EFFECT OF TAX COMPLIANCE ON SURVIVAL OF SMALL AND MEDIUM ENTERPRISES IN RWANDA. A CASE STUDY OF SMALL AND MEDIUM TAXPAYERS IN GASABO DISTRICT 2018-2021
Abstract
This study sought to establish how Tax Compliance influences the survival of Small and Medium Enterprises in Rwanda-A case study of medium taxpayers in Gasabo district. However, establishing the level of tax compliance by SMEs from 2018 to 2021. Specifically, the study focused on; evaluating SMEs level of tax compliance in Rwanda from 2018 to 2021, identifying the strategies that enforce tax compliance in Rwanda and examining the extent to which survival of SMEs depends on tax compliance in Rwanda. The study also revealed the significance of sensitizing taxpayers and SMEs in particular by the tax administration on how to keep financial records and books of accounts would lead to self-tax assessment hence reducing costs incurred by tax administration on tax collections. The researcher and academic community use this study as a stepping stone for further research as it is giving a basis for further academic investigation in this area, especially regarding the factors affecting the tax compliance. Theoretically, having contributed to literature and methodology of such future studies, it also prompts more researchers in this area. This study was carried out on the basis of a case study where the researcher used a descriptive research design. The total population of this study compromised of the 2250 Small Medium Enterprise taxpayers and 25 staff from RRA Gasabo block. The study analyzed primary collected data from the respondents and rely on questionnaires in the collection of the primary data. Equally, the study used secondary data relating to the effect of tax compliance on survival of small and medium enterprises in Rwanda. They included editing, coding and summarizing the data into frequencies and percentages using Statistical Package for Social Sciences (SPSS) so as to aid the researcher to meaningfully describe the distribution of responses using a few indices. It was evident that the level of SMEs tax compliance is low. SMEs are extremely diverse and their tax compliance costs are influenced by a range of factors. Regression results indicated the goodness of fit for the regression level of tax knowledge and the compliance of SMEs was satisfactory in the linear regression. An R squared of 0.312 indicates that 31.2% of the variances in tax compliance of SMEs are explained by the variances in tax knowledge level in the linear model. The study made findings that escaping without any punishment after being detected for not reporting one’s exact income is the greatest influence of compliance with a mean of 4.04 and a standard deviation of 0.677. Affording to pay the penalty rates because they are low is another influence to compliance with a mean of 3.95 and a standard deviation of 0.792. Fear of tax audits and prosecution is a close third influence of compliance of SMEs with a mean of 2.00 and a standard deviation of 0.600. Other key tax rate factors that influence compliance are as follows: Filing tax returns and paying taxes on time to avoid fines and penalties with a mean of 1.97 and a standard deviation of 0.714, Stiff fines and penalties for late filing with a mean of 1.97 and a standard deviation od0.793, high chance of being detected for non-payment of taxes with a mean of 1.96 and a standard deviation of 0.761 and failure to pay taxes leading to fines and penalties. The study makes a finding that respondents having normally keep purchase invoices and other invoices/receipts of expenses for the company at a mean of 4.15 and a standard deviation 1.14 and daily financial operations of the company done by shareholders the respondent is supposed to comply with at a mean of 3.99 and standard deviation of 1.20 have the biggest influences on compliance by SMEs. Another factor that greatly influences compliance is keeping your financial records and preparing accurate financial statements would increase your tax compliance with a mean of 4.02 and standard deviation 1.17. Further on The tax audit findings reveal some penalties and fines to be paid with a mean of 4.05 and a standard deviation of 1.01 is also a great influence of compliance. The study concluded that while charging penalties and fines to non-tax compliant has done little to avert the problem, tax auditors from RRA should put much time to discuss with taxpayers on how to declare and pay taxes on time and the type of penalties and fines they will have to pay if they failure to comply with tax laws. RRA should work hand in hand with tax advisors as they are the ones meeting taxpayers on daily basis.
Keywords: Tax knowledge levels, Tax rates, Fines and Penalties, Survival of SMES, Gasabo District, Rwanda Revenue Authority
CITATION: Ntezimana, J., & Mpakaniye, J. P. (2022). Effect of tax compliance on survival of small and medium enterprises in Rwanda. A case study of small and medium taxpayers in Gasabo District 2018-2021. The Strategic Journal of Business & Change Management, 9 (4), 1323 – 1341.
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DOI: http://dx.doi.org/10.61426/sjbcm.v9i4.2496
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