Determinants of tax evasion in ethiopia

Tax evasion represents one of the major problems facing every economy whether developing or underdeveloped. It imposes several economic costs: it slows down economic growth; it diverts resources to unproductive activities; it provides an incentive for firms to remain small and invisible; and it generates inequity between the evaders and the honest taxpayers. The primary objective of this study was to identify the major determinants of tax evasion theoretically and empirically in Ethiopia. The study used an explanatory method of research design. Given the scaled ranking information of the dependent variable (tax evasion), a co relational analysis and ordered logistic regression was applied to examine the relationship between the determinants of tax evasion and various independent variables in southern regional state, Ethiopia. The study results from the survey conducted in study area using 376 respondents, revealed that there are fourteen potential determinants of tax evasion were evaluated in this research, namely rate of taxes, tax audit probabilities, role of tax authorities, tax knowledge, fines and penalties, perception of equity and fairness, perception of government spending, referent group, compliance cost, outcome favorability, level of income, age, gender, level of education. The result of this study reveals that, there is statistically significant association between determinants of tax evasion in Ethiopia, southern national regional state include Gender, Educational Level, Rate of Taxes, Audit Probabilities, Tax Knowledge, Fines and Penalties, Perception of Equity and Fairness, Level of income at (p< 0.05 and p < 0.01). The perception of equity and level of income found to be the major determinants of tax evasion followed by and fines and penalties and gender with tax compliance. To reduce the act of tax evasion or the inclination to evade, the findings of this study has many policy implications for enhancing tax compliance from Ethiopian points of view. The present paper is a synopsis of research work carried out by us.