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Mba finance thesis persentation kanbiro orkaido

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This is my original work presented for MBA Finance requirement and accredited Excellent Grade on May, 2017 at Dilla University. Thank you lord for your unlimited assistance.

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MBA Finance Thesis Presentation By:-Kanbiro Orkaido DILLA UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS POSTGRADUATE PROGRAM Dilla, Ethiopia June, 2017 1 DETERMINANTS TAX COMPLIANCE ATTITUDE WITH TAXATION (The Case of Category A Taxpayers In Gedeo Zone)
CONTENTS OF PRESENTATION 1. Introduction 1.1. Background of the study 1.2. Statement of the problem 1.3. Research questions 1.4. Research Objective 1.5. Research Hypothesis 1.6. Significance of the study 1.7. Scope and limitation of the study 2. Methodology of the study 2.1. Research design 2.2. Discerption of the study 2.3. Data type and source 2.4. Population of the study 2.5. Sampling and sample size 2.6. Data collection method and procedure 2.7. Empirical model specification 2.8. Methods of data analysis 3. Data Analysis and Discussion of results 3.1. Descriptive Statistics 3.2. Inferential Statistics 4. Summary of findings, conclusions, recommendations, and direction for further research 22
1. INTRODUCTION 1.1. Background of the study Tax was defined as a compulsory charge, imposed by government on income, expenditure, and capital assets for which the taxpayer receives nothing specific in return (Limner and Oats, 2009). In earlier years tax was collected as an obligatory payment from citizen to government to only maintain law and order, cover administrative and defense costs. But, in now days, it is the major source for government that used to finance wider scope of government expenditure and stabilize the economy (Tesfaye, 2015). But, according to (Fjeldstad et al., 2012) the amount of the amount of tax revenue to be generated by a government is determined by on the taxpayers compliance attitude. 3
Contd This is why Mesfin (2016) stated that studying non compliance attitude is less meaningful without identifying the determinant factors that leading to such attitude. According to review of 43 tax compliance studies done from 1974 to 1985 by (Jacson and Milliron, 1986) there are fourteen major factors that affecting tax compliance attitude of taxpayers with taxation. These are age, gender, education, income level, source of income, occupation, reference group, ethics, fairness, complexity of taxation, role of tax authority, awareness on penalty, probability of being audit and tax rates. 4
1.2. Statement of the problem Even though tax revenue is the powerful instrument in the hands of the government for transferring purchasing power from the hands citizen to finance public expenditure, most taxpayers become unwilling to pay their tax obligation in the accurate amount, at right time and place due to presence of negative compliance attitude. Consequently, they take a variety of actions to reduce their tax liability (Amina and Saniy, 2015). Negative compliance attitude is failing to file the tax return, underreporting of taxable income, overstating deductions and not making timely payment of tax burden ( Loo,2006). 5
.Contd In contrary, positive tax compliance attitude is the willingness of taxpayers to comply with tax laws by truly reporting of the taxable income; correctly calculating; timely filling of tax returns and payment of their tax liability (Das Gupta, 2002). According to (Tesfaye, 2015) tax compliance attitude in developing countries is a challenging issue and has attracted increasing attention of researchers in the last two decades. 6
.Contd Like any developing countries, Ethiopia faces difficulty in raising revenue to the level required for the promotion of economic growth. Because, according to FDRE National planning commission (2016, p. 108) tax to GDP ratio which was collected in GTP I (2010-2014) is 13.3% even if the government has been planned to raise 15.3 % tax-to-GDP. This implies that still there is tax gap in Ethiopia and according to (IMF, 2015) the main reason of this low revenue collection performance is due to negative compliance attitude of business income tax payers and poor tax administration. This is why tax compliance topic is an important agenda in Ethiopia and needs an investigation.
. Contd 8 There are few researches conducted on the factors that affecting tax compliance attitude and related issues in Ethiopia. For instance, ( Desta 2010; Amina and Saniy 2015; Tillahun and Yidersal 2014). But this study dissimilar to the above studies by: more variable incorporation perception on tax rate which is not tested by above reviewed research but incorporated and tested in current study. The other issue is time gap that studies have been conducted earlier does not disclose the current impact the determinant factors affecting compliance attitude of taxpayers. 8
When it comes to the study area of this research, a very few researchers for instance, (Yonas, 2016) have done on the related topic (tax payers attitude towards tax authority). What makes this research different from that of Yonas is: Variable incorporation gap Research approach Sampling & sample size Empirical Model Methods of data analysis Therefore, the objective of this study is to fill the above gaps . 9 . Contd Methodology gaps 9
1.3. Research question what were demographic, individual, social, institutional and economic factors that influencing tax compliance attitude of category A taxpayers in the Gedeo Zone with taxation? 1.4. Objectives of the study 1.4.1 General objective of the study The general objective of this study was to explore the determinant factors affecting tax compliance attitude of category A taxpayers with taxation. 1.4.2. Specific objective of the study In line with general objective, the study have been planed to achieve the following general objectives: To was to test whether the demographic factors such as gender, age and education level have impact on tax compliance attitude. 10 10
contd To examine effect of individual factors such tax knowledge and awareness on penalty on compliance attitude of taxpayers. To investigate the influence of social factor, perception on fairness and equity of tax system on compliance attitude of taxpayers. To see the effect of institutional factors like simplicity of tax system and organizational efficiency of tax authority on tax compliance attitude To confirm the impact of economic factors such as the probability of being audit and perception on tax rate on compliance attitude of taxpayers. 11 11
1.5. Research hypothesis In current study the researcher have been developed the following tentative statements that to be tested by analysis: H1: Factors such as (gender; being female), age, education level, tax knowledge on attending tax education, awareness on penalty, perception on fairness and equity, simplicity of tax system, organizational efficiency, and probability of being audit are positively related with tax compliance attitude of taxpayers. H2: Tax compliance attitude is negatively related with related with perception on tax rate. 12
1.6. Significance of the study The researcher believed that The study would contributes to the achievement of GTP II(2015/2016-2019/2020) by helping policy makers to take an appropriate measure on factors affecting compliance attitude in designing policies to raise tax revenue. The findings of this study could help the researcher to elaborate the knowledge about determinant factors affecting tax compliance attitude with taxation in Gedeo Zone and practice a larger similar study that can be done in other zones, at regional and national level. Furthermore, this study could be used as source of knowledge and motivational factor for future researches. 13
1.7. Scope and limitation of the study This study was focused on testing the impact of ten determinant factors that influencing tax compliance attitude of category A taxpayers in Gedeo Zone. During undertaking this study, researcher faced some limitations. These include: Absence of respondents at planned time during data collection. Lack of sufficient time for wider scope of coverage of the study to other areas. 14 14
2. METHODOLOGY OF THE STUDY 2.1. Research design The researcher has been used quantitative research approach with cross-sectional study design to the objective of the study. 2.2. Description of the study area The study area, Gedeo zone is found in the South Nation Nationality and People Regional State (SNNPRS) of Ethiopia. It is bounded by Dara Wereda of Sidama Zone to the north and by Oromia region to the west, east and south. 2.3. Data source and type In this study, both primary and secondary data types and sources were used to the objective of study. 2.4. Population of the study The population for this study were 1,069 category A taxpayers in Gedeo Zone. 15 15
2.5. Sampling Method and Sample size determination The researcher considered three categories of taxpayers as clusters; then, selected category A business income taxpayers out of three clusters using cluster sampling method. To determine form study population the mathematical formula of Yamane (1967) was employed by assuming that the sample would have 95% reliability about population and a sampling error would be 5%. The sample size was: = /1 + 2 n = 1,069 1 + 0.05 2 1,069 = 291. Therefore, the representative sample size of the study was 291 category A taxpayers in the Zone. 16 16
2.6. Methods and procedures of data collection In this study, the primary data were collected through structured questionnaire from taxpayers by trained enumerator with supervision of the researcher. The secondary data have been collected through review of published and unpublished materials that available in catalogue, tax authority manuals and on intermate websites. 3.7. Empirical model Since the dependent variable of the study (tax compliance attitude) have dichotomous outcomes ( being compliant and non-compliant), the binary logistic regression model was employed to find the determinant factors affecting compliance attitude. The predicted probability of tax compliance attitude therefore can be expressed as: = = 艶( + ) +艶( + ) 17
2.8. Tools and methods of data analysis The data analysis of the study has been conducted using both descriptiv and inferential statistics using Stata statistical software package Version 12.0. to obtain reliable finding that enabled the researcher to make possible conclusion and suggestions. 3. DATA ANALYSIS AND DISCUSSION OF THE RESULTS The analysis of the data have been based on two hundred seventy (270) questionnaires appropriately filled and returned out of 291 questionnaires with response rate of 92.78%. 3.1. Descriptive Analysis summary statistics result.docx Coefficient of correlation result 18
3.2. Inferential statistics (Binary logistic regression result: dependent variable (Com) Variable Coefficient Standard error Z - value P- valve GEND -0.9501555** 0.4712432 -2.02 0.044 AGE 0.5539186** 0.2270371 2.44 0.015 EDU -0.0000788 0.2088958 0.00 1.000 TKLDG -1.092946** 0.5039 -2.17 0.030 SIM 1.345927*** 0.3066856 4.39 0.000 PFE -0.7677269** 0.3191312 -2.41 0.016 APEN 1.446501*** 0.3277764 4.41 0.000 TAU 2.340474*** 0.419548 5.58 0.000 PTR 1.782676*** 0.4761506 3.74 0.000 TAE -0.5064371 0.4534209 -1.12 0.264 Cons -13.82375 2.306153 -5.99 0.000 Note: - *** and ** are represents statistically significance at 1% and 5% level of significance, respectively. 19
4. Summary of findings and conclusions Out of ten variables tested, eight variables such as ( simplicity + ), (awareness on penalty+) (probability of being audit+ )and perception on tax rate+) were statistically significant at 1% confidence level because their calculated absolute value of Z is more 2.576 z table value and other variables such as (being female + and otherwise) , (age+), (tax knowledge, + if taxpayer attended tax education and otherwise), (perception on fairness & equity-) are statistically significant at 5% confidence level since their absolute value of Z calculated is more than the of 1.96 table of z respectively. Out of them probability of being audit was strongly positively affecting tax compliance attitude of taxpayers because its coefficient (2.340474***) is positive and higher than coefficients in the model. But education level of taxpayers and organizational efficiency of tax authority has no impact on compliance attitude of tax payers. 20
Recommendations Based on the findings of the study, the researcher suggested the following points for policy makers and Gedeo Zone tax authority to increase tax compliance attitude in one hand and tax revenue in other hand: The ERCA, Gedeo Zone branch should encourage female business income taxpayers since they are more compliant than male taxpayers and work on why male taxpayers are more noncompliant. Training the young generation about taxation is other area that the tax authority should give attention because the more aged taxpayers more compliant than young taxpayers. 21 21
.contd Keep the tax system simple as much as possible since it has positive impact on tax compliance attitude to increase compliance attitude more current one and increase tax revenue. Additionally, it should keep working on awareness on penalty for the reason why more awareness of taxpayer about penalty for evading tax increases their tax compliance attitude. Gedeo Zone tax authority should give special emphasis on audit due to fact that it has strongly positively affecting tax compliance attitude in current study more than all variables incorporated in the model. 22 22
Direction for further research Extension of the same topic to other Zones, reginal and national level Incorporating more than ten factors and conduct it on the same area Compare compliance attitude among different business sectors whether compliance attitude is similar or not. Why education level and organizational efficiency has no impact in Gedeo Zone. Other researcher can make comparative study among taxpayers with book of account and without book of account. 23 23
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Mba finance thesis persentation kanbiro orkaido

  • 1. MBA Finance Thesis Presentation By:-Kanbiro Orkaido DILLA UNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS POSTGRADUATE PROGRAM Dilla, Ethiopia June, 2017 1 DETERMINANTS TAX COMPLIANCE ATTITUDE WITH TAXATION (The Case of Category A Taxpayers In Gedeo Zone)
  • 2. CONTENTS OF PRESENTATION 1. Introduction 1.1. Background of the study 1.2. Statement of the problem 1.3. Research questions 1.4. Research Objective 1.5. Research Hypothesis 1.6. Significance of the study 1.7. Scope and limitation of the study 2. Methodology of the study 2.1. Research design 2.2. Discerption of the study 2.3. Data type and source 2.4. Population of the study 2.5. Sampling and sample size 2.6. Data collection method and procedure 2.7. Empirical model specification 2.8. Methods of data analysis 3. Data Analysis and Discussion of results 3.1. Descriptive Statistics 3.2. Inferential Statistics 4. Summary of findings, conclusions, recommendations, and direction for further research 22
  • 3. 1. INTRODUCTION 1.1. Background of the study Tax was defined as a compulsory charge, imposed by government on income, expenditure, and capital assets for which the taxpayer receives nothing specific in return (Limner and Oats, 2009). In earlier years tax was collected as an obligatory payment from citizen to government to only maintain law and order, cover administrative and defense costs. But, in now days, it is the major source for government that used to finance wider scope of government expenditure and stabilize the economy (Tesfaye, 2015). But, according to (Fjeldstad et al., 2012) the amount of the amount of tax revenue to be generated by a government is determined by on the taxpayers compliance attitude. 3
  • 4. Contd This is why Mesfin (2016) stated that studying non compliance attitude is less meaningful without identifying the determinant factors that leading to such attitude. According to review of 43 tax compliance studies done from 1974 to 1985 by (Jacson and Milliron, 1986) there are fourteen major factors that affecting tax compliance attitude of taxpayers with taxation. These are age, gender, education, income level, source of income, occupation, reference group, ethics, fairness, complexity of taxation, role of tax authority, awareness on penalty, probability of being audit and tax rates. 4
  • 5. 1.2. Statement of the problem Even though tax revenue is the powerful instrument in the hands of the government for transferring purchasing power from the hands citizen to finance public expenditure, most taxpayers become unwilling to pay their tax obligation in the accurate amount, at right time and place due to presence of negative compliance attitude. Consequently, they take a variety of actions to reduce their tax liability (Amina and Saniy, 2015). Negative compliance attitude is failing to file the tax return, underreporting of taxable income, overstating deductions and not making timely payment of tax burden ( Loo,2006). 5
  • 6. .Contd In contrary, positive tax compliance attitude is the willingness of taxpayers to comply with tax laws by truly reporting of the taxable income; correctly calculating; timely filling of tax returns and payment of their tax liability (Das Gupta, 2002). According to (Tesfaye, 2015) tax compliance attitude in developing countries is a challenging issue and has attracted increasing attention of researchers in the last two decades. 6
  • 7. .Contd Like any developing countries, Ethiopia faces difficulty in raising revenue to the level required for the promotion of economic growth. Because, according to FDRE National planning commission (2016, p. 108) tax to GDP ratio which was collected in GTP I (2010-2014) is 13.3% even if the government has been planned to raise 15.3 % tax-to-GDP. This implies that still there is tax gap in Ethiopia and according to (IMF, 2015) the main reason of this low revenue collection performance is due to negative compliance attitude of business income tax payers and poor tax administration. This is why tax compliance topic is an important agenda in Ethiopia and needs an investigation.
  • 8. . Contd 8 There are few researches conducted on the factors that affecting tax compliance attitude and related issues in Ethiopia. For instance, ( Desta 2010; Amina and Saniy 2015; Tillahun and Yidersal 2014). But this study dissimilar to the above studies by: more variable incorporation perception on tax rate which is not tested by above reviewed research but incorporated and tested in current study. The other issue is time gap that studies have been conducted earlier does not disclose the current impact the determinant factors affecting compliance attitude of taxpayers. 8
  • 9. When it comes to the study area of this research, a very few researchers for instance, (Yonas, 2016) have done on the related topic (tax payers attitude towards tax authority). What makes this research different from that of Yonas is: Variable incorporation gap Research approach Sampling & sample size Empirical Model Methods of data analysis Therefore, the objective of this study is to fill the above gaps . 9 . Contd Methodology gaps 9
  • 10. 1.3. Research question what were demographic, individual, social, institutional and economic factors that influencing tax compliance attitude of category A taxpayers in the Gedeo Zone with taxation? 1.4. Objectives of the study 1.4.1 General objective of the study The general objective of this study was to explore the determinant factors affecting tax compliance attitude of category A taxpayers with taxation. 1.4.2. Specific objective of the study In line with general objective, the study have been planed to achieve the following general objectives: To was to test whether the demographic factors such as gender, age and education level have impact on tax compliance attitude. 10 10
  • 11. contd To examine effect of individual factors such tax knowledge and awareness on penalty on compliance attitude of taxpayers. To investigate the influence of social factor, perception on fairness and equity of tax system on compliance attitude of taxpayers. To see the effect of institutional factors like simplicity of tax system and organizational efficiency of tax authority on tax compliance attitude To confirm the impact of economic factors such as the probability of being audit and perception on tax rate on compliance attitude of taxpayers. 11 11
  • 12. 1.5. Research hypothesis In current study the researcher have been developed the following tentative statements that to be tested by analysis: H1: Factors such as (gender; being female), age, education level, tax knowledge on attending tax education, awareness on penalty, perception on fairness and equity, simplicity of tax system, organizational efficiency, and probability of being audit are positively related with tax compliance attitude of taxpayers. H2: Tax compliance attitude is negatively related with related with perception on tax rate. 12
  • 13. 1.6. Significance of the study The researcher believed that The study would contributes to the achievement of GTP II(2015/2016-2019/2020) by helping policy makers to take an appropriate measure on factors affecting compliance attitude in designing policies to raise tax revenue. The findings of this study could help the researcher to elaborate the knowledge about determinant factors affecting tax compliance attitude with taxation in Gedeo Zone and practice a larger similar study that can be done in other zones, at regional and national level. Furthermore, this study could be used as source of knowledge and motivational factor for future researches. 13
  • 14. 1.7. Scope and limitation of the study This study was focused on testing the impact of ten determinant factors that influencing tax compliance attitude of category A taxpayers in Gedeo Zone. During undertaking this study, researcher faced some limitations. These include: Absence of respondents at planned time during data collection. Lack of sufficient time for wider scope of coverage of the study to other areas. 14 14
  • 15. 2. METHODOLOGY OF THE STUDY 2.1. Research design The researcher has been used quantitative research approach with cross-sectional study design to the objective of the study. 2.2. Description of the study area The study area, Gedeo zone is found in the South Nation Nationality and People Regional State (SNNPRS) of Ethiopia. It is bounded by Dara Wereda of Sidama Zone to the north and by Oromia region to the west, east and south. 2.3. Data source and type In this study, both primary and secondary data types and sources were used to the objective of study. 2.4. Population of the study The population for this study were 1,069 category A taxpayers in Gedeo Zone. 15 15
  • 16. 2.5. Sampling Method and Sample size determination The researcher considered three categories of taxpayers as clusters; then, selected category A business income taxpayers out of three clusters using cluster sampling method. To determine form study population the mathematical formula of Yamane (1967) was employed by assuming that the sample would have 95% reliability about population and a sampling error would be 5%. The sample size was: = /1 + 2 n = 1,069 1 + 0.05 2 1,069 = 291. Therefore, the representative sample size of the study was 291 category A taxpayers in the Zone. 16 16
  • 17. 2.6. Methods and procedures of data collection In this study, the primary data were collected through structured questionnaire from taxpayers by trained enumerator with supervision of the researcher. The secondary data have been collected through review of published and unpublished materials that available in catalogue, tax authority manuals and on intermate websites. 3.7. Empirical model Since the dependent variable of the study (tax compliance attitude) have dichotomous outcomes ( being compliant and non-compliant), the binary logistic regression model was employed to find the determinant factors affecting compliance attitude. The predicted probability of tax compliance attitude therefore can be expressed as: = = 艶( + ) +艶( + ) 17
  • 18. 2.8. Tools and methods of data analysis The data analysis of the study has been conducted using both descriptiv and inferential statistics using Stata statistical software package Version 12.0. to obtain reliable finding that enabled the researcher to make possible conclusion and suggestions. 3. DATA ANALYSIS AND DISCUSSION OF THE RESULTS The analysis of the data have been based on two hundred seventy (270) questionnaires appropriately filled and returned out of 291 questionnaires with response rate of 92.78%. 3.1. Descriptive Analysis summary statistics result.docx Coefficient of correlation result 18
  • 19. 3.2. Inferential statistics (Binary logistic regression result: dependent variable (Com) Variable Coefficient Standard error Z - value P- valve GEND -0.9501555** 0.4712432 -2.02 0.044 AGE 0.5539186** 0.2270371 2.44 0.015 EDU -0.0000788 0.2088958 0.00 1.000 TKLDG -1.092946** 0.5039 -2.17 0.030 SIM 1.345927*** 0.3066856 4.39 0.000 PFE -0.7677269** 0.3191312 -2.41 0.016 APEN 1.446501*** 0.3277764 4.41 0.000 TAU 2.340474*** 0.419548 5.58 0.000 PTR 1.782676*** 0.4761506 3.74 0.000 TAE -0.5064371 0.4534209 -1.12 0.264 Cons -13.82375 2.306153 -5.99 0.000 Note: - *** and ** are represents statistically significance at 1% and 5% level of significance, respectively. 19
  • 20. 4. Summary of findings and conclusions Out of ten variables tested, eight variables such as ( simplicity + ), (awareness on penalty+) (probability of being audit+ )and perception on tax rate+) were statistically significant at 1% confidence level because their calculated absolute value of Z is more 2.576 z table value and other variables such as (being female + and otherwise) , (age+), (tax knowledge, + if taxpayer attended tax education and otherwise), (perception on fairness & equity-) are statistically significant at 5% confidence level since their absolute value of Z calculated is more than the of 1.96 table of z respectively. Out of them probability of being audit was strongly positively affecting tax compliance attitude of taxpayers because its coefficient (2.340474***) is positive and higher than coefficients in the model. But education level of taxpayers and organizational efficiency of tax authority has no impact on compliance attitude of tax payers. 20
  • 21. Recommendations Based on the findings of the study, the researcher suggested the following points for policy makers and Gedeo Zone tax authority to increase tax compliance attitude in one hand and tax revenue in other hand: The ERCA, Gedeo Zone branch should encourage female business income taxpayers since they are more compliant than male taxpayers and work on why male taxpayers are more noncompliant. Training the young generation about taxation is other area that the tax authority should give attention because the more aged taxpayers more compliant than young taxpayers. 21 21
  • 22. .contd Keep the tax system simple as much as possible since it has positive impact on tax compliance attitude to increase compliance attitude more current one and increase tax revenue. Additionally, it should keep working on awareness on penalty for the reason why more awareness of taxpayer about penalty for evading tax increases their tax compliance attitude. Gedeo Zone tax authority should give special emphasis on audit due to fact that it has strongly positively affecting tax compliance attitude in current study more than all variables incorporated in the model. 22 22
  • 23. Direction for further research Extension of the same topic to other Zones, reginal and national level Incorporating more than ten factors and conduct it on the same area Compare compliance attitude among different business sectors whether compliance attitude is similar or not. Why education level and organizational efficiency has no impact in Gedeo Zone. Other researcher can make comparative study among taxpayers with book of account and without book of account. 23 23
  • 24. 24