Factors affecting tax compliance in Ethiopia: a case study on large taxpayers of the Large Taxpayers’ Branch Office in the Ministry of Revenues

In Ethiopia’s Ten-Years National Prosperity Plan (2021–2030), it has been shown that the tax revenue-to-GDP ratio of the country should be increased by collecting tax that the economy generates and improving taxpayers’ voluntary tax compliance. Accordingly, it is worthwhile to conduct a research examining the factors affecting taxpayers’ tax compliance. Hence, this research was conducted to evaluate the factors affecting tax compliance in Ethiopia using Large Taxpayers of the Large Taxpayers Branch Office of the Ministry of Revenues as a case. The study used mixed research approach utilizing both primary and secondary data. The primary data were collected via questionnaires from 427(92.03%) of 464 large taxpayers using census and interviewing 13 interviewees. Checklist was used to collect secondary data. The collected data were analyzed both quantitatively (using descriptive statistics and binary logistic regression model) and qualitatively (using thematic analysis). Among the sixteen factors used in the binary logistic regression model, twelve factors were found to be statistically significant on tax compliance. The findings of the marginal effect after logit showed that large taxpayers’ tax compliance was affected by legal form of the business, education, sector of the business activity, gender, attitude, tax knowledge, tax rate, tax incentives, awareness on tax penalties, tax audit, simplicity of the tax system and financial constraints in descending order of the level of percentage points. However, government spending, fairness and equity, tax authority’s efficiency and social norms were found to be not statistically significant on tax compliance. The thematic analysis identified the problems and challenges that large taxpayers and the branch office were facing, and the strategies to be used to enhance large taxpayers’ tax compliance. Henceforth, it is recommended that the non-governmental business organizations should be given particular attention to make them compliant, the taxation system and procedures should be simple, tax laws should be clear, accessible and ratified accordingly, and tax rates should be reduced and allotted based on the sector of the business activities.