Factors influencing tax evasion in Tanzania

Abstract

Taxation remains a fundamental tool for governments to raise revenue for essential services such as defence and legal order. Within this context, the study is set to assess the factors influencing tax evasion in small retail enterprises in Moshi Municipality, Tanzania. Through a cross-sectional study design, 380 out of 7,500 retail shops in Moshi were examined. Data were collected using interviews and survey questionnaires, and a subsequent analysis with SPSS offered significant insights. A critical finding is the widespread inability among small business owners to accurately compute taxes, often leading to incorrect payments. The study reveals that high tax rates and the associated compliance costs significantly impact businesses’ willingness to comply. Additionally, a gap in taxpayer education and dissatisfaction with public utilities and government services contributes to tax evasion attitudes. Notably, only 59% of businesses reported adequate use of public utilities, with the remainder expressing profound dissatisfaction, influencing their tax compliance decisions. The research suggests that reducing tax rates and penalties might enhance compliance, as lower rates diminish the incentive to evade taxes. Simplification of tax return forms, along with robust taxpayer education, is recommended to address complexities and knowledge gaps. Improving the quality of services offered by the Tanzania Revenue Authority (TRA), including dispute resolution and refund processes, is also crucial. Continuous training for TRA staff to keep them abreast of tax law changes and customer service is emphasised. Future research should explore income tax compliance factors in other Tanzania regions and examine the relationship between voluntary compliance strategies and deterrent measures, considering the limited tax awareness among Tanzanian SMEs.