Abstract:
The government need to collect an adequate amount of revenue for various purposes, such as
social, economic, and political aspect of the society. One of the most important uses of taxes is to
finance public goods and services. This study aims to investigate factors affecting tax compliance
in Haramaya town. Tax penality, taxpayers’ awareness, tax office capacity and tax automation
were considered factors affecting tax compliance in Haramaya town. The study was conducted
through a descriptive and infrencial research design. The study focused on the target population
of category A and category B taxpayers of Haramaya town. This is because categories A and B
are usually having compliant on tax to be paid. The sample size was 150 respondents selected by
simple random sample technique. Data gathered from primary sources. To collect primary data
questionnaires were used. The collected data were analyzed using descriptive statistics such as
frequencies, percentages, mean and standard deviation through the statistical tool of SPSS
version 20. The analyzed data were presented in tables, charts and histograms. In addition,
regression analyses was employed to analyze the relationship of variables. The findings
indicated that tax penality, taxpayer’s awareness, tax office capacity and tax automation
adversely affect tax compliance in Haramaya town which typically results in revenue loss. The
results also revealed that, most taxpayers lack sufficient knowledge of tax rules and regulations,
lack of awareness creation training and lack of automation system by tax office. Moreover, tax
assessment and collection officers are inefficient and insufficient in relation to number of tax
payers in the town, tax officers lack adequate skills. This study suggests that the tax authority
should provide continuous training for taxpayers and tax office employees, use advanced
information technology (IT)
