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.