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TAX COMPLIENCE

Introduction and Background

A number of Authors have tried to defined the term “tax”, however, it is hard to say
that these attempts at coming up with a definition for the term have been
successful( mainly owing to the fact that too great precision is attempted in a single
sentence). The best way to understand the term is to state the fundamental idea of a
tax and afterwards to note its leading characteristics. According in general terms, tax
can be defined as a contribution from individuals out of their private property for the
maintenance and defense of government, so that it may perform its functions and the
end of the state be realized. In simpler terms,”tax” is a financial charge or other levy
imposed on individual or a legal entity by government.

Taxes are a portion of private wealth, exacted from individuals by the


state for the purpose of meeting the expenditure essential to carrying out functions of
government. Taxation in some form is an invariable attribute of an organized political
society and principle means of raising revenue for public purpose: it is thus the
correlative to the services which government performs for the community. Acting
under a natural impulse, men organize themselves into political societies for common
safety and to secure the advantages which arise from combination; only by such union
is the development of human powers possible or progress in civilization attainable.
All organization implies administration, and this involves expenditure which must be
met by public income . Economics separation of functions tends to increase with the
complex of society, and the more numerous become the duties of government, the
more elaborate and costly its machinery, and the large the common fund requisite to
meet expenditure incurred for the common good.
In defining tax Professor Tiley quotes from the oxford English Dictionary
describing tax as “ A compulsory contribution to the support of government levied on
a person, property, income, commodities, transactions etc.The compulsory nature of
taxation is underscored by may who attempt to define taxation. Cooley”s definition
describes taxes as “ the enforced contributions from persons and property levied by
the state by virtue of its sovereign power for support of government and for all.

Public needs,”white house and vaines” strip the tax definition to the three elements.” a
compulsory levy, imposed by government to raise money for public purpose. The
2009 edition of the Oxford Dictionary of law also underlines the compulsory
contribution to the states fund.

Purpose of tax

(1) It is the source of government income for financing public activities like schools,
roads, hospitals and defence.

(2) Taxes on imports can be used to protect document from completion of dumped
cheap commodities from other countries.

(3) Taxes can be used to reduced income inequalities ie the rich are taxed while poor
are subsidized.

(4) To recover to the community wealth, which individuals have obtained not as a
result of their efforts of other persons or the community. Death duty is charge for this
purpose.

(5) To check on inflation by reducing the purchasing power of the people.

(6) To restrict the consumption for certain commodities to substantial amount eg tax
on alcoholic drinks, cigarettes etc

Canons of Taxation

Meaning of canons of Taxation:


By canons of taxation simply means the characteristics of good tax system should
possess. In fact, canons of taxation are related to the administrative part of a tax.
Adam Smith first devised the principle of taxation in 1776.

Even in the 21st century, Smithian canons of taxation are applied by the modern
governments while imposing and collecting taxes. These are

Canon of Equality: Canon of equality states that the burden of taxation must be
distributed equally or equitably among the taxpayers. However, this sort of equality
robs of justice because not all taxpayers the same ability to taxes. Rich people are
capable of paying more taxes than poor people. Thus, justice demands that a person
having greater ability to pay must pay large taxes.

Canon of certainty; The tax payer must be aware of exactly how much to pay, and
the tax collectors, likewise, must also knows how much to collect. The tax which and
individual has to pay should be certain and not arbitrary. According to A. Smith, the
time of payment, the manner of payment, the quantity to be paid, i.e., tax liability,
ought all to be clear and plain to the contribution and to everyone. Thus, canon of
certainty embraces a lot of things. It must be certain to the taxpayer as well as to the
tax_levying authority.

Canon of Economy; The cost collecting tax should be relatively low, and the
government should receive all income collected. This canon implies that the cost of
collecting a tax should be as minimum as possible. Any tax that involves high
administrative cost and delay in assessment and high collection of taxes should be
avoided altogether. According to A. Smith; “Every tax ought to be contrived as both
take out and keep out of the pockets of the people as little as possible, over and above
what it brings into the public treasury of the state.”
Canon of convenience; The method of collecting tax should be convenience to both
tax payer and tax collectors. Taxes should be levied and collected in such manner that
it provides the greatest convenience not only to tax payer but also the government.
Thus, it should be painless and trouble-free as far as practicable. “Every tax”, stresses
A. Smith; ‘ought to be levied at time or manner in which it is most likely to be
convenient for the contributor to pay it.’

Canon of productivity; A good tax should stimulate the establishment of resources


and must not discourage allocation of resources. According to well known classical
economist in the field of public finance, Charles F. Bastable, taxes must be a sizable
one. Further, this canon state that the revenues yield from any tax must be imposed
that do not hamper productive one only when it acts as an incentives to production.

Canon of Elasticity; Modern economist attach great importance to the cannon of


elasticity. This cannon implies that a tax should be flexible or elastic in yield. It
should be levied in such a way that the rate of taxes can be changed according to
exigencies of the situation. Whenever the government needs money, it should be able
to extract as much income as possible without generating any harmful consequences
through raising any taxes. Income tax satisfies this canon.

Canon of simplicity; Every tax must be simple and intelligible to the people so that
the tax payer is able to calculate it without taking the help of tax consultants. A
complex as well as complicated tax is bound to yield undesirable side-effects. It may
encourage taxpayers to evade taxes if the system is found to be complicated. A
complicated system has the potentiality of breeding corruption in the society.

Canon of Diversity; Taxation must be dynamic, this means that country tax structure
ought to be dynamic or diverse in nature rather than having a single or two taxes.
Diversification in a tax structure will demand involvement of the majority of the
sectors of the population. If a single tax system is introduced, only a particular sector
will be asked to pay to the national exchequer leaving a large number of population
untouched. Obviously, incidence of such a tax system will be greatest on certain
taxpayers.

Defining “Voluntary Taxpayer Compliance

Voluntary tax compliance” is a common place phrase which has come to dominate tax
compliance literature. Eliminating the middle word ‘ taxpayer which largely refers to
the person paying the various levies collected by government, the two key words
which remain in this phrase are “Voluntary” and “ Compliance”.In explaining of
these concepts, it is best to start with the word “ Compliance’’ a noun is derived from
the verb to “comply” meaning to act in accordance with a wish or command, to meet
specified standards. In relation to laws to “comply” means to obey and act in terms of
the law. “Compliance” in relation to law is the act of submitting oneself to law. The
word “Voluntary” means done , given or acting of own free will,” the underlying
factor being the lack of compulsion, or coercion behind the act done

Braithwaite, who has written extensively on tax compliance suggest that a


definition of tax compliance should be one that capture issues of theoretical
importance as well as giving practical direction for measuring compliance. He
believes that James and Alley have offered a definition which meets this criterion.
They defined Compliance as “The willingness of individuals and other entities to act
within the spirit as well as the letter of tax law and administration without the
application of enforcement activity”

The following are some of factors that affecting Voluntary tax


Compliance

Tax education; The tax education can be the important factors affecting tax
compliance. Education is as a compliance factor, relates to a tax payers abilities to
comprehend and comply or not comply with the income tax law. The ignorance is a
major contributor to negative feelings toward taxation, since the less educated tend to
view taxation only in term of it is the burden and ignore the benefit and services
provided from the revenues. The tax payer must view himself as having and
obligation to society before he/she views taxes as appropriate and worth while
investment.

Income level; The tax payer categorized themselves as low income earners so they
are not supposed to pay tax, this same apply to small tax payers who always believe
that TRA should not collect tax from them, this believe affecting the voluntary tax
compliance. The level of income has positive contribution on tax compliance
behaviour.

Lack of clear language and complexity; The tax law must be made less complex
and must be drafted using clear language if they are to be understood and complied
with by those who pay taxes, the complexity and lack of clear language in taxation
laws affecting voluntary tax compliance by reducing the behaviour of tax payer to
comply with tax laws by paying tax voluntary without being forced.

The failure to understand tax legislation; The failure to understand tax legislation is
the one of the main factors which leads to poor taxpayer voluntary compliance .
Complexity of tax legislation lead those with means to engage tax advisers and leads
those means to sense of the tax laws and leave it to them to make the taxpayer with
obligations, or to avoid them. To a large extent too, the complexity and the perception
of unfairness in tax burden distribution and or procedural inequity in administering
tax, accounts for the tolerance society has for tax avoidance in stark distinction to the
in tolerance there is for tax evasion.

There is much secrecy surrounding tax bill; No must know the contact of proposed
tax measures, as it is feared that such knowledge will compromise their effectiveness.
When new tax proposals are tabled in parliament, discussion is limited and managed
by government to ensure quick passage. There is rarely an attempt by government to
encourage a real understanding by parliamentarians of the tax measures they are asked
to legislate, nor is there an attempt to educate the public on what is proposed
ignorance persists, and optimum compliance with taxation remains difficult and
elusive, this affecting the involuntary tax compliance by the taxpayer.

Taxpayer resistance; The resistance of the tax payer is the one of the factors account
for poor voluntary tax compliance. An attitude of resistance presented by taxpayers
who actively resist the self regulatory system(Braithwaite,2005). individual who
adopt resistance actively pursues taxpayers to “catch them out” rather than to help
them. Resistance are also likely to believe that people should take a stand against the
tax office.

Tax equity or fairness; One of the main principle of taxation system design is equity
or fairness. If there is un fairness in the taxation system, this will discourage the tax
pay behaviour of the taxpayer which affect the voluntary tax compliance lead to the
reduction of the tax base collected by the government.The taxpayer should pay tax
according to the income they earn, rich people are capable of paying more taxes than
poor people.

Social cultural factor; The social culture is one of the factors which affecting tax
compliance, there are some culture they believe and they have inherited and they are
proud of such of paying taxes. They are born in that culture and will do everything to
continue it because it is their obligation to do so.

High tax rate or burden of taxation; High tax rate is most of crucial factors
affecting voluntary tax , compliance, the high rate of tax collected by the tax
administration discourage the behaviour of the tax payer of paying tax by their will
without being forced by the tax administration the tax rate should be according to the
amount earned by the taxpayers.

Provision of social services; The provision of social services if the one of the factor
which affecting involuntary tax compliance, if the taxes collected from the taxpayer
are used effectively in the provision of public services within the country, this may
encourage the taxpayer to play tax without being force because the taxes collected
from the are used effectively in the provision of public service and if the taxes are not
used effectively this will the the taxpayer and affecting voluntary tax compliance.

There are several factors which make people comply with tax laws
the are;

(1) Some tax payer pay their taxes voluntary because deep in their hearts they believe
that paying taxes is their civil responsibility in respect of which they need no one to
push them or threaten them. (2) Others believed that it is in their best interest to
comply with tax obligation because they receive benefits from the government worthy
of their taxes contributions. (3) There also those who believe in paying their taxes
because of the culture they have inherited and they are proud of such culture. They
were born in that culture and will do everything to continue it because it is their
obligation to do so. (4) Other comply with tax because of their religious belief which
equates non payment of tax with theft, which is a sin. (5) Yet others do so because of
their desire to belong and interest socially. The stigma associated with tax evasion is
so powerful in psychology of this group that people feel ostracized if they become
associate with tax cheat.

Conclusion

It can reasonably be concluded that one cannot objectively ignore the role of tax

Compliance for his/her own reasons especially at the time being where tax
compliance is a voluntary action but is necessary to ensure tax collection is achieved
thoroughly and well noticed and rewarded according. This can help to increase
awareness and motivation to taxpayers on the development of national economy in
Tanzania. Good tax system is suitable in identifying individual contribution towards
organization performance. It is through proper tax administration, good tax education,
and tax level amount, and tax environment that can influence tax compliance
successful.
REFERENCES

A, Osoro, N.E and Ryders, A: Why pay tax?Tema publishers Co. Ltd and Siyaya
Tema publishers Co. Ltd and Siyay

Tax Compliance.

Publisher (pty) Ltd Dar es Salaam. 139

Andreon, J., Erad, B. and Feistein, J. (1998), “Tax Compliance”,

Chau, R and Leung, P (2009); A critical review of Fischer tax compliance model: A

Cowel F and I Gordon (1988), “Unwillingness to pay, Tax evasion and Public Goods

Dennis L. and Thomas J. (2004),

“Analysis of data Measured by Individual Likert types

items”

evelopment Levy in Tanzania. World Development Vol. 29 (2)

Enforcement, Ann Arbor. University of Michigan Press: 291

“A Positive Approach to Taxpayer C

Organizational Behaviour,

An Introduction

text Financial Times, Prentice Hall, London.


NATIONAL INSTITUTE OF TRANSPORT
(NIT)

DEPARTMENT OF BUSINESS AND ENTREPRENEURSHIP


STUDIES

MODULE NAME: TAXATION

SUBJ ECT CODE: BBU 0742O

LECTURER: FAUSTINE MASUNGA

TASK: INDIVIDUAL ASSIGNMENT 1

STUDENT'S NAME: ALLY J UMANNE

ADMINISTRATION NO: NIT/BBA/2016/440

SUBMISSION DATE: 15-05-2018.

QUESTION:

1. Discuss factors which affecting voluntary tax compliance

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