Factors Affecting Tax Compliance of Small and Medium Scale Enterprises in the Advent of the Eac Common Market.
Background of the Study
Tax compliance has been a topic of great interest to Revenue authorities especially in the developed countries. Hostility towards tax compliance is an age old problem. “Taxes are considered a problem by everyone. Not surprising, taxation problems date back to the earliest recorded history” (Taxworld Organization, 1999).
Developing countries, perhaps due to their frequent budget deficits have not been able to conduct comprehensive research on the behavior of taxpayer in relation to compliance. Hostility between the taxpayers and tax collectors on issue relating to tax compliance is evidenced by frequent tax evasion reports in our local newspapers (Juma, 2010) and outward resistance from taxpayers for example the recent protest by taxpayers over implementation of Electronic Tax Registers.
Hostility towards tax compliance could be explained in terms of the deterrence theory which implies that taxpayers make calculations of the economic consequences of different compliant alternative, such as whether or not to evade tax; the probability of detection and consequences thereof, and choose the alternative which maximizes their expected after tax-return/profit possibly after adjustment for the desired level of risk (Trivedi, Shehata & Mestelman, 2005). Hostile taxpayer’s behavior implies that given a chance taxpayers would not comply with tax laws.
Hostility towards tax compliance could also be explained by the expected utility theory which is an economic analysis that frames the decision to pay as a rational attempt to maximize ‘profits’ (Grant & Van Zandt, 2007). The basic assumption is that people are free riders: no one will voluntarily contribute tax unless the threat of punishment makes it sensible. Thus, traditionally, tax evasion has been understood in terms of the benefits of successful evasion weighed against the risk of detection and punishment
Hessing and Elffers (1993) treat tax evasion as defective behavior within a social dilemma.
Tax compliance has been a topic of great interest to Revenue authorities especially in the developed countries. Hostility towards tax compliance is an age old problem. “Taxes are considered a problem by everyone. Not surprising, taxation problems date back to the earliest recorded history” (Taxworld Organization, 1999).
Developing countries, perhaps due to their frequent budget deficits have not been able to conduct comprehensive research on the behavior of taxpayer in relation to compliance. Hostility between the taxpayers and tax collectors on issue relating to tax compliance is evidenced by frequent tax evasion reports in our local newspapers (Juma, 2010) and outward resistance from taxpayers for example the recent protest by taxpayers over implementation of Electronic Tax Registers.
Hostility towards tax compliance could be explained in terms of the deterrence theory which implies that taxpayers make calculations of the economic consequences of different compliant alternative, such as whether or not to evade tax; the probability of detection and consequences thereof, and choose the alternative which maximizes their expected after tax-return/profit possibly after adjustment for the desired level of risk (Trivedi, Shehata & Mestelman, 2005). Hostile taxpayer’s behavior implies that given a chance taxpayers would not comply with tax laws.
Hostility towards tax compliance could also be explained by the expected utility theory which is an economic analysis that frames the decision to pay as a rational attempt to maximize ‘profits’ (Grant & Van Zandt, 2007). The basic assumption is that people are free riders: no one will voluntarily contribute tax unless the threat of punishment makes it sensible. Thus, traditionally, tax evasion has been understood in terms of the benefits of successful evasion weighed against the risk of detection and punishment
Hessing and Elffers (1993) treat tax evasion as defective behavior within a social dilemma.