Research consultancy

Research consultancy

THE IMPACT OF TAX EDUCATION ON INCOME TAX COMPLIANCE: A CASE STUDY OF THE UGANDA REVENUE AUTHORITY

ABSTRACT

This study examined the effect of tax education on income tax performance, focusing on the Uganda Revenue Authority (URA). The specific objectives were to:

1. Assess the level of tax education in Uganda.
2. Determine the annual income tax revenue collected.
3. Investigate the key factors influencing income tax performance.
4. Propose policy recommendations to enhance income tax efficiency.

A mixed-methods research design (qualitative and quantitative) was employed, with data collected from URA staff in Nakawa, including officials from the finance, ICT, accounting, and auditing departments.

Key findings revealed that:

• URA conducts training on new tax policies for both staff and taxpayers.
• Taxpayer awareness of policies has improved due to URA’s educational initiatives.
• The tax policies are perceived as fair, fostering voluntary compliance.
• Penalties for non-compliance are enforced, deterring tax evasion.
• Higher salaries for government employees could increase tax contributions.

The study recommends:

• Expanding taxpayer education programs to improve awareness.
• Designing fairer tax policies to enhance compliance.
• Strengthening the business environment to facilitate tax payments.
• Equipping URA with adequate staffing and resources for better performance.

Areas for further research include:

• The role of ICT in URA’s performance.
• The impact of goods and services pricing on Uganda’s currency value.
• Challenges of modern technology on employee productivity.

CHAPTER ONE: BACKGROUND AND CONTEXT

1.1 Background to the Study

Taxation is a critical revenue source for governments, funding public goods, infrastructure, and economic stability. However, many developing nations, including Uganda, struggle with low revenue collection due to weak tax compliance (Corbacho, 2013). Domestic resource mobilization is essential for sustainable development, requiring effective tax policies (Morrissey, 2015).

In Uganda, income tax applies to individuals, corporations, and entities earning income within the country. Despite reforms—such as taxpayer education and expanded registration—revenue collection remains low compared to regional peers (Jellema, 2016). Challenges include a narrow tax base, evasion, and hostility between taxpayers and authorities (Mawejje, 2014).

1.2 Statement of the Problem

While tax education correlates with improved compliance (Slemrod, 2016), Uganda’s revenue performance lags behind neighboring countries. URA’s efforts—such as taxpayer sensitization and policy reforms—have not significantly boosted collections. This study investigates how tax education influences income tax performance.

1.3 Objectives of the Study

• Main Objective: Examine the effect of tax education on income tax compliance.
• Specific Objectives:
  1. Evaluate the level of tax education in Uganda.
  2. Analyze annual income tax revenue trends.
  3. Identify determinants of income tax performance.
  4. Recommend policies for improvement.

1.4 Research Questions

1. What is the current level of tax education in Uganda?
2. How much income tax revenue is collected annually?
3. What factors influence income tax performance?
4. What policies can enhance income tax efficiency?

1.5 Scope of the Study

• Content: Tax education, revenue trends, and performance determinants.
• Location: URA Nakawa, Kampala.
• Time Frame: July 2006–May 2007 (period of low income tax revenue).

1.6 Significance of the Study

• Provides insights for policymakers to improve tax compliance.
• Informs future research on tax administration.
• Assists URA in refining taxpayer engagement strategies.

CHAPTER TWO: LITERATURE REVIEW

2.1 Tax Education and Compliance

Taxpayer education promotes voluntary compliance by clarifying obligations and rights (Oyedele, 2009). Studies show that awareness programs reduce unintentional non-compliance (Normala, 2007).

2.2 Income Tax Revenue Trends

URA data (2016) indicates underreporting and collection deficits, highlighting enforcement gaps. Comparatively, Uganda’s tax-to-GDP ratio (12.5%) trails Kenya and Tanzania.

2.3 Determinants of Tax Performance

1. Tax Knowledge: Better understanding increases compliance (Kasipillai et al., 2003).
2. Penalties: Deter evasion but require consistent enforcement (Kirchler, 2007).
3. Evasion Opportunities: Cash-based economies face higher risks (Williams & Round, 2009).
4. Policy Complexity: Simplified systems reduce compliance costs (Tanzi & Zee, 2000).

2.4 Policy Recommendations

• Strengthen taxpayer education and simplify tax codes.
• Enhance URA’s capacity through staffing and technology.
• Foster trust between taxpayers and authorities.