FACTORS AFFECTING COMPLIANCE BEHAVIOR OF CATEGORY 'C' TAXPAYERS: A CASE STUDY OF HADINET SUB CITY, MEKELLE

Abstract

Tax is a compulsory financial charge imposed by governments on individuals or legal entities to finance public expenditures. Despite its crucial role in sustaining public services, many governments faced persistent challenges in collecting the appropriate amount of revenue. Understanding the factors that influenced taxpayer compliance was therefore essential for effective tax administration. Accordingly, this study employed an explanatory research design to identify the factors affecting tax compliance behavior among Category C taxpayers in Hadinet Sub-City, Mekelle. A total of 186 Category C taxpayers were selected using stratified sampling followed by random sampling from each stratum, and data was collected from 179 respondents through structured questionnaires. Descriptive statistics such as tables, means, and standard deviations were used to summarize the data, while multiple linear regression analysis was employed to identify the key factors influencing tax compliance. The findings revealed that tax knowledge and awareness, the probability of being audited, and the perceived fairness of the tax system had positive and significant effects on the compliance behavior of Category C taxpayers. In contrast, financial constraints have a significant negative impact. However, the complexity of the tax system, perceptions of corruption, and weak enforcement did not exhibit any statistically significant relationship with compliance decisions. Based on the findings, the study concluded that enhancing taxpayers‘ knowledge and awareness, promoting fairness in the tax system, and strengthening audit capacity are essential to improve compliance. It is recommended that continuous and problem-solving tax training be provided to taxpayers to foster a positive attitude toward taxation. Responsible authorities should also deliver accessible tax education and promote financial literacy among Category C taxpayers. Furthermore, building the capacity of tax auditors and employees to strengthen audit practices, along with implementing measures that ensure fairness in the tax system, is crucial. These interventions are expected to improve voluntary compliance among Category C taxpayers.