An Investigation into the Factors that Influence tax Evasion in Kampala Capital City: A Case Study of Selected SMEs in Kamwokya

Abstract

The major objective of this study is to examine the factors influencing tax evasion in Kampala Capital City. The study applied a non-experimental design called descriptive survey research design. The study population comprised operators of Small and Medium Scale Enterprises (SMEs) in Kamwokya, Kampala District. Furthermore, operators of Small and Medium Scale Enterprises (SMEs) were selected because they are the ones with first-hand information about the affairs of their businesses. Once the administered questionnaires are gathered, the data analysis was done according to the dissertation. Thus, all the data collected from respondents was analyzed based on descriptive statistical analysis by using the SPSS software so as to obtain a more statistical analysis of the study. Study results about the economic factors influencing tax evasion in Kampala Capital City, Uganda revealed that about whether SMEs operators in Kampala City feel their business doesn’t earn enough to pay taxes; 60% of the respondents strongly agreed, 20% agreed, neutral 20%, 5% disagreed and 5% strongly disagreed. This is because of most of these SMEs operators are not educated about taxes. Furthermore, according to the study results about the social-cultural factors influencing tax evasion, the results revealed that about whether SMEs operators in Kampala City just feel they have a low moral to pay taxes; 40% of the respondents strongly agreed, 30% agreed, 10% neutral, 15% disagreed and 5% strongly disagreed. This is because of most of these SMEs operators are not educated about taxes. Study results on the possible strategies used to eliminate tax evasion as seen in table 7 above show that, on whether taxpayer education and taxpayer service is important because the functioning of the state is not always apparent to the taxpayer; 50% of the respondents strongly agreed, 10% agreed, neutral 10%, 20% disagreed and 20% strongly disagreed. Last but not least, the regression results showed a statistically significant negative relationship (at 5 percent level of significance) between the economic factors and the tax evasion in Kampala Capital City in this study since its p-value is less than 0.05. The study further recommends that Small and Medium Enterprises in Kampala City should be levied lower amounts of taxes so that they will have enough funds for other activities that will lead to business growth. Furthermore it will help SMEs get better equipped to survive in a competitive market