Determinants of the factors affecting vat compliance in Tanzania

The government of Tanzania established Tanzania Revenue Authority (TRA) in 1995 in order to strengthen tax administration. In 1998, Value Added Tax (VAT) was introduced in order to increase government revenue and to widen tax base that would bring in more eligible citizens into the tax net. One of the responsibilities of TRA is to enhance tax compliance. The unanswered question is the extent to which TRA has been able to enhance VAT compliance. This study aimed at investigating the extent of VAT compliance in Tanzania. The study investigated among others the influence of taxpayers’ education, administration of penalties on tax payers who evade and or avoid paying tax and inequality in income distribution, customer care and VAT rate on VAT compliance. Data were obtained from a sample of 70 respondents from Dar es Salaam only. They included business persons, TRA staff, auditors and tax consultants. The questionnaire administration and interview methods were used for data collection. The responses indicate that taxpayer education, customer care, VAT rate, multiple taxes, higher penalties, fine, and amount of services provided by government strongly influence VAT compliance. It was found that, high VAT rate discourages VAT compliance, while the fear that a VAT defaulter will be detected, enhances VAT compliance. The findings from this study led the researcher to recommend to the government to strengthen and expand taxpayer’s education and customer care service. Also, it is necessary to engage into mechanisms towards reducing the existing VAT rate in order to reduce the tax burden and thus enhance tax compliance. Moreover, strict adherence to penalties and fine administration to non-defaulters as it senses as deterrence to evasion.