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CHAPTER ONE.

1.1. Introduction

Tax compliance is a problem both in developed and developing countries. Tax evasion and tax avoidance cause the high cost of collection tax. Value added tax was introduction in Tanzania in the year 1998. This tax is charged on the consumption and supply goods and services. It is also charged on the importation of goods and services into the Tanzania mainland.( VAT Act 1997).

1.2. Historical background of the problem

The need for high tax compliance among tax payers is the desire to every government on today’s world, as tax is the most important source of public revenue. A high degree of voluntary compliance saves the tax department high cost of collection, guarantees a steady flow of revenue for development and helps the realization of various tax policies. Late payment of tax, late submission or non submission documents do not lead to the realization of the required revenues. Value added tax (VAT) is a tax charged on the value added, it was introduced in Tanzania in the year July 1998, after the value added, tax Act 1997. It replaced sales tax; stamp duty, hotel levy and internments tax. Since it’s introduction terms of revenue collected has been promising in the sense that it has been increasing but this should not make use to loose the millions of the revenue the government to collect. There has been constant efforts among tax payers to reduce theirs tax liability, the basic behavior assumption is that people are free riders no one will voluntary to the government until to use method of enforcement under income tax Act section (110,112,112,113 and 114), so people have been less willing to settle their civic duties of paying tax without use force. Retail traders for instance, the amount they are liable to remit to the revenue authority is the amount by which output tax exceeds input tax deductable, there has been endless struggles among them to reduce output tax by understating sales so as to reduce the figure out tax and overstating purchases so as to increase the figure for input tax which will reduce the figure for VAT they are liable to remit to the revenue authority.

3. Purpose of study

The main aim of this study is to describe factors that affecting tax payer’s compliance towards the value added tax.

4. Statement of the problem of the research

Value added tax is multistage advalorem tax charged on each stage of the production and distribution chain, if this type of tax will be well administered for, then it is beyond reasonable doubt that it will be a significant source of government revenue, but contrary to this tax evasion and tax avoidance have been the order of the day in collection of value added tax decreasing the government revenues, if corrective measures will not be employed to reduce these acts then the Tanzania government will forever be loosing significant amount of revenue without genuine reasons.

This study aimed that to find the causes that affect tax compliance and to give the solution on what should be done in order to encourage voluntary tax compliance.

5. Objectives of the study.

1. General objective

The main objective of this study was to describe the factors that affect tax payer’s compliance towards the value added tax.

1.5.2. Specific objectives.

The research has the following specific objectives

a. To determine what percentage of VAT collection the government loose due to non compliance of value added tax.

b. To identify the possible measures tax administrators can adopt to improve VAT compliance among tax payers.

c. To examine the important of paying value added tax.

6. Research questions

a. To what percentage of VAT the government loose due to non compliance of VAT?

b. What are the possible measures that can be adopted by tax administrators so as to improve tax compliance?

C What are important of paying value added tax?

1.7. The research...
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