SMEs’ corporate income tax compliance in Tanzania

Abstract

Many governments are struggling with inadequate tax revenue and increasing tax gaps. Consequently, changing behaviour of non-compliant taxpayers as small and medium enterprises (SMEs) because of their tax revenue potential and non-compliance behaviour is essential. This thesis examined the impact of corporate income tax penalty incidence, retributive justice, procedural justice, the interaction between retributive and procedural justice on corporate income tax compliance behaviour. Also, the thesis analysed whether corporate income tax compliance costs affect SMEs tax compliance behaviour.

Laboratory experimental methods found corporate income tax penalties levied on individual tax managers might be more effective than corporate income tax penalties charged on corporates. Also high tax compliance costs may decrease tax compliance levels. Likewise, a survey method discovered perceptions of retributive and procedural justice might associate with tax compliance behaviour. However, a perception of procedural justice can moderate the relationship between retributive justice and tax compliance.

Conclusively, tax authorities may increase SMEs’ corporate income tax compliance by imposing corporate income tax penalties on tax managers, but these penalties should be perceived to fit the crime of corporate tax non-compliance and imposed through fair procedures. Also, the authorities may increase SMEs’ corporate tax compliance by decreasing tax compliance costs. Shortly, the thesis contributes to the limited tax literature on corporate income tax compliance, procedural and retributive justice and usage of real taxpayers in an experiment.

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