An Investigation into the Causes of Tax Evasion and Avoidance by Small and Medium Enterprises (SMEs) and Their Effect on the Zambian Economy in Chililabombwe District

Abstract

This study was purposed to investigate the causes of tax evasion and avoidance and its effect on the Zambian economy in Chililabombwe District of the Copperbelt Province. It had two-fold objectives: to examine the causes of tax evasion and avoidance in Chililabombwe District by SMEs, and to determine the effect of tax evasion and avoidance in Chililabombwe District on the Zambian economy. The study used a mixed method approach combining both qualitative and quantitative paradigms in which 110 sample size was targeted. One Hundred and ten (110) questionnaires were distributed and 79 were returned representing 72%. Purposive and convenient sampling techniques were used. Quantitative data was analysed through the SPSS version 16 while qualitative data was analysed through content analysis focusing on main unfolding themes from the interviews. The study discovered that that there are loopholes in the Zambia Revenue Authority's (ZRA) tax administration system which are due to inefficiencies or inadequate competence of tax collectors, which taxpayers exploit in evading and avoiding tax. The investigation also revealed that on account of the established loopholes, certain revenue collectors collude with taxpayers to commit tax fraud by accepting bribes from them while poor sales, high tax rates, and lack of tax education to SMEs were noted to be among key reasons for tax avoidance. Consequently, the study ascertained with concern that the levels of development in the district, in terms of social amenities, schools, road network, and youth / women empowerment programmes are very low. The study concluded that tax evasion and avoidance were real and rife among the SMEs on account of the factors cited and that mitigative policy measures were required without any further delays. Arising from the results of the study, it was strongly recommended that for tax evasion and avoidance to be mitigated, the revenue authority needs to urgently reform the tax system to make it equitable and fair coupled with rigorous tax education to the traders for sufficient tax knowledge and thereafter digitize tax remittances with ease for the traders to file returns without need for middle persons. Tax morale and ultimately revenue collection can be improved through tax education programs, integrity of tax collectors, and reduction of tax rates chargeable to SMEs. Enhanced training and sensitization to create awareness, reduce compliance cost, and simplify online technology for the overall positive impact on compliance among the SMEs are elements of paramount import for the success of the nation in meeting its socio-economic goals through guaranteed revenue collections by the Revenue House.