Factors Contributing to Tax Compliance among Small and Medium Sized Enterprises: A Case of Selected SMEs in Iringa Municipality

Abstract

The purpose of the study was to determine factors contributing to tax compliances among small and medium sized enterprises (SMEs) in Tanzania, with reference to selected SMEs in Iringa Municipality. The study objectives were; to evaluate the contribution of taxpayer’s education, to determine the contribution of tax rate and to assess the contribution of tax penalties on tax compliance among SMEs in Iringa Municipality. The targeted population were 172 SMEs where a sample size of 63 SMEs was drawn using descriptive research design. The study used stratified sampling technique and data were analysed using linear regression through ordinary least squares estimator showing relationship between tax compliance among SMEs as dependent variable to taxpayer education, tax rate and tax penalties as independent variables. Taxpayer education and tax penalties had a positive relationship and tax rate showed the negative relationship with tax compliance among SMEs. The results from the regression and t- test showed that taxpayer education, tax rate and tax penalties have a significant impact on tax compliance since the p-values were less than 0.05. In the case of the normal regression output the adjusted R2 equals 0.534 implying that the model explains about 53.4% variations in tax compliance among SMEs. The study concludes that tax payers’ education has positive effects on tax compliance while high tax rates discourage the SMEs on tax compliance. Nonetheless, high tax penalties positively influence tax compliance.. The study recommends fair and at moderate level tax levels and there should be more emphasis on tax payers’ education and awareness to increase tax compliance