Moderating Effect of Financial Condition on the Influence of Tax Knowledge on Tax Compliance Behaviour among SMEs in Tanzania

Abstract

This paper examines the moderating effect of financial conditions on the influence of tax knowledge on tax compliance behaviour among SMEs in Tanzania. A cross-section survey of 377 SMEs-Owners was conducted in three regions of Tanzania - Dar es Salaam, Morogoro and Mbeya. Descriptive and partial least square path modelling were used for data analysis, with the aid of SPSS and SmartPLS3.0. The findings of the study supported the hypothesised direct relationship that tax knowledge has a significant positive influence on tax compliance behaviour among SMEs in Tanzania. The findings imply that SME-Owner managers who possess greater tax knowledge demonstrate high tax compliance behaviour compared to those with less tax knowledge. Moreover, the financial condition of SMEs was found to have a positive significant moderating effect between tax knowledge and tax compliance behaviour among SMEs in Tanzania, implying that the existence of strong financial stability among SME-owners combined with tax knowledge increases SMEs tax compliance behaviour compared to those with limited financial resources. Thus, the government, through the Tanzania Revenue Authority, is advised to enhance taxpayer education initiatives, especially for SMEs, which may result in improving the level of tax compliance behaviour and institute generous compliance measures during difficulty financial conditions.