An Examination of the Determinants of Tax Compliance Among Small and Medium Enterprises (Smes) in Uganda. a Case Study of Selected Smes in Yumbe Town Council, Yumbe District.
Author: JULIE FLAVIA VUNI
Supervisor: Ika Lino
This study focused on the determinants of tax compliance among Small and Medium Enterprises (SMEs) in Uganda. A case study of selected SMEs in Yumbe Town Council, Yumbe District. The study comes against a background of taxation imposing high cost to small businesses, which makes them less compliant, yet SMEs have taxable incomes, which they are obliged to pay to the government. The study thus aimed at investigating the factors that determine tax compliance among SMEs, and analyse the policy and institutional gaps that have hindered compliance. Four specific objectives were used, namely: To establish the policies that have been put in place to promote tax compliance among SMEs in Yumbe Town Council; to examine SME knowledge on of tax compliance among in Yumbe Town Council; to examine the challenges and institutional gaps in attaining tax compliance among SMEs in Yumbe Town Council and to establish SME sensitive strategies to ensure tax compliance in Yumbe Town Council.
The study employed a qualitative research design throughout the research process. Multiple cases were used to achieve an in-depth investigation of factors that affect tax compliance among SMEs. Data collection methods and instruments including questionnaire, and key informant interview were used. Data was analysed using content thematic data analysis technique.
The study revealed that tax policies are designed in such a way that they do not only directly affect SMEs but also indirectly push for their voluntary compliance, thus affecting their growth. Tax regimes and enforcement should be simple, consistent and predictable to lower compliance and administrative costs, so as to reduce uncertainty faced by taxpayers as well as improve the levels of voluntary compliance. The majority of small and medium taxpayers are not clear with the tax rules such as tax rates, deductible and non-deductible expenses used in the determination of taxable income and they lack timely information and updates on changes of tax directives and guidelines. Taxpayers are also unable to easily calculate their tax liability and they have problems of timely filing of taxes due to complexity of formats. Taxpayers have problems of general record keeping and filing of documents of their business.
The study recommends taxpayer education to enhance compliance in terms of increasing the number of sessions and broadening coverage to include tax consultants. This will enlighten the taxpayers on existing laws and any other tax liability and provide a forum for taxpayers to air their complaints and or compliments. Training for technical staff to keep them abreast with the tax law and any other changes therein is important to impart proper and correct advice to taxpayers during the time of audits. Customer care lessons should form an integral part of this training. The authority should strive to give taxpayers high quality services as stipulated in the corporate plan. Most of the services provided by the authority like refunds, remissions and dispute resolutions were rated poor and thus there is every reason to improve them. This will also improve communication between the taxpayers and the authority. Conclusively, compliance could be influenced by educating taxpayers of their social responsibilities to pay and thus their intention would be to comply. As a behaviour problem, tax compliance depends on the cooperation of the public. There are greater gains in assisting compliant taxpayers meet their fiscal obligations rather than spending more resources pursuing the minority of non-compliers. SMEs entrepreneurs are able to understand their tax obligations when there is an aspect of fairness and tax benefits that can be received in real terms.