Research Journal of Finance and Accounting www.iiste.org ISSN 2222-1697 (Paper) ISSN 2222-2847 (Online) Vol.7, No.19, 2016 93 Taxpayers’ Perception on the Seriousness of Tax Evasion in Dessie Town Administration, Ethiopia Muleye Tarekegn College of business and economics, Wollo University,PO box 1178, Dessie, Ethiopia Abstract Tax evasion is found to be threatening to tax authorities in developing countries including Ethiopia. Hence, this study was designed to evaluate the understanding of taxpayers themselves on the seriousness of tax evasion in Dessie town, Ethiopia. For this set objective, data were collected from 318 randomly selected self-employed taxpayers using 7 point likert scale questionnaire. The study found out that the more the respondents are educated and older, the more they likely to perceive that the government losses more due to tax evasion by tax evader. Seeing how serious tax is being evaded the study found out that only few people report all of their income to tax Authority (64.6%) and deliberate tax evasion is on the increase in study area (60.4%) though deliberate tax evasion is not considered acceptable by society (60.4%). Likewise, the summarization of taxpayers perception about the study area tax administration indicated that taxpayers pay too much tax on what they earn already (76.4%), the taxes collected are used poorly (68.5%), there is a culture of tax evasion (63%), and the risk of getting caught for tax evader is low(49.1%). Overall, we can conclude that taxpayers themselves recognized that taxes are being seriously evaded due these different reasons. Therefore, tax authority is expected to improve its tax collection enforcements and exert efforts to change the culture. Further researches should be conducted to investigate the reasons for increment of deliberate tax evasion and tax evasion culture in the town. Keywords: taxpayers’ perception, tax evasion, seriousness, tax loss, Ethiopia 1. INTRODUCTION Taxation has gained importance not only as a tool for raising revenue to meet the administrative costs of governance as well as for the provision of public services but it also serves as a tool available to planners, policy makers and implementers aiming to regulate the economy in order to bring about desired economic development (Palil, 2005). Therefore, the citizens are expected to discharge their civic responsibility by paying their taxes as these contribute to the development and administration of the society at large (Murkur, 2001). Nonetheless, significant taxes to be collected find their way out of the economy through tax evasion (Fagbemi, Uadiale, & Noah, 2010). Hence, building the capacity of low-income countries to mobilize more tax revenues is now at the top of the development policy agenda (Kasipillai, 2012). Researchers, in fact, have identified different factors for the tax concealing action of taxpayers. Accordingly, some of the factors for the tax evading behavior of taxpayers are the rates at which taxpayers are being taxed; the probability of being detected after evading taxes; level of Tax Law Enforcement; corruption in society; Failure by the Government to provide basic Public services (Pashev, 2005; Chiumya, 2006; John & Enoch, 2013; Uadiale et al, 2010). Furthermore, probability of being audited; perception on government spending; perception on equity and fairness of the tax system, and penalties are also important factors in assessing tax compliance behavior (Palil, 2010; Chan et al, 2000; Tilahun, & Yidersal, 2014). In fact, tax evasion is a phenomenon present in all societies (Uadiale, Fagbemi, & Ogunleye, 2010). It is found to be threatening to tax authorities, especially in developing countries. Recently, there is drastic reduction in states budget all over the world because of practice of tax evasion by economic agents. The value of tax evasion in the world over all is in excess of US$3.1 trillion approximately 5.1% of global GDP (Muhrtala & Ogundeji, 2013). Moreover, Murphy (2011), showed that the total size of shadow economy on total GDP, by region, South America (36.8%) is placed at the top of the list, followed by Africa (34.8%), Europe (20.5%), Asia (17.7%), Oceania (14.1%) and North America (10.8%) (Ching, 2013). Apparently, Ethiopia has a tax to GDP of 12.2% which is lower than other African countries of Kenya 17.7%, zamibia 17%, Malawi 15.6% and Rwanda 14.1% (Tilahun & Yidersal, 2014). The country’s tax mobilization is also the lowest among most African countries (Tilahun, & Yidersal, 2014). Hence, Ethiopian government has given an attention to increase tax collection. For this reason, in the country five year Growth and Transformation Plan it has been clearly stated that efforts will be geared towards promoting compliance and equipping tax collection institutions with adequate enforcement power which will further boost revenue mobilization at federal and regional levels. The achievement of this intention will be unimaginable to attain without understanding perception of taxpayers themselves in seriousness of tax evasion. Unfortunately, this issue is not covered yet by previous research works. Therefore, this study on its part investigated the perception of self-employed taxpayers themselves on the seriousness of tax evasion in Dessie town administration, Ethiopia, by investigating the existence of factors that taxpayers uses to justify tax evasion as well as taxpayers understanding the extent of tax evasion committed in the town.