Determinants of Voluntary Tax Compliance (A case of SMEs in Wolkite town)

Abstract

Taxation, which is the main sources of public and government revenue, becomes challenging for revenue officers to collect the expected amount in Wolkite town, especially from the Small and Medium scale Enterprises (SME’s) of the town. The general objective of this study was therefore to identify the main factors or determinants of voluntary tax compliance in the SMEs of Wolkite town. If properly collected, it helps the revenue office of the town administration to address the voluntary compliance problems so that the expected tax can be collected for the government’s satisfaction. Since explanatory study type of research design was found to be best to explain the relationship between variables of problems, it was used here to explain and describe the situation. It was facilitated by collecting both 1o and 2o data. The secondary data that was gathered from the concerned offices include: the types of SMEs in the town as well as location where they are working. Information whether there is really non-compliance of voluntarily paying tax or not was collected from these offices. In the assessment of determinants of voluntary tax compliance among the SME tax payers in WTA, it is found that that those that are ready to pay voluntarily is nearly zero. Their willingness and tendency to pay tax is very weak. The main challenges for them to pay voluntarily were: misunderstanding and the misconception they have for tax; thought that it goes to their pocket; misconception that they can pay any time and can be postponed; mis understanding of use of tax for a nation; the imbalance between their actual sale/ revenue and the estimation levied on them; unfair assignment/allocation of tax on tax payers. However, the most relatively bottleneck for collecting tax were absence of: awareness of tax payers, absence of awareness of use of tax for the country, unknowing their daily revenue exactly and mis-concept that they have for tax