Determinants and Extent of Tax Compliance among SMEs in Arusha City Council, Tanzania

Taxes have been a nourishing commodity in generating revenues liable for financing governments’ budgets all over the world. This being the fact, this study examined the determinants and extent of tax compliance in SMEs in Arusha City Council which was the specific objective of this study. This was a cross-sectional study which employed a double Hurdle regression model to analyze primary data collected from a sample of 100 SMEs’ owners obtained by simple random sampling to represent the entire population of SMEs owners via questionnaire and analyzed with STATA software version 17. Using the economic deterrence theory to guide the analysis of this study, the analysis found that Male entrepreneurs dominate the SME sector, SME owners understand tax regulations and undergo frequent tax audits. Further, the findings revealed that privately owned SMEs, primarily ran by persons in their mid-30s are flexible with an average workforce of nine employees. Furthermore, SMEs were found to generate feasible profits and fulfill tax compulsions by paying an average tax rate. Moreover, the double hurdle regression model shown that age and profits have negative effect on tax payments, and higher household size of SMEs owners are associated with higher tax payments. Additionally, publicly owned enterprises positively comply with tax. Therefore, given these findings, this study recommends to policymakers to streamline tax procedures and develop a platform to discuss tax rates with tax payers before implementing the planned tax obligations.