n=147 Frequency and Total Mean St.D
Percentage of each
Frequ .
respondents under each
weight ency
Statement: taxpayer’s attitude 1 2 3 4 5
26 Good governance positively impacts 9 16 15 57 50 147 3.84 1.21
one‟s compliance behavior towards tax.
27 Desirable government programs 12 19 13 72 31 147 3.62 1.38
encourage tax compliance behavior.
28 Paying tax is my own responsibility. 3 6 3 42 93 147 4.47 0.82
29 Taxpayers might not evaded tax due to 7 6 29 90 15 147 3.68 1.25
fear of punishments.

56
30 Effective administration of the tax law 9 16 6 75 41 147 3.84 1.28
discourages tax evasion.
The overall mean and Std. Dev. of tax 3.89 1.19
evasion

4.3.10 Impacts of Peer influence on tax evasion

According to the results summarized in table 4.12 for the statement presented to
respondents "The noncompliance of other taxpayers negatively impacts other taxpayers'
behavior," 82 percent agreed or strongly agreed, while the remaining 18 percent disagreed
or were neutral. This implies that non-compliant pears cause other complaints about tax
evasion.
The second statement presented to respondent taxpayers was "my friends' attempt to reduce
taxes, affects my attempt to pay a reduced tax." 35 percent of respondents disagreed or
strongly disagreed, 46 percent agreed or strongly agreed, and 19 percent were indifferent.
Nonetheless, the number of respondents who agree outnumber those who disagree. This
also implies that if there are some non-complaints among the group of taxpayers, non-
compliance behavior spreads to those who have no experience reducing tax liability.
"Whenever a taxpayer is penalized for tax evasion, it influences others not to evade tax,"
said the third statement presented to respondents.
Then they agreed with a percentage of 64% and disagreed with a percentage of 26%, with
the remaining 10% neutral.
This implies that when non-compliant taxpayers are penalized, the other learns their lesson
and is more likely to pay their tax liability. The average mean and standard deviation are
3.59 and 1.19, respectively, indicating that the impact of peer influence is generally agreed
upon or strongly agreed upon. It implies that a non-compliant peer reduces government tax
revenue by influencing the compliance behavior of other taxpayers. If a peer is penalized
for tax evasion, it is likely that they will refrain from evading taxes in the future.
According to the branch office's team leaders and process owners, the statements presented
concerning illegal receipts expanding are the result of fraudulent taxpayers. This
encourages compliant tax payers to engage in the same illegal behavior.
Table 4.12 Impacts of peer influence on tax evasion

57
 n=147 Frequency and Total Mea St.D
Percentage of each
Freq n .
respondents under each
weight uenc
Statement: Impacts of peer influence 1 2 3 4 5 y
31 The noncompliance of other taxpayers 6 7 13 53 68 147 4.16
impacts negatively other taxpayers‟ 0.98
behavior.
32 My friends attempt to reduce taxes, affects 12 40 28 44 23 147 3.18
me to attempt to pay a reduced tax. 1.38
33 Whenever a taxpayer is penalized for tax 16 22 15 72 22 147 3.42 1.50
evasion, it affects other not to evade tax.
The overall mean and Std. Dev. of tax 3.59 1.29
evasion

4.3.11 Impacts of age, gender and education level of

taxpayer of taxpayers on tax evasion

4.3.11.1 Impacts of age of taxpayers on tax evasion

According to Table 4.13 below, the mean value of 3.01 and standard deviation of 1.34
indicate that young taxpayers are more likely to take risks and, as a result, are more likely
to engage in tax evasion.
According to the officials, 16/25 (64 percent) agreed that young taxpayers are more willing
to take risks and are more sensitive to tax evasion. However, of the remaining 9/25 (36%)
respondents, 16% disagreed and 20% were neutral.

Table 4.13 Impacts of the age of taxpayers on tax evasion

n=147 Frequency and Total Mea St.D.
Percentage of each
Freq n
respondents under
each weight uenc
Statement: Impacts of the age 1 2 3 4 5
y
34 Young taxpayers are more willing to take risks and 19 37 16 50 25 147 3.17 1.48
it has more sensitive to tax evasion.

The overall mean and Std. Dev. of tax evasion 3.17 1.48

58
 4.3.11.2 Effect of the gender of taxpayers on tax
evasion
According to table 4.14 below, for the questionnaire presented to respondent taxpayers, the
majority agreed or strongly agreed with an average (mean) value of 3.53 and standard
deviation of 1.28 that women comply with tax law more than men. Furthermore, men are
more likely than women to take risks in order to avoid paying taxes.
Eighty percent of branch office respondent officials agreed that female taxpayers are more
likely than men to follow the tax law. This implies that taxpayers and officials hold similar
views.
Female taxpayers are more compliant than male taxpayers, according to both groups.
Table 4.14 Impacts of gender of taxpayers on tax evasion
n=147 Frequency and Percentage of Total Mean St.D.
each respondents under each
Freque
weight
ncy
Statement: Impacts of gender 1 2 3 4 5

35 Females are more likely to 13 23 21 53 37 147 3.53 1.34

comply to the tax laws than
men.
The overall mean and Std. Dev. 3.53 1.34
of tax evasion

4.3.11.3 Impacts of education and awareness

creation on tax evasion
Three questionnaires were distributed to taxpayer respondents, as shown in Table 4.15
below. Each respondent has an opinion on each statement. As a result, 53.2 percent agreed
or strongly agreed, which is lower than the standard given to say it is agreed or strongly
agreed, as discussed earlier in the statement 'The government conducted awareness
creations to taxpayers about the impact of tax evasion on the country economy.' In its
implication, the branch office's awareness is insufficient. In the second questionnaire on
this topic, 77.2 percent of respondents agreed or strongly agreed that knowledge of tax laws
helps taxpayers comply with tax laws. Which has a mean value of 3.57, which is greater
than three, and a standard deviation of 1.28.

59
This implies that taxpayer knowledge aids the tax system in collecting tax revenue from the
economy. Some taxpayers avoid paying taxes. The third point is unintentional due to a lack
of knowledge, with a mean value of 3.08 and a standard deviation of 1.34 indicating that
respondents do not believe the government has conducted enough awareness creation to
reduce taxpayer noncompliance. They believe this is critical because understanding what is
expected of taxpayers under tax law is beneficial to compliance behavior. The majority of
key informant interviews with tax office employees stated that the "tax authority does not
provide sufficient education to taxpayers to ensure compliance."

Concerning this scenario, the statement "The tax education being provided to taxpayers is
sufficient to prepare taxpayers for self-compliance" was presented to the branch office's
junior officials. Their responses were as follows: 11 officials (44%) agreed, 13 (52%)
disagreed, and 1 (4%) was neutral. This suggests that the tax education provided to
taxpayers is insufficient to prepare them to comply with the tax law.

Table 4.15 Impacts of education of taxpayers on tax evasion

n=147 Frequency and Total Mea St.D.

Percentage of each Freq n
respondents under each uenc
weight y
Statement: Impacts of education 1 2 3 4 5
36 The government conducted awareness 29 49 13 41 15 147 2.76 1.54
creations to the taxpayers about the
impact of tax evasion in the country
economy.
37 Knowing my tax obligations helps me 6 16 9 78 38 147 3.86 1.22
to comply with the tax laws.
38 Having a good knowledge of the tax 6 13 9 51 68 147 4.10 1.09
law encourages tax compliance.
The overall mean and Std. Dev. of 3.57 1.28
tax evasion

60
 4.4 Interpretation and Discussion
The findings are discussed below in light of the aforementioned findings and other related
literature from this study.

4.4.1 Effects of tax evasion on accumulation of individuals

wealth
Three questionnaires were distributed to respondent taxpayers in order to elicit their
opinions; from the 147 questionnaires collected, 83 percent agreed, implying that tax
evasion increases individual wealth while decreasing government revenue, resulting in a
failure to provide the required services and goods to the public. Their viewpoint was
supported by that of the branch office's junior officials.

In his article, Muhhamad Muzzam (2012) supported the viewpoint by stating that
"governments were negatively affected by tax evasion to improve the life standard of its
citizens and to allocate a budget for public expenditure, and it became a disease for the
country's economy and estimated to cost 20% of income tax revenue."

4.4.2 Impacts of tax Rate on tax evasion

The goal of this research is to determine whether tax rates contribute to tax evasion. Then,
of the 147 questionnaires returned by taxpayers, 57.1 percent disagreed with the statement
that high tax rates cannot contribute to tax evasion, but 78 percent agreed that if tax rates
are not fair, tax evasion can be increased. Not only taxpayers, but also branch office
officials, agreed with them because the current tax rate is fair, but if it were unfair, it would
exacerbate tax evasion. Richardson, G., and Goitom, A. (2014) used aggregate data in the
United States to explain the relationship between marginal tax rates and noncompliance,
demonstrating that tax rates were negatively correlated with tax compliance. Contrary to
popular belief, some researchers discovered a positive relationship between tax compliance
and tax rate. This is also supported by the majority of respondents' responses.

4.4.3 Impacts of income levels of taxpayers on tax evasion

Praeger and B. Torgler, 2007 In most studies, income level is classified as one of the
demographic factors affecting tax compliance, but in their study, it is classified as an
economic factor because a person's or corporation's income earning capacity is dependent
on the economic aspect of citizens.

61
For example, progressive tax rates may encourage the higher income group to evade rather
than the lower income group because high tax rates raise their taxable income, resulting in
much higher tax liabilities than the lower-income group. Similarly, this study agrees with
Praeger and Torgler's previous research. Particularly progressive tax rates (unfair tax rates)
encourage taxpayers to evade or reduce their taxable income. Similarly, the majority of
respondents agreed that higher-income taxpayers are more evasive, while fewer
respondents agreed that lower-income taxpayers are more evasive.

Taxpayers with higher income are more evasive, according to both former researchers' and
respondent taxpayers' opinions in this study.

4.4.4 Impact of inflation on tax evasion

According to the responses of respondent taxpayers in table 4.6 when the government
collects tax, the tax burden rises as inflation rises in the economy, and they believe that the
tax liability should rise in tandem with the inflation rate. However, as inflation rises, the
government is not collecting enough taxes. Because this indicates that tax is not being
collected in the amount declared. Purchases are overstated, while sales are understated.

In their article, Razeh T. et al (2013) stated that there is a positive relationship between
inflation and tax evasion, implying that an increase in inflation leads to higher levels of tax
evasion. Taxpayers' decisions can be influenced by inflation.When the inflation rate is
high, taxpayers try to maintain the purchasing power of their real income by evading tax,
which leads to an increase in tax evasion.

4.4.5 Impacts of the probability of detection and capacity of

investigation
Respondent taxpayers provided their feedback via the questionnaire provided for this study.
According to the respondents, detecting and detecting fraudulent acts through the audit
process of the branch office reduces tax evasion. Second, if the income of taxpayers
reported annually or monthly was wisely administered in order to investigate the true
income of the taxpayers, tax evasion could be controlled within the branch office. The third
response was that if fraudulent taxpayers are not afraid of being caught while evading, tax
evasion can become a habit. According to Mohan, the 2001 tax audit could be a significant

62
motivator for increased tax compliance. This suggests that tax audits have an impact on tax
compliance.

Audit rates and audit diligence may encourage taxpayers to be more cautious in completing
their tax returns, reporting all income, and claiming the correct deductions to determine
their tax liability. Tax audits increase tax compliance because they serve as a deterrent to
taxpayer noncompliance. According to some studies, tax audits have a positive impact on
tax evasion. Similarly, the former researchers confirm the respondents' responses.

In the other way due to the evaluation of taxpayers by Risk and Legal Compliance
Strategy Process in terms of their risky level in this tax year. As the result expressed in
4.3.5 the auditing performance needs improvement to address those which are medium risk
taxpayers.

4.4.6 Effects of penalty on tax evasion

Four questionnaires, such as penalty rate and tax evasion, show that effective legal
enforcement increases compliance. If taxpayers are aware of penalties, they are more likely
to comply, and past penalties contribute to current compliance, were presented to elicit
opinions from a sample of taxpayers. Despite its drawbacks, the response of these
respondents was as explained in section 4.2.4, and they agreed at a rate of 52 percent, 85
percent, 72 percent, and 63 percent, respectively.It implies that if the penalty rate is high, it
will discourage fraudulent taxpayers.

According to the responses of respondent taxpayers, if the penalty is high, there is good
legal enforcement, and providing awareness about the penalties of fraudulent acts
discourages tax evasion, taxpayers may learn from the previous example. This finding is
consistent with the findings of Mohani, A. (2001). Personal circumstantial factors such as
tax knowledge, personal financial constraints, and awareness of penalties and offenses are
therefore likely to have a significant impact on taxpayers' compliance attitude.

4.4.7 Impacts of the complexity of tax law and its

administration system on tax evasion
The four statements were presented to respondent taxpayers, as shown in Table 4.8 the tax
system's complexity makes it difficult to comply with or obey the tax system. As a result,
77 percent of taxpayers (113 respondents) agreed with the statement, while the remaining

63
17 percent and 6 percent disagreed and were neutral. The second statement for this variable
was the consistency of the tax administration system over time, and the response was
disagreed by 67 respondents, or at a rate of 46 percent, whereas 37 respondents agreed, or
25 percent of the respondents, but 43 respondents were neutral, or 29 percent of them. It
implies that the authority's tax administration is inconsistent. This is why it is difficult to
follow and be led by it.

It would have aided tax compliance if it had been consistent and clear. The third statement
presented to respondent taxpayers emphasized the importance of third-party professionals
in clarifying the complex tax system. 81 percent agreed, 12 percent disagreed, and 7
percent were neutral. It implies a hazy relationship exists between the tax authority and the
taxpayers.

Another statement discussed what would happen if tax laws were simple to understand and
encouraged tax compliance. This is supported by 75% of respondents, while the remaining
25% are neutral or disagree. In general, if the tax system and administration were simple
and straightforward, there would be less tax evasion.

According to Dubbin, J.A. (2004), tax compliance places the government and the tax
authority as the primary parties that must be continuously efficient in administering the tax
system in order to reduce tax evasion.

Silvani, C., and Baer, K. (1997) discovered that the importance of the tax authority having
a simple tax return and system from the taxpayers' perspective encourages them to comply
with tax law.

4.4.8 Impact of perceived roll of Government on the use of tax

revenue to public service on tax evasion
This variable is related to taxpayers' expectations of the government. This means that
taxpayers expect the government to spend the money it collects on necessary development
programs. The existing government is also expected to provide comparable services and
goods. The third is that tax evasion can be reduced if a fair tax is levied on taxpayers with
equal ability to pay tax. Respondent taxpayers agreed on these three statements at a rate of
77 percent, 85.71 percent, and 85.71 percent, respectively. This also has a broader
implication: taxpayers and the general public expect the government to spend collected tax

64
revenue on prioritized public goods and services, and if an equitable tax system is used
among taxpayers, tax evasion will be reduced.

G. Richardson (2008) also proposed that the role of government has a significant positive
impact on tax attitudes.

4.4.9 Impacts of taxpayer’s attitude to government programs on

tax evasion
As shown earlier in table 4.10 the respondent taxpayers were given five statements. These
statements are about good governance, desirable government programs, one's own tax
payment responsibility, the impact of penalty fear on tax evasion, and the impact of
effective tax law on tax evasion. As a result, their earlier opinions were expressed as agreed
at a rate of 73 percent, 70 percent, 92 percent, 71 percent, and 79 percent, respectively. The
remaining rates are for agreeing or being neutral. This implies that if there is good
governance, prioritizing desirable government programs, and enforcing an effective tax
law, tax evasion is reduced, and if the penalty is managed properly, taxpayers' self-
compliance improves.

4.4.10 Impacts of Peer influence on tax evasion

As shown in Table 4.11 the three statements have a common sense of social interaction
among society having a positive or negative effect, the response of respondent taxpayers
regarding pear influence on tax compliance agreed on the statements the evasion behavior
of friends affects the neighboring, the compliant behavior of the other effects, and if one is
penalized, the other is prone to obey the tax law. Their responses are expressed as 82
percent, 46 percent, and 64 percent, respectively. The agreement rate for the second
questionnaire is 46 percent, because 28 respondents, or 19 percent, are indifferent.
Tewodros S.(2021) discovered that attitude and peer influence tax evasion.

4.4.11 Impacts of age, gender and education level of

taxpayer on tax evasion

4.4.11.1 Effect of the age of taxpayers on tax evasion

Respondent taxpayers agree, as shown in Table 4.12 and that young taxpayers are more
willing to risk evasion than older taxpayers. According to Abdullah M. Ghazo's (2021)
research, older people are more tax compliant than younger people, who are more likely to

65
take risks and are less sensitive to the consequences of tax evasion. As a result, the
outcome is consistent with the previous study's findings.

4.4.11.2 Effect of the gender of taxpayers on tax

evasion
Table 4.13 previously testified for the questionnaire provided to respondent taxpayers, with
61 percent agreeing that "Females are more likely than men to comply with the tax rules."
According to the branch office's junior staff, female taxpayers are 80 percent more
compliant than male taxpayers. Eighty percent of responding branch office officials agreed
that female taxpayers are more likely than male taxpayers to follow the tax law. This
implies that citizens and government officials share similar perspectives.

According to both groups, female taxpayers are more compliant than male taxpayers. This
is consistent with the findings of Hasseldine, J., and Hite. (2003), who conducted a study
on taxpayer gender. Others, in contrast to this study, claimed that gender made no
difference.

4.4.11.3 Impacts of education and awareness creation

on tax evasion

According to the questionnaire responses, 53 percent of respondents disagree with the

statement "The government conducted awareness creations to taxpayers about the impact
of tax evasion on the country economy," implying that the tax authority is not providing
taxpayers with adequate tax education.
The second question, "Knowing my tax obligations helps me to comply with the tax rules,"
received a 79 percent agreement rating, implying that if a taxpayer is informed about tax
law and regulation, compliance improves.
Tax evasion, on the other hand, has increased in recent years due to a lack of
understanding.
Because the final questionnaire confirms the previous two, respondents agreed at 81
percent, which is considered normal.

66
The gender of taxpayers, age, lack of tax expertise, simplicity of the tax system, awareness
of the penalty for tax evasion, tax audit, and perception of the tax rate all influence
voluntary compliance attitude, according to Kanbiro's article.

According to the results of the questionnaires, 53% of respondents disagree with the
statement "The government conducted awareness creations to the taxpayers about the
impact of tax evasion in the country economy," implying that the tax authority is not
providing enough tax education to the taxpayers. The second questionnaire, "Knowing my
tax obligations helps me to comply with the tax laws," agrees at a rate of 79 percent,
implying that if a taxpayer is educated on tax law and regulation, he or she will be more
likely to comply with the tax laws. On the contrary, because of a lack of knowledge, tax
evasion has grown in recent years. Since the last questionnaire is supporting the previous
two questionnaires, respondents agree at 81 percent, implying that tax education is one key
to avoiding tax evasion.
According to Kanbiro's article, the binary logistic regression analysis results also suggested
that taxpayers' gender, age, lack of tax knowledge, simplicity of the tax system, awareness
of the penalty for tax evasion, tax audit, and perception of the tax rate all have a significant
influence on their voluntary compliance attitude.

67
 CHAPTER FIVE: SUMMARY, CONCLUSION AND
RECOMMENDATION
5.1 Summary of Major Findings
Because the goal of this study is to see if the recommended variables have an impact on tax
evasion, it was studied using the responses of target taxpayer respondents.

As a result, the key findings are:

o Within the country, there is unequal economic distribution.

o Providing public goods and services to the general population is a problem.
o Tax evasion is caused by an unfair tax rate.
o Higher-income taxpayers are more non-compliant than lower-income
taxpayers.
o Inflation is one element that contributes to tax evasion.
o Tax law and legal enforcement that is sustainable improves taxpayer self-
compliance.
o Regular auditing can help to prevent tax avoidance.
o Tax evasion is reduced when people are aware of the law
o Government spending priorities and transparency increase tax compliance.
o Enriching compliance by praising the complying and punishing the non-
compliant.
o Female taxpayers are more cooperative than male taxpayers.
o One issue that contributes to tax evasion is a lack of tax education.

5.2 Conclusion
The study's overall goal was to identify the elements that contribute to tax evasion in
Ethiopia's Ministry of Revenue Large Taxpayers Branch Office. The following conclusions
about tax evasion were established based on the quantitative data acquired via a self-
administered questionnaire and the triangulation informant interview conducted by the
study: According to the above-mentioned response of responding taxpayers, the complete
amount of reasons (factors) of tax evasion hurts the country's overall economy. As a result,
the government is unable to provide the necessary public goods and services to society. It is

68
trapped in a budget imbalance and debt. To improve government income collection, all
responsible bodies must devote substantial attention to this.

5.3 Recommendation
5.3.1 Recommendations for practice

 As indicated by the respondent taxpayers' responses, the Ministry of Revenue must

revise the tax rate to a fair tax rate in order to replace the currently in use tax rate.

 As per the suggestion of respondent taxpayers the requirement of sustainable tax

law is vital and the legal enforcement needs to be equitable to all taxpayers in order
to develop thrust on the tax authority. Therefore the concerned branch office betters
to aware the tax laws and regulations to the taxpayers day to day. The tax education
can keep the sustainability of understanding of the taxpayers. The legal enforcement
department also better to improve its service delivery to the taxpayers

 As per the suggestion of respondent taxpayers the requirement of sustainable tax

law is vital and the legal enforcement needs to be equitable to all taxpayers in order
to develop thrust on the tax authority. Therefore the concerned branch office betters
to aware the tax laws and regulations to the taxpayers day to day. The tax education
can keep the sustainability of understanding of the taxpayers. The legal enforcement
department also better to improve its service delivery to the taxpayers.

 According to the finding it is recommended that the Large Taxpayers Branch Office
has better to engage its potential to educate, follow, educate and control of these
taxpayers.

 The existing tax system requires improving tax awareness creation and applying fair
legal enforcement therefore, it is better to improve as per the finding suggests.

 The branch office should find better ways of improving ease of tax system in order
to make taxpayers compliant and minimize tax evasion.

69
  Even though tax burden is right and liability of taxpayers, the tax collecting
Government has to expend wisely in a transparent and prioritized according to the
demand of the society.

 The tax office should better categorize the taxpayer‟s relatively compliant and non-
compliant ones through intensive follow-up and audit results in order to educate the
non-compliant ones. In other way if non-complaints are seriously followed and
penalized for their fraudulent act, and the complaints are acknowledged the gap
among complaints and non-complaints becomes large, therefore since they are in
extreme categories they cannot go together.

 However it is the right of citizens to engage in any business, but business

organizations owned by male owners or managers better to be followed up by the
tax office.

 According to the business law any citizen at any age level beginning from18 can
run any business, regardless of their gender and age, to prevent tax evasion
performed by young taxpayers it is recommended Ministry of Revenue at its level
or Branch level has to train those youngsters and participate in any mobilization of
tax reforms.

 Since tax evasion is distracting the balanced wealth distribution and government
revenue is being accumulated by individuals, concerned bodies of the tax authority
has to design strategies to prevent tax evasion.

 Generally looking at the whole causes of tax evasion the responses of respondents
were indicating that tax education is the most important solution for prevention of
tax evasion. Therefore government is better to set plat form for better tax education
to address the taxpayers of this branch office.

5.3.2 Recommendations for further study

Prior to this research may had been tried to investigate different causes and effects of tax
evasion. However they have their own drawbacks and limitations, the same is true for this
research. Some of the limitations are type of data gathered, the way of gathering the data,
the transparency of respondent. Therefor this is expected to be initial to those who are
interested to investigate the determinant causes of tax evasion of Federal Government of

70
Ethiopia Ministry of Revenue Large taxpayers branch office or other branches or any other
tax office in Ethiopian Regions in order to transform the tax collection from existing
system to other better way.

71
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 ANEXES
Annex 1 Amharic Questionnaire
የኢትዮጵያ ሲቪሌ ሰርቪስ ዩኒቨገርሲቲ አካውንቲንግ እና ፋይናንስ ትምህርት ክፍሌ

ውዴ የተከበራችሁ ምሊሽ ሰጪዎች

ይህ ጥናት የታክስ ማጭበርበር ወሳኝ ገሊጮች በኢፊዱሪ ገቢዎች ሚኒስቴር በከፍተኛ ግብር ከፋዮች ቅርንጫፍ ጽ/ቤት
የሚሌ አርዕስት ሲኖረው ፤ አጥኚው ሞሊ ገ/ጊዮርስ ዯስታ በኢትዮጵያ ሲቪሌ ሰርቪስ ዩኒቨርሲቲ በአካውንቲንግ እና ፋይናንስ
ትምህርት ክፍሌ የሁሇተኛ ዱግሪ ተማሪ ነው፡፡ ይህ ጥናት የሁሇተኛ ዱግሪ ማሙያ ተዯርጎ ይወሰዲሌ፡፡

ዋነኛው የዚህ ጥናት ዓሊማ የግብር ከፋዮችን ተፅእኖዎችን መሇየት ፣ መረዲት እና የግብር ከፋዮችን ተፅእኖዎች
ተዛማችነታቸውን ማወቅ ነው፡፡ ስሇዚህም ትክክሌ ወይም የተሳሳተ መሌስ የሇም፡፡

ይህ ጥናት ትምህርታዊ ሇሆነ አገሌግልት ብቻ የሚውሌ ሲሆን ፤ የእርስዎ ሀሳብ እና አስተያየት ሇጥናቱ በጣም አስፇሊጊ እና
ከፍ ያሇ ክብር የሚሰጠው ሲሆን በሚስጥርም የሚያዝ ይሆናሌ፡፡ በዚህ መጠይቅ ሊይ መሳተፍ በፇቃዯኝነት ሊይ የተመረኮዘ
ነው፡፡ ሰሇዚህ ይህን አጠር ያሇ መጠየቅ በጥንቃቄ እንዱሞለ በትህትና እና በሊቀ አክብሮት እጠይቃሇሁ፡፡ ጥራት እና ብዛት
ያሇው መረጃ በመስጠትዎ ሇጥናቱ ተአማኒነት የበኩልን ሚና ይጫወታለ፡፡

በመጨረሻም ተሳታፊዎች የጥናቱን ግኝት ጠቅሊሊ መግሇጫ ቢጠይቁ አጥኚው ጥናቱን ከጨረሰ በኋሊ ሉያገኙ ይችሊለ፡፡
ሇሚያዯርጉት የሊቀ ትብብር እና ፇጣን ምሊሽ በቅዴሚያ አመሰግናሇሁ፡

ሇተጨማሪ መረጃ ሞሊ ገ/ጊዮርጊስ

ስሌክ 09 10 11 90 25/ 09 40 70 20 10 E-mail::mollg.gis@gmail.com

መጠይቅ ክፍሌ 1

የግሌ መረጃዎችን በተመሇከተ እባክዎ ከመጠይቆቹ አጠገብ ባለት ሳጥኖች የሚስማሙበትን (√) ምሌክት ያዴርጉ

1. ፆታ ፡ ወንዴ ሴት

2. ዕዴሜ ከ 18 ዓመት በታች 19 -35 36-50 51 እና በሊይ

3. የትዲር ሁኔት ፡ ያሊገባ/ች ያገባ/ች ላሊ

4. የትምህርት ዯረጃ ፡ ከሁሇተኛ ዯረጃ በታች ሁሇተኛ ዯረጃ ያጠናቀቀ/ች ዱፕልማ

የመጀመሪያ ዱግሪ ሁሇተኛ ዱግሪ ና በሊይ

5. በዴርጅቱ ውስጥ ያሇዎት የሥራ ዴርሻ፡ ባሇቤት ስራ አስኪያጅ ባሇቤት እና ስራ አስኪያጅ

ሰራተኛ

6. በንግዴ ዴርጅት ውስጥ ምን ያህሌ ጊዜ ሰርተዋሌ 0-5 ዓመት 6-10 ዓመት 11-15 ዓመት ከ

15 ዓመት በሊይ

7.ዴርጅቱ ዋና የንግዴ እንቅስቃሴ፡ አስመጪ ና ሊኪ በጅምሊ ንግዴ ችርቻሮ ንግዴ

ግንባታ አገሌግልት ሰጪ አምራች ላሊ

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መጠይቅ ክፍሌ 2 ፡ በእያንዲንደ መጠይቅ ሊይ አስተያየትዎን እንዱያሳዪ እና በቅንነት ምሊሽ እንዱሰጡ በአክብሮት እጠይቃሇሁ፡፡ (ሇእያንዲንደ
መጠይቅ 5 ምርጫ ሲኖረው እባክዎን የሚስማማዎትን መሌስ አንደ ሳጥን ሊይ ብቻ (√) ምሌክት ያዴርጉ.)

ገሊጭ እጅግአሌስማ አሌስማማ ገሇሌተኛ እስማ እጅግ

ማም(1 ) ም ነኝ/አይመ ማሇሁ
ከእያንዲንደ ገሊጭ ጋር የተዛመደ ጥያቄዎች ሇከተኝም (4 ) እስማማሇ
(2) (3) ሁ (5 )

1. የታክስ ስወራ መስፋፋት የግሇሰቦችን ሀብት ያሳዴጋሌ፡፡

ታክስ ስወራ 2. የታክስ ስወራ መስፋፋት በመንግስት የሚሰጡ የህዝብ

አገሌግልቶችን ያቀጭጫሌ፡፡

3. በታክስ ስወራ ምክንያት መንግስት የበጀት ክፍተትን ሇመሙሊት

ወዲሌተፇሇገ ብዴር ያመራሌ፡፡

የታክስ ምጣኔ 4. የታክስ ምጣኔ በጣም ከፍተኛ ከሆነ ግብር ከፋዮች ግብር መሰወር
ይመርጣለ፡፡
5. የታክስ ምጣኔ ፍትሃዊ ካሌሆነ ታክስ ስወራን ያበረታታሌ፡፡

6.. የሚከፍለት ግብር የመክፇሌ አቅምዎን ከግምት በማስገባት

ከዓመት ወዯ ዓመት እየጨመረ ነው፡፡

7. ከፍተኛ የንግዴ ትርፍ ያሊቸው ግብር ከፋዮች ግብርን ይበሌጥ

ይሰውራለ፡፡
የገቢ ዯረጃ 8.አነስተኛ ንግዴ ያሊቸው ግብር ከፋዮች ግብርን ይበሌጥ ይሰውራለ፡፡

የመጋሇጥ እዴሌ 9. ግብረ ከፋዮች ወቅቱን ጠብቀው የሚመረመሩ ቢሆን እና ግብርን

አሇመክፇሌ የመታወቅ እዴለ ከፍተኛ ቢሆን ግብር ከፋዮች በትክክሌ
እንዱከፍለ ያበረታታሌ፡፡
10. የታክስ አስተዲዯር ቢሮ የተመዘገበውን ገቢ ሁለ ሇመመርመር
የሚያስችሌ አቅም አሇው፡፡

11. በግብር አስተዲዯሩ በኩሌ የመገኘት እዴለ ዝቅተኛ ከሆነ ግብርን

መሰወር የተሇመዯ ነው፡፡

12.የቅጣት መጠን ከፍተኛ ከሆነ በግብር ከፋዮች ዘንዴ ግብር መሰወር

አይኖርም፡፡

13.መሌካምየህግ አፇጻጸም ሌምድች የእርስዎን ሇህግተገዢነት

ያሇዎትን ዝንባላ ይጨምራሌ፡፡

የቅጣት ምጣኔ 14.ግብር ከፋዮች ግብር መሰወር የሚያመጣውን ቅጣት ካወቁ ግብር
አይሰውሩም፡፡

15.ቀዯም ባለት ጊዜያት ግብር ከፋዩ የከፇሇው የቅጣት መጠን በቀጣዩ

በሚከፇሌ የግብር እዲ ሊይ ተፅእኖ ይኖረዋሌ፡፡

የግብር ስርዓት 16. የግብር ሥርዓቱ ውስብስብ መሆን የግብር ግዳታን እንዲሌወጣ
ውስብስብነት እንቅፋት ይሆናሌ፡፡
17.የገቢዎች ሚኒስቴር የግብር ስርአት አስተዲዲር በሁለም
ዓመታቶች ሊይ ተመሳሳይነት አሇው፡፡

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 18.የግብር ስርዓቱ ግሌጽ ባሇመሆኑ ምክንያት ከግብር ጉዲዮች ጋር
በተያያዘ የላልች ባሇሙያዎች እርዲታ ያስፇሌጋሌ፡፡
19.የግብር ህጎች ሇመረዲት ቀሊሌ ቢሆኑ የግብር ስወራንይቀንሳሌ፡፡
20. መንግሥት ከግብር ከፋዩ የሰበሰበው ንግብር አሊስፇሊጊ ሇሆኑ
ዘርፎች ዴጋፍ ቢያዯርግ የግብር ስወራን ያበረታታሌ፡፡
ከመንግስት
21.ግብር ከፋዮች ሇሚከፍለት ግብር ከመንግሥት ተገቢውን
የተገኙ አገሌግልትቢያገኙ የግብር ስወራን ያጠፋሌ፡፡
ሚናዎች
22. በግብር ከፋዩ አመሇካከት የግብር ፍትሃዊነት የተስተካከሇ ከሆነ
የግብር መሰወር ዯረጃም እየቀነሰ ይሄዯሌ፡፡
23.ጥሩ የፖሇቲካ ስርአት ካሇ በግብር ስወራ ዝንባላ ሊይ ግብር ከፋዮች
አዎንታዊ ተፅእኖ ይፇጥርባቸዋሌ፡፡

24. በአጠቃሊይ የግብር ስወራ ዯረጃ ሊይ የግብር ከፋይ ባህሪው

በመንግስት ፕሮግራም አስፇሊጊነት ሊይ የተመሰረተ ነው፡፡
25.ግብር መክፇሌ የእኔ ኃሊፊነት ነው፡፡

26.ግብር ከፋዮች ቅጣትን በመፍራት ነው ግብርን የማይሰውሩት፡፡

27. የግብር ህግን ማክበር የግብር ሰወራ ዝንባላን አያበረታታም፡፡

የአቻ 28. የግብር ህጎች በላልች ግብር ከፋዮች አሇመከበር በእውነተኛ ግብር
ተጽእኖበግብር ከፋዮች ሊይ አለታዊ ተፅእኖ ይፇጥራሌ፡፡
ስወራ ሊይ
29. የዘመዴ አዝመድቼ ተፅኖዎች የኔን የግብር ግዳታዬን ሇመቀነስ
ያዯረግሁትን ውሳኔ ይሇውጣሌ፡፡
30. የአንደ ግብር ከፋይ ቅጣት ላሊኛው ግብር ከፋይ ሊይ ተፅእኖ
ዕዴሜ ያመጣሌ፡፡
31. በወጣትነት እዴሜ ሊይ ያለ ግብር ከፋዮች ዯፋር በመሆናቸው
ሇግብር ስወራ ይበሌጥ የተጋሇጡ ናቸው፡፡
ፆታ 32. ሴቶች ከወንድች በበሇጠ የግብር ግዳታቸውን የመወጣት
እዴሊቸው ከፍተኛ ነው፡፡
ትምህርት ዯረጃ 33. መንግሥት በአገሪቱ ኢኮኖሚ ውስጥ የግብር ስወራ
/ ዕውቀት/ የሚያስከትሇውን ተፅኖዎችን በተመሇከተ ሇግብር ከፋዩ የግንዛቤ
ማስጨበጫዎችን ሰቷሌ፡፡
34. በእኔ የሥራ ግዳታዎች ረገዴ ከእኔ የሚጠበቀውን ሁለ አውቃሇሁ፤
ይህ ዯግሞ ግብር እንዴከፍሌ ያበረታታኛሌ፡፡
35. ጥሩ የግብር ዕውቀት ግብር መክፇሌን ያዲብራሌ፡፡
ለጥናቱ ግብዓት ይሆና ብለው የሚያስቡት ተጨማሪ ሃሳብ ካለዎት እባክዎ ይግለፁ፡፡ _________________________
በዚህ መጠይቅ ውስጥ ለመሳተፍ ውድ ጊዜዎትን በመሰዋት ላሳዩት ፈቃደኝነት እጅግ አመሰግናለሁ፡፡
ምስጢራዊነትን በተመለከተ በተጠናቀቀው መጠይቅ የተገለፁት አስተያየቶች ጥብቅ በሆነ ቁርኝት ይታያሉ፤ ምላሽ
ሰጪዎቹን ለይቶ የሚያሳይ ማንኛውም መረጃ አይገለጽም::

78
 Annex 2: Questionnaire prepared for sample of taxpayers.
Questionnaire prepared for sample of taxpayers.
Questionnaire
Ethiopian Civil Service University College of Finance Management and Development
Department of Public Financial Management and Accounting
Extension
MBA in Accounting and Finance
Dear Respondents,
The aim of this questionnaire is to seek information about the Determinants of Tax Evasion:
The Case of Ministry of revenue Large Taxpayers Branch office. It is conducted by Molla
G/Giorgis Desta and the information you provided in response in the questionnaire will be used
as part of the thesis paper in partial fulfilment of the requirements for the Degree in Master of
Accounting and Finance at Ethiopian Civil service University. Its main objective is to identify
and understand the determinant factors of tax evasions.
As stated above, the data is needed to obtain your perceptions and views regarding various
aspects of determinants of tax evasion. Therefore, there is not right or wrong answer.
The information provided is purely for academic purpose and strictly confidential. In order to
accomplish this study, you are kindly requested to answer every question; your kind cooperation
is highly appreciated.
Thank you in advance for your cooperation for your invaluable time to complete this
questionnaire.
Researcher‟s Name: Molla G/Giorgis
Student at Civil Service University For Master of degree in Accounting and Finance (Extension
Program) Phone number 09 10 11 9 0 25
email:mollg.gis@gmail.comQuestionnaire

Section I: Back ground Information.

Please tick (√) where appropriate
1) Gender: Male Female
2) Age (in years): Bellow 18 19-35 36-50 51 and above
3) Marital Status: Single Maried Divorced
4) Educational Level: Below Secondary School Complete Secondary School

2
 Diploma Degree Master‟s Degree Above Master‟s Degree
5) Your status/position in the business company:
Owner Manager Owner and Manager Employee
6) How long is your job experience in the business company in years?
0- 5 years 6-10 years 11-15 Years > 15 Years
7) What is your main business activity?
Import/Export Manufacturing Construction Financial Institution Service
Whole seller Other

Section II Questions regarding the determinants of tax evasion

Kindly respond to the following statements to indicate your opinion to each of the statements.
(Please put a tick (√) mark in the space provided according to your opinion.

Variables Questions related with each variable Strongly Disagr Neutr Agree Strongly
ee al

disagree (4) agree (5)

(1) (2) (3)

Tax 1. The increment of tax evasion increases

Evasion unfair resources accumulation individuals.

2. The expansion of tax evasion will reduce

the amount of public services supplied by
the government.

3. Tax evasion leads the government to

unnecessary debt to bridge the fiscal gap.

Tax rate 4. Taxpayers evade tax if tax rates are too

high.

5. The tax rate is unfair which enhances tax

evasion.

Income 6. Considering your ability to pay the

level amount of tax liability you have paid
increased/large amount year to year.

7. Taxpayers with higher business income

3
 are more evasive.

8. Taxpayers with smaller business income

are more evasive.

Inflation 9. Inflation affects the consumers but

rate doesn‟t the suppliers.
10. Government is not considering inflation
while collecting tax.
11. As inflation rises tax to be paid should
be rased.
Probabilit 12. Taxpayers might not be evaded tax if
y of the probability of detection is high.
Detection
13. The tax administration office has the
capability to investigate all income reported
by the taxpayers.

14. Tax evasion is habitual if probability of

getting caught is low.

Penality 15. If penalty rate is high, there is no

rate possibility that taxpayers evade tax.

16. A good legal enforcement practice

increase your tendency on tax compliance.

17. Taxpayers who have an awareness of

penalties for tax evasion is more compliant.

Variables Questions related with each variable Stron Disagre Neutr Agree Strongly
gly e al

(4) agree (5)

disag (2) (3)
ree
(1)
18. The penalty that taxpayers have
paid in the past, it affects the liability
of tax that will paid in the next.

Complexity of 19. Complexity of tax system create

tax system an obstacle to comply the tax law.

20. Tax administration system in the

authority is consistent with each other

4
 across years.

21. Other professionals are required to

assist in formulating tax liabilities due
to unclear treatment of tax systems.

22. If tax laws are easy to understand,

it encourages tax compliance.

Perceived level 23. If the government spends too

of Government much tax revenue on unnecessary
welfare it encourages tax evasion.

24. If peoples are getting comparable

public services from the government
for, they tax paid and it enhance
taxpayer‟s compliance.

25. If taxpayer‟s perceptions of tax

fairness increases, the level of tax
evasion will also decrease.

Attitude of 26. A good political system has

taxpayer positive impact on taxpayer‟s attitude
towards tax towards to avoid the tax evasion.
evasion
27. Taxpayer‟s behavior towards the
general level of tax evasion is
dependent on the desirability of the
government program.

28. Paying tax is my own

responsibility.

29. Taxpayers might not be evaded tax

because of fear of punishments.

30. If the tax law should be respected

it discourages the attitude of tax
evasion.

Pear influence
of tax evasion
31. The noncompliance of other
taxpayers has a negative impact on
compliant taxpayer behavior.

5
 32. My friends‟ action that affect my
decision to reduce tax liability.

33. If one taxpayer is penalized due to

tax evasion that may affects others not
to evade tax.

Age 34. Young taxpayers are more willing

to take risks and it has more sensitive
to tax evasion.

Gender 35. Females are more likely to comply

tax compliance than men.

Education 36. The government conducted

awareness creations to the tax payers
about the impact of tax evasion in the
country economy.

37. I know all what is required from

me in respect of my business
obligations, this helps to comply tax
compliance.

38. Having of good tax knowledge

that encourages tax compliance.

Is there anything to add in relation to determining factors of tax evasion?

Thank you for your intensive participation in this survey by responding the questionnaire to
make the research valuable and effective. The views expressed in the completed questionnaire
will be treated in the strictest confidence. Any information identifying the respondent will not
be disclosed.

6
 ANNEX 3: Questionnaire presented to officials and team leaders of the
branch office.
Questionnaire presented to officials and team leaders of the branch office.
Questionnaire
Ethiopian Civil Service University College of Finance Management and Development
Department of Public Financial Management and Accounting
Extension
MBA in Accounting and Finance
Dear Respondents,
The aim of this questionnaire is to seek information about the Determinants of Tax Evasion:
The Case of Ministry of revenue Large Taxpayers Branch office. It is conducted by Molla
G/Giorgis Desta and the information you provided in response in the questionnaire will be used
as part of the thesis paper in partial fulfillment of the requirements for the Degree in Master of
Accounting and Finance at Ethiopian Civil service University. Its main objective is to identify
and understand the determinant factors of tax evasions.
As stated above, the data is needed to obtain your perceptions and views regarding various
aspects of determinants of tax evasion. Therefore, there is no right or wrong answer.
The information provided is purely for academic purpose and strictly confidential. In order to
accomplish this study, you are kindly requested to answer every question; your kind cooperation
is highly appreciated.
Thank you in advance for your cooperation for your invaluable time to complete this
questionnaire.
Researcher‟s Name: Molla G/Giorgis
Student at Civil Service University for Master of degree in Accounting and Finance (Extension
Program) Phone number 09 10 11 9 0 25/09 40 70 20 10
email: mollg.gis@gmail.comQuestionnaire
Section I: Back ground Information.
Please tick (√) where appropriate
1) Gender: Male Female
2) Age (in years): Bellow 19 -35 36-50 51 and above
3) Marital Status: Single Married divorced
4) Educational Level: Secondary School Diploma Degree
Master‟s Degree and Above Master‟s Degree
7
5) Your status/position in the branch office:
Team leader process owner Vice manager Officer
6) How long is your total job experience under Ministry of revenue in years?
0- 5 years 5 -10 years 10- 15 Years > 15 Years
7) How long is your job experience in the branch office in years?
0- 5 years 5-10 years 10- 15 Years > 15 Years
Section II Questions regarding the determinants of tax evasion
Kindly request you to respond the following statements to indicate your opinion to each of the
statements. (Please put a tick (√) mark in the space provided according to your opinion.)
1. The expansion of tax evasion will increase the amount of resources accumulated by the
individuals.
Yes No
If No -------------------------------------------------------------------------------------------------------
2. Tax evasion leads the government to unnecessary debt to fill the fiscal gap.
Yes No
If No -------------------------------------------------------------------------------------------------------
3. The expansion of tax evasion will reduce the amount of public services supplied by the
government.
Yes No
If No -------------------------------------------------------------------------------------------------------
4. Business tax rates imposed in taxpayer are fair.
Yes No
If No -------------------------------------------------------------------------------------------------------
5. Taxpayers evade tax if tax rates are too high.
Yes No
If No -------------------------------------------------------------------------------------------------------
6. Considering your contribution to prevent tax evasion, tax revenue is increasing with in
the branch office year to year.
Yes No

8
If No -------------------------------------------------------------------------------------------------------
7. The satisfaction of the taxpayers with the service delivery of the branch of increase self-
compliance of taxpayers.
Yes No
If No -------------------------------------------------------------------------------------------------------
8. Smooth relationship b/n the taxpayers and the administration of the branch office
supports the collection of enough tax revenue.
Yes No
If No -------------------------------------------------------------------------------------------------------
9. Taxpayers might not evaded tax if the probability to be audited is high.
Yes No
If No -------------------------------------------------------------------------------------------------------
10. Professional due care of auditors of the branch office increase the self-compliance of
taxpayers.
Yes No
If No -------------------------------------------------------------------------------------------------------
11. Tax evasion is habitual if probability of finding through audit is low.
Yes No
If No -------------------------------------------------------------------------------------------------------
12. If penalty rate is high, there is no possibility taxpayer to evade tax.
Yes No
If No -------------------------------------------------------------------------------------------------------
13. A good legal enforcement practice increases taxpayers‟ tendency on tax compliance.
Yes No
If No -------------------------------------------------------------------------------------------------------
14. Complexity of tax system creates an obstacle to comply the tax law.
Yes No
If No -------------------------------------------------------------------------------------------------------
15. Tax administration system in the authority is consistent with each other across years.
9
Yes No
If No -------------------------------------------------------------------------------------------------------
16. If tax laws are easy to understand, it encourages tax compliance.
Yes No
If No -------------------------------------------------------------------------------------------------------
17. If the government spends too much tax revenue on unnecessary welfare it encourages
tax evasion.
Yes No
If No -------------------------------------------------------------------------------------------------------

18. If peoples are getting comparable public services from the government for, the tax they
paid enhances taxpayer‟s compliance.
Yes No
If No -------------------------------------------------------------------------------------------------------
19. If taxpayer‟s perceptions of tax fairness increases, the level of tax evasion will also
decrease.
Yes No
If No -------------------------------------------------------------------------------------------------------
20. A good political system has positive impact on taxpayer‟s attitude towards tax evasion.
Yes No
If No -------------------------------------------------------------------------------------------------------
21. Taxpayer‟s behavior towards the general level of tax evasion is dependent on the
desirability of the government program.
Yes No
If No -------------------------------------------------------------------------------------------------------
22. The expansion of the illegal cash register machine is because of lose control of the
Government.
Yes No
If No -------------------------------------------------------------------------------------------------------
23. The participation of stakeholders needs for controlling system of the receipts.
10
Yes No
If No -------------------------------------------------------------------------------------------------------
24. The illegal receipts are due to less awareness of the society.
Yes No
If No -------------------------------------------------------------------------------------------------------
25. Young taxpayers are more willing to take risks and it has more sensitive to tax evasion.
Yes No
If No -------------------------------------------------------------------------------------------------------
26. Females are more likely to comply the tax law more than men.
Yes No
If No -------------------------------------------------------------------------------------------------------
27. The government conducted awareness creations to the tax payers about the impact of tax
evasion in the country economy is not sufficient.
Yes No
If No -------------------------------------------------------------------------------------------------------
28. The tax education being given to the taxpayers is enough to prepare taxpayers for self-
compliance.
Yes No
If No -------------------------------------------------------------------------------------------------------
29. Having of good tax knowledge that encourages tax compliance.
Yes No
If No -------------------------------------------------------------------------------------------------------

Is there anything to add in relation to determining factors of tax evasion?

Thank you for your intensive participation in this survey by responding the questionnaire to
make the research valuable and effective. The views expressed in the completed questionnaire
will be treated in the strictest confidence. Any information identifying the respondent will not
be disclos
11
 Annex 4: Budgets
Budget schedule
No Material required Unit measure Unit price in birr Total quantity Total cost

1 stationary

Paper pack 300 3 900

Pens pieces 10 20 200

photocopy per page 2 1000 2000

Printing per page 2 400 800

Writing pad unit 70 3 210

CD Unit WR-CD 30 2 60

2 Man power individual 500 3 1500

Other material

Bag unit 500 3 1500

Total 7,170.00

Annexes-5: Activity scedules

Time schedule
The study will be organized in the following time schedule

R.No Activities schedule

1 Submission of proposal progress report January,2,2022

2 Submission of final draft to advisor January 15-january20/2022

3 Submission approved proposal to the department 1/2/2022-6/2/2022

4 Data collection/compile, pilot review questionnaire , administer 7/2/2022-20/03/2022

questinrae

5 Submission of thesis progress report to the department 18/03/2022

6 Writing up the thesis 21/03/2022-30/04/2022

7 Submission of the first thesis draft to advisor 1-5/05/2022

8 Incorporate advisors comments and re-submission of the final thesis to 6-23/05/2022

advisor

12
9 Last date of submission of the thesis to department 24/5/2022

10 Distribution of the thesis to internal and external examiners 25-26/05/2022

11 Open defense dates for thesis/thesis defense 01-07/06/2022

12 Submission of final thesis after incorporate defense ,comments in two 09-12/2022

copies with book form binding and soft copy.

13