SCHOOL OF LAW MASTER OF ARTS IN REVENUE LAW AND ADMINISTRATION (MARLA) GRADUATE ESSAY TITLE ASSESSMENT OF TAX COMPLIANCE AMONG SMALL BUSINESS OWNERS IN TANZANIA THE CASE OF ILALA DISTRICT Name of Student Bahati Fredrick Ogolla Reg.
No 2016 06 01278 Mobile Phone No 255 684 305 618 Name of Supervisor Mr. Emmanuel Masalu A Graduate Essay Submitted in Partial Fulfilment of the Requirements for the Degree of Master of Arts in Revenue Law and Administration (MARLA) of the University of Dar es Salaam August, 2018 Dar es SalaamTABLE OF CONTENTS TOC o 1-3 h z u HYPERLINK l _Toc522197325 CERTIFICATION PAGEREF _Toc522197325 h i HYPERLINK l _Toc522197326 DECLARATION AND COPYRIGHT PAGEREF _Toc522197326 h i HYPERLINK l _Toc522197327 ACKNOWLEDGEMENT PAGEREF _Toc522197327 h ii HYPERLINK l _Toc522197328 DEDICATION PAGEREF _Toc522197328 h iii HYPERLINK l _Toc522197329 ABSTRACT PAGEREF _Toc522197329 h 1 HYPERLINK l _Toc522197330 LIST OF ABBREVIATIONS AND ACRONYMS PAGEREF _Toc522197330 h 1 HYPERLINK l _Toc522197331 LIST OF STATUTES PAGEREF _Toc522197331 h 2 HYPERLINK l _Toc522197332 CHAPTER ONE PAGEREF _Toc522197332 h 3 HYPERLINK l _Toc522197333 1.1 BACKGROUND TO THE PROBLEM PAGEREF _Toc522197333 h 3 HYPERLINK l _Toc522197334 1.
2 STATEMENT OF THE PROBLEM PAGEREF _Toc522197334 h 4 HYPERLINK l _Toc522197335 1.3 OBJECTIVES OF THE STUDY PAGEREF _Toc522197335 h 5 HYPERLINK l _Toc522197336 1.3.1 MAIN OBJECTIVE PAGEREF _Toc522197336 h 5 HYPERLINK l _Toc522197337 1.3.2 SPECIFIC OBJECTIVES PAGEREF _Toc522197337 h 5 HYPERLINK l _Toc522197338 CHAPTER TWO PAGEREF _Toc522197338 h 6 HYPERLINK l _Toc522197339 METHODOLOGY PAGEREF _Toc522197339 h 6 HYPERLINK l _Toc522197340 2.0 INTRODUCTION PAGEREF _Toc522197340 h 6 HYPERLINK l _Toc522197341 2.
1 DESIGN PAGEREF _Toc522197341 h 6 HYPERLINK l _Toc522197342 2.2 STUDY AREA PAGEREF _Toc522197342 h 7 HYPERLINK l _Toc522197343 CHAPTER THREE PAGEREF _Toc522197343 h 8 HYPERLINK l _Toc522197344 LITERATURE REVIEW PAGEREF _Toc522197344 h 8 HYPERLINK l _Toc522197345 3.0 INTRODUCTION PAGEREF _Toc522197345 h 8 HYPERLINK l _Toc522197346 2.1 DESCRIPTION OF A SMALL BUSINESS PAGEREF _Toc522197346 h 8 HYPERLINK l _Toc522197347 2.1 THEORETICAL GROUNDING PAGEREF _Toc522197347 h 11 HYPERLINK l _Toc522197348 CHAPTER FOUR PAGEREF _Toc522197348 h 14 HYPERLINK l _Toc522197349 4.
1 BUSINESS ENVIRONMENT OF SMALL BUSINESSES PAGEREF _Toc522197349 h 14 HYPERLINK l _Toc522197350 4.2 FACTORS THAT AFFECT TAX COMPLIANCE AMONG SMALL BUSINESS OWNERS PAGEREF _Toc522197350 h 15 HYPERLINK l _Toc522197351 4. 2.1. Low Morale to pay tax PAGEREF _Toc522197351 h 15 HYPERLINK l _Toc522197352 4.3.1 Summary of Key Findings PAGEREF _Toc522197352 h 18 HYPERLINK l _Toc522197353 BIBLIOGRAPHY AND REFERENCES PAGEREF _Toc522197353 h 23 CERTIFICATION The undersigned certifies that he has read and hereby recommends for acceptance by the University of Dar es Salaam a Graduate Essay paper titled Assessment of Tax Compliance among Small Business Owners in Tanzania The case of Ilala Disrtict, Dar es Salaam, in fulfilment of the requirements for the Degree of Master of Arts in Revenue Law and Administration (MARLA) of the University of Dar es Salaam. Mr.
Emmanuel Masalu (Supervisor) Date.. DECLARATION AND COPYRIGHT I, Bahati Fredrick Ogolla declare that this Graduate Essay is my own original work and that it has not been presented and will not be presented to any other University for similar or any other degree award.
Signature.. Date.
. This Graduate essay is a copyright material protected under the Berne Convention, the Copyright and Neighbouring Rights Act, Cap.218 R.E. 2002 and other international and national enactments, in that behalf, on intellectual property. It may not be reproduced by means, in full or in part, except for short extracts in fair dealings, for research or private study, critical scholarly review or discourse with an acknowledgement, without the written permission of the Director of Postgraduate Studies, on behalf of the author, The University of Dar es Salaam and The Institute of Tax Administration. ACKNOWLEDGEMENT First and foremost I am thankful to God for the good health and wellbeing that were essential to complete this essay. I place on record, my sincere thanks to Mr.
Emmanuel Masalu, my supervisor, for the continuous encouragement. I am extremely thankful and indebted to him for sharing expertise and valuable guidance to me. I take also this opportunity to express gratitude to all members of the University of Dar es Salaam School of Law and The Institute of Tax Administration for their help and support. I am further grateful to my family members and my parents for unending support and encouragement throughout this venture. Lastly, I place on record, my sense of gratitude to all, who directly or indirectly, extended their support towards completion of this write-up. May God bless you DEDICATION I dedicate this essay to my mother and father.
I am grateful to them since without them I would not be born. Also, I dedicate this work to my beloved wife, Mary Ogutu for encouraging me to pursue the Degree of Master of Revenue Law and Administration. Lastly, this paper is dedicated to my daughter Davina Ogolla and my son, Rouvin Ogolla who inspired me in the course of preparation of this document. ABSTRACT This study was conducted to examine factors that affect owners of small businesses to comply with tax statutes.
It aims at spotlighting the particular tax situations of Small Business Owners and Regulatory Framework. Similar studies carried out on the matter suggest that there is a link between subjective experience of the tax situation of small business owners and compliance matters and that calls for a focus on approaches that aim to affect taxpayers perceptions of their own chances of evasion and avoidance, their level of knowledge on tax laws and their logic of possession of tax money. The study was conducted using qualitative research approach using documentary research design. Literature was visited to obtain more insight into the subject.
Generally findings reveal that there are factors that affect Small Business Owners to comply with tax laws. Such factors include negative attitude of taxpayers towards tax matters, high tax rates and weak tax administration procedures. The study concludes that those factors are caused by procedures involved and behaviour of taxpayers. The study recommends that taxpayers education be improved to impart awareness to Small Business Owners and tax administration matters be invigorated to enhance tax compliance. LIST OF ABBREVIATIONS AND ACRONYMS BRELA Business Registration and Licensing Agency OSHA Occupational Safety and Health Authority SME – Small and Medium Scale Enterprise TRA – Tanzania Revenue Authority URT – United Republic of Tanzania LIST OF STATUTES Business Activities Registration Act, 2007 Excise Duty Act, R.E.
2006 Income Tax Act, 2004 Stamp Duty Act, R.E. 2006 Tax Administration Act, 2015 Vocational Education and Training Act, R.E. 2006 CHAPTER ONE 1.1 BACKGROUND TO THE PROBLEM Small Business lends to objective definitions.
Criteria such as level of turnover or number of staff members engaged in the business may be used to distinguish small businesses from other enterprises (Deakins, D., 1999, pp. 34). It may be defined as a venture that is independently owned and operated, that is dominant in its area of operation and qualifies certain standards of size in terms of employees or annual turnover (Luthans, F. Hodgetts, R., 1989, pp. 88).
It may be run in form of a corporation (company), sole proprietorship or partnership depending on the choice of the owner(s) (Zimmerer, T. and Scarborough, N., 2008, pp.
159-187 Stokes, D., 1998, pp. 162).
Mostly, the Small Business is operated in such a manner that there is no separation of power between the owner and manager (Stokes, D., 2000, pp. 27). It is the owner who makes decision regarding business.
Small Businesses play a significant role in the economy. It is estimated that a third of the Gross Domestic Product (GDP) of Tanzania originates from the Small and Medium Enterprises (SME) sector which encompasses Small Businesses (SME Policy, 2002). According to the National Baseline Survey Report (2012), Small Businesses employ more than 5.2 million people in Tanzania. They generate income to the owners, and promote growth of the economy (Maliti, E.
and Mnenwa, R., 2008). On account of the significance of Small Businesses the Government of the United Republic of Tanzania (URT) has formulated strategies that aim at improving the legal and regulatory framework for Small Businesses. Such strategies include simplification of registration and licensing procedures, simplification of tax system, review of Government Procurement Procedures to facilitate Small Businesses, Establishment of a window within commercial court for handling of Small Business disputes, training and sensitization of Small Businesses on intellectual property (SME Policy, 2002, pp. 15 -16) and use of Information and Communication Technology (ICT) in tax administration matters (TRA Annual Report 2014/2015, pp.
26). Despite government efforts to improve the legal and regulatory framework, there are still cases of non-compliance among Small Business Owners. There are delays in filing of tax returns by Small Business Owners with TRA, Under-declaration of taxable income and non-payment of taxes which consequently result in imposition of penalties when detected by Tax Authorities. This study seeks to identify the causes of non-compliance among Small Business Owners and provide recommendations on the way the incidence may be rectified. Accordingly, literature on Small Businesses has been reviewed to gain more insight into the matter.
1.2 STATEMENT OF THE PROBLEM Strategies have been formulated by the Government of the for the purpose of improving the legal and regulatory framework for Small Businesses. Registration procedures for all enterprises including Small Businesses have been simplified, a review of procedures to secure government tenders by promoting Small Businesses, promotion of taxpayer service and education, use of ICT in filing of returns and issuance of receipt, authorization of self-assessment by taxpayers (SME Policy, 2002, pp. 15 -16, TRA Annual Report 2014/2015, pp.
26, 161, Section 46 of the Tax Administration Act, 2015). In spite of the above-mentioned Government efforts, there are still delays in filing of tax returns, untimely payment and non-payment of taxes, underestimation of taxable income, and poor cooperation during tax audit or tax examination among Small Business Owners (URT, Tax Statistics Report 2016/2017). This calls for a study to be conducted on what factors actually cause Small Business Owners to fail to comply with tax requirements.
1.3 OBJECTIVES OF THE STUDY 1.3.1 MAIN OBJECTIVE To assess tax compliance among Small Business Owners in Tanzania 1.3.2 SPECIFIC OBJECTIVES To determine causes of tax non-compliance among Small Business Owners To assess attitudes of Small Business Owners towards compliance with tax requirements To assess the mechanism involved in tax collection among Small Business Owners To assess challenges faced in collection of taxes from Small Businesses and To suggest ways that may improve tax compliance among Small Business Owners. CHAPTER TWO METHODOLOGY 2.0 INTRODUCTION According to Kothari, C.
R. (2004), research methodology is defined as a way to systematically solve the research problem. This section explains the means by which the information was gathered, summarized, analyzed and interpreted in order to come up with reliable conclusion of the study. 2.1 DESIGN Research design involves selection of an appropriate survey method, sample and design of appropriate questions (Deakins, D., 1999, pp. 246).
It is defined as the conceptual structure within which research is conducted and comprises the planning for the collection, measurement and analysis of data (Kothari, C.R., 2004, pp. 31). The study was conducted using qualitative research approach using non-interactive nature. The researcher used a documentary analysis research design in order to gather enough information. According to Bowen G.
A. (2009) documentary research design is a form of qualitative research in which documents are interpreted by the researcher to give voice and meaning around an assessment topic. As other analytical methods in qualitative research, document analysis requires that data be examined and interpreted in order to produce meaning, gain understanding and develop empirical knowledge. On the study of the assessment of tax compliance among small business owners, first the researcher gathered the relevant information for review which include, Tax Statutes and literature on tax compliance among Small Businesses. 2.2 STUDY AREA The study was conducted on small businesses operated in Ilala District, Dar es Salaam, a place which occupies an area of approximately 273 km.
Ilala Disrtict was chosen since it is the largest tax region in terms of revenue collection (TRA Annual Report 2014/2015). CHAPTER THREE LITERATURE REVIEW 3.0 INTRODUCTION Several studies have been carried out to assess tax compliance among small businesses in different jurisdictions. They have described what a Small Business constitutes in accordance with their country or regional specific criteria. They have addressed factors affecting Small Businesses to comply with tax laws within relevant jurisdictions. Some factors for non-compliance appear to be universal while others relate to country-specific issues.
This section outlines studies that have been conducted to assess tax compliance among Small Businesses. It provides description of a Small Business, theoretical grounding and empirical literature related to the study. 2.1 DESCRIPTION OF A SMALL BUSINESS There is no universally accepted definition of a Small Business (Zimmerer, T. W. et.
al., 2008, pp. 26). Criteria may be used to determine what a Small Business constitutes (Hatten, T. S.
, 2006, pp. 4). For instance the number of employees, capital outlay, market share in economic terms and independence in ownership and management may determine if the Business is Small (Stokes, D, 1998, pp.
6-7). According to the European Commission (EC) the business is considered small if it hires from 10 to 49 employees. However, the definition excludes agriculture, hunting, forestry and fishing.
In the USA, the U.S. Small Business Administration has more than 800 definitions of a Small Business based on the industry categories, a common description of a Small Business is one that employs fewer than 100 people (Zimmerer, T. W. et. al.
, 2008, pp. 26). In Australia, Small Business is defined differently by regulatory bodies depending on the laws they administer. For example, the Australian Taxation Office defines a Small Business as one that has annual revenue turnover (excluding goods and services tax) of less than A 2 million (TZS 3,375 million) whereas Fair Work Australia defines a Small Business as one that has less than 15 employees and the Australian Bureau of Statistics defines it as a business employing less than 20 people. In South Africa, according to the National Small Business Amendment Act 26 of 2003, Small Business is categorized into two groups, namely Very Small Businesses which employs between 6 and 20 employees and small business which employs between 21 and 50 employees.
The upper limit for turnover in a Small Business varies from ZAR 1 million (TZS 171 million) in the agricultural sector to ZAR 13 million (TZS 2,225 million) in the catering, accommodation and other trade sectors as well as in the manufacturing sector, with a maximum of ZAR 32 million (TZS 5,477 million) in the wholesale trade sector. In the context of Tanzania, a Small Business is one that employs 5 to 49 employs and has capital investment in machinery of above TZS 5 million and not exceeding TZS 200 million. Capital investment is the deciding factor when the number of employs falls below 5 or above 50 (SME Policy, 2002, pp. 3 – 4). However, such criteria are not applied by TRA when segmenting taxpayers. TRA relies on turnover of business to categorize a taxpayer in a group of small, medium or large taxpayers.
Thus, it may happen that a Small Business is categorized by TRA into a Medium or Large Taxpayer Segment so long as its turnover meets the criteria set out by TRA for such categories. The categorization of business for tax purposes does not override definition of a Small Business. The Business will be considered Small provided that it meets features of Small Business aforesaid. Small Businesses pay a number of taxes and levies including income tax, property tax, value-added tax, pay-as-you earn tax, excise duty, stamp duty, license fees and skills and development levy (National Baseline Survey Report, 2012, Income Tax Act, 2004, Excise Duty Act, 2006, Stamp Duty Act, 2006 and Value Added Tax Act, 2014). However, National Baseline Survey Report (2012) indicates that there are a few Small Businesses which have tax identification numbers (TIN). Absence of TIN for the Business is anomaly as far as tax compliance is concerned.
It is by its possession a taxpayer can pay taxes. Other non-compliance incidents pointed out in the report include non-declaration of actual income, untimely payment of taxes, delay and default in payment of taxes. The Sections below provide the reasons behind such incidents of non-compliance among Small Businesses.
2.1 THEORETICAL GROUNDING According to Atawodi and Ojeka (2012) there are two theories of tax compliance, namely economic based and psychological based theories. Economic based theory suggests that taxpayers are influenced by economic motives such as profit maximization and probability of detection. As such they analyse alternative compliance paths, for example whether or not to evade tax, chance of being detected and resulting consequences and then select the alternative that maximises their expected after tax returns after adjusting for risk. Therefore, in order to improve compliance, audits and penalties for non-compliance need to be increased. Psychology-based theory suggests that taxpayers are influenced to comply with their tax obligations by psychological factors. It focuses on the taxpayers morals and ethics. The theory suggests that a taxpayer may comply even when the probability of detection is low.
As opposed to the economic theory that emphasizes increased audits and penalties as solutions to compliance issues, psychology theories lay emphasis on changing individual attitudes towards tax systems. Kamleitner, et al., (2012) developed three characteristics that influence compliance among Small Business Owners, namely perceived opportunity, knowledge requirements and decision frames. Perceived opportunity factor suggests that Business Owners are often mentioned as a high-risk group in terms of tax compliance because their opportunities to evade are high. This is because of the level of control they have over their businesses. Knowledge requirements characteristic portrays that lack of knowledge about compliance measures and requirements among Small Business Owners make them to become defaulters of requirements of the law. On the other hand, decision frames factor suggests that Small Business Owners typically pay their taxes out of their pocket. They dispose of their gross revenue, which is mentally perceived as their own money, and actively determined taxes represent a loss.
Paying the tax share out of persons own pocket represents a loss frame. Allingham, M. and Sandmo, A. (1972) presented a model of tax behaviour proposing that tax honesty increases with higher chance of audit and severe penalties. A taxpayer may declare his/her actual income or declare less than the actual income. If he/she chooses the latter strategy his/her payoff will depend on whether or not he/she is investigated by the tax authorities. If he/she is not investigated he/she is clearly better off than under the former strategy.
If he/she is investigated, he/she is worse off as there will be imposition of fines due to under-declaration of taxable income. The taxpayer chooses the strategy that is optimum. Allingham, M.
and Sandmo, A. (1972) formed a foundation for the study of taxpayers behaviour towards tax compliance. Kirchler (2007) provides a thorough description of the determinants of tax compliance. He categorizes them into three groups, namely social psychological determinants which comprise subjective knowledge and mental concepts of taxation, attitudes, norms, perceived opportunities of non-compliance, fairness and motivation to comply with tax requirements political determinants like complexity of tax law and tax system and economic determinants such as the decision-making process and the effect of audits, fines, tax rate and income. The above theories form a basis for examination of country-specific factors that result in non-compliance among Small Business Owners. 2.2 EMPIRICAL STUDIES Compliance cost is mentioned in the study conducted by Evans, C.
et al., (2013) as one of the factors that result in non-compliance in Australia. They categorize compliance cost into two categories, namely external and internal factors. External factors are out of control of Small Business Owners. They include tax laws and payment process. On the other hand internal factors emanate from the operations of Small Businesses.
They include factors such as knowledge of Business Owners and their competence. A high tax rate is considered to be the most driving factor causing Small Business Owners to become non-compliant as pointed out in the study conducted in Nigeria by Atawodi, O. Ojeka, S.
, (2012). The same finding is presented by Joulfaian, D. Rider, M. (1998).
There are complicated procedures for tax filings among Small Business Owners, thus affect them in achieving tax compliance (Atawodi, O. Ojeka, S., 2012). Multiplicity of taxes which results in high cost of doing business is mentioned by Udechukwu, F. N. (2003) to be among the problems that face small businesses in Nigeria. Cumbersome administrative procedures and high tax rates are cited by Mnenwa, R.
Maliti, E. (2008) to be among the factors that affect small business owners in Tanzania. CHAPTER FOUR 4.1 BUSINESS ENVIRONMENT OF SMALL BUSINESSES Small Businesses are subject to regulations by a number of regulatory agencies. They are licensed by Municipal Council, TRA, Occupational Safety and Health Authority (OSHA) and other relevant regulatory bodies depending on the nature of business. They involve in a number of activities including wholesale, retailing, masonry and professional services. For ease of accessibility they are mostly located along the streets and market areas. Most of such businesses are operated on an informal basis with low or no separation of power between ownership and management.
4.2 FACTORS THAT AFFECT TAX COMPLIANCE AMONG SMALL BUSINESS OWNERS Study reveals that the factors below affect tax compliance among Small Business Owners. 4. 2.1.
Low Morale to pay tax Low willingness to pay tax among Small Business Owners result in incidences of non-compliance. High levels of tax compliance result from the tax morale of society that raises self-compliance. However, tax morale is not easy to establish. Mostly countries without deep-rooted norms of paying taxes find it tough to establish tax morale (GIZ Sector Programme Public Finance, Administrative Reform, 2010).
Low tax morale results from the following factors Low quality of public service in return for taxes Taxpayers expect some kind of service in return for the taxes paid. If the government does not provide basic public goods and services or provides them inadequately, people may not be willing to pay taxes and non-compliance will prevail (Pashev, K., 2005).
Tax system and perception of fairness There are studies that suggest that high rates of tax result in tax non-compliance. The premise is that high tax rates increase the tax burden and, hence, lower the disposable income of the taxpayer (Alligham and Sandmo, 1972). Also, the structure of the overall tax system has an impact in compliance with tax requirements. For instance is the tax rate on corporate profits is relatively low compared to aggregate rates paid by individuals on their personal income, they may perceive their personal tax burden as unfair and choose to declare only a portion of their income. Similarly, Medium or Large Businesses may easily take advantage of tax loopholes existing in the tax regime, thereby contributing to the perceived unfairness of the system (GIZ Sector Programme Public Finance, Administrative Reform, 2010).
Prevalence of mechanisms such as Advanced Pricing Arrangements may create leeway for tax avoidance and thereby distorting perception of the Small Business over the tax system. Low transparency and accountability of public institutions Lack of transparency and accountability in the use of public funds contributes to public mistrust with respect to the tax system and government. In turn it increases the willingness to evade taxes (Kirchler et al., 2007). Bribery and corruption When there are high levels of corruption, citizens cannot be certain whether their paid taxes are used to finance public goods and services. Their willingness to pay taxes diminishes and it becomes more likely that they evade their tax obligations. A taxpayer might opt to evade taxes if the cost of bribing a tax collector is lower than the potential gain from tax evasion (GIZ Sector Programme Public Finance, Administrative Reform, 2010). Lack of rule of law and weak fiscal jurisdiction If the legal system does not operate in accordance with the rule of law, citizens have to fear uncertainty, discrimination or unequal attendance in court.
Lack of rule of law reduces transparency of public action and fosters distrust among taxpayers. Consequently, citizens may not be willing to finance the government through taxes, and decide to evade tax liabilities (GIZ Sector Programme Public Finance, Administrative Reform, 2010). 4.
2.2. High compliance costs Compliance costs are the costs that the taxpayer has to bear to gather the necessary information, apply for license or fill out tax forms. Small Business Owners are worried more about the administrative burden. When compliance costs are very high, the probability of the taxpayer complying with them is low (GIZ Sector Programme Public Finance, Administrative Reform, 2010). Small Businesses pay a variety of taxes both directly and indirectly.
They are registered and licensed by more than one government agency. All these add compliance cost to them. 4.2.
3 Insufficiencies in Tax Collection There are administrative difficulties facing TRA especially with respect to identifying and administering those citizens and firms that fall under the category of Small Businesses. Most of these entities are informal and not transparent in declaration of business transactions. It is a challenge on the side of TRA to register them and trace their actual business transactions. The system of the Tax Administration insufficiently traps the sufficient tax from Small Businesses (GIZ Sector Programme Public Finance, Administrative Reform, 2010).
4.2.4. Weak Capacity in Detecting and Prosecuting Tax Violators The lack of sufficient capacities in tax administrations in the area of tax investigation reduces the probability of detection that again influences the decision of a Small Business Owner as to whether evade or not. Also, legal framework is an important aspect for any tax enforcement activity. Tax laws change rapidly, thus resulting in instability and low transparency of the tax code.
Complicated tax legislation and ongoing changes of the tax code confound both tax administrators and taxpayers. It results in tax evasion which is unintentional but occurs due to lack of awareness or ignorance. Tax evasion and avoidance become inevitable when the tax system is too complex and/or conflicting to follow (GIZ Sector Programme Public Finance, Administrative Reform, 2010).
4.3 CONCLUSION AND RECOMMENDATIONS This section provides a summary of key findings in connection with the discussions highlighted herein and recommendation of the study. 4.3.1 Summary of Key Findings The study reveals that behaviour of Small Business Owners in response plays a significant role in the attainment of tax compliance in the country. Tax regime and legal framework determine to a great extent the optimum level of compliance may be achieved. It is the role of policy makers to enhance robust tax regime and taxpayers to have positive response to the tax regime.
Therefore, both Small Business Owners and the government have obligations to perform their part in the tax system. 4.3.2 Recommendations of the Study Low or tax compliance contributes to a large extent to insufficient revenue mobilization resulting from to tax evasion and tax avoidance.
An aspect of taxpayers knowledge on tax procedures necessary to carry out his/her is important in achieving tax compliance. Taxpayers tax morale is improved when the government acts in a transparent, accountable and efficient manner with ultimate objective of providing services for the public. These measures extend beyond restructurings of the tax system or administration by developing a sound state-society relationship (GIZ Sector Programme Public Finance, Administrative Reform, 2010). The following are therefore recommended for improvement of tax compliance among Small Business Owners. 4.
3.2.1 Improvement of Taxpayer Education and Taxpayer Service The significance of taxes for the functioning of the country is not always apparent to the Small Business Owners. Likewise, individual tax liabilities and requirements to comply with the tax system for example filing of returns might be unknown or difficult to comprehend. Through taxpayer education and taxpayer service, Small Business Owners can be informed and educated about the tax system and be assisted in their efforts to comply with the tax system. Such endeavours have been carried out by different countries, Rwanda (through Rwandan Revenue Authority) and Peru (through Peruvian Revenue Authority) being among them (GIZ Sector Programme Public Finance, Administrative Reform, 2010). 4.3.
2.2 Addressing Tax Compliance Costs and Administrative Costs Government needs to concentrate on measures that reduce taxpayers costs of fulfilling their tax obligations. In this regard, TRA should be aware of the importance of acting service oriented and should therefore monitor customer satisfaction. Migrating to customer service orientation is an indication of the growing awareness of the need to offer a quality service to the taxpaying public and to be receptive to concerns of the public. Examples of such measures include a reduction of the number of tax forms (GIZ Sector Programme Public Finance, Administrative Reform, 2010). 4.
3.3.3 Addressing Weak Enforcement Tax administration reforms There should be reforms in the tax administration to strengthen enforcement at the national level. Measures in this area include different approaches of organisational reform such as the setting-up of Small Business Units and capacity development initiatives. For instance specialized courses in the area of detecting illegitimate profit shifting activities or tax fraud may be conducted to purposely to develop capacity. Also, restructuring of the wage schedule to offer sufficient incentives in order to attract and recruit capable staff and to minimize bribery and corruptive practices. Reforms should aim at simplifying the organizational body of tax administrations and its working structure. For instance, reduction in the number of authorities dealing with tax issues and centralize the collection of tax revenues to one single authority.
Unlike the current system where there a number of licensing agencies for the same Business. Addressing deficiency in the tax system Complex and often changing tax laws cause misunderstanding and uncertainty among tax officials and taxpayers. Addressing deficiencies in the tax system is an important move towards enhancing tax compliance. Small Businesses with only narrow administrative capacities and private households suffer from the bureaucratic burden of complicated tax procedures and from the complexity of the tax system. Income tax structure should be simplified by reducing the number of tax brackets and high statutory tax rates to lower the tax burden and to support voluntary compliance. A comprehensive reform of the tax law appears appropriate than reforming it in piecemeal.
In order to detect tax violators there should be improvement of the availability and quality of data. Statistics on number, location and nature of business of Small Business need to be obtained by tax collectors in order to take actions against tax evasion and avoidance. It is imperative to ensure the collection of adequate data.
Also, good technical equipment and technically educated staff are also a prerequisite for a well-functioning information exchange. Automation of tax collection procedures (for example, through online tax assessment, payment and monitoring opportunities) may serve as an efficient way to improve tax compliance. Addressing non-compliance needs to go hand in hand with legislative reforms strengthening the rule of law. Insufficient punishment and prosecution of violators can only be tackled when identified tax criminals face sterner penalties that are effectively executed by tax tribunals and courts. To achieve this goal government has to strengthen the rule of law and develop capacities of investigation authorities. Furthermore, politicians should support investigators, courts and judges handling tax matters (GIZ Sector Programme Public Finance, Administrative Reform, 2010). BIBLIOGRAPHY AND REFERENCES Allingham, M and Sandmo, A., (1972).
Journal of Public Economics 1 323 -338. Atawodi, O. Ojeka, S. (2012). Factors that affect tax compliance among small and medium enterprises (SMEs) in North Central Nigeria International Journal of Business and Management. Vol 7, No. 12, pp 87-96. Retrieved from http//dx.
doi.org/ijbm.v7n12p87 Bowen, G. A. (2009). Document analysis as a Qualitative Research Method.
Qualitative Research Journal, 9, 27-40. Casal, S. Mittone, L., Social esteem versus social stigma The role of anonymity in an income reporting game, Journal of Economic Behaviour Organization (2016) 5566. Deakins, D. (1999).
Entrepreneurship and small firms. McGraw-Hill, Publishing Company, the U.K. Evans, C.
, Lignier, P. Tran-Nam, B. (2013). Tax Compliance Costs for the Small and Medium Enterprise Business Sector Recent Evidence from Australia. University of Exeter Business School. GIZ Sector Programme Public Finance, Administrative Reform (2010). Addressing Tax Evasion and Tax Avoidance in Developing Countries.
Deutsche Gesellschaft fur, Eschborn. Ministry of Trade and Industry (2012) National Baseline Survey Report for Micro, Small, and Medium Enterprises in Tanzania. Hatten, T. S.
(2006). Small Business Management. Houghton Mifflin Company, Boston New York, the U.
S.A. Joulfaian, M. Rider, M.
(1998) Tax Evasion by small business. U.S. Department of the Treasury and Georgia State University. Kamleitner, B., Korunka, C. Kirchler, E. (2012).
Tax Compliance of Small Business Owners A review. International Journal of Entrepreneurial Behaviour Research, Vol 18 Iss 3 pp 330-351. Kasipillai, J. and Jabbar, H.
A. (2006). Gender and Ethnicity Differences In Tax Compliance. Asian Academy of Management Journal, Vol. 11, No.
2, 7388. Kirchler, E. (2007).
The Economic Psychology of Tax Behaviour. Cambridge University Press, Cambridge, UK. Kothari, C.R. (2004). Research Methodology Methods and Techniques.
New Age International (P) Limited, Publishers, India. Luthans, F Hodgetts (1989). Business. The Ryden Press, the U.S.A.
Mnenwa, R., and Maliti, E. (2008). The Role of Small Businesses in Poverty Alleviation The case of Dar es Salaam, Tanzania. Research Report, Dar es Salaam, REPOA. Oats, L., Miller, A.
and Muligan, E. (2017). Principles of International Taxation.
Bloomsbury Publishing Plc, London, the UK. Pashev, K. (2005). Tax Compliance of Small Business in Transition Economies Lessons from Bulgaria (2005), International Centre for Public Policy Working Paper Series, at AYSPS, GSU paper0510, International Centre for Public Policy, Andrew Young School of Policy Studies, Georgia State University. Stokes, D. (1998). Small Business Management. Ashford Colour Press, Gosport, Hants, Great Britain.
Udechukwu, F.N. (2003) Survey of Small and Medium Scale Industries and Others Potential in Nigeria Central Bank of Nigeria Seminar on Small and Medium Industries Equity Scheme (SMIEIS). CBN Training Centre, Lagos, Nigeria.
United Republic of Tanzania, Small and Medium Enterprise Development Policy, 2003. Zimmerer, T. and Scarborough, N.
(2008). Essentials of Entrepreneurship and Small Business Management. Pearson Prentice Hall, New Jersey, the USA. Converted at A TZS 1,687.44, the prevailing exchange rate as at 04th August, 2018 Source https//www.xe.
com/currencyconverter/convert/Amount1FromAUDToTZS http//www.abs.gov.
au Converted at R 1 TZS 171.17, the prevailing exchange rate as at 04th August, 2018 Source https//www.xe.com/currencyconverter/convert/Amount1FromZARToTZS https//en.wikipedia.org/wiki/Small_and_medium-sized_enterprisesSouth_Africa PAGE MERGEFORMAT iii PAGE MERGEFORMAT 22 BxwKbRsHDY(zz ReVNiWUBKyLEh(T.
[email protected]/Sd7oHqkByR9GcXEB0 CnIP- 46ZJn)[email protected]( mAx -MICmR36d3Aq4Oacp 5rInAUH, WVkdFJhX8f5 99([email protected] u.ezTmzM_M8_2tFHq)[email protected][email protected] uaphachxOSOvbZTHY mOKa0j QLho1YS-YyJ7EF/jjn2DlsceKMx7tM17Fp6dtnhNl8m,DW JL,/2u188HAYI.96 A5 w1jY )@jP T.4AOSv5xuowKCVgBS0 J1ZVHggXas_.
JduHUQ50ZaeZLAJEMhSFb8n6JWn(EqIP4NP/BMhr4H_l3l CTNbl 1 YgmwzUdd/G wpMB /RurbA9(l3X7(50 ,sARZVt0l3r,[email protected] T 9/ d4rHII3dddn fg F(L. V8fVlJr( )Et9.4 y t 0llhH7ljImHA-KAX9bQLP7DQ Q,65 i5yMQCvVY)[email protected][email protected]_dD6uYDqdw)[email protected])[email protected](NF- [email protected] -WKbuoj,)7L4DsI,3zmJ7/BhSO-B5Ky/P zoO1z4 [email protected]/xgscIr)gWX17AddobM XTRP7oLpJL.oIA eIusVY5J -HTQ1p [email protected],gyMNqV9tpwb _Hu5gHLRYUQ,9Crg [email protected] VPwKIzI.vIt UM ylml)omniPKYY/W 9t fZWrSLo,lZ)uSR6 SoRwEN7dCRJAimBr,GWjlAPKdBr6,ACYSsm3j_leR_ Y, 4IsNXpxpop, Yu),[email protected](2O4kLEzqO2POuz_gx7svnB2,E3p9GQd H IjZ29LZ15xl.([email protected]@[email protected] O5YYS.7bdn671. tn/w/t6PssL.JiN AI)t2Lmx([email protected] m2DBAR4 wnaQ W0xBdT/.3-FbYLKK6HhfPQh)GBms_CZys [email protected])h7JicFS.NP eI [email protected] NC([email protected])t9M4WP5flk_X-CwTB Y, AoYezxTVOlp /gTpJ EG, AozAryerb/Ch,Eoo. 6Q
