research support services
CHAPTER FIVE
SUMMARY, DISCUSSION, CONCLUSION AND RECOMMENDATIONS
This chapter focuses on the discussion of the findings of the study and their relation to the research objectives the summary of the ideas developed from the findings of the study, conclusion with final remarks on the findings and their significance on the research topic, recommendations derived from the findings and areas for further study.
The findings of the data analysis in chapter four is discussed in this section. The section contains three parts. The first part describes the frequency distribution of five demographic characteristics of the respondents in this study. The second part presents the results of the descriptive statistical analysis of the research variables of tax compliance and tax administration (Tax education, tax registration, tax assessment and tax compliance costs). The last part is the result of regression analysis between tax compliance cost and tax compliance among SMEs in Lira municipality.
5.2. Demographic characteristics
The study considered five demographic characteristics including the gender of the respondents, age, education level of the respondents, Nature of business and number of years spent in business by the respondents. Majority of the respondents were male (54.3%) while the rest were female (45.7%). This could imply that many business operators in SMEs are male as many females are more into business of home managers. Most of the respondents (28.3% and 27.2%) were in the age brackets 26-35 years.
Again, the majority of the respondents had Ordinary level certificates and (28.3%) while few had just University degree (13.9%). The implication is that majority of the respondents had general education. Does level of general education translate or fix a person with tax knowledge? This may not be so. It is tax education that fixes a person with tax knowledge. However, general education may prepare a person to get a better understanding of tax laws through tax education.
5.2.1 Summary of major findings
5.2.1 Relationship between tax education and tax compliance among SMEs in Lira Municipality
The findings revealed a negative significant relationship between tax awareness and tax filing and tax reporting since their respective p-values (0.039 and 0.018) are less than 0.05. Tax awareness is not significantly associated with tax payment since their p-value (0.820) is greater than the significant value of 0.05.
Tax education channels used by Uganda Revenue Authority is seen to have a significant positive relationship with tax filing and tax reporting. This relationship is supported by their p-values (0.04 and 0.036) being less than the significant level of 0.05. But this is not significantly associated with tax payment, since the p-value between them is 0.079 which is greater than 0.05.
Additionally, positive significant relationship exist between the skills of the tax enforcers and tax filing and tax reporting of the tax payers. Their significant relationships are supported by their p-values 0.025 and 0.004 which are less than the significant level of 0.05. This implies that the tax payers tend to develop other means of evading taxes if they are not approached well and sensitized to comply with the tax laws and tax compliance.
5.2.2 Relationship between tax registration and tax compliance
The findings revealed that identification of legal tax payers was established to be statistically significant and positively correlated to tax compliance (tax filing, tax reporting and tax payment) at 99% level of significance.
Identification of legal tax payers is significantly associated with tax compliance (tax filing, tax reporting and tax payment) since their p-values (0.000, 0.001, 0.002) are less than the significant level 0.01 (1%) respectively.
Issuing Tax Identification Number (TIN) is significantly related with tax compliance (tax filing and tax reporting). This is because their p-values (0.000 and 0.003) are less than 0.01. This is not statistically significantly associated with tax payment as shown by its p-values (0.240) which is greater than 0.01.
While assessing the relationship between location and addresses of tax payers and their tax compliances in terms of tax filing, tax reporting and tax payment, it is evidenced from the that location and identification of tax payers is significantly related to all the three components of tax compliance (tax filing, tax reporting and tax payment) , since their p-values (0.000, 0.000 and 0.000) are less than 0.01 respectively.
5.2.3 Tax assessment and tax compliance
The findings also revealed that tax assessment components (record keeping, skilled personnel of URA on tax assessment, information requirement by tax payers and tax assessment methods used by URA) are seen to have a significant relationship with tax compliance (tax filing, tax reporting and tax payment). Their significances are backed by their respective p-values which are 0.000, 0.016 and 0.012 which are less than the 0.05.
It can also be seen that among the four components of tax assessment (record keeping, skilled personnel of URA staff , information requirement by tax officers and tax assessment methods used by URA), information requirement needed by the URA officers during the assessment have high positive correlation with tax compliance .
5.2.4 Tax compliance cost and Tax compliance
Tax compliance cost was used to evaluate its effect on tax compliance. The findings in table 10 indicate that, cost of compliance has a positive effect on tax compliance and it does have a significant predication on tax compliance since its p-value (0.000< 0.05). Therefore, a unit increase in the cost of filing a return would lead to an increase in the compliance rate on average by 20%. This implies that tax payers who incur cost of hiring tax consultants in filing and assessing tax payable would always be compliance on average by 0.20, other than their counterparts who don’t invest in tax consultants.
5.3 Discussions of major findings of the study.
5.3.1 Relationship between tax education and tax compliance
The first objective of the study was to examine the relationship between tax education and tax compliance among SMEs in Lira Municipality. The study confirms that there is a negative significant relationship between tax awareness and tax filing and tax reporting. Implying that a decrease in tax awareness will mean a fall in tax compliance. Therefore when most of the tax payers fail to know the techniques of manipulating the loopholes in the tax law, their compliance in tax reporting and filing will reduce significantly.
Tax awareness is not significantly associated with tax payment implying that knowing tax matters does not imply paying the taxes due to the tax payers, but rather motivation to pay taxes.
It is also evidenced that the relationship is negligible or very weak between tax awareness and tax filing as well as tax reporting although significant in this study.
This was supported by respondents that ‘better knowledge about tax compliance (filing and reporting accurate revenue and expenses in returns’ improve tax compliance of SMEs in Lira city ‘This finding are in agreement with scholars Oladipupo and Uyioghosa (2016) who indicated that high awareness by the society would encourage people to fulfill their obligations to register as taxpayer reporting. Richardson (2016) also explained that it is very important for people to understand tax law, because it shapes their disposition to comply. This therefore implies that URA can improve tax compliance in terms of tax filing and accurate tax reporting by embracing reliable tax awareness.
Tax education channels used by Uganda Revenue Authority is seen to have a significant relationship between tax filing and tax reporting. But this is not significantly associated with tax payment. However, much as there exist a significant relationship between tax education channels and tax filing and reporting, the strengths of their relationships are very weak.
Additionally, association exist between the skills of the tax enforcers and tax filing and tax reporting of the tax payers. This implies that the tax payers tend to develop other means of evading taxes if they are not approached well and sensitized to comply with the tax laws and tax compliance.
This is in support by Adekoya et al.(2020) who recognized that the skills of the tax enforcement team are important. They look at the human relations skills as important enablers of enforcing tax compliance especially in the informal sector which is largely untapped in Africa. They reiterate the need for good relations between the tax enforcement team and the tax payers as a means of improving tax compliance.
In addition, there is no significant relationship between the skills of the URA tax officer and the ability of the tax payers to pay their taxes. These above results imply that when tax education for SMEs are strong, the SMEs‟ willingness to file returns, report accurate tax position and comply with the tax laws in place increases. The finding is generally consistent with the study of Tani (2016) that stipulates that tax awareness has to be spread in order to notify all consumers about the direction and objectives the relevant tax authorities wish to achieve by administering taxation policy.
The finding are also in agreement with scholars Oladipupo and Uyioghosa (2016) who indicated that high awareness by the society would encourage people to fulfill their obligations to register as taxpayers. Just like Richardson (2016) also explained that it is very important for people to understand tax law, because it shapes their disposition to comply
5.3.2 Tax registration and tax compliance
Considering the second objective of this study, which was to determine the relationship between tax registration and tax compliance among the SMEs in Lira Municipality. It was revealed that, Identification of legal tax payers is statistically significant and positively correlated to tax compliance (tax filing, tax reporting and tax payment). Although the correlation coefficients between identification of legal tax payers and the tax compliance (tax filing, tax reporting and tax payment are very weak, there is a clear indication that identification of tax payers has a strong relationship with tax filing. Implying that, for the tax payers who have been identified and registered by Uganda Revenue Authority, tax filing and tax reporting must be complied with. Identification of legal tax payers is significantly associated with tax compliance (tax filing, tax reporting and tax payment). This is also supported by OECD (2014) that identification and registration of taxpayers, constitutes an important task for tax administrations. Although tax authorities tend to focus on auditing of taxpayers who are already known and registered, they should also put efforts in including in the tax-return system all persons and companies that have succeeded in escaping their notice. An effective tax system encourages tax payer compliance with registration obligations. Thereto the tax community should be provided with clear and comprehensive descriptions of the requirements that lead to registration and tax administrations should facilitate taxpayers to make the procedural requirements as easy as possible Online registration by taxpayers adequately serves the needs of taxpayers thus promotes compliance, reduces the number of unintentional errors and is cost efficient.
Additionally, the study has revealed that Issuing Tax Identification number (TIN) is significantly related with tax compliance (tax filing and tax reporting). The study further confirms that the tax payers that have been issued a TIN should file tax returns and report their income statement and statement of financial position to Uganda Revenue Authority (URA). Additionally, the insignificance of issuing tax identification number with tax payment means that having a Tax identification Number does not guarantee payment of taxes, but only that that is due upon tax computation. Thus, filing and reporting of tax position are the key compliance components to be adhered to by the registered tax payers.
While assessing the relationship between location and addresses of tax payers and their tax compliances in terms of tax filing, tax reporting and tax payment, it is evidenced from the above correlation matrix that location and identification of tax payers is significantly related to all the three components of tax compliance (tax filing, tax reporting and tax payment). This implies that location of tax payers determines their compliance. That is, businesses in Lira city are likely to be taxed at a different rate than their counterparts in the rural areas.
The above findings imply that an effective tax system will always encourage taxpayer compliance with registration obligations and tax filing and reporting voluntarily.
The findings is in agreement with Joshi et al. (2014) who did not divert much from the ideas submitted by Besley and Persson (2014) that SMEs generate enough income to warrant taxation but find it easy to escape the attention of the tax administration or to conceal a substantial part of their tax liability, because of their location, size, and/or nature of their businesses. This means that without identification and registration of these businesses, compliance is rather impossible.
5.3.3 Tax Assessment and Tax compliance
From the third objective of this study, the findings revealed that record keeping was established to be statistically significantly and positively correlated to tax compliance (tax filing, tax reporting and tax payment). Thus, record keeping of tax payers are statistically significant to tax compliance.
Generally, the correlation between tax assessment components ( record keeping, skilled personnel of URA on tax assessment, information requirement by tax payers and tax assessment methods used by URA) are seen to have a significant relationship with tax compliance (tax filing, tax reporting and tax payment). It can also be seen that among the four components of tax assessment (record keeping, skilled personnel of URA staff , information requirement by tax officers and tax assessment methods used by URA) , information requirement needed by the URA officers during the assessment have high correlation coefficients. Hence a fair correlation between tax assessment and tax compliance among the SMEs in Lira municipality.
The above findings imply that tax payers tend to wake up to comply with tax filing, tax reporting and tax payment when a default assessment are administered to them by URA.
This implication is backed by Kidder and Craig (2011), who found that taxpayers always work hard to increase their benefit through consideration of the threat that they may be discovered and be reprimanded due to non-compliance activities pertaining to tax requirements. Therefore, higher fines simply make evading taxes more hazardous for taxpayers and should deter them from evasion.
5.3.4 Tax compliance costs and tax compliance
The last objective was to determine the effect of tax compliance cost and tax compliance. The findings indicate that, cost of compliance has a positive effect on tax compliance and it does have a significantly predication on tax compliance. Therefore, a unit increase in the cost of filing a return would lead to an increase in the compliance rate on average by 20%. This implies that tax payers who incur cost of hiring tax consultants in filing and assessing tax payables would always be compliance, other than their counterparts who don’t invest in tax consultants.
This is not supported by Mahangila (2017), who determined that tax non-compliance significantly increased as tax compliance costs increased. His results imply that tax compliance costs may be responsible for the unsatisfactory tax compliance levels of SME tax payers.
Arachi and Santoro (2007) noted that SME taxpayers may face economic hardship as a result of proportionately higher compliance costs and their tax compliance levels may be lower. And that high tax compliance costs may explain why SMEs’ tax compliance levels are lower than expected, as many of these business entities may perceive the tax systems to be unfair.
From the findings, tax education is significantly associated with two major components of tax compliance (tax filing and tax reporting) but does not significantly relate to tax payment .It was revealed that, Identification of legal tax payers is statistically significant and positively correlated to tax compliance (tax filing, tax reporting and tax payment) at 99% level of significance. Tax assessment components (record keeping, skilled personnel of URA on tax assessment, information requirement by tax payers and tax assessment methods used by URA) are seen to have a significant relationship with tax compliance. Finally, Cost of compliance has a positive effect on tax compliance and it does have a significantly predication on tax compliance. In this regard, tax policy makers, Uganda Revenue Authority tax payers, managers of different companies need to consider proper education channels, mode of registering tax payers, best assessment methods and bolster compliance costs to motivate tax payers to voluntarily comply to taxes. This study findings should also provide additional information to URA to understand how best to enhance tax compliance among SMEs.
From the preceding of the findings in chapter four and conclusions, the following recommendations are made in line with the study objectives:
5.5.1 Tax education and tax compliance
This study recommends that an introductory course on taxation be included in the syllabus preferably at Advanced level (S.5) as an elective subject so that students are aware of their responsibilities as future taxpayers. This education method could be expected to help cultivate responsible taxpayers.
Uganda Revenue Authority should launch a campaign of teaching tax payers on tax compliance and their importance in regards to service delivery. This should be all over the radio stations across the country and through seminars organized regionally.
5.5.2 Tax registration and tax compliance
Registering a small business for tax and expecting it to willingly return and pay taxes is being over expectant of Uganda Revenue Authority. URA is advised to adopt early enforcement strategies like following up the 1st return in the 1st month of registration to encourage compliance. In this regard new registrations should be issued tax clearances which are valid for 3 months only so that they are encouraged to keep a relationship with the revenue authority.
5.5.3 Tax assessment and tax compliance
The study recommends that to improve on the return rates and the quality of self-administered tax returns, URA should invest more on technological devices that will help transmit all the transactions that take place between the tax payers and their final consumers to the revenue authorities. Other forms of Electronic receipting and invoicing solutions linked to the URA server will help in monitoring the taxes charged at all levels of consumption (Value Added Taxes). By doing this the records of the tax payers will be maintained by URA, information requirement from the tax payers are readily available and therefore tax assessment will be made easily.
5.5.4 Tax compliance costs and tax compliance
Uganda Revenue Authority should adopt the recruitment and certification of qualified tax agents with versatile tax knowledge across the country to help the tax payers in tax compliance of filing returns, tax reporting and tax payment. The Revenue Authority should set standard fees for the work of the tax agent so that the cost of compliance does not override the benefit of tax compliance.
5.6 Areas for Further Study / Research
This study focused on the relationships between the different tax administration system and tax compliance among SMEs in Lira municipality. Since the study was carried out on SMEs in Lira Municipality, a similar study should be conducted in order to examine the relationship between tax administration and tax compliance among manufacturing companies in Uganda. This is because most of the manufacturing companies are managed by the foreign investors and government officials who are more likely to evade tax due to huge amount of profit being repatriated and high level of transfer pricing.
- Taxation issues normally cause anxiety and fear which deter participation of tax payers.
- The Covid-19 precautions set by Ministry of Health (MoH) constrained in data collection but the researcher adhered to the standard operating procedures (SoPs) in place to get the study conducted.
