Factors Affecting Tax Compliance in Ethiopia: A Systematic Review

This study examines the factors influencing tax compliance in Ethiopia. Most governments rely heavily on taxes as a crucial and significant means of generating public funds to support their economic development. However, the desired outcome has not been achieved as expected, mostly because taxpayers fail to contribute their equitable portion of taxes. In recent years, Ethiopia has had a positive trend in tax revenue. However, the ratio of tax revenue to GDP has remained low. Ethiopia’s tax revenue-to-GDP ratio has declined annually, from 7.5% in 2018 to 4.5% in 2022, remaining below Africa’s average. Using the Preferred Reporting Items for Systematic Reviews and Meta-Analyses (PRISMA) approach, this study identifies key determinants of tax compliance based on selected articles from two databases. This study reveals a range of tax compliance influencing factors in Ethiopia encompassing institutional, socio-economic, psychological, and systemic dimensions. Tax knowledge, awareness, and education consistently emerge as critical determinants, shaping compliance behaviours across different regions and demographic groups. Moreover, perceptions of fairness, simplicity, and equity in the tax system, along with attitudes towards government spending and service delivery, play significant roles. Penalties, audits, detection probability, and government enforcement were significant compliance drivers, aligning with the economic deterrence theory. Meanwhile, trust in government, procedural justice, and a balance between coercive power and voluntary compliance were also critical, supporting the slippery slope perspective. We suggest the government of Ethiopia should adopt a balanced strategy that integrates tax education, institutional reforms, transparency, trust-building, and equitable policies that enhance tax compliance. Furthermore, the government and policymakers should work highly on technological advancements, such as developing information technology infrastructures throughout the country’s tax collection system and digitizing the tax system, which can increase tax compliance.