A Close Scrutiny of Self-Assessment System and its Impact on the Tax Compliance Level of Taxpayers: The Case of Wolaita Zone

Abstract

Based on the result, the risk based audits are not satisfactorily implemented in Wolaita zone. and most of the respondents responded that there is no good tax service by the tax collecting authority. The other essential condition of effective self-assessment system; fair and timely dispute resolution of the tax disputes is not fulfilled in Wolaita zone tax administration. To effectively implement the self-assessment tax system, the authors of this research recommend policymakers to create awareness of the tax laws through tax education programs, to simplify the tax laws and tax filing procedures, to create effective tax administration so as to effectively enforce the tax laws, to apply the tax penalties strongly and uniformly, to improve the tax service provided for tax payers and to implement effective risk based audits on the tax documents of the taxpayers regularly.

 The principal aim of the study was to explore the implementation of self assessment tax system and its impact on the tax compliance level of the taxpayers of Wolaita zone. Based on empirical works of scholars, self assessment system is believed to be effective in promoting voluntary tax compliance of the taxpayers provided that some conditions are met. These conditions are; Tax knowledge of the taxpayers, simplicity of the tax system, effective enforcement of the tax laws and penalties, good service to tax payers, simple filing procedure and risk-based tax audits. To test the implementation of these conditions in Wolaita zone, a set of close-ended questionnaires were administered to sampled taxpayers of the zone. A total of two hundred fifty respondents were selected based on simple random sampling from five purposively selected Woredas and addressed. In addition to this, unstructured interview was conducted for two zonal tax officials and two district collecting officials so as to obtain complementary tax collection information. The data gathered through questionnaires was systematically tabulated and analyzed using percentages, mean and weighted mean whereas the data gathered through interview was directly incorporated in the literature part of the study. According to the survey result; Even though Wolaita zone tried to implement self-assessment tax system, the practice is not good. Most taxpayers use official assessment system though the law required taxpayers to assess their tax liability by themselves. The reason is the lack of essential conditions of self-assessment. The study result shows that, most tax payers lack knowledge of the tax laws and procedures needed to apply self assessment system. The Ethiopian filing procedures are not simple for tax payers which makes it difficult to pay based on self assessment. Furthermore, there are no effective tax collection enforcement and penalty by Wolaita zone tax office.