The determinants of tax compliance costs for SMEs in Tanzania

The objective of this study was to investigate the determinants of tax compliance costs for Small and Medium Enterprises in Tanzania. Previous studies have invariably shown that business size is a significant determinant of tax compliance costs and that compliance costs are regressive in nature. There appears to be contrasting views on the effect of legal form, sector, Education and tax knowledge of SME Manager/Owner on the level of internal and external tax compliance costs. Data from 104 SMEs located in the Dar es Salaam region obtained through a convenient sampling methodology were subjected to ANOVA and Multiple linear regression analysis to analyze the impact of hypothesized factors on tax compliance costs of SMEs. The findings indicated that although the legal form, age, tax knowledge and the level of education of the owner/managers are significant determinants of tax compliance costs, turnover is the greatest determinant. The results also indicated regressivity of compliance costs, confirming previous research findings within and outside Tanzania. The study makes recommendations for the reforms of the tax administration system of Tanzania in such a way that minimizes tax compliance costs and address the regressive nature of compliance costs faced by SMEs. The study finally calls for further research of the effects of above determinants for compliance costs per each type of taxes such as PAYE, Excise Duty, VAT etc. as there appear to be a varying impact of each tax on compliance costs.