TAX KNOWLEDGE, PERCEIVED TAX FAIRNESS AND TAX COMPLIANCE IN UGANDA THE CASE OF SMALL AND MEDIUM INCOME TAX PAYERS IN KAMPALA CENTRAL DIVISION

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NUMBERS PAGES:- 98/ RESEARCH TYPE:- Project  / AMOUNT :- ₦2500









 

                                                                     Abstract
The study examined the relationships between tax knowledge, perceived tax fairness and tax
compliance of small and medium enterprises. It was prompted by the stagnated revenue
collection efforts in Uganda amidst a taxpayer environment characterized by the poor tax
compliance culture, low levels of tax knowledge with overly complicated and inequitable tax
laws. The study adopted a cross-sectional research design, combined with qualitative (analytical and
explanatory) and quantitative (descriptive and inferential) research designs. The study considered
tax registered small and medium enterprises within the Central Division of Kampala District who
constituted the population of study. The sample size of the study was 330 respondents and self
administered questionnaires were used to collect data from the SMEs’ owners or managers.
The study found out that, tax knowledge and perceived tax fairness had a causal relationship with
tax compliance. Tax knowledge was found to have a positive and significant relationship with
tax compliance as well as perceived tax fairness did with tax compliance. However, the
relationship between tax knowledge and perceived tax fairness was found to be weak. These
findings imply that positive improvement of taxpayers’ knowledge and perceptions of fairness
about taxes will lead to improved tax compliance.
From the findings, it is recommended that much emphasis should be put to dissemination of
concrete tax knowledge (technical knowledge) when conducting tax education. Furthermore,
government should improve its service provision and accountability for the taxpayers to perceive
an equitable exchange with government. If URA and government adopt this stand, the tax system
is likely to be understood better and perceived as being fair.

Table of Contents
Item Page
Preliminaries
Declaration ........................................................................................................................................................... ii
Approval.............................................................................................................................................................. iii
Dedication ........................................................................................................................................................... iv
Acknowledgements ............................................................................................................................................. v
List of Tables ...................................................................................................................................................... ix
List of Figures ...................................................................................................................................................... x
List of Acronyms ................................................................................................................................................ xi
Abstract .............................................................................................................................................................. xii
CHAPTER ONE; INTRODUCTION ............................................................................................................ 1
1.1. Background . 1
1.2 Statement of the problem .............................................................................................................................. 3
1.3 Purpose of the study ...................................................................................................................................... 3
1.4 Objectives ...................................................................................................................................................... 3
1.5 Research Questions ....................................................................................................................................... 4
1.6 Scope of the study ......................................................................................................................................... 4
1.6.1 Conceptual scope ................................................................................................................................... 4
1.6.2 Geographical scope ................................................................................................................................ 4
1.7 Significance of the study; ............................................................................................................................. 5
1.8 Conceptual frame work ................................................................................................................................. 6
CHAPTER TWO; LITERATURE REVIEW ...................................................................................... 8
2.1 Introduction ................................................................................................................................................... 8
2.2 Definitions ..................................................................................................................................................... 8
2.2.1 Taxation .................................................................................................................................................. 8
2.2.2 Presumptive taxation ............................................................................................................................. 8
2.2.3 Small & medium enterprises (SMEs) ................................................................................................... 9
2.3 Tax knowledge ............................................................................................................................................ 11
2.4 Perceived tax fairness ................................................................................................................................. 12
2.5 Tax compliance ........................................................................................................................................... 14
2.6 Tax knowledge and perceived tax fairness ................................................................................................ 15
2.7 Tax knowledge and tax compliance ........................................................................................................... 16
2.8 Perceived tax fairness and tax compliance ................................................................................................ 17
2.9 Conclusion ................................................................................................................................................... 19
CHAPTER THREE: RESEARCH METHODOLOGY..................................................................... 20
3.1 Introduction ................................................................................................................................................. 20
3.2 Research Design .......................................................................................................................................... 20
3.3 Study population ......................................................................................................................................... 20
3.4 Sampling and sampling design ................................................................................................................... 21
3.4 Data sources ................................................................................................................................................. 21
3.4.1 Primary Data ........................................................................................................................................ 21
3.4.2 Secondary Data .................................................................................................................................... 21
3.5 Data collection instrument .......................................................................................................................... 21
3.6 Measurement of variables ........................................................................................................................... 22
3.7 Validity and reliability of the instrument................................................................................................... 22
3.7.1 Validity of the instrument.................................................................................................................... 22
3.7.2 Reliability of the instrument ................................................................................................................ 23
3.8 Data processing and analysis ...................................................................................................................... 24
3.9 Limitations to the study .............................................................................................................................. 24
CHAPTER FOUR: PRESENTATION, INTERPRETATION AND ANALYSIS OF FINDINGS ... 25
4.1 Introduction ................................................................................................................................................. 25
4.2 Demographic characteristics ...................................................................................................................... 25
4.2.1 The Response rate ................................................................................................................................ 25
4.2.2 Category of respondents ...................................................................................................................... 26
4.2.3 Gender of respondents ......................................................................................................................... 26
4.2.4 Age of the respondents ........................................................................................................................ 27
4.2.5 Highest Level of education of the Respondents................................................................................. 28
4.2.6 Length of the Business’ Existence ...................................................................................................... 29
4.2.7 Nature of business ................................................................................................................................ 30
4.3 Factor analysis ............................................................................................................................................. 30
4.3.1 Factor Analysis of the Perceived tax fairness scale ........................................................................... 31
4.3.2 Factor Analysis of the Tax compliance scale ..................................................................................... 32
4.4 Inferential analysis ...................................................................................................................................... 33
4.4.1 Relationship between tax knowledge and perceive tax fairness ....................................................... 33
4.4.2 Relationship between tax knowledge and tax compliance ................................................................ 34
4.4.3 Relationship between perceived tax fairness and tax compliance .................................................... 34
4.5 Multiple regressions .................................................................................................................................... 34
4.6 Other findings .............................................................................................................................................. 36
4.6.1 Inferential analysis ............................................................................................................................... 36
CHAPTER FIVE: DISCUSSIONS, CONCLUSIONS AND RECOMMENDATIONS .................... 40
5.1 Introduction ................................................................................................................................................. 40
5.2 Discussion .................................................................................................................................................... 40
5.2.1 Relationship between tax knowledge and perceived tax fairness ..................................................... 40
5.2.2 Relationship between tax knowledge and tax compliance ................................................................ 41
5.2.3 Relationship between perceived tax fairness and tax compliance .................................................... 42
5.2.4 Relationship between tax knowledge, perceived tax fairness and tax compliance ......................... 43
5.3 Conclusions ................................................................................................................................................. 43
5.4 Recommendations ....................................................................................................................................... 45
5.5 Areas of further study ................................................................................................................................. 46
References .......................................................................................................................................................... 47
Appendices ......................................................................................................................................................... 53
Appendix A: Questionnaire .......................................................................................................................... 53
Appendix B: Coding of questions ................................................................................................................ 57