Tax compliance behaviour of small business enterprises in Uganda
| Published date | 07 October 2019 |
| DOI | https://doi.org/10.1108/JFC-03-2018-0031 |
| Date | 07 October 2019 |
| Pages | 1117-1132 |
| Author | Rebecca Isabella Kiconco,Waliya Gwokyalya,Arthur Sserwanga,Waswa Balunywa |
| Subject Matter | Financial risk/company failure,Financial crime |
Tax compliance behaviour of
small business enterprises
in Uganda
Rebecca Isabella Kiconco
Department of Accounting, Makerere University, Kampala, Uganda
Waliya Gwokyalya
Department of Business Law, Makerere University, Kampala, Uganda
Arthur Sserwanga
Department of Accounting, Makerere University, Kampala, Uganda, and
Waswa Balunywa
Department of Entrepreneurship, Makerere University, Kampala, Uganda
Abstract
Purpose –This study aims to investigate the extent to whichthe theory of reasoned action (TRA) can be
used to explain tax compliance among small business enterprises (SBEs) in Uganda and extends the
applicationand relevance of the theory to a new area of tax compliance. It contributes the TRA, as a predictor
of tax compliancein a developing country context.
Design/methodology/approach –A cross-sectional survey targetingdifferent categories of SBEs was
carriedout using interviewer-administered questionnaires.A sample of 384 SBEs was used in thestudy.
Findings –The TRA contributes critical insightson the tax compliance behaviour of small businesses in
developing economies. It influences tax compliance behaviour. The study illustrates evidence about the
negative attitudes SBEs have on intentions to comply with tax regulations and the extent to which these
attitudes influence their compliance behaviour. Subjective norms positively influence tax compliance
intentions in a positive manner. Overall, the appearance of these intentions shows a negative effect on tax
compliance behaviour. These findingsalso imply that Uganda Revenue Authority needs to understand the
social psychologyof taxpayers and tailor these in their policies and efforts to increasecompliance.
Research limitations/implications –The TRA has been used to explain behaviour in numerous situations
in psychology. The study used this theory in a new geographical, economic and administrative environment; Uganda.
This theory has proved relevant in explaining psychological, sociological and economic behaviour; specifically tax
compliance. The TRA was revised to include a new construct of perceived behavioural control, which turned into the
theory of planned behaviour. This could not be studied due to time and logistic constraints. Therefore, there is a need
to investigate if this revised theory can explain tax compliance behaviour better.
Practical implications –The paper suggeststhat tax administration efforts and policiesshould consider
the social-psychologyaspects of the taxpayers to improve tax compliance.
Originality/value –This study adds a new arena ofexplaining tax compliance from a theory commonly
used in psychologyto a new setting in finance.
Keywords Attitudes, Subjective norms, Intentions, Tax compliance, Taxpayers
Paper type Research paper
Introduction
Scholars have been on a quest to explain the phenomenonof tax compliance for many years.
Although attempts have been madeto gain a better appreciation of tax compliance, there is
Small business
enterprises in
Uganda
1117
Journalof Financial Crime
Vol.26 No. 4, 2019
pp. 1117-1132
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-03-2018-0031
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
a critical gap in the academic literature about developing countries such as Uganda. Prior
tax compliance research in developing countries has mainly focussed on the tax
administration perspective using; audit rates (Gauthier and Reinikka, 2006), tax penalties,
tax fairness (Torgler, 2003;Franzoni, 1999) and tax compliance costs. In Uganda, tax
compliance has been mainlyinvestigated and apprehended from a tax administrationor tax
collector perspective (Nabaweesi, 2009). There are few empirical findings on tax compliance
using a taxpayer socialpsychological approach.
Gaining a better appreciation of tax compliance necessitates entry into the fields of
psychology and sociology to be able to understand the taxpayer motives and drivers.
Psychology plays an important role in compliance, though often ignored by public and tax
policymakers. Little is known about the behavioural tendencies of individuals towards tax
compliance. Tax compliance is mainly affected by the threat of, or implementation of
penalties, tax audits and whistleblowing. Researcher and policymakers should direct their
efforts towards finding alternative means of ensuring compliance. Underpinning the
psychological and sociological aspects of the taxpayers in a bid to bring about voluntary
compliance is gainingprominence in tax administration. Understanding the psychologyof a
taxpayer can drive voluntarycompliance. The theory of reasoned action (henceforth referred
to as TRA) is used in psychology to explain drivers behind the behaviour (Fishbein and
Ajzen, 2010). In Africa,this theory has not been widely used to demonstrate tax compliance.
TRA takes an individual taxpayer based approach by identifying which personality traits
influence tax compliance behaviour (Fishbein and Ajzen, 2010). TRA postulates that two
social cognitive constructs determine intentions to engage in a specific behaviour; attitudes
defined as one’s personal opinion of behaviourand perceived subjective norms referring to
how one thinks significant others judge the behaviour. Intentions then predict actual
behaviour in this case –tax compliancebehaviour.
Limited research has been carried out concerning the small business enterprises (SBEs)
perspective in Uganda (Nabaweesi, 2009;Fjeldstad, 2006). In addition, there is no available
empirical research investigating tax compliance behaviour using TRA in Uganda. The
study will extend the application and relevanceof the TRA to a new area of tax compliance
in Uganda. Before this study, the theory of reason action has had limited application to tax
compliance, especially in developing countries such as Uganda. Using both the
psychological and sociological approach of the taxpayer, this study attempts to add to the
tax compliance debate, the TRA as a predictor of tax compliance in a developing country
context, principallyfocussing on small business enterprises.
What this study seeks to explore is the extent to which the TRA explains variations in
tax compliance behaviour among SBEs in Uganda. The study aims to find new and
innovative ways to increasetax compliance among the hard to reach and tax, the SBEs.
Literature
Tax compliance is a concernof governments around the world (Alm et al.,1995;Feige, 1989;
Frey and Weck-Hannemann, 1984). Tax compliance spans the notions of equity, efficiency
and incidence (Andreoni et al., 1998). Wenzel (2005) contends that research on tax
compliance has been dominated by an economic analysis, which frames the taxpayer’s
decision to pay or not to pay tax as an individual’s rational attempt to maximise profits
(Allingham and Sandmo, 1972).Therefore, traditional economic tax compliance models have
primarily emphasised enforcement and detection variables (Andreoniet al.,1998). However,
the conventional economic tax compliance approach is unable to comprehensively explain
current levels of compliance in developing countries such as Uganda. Recent research,
however, supports the claim that non-economic, social-psychological factors (for example,
JFC
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