EFFECTS OF TAX MORALE ON TAX COMPLIANCE IN SMALL AND MEDIUM

SCALE ENTERPRISMES IN UGANDA: A CASE STUDY OF KAMPALA CENTRAL

BUSINESS PARK

BY

NANKINDU SHARON

2019-08-09235

A RESEARCH REPORT SUBMITTED TO COLLEGE OF ECONOMICS AND

MANAGEMENT IN PARTIAL FULFILLMENTOF THE REQUIREMENTS

FOR THE AWARD OF BACHELORS DEGREE IN BUSINESS

ADMINISTRATION- FINANCE AND ACCOUNTING,

KAMPALA INTERNATIONAL

UNIVERSITY

NOVEMBER 2022

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 DECLARATION
I Nankindu Sharon declare that this is my research work and was done by me. It has never been
submitted to any other institute of higher learning for the award of Bachelors in Business
Administration.

Researcher: Sign

NANKINDU SHARON ……………………….

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 APPROVAL

This is to certify that Nankindu Sharon carried out this study and wrote this research report under
my supervision

Supervisor’s Name: Date

MRS. TUMWEBAZE LYDIA ………………….

Signature............................................

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 DEDICATION

This piece of work is dedicated to my supervisor madam Lydia Tumwebaze, family,

relatives and my friends who have been there for me in my journey of education. Thanks
to the almighty God who has enabled me to accomplish my academic expedition.

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 ACKNOWLEDGEMENT
It’s essential to recognize different individuals without which this report wouldn’t have been
possible.

I would first extend my earnest appreciation to the almighty God for enabling and guiding me
through the academic life. I’m grateful to Kampala International University for admitting me
to the BBA-FA programme.

I would like to express my deepest appreciation to my supervisor Mrs. Tumwebaze Lydia

whose tireless encouragement and guidance made the completion of this study possible.

Special thanks go to the business men and women in Kampala Central Business Park for
sparing their time to provide the necessary information, without them this would have not
been successful. I thank my friends at KIU who have supported me to move up and down stairs
throughout my life at KIU, God bless you and I pray that He give you what they desire in their
lives.

May the almighty God bless you all!

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 Contents
DECLARATION ............................................................................................................................................................ i
APPROVAL .................................................................................................................................................................. ii
DEDICATION ............................................................................................................................................................. iii
ACKNOWLEDGEMENT ............................................................................................................................................ iv
CHAPTER ONE ............................................................................................................................................................1
INTRODUCTION .........................................................................................................................................................1
1.0 Introduction .............................................................................................................................................................1
1.1 Background to the study ..........................................................................................................................................1
1.1.1 Historical Perspective ...........................................................................................................................................1
1.1.2 Theoretical perspective .........................................................................................................................................3
1.1.3 Conceptual Perspective .........................................................................................................................................3
1.1.4 Contextual Perspective .........................................................................................................................................5
1.2 Statement of the problem .........................................................................................................................................6
1.3 General objective of the study .................................................................................................................................6
1.4 Specific Objectives ..................................................................................................................................................6
1.5Research questions ...................................................................................................................................................7
1.6 Hypothesis ...............................................................................................................................................................7
1.7 Scope of the study....................................................................................................................................................7
1.7.1 Subject scope ........................................................................................................................................................7
1.7.2 Time scope............................................................................................................................................................8
1.73 Geographical Scope ...............................................................................................................................................8
1.8 Significance of the study .........................................................................................................................................8
1.9 Conceptual framework.............................................................................................................................................8
CHAPTER TWO .........................................................................................................................................................10
LITERATURE REVIEW ............................................................................................................................................10
2.0 Introduction ...........................................................................................................................................................10
2.1 Review of related literature ...................................................................................................................................10
2.2 Types and policies of taxes ....................................................................................................................................11
2.2.1 Types of taxes .....................................................................................................................................................11
2.2.2 Tax policies.........................................................................................................................................................12
2.3 Factors that can enhance tax morale of tax payers .................................................................................................13
2.4 Level of Tax compliance .......................................................................................................................................14
2.4.1 Relationship between tax morale and tax compliance ........................................................................................15
2.5 Compliance costs and tax compliance ...................................................................................................................15
2.6 Tax morale .............................................................................................................................................................16
2.6.1 Willingness of tax payers to pay tax ...................................................................................................................16
2.6.2 Utilization of tax revenue to support SEs ...........................................................................................................18

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2.6.3 Attitude towards tax ............................................................................................................................................19
2.6.4 Tax education .....................................................................................................................................................20
2.7 Tax compliance......................................................................................................................................................20
2.7.1 Timely filling of tax returns ................................................................................................................................21
2.7.2 Timely payment of tax dues................................................................................................................................22
2.7.3 Correct Computation of tax liabilities ................................................................................................................22
2.7.3.1 How to estimate tax liability in Uganda ..........................................................................................................23
2.7.3.2 Tax rates in Uganda .........................................................................................................................................23
2.7.3.3 Tax Rate for Foreign Companies .....................................................................................................................25
2.7.3.4 Individual Taxes ..............................................................................................................................................26
2.7.3.5 Allowable Deductions and Tax Credits ...........................................................................................................27
2.7.3.6 Special Expatriate Tax Regime ........................................................................................................................27
2.8 Other factors influencing tax morale and tax compliance .....................................................................................27
2.8.1 Tax payment charges ..........................................................................................................................................27
2.8.2 Cost of registration .............................................................................................................................................28
2.9 Literature Gap ........................................................................................................................................................29
CHAPTER THREE .....................................................................................................................................................30
METHODOLOGY ......................................................................................................................................................30
3.0 Introduction ...........................................................................................................................................................30
3.1 Research design .....................................................................................................................................................30
3.2 Area of the Study ...................................................................................................................................................30
3.3 Target Population ..................................................................................................................................................30
3.4 Sampling Technique ..............................................................................................................................................31
3.4.1 Sample size selection ..........................................................................................................................................31
3.5 Research Instruments .............................................................................................................................................32
3.5.1 Questionnaires ....................................................................................................................................................32
3.5.2 Interviews ...........................................................................................................................................................32
3.6 Validity and reliability of research instruments .....................................................................................................33
3.7 Data collection procedure ......................................................................................................................................34
3.8 Sources of data.......................................................................................................................................................34
3.8 Data Analysis .........................................................................................................................................................34
3.9 Limitations of the Study ........................................................................................................................................35
CHAPTER FOUR .......................................................................................................................................................36
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF STUDY FINDINGS ..................................36
4.0 Introduction ...........................................................................................................................................................36
4.1 Background information on the respondents .........................................................................................................36
4.1.1 Findings on the sex of respondents .....................................................................................................................36

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4.1.2 Findings on the age brackets of respondents ......................................................................................................36
4.1.2 Findings on the academic level of the respondents.............................................................................................37
4.1.3 Findings on the experience of the proprietor in running the business ................................................................38
4.1.4 Findings on kinds of businesses operated by the respondents ............................................................................38
4.1.5 Findings on kinds of businesses operated by the respondents ............................................................................39
4.1.6 Findings on the industry in which businesses belong .........................................................................................39
4.1.7 Findings on the Number of Employees in the businesses carried out by respondents ........................................40
4.2 Tax morale .............................................................................................................................................................41
4.2.1 Willingness of tax payers to pay tax in of Kampala Central Park ......................................................................41
4.2.1.1 Findings on whether the tax payers are willing and eager to pay taxes .....................................................41
4.2.1.2 Findings on whether the tax payers avoid taxes because they don’t know why they should pay taxes ..41
4.2.1.3 Findings on whether people are not willing to pay taxes because they are fed up of paying them since
they do not benefit from them. ..................................................................................................................................42
4.2.2 Utilization of tax revenue to support SEs ...........................................................................................................43
4.2.2.1 Finding whether the government uses the revenue from tax collection to finance SEs ...................................43
4.2.2.2 Finding whether revenue from taxes is evenly distributed among the SEs......................................................44
4.2.2.3 Findings on whether it is worthwhile paying taxes by taxpayers in Kampala Central Park ....................45
4.2.3.1 Findings on whether respondents always attend taxpayer seminar/ workshop organized by URA .........45
4.2.3.2 Findings on whether taxpayers receive practical handbooks to help them in preparing tax returns. .......46
4.2.3.3 Findings on whether there are routine tax education programs run by URA ............................................47
4.3 Findings from respondents’ opinions about tax morale .........................................................................................48
4.3.1 Findings on why that tax payers are not willing to pay the taxes imposed on them ...........................................48
4.3.2 Findings on what can improve the willingness of a taxpayer to pay taxes .........................................................48
4.3.3 Findings on whether the government uses the taxes in a way that benefits taxpayers ........................................49
4.4 Findings on Compliance costs ...............................................................................................................................49
4.4.1 Findings on whether business incurred a lot of money in registering with URA .........................................49
4.4.2 Findings on whether URA officials are bribed to register businesses for taxation ......................................50
4.5 Findings from respondents’ opinions about compliance costs ..............................................................................51
4.5.1 Findings on whether the costs incurred by the taxpayer to comply with tax policies are fair ............................51
4.5.2 Findings on what can be done by the government in order to reduce the tax compliance costs .........................52
4.6 Findings on tax compliance ...................................................................................................................................52
4.6.1 Findings on whether tax payers always file their returns in time ..................................................................52
4.6.2 Findings on whether tax payers always pay tax on time without intervention of tax officials ....................53
4.6.3 Findings on whether tax payers always disclose all my income for tax purposes .......................................54
4.6.4 Finding whether tax payers always follow tax rules and regulations governing SEs operations;.......................54
4.7 Findings from respondents’ opinions about compliance costs ..............................................................................55
4.7.1 Findings on whether the taxpayer to comply with tax policies issued by tax authorities ...................................55
4.7.2 Findings on what government can do in order to improve tax compliance among tax payers ...........................55

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CHAPTER FIVE .........................................................................................................................................................57
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS ...............................................................................57
5.0 Introduction ...........................................................................................................................................................57
5.1 Summary of the main findings ..............................................................................................................................57
5.2 Tax morale .............................................................................................................................................................58
5.3 Tax compliance......................................................................................................................................................58
5.4 Conclusions. ...................................................................................................................................................59
5.5 Recommendations .................................................................................................................................................59
5.5.1 To the government ..............................................................................................................................................59
5.5.1 To the tax payers .................................................................................................................................................59
5.6 Areas for further Research .....................................................................................................................................60
REFERENCES ............................................................................................................................................................61
APPENDICES .............................................................................................................................................................69
APPENDIX I: QUESTIONNAIRE .............................................................................................................................69

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 LIST OF TABLES

Table 1. 1: Trend in revenue generation in East African countries and South Africa as percentage to GDP
for 2013/2021- 2015/2016 ............................................................................................................................ 5

Table 2. 1: Individual Taxes ....................................................................................................................... 26

Table 3. 1: Population sample, sample size and sampling techniques ........................................................ 32

Table 3. 2: Content Validity Indices for the questionnaires........................................................................ 33
Table 3. 3: Reliability indices for the respective variables ......................................................................... 34

Table 4. 1: Showing the findings on the sex of respondents ....................................................................... 36

Table 4. 2: Showing the experience of the proprietor in running the business. .......................................... 38
Table 4. 3: Showing the experience of the proprietor in running the business. .......................................... 38
Table 4. 4: Showing the kinds of businesses operated by the respondents ................................................. 39
Table 4. 5: Showing the industry in which businesses belong .................................................................... 39
Table 4. 6: Showing the industry in which businesses belong .................................................................... 40
Table 4. 7: whether the tax payers are willing and eager to pay taxes ........................................................ 41
Table 4. 8: Showing finding on whether the government uses the revenue from tax collection to finance
SEs .............................................................................................................................................................. 43
Table 4. 9: Showing whether it is worthwhile paying taxes ....................................................................... 45
Table 4. 10: Showing the findings on whether there are routine tax education programs run by URA ..... 47
Table 4. 11: Showing the findings on whether businesses incurred a lot of money in registering with URA
.................................................................................................................................................................... 49
Table 4. 12: Showing whether the costs incurred by the taxpayer to comply with tax policies are fair ..... 51
Table 4. 13: Showing what can be done by the government in order to reduce the tax compliance costs . 52
Table 4. 14: Showing the findings on whether tax payers always file their returns in time ....................... 52
Table 4. 15: Showing the findings on whether tax payers always disclose all my income for tax purposes
.................................................................................................................................................................... 54
Table 4. 16: what government can do in order to improve tax compliance among tax payers ................... 56

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LIST OF FIGURES

Figure 1. 1: Conceptual framework .............................................................................................................. 9

Figure 4. 1: Showing the findings on age brackets of respondents ............................................................. 36

Figure 4. 2: Showing findings on education levels. ................................................................................... 37
Figure 4. 3: whether the tax payers avoid paying taxes because they don’t know why they should pay
taxes ............................................................................................................................................................ 42
Figure 4. 4: people are not willing to pay taxes because they are fed up of paying them since they do not
benefit from them ........................................................................................................................................ 42
Figure 4. 5: Showing finding on revenue from taxes is evenly distributed among the SEs........................ 44
Figure 4. 6: showing whether respondents always attend taxpayer seminar/ workshop organized by URA
.................................................................................................................................................................... 45
Figure 4. 7: Showing whether respondents receive practical handbooks to help them in preparing tax
returns. ........................................................................................................................................................ 46
Figure 4. 8: Showing the findings on whether URA officials are bribed to register businesses for taxation
.................................................................................................................................................................... 50
Figure 4. 9: Showing the findings on whether tax payers always pay tax on time without intervention of
tax officials.................................................................................................................................................. 53
Figure 4. 10: Showing finding on whether always follow tax rules and regulations governing SEs
operations .................................................................................................................................................... 54

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 CHAPTER ONE
INTRODUCTION
1.0 Introduction
This chapter entails the background to the study, statement of research problem, purpose of the
study, specific objectives of the study, research questions, and scope of the study, hypothesis
test, and limitations of the study and operational definitions of the key terms.

1.1 Background to the study

This is shown in four perspectives, i.e. historical perspectives, theoretical perspective, conceptual
perspective and contextual perspective.

1.1.1 Historical Perspective

Pope and McKerchar (2011) developed a model on tax morale which explains tax morale as a
phenomenon that can reveals over compliance of taxpayers that economic deterrence models are
failing to explicate. They explained tax morale with six variables, individual attitudes, Family
and friends, religious beliefs, society, Tax administration and Government tax policies, and
considered tax morale as a controversial factor with opportunities to evade on compliance
decision. The model has not explained that whether mentioned factors can influence tax morale
positively or negatively. Additionally model can be described as conceptualizing model and have
not applied to the field yet. Considering above mentioned models’ pros and cons, the model
presented here might have an advantage to consider some other aspects such as patriotism,
political view, and fairness while explaining tax morale. Moreover, the model can be understood
as a modified form of Pope and Mohdali’s model. It acknowledges that there are two main
groups of factors that influence tax moral; external environment and individual attitudes.

Different scholars have put forth findings on their studies pertaining to why low level
compliance to expected tax obligations by the small and medium enterprises in different parts of
the world. The review of the relevant research studies in the field indicated that scholars focused
on either in compliance costs, level of education, tax information, income level, tax rate, age
group and marital status (Mwangi, 2021; Ching, 2013; Tusubira, 2013; Atawodi, 2012 ). Omeri
et al (2010) did research on how the Taxpayers’ Attitudes Influence Compliance Behavior
among SMEs Business Income Earners in Kerugoya

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Challenges in dealing with taxpayer behavior and tax administration are old as taxation itself. A
remarkable example is that, when income tax was first introduced in the United Kingdom in
1799, it was thought unacceptable that taxpayers should be required to disclose the precise level
of their incomes. To deal with the obvious risks involved, the response was to require that
taxpayers should declare that the tax paid was not less than 10 percent of their income (Binh &
Taylor, 2018). The statement of income was to proceed from taxpayer, in doing that it was not
proposed that income should be distinctly laid open but it would be declared only to the extent
that assessment was beyond the proportion of a tenth of the income of the person on whom it was
imposed. In this way, the disclosure that would lead to revolt was avoided (Binh & Taylor,
2018).

First important findings in the tax morale literature dates back to 1960s and 1970s by German
scholars around Günter Schmölders known as the cologne school of tax psychology. They have
emphasized that economic phenomenon should not only be analysed from traditional point of
view. They saw tax morale as an attitude regarding tax (non) compliance (Macintyre, Torgler, &
Schafficer, 2017)

Treatment of taxpayers with great caution helps cultivate tax morale and reduces tax compliance
costs. (Torgler, 2018) Since the 1990s, the issue of tax morale has increasingly attracted
attention. The question of why so many people pay their taxes even though fines and audit
probability are low has become a central issue in the tax compliance literature (Torgler,
Schafflier, & Macintyre, 2017).

A good citizen has moral qualms to undertake a forbidden activity. These moral costs are closely
related to tax morale which motivates citizens to pay their dues to the state (Torgler, Schafflier,
& Macintyre, 2017).

Until 1920 tax compliance were low across all countries. Indeed, until 1910 less than 10% of
national income was collected by most industrialized governments of the world through taxation
and this was just enough for them to fulfill basic functions, such as maintaining order and
enforcing property rights (Esterban & Max, 2018).

After the First World War, however, tax compliance started growing considerably. In the period
1920-2017 taxation as a share of national income increased drastically, more than doubling

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across all countries in the world these increases in taxation went together with more government
expenditure on public services, particularly education and health care. After 2017, tax revenues
started stabilizing, albeit with marked differences in levels for each country. Today these
differences remain significant (Esterban & Max, 2018).

1.1.2 Theoretical perspective

This study is supported by two important theories namely theory of reasoned action and the
utility theory. Theory of reasoned action was propounded by Ajzen&Fishbein in 1975. It focuses
on the voluntary behaviour within actions taken by human (David, 2016). The theory assumes
that individuals are rational human being and will make decisions depending on the information
available to them. It also assumes that individuals will consider the outcomes of their actions
before taken such actions (Ajzen&Fishbein, 2017).

The utility theory developed by Allingham&Sandmo(2016). The theory assumes that taxpayers
will maximize their decisions concerning tax reporting and compliance (Farid& Mohamed,
2016). Hence, taxpayers will evade taxes if they can make more financial gains than financial
cost. This theory was developed based on individuals’ preferences (Jesus, 2017). The theory
believes that each individual has different preference. The theory suggests that individual
preferences will play a vital role in individual taxpayer compliance decision making (Torgler&
Murphy, 2018).

1.1.3 Conceptual Perspective

Tax morale encompasses the principles, norms and values that are held by individuals in
realizing their tax obligations. It is an intrinsic motivation to pay taxes coming from awareness
that tax revenue contributes to the provision for public goods (Torgler B, 2018).
Tax compliance means broadly, meeting legal obligations imposed by the tax system. The focus
is thus on illegal evasion (deliberate) or from ignorance and error rather than legal (avoidance).
But the distinction is not always clear cut and among the risks that Revenue Authorities must
manage more for some taxpayer groups for instance the very wealthy, than others are those from
avoidance activities which cross some line of legal acceptability (IMF, 2015).
Tax compliance remains a global challenge for instance, between 2015 and 2016 alone; many
U.S. multinational corporations were involved in tax disputes with the European Commission.
From a historical perspective, these disputes are unprecedented as they have resulted in

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tremendous amount of tax penalties. It is well known that international tax law has many
loopholes, and in the past three decades, multinational corporations (MNC) have exploited it
(Yang & Metallo, 2018).

The European Commission, in 2016 sent shockwaves throughout the entire investment
community when it imposed a massive $14.5billion in penalties on Apple, Inc., USA, for
receiving illegal tax subsidies from the Irish government. In the same year (2016), the
Organization of Economic and Cooperation Development (OECD) announced a universal
agreement to address these issues. The tax loophole misuses have become too serious to neglect
anymore (Yang & Metallo, 2018).

In many African countries, however, tax evasion which is bigger compliance problem leaves
states with major holes in their budgetary pockets. A 2015 report by the High Level Panel on
Illicit Financial Flows from Africa cites tax abuse as an important contributor (along with
laundering of criminal proceeds, corruption, and market abuse) to an estimated $30 billion to $60
billion per year that African governments lose to illicit financial flows, hampering growth
through state investment, improvements in education and health services, and lower debt
commitments abroad (United Nations Economic Commission for Africa, 2015a, 2015b;
Guardian, 2015). The 2016 leaks of the “Panama Papers” exposing tax evasion and fraud among
many African and world leaders and their families further underlined the magnitude of the
burden that tax evasion places on the continent (Kuo, 2016; Copley, 2016) and (Isbell, 2017).

It is a general maxim that taxpayers want to minimize their tax liability to the greatest extent
possible. However, taxpayers who overzealously pursue this aim risk crossing the line separating
permissible tax avoidance from impermissible tax evasion (Yang & Metallo, 2018).

To pay taxes, the costs taxpayers actually incur are far greater than the net sums the government
collects. Considering only the compliance aspect of the job, Individuals and businesses as
taxpayers must pay substantially more in order for government beneficiaries to receive the same
value of government services. Before individuals and businesses pay their tax liability; they must
spend time collecting records, organizing files and wading through the tax code to determine
their tax liability; they also purchase products and services such as tax software or an accountant,
to assist them in determining their tax liability- tax compliance outlays. Finally, tax payers must
pay the administrative costs to run the tax authorities. To businesses, large and small, hire teams

4
of accountants, lawyers and tax professionals to track, measure, and pay their taxes. This tax
infrastructure is also used to optimize the tax liability (Laffer et al, 2011) Tax compliance costs
are very high, and these cost have implications for lost economic growth, money spend
unnecessarily on professional tax services, and even the collection of revenue. For businesses,
these resources would have been better spent on activities that increased capacity and
production; and at individual level, on work, saving and investment. (Fichtner & Feldman,2015)

1.1.4 Contextual Perspective

Despite the sustained growth of Uganda’s economy, trends in tax revenue show a stagnation of
performance. Tax revenue as a percentage of GDP, oscillated between 11.7 per cent and 13.1 per
cent between 2015/06 and 2021/15. Compared to other EAC countries, Uganda’s Tax to GDP
ratio is one of the lowest; Kenya’s stood at 20.0 per cent, Rwanda’s at 14.7 per cent and
Tanzania’s at 21.0 per cent in 2013/14 (Oxfam and SEATINI, 2017).

In its efforts to raise tax revenue from the current 13.9 per cent of GDP in FY 2015/16 to 16.3
per cent of GDP by FY 2020/21, government has put in place several mechanisms to widen the
tax base (MoFPED, 2016) and (Oxfam and SEATINI, 2017).

Table 1. 1: Trend in revenue generation in East African countries and South Africa as
percentage to GDP for 2013/2021- 2015/2016

Country 2013/2021 2021/2015 2015/2016

Kenya 19.1 18.7 18.8
Rwanda 14.9 15.1 16.1
Tanzania 12.6 11.7 13.3
Uganda 13.3 12.3 12.8
Burundi 13.6 13.7 13.0
South Africa 26.1 25.7 26.2

Source: EARATC & SARS annual Report 2015/2016

The above table indicates Uganda as a country with the lowest Tax to GDP ratio amongst East
African countries and South Africa in the year between 2013 and 2016.

In Uganda Small Scale Enterprises (SEs) are seen as critical for economic growth of the country
contributing 20 percent of GDP and constituting 90 percent of the private sector or creating
employment estimated at 2.5 million, improving standard of living and ensuring social and
political stability, (Uganda Investment Authority, 2016 ). It has been observed however, from

5
 previous taxation studies that several SEs in developing economies are non-Tax compliant in
spite of major reforms, since they (SEs) cannot be easily located by tax administration yet they
pay less tax than their fair share of tax ( Tusubira & Nkote, 2013).

In the face of low tax compliance, much remains to be done in many countries including Uganda
to build effective tax administration and increase on the morale of taxpayers. Major areas of
concerns are weaknesses in tax administration in terms of auditing, taxpayer education, tax
services and legal frameworks (policies and Laws), and taxpayer registration (IMF, 2018).

1.2 Statement of the problem

The Small and Medium Scale Enterprise (SMEs) tax to GDP ratio in Uganda is 2.8 percent
which is low compared to that of Kenya which is 9.4 percent, Tanzania 8.0 percent, Rwanda 3.3
percent and Burundi 5.7 percent. The average SMEs tax to GDP ratio for East Africa Countries
is 5.8 percent; Sub Saharan Africa is 7.3 percent and Latin America and the Caribbean 9.12
percent. The low percentage of tax to GDP ratio explains why there is a substantial tax gap
between taxes that are theoretically collectable from economically active SMEs in Uganda and
the actual taxes collected (Uganda Investment Authority, 2016) and (IMF, 2018).

Low tax to GDP ratio has been attributed to non-compliant taxpayers (SMEs) with tax legislation
and this results from low tax morale due to negative perception towards tax payment and high
compliance costs (Nada, 2017).

It is believed that the Government promise to make the tax laws which are user friendly to the
general public will positively affect tax morale of taxpayers in Uganda and motivate them to
fulfill their tax obligations. High compliance costs encourage low morale to the taxpayers to
comply with taxes imposed to them. Therefore, the researcher intends to find out the effect of tax
morale on tax compliance in SMEs in Kampala Central Business Park.

1.3 General objective of the study

The purpose of the study is to examine the effect of tax morale on tax compliance in Small and
Medium scale Enterprises (SMEs) in Uganda particularly Kampala Central Business Park.

1.4 Specific Objectives

i To determine factors that can enhance tax morale of tax payers in Kampala Central Business
Park

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ii To determine the level at which taxpayers in Kampala Central Business Park comply with tax
payment.

iii To determine the relationship between tax morale of taxpayers and their level of compliance in
Kampala Central Business Park.

1.5Research questions
i What are factors that can enhance tax morale of tax payers in Kampala Central Business Park?

ii At what level do taxpayers in Kampala Central Business Park comply with tax payment?

iii What is the relationship between tax morale of taxpayers and their level of compliance in
Kampala Central Business Park?

1.6 Hypothesis
The following hypothesis were tested in order to achieve the objective of the study

H₁-There is a positive relationship between tax morale and tax compliance Small Scale
Enterprises in Uganda

H2- altitude of tax payer towards taxes has got a significant effect on tax compliance.

H3- There is a positive and significant relationship between compliance costs and tax compliance
of Small Scale Enterprises in Uganda

1.7 Scope of the study

1.7.1 Subject scope
The study will focus on the tax morale and compliance. The effectiveness of tax administration
was assessed based on taxpayer education, tax audit and taxpayer registration which are
dimensions of tax administration. Tax morale was examined in terms of its effect on tax
compliance. Tax compliance was measured in terms of taxpayer ability to file returns in time,
pay tax dues timely and compute tax liability correctly for purposes of determining the level of
compliance by SEs in Kampala Central Business Park.

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1.7.2 Time scope
The study will cover a period of three years 2016 to 2019 as a basis of assessment of tax
compliance among SEs in Kampala Central Business Park and took a period of one and a half
months commencing on 1st December 2020 and will end on 15th January 2021.

1.73 Geographical Scope

The study was carried out Kampala Central Business Park. Kampala is found in Central Uganda.

1.8 Significance of the study

This study will provide concepts and grounds on which to develop a framework for exploring tax
compliance among SEs in Uganda. The Government of Uganda and its revenue collection body
(Uganda Revenue Authority) will gain more in terms of new ideas and knowledge which has
resulted from this study in its effort to design suitable tax Administration programmers which
includes, plans for taxpayer identification and registration, taxpayer education and tax audit for
SEs. The report of this study will also be useful to the business community and organization’s
management teams for purposes of knowing the tax compliance environmental factors and how
the conditions can be improved or dealt with. Finally, this research report was of interest to
policy makers, scholars and researchers who may require developing and advancing their
knowledge in this area of study.

1.9 Conceptual framework

Conceptual framework is a written or visual presentation that “explains either graphically, or in
narrative form, the main things to be studied, the key factors, concepts or variables and the
presumed relationship among them. It can also be defined as a set of broad ideas and principles
taken from relevant fields of enquiry and used to structure a subsequent presentation (Wong &
Wai, 2015) and (Gitaru, 2017)

The figure below shows the conceptual model depicting the nature of relationship between the
independent, mediating and dependent variables. As such, the Independent variable of this study
is tax morale. The mediating variable is tax administration which was measured in terms of it
mediating effect on the relationship between tax morale and tax compliance which is the
independent variable.

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Figure 1. 1: Conceptual framework

INDEPENDENT DEPENDENT VARIABLE

VARIABLE
TAX COMPLIANCE
TAX MORALE - Timely filling of tax
- Willingness of tax payers returns
to pay tax - Timely payment of tax
- Utilization of tax revenue dues
to support SEs - Correct Computation of
- Attitude towards tax tax liabilities
- Tax education

MEDIATING VARIABLE

COMPLIANCE COSTS
- Tax payment charges
- Cost of registration

Source: Mohd et al. (2013) and Moderated by Researcher

Tax morale of the taxpayer is influence by different factors including willingness of the taxpayer
to pay tax to URA, the level at which the government subsidizes for SMEs and the altitude of the
taxpayer towards paying of taxes and tax education. The level of tax compliance is determined
by tax morale of the tax payer and compliance costs which include tax payment charges and
costs of registering the business to obtain TIN from URA.

9
 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This Chapter reviews the literature related to variables that was studied and it was done in
accordance to the objectives and theory that are underpinning the study. While reviewing the
literature, attention was paid mostly on areas of Tax Morale and Tax compliance.

2.1 Review of related literature

Review of existing studies on tax compliance indicate that most of the studies on tax compliance
are common in areas of determinants of tax morale, role of the cognitive moral development in
tax compliance and expected utility theory in explaining the behavior of taxpayers. Previous
studies have also focused on measuring either the relationship tax morale and tax compliance or
compliance costs and tax compliance. Majority of these existing studies also used data from
small-medium enterprises and financial services. For instance, studies by, Cevat (2021), Devos
(2021), Mohdali& Pope (2021), Kamleitner, Korunka and Kirchler (2017) and Alm, Martinez-
Vazque&Torgler (2018) provided information on determinants of tax morale. Syaiful and
Mahfud (2019) provided explanation on tax compliance through their research work on the role
of the cognitive moral development in tax compliance decision making. Fadi, Martin & Roberta
(2016) also explained tax compliance through their studies on the contribution of expected utility
theory in taxpayers behavior modelling. Doreen, Sylvia,Juma& Mariam (2019), studiedtax
compliance with data gathered from financial services firms. Ritsatos (2021) studied tax evasion
and tax compliance with emphasis on the shift from the neo classical paradigm to behavioural
economics in the United States. The review of these existing studies on tax compliance indicate
that most of the studies on tax compliance are common in UK, USA, Turkey, Spain, Malaysia,
Pakistan and China. The features of these economies are different from the economy of Uganda
where about 40 to 60 percent of the businesses are in the informal sector (Schneider, Buehn&
Montenegro, 2015).

Tax morale (attitude) refers to the basic things that motivate the tax taxpayers to pay taxes (Fadi
et al., 2016). Tax morale concerns the willingness of the taxpayers to pay taxes. These
willingness may be influenced by social norms, trust in the policies of the government of a

10
country, public goods offered by the government, national pride and contributing to the growth
and development of the society they live in (Doreen et al., 2019).

It is important to use data from Uganda to measure the relationship between tax morale and tax
compliance in order to provide information for experts to use economic theory to develop
efficient tax system for Uganda especially in Kampala Central Business Park. This study is
beneficial to the Uganda Revenue Authority and Small Scale Enterprises in Uganda.

2.2 Types and policies of taxes

2.2.1 Types of taxes

In a broader term, there are two types of taxes namely, direct taxes and indirect taxes. The
implementation of both taxes differs. You pay some of them directly, like the cringed income
tax, corporate tax, wealth tax, etc., while you pay some of the taxes indirectly, like sales tax,
service tax, value added tax, etc (Andreoni, 2015).

However, apart from these two traditional taxes, there are other taxes also, which have been
affected to serve a specific agenda by the country’s Central Government.

Most countries have a tax system in place, in order to pay for public, common societal, or agreed
national needs and for the functions of government. Some levy a flat percentage rate of taxation
on personal annual income, but most scale taxes are progressive based on brackets of annual
income amounts. Most countries charge a tax on an individual's income as well as on corporate
income. Countries or subunits often also impose wealth taxes, inheritance taxes, estate taxes, gift
taxes, property taxes, sales taxes, use taxes, payroll taxes, duties and/or tariffs (Andreoni, 2015).

In economic terms, taxation transfers wealth from households or businesses to the government.
This has effects on economic growth and economic welfare that can be both increased (known as
fiscal multiplier) and decreased (known as excess burden of taxation). Consequently, taxation is
a highly debated topic by some, although taxation is deemed necessary by general consensus in
order for society to function and grow in an orderly and equitable manner, others such as
libertarians and anarcho-capitalists denounce taxation broadly or in its entirety, classifying it as
theft or extortion through coercion and the use of force (Feinstein, 2015).

11
 Taxation applies to all different types of levies. These can include but are not limited to (Persson,
2019):

 Income tax: Governments impose income taxes on financial income generated by all entities
within their jurisdiction, including individuals and businesses.

 Corporate tax: This type of tax is imposed on the profit of a business.

 Capital gains: A tax on capital gains is imposed on any capital gains or profits made by people
or businesses from the sale of certain assets including stocks, bonds, or real estate.

 Property tax: A property tax is asses by a local government and paid for by the owner of a
property. This tax is calculated based on property and land values.

 Inheritance: A type of tax levied on individuals who inherit the estate of a deceased person.

 Sales tax: A consumption tax imposed by a government on the sale of goods and services. This
can take the form of a value-added tax (VAT), a goods and services tax (GST), a state or
provincial sales tax, or an excise tax.

2.2.2 Tax policies

Tax policy includes the guidelines developed by a government regarding how taxes are imposed,
in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. The
macroeconomic aspect concerns the overall quantity of taxes to collect, which can inversely
affect the level of economic activity; this is one component of fiscal policy. The microeconomic
aspects concern issues of fairness (whom to tax) and allocative efficiency (i.e., which taxes will
have how much of a distorting effect on the amounts of various types of economic activity). A
country’s tax framework is a key policy instrument that is intended to positively influence the
country's economy (OECD. 2017)

Tax policies have significant economic consequences for both a national economy and particular
groups within the economy (e.g., households, firms and banks). Tax policies are often designed
with the intention of stimulating economic growth although economists' opinions differ
significantly about which policies are most effective at fostering growth (Goodwin, 2019).

12
Taxation is both a political and an economic issue. Political leaders have used tax policy to
promote their agendas by initiating various tax reforms: decreasing (or increasing) tax rates,
changing the definition of taxable income, creating new taxes on specific products, and so forth.
Specific groups, such as small business owners, farmers, or retired individuals, exert significant
political effort to reduce their share of the tax burden. Tax codes are packed with rules that
benefit a certain group of taxpayers while inevitably shifting more of the burden to others
(Goodwin Et el, 2019).

2.3 Factors that can enhance tax morale of tax payers

Tax morale is generally higher in countries that tax more heavily. While there is substantial
variation among countries, the general pattern is that countries with high tax to gross domestic
product (GDP) ratios have higher tax morale. This may be indicative of a virtuous circle between
effective government performance, higher tax morale and voluntary tax compliance (as well as
effective enforcement); or evidence of a fiscal contract between taxpayers and the state (a
willingness to pay tax by citizens in return for effective public services, (OECD/CAF/UN
ECLAC, 2018).

New data from public perception surveys confirms previous findings that age, education, gender,
religion, and trust in government all appear to influence tax morale. Comparison of the new
global analysis with previous analysis from eight years ago shows that many of the same factors
appear to influence tax morale. Individuals who are older, more educated or religious are all
shown to have consistently higher levels of tax morale at the global level, as are women, in
general. Those who have greater trust in government also have higher tax morale. These results
are repeated in the regional analysis, especially in Latin America, with some exceptions in Africa
(Cummings, R. et al. 2019).

While at the global level women have higher tax morale than men, in Africa they are found to
have lower tax morale. The reasons for this are unclear and the findings highlight a need for
further research on gender and taxation (not just tax morale), including on aspects such as how
unpaid care is addressed in the tax system and differences in taxation between female- and male-
dominated sectors. Such research is currently hampered by a lack of sex-disaggregated data
(Sjursen, 2017).

13
Data from Africa highlight the positive link between tax morale and public service provision,
with a less clear relationship in Latin America (OECD/CAF/UN ECLAC, 2018). Africa showed
increased tax morale linked to satisfaction with public services, supporting the existence of the
fiscal contract. This relationship was less obvious in Latin America, where trust in the
government was important, but higher satisfaction with healthcare was associated with lower tax
morale (ECLAC, 2017). Furthermore, this contrasts with previous findings, suggesting that the
fiscal contract (in Latin America, at least) may be weaker than suspected, especially in areas like
healthcare where the role of the state is changing and individuals make substantial financial
contributions (OECD/CAF/UN ECLAC, 2018).

2.4 Level of Tax compliance

Every government needs money to fund its political, social and economic duties. Much of what
they spend is generated from taxes, fines and sales of public goods and services. The exchange of
these revenues for government services is at the heart of the social contract citizens make with
their governments. As the primary source of internal revenue, taxes play a key role in making
growth sustainable and equitable. In most countries, tax payment is compulsory, and people who
fail to comply are normally penalized (Isabelle 2022).

But the level of tax compliance remains quite low in a number of developing countries. A tax-to-
GDP ratio compares a country’s tax collection to the size of its economy (GDP). The higher the
ratio, the higher the proportion of money that goes into government coffers. At a tax-to-GDP
ratio of 46.3%, Denmark is the World’s most efficient tax collector. In Africa, Tunisia topped the
2021 list with a ratio of 34.3% with Nigeria trailing at 6%.

In Uganda, low tax compliance contributes to a national tax-to-GDP ratio of 14%, well below the
18% average of the sub-Saharan African countries.

Although tax evasion happens in many spheres – and many types of people do it – close
examination of tax returns filed to the Uganda Revenue Authority by self-employed individuals
suggests rampant evasion. Those who own small businesses or are self-employed file taxes on
their own behalf. For this group, the tension of whether to comply or not is particularly salient.

14
In practice, many such individuals in Uganda switch into and out of paying taxes. They may pay
taxes in one year but not the next. And in keeping with what individuals report in household
surveys, small business owners under-report their earnings to the Uganda Revenue Authority.

Though small business are, naturally, small, they can make an impact together. Reports suggest
that micro, small and medium enterprises make up about 90% of production in the Ugandan
economy, and employed over 2.5 million people as of 2014.

2.4.1 Relationship between tax morale and tax compliance

Following Allingham and Sandmo (1972), many theoretical studies have addressed the issue of
tax evasion in standard optimal tax models (Myles, 2015). However, there is a lesser body of
literature on tax evasion by firms (Hashimzade et al., 2020). In most of the studies on tax
compliance in fact research has focused on personal income tax evasion, while studies on tax
morale in cases of business tax evasion are very limited (Torgler and Schaltegger, 2019).

2.5 Compliance costs and tax compliance

Compliance costs can be defined as the costs incurred by taxpayers in paying taxes imposed by
the government of a country. Compliance costs may include expenses incurred by taxpayers to
maintain tax payment records, filing tax returns, training cost of tax officer at organization and
cost of hiring specialists in tax advisory (Doreen et al., 2019). Taxpayers incur cost in hiring the
services of tax advisors when they want to provide accurate tax returns to tax authorities when
they do not have the much knowledge on the tax laws, to minimize the tax they pay and lack of
time to file their tax returns (Devos, 2017). Faiday, Copp, Freudenberg &Sarker (2021)
researched on complexity, compliance costs and non-compliance with VAT by Small and
Medium Enterprises in Bangladesh and identified that compliance costs are related to tax
compliance, majority of the respondents admitted that they do not consider compliance costs
with VAT in calculating their compliance costs and other respondents also said VAT compliance
costs are higher than the compliance costs with other taxes. It was also identified by the
researchers that taxpayers employed the services of VAT advisors to assist them which increased
their compliance costs. They found tax advisors to be more valuable with Small and Medium
Enterprises. The findings of these studies suggest that high compliance costs can deter taxpayers
from paying taxes whereas low compliance cost may motivate taxpayers to pay more taxes. This

15
implies that high compliance costs can deter Micro and Small Scale Enterprises in Uganda from
complying with tax policies. The absorption of tax compliance cost by businesses to pay correct
taxes enable the businesses to enjoy tax compliance benefits which include cash flow benefits,
tax deductibility benefits and managerial benefits. Study conducted by Hassesldine, Holland
&Rijt(2017), on companies and taxes in the UK found a significant relationship between
compliance costs and tax compliance. The findings of a research conducted by Tran-Nam,
Evans, Walpole & Ritchie (2016), also indicated a significant relationship between tax
compliance costs and tax compliance. Doreen et al., 2019 studied tax compliance and
compliance cost using data from financial services firms in Uganda, Musimenta,
Nkundabanyanga, Muhwezi, Akankunda & Nalukenge (2017) studied tax compliance of small
and medium enterprises by measuring the relationship between tax fairness, isomorphic forces,
strategic responses and tax compliance, Eragbhe&Modugu (2021) studied tax compliance costs
of small and medium enterprise in Nigeria, Ritsatos (2021) studied tax evasion and tax
compliance with emphasis on the shift from the neo classical paradigm to behavioral economics
in the United States, and Hansford &Hasseldine (2017) studied tax compliance costs of small
and medium-sized enterprises (SME’s): the case of UK. Once again a critical review of previous
studies on compliance costs and tax compliance shows that previous studies have focused on the
relationship between compliance costs and tax compliance but not linking tax morale and
compliance costs to tax compliance. All the findings on these studies reviewed in this study on
compliance costs encouraged the researcher to develop the following hypothesis

H2: There is a positive and significant relationship between compliance costs and tax compliance
of Micro and Small Scale Enterprises in Uganda.

2.6 Tax morale

2.6.1 Willingness of tax payers to pay tax

Local authorities directly affect residents' quality of life, as they provide a range of essential
services (Fjeldstad, 2017). As such, researchers have repeatedly examined the relationship
between residents' opinions and municipalities' performance. Local authorities have experienced
two major changes in government—New Public Management in the 1980s and a shift from local
government to local governance in the 2000s (Stoker, 2015). Yet, the outcomes of these changes
are still questionable (e.g., Koch, 2013). The ongoing pursuit of better performance and better

16
financial management has led national governments to push local authorities to meet ever-
increasing demands and expectations independently (Torgler, 2015). They are now expected to
co-produce and co-create public value, offer diverse services and deal with economic,
environmental and community development issues (Cornforth & Paton, 2004; Osborne, 2010,
2018).

One of the major side effects of the New Public Management reforms – some would say a cure
and others would say an illness – is privatization and one of its operations – outsourcing – and its
effect on mutual trust. Outsourcing has been touted as a tool for making government more
efficient (Bel et al., 2017; Wassenaar et al., 2010). While its effect is still questionable, internal
stakeholders – particularly the local leadership – regard it as an important factor in local
performance.

We consider both external and internal factors in the success in collecting taxes. We regard
outsourcing as an external factor, and public opinion about the local government's fairness,
governability and tax collection rates as internal factors. We assume that local authorities cannot
provide all local services and products alone at a satisfactory level. Therefore, they tend to rely
on external providers of local services, prompting them to outsource (Fjeldstad, 2017).
Nevertheless, they take into account public opinion regarding governance, democracy and
taxation. Modern outsourcing emphasizes the inter-organizational relationships and partnerships
of multiple actors and sectors that collaborate rather than compete. It also emphasizes
collaboration with the public rather than a top-down, one sided, technocratic method of service
provision. Therefore, based on Haus and Sweeting's (2016) typology of local democracy, we
maintain that outsourcing in the era of local network governance also has the potential to
advance local democracy, enhance mutual trust, fairness, legitimacy, governability, and local
performance.

Balancing democracy and bureaucracy and utilizing local outsourcing in local authorities is
delicate and depends heavily on the managerial qualities of the local leadership and its
relationship with the public (Mgonja & Poncian, 2019). As Basoli (2010) stressed, local
governance arrangements may affect local democracy, both positively and negatively. Local
collaborations may enhance the relationship between institutions and individuals. At the same
time, they might involve conflicts and tensions that increase the imbalance of power between the

17
partners (Grimshaw et al., 2002), complicate their interaction and reduce local performance
(Klijn & Edelenbos, 2008; Sørensen & Torfing, 2008). In the era of shifting from new public
management to local network governance, it is still questionable how the public's views on local
performance and outsourced services affect the relationship between local democracy and local
governability.

2.6.2 Utilization of tax revenue to support SEs

Collecting taxes and fees is a fundamental way for countries to generate public revenues that
make it possible to finance investments in human capital, infrastructure, and the provision of
services for citizens and businesses. Preliminary analyses estimate the financing gap for
achieving the Sustainable Development Goals for developing countries at about $2.5 trillion
annually. Much of this financing gap will need to be met by increased private-sector investment
in sustainability, which requires appropriate tax policies to create the needed price incentives.
Yet, developing countries that are most in need of revenues, including fragile and conflict-
affected states (FCS), often face the steepest challenges in collecting taxes (Allingham, 2016).

Taxes have a key role to play in making growth sustainable and equitable, especially in the
context of the COVID-19 crisis, and through such efforts as “greening” tax systems and fighting
tax evasion and avoidance. Many countries are still struggling to collect sufficient revenues to
finance their own development. Countries collecting less than 15% of GDP in taxes must
increase their revenue collection in order to meet basic needs of citizens and businesses. This
level of taxation is an important tipping point to make a state viable and put it on a path to
growth. As of 2018, 48% of IDA/Blend countries and 69% of FCS countries fall below this 15%
baseline (Sandmo, A. (2016).

Making it easier to pay taxes improves competitiveness. Overly complicated tax systems are
associated with high levels of tax evasion, large informal sectors, more corruption, and less
investment. Modern tax systems should seek to optimize tax collections while minimizing the
burden on taxpayers to comply with tax laws (Beeri, et el 2015).

There is a need to ensure that the tax system is fair and equitable. Governments need to balance
goals such as increased revenue mobilization, sustainable growth, and reduced compliance costs
with ensuring that the tax system is fair and equitable. Fairness considerations include the

18
relative taxation of the poor and the rich; corporate and individual taxpayers; cities and rural
areas; formal and informal sectors, labor and investment income; and the older and the younger
generations (Vigoda (2019).

2.6.3 Attitude towards tax

According to Kahneman and Tversky (2019), attitude relates to one’s own personal views about
a behavior. Attitude may also be defined as positive or negative views of an attitude object i.e. a
person, behavior or event. In relation to taxation, taxpayers’ attitudes may be defined as
positive or negative views of tax compliance behavior. The outcome of positive views is
tax compliance and negative view is tax noncompliance. These views may be explained
by Psychology-based theories which reveal that taxpayers’ attitude may be influenced by the
following factors which eventually influence taxpayers ’behavior. Commitment in paying tax
reflects beliefs about the desirability of the tax systems and feelings of moral obligation to act in
the interest of the collective and pay one’s tax with goodwill. According to Fishbein and Ajzen
(2015), special procedures advisor and recognized technical authority on a type of major
enforcement activity combining expert knowledge of the collection program with a thorough
knowledge of the conditions, practices, and laws in various judicial processes is very essential in
the field of taxation. This ensures and encourages compliancy.

According to Allingham and Sandmo (2002) tax ethics and attitudes towards tax revenue have an
influence on the inclination towards tax evasion. The two primary factors in taxpayer compliance
are mainly financial self interest and moral commitment. Individuals comply with tax laws
because it is in their own financial interests to minimize their tax bill, but also because of their
perceived moral obligation to obey tax laws. Bird (2010), contend that there is no single
prescription no secret recipe that, once introduced, will ensure improved tax compliance in any
country.

Countries exhibit a wide variety of tax compliance levels, reflecting not only the effectiveness
of their tax administrations, but also taxpayer attitudes toward taxation and government in
general. Attitudes affect intentions and intentions affect behavior. Attitudes are formed in a
social context by such factors as the perception in the tax system, the perceived fairness of the
tax structure, its complexity and stability, Government policies affecting any of these
factors may influence taxpayer attitudes and hence the observed level of taxpayer compliance.

19
2.6.4 Tax education

The failure to follow the tax provisions suggests that a tax payer may be committing an
act of non compliance, Kirchler, (2017). Tax non-compliance occurs through failure to file
tax return, misreporting income or misreporting allowable subtractions from taxable income or
tax due. The present study contributes to tax compliance literature by taking advantage of the
weaknesses noted in previous studies (Allingham and Sandmo, 2002; Chan et al., 2000) First, the
focus of the study is on individual tax compliance behavior in a developing economy. Secondly,
the study is primarily undertaken to determine the relationship between tax education and
revenue collections.

The study of Allingham and Sandmo (2002) examined the attitudes to tax evasion and reported
that evasion is condoned by large number of people who are particularly benefiting from it.
Trivedi et al., (2015) also revealed that there is a relationship between attitude and compliance.
Financial conditions as a moderator for attitude and tax compliance. The results of Demissie
(2008) reveal that taxpayer’s poor knowledge of tax rules and regulations is the most deterring
factor of poor revenue collection. Kasipillai and Jabbar (2016) states that tax knowledge has
impact on tax compliance. The study specifically evaluates the influence of education on tax
compliance among undergraduate students in Malaysia.

There are indications in other behavioral studies that financial condition and family obligations
moderate the relationship individuals’ commitment and performance. Therefore, financial
condition of an individual may have positive or negative effect on the relationship between
his/her attitude and compliance behavior.

2.7 Tax compliance

Paying tax is a difficult thing to do especially if the taxes are not well utilized for the
development of the country as in the case of Kampala Central Business Park in Eastern Uganda.
The revelations of misappropriation of public funds in most countries in East Africa influence
taxpayers to engage in tax evasion. Upon all efforts put in by various governments in East Africa
to encourage taxpayers to pay their taxes through education, punishment and prosecution,
taxpayers still engage in tax evasion (GNA, 2018). According to the budget statement and
economic policy of the Government of Uganda for the 2015-2020 financial year, the government

20
will make tax laws user friendly by simplifying how to file tax returns and simplifying basic tax
laws to make it easy for individuals to pay their taxes. It is believed that the Government promise
to make the tax laws user friendly to the general public will positively affect tax morale of
taxpayers in Uganda and motivate them to fulfill their tax obligations. This view of the
Government of Uganda is supported by the theory of reasoned action as simplification of tax
laws and tax filing will positively affect the attitude (tax morale) of taxpayers in Uganda. Many
researchers believe that intrinsic motivation (tax morale) for taxpayers to honour their tax
obligation can be used to study the differences that occur in tax compliance in the developed and
emerging economies (Cummings, Martinez-Vazquez, Mckee&Torgler, 2020). According to Alm
et al. (2018) normal economic models of taxpayer compliance is currently powerless in
explaining the differences that occur in tax compliance in the developed and emerging
economies. Belkaoui (2020) conducted a study on the relationship between tax compliance
internationally and selected determinants of tax morale in 30 different countries and found that
tax compliance is high in countries with economic freedom, good equity market, effective
competitive laws and low crime rate. The study also revealed that creation of tax morale or
providing laws of the country that ensure that economic rights and safety to human lives are
guaranteed serve as a deterrent to tax evasion. The implication of these findings is that taxpayers
have high tax morale to pay taxes if they identify that economic freedom, good equity market,
effective competitive laws, low crime rate and safe lives exist in their country.

2.7.1 Timely filling of tax returns

Income tax return is the form in which assesses files information about his/her income and tax
thereon to Income Tax Department. Various forms are ITR 1, ITR 2, ITR 3, ITR 4, ITR 5, ITR 6
and ITR 7. When you file a belated return, you are not allowed to carry forward certain losses
(Beeri, 2015).

The Income Tax Act, 1961, and the Income Tax Rules, 1962, obligates citizens to file returns
with the Income Tax Department at the end of every financial year (Beeri 2021). These returns
should be filed before the specified due date. Every Income Tax Return Form is applicable to a
certain section of the Assesses. Only those Forms which are filed by the eligible Assesses are
processed by the Income Tax Department of India. It is therefore imperative to know which

21
particular form is appropriate in each case. Income Tax Return Forms vary depending on the
criteria of the source of income of the Assessee and the category of the Assessee.

2.7.2 Timely payment of tax dues

A significant chunk of the collected taxes is spent on improving healthcare in the country. There
are government hospitals that offer medical services without any cost or at minimum cost. Over
the years, the quality of service provided by government hospitals has improved by leaps and
bounds, and it has only happened because of taxpayers paying tax.

Similarly, there are government schools with a negligible fee. Moreover, thousands of crores are
also spent every year on defence and infrastructure developments. All of this ultimately helps in
making the country more powerful and prosperous (Lewis, 2018).

Rather than believing that income tax is a burden, try to understand the importance of income
tax, and you will see the various roles your money plays in the development of the country. Be a
responsible citizen and always pay your income tax on time as it is through tax payments that our
country could keep up with other developed nations and grow further. Failure to pay taxes owed
by the due date may result in one or more of the following: the imposition of liens, court action,
wage garnishment, bank levies, revocation of your business or professional license(s), or both,
imposition of a bond on your authority to do business, and the assignment of your debt to a
private collection agency (Cullis, et-el, 2018).

2.7.3 Correct Computation of tax liabilities

There are many business “entity types” out there (C corp, partnership, sole prop, etc.). But for
the purposes of figuring out how much tax your small business owes, there’s only C
corporations, and everything else. If you’re not sure what your entity type is, ask your
accountant. If you have a small operation, no accountant, and you’ve never thought about entity
type before, chances are the government is automatically classifying you as a sole proprietor. C
corporations are the only type of business that pays corporate income taxes. If your business is
not a C corp, then it’s known as a “flow-through” entity because profits and losses flow through
the business to owners and shareholders, who pay taxes at their individual tax rates

22
 2.7.3.1 How to estimate tax liability in Uganda

According to URA 2022, to figure out if you are withholding enough federal taxes, follow these
steps to estimate your tax liability for 2022:

 Review last year’s tax return. If you filed your tax return for 2018, take a look at your “total
tax” (line 15, Form 1040).

 Estimate tax liability. Look at last year’s return and project the upcoming year’s tax return
based on any known or expected changes in your personal tax situation. This is an important and
sometimes complicated step, so you may want to get help from a tax professional or use H&R
Block’s income tax calculator. Changes in your life (children, marriage, new job, etc.), or other
complexities (like owning a small business, personal investments, or earning extra income from
a side job) can significantly change your tax bill, as can tax reform overall.

 Determine how much has been withheld so far. You can find this information on your last
earnings statement or payroll stub.

 Subtract the withheld taxes from your projected tax bill. This is the amount of withholding
you’ll need for the rest of the year to closely match your estimated tax liability.

 Divide the amount you still owe by your remaining pay periods. This is the amount you
should withhold from each paycheck for the rest of the year to cover your estimated tax bill.

 To make changes, complete a new Form W-4. If you want a larger refund, you’ll make
changes so your employer will withhold more tax. If you submit the form in 2019, you
will reduce your “withholding allowances.” This increases the taxes your employer withholds
(and reduces your take-home pay). Or, you can add a fixed amount to be withheld from every
paycheck. If you want a smaller refund, or a balance due, increase your allowances. This will
reduce your withholding (and increase your take-home pay).

 Complete the new Form W-4 as soon as possible. The longer you wait, the fewer pay periods
you’ll have to take advantage of your new withholding amount.

2.7.3.2 Tax rates in Uganda

Reduced Tax Rate

23
Zero-rated supplies include exports of goods or services from Uganda; international transport of
goods or passengers and tickets for their transport; drugs, medicines and medical sundries
manufactured in Uganda; educational materials; seeds, fertilizers, pesticides, and hoes; sanitary
towels and tampons and inputs for their manufacture; leased aircraft, aircraft engines, spare
engines, spare parts for aircraft and aircraft maintenance equipment; the supply of cereals grown
and milled in Uganda; the supply of handling services provided by the National Medical Stores
in respect of medical supplies, funded by donors (URA Taxation Handbook 2021).
Exempt items include livestock, unprocessed foodstuffs and unprocessed agricultural products
except wheat grain; postage stamps; financial services; services related to health insurance, life
insurance, micro insurance, reinsurance and aircraft insurance services; unimproved land; sale,
letting or leasing of certain immovable property; education services; veterinary, medical, dental,
and nursing services; imported drugs, medicines and medical sundries; social welfare services;
betting, lotteries and games of chance; goods as part of a transfer of a business as a going
concern by one taxable person to another taxable person; burial and cremation services; precious
metals and other valuables to the Bank of Uganda for the State Treasury; passenger
transportation services (other than tour and travel operators); petroleum fuels subject to excise
duty (motor spirit, kerosene and gas oil), spirit-type jet fuel, kerosene-type jet fuel and residual
oils for use in thermal power generation to the national grid; dental, medical and veterinary
goods; selected machinery, tools and implements suitable for use only in agriculture; crop
extension services; irrigation works, sprinklers and ready-to-use drip lines; deep cycle batteries,
composite lanterns and raw materials for the manufacture of deep cycle batteries and composite
lanterns; menstrual cups; agriculture insurance premium or policy; photosensitive semiconductor
devices, including photovoltaic devices, regardless of whether they are assembled in modules or
made into panels, light-emitting diodes, solar water heaters, solar refrigerators and solar cookers;
solar power; the supply of accommodation in tourist hotels and lodges located upcountry; the
supply of processed milk; the supply of locally developed computer software, its maintenance
and software license; life jackets, life-saving gear, headgear and speed governors; any goods or
services supplied to the contractors and subcontractors of hydroelectric power projects; movie
production; bibles and Qur’ans and textbooks; the supply of liquefied gas and denatured fuel
ethanol from cassava; etc.

Other Consumption Taxes

24
Goods imported in Uganda are generally subject to customs duties. Excise duties are applied on
alcoholic products, based on higher of the specific rate or the ad valorem rate for the goods.
Tobacco products and locally manufactured soft drinks are also subject to excise duties. A tax
on motor vehicles is also levied.

Corporate Taxes

Company Tax: 30%

2.7.3.3 Tax Rate for Foreign Companies

Resident entities are taxed on their worldwide income, whereas non-resident companies are only
subject to taxation on Uganda-source income.
A company is resident in Uganda for tax purposes if it is incorporated or formed under the laws
of Uganda, exercises its management and control or undertakes the majority of its operations in
Uganda at any time during the tax year.
The chargeable income of a branch of a foreign company in Uganda is taxed at the corporate tax
rate of 30%, after the deduction of allowable expenses. In addition to corporation tax, branches
are subject to an extra tax at a rate of 15% on any repatriated income for a year of income.

Capital Gains Taxation

Capital gains are taxed as ordinary income and are subject to the corporate income tax rate
applicable to the company (30%).
In the case a company located in Uganda experiences a change in ownership by 50% or more, all
assets and liabilities are deemed realized.

Main Allowable Deductions and Tax Credits

Deductions may be available for: specific bad debts written off, capital allowances, certain
expenses for meals, refreshment or entertainment in the performance of an employee’s duties,
charitable donations of no more than 5% of chargeable income, maintenance of property used in
the production of income, interest on debt obligations incurred in the production of income, 2%
of income tax payable for a private employer that proves to the Uganda Revenue Authority
(URA) that 5% of its full-time employees are persons with disabilities and an initial allowance,
reinstated at 50% on eligible property outside a 50 km radius from Kampala and 20% on

25
industrial buildings, contributions made by the employer to pension schemes on behalf of the
employees. Start-up expenses can be deducted over a period of four years using a straight-line
method. Fines, penalties and taxes are generally non-deductible; same as for expenses of a
capital nature.
Trading losses, inclusive of capital losses, may be carried forward indefinitely and offset against
future trading income. The carryback of losses is not allowed.

Other Corporate Taxes

Other taxes include: stamp duties (0.5%, 1.5%, 2%, or UGX 15,000), environmental levies (20%
on motor vehicles that are eight years old or older, from UGX 20,000 to UGX 50,000 per
electrical appliances), property taxes determined by local authorities, local service tax (between
UGX 5,000 and UGX 100,000 per year) capital duty tax and land transfer tax.
Social security contributions paid by the employer are equal to 10% of the gross salary.

2.7.3.4 Individual Taxes

Table 2. 1: Individual Taxes

Personal income tax Progressive rates from 0 to 40%

From UGX 0 to 2,820,000 0%
From UGX 2,820,000 to 4,020,000 10%
From UGX 4,020,000 to 4,920,000 UGX 120,000 + 20%
From UGX 4,920,000 to 120,000,000 UGX 300,000 + 30%
Above UGX 120,000,000 UGX 34,824,000 + 40%
Non-resident individuals

From UGX 0 to 4,020,000 10%

From UGX 4,020,001 to 4,920,000
From UGX 4,920,001 to 120,000,000
Above UGX 120,000,000
Rental income
UGX 402,000 + 20%
UGX 582,000 + 30%
UGX 35,106,000 + 40%
30% (a deduction of interest on the
mortgage obtained to construct or acquire
the premises that generate the income is
allowed, plus a subtraction of expenses and
losses, capped at 75% of gross rental
income)

26
2.7.3.5 Allowable Deductions and Tax Credits

The first UGX 2,820,000 of a resident individual's annual income falls in the nil tax bands and is
not subject to taxation. An individual is allowed by the law to make the following deductions
from the gross income: all the expenditures and losses that were incurred by a person during the
year of income, if incurred in the production of the income; any loss incurred by the individual
on the disposal of a business asset during the year; donations made to amateur sporting
associations, religious institutions, charitable institutions, or educational institutions of a public
character, up to 5% of the chargeable income. In cases where the individual receives rental
income, an amount equal to 75% of the rental income is allowed as expenditure and losses
incurred in the production of that income, with the balance being taxed at 30%.

2.7.3.6 Special Expatriate Tax Regime

A resident person is taxed on his/her worldwide income. Non-resident individuals are liable to
tax only on Uganda-source income or income from employment exercised or services rendered
in Uganda.
An individual present in Uganda for at least 183 days in any 12-month period is resident for the
tax years beginning and ending in that period. In addition, a person who has been present for an
average of at least 122 days during three consecutive tax years, or with a permanent home in
Uganda, is considered a tax resident.
Non-residents cannot enjoy the tax allowance of UGX 2,820,000 available for residents (see
above for a detail of the tax brackets).

2.8 Other factors influencing tax morale and tax compliance

2.8.1 Tax payment charges

In some important respects, any local government may be viewed as analogous to a business.
It provides services to its customers residents. In turn (ignoring intergovernmental transfers)
residents must pay for the services they receive. Of course, unlike a business, a
government can impose taxes to finance its activities. Taxes however, are "unrequited
transfers” that bear no specific relation to the services that taxpayers receive. Taxes provide
revenue to local governments, but that is all they do. In contrast, financing local services
through user fees or charges not only provides funds with which to supply such services

27
but also and from an economic point of view more importantly provides invaluable
information on which services should be provided. In what quantity and quality, and to
whom (Mgonja, M. G.,2019).

While user charge financing is most obviously important with respect to such utility
enterprises as water systems, in principle this approach may be extended much more
widely to encompass at least some aspects of such other local government activities
such as refuse removal and the provision of recreational and cultural facilities.

The main economic rationale of user charges is thus not to produce revenue but to
promote economic efficiency. Well-designed charges achieve this goal both by providing
information to public sector suppliers as to how much clients actually are willing to pay
for particular services and by ensuring that what the public sector supplies is valued at
least at (marginal) cost by citizens (Reingewertz, 2018). If government expenditure is
financed through general taxes, rational consumers will choose to consume it to the point
at which the marginal costs to them just equal the marginal benefits they receive. When
consumers are not explicitly charged for consuming a service, what this means that the last
unit is worth approximately zero. In reality, however, nothing in life is free, and there are real
costs in providing any service (Scholz, J. T. (2017).

2.8.2 Cost of registration

As the tax system becomes complex, it follows that more taxpayers will opt for an assisted tax
preparation method which include self-preparation with tax software and using tax consultants,
and this has indeed increased over the years (Marcuss et al., 2015). To date, tax authorities
around the world are using electronic tax administration systems to interact with taxpaying
public in tax collection, administration and compliance settings (Ling & Nawawi, 2019). This
implies that the taxpayers must be knowledgeable about these developments including having the
competence to prepare returns that conform to the law requirements using these systems. With
the introduction of the self-assessment system, E-filling and the ever-changing tax policies in
Uganda (the most recent being the introduction of OTT, mobile money tax on transactions and
introduction of withholding agents for VAT), taxpayers require to have human resources capable
of understanding and interpreting the systems and the new tax laws accurately to avoid
noncompliance. This has thus forced many taxpayers into seeking advice from external tax

28
consultants to avoid penalties of noncompliance. The Tax Agents Registration Committee
(TARC) approved 289 Tax Agents applications (URA, 2017) effective January 2017. In 2016,
the committee was launched as provided for by the Tax Procedure Code (TPC) Act 2014, which
came into force on 01/06/2016 to harmonize different tax types, Uganda.

Due to online tax registration, most local tax payers in fail to access the gadgets for internet
access and most of them do not know the procedure for registration. This requires them to go
internet caffes where they are charged a lot of money. With this challenge, such small businesses
owners end up giving up hence fail to comply with taxes in the country (Odong J, 2018).

2.9 Literature Gap

As a dimension of tax Administration, Taxpayer education and other variables reviewed, were
being provided as one of the tools to enhance voluntary tax compliance alongside other factor
variable among the entrepreneurs in the SEs. The influence of taxpayer education and other
variables reviewed on the level of voluntary tax compliance on SEs has not been fully elaborated
as a method of enhancing tax compliance among the taxpayers as a single factor variable. All
variables reviewed; such as audit, registration and morale were seen to be complementing each
other in influencing tax compliance. However, such methods cost a lot of money and time to the
Revenue Authority.

29
 CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter includes the research methodology that was used during the research study. In more
details, this chapter contains the research design, the research approach, population and
sampling, sources of data, the methods of data collection, the selection of the sample, the
research process, and the type of data analysis, measurement of data, reliability and validity of
research instruments, the ethical considerations and the research limitations.

3.1 Research design

Research design means the structuring of investigation aimed at identifying variables and their
relationships to one another. A research design is very useful as it helps the researcher to develop
a mental image of the structure for gathering the data and the analysis that will follow (Asika,
2016).

This study used a case study design to answer the research objectives. A case study is an
empirical inquiry that investigates a contemporary phenomenon (the case) in depth and within its
real-life context, especially when the boundaries between phenomenon and context are not
clearly evident. This will provide the basis for gathering detailed information and in depth
analysis of the study variables (Yin, 2014)

3.2 Area of the Study

The study was conducted in Kampala Central Business Park and the study population was drawn
from among SEs operating in Kampala Central Business Park and tax officials from URA offices
in Kampala.

3.3 Target Population

The study was conducted from Kampala Central Business Park and the target population was
drawn from among SEs and these include thirteen tax officials drawn from URA Kampala and
the different SEs dealing in both service and product in Kampala Central Business Park totaling
to 87 SEs. The study therefore will have a target population of 100 in total.

30
3.4 Sampling Technique

Sampling consists of obtaining information from only a part of a large group or population so as
to infer about the whole population. The object of sampling is thus to secure a sample which will
represent the population and reproduce the important characteristics of the population under
study as closely as possible (Allan K, 2017). Census and Probability sampling techniques were
used. Simple random sampling which enabled every possible sample to be equally chosen was
then applied to arrive at the samples that were drawn from a population of Small scale
enterprises operating in Kampala Central Business Park. However due to the few number of
population of the tax officials census was done and all of them constituted the sample based on
the fact that they were well abreast with the subject which was studied.

3.4.1 Sample size selection

The sample size was eight (8) tax officials, five (5) tax auditors determined through census and
80 respondents from the target population of 100 SEs and this was determined by formula for
Slovenes sample size determination as shown below.

𝑁
𝑛=
1 + 𝑁𝑒 2

Where, N = Target population

n = the sample size

e= the level of precision of measurement (acceptable error margin)

From Kampala Central Business Park, the target population of (N= 100) and error margin was
considered at a level e= 0.05

Thus,

100
𝑛=
1 + 100(0.05)2

𝑛 = 80 𝑟𝑒𝑠𝑝𝑜𝑛𝑑𝑒𝑛𝑡𝑠

31
The eighty respondents from the target population 100 was arrived at using a table developed by
RV Krejcie and Morgan as cited by (Amin, 2005).The selected sample was distributed as shown
below

Table 3. 1: Population sample, sample size and sampling techniques

Category population Sample Sampling
Technique
Small and Medium 87 67 Simple Random
sampling
URA Tax officials 08 08 Census
URA Tax Auditors 05 05 Census
Total 100 80

Source: Primary Data 2022

3.5 Research Instruments

3.5.1 Questionnaires

This is a written list of questions, the answers to which are recorded by respondents. In a
questionnaire respondents read the questions, interpret what is expected and then write down the
answers (Ranjit, 2016). Self-administered questionnaires which are semi structured was used for
data collection and later on retrieved and analyzed for purposes of generating this report.

3.5.2 Interviews

An interview is a conversation, whose purpose is to gather descriptions of the life-world of the

interviewee with respect to interpretation of the meanings of the described phenomena (Allan K,
2017). In a similar an interview is an extendable conversation between partners that aims at
having in-depth information about a certain topic or subject, and through which a phenomenon
could be interpreted in terms of the meanings interviewees bring to it (Alshenqeeti, 2014).

Accumulating such meanings can be done in various ways, of which one-on-one interviews are
the most common. Besides one-on-one interviews, focus groups interviewing is also popular
(Marshall &Rosman, 2018). Additionally, research has shown that four types of interviews are
frequently employed in social sciences. The first is the structured interview, whose key feature is
that it is mostly organized around a set of predetermined direct questions that require immediate,

32
mostly „yes‟ or „no‟ type, responses. Thus, in such an interview, the interviewer and
interviewees would have very little freedom, accordingly, it can be argued, that this type of
interviews is similar to the „self-administered‟ quantitative questionnaire in both its form and
underlying assumptions (Alshenqeeti, 2014).

Interviews with both structured and semi structured questions were conducted with revenue
officials from URA Kampala offices to ascertain most especially interventions put in place to
enhance compliance, improve on tax administration and increase on tax morale among SME
taxpayers in Kampala Central Business Park.

3.6 Validity and reliability of research instruments

Validity and reliability is the degree of accuracy and consistency of a data collection instrument
to measure a variable. Research tools were prepared and presented to supervisor(s) to check their
correctness and the ability to measure the variables which were studied. The supervisor(s)
comments was used to improve the data collection instruments by eliminating all errors and
weak points which were identified in the tools. Pretesting of the questionnaires was also done by
administering them to 30 respondents within the target population but outside the sample. This
will help in identifying the gaps which existed and thereby making appropriate modifications.

The researcher will also be used the formula below to establish validity of the research tools as
indicated by (Denise, 2018)

𝐴𝑔𝑟𝑒𝑒𝑑𝑖𝑡𝑒𝑚𝑠𝑏𝑦𝑎𝑙𝑙𝐽𝑢𝑑𝑔𝑒𝑠𝑆𝑢𝑖𝑡𝑎𝑏𝑙𝑒
𝐶𝑜𝑛𝑡𝑒𝑛𝑡𝑉𝑎𝑙𝑖𝑑𝑖𝑡𝑦𝐼𝑛𝑑𝑒𝑥(𝐶𝑉𝐼) =
𝑇𝑜𝑡𝑎𝑙𝑛𝑢𝑚𝑏𝑒𝑟𝑜𝑓𝑖𝑡𝑒𝑚𝑠𝑗𝑢𝑑𝑔𝑒𝑑

Table 3. 2: Content Validity Indices for the questionnaires

Variable Description No. of Items No. of Valid items Content Validity index
Independent Tax morale 25 20 0.8
Mediating Compliance costs 7 5 0.714
Dependent Tax Compliance 12 9 0.75
Source: Primary Data 2022

According to (Amin, 2005) for any instrument to be considered valid it must have a content
validity index of 0.7 and above. For purposes of this study therefore all the instruments used had
CVI above 0.7 as indicated in the above table.

33
Reliability is the measure of the degree to which research instrument yields consistent results
after repeat. Cronbach’s Alpha coefficient was used to measure reliability of the instruments
according to (Amin, 2005) an Alpha of 0.5 or higher is sufficient to show reliability the closer it
is to 1 the higher the internal consistency in reliability. The questionnaires were tested and
reliability computed using SPSS and scores evaluated for purposes of testing reliability.

Table 3. 3: Reliability indices for the respective variables

Variable Description No. of items Cronbach’s
alpha
Independent Tax morale 20 0.515
Mediating Tax Morale 05 0.663
Dependent Tax Compliance 9 0.618
Source: Primary Data 2022

The values of Cronbach’s alpha determined the level of reliability of the instruments which were
above 0.5 for it to be reliable as indicated in the above table.

3.7 Data collection procedure

During the study only primary data were collected. Interviews and Questionnaires were used and
the latter had Likert scale for quantitative data. Questionnaires has been considered, as they are
less costly, requires less administration effort inherent in instruments like interviews and useful
in obtaining objective data (Marshall & Rosman, 2018).

3.8 Sources of data

Primary data was collected from the field through interviews and questionnaires that were self-
administered to the respondents. The data was retrieved, edited, tabulated and used for making
conclusions in view of the research study objectives.

3.8 Data Analysis

The filled-in questionnaires were edited for consistency. The data generated was qualitative and
quantitative in nature. Frequency tables have been produced and presented by use of tables,
graphs & bar charts in order to explain the level of tax compliance and to examine the influence
taxpayer education and tax audit has on tax compliance among SEs in Kampala Central Business
Park. Therefore, descriptive analysis techniques were used; consistent with the research design.

34
Using Package for Social Sciences (SPSS), the quantitative data were coded to enable the
responses to be grouped into categories. Descriptive statistics such as frequencies and
percentages have been adopted to summarize the data. A correlation and multi regression
analysis was performed in examining and assessing the relationships between the independent,
mediating and dependent variables.

3.9 Limitations of the Study

The study was conducted in Kampala Central Business Park. It is the belief of the researcher that
it would have been more comprehensive and sounding if the study was conducted from among
SEs from all the regions in Uganda. But to cope up this limitation, the selected samples were
believed to be large enough so that conclusions were confidently drawn. It was also envisaged
that many people are always privy on matters to do with taxation, it is therefore critical to note
that all necessary information required for this study may not have been given by respondent, it
was put clearly to the respondents that this was purely an academic research study and as such
the information given would be purely used for academic purpose. In this way the respondents
gave all and truthful information which resulted into true findings of the study.

35
 CHAPTER FOUR
DATA PRESENTATION, ANALYSIS AND INTERPRETATION OF STUDY FINDINGS
4.0 Introduction
The purpose of the study was to examine the effect of credit Risk Management to the
performance of financial institutions in Uganda with a focus on United Bank of Africa.

4.1 Background information on the respondents

4.1.1 Findings on the sex of respondents

Table 4. 1: Showing the findings on the sex of respondents

Response Frequency Percentage (%)

Male 50 62.5
Female 30 37.5
Total 80 100
Source; Primary data from questionnaires answered by respondents 2020

The observation of the responses indicated that the percentage of male respondents was 62.5%
while that of females was 37.5%.

4.1.2 Findings on the age brackets of respondents

Figure 4. 1: Showing the findings on age brackets of respondents

Under 18years 18-35years 36-50years Over 50years

5%
20%

25%

50%

Source; Primary data 2023

36
From Figure 4.2, Respondents were found to be of a different age groups. Most of them were
ranging from 18-35 years of age making 50% of the respondents. 25% of the respondents were
aged between 36-50 years. 20% of the respondents were under 18 years of age. The fewest of the
respondents who made 5% of the respondents were aged 50 years and above. This implied that,
most people involved in small scale enterprises are mature and were active in the businesses in
order to earn money for fulfilling their responsibilities.

4.1.2 Findings on the academic level of the respondents

Figure 4. 2: Showing findings on education levels.

40

35

30

25

20
37.4
15

10 18.8 18.8
5 12.5 12.5

0
University Tertiary A’ level O’ level Primary

Percentage

Source; Primary data 2023

From Figure 4.1, Respondents were found to be of a different academic background. Most of
them were O’level leavers making 37.4% of the respondents. 18.8% went to tertiary
institutions and the same percentage of the respondents also finished A’ level. 12.5 percent of
the respondents had finished university. Respondents within this group were holding diplomas
in business studies and finally, 12.5% of the respondents finished primary level. This implied
that, most people involved in small scale enterprises didn’t go far in education where the
largest number completed O’ level only.

37
4.1.3 Findings on the experience of the proprietor in running the business
Table 4. 2: Showing the experience of the proprietor in running the business.

Response Frequency Percentage (%)

Less than 1 year 40 50
1-2years 20 25
3-5years 15 18.8
6-10years 5 6.2
Total 80 100

Source; Primary data 2023

From Figure 4.2, Respondents were found to be having different experiences. Most of them had
spent less than a year in the business making 50% of the respondents. These were followed by
25% of the total respondents who had worked in the business for a period of 1-2 years. Other
respondents who made 18.8% of the respondents had spent between 3 to 5 years in the
business. The least number of the respondents making only 2.6% had spent more than 6 years
but do not exceed 10years in the business. This implied that, many people are leaving small
scale enterprises businesses and the new people are also entering the business.

4.1.4 Findings on kinds of businesses operated by the respondents

Table 4. 3: Showing the experience of the proprietor in running the business.

Response Frequency Percentage (%)

Less than 1 year 40 50
1-2years 20 25
3-5years 15 18.8
6-10years 5 6.2
Total 80 100

Source; Primary data 2023

From Table 4.3, Respondents were found to be having different experiences. Most of them had
spent less than a year in the business making 50% of the respondents. These were followed by
25% of the total respondents who had worked in the business for a period of 1-2 years. Other
respondents who made 18.8% of the respondents had spent between 3 to 5 years in the
business. The least number of the respondents making only 2.6% had spent more than 6 years

38
but do not exceed 10years in the business. This implied that, many people are leaving small
scale enterprises businesses and the new people are also entering the business.

4.1.5 Findings on kinds of businesses operated by the respondents

Table 4. 4: Showing the kinds of businesses operated by the respondents

Response Frequency Percentage (%)

Hawkers 30 37.5
Shops 20 25
Super markets 5 6.3
Mobile Money 15 18.8
Other 10 12.5
Total 80 100

Source; Primary data 2023

From Table 4.4, Respondents were found to be carrying out different kinds of the businesses.
Most of them were hawkers making 30% of the respondents. These were followed by 25% of
the total respondents who were running shops. Other respondents who made 18.8% of the
respondents were running Mobile Money business. 12.5% were doing other businesses which
were not specified. The least number of the respondents making only 6.3% had were doing
running super markets. This implied that in Kampala Central Park are there are all kinds of
businesses.

4.1.6 Findings on the industry in which businesses belong

Table 4. 5: Showing the industry in which businesses belong

Response Frequency Percentage (%)

Retail 35 43.8
Service 20 25
Manufacturing 5 6.3
Construction 5 6.3
Mobile Money 15 18.8
Other None Nil
Total 80 100

Source; Primary data 2023

39
From Table 4.5, the businesses carried out by respondents were found to be belonging in
different industries. Most of them belonged to retail business industry making 43.8% of the
respondents. These were followed by 25% of the total respondents who were running
businesses belonging to service. Other businesses who made 18.8% of the respondents were
running Mobile Money business. 5% were belong to manufacturing industry and the same
percentage were belonging to construction industry. None of the businesses belonged to
unspecified industry. This implied that in Kampala Central Park most of the businesses
carried out belong to specified industries.

4.1.7 Findings on the Number of Employees in the businesses carried out by respondents
The respondents were asked to tell the number of employees in their businesses and their
responses were summarized in Table 4.6 below;
Table 4. 6: Showing the industry in which businesses belong

Number of employees Frequency Percentage (%)

1-5 45 56.3
6-50 20 25
51-250 10 12.5
251 and above 5 6.3
Total 80 100

Source; Primary data 2023

From Table 4.6, Most of the businesses employee 1-5 employees as evidenced by 56.3% of the
respondents. These were followed by 25% of the total respondents who showed that their
businesses employ 6-50 people. 12.5% of the respondents said that they were employing as 51-
250 employees and finally, only 6.3% of the respondents employ 251 employees and above in
their businesses. This implied that most small scale businesses in Kampala Central Park
employ few employees due to little capital in the business.

40
4.2 Tax morale

4.2.1 Willingness of tax payers to pay tax in of Kampala Central Park

4.2.1.1 Findings on whether the tax payers are willing and eager to pay taxes

The respondents were asked to tell whether they were willing and eager to pay taxes and their
responses were summarized in Table 4.7
Table 4. 7: whether the tax payers are willing and eager to pay taxes

Response Frequency Percentage

Strongly Agree 10 12.5
Agree 40 50
Neither Agree nor Disagree 15 18.8
Disagree 10 12.5
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

From table 4.7, 12.5% of the respondents strongly agreed with the statement that tax payers
in Kampala Central Park are willing and eager to pay their taxes, the majority of the
respondents making 50% of the respondents agreed with the statement, 18.8% were confused
with the statement, 12.5% of the respondents disagreed with the statement. 6.3% of the
respondents strongly disagreed with the statement that tax payers are willing to pay taxes. The
findings implied that most of the tax payers are willing to pay their taxes.

4.2.1.2 Findings on whether the tax payers avoid taxes because they don’t know why
they should pay taxes

The respondents were asked to tell whether they were willing and eager to pay taxes and their
responses were summarized in Figure 4.3

41
Figure 4. 3: whether the tax payers avoid paying taxes because they don’t know why they
should pay taxes

Percentage

6% 13%
12%

19%

50%

Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree

Source; Primary data 2023

From Figure 4.3, 13% of the respondents strongly agreed with the statement that tax payers
in Kampala Central Park avoid paying taxes because they don’t know why they should pay
taxes, the majority of the respondents making 50% of the respondents agreed with the
statement, 19% were confused with the statement, 12% of the respondents disagreed with the
statement. 6% of the respondents strongly disagreed with the statement that tax payers avoid
paying taxes because they don’t know why they should pay taxes. The findings implied that most
of the tax payers are willing to pay their taxes and they know why they pay taxes

4.2.1.3 Findings on whether people are not willing to pay taxes because they are fed up
of paying them since they do not benefit from them.

Figure 4. 4: people are not willing to pay taxes because they are fed up of paying them since
they do not benefit from them

42
 50
40
30 50
20
10 12.5 18.8
6.3
0
Strongly Agree Agree Neither Agree Disagree
nor Disagree

Percentage

Source; Primary data 2023

From Figure 4.4, the majority of the respondents making 50% of the respondents disagreed
with the statement that the tax payers are not willing to pay taxes because they are fed up of
paying them since they do not benefit from them, 18.8% neither agreed nor disagreed with the
statement. 12.5% of the respondents agreed with the statement while 6.3% of the respondents
strongly disagreed with the statement that tax payers are not willing to pay taxes because they are
fed up of paying them since they do not benefit from them. The findings implied that most of the
tax payers are willing to pay their taxes and they are not fed up of paying taxes and they benefit
from payment of taxes.

4.2.2 Utilization of tax revenue to support SEs

4.2.2.1 Finding whether the government uses the revenue from tax collection to finance SEs

The respondents were asked to tell whether the government uses the revenue from tax collection
to finance SEs and their responses were summarized in Table 4.7 below

Table 4. 8: Showing finding on whether the government uses the revenue from tax collection
to finance SEs

Response Frequency Percentage

Strongly Agree 50 62.5
Agree 20 25
Neither Agree nor Disagree Nil Nil
Disagree 10 12.5

43
Strongly Disagree Nil Nil
Total 80 100
Source: Primary data 2023

From Table 4.8, the majority of the respondents making 62.5% of the respondents strongly
agreed with the statement that the government uses the revenue from tax collection to finance
SEs, 25% agreed with the statement, 12.5% of the respondents disagreed with the statement
while none of the respondents strongly disagreed with the statement that the government uses the
revenue from tax collection to finance SEs. The findings implied that most of the tax payers are
satisfied with the way government utilizes the taxes.

4.2.2.2 Finding whether revenue from taxes is evenly distributed among the SEs

The respondents were asked to tell whether the revenue from taxes is evenly distributed among
the SEs and their responses were summarized in Figure 4.5 below;

Figure 4. 5: Showing finding on revenue from taxes is evenly distributed among the SEs

50

19
13 12 6.3

Strongly Agree Agree Neither Agree Disagree Strongly

nor Disagree Disagree

Source; Primary data 2023

From Figure 4.5, 13% of the respondents strongly agreed with the statement that t revenue
from taxes is evenly distributed among the SEs, the majority of the respondents making 50%
of the respondents agreed with the statement, 19% were confused with the statement, 12% of
the respondents disagreed with the statement. 6% of the respondents strongly disagreed with the
statement that revenue from taxes is evenly distributed among the SEs. The findings implied that
revenue from taxes is evenly distributed among the SEs in Uganda especially in Kampala Central
Park for their development.

44
4.2.2.3 Findings on whether it is worthwhile paying taxes by taxpayers in Kampala
Central Park

Table 4. 9: Showing whether it is worthwhile paying taxes

Response Frequency Percentage

Strongly Agree 10 12.5
Agree 40 50
Neither Agree nor Disagree 15 18.8
Disagree 10 12.5
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

From table 4.7, 12.5% of the respondents strongly agreed with the statement that it is
worthwhile paying taxes, the majority of the respondents making 50% of the respondents
agreed that it is worthwhile paying taxes, 18.8% neither agreed nor disagreed that it is
worthwhile paying taxes, 12.5% of the respondents disagreed with the statement while 6.3% of
the respondents strongly disagreed with the statement saying that it is worthwhile paying taxes.
The findings implied that the tax payers trust the government in the way it uses our taxes and say
that it is worthwhile paying taxes.4.2.3 Taxpayer Education

4.2.3.1 Findings on whether respondents always attend taxpayer seminar/ workshop

organized by URA

Figure 4. 6: showing whether respondents always attend taxpayer seminar/ workshop

organized by URA

45
 Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree

13% 6%
12%

19%
50%

Source; Primary data 2023

From Figure 4.6, 13% of the respondents strongly agreed with the statement that the
taxpayers always attend taxpayer seminar/ workshop organized by URA, the majority of the
respondents making 50% of the respondents disagreed with the statement that the taxpayers
always attend taxpayer seminar/ workshop organized by URA, 19% neither agreed nor
disagreed with the statement, 12% of the respondents agreed with the statement while 6% of
the respondents strongly agreed with the statement saying that always attend taxpayer seminar/
workshop organized by URA. The findings implied that most tax payers do not always attend
taxpayer seminar/ workshop organized by URA.

4.2.3.2 Findings on whether taxpayers receive practical handbooks to help them in

preparing tax returns.

The respondents were asked whether they have ever received practical handbooks to help
them in preparing tax returns and their responses were as summarized in the Figure below;

Figure 4. 7: Showing whether respondents receive practical handbooks to help them in

preparing tax returns.

46
 62.5

18.7
6.3 12.5 0

STRONGLY AGREE NEITHER AGREE DISAGREE STRONGLY

AGREE NOR DISAGREE DISAGREE

Percentage

Source; Primary data 2023

From Figure 4.7, 6.3% of the respondents strongly agreed with the statement that they have
ever received practical handbooks to help them in preparing tax returns, the majority of the
respondents making 62.5% of the respondents agreed that have ever received practical
handbooks to help them in preparing tax returns, none of the students is confused with the
statement, 12.5% of the respondents agreed with the statement while 18.7% of the respondents
strongly disagreed with the statement saying that the tax payers have ever received practical
handbooks to help them in preparing tax returns. The findings implied that the tax payers do not
receive practical handbooks to help them in preparing tax returns.

4.2.3.3 Findings on whether there are routine tax education programs run by URA

Table 4. 10: Showing the findings on whether there are routine tax education programs run
by URA
Response Frequency Percentage
Strongly Agree 10 12.5
Agree 40 50
Neither Agree nor Disagree 15 18.8
Disagree 10 12.5
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

47
From table 4.7, 12.5% of the respondents strongly agreed that there are routine tax education
programs run by URA, the majority of the respondents making 50% of the respondents
agreed that there are routine tax education programs run by URA, 18.8% neither agreed or
disagreed that there are routine tax education programs run by URA, 12.5% of the respondents
disagreed with the statement and finally, 6.3% of the respondents strongly disagreed with the
statement that there are routine tax education programs run by URA. From the findings, it
implied that URA prepares and implements routine tax education programs about taxation in
Uganda.

4.3 Findings from respondents’ opinions about tax morale

4.3.1 Findings on why that tax payers are not willing to pay the taxes imposed on them
The respondents were asked structured question to write their opinions on why most tax payers
are not willing to pay taxes imposed on them and their responses were as follows;

Response Frequency Percentage (%)

Some people are not willing to pay taxes 50 62.5
because the businesses they do incur a lot of
expenses and they don’t get money for taxes
Most tax payers have negative attitude towards 25 31.3
URA officials and most of the officials embezzle
our money
I can’t tell why since for me I pay taxes 5 6.2
willingly
TOTAL 80 100
Source: primary data 2023

4.3.2 Findings on what can improve the willingness of a taxpayer to pay taxes
The respondents gave their opinions on what can be done to improve the willingness of a
taxpayer to pay taxes and their responses were as follows;

Response Frequency Percentage (%)

The government should reduce on the tax rate. 35 43.8
People are scared by high tax rates which
reduces their moral and willingness to pay taxes
The government should conduct the seminars to 40 50

48
teach people on the importance of paying taxes
The tax authorities should give some tax 5 6.2
incentives to the business owners
TOTAL 80 100
Source: primary data 2023

4.3.3 Findings on whether the government uses the taxes in a way that benefits taxpayers

The respondents the gave their opinions on what can be done to improve the willingness of a
taxpayer to pay taxes and their responses were as follows;

Response Frequency Percentage (%)

Unless the tax authority employs only qualified 20 25
people, the tax revenue will never be used to
benefit the tax payers.
The government cannot use the tax revenue to 40 50
benefit the tax payers due to corruption and
embezzlement among government officials.
Tax revenue can only benefit the tax payer if it 20 25
is used to subsidies the small scale enterprises
TOTAL 80 100

4.4 Findings on Compliance costs

4.4.1 Findings on whether business incurred a lot of money in registering with URA

The respondents were asked to tell whether their business incurred a lot of money in registering
with URA and their responses were summarized in the Table 4.11 below
Table 4. 11: Showing the findings on whether businesses incurred a lot of money in
registering with URA

Response Frequency Percentage

Strongly Agree 30 37.4
Agree 40 50
Neither Agree nor Disagree Nil 0
Disagree 5 6.3
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

49
From table 4.7, 37.5% of the respondents strongly agreed that their business incurred a lot of
money in registering with URA, the majority of the respondents making 50% of the
respondents agreed that their business incurred a lot of money in registering with URA, none
of the respondents were not sure whether their business incurred a lot of money in registering
with URA, 6.3% of the respondents disagreed with the statement and finally, 6.3% of the
respondents strongly disagreed with the statement that their business incurred a lot of money in
registering with URA. From the findings, it implied that the businesses incur a lot of costs while
registering with URA.

4.4.2 Findings on whether URA officials are bribed to register businesses for taxation

The respondents were asked to tell whether URA officials are bribed to register businesses for
taxation and their responses were summarized in the Figure 4.8 below;
Figure 4. 8: Showing the findings on whether URA officials are bribed to register businesses
for taxation

35
30
25
20
15
10
5
0
Strongly Agree Agree Neither Agree Disagree Strongly
nor Disagree Disagree

Percentage

Source; Primary data 2023

From Figure 4.8, 10% of the respondents strongly agreed URA officials are bribed to
register businesses for taxation, the majority of the respondents making 15% of the
respondents agreed that URA officials are bribed to register businesses for taxation, none of
the respondents were not sure whether URA officials are bribed to register businesses for
taxation, 30% of the respondents disagreed with the statement and finally, 25% of the
respondents strongly disagreed with the statement that URA officials are bribed to register
businesses for taxation. From the findings, it implied that the while registering businesses for

50
taxation, URA official don’t need to be bribed though there are some new officials who receive
some bribes from some people as shown in the Figure 4.8 above.

4.5 Findings from respondents’ opinions about compliance costs

4.5.1 Findings on whether the costs incurred by the taxpayer to comply with tax policies
are fair
The respondents were asked structured question to write their opinions about the fairness of the
costs incurred by the taxpayer to comply with tax policies and their responses were as follows;

Table 4. 12: Showing whether the costs incurred by the taxpayer to comply with tax policies
are fair
Response Frequency Percentage (%)
Yes 50 62.5
No 30 37.5
TOTAL 80 100
Source: primary data 2023

From the table above, the majority of the respondents agreed that the costs incurred by the
taxpayer to comply with tax policies are fair. They gave the reasons why they though that the
costs incurred by the taxpayer to comply with tax policies are fair. The reasons were as follows;

- They are always charged less money as compared to their incomes

- The registration fee is relatively cheap.
- They don’t incur transport and time to go to the bank to pay taxes. Most of them said that
they mobile payments.

Those who said that no, also gave their reasons as follows;

- They are always over charged when paying their taxes

- Mobile payment is not effective. They pay and at the end they end up repaying again.
- Too much transport spent while going to URA offices.

51
4.5.2 Findings on what can be done by the government in order to reduce the tax
compliance costs
The respondents gave their opinions on what can be done by the government in order to reduce
the tax compliance costs s and their responses were as follows;

Table 4. 13: Showing what can be done by the government in order to reduce the tax
compliance costs
Response Frequency Percentage (%)
URA officials should collect the taxes by going 35 43.8
to each tax payer to reduce transport costs
incurred by tax payer
URA should have cost effective methods of 40 50
payment taxes.
URA should register tax payers for free to 5 6.2
eliminate registration costs.
TOTAL 80 100

4.6 Findings on tax compliance

4.6.1 Findings on whether tax payers always file their returns in time

The respondents were asked to tell whether they always file their returns in time and their
responses were summarized in the Table 4.12 below
Table 4. 14: Showing the findings on whether tax payers always file their returns in time

Response Frequency Percentage

Strongly Agree 30 37.4
Agree 40 50
Neither Agree nor Disagree Nil 0
Disagree 5 6.3
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

From table 4.14, 37.5% of the respondents strongly agreed that tax payers always file their
returns in time, the majority of the respondents making 50% of the respondents agreed that
their business incurred a lot of money in registering with URA tax payers always file their

52
returns in time, none of the respondents were not sure whether tax payers always file their
returns in time, 6.3% of the respondents disagreed with the statement and finally, 6.3% of the
respondents strongly disagreed with the statement that tax payers always file their returns in
time. From the findings, it implied that the tax payers always file their returns in time.

4.6.2 Findings on whether tax payers always pay tax on time without intervention of
tax officials

The respondents were asked to tell whether they always pay tax on time without intervention of
tax officials and their responses were summarized in the Figure 4.9 below;
Figure 4. 9: Showing the findings on whether tax payers always pay tax on time without
intervention of tax officials.

Strongly Agree Agree Neither Agree nor Disagree Disagree Strongly Disagree

12%
31%
19%
0%

38%

Source; Primary data 2023

From Figure 4.9, 12% of the respondents strongly agreed that tax payers always pay tax on
time without intervention of tax officials, 19% of the respondents agreed that tax payers
always pay tax on time, none of the respondents were not sure whether tax payers always pay
tax on time, majority of respondents who made 38% disagreed with the statement and finally,
31% of the respondents strongly disagreed with the statement that tax payers always pay tax on
time. From the findings, it implied that the while registering businesses for taxation, URA
official don’t need to be bribed though there are some new officials who receive some bribes
from some people as shown in the Figure 4.12 above.

53
4.6.3 Findings on whether tax payers always disclose all my income for tax purposes

Table 4. 15: Showing the findings on whether tax payers always disclose all my income for tax
purposes
Response Frequency Percentage
Strongly Agree 10 12.5
Agree 40 50
Neither Agree nor Disagree 15 18.8
Disagree 10 12.5
Strongly Disagree 5 6.3
Total 80 100
Source; Primary data 2023

From table 4.16, 12.5% of the respondents strongly agreed that t tax payers always disclose
all my income for tax purposes, the majority of the respondents making 50% of the
respondents agreed that tax payers always disclose all my income for tax purposes, 18.8%
neither agreed or disagreed that tax payers always disclose all my income for tax purposes,
12.5% of the respondents disagreed with the statement and finally, 6.3% of the respondents
strongly disagreed with the statement that tax payers always disclose all my income for tax
purposes. From the findings, it implied that tax payers always disclose all my income for tax
purposes tax payers always disclose all my income for tax purposes.

4.6.4 Finding whether tax payers always follow tax rules and regulations governing SEs
operations;
Figure 4. 10: Showing finding on whether always follow tax rules and regulations governing
SEs operations

Percentage

50

13 19 12 6.3

Strongly Agree Agree Neither Agree Disagree Strongly

nor Disagree Disagree

54
Source; Primary data 2023

From Figure 4.10, 13% of the respondents strongly agreed with the statement that always
follow tax rules and regulations governing SEs operations, the majority of the respondents
making 50% of the respondents agreed with the statement, 19% were confused with the
statement, 12% of the respondents disagreed with the statement. 6% of the respondents
strongly disagreed with the statement that always follow tax rules and regulations governing SEs
operations. The findings implied that always follow tax rules and regulations governing SEs
operations in Uganda especially in Kampala Central Park.

4.7 Findings from respondents’ opinions about compliance costs

4.7.1 Findings on whether the taxpayer to comply with tax policies issued by tax authorities
The respondents were asked structured question to write their opinions about whether tax payers
comply with tax policies issued by tax authorities and their responses were as follows;

Response Frequency Percentage (%)

Yes 70 87.5
No 10 12.5
TOTAL 80 100
Source: primary data 2023

From the table above, the majority of the respondents agreed that tax payers comply with tax
policies issued by tax authorities. They gave the reasons why they though tax payers comply
with tax policies issued by tax authorities. The reason they all gave was “no tax payer has ever
been taken to courts of law, being accused of not complying with the policies”.

Those who said that no were even not sure of the reasons. In other words, they were confused
whether tax payers comply with tax policies issued by tax authorities.

4.7.2 Findings on what government can do in order to improve tax compliance among tax
payers
The respondents gave their opinions on what can be done by the government in order to improve
tax compliance among tax payers and their responses were as follows;

55
Table 4. 16: what government can do in order to improve tax compliance among tax payers

Response Frequency Percentage (%)

Government should utilize the tax revenue in a 35 43.8
way that benefits the tax payers. This can
enhance the willingness to pay taxes
URA should have cost effective methods of 40 50
payment taxes in order to reduce tax eversion
and avoidance.
Government should reduce tax rates. 5 6.2
TOTAL 80 100

56
 CHAPTER FIVE
SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS
5.0 Introduction
This chapter gives the summary of the main findings, conclusions and recommendations that are
in line with the study objectives and questions. The recommendations are related to the
findings of this study.

5.1 Summary of the main findings

iv Findings from the study indicated that the tax compliance is very well seen to be highly
attributed to the level of tax morale of SMEs in a given area especially Kampala Central Park,
amidst internal and external factors like; willingness of the tax payers to pay tax , utilization of
tax revenue and tax education. The general characteristics of the respondents give a clear
impression that tax morale is at a fore front of the study’s objectives. All the SMEs owners/
employees are equipped with the knowledge regarding tax compliance. With that, 37.5% are O’
level leavers, 8.8% % went to tertiary institutions, and 12.5% are primary leavers. The findings
also reveal that the tax morale is mainly due to willingness of tax payers to pay taxes,
utilization of tax revenue and tax education. The objectives of the study were achieved where
all the three objectives namely; To determine factors that can enhance tax morale of tax payers
in Kampala Central Business Park, to determine the level at which taxpayers in Kampala Central
Business Park comply with tax payment and to determine the relationship between tax morale of
taxpayers and their level of compliance in Kampala Central Business Park were achieved.

However, findings indicate that the level of tax compliance has been increasing though the
respondents cited what of the factors that reduce tax compliance in Uganda especially
Kampala Central Park to include the following;

- High tax rates.

- High costs of compliance
- Too many requirements for tax registration
- High registration costs
- Corruption among tax authorities

57
5.2 Tax morale
Findings indicated in 4.7 that 62.5%% of the respondents agreed that tax payers are willing
and eager to pay taxes while the 37.5% disagreed but out of this percentage, other
respondents were not sure about it.

Findings indicated in Table 4.8 that 87.5%% of the respondents agreed that the government uses
the revenue from tax collection to finance SEs 12.5% disagreed.
Findings also indicate that there is no tax education, as indicated by Figure 4.6 82% of the
respondents who did not agree that tax payers always attend taxpayer seminar/ workshop
organized by URA and only 18% agreed.

5.3 Tax compliance

The assessment of the tax compliance indicated that tax payers in Kampala Central Park file
their tax returned on timely as evidenced by Table 4. 14 where 50% of the respondents agreed
that tax payers always file their returns in time. The tax payers do not always pay tax on time
without intervention of tax officials. This was confirmed by Figure 4.9 where by 38% of the
respondents who disagreed that tax payers always pay tax on time without intervention of tax
officials.

Findings also indicated in Table 4.15 that 50% of the respondents agreed that tax payers
always disclose all my income for tax purposes. From the study, it was also found that tax
payers always follow tax rules and regulations governing SEs operations. This was evidenced by
Figure 4.10 where by 50% of the respondents agreed that always follow tax rules and regulations
governing SEs operations.

From the opinions of the respondents, they suggested what the government can be done to
improve tax compliance in Uganda and their suggestions were as follows from Table 4.16;

- Government should utilize the tax revenue in a way that benefits the tax payers. This can
enhance the willingness to pay taxes
- URA should have cost effective methods of payment taxes in order to reduce tax eversion
and avoidance.
- Government should reduce tax rates.

58
5.4 Conclusions.
Tax compliance is highly influence by tax morale where by willingness of tax payers to pay tax,
utilization of tax revenue by the government and tax education affect the way tax payers in
Kampala Central Park comply with taxes imposed on them.

Conclusively, therefore, tax morale is a worthwhile factor to consider and enhance in order to
increase the level of tax compliance among SMEs in Kampala Central Park and Uganda at
large.

5.5 Recommendations.

5.5.1 To the government

Governments looking to improve tax compliance should invest in sending simple deterrence-
framed messages to taxpayers.

Governments utilize the tax revenue to provide public goods and services for citizens.

Government should communicate with taxpayers through mailed letters, digital or phone
correspondence, or in-person visits to remind them of their tax obligations.

Governments should ensure that deterrence messages are simple and have a credible threat of
enforcement and target messages to taxpayers for whom it is typically easier to evade taxes.

5.5.1 To the tax payers

The tax payers should avoid tax avoidance

They should pay their taxes in time

They should register for a TIN

If you hire employees, register for Pay As You Earn (PAYE).

If you make a payment subject to VAT, which will happen when you supply goods and services
which are not exempt from VAT and your annual sales are expected to exceed UGX 150 million,
then register for VAT.

If your business becomes eligible for a certain tax when it already has a TIN, you will need to
change the entity’s tax registration details.

59
 They should keep records properly

5.6 Areas for further Research

The following areas have not been addressed by this research report and are therefore open to
any willing researcher for further studies about the financial system of Uganda;

- Impact of tax compliance on the financial performance of SMEs

- Effect of tax incompliance on the growth of economy like Uganda

60
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 APPENDICES
APPENDIX I: QUESTIONNAIRE
Dear Respondent

I am Nankindu Sharon a student of Kampala International University conducting an Academic

Research as a partial requirement for the award of Bachelors of Business Administration –
Finance and Accounting. You have been considered and chosen one of the respondents and
therefore you are requested kindly to spend a few minutes of your time to answer the questions
in this questionnaire. The information given was used strictly for academic purposes only.

Part A- Socio Demographic

Please tick appropriately inside the box

1. Gender
Male
Female
2. Age Bracket

under 18years 18-35years 36-50years over 50years

3. Education level

University Tertiary A’ level O’ level Primary

4. The experience of the proprietor in running the business up to:

Less than 1 year 1-2years 3-5years 6-10years

5. The business you are operating:--------------------------------------------------

6. Status: What is the firm’s registration status?

Not registered Partnership

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 Private limited company Sole proprietorship
Public limited company Other (Specify)
7. Industry: Which industry is the business?

Retail Construction
Service Mobile Money
Manufacturing Other (Specify)

8. Size: Number of Employees

1-5 6-50 51-250 251 and above

Part B: Tax morale

Likert Scale: 5. Strongly Agree 4. Agree 3. Neither Agree nor Disagree 2. Disagree 1. Strongly
Disagree

TAX MORALE 1 2 3 4 5
Willingness of tax payers to pay tax
1 The tax payers of Kampala Central Park are willing and
eager and willing to pay taxes
2 Some small scale business owners avoid paying taxes
imposed on them because they don’t know why they should
pay taxes
3 People are not willing to pay taxes because they are fed up of
paying them since they do not benefit from them.
Utilization of tax revenue to support SEs 1 2 3 4 5
1 The government uses the revenue from tax collection to
finance SEs
2 Revenue from taxes is evenly distributed among the SEs in
Uganda especially in Kampala Central Park for their
development
3 Tax payers benefit from the tax they pay
4 Because I trust the government in the way it uses our taxes, I
find it worthwhile paying taxes
1 As a citizen it is my duty to pay tax
2 I feel it is my responsibility to pay taxes so that the
government can provide public goods and services
3 Because of the fair tax system, I find it prudent to pay taxes
4 Because of the knowledge I have about our tax system I find

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 it is important to pay taxes
Taxpayer Education 1 2 3 4 5
1 I always attend taxpayer seminar/ workshop organized by
URA
2 I regularly attend tax clinics organized by URA.
3 I regularly listen to the radio talk shows programs of URA.
4 I regularly visit taxpayer education portal of Uganda
Revenue Authority
5. I have ever received practical handbooks, and guides from
URA to assist me in preparing my own tax returns
6 There are routine tax education programs run by URA

In the following questions you write your opinion

2. Why do you think that tax payers are not willing to pay the taxes imposed on them?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
3. What do you think can improve the willingness of a taxpayer to pay taxes?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
4. Do you think that the government uses the taxes in a way that benefits taxpayers?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
5. In your opinion, how can tax revenue be utilized by the government?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
6. How often have the tax authorities attempted to educate the taxpayers usefulness of paying
taxes?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
7. What do you think is the importance of tax education to the citizens?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
PART C: COMPLIANCE COSTS
Likert Scale: 5. Strongly Agree 4. Agree 3. Neither Agree nor Disagree 2. Disagree 1. Strongly
Disagree

Compliance costs 1 2 3 4 5
1 My business incurred a lot of money in registering with
URA
2 I first bribed URA officials to register my business
3 I am over charged when am paying taxes using mobile
money
4 I incur extra charges at the bank when am going to pay tax

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 imposed on my business
5 I spend much on transport to URA offices to pay tax
6 Am charged extra money to obtain receipts after paying
taxes

In the following questions you write your opinion about compliance costs

1. Do you think that the costs incurred by the taxpayer to comply with tax policies are fair, yes or
no?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
If yes, why?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
If no, why?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
2. What can be done by the government in order to reduce the tax compliance costs?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
PART D: TAX COMPLIANCE
1 2 3 4 5
1 I always file my returns in time
2 I always pay tax on time without intervention of tax
officials
3 I always disclose all my income for tax purposes
4 I always follow tax rules and regulations governing SEs
operations.
5 I feel paying tax is burden on us as taxpayers
6 I feel it is wrong if I do not report all my income in order to
pay less income taxes
7 If in doubt about whether or not to report a certain source
of income, I would not report it
8 There is nothing bad about under-reporting taxable income
on one’s tax return
9 Taxes are so heavy that sometimes it is justifiable to cheat
on taxes.

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 In the following questions you write your opinion about tax compliance
1. Do you think that the taxpayer to comply with tax policies issued by tax authorities, yes or no?
……………………………………………………………………………………………….
If yes, why?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
If no, why?
……………………………………………………………………………………………….
……………………………………………………………………………………………….
2. What can the government do in order to improve tax compliance among tax payers?
……………………………………………………………………………………………….
……………………………………………………………………………………………….

Thank you very much for your time

73