Assessing Tax Awareness and Compliance Among Small and Medium Enterprises in Tanzania.

Abstract

This study looks into tax knowledge and compliance among Small and Medium Enterprises (SMEs) in Unguja, Zanzibar, assessing their demographic profile, level of tax understanding, and the factors that influence their compliance behaviour. Data was collected from 54 SMEs, the majority of which were small (53.7%) and centered in the Mjini region (46.3%), the economic hub. SME owners were found to be mostly young, educated (59.3% had college/university degrees), and nearly gender-balanced. While the majority of SMEs comply with tax returns (sent monthly, yearly, or quarterly), 20.4% are non-compliant and do not submit any returns. Tax awareness demonstrates a high basic comprehension of topics such as tax returns, deadlines, and determining taxable income (57.4% and 64.81% agreement, respectively). However, considerable knowledge gaps persist, particularly in terms of comprehending the tax registration process (only 42.6% agree/strongly agree) and the perceived complexity of tax rules (48% agree/strongly agree they are simple to understand). While the majority of SMEs comply with tax returns (sent monthly, yearly, or quarterly), 20.4% are non-compliant and do not submit any returns. Tax awareness demonstrates a high basic comprehension of topics such as tax returns, deadlines, and determining taxable income (57.4% and 64.81% agreement, respectively). However, considerable knowledge gaps persist, particularly in terms of comprehending the tax registration process (only 42.6% agree/strongly agree) and the perceived complexity of tax rules (48% agree/strongly agree they are simple to understand). The biggest impediments to compliance were identified as tax law complexity (57.4% agree/strongly agree it impedes compliance) and high tax rates (40.7% agree/strongly agree it affects compliance). Compliance expenses were not seen as a universal barrier. The most often recommended solutions for improvement are increased tax education campaigns (35.2%) and the simplification of tax processes and regulations. Other significant recommendations for the Zanzibar government and Zanzibar Revenue Board (ZRA) include increasing fairness and trust between ZRA personnel and SMEs, reconsidering high tax rates, and continuing to digitize tax systems. The study indicates that closing education gaps, simplifying processes, and increasing transparency are crucial for increasing voluntary compliance and fostering the growth of the SME sector. The most often recommended solutions for improvement are increased tax education campaigns (35.2%) and the simplification of tax processes and regulations. Other significant recommendations for the Zanzibar government and Zanzibar Revenue Board (ZRA) include increasing fairness and trust between ZRA personnel and SMEs, reconsidering high tax rates, and continuing to digitize tax systems. The study indicates that closing education gaps, simplifying processes, and increasing transparency are crucial for increasing voluntary compliance and fostering the growth of the SME sector. The most often recommended solutions for improvement are increased tax education campaigns (35.2%) and the simplification of tax processes and regulations. Other significant recommendations for the Zanzibar government and Zanzibar Revenue Board (ZRA) include increasing fairness and trust between ZRA personnel and SMEs, reconsidering high tax rates, and continuing to digitize tax systems. The study indicates that closing education gaps, simplifying processes, and increasing transparency are crucial for increasing voluntary compliance and fostering the growth of the SME sector.