Determinants of Tax Compliance among Small and Medium Enterprises in Lindi Region Tanzania.

Mwaweza, Ephelo Lucas (2025) Determinants of Tax Compliance among Small and Medium Enterprises in Lindi Region Tanzania. Masters thesis, The Open University of Tanzania.

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Abstract

Recognizing that tax compliance is crucial for government revenue generation, yet challenging for SMEs, the study examined the influence of patriotism, tax rates, and tax penalties on compliance behavior. This study investigated the determinants of tax compliance among small and medium-sized enterprises (SMEs) in the Lindi Region, Tanzania, guided by tax compliance theory. A quantitative research approach was employed, with data collected via questionnaires administered to 134 SME owners and managers, achieving a 74% response rate from an initial sample of 181 participants. Regression analysis revealed that patriotism significantly promotes compliance, whereas high tax rates discourage it. Furthermore, effective enforcement of tax penalties was found to enhance compliance. These findings align with tax compliance theory, which highlights both ethical motivations and deterrent measures as key drivers of taxpayer behavior. The study underscores the importance of fostering patriotic values, setting fair tax rates, and enforcing penalties effectively to encourage tax compliance among SMEs in the Lindi Region, offering practical recommendations for tax authorities and policymakers. The study also acknowledges limitations such as reliance on self-reported data, with a geographically limited sample, and the exclusion of variables like financial literacy. Future research is encouraged to broaden geographic coverage, incorporate additional factors, and apply longitudinal or qualitative approaches to deepen understanding of SME tax compliance behavior. Keywords: Tax compliance, Small and Medium Enterprises, Tax Rates, Tax Penalties.

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