Abstract
Small and medium-scale enterprises (SMEs) are recognized global for being the backbone of the economy through; economic advancement; innovation, wealth generation and furthering growth. SMEs have a high tax non compliance rate which hinders the development they bring to many economies. This paper aims to establish the major determinants of tax non-compliance among SMEs in the Zimbabwean economy. The survey research design was used and the SMEs operating in the Bulawayo provincewere considered as the sample of the study. The stratified random sampling technique was adopted in eliciting information and questionnaires were administered in the collection of data from the respondents. 187 questionnaires were issued out and 150 were returned. Regression analysis was used to establish the relationship that exists between tax non-compliance and the predictive variables, using SPSS ver. 22. The study revealed that poor follow-up strategy and lack of a tax audit, high tax rates, financial constraints, abuse of public funds by authorities and tax education as the major determinants. SME operators should apply modern business survival strategies so as to counter financial constraints. ZIMRA should maintain a database for SMEs for tax audit purposes; intensify follow-up strategies, increase tax audits and increase tax support services to SMEs. The government should consider reducing tax rates (which are perceived to be too high) as they promote tax evasion and failure among SMEs.
Highlights
Tax compliance among Small and Medium Enterprises (SMEs) is poor and a major problem as many countries fail to come up with ways to cut non-compliance
SMEs is subjected to tax incentives as long as they are registered with Zimbabwe Revenue Authority (ZIMRA), they are eligible to enjoy 100% Special Initial Allowance (SIA) on qualifying capital assets, which is allowed over a four-year period at the rate of 25% per year
The analysis shows that the adjusted R squared= 0.802; 80% of changes in tax compliance is explained by financial constraints, tax audit, tax education, public funds abuse and the tax rate
Summary
Tax compliance among Small and Medium Enterprises (SMEs) is poor and a major problem as many countries fail to come up with ways to cut non-compliance. Small and Medium Enterprises (SMEs) are the major employers and they play a very vital role in the development and growth of the Zimbabwean economy, but their contribution to the national budget is affected by tax non-compliance exercised by the operators. The government uses tax revenue as the major source for capital and infrastructural development projects that will be of benefit even to the SMEs. The findings and recommendations of the study will help ZIMRA in the formulation of policies on collection of taxes among SMEs. Tax revenue contributes more than 60% of the national budget (Ministry of Finance 2013 and 2014). The conclusion will be made based on the findings of the study and recommendation of the major determinants of tax noncompliance among Small and Medium Enterprises in Zimbabwe. To recommend possible ways of reducing tax non-compliance among SMEs in Zimbabwe
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