Determinants of tax compliance among small business owners

Abstract

In Uganda, tax compliance is equivalent to 12.5% of GDP which is below other countries in the East African Community (EAC) and an average for Sub Saharan Africa (SSA). The low domestic revenue collections relative is accounted for largely by expected performance of trade taxes, which have suffered from a sharp slowdown in import volumes and an unfavorable US dollar to Shilling exchange rate URA. The aim of this study was therefore to establish the determinants of tax compliance among the small scale businesses in Fort Portal Municipality. The study was a cross sectional study based on the quantitative data collected from a sample of 140 business owners from the four Southern, Northern, Western and Eastern Divisions of Fort Portal using a semi structured online questionnaire. The analysis was based on the multivariate logistic regression model. The study indicated about 51% of the small scale businesses are tax compliant. The study found out the major determinants of tax compliance were age (P-value=0.019) where older business owners were more likely to be tax compliant than young ones; Number of years of business operation (P-value=0.024) and businesses with more years of operation were more likely to be tax compliant and had a positive relationship with tax compliance; knowledge about taxes (P-value=0.023), business owners with knowledge about taxation were more likely to be tax compliant in comparison to those with no knowledge; legal form of business (Sole Proprietorship) (p-value=0.012) where businesses that were solely owned were less likely to be tax compliant; and Investment deductions (p-value=0.006) where businesses that received investment deductions were more likely to be tax compliant to the those that didn’t receive. In conclusion, age of the business owner, Marital status(widow/widower), number of years of operation of the business, knowledge about taxation, legal form of business (Sole proprietorship) and the investment deductions were the major determinants of tax compliance among the small scale businesses in Fort Portal. The study recommended creation of awareness and sensitization of the public and business persons in tax workshops so that to equip them with adequate tax knowledge, increase more tax awareness among the young owners of such businesses in comparison to the old, provision of the investment deductions and holidays to the investors and organizing of training and workshops to train the businesses on tax knowledge and benefits.