Tax evasion is found to be threatening to tax authorities, especially in developing countries. It limits the capacity of the government to meet its obligations, distorts the macroeconomic policy, threatens the legitimacy of the tax system and erodes the moral standards of the taxpaying society. We found this study significant for public policy makers and tax authorities to develop policies and strategies to counteract tax evasion. It also provides input for researchers who are active in this area. In this research, detailed analyses of the factors that cause tax evasion were made and some ways to tackle tax evasion were forwarded. The finding uncovers that weaknesses of tax authorities in enforcing tax laws, prevalence of fiscal corruption in tax environment, low level of penalties and weak penalty enforcement, poor perception of taxpayers towards the government spending policy and less trust to the political system are among the major factors that cause tax evasion in Ethiopia.