FACTORS CAUSING INEFFICIENCY ON TAX REVENUE COLLECTION IN TANZANIA:
A CASE OF TRA- ARUMERU DISTRICT TAX REGION
By
ALOYCE K. TEMU & STEWART MBEGU
School of Business, Mzumbe University, P.O Box 6559, Mbeya, Tanzania
ABSTRACT
The Tanzania Revenue Authority (TRA) was established by Act of Parliament No. 11 of 1995, and started its operations on 1stJuly 1996. In carrying out its statutory functions, TRA is regulated by law, and is responsible for administering impartially various taxes of the Central Government. This study provides a theoretical analysis of the factors on failure to achieve full potentiality on tax revenue collection in Tanzania -A case study of the Tanzania Revenue Authority located in Arumeru district tax region. The study intended to Identify the main resources of revenue available in Tanzania, Investigate the major problems/obstacles hinders performance of revenue collection process and Suggest the alternative means and strategies of the increasing the revenue base and revenue yield at TRA.
The study used both primary and secondary data. The primary data involved use of questionnaire, and interviews. Secondary data used publication and TRA records. This study consists a total sample size of 30 respondents from TRA. The study reveals that TRA is facing complaints and hindrances in collecting taxes due to tax evasion, tax avoidance, and tax complexities another challenge facing TRA today is misuse of tax exemptions extended to business communities and excessively used by tax officials On the other hand tax officials faces difficulties such as administering all tax laws by failure to accessing, collecting and accounting of the tax revenues, monitor ,oversee and coordinate all tax activities, promote voluntary compliance, take effective steps to counteract frauds and tax evasions.
This study has highlighted the TRA tax administration and its effect on the performance tax collections. The study had determined persistent factors that hinder the TRA failure to raise adequate tax revenues for economic and social developments.
Finally, the recommendation on the further research is required in TRA to know factors that affect the accuracy, fairness and timely tax collections . The study recommend several measures based on observed and analyzed network system and making the I-TAX System to be user friendly by staffs to cover the gape of employees and increasing efficiency on collection on tax revenue . The findings of this study provide initial directions in determining the factors that leads to ineffective tax collections by TRA. The management should understand that proper tax collections are necessary in order to raise adequate revenues for social and economic development of the country. TRA management needs to determine what actions to do to ensure that it collects sufficient revenues.
CHAPTER ONE
INTRODUCTION AND BACKGROUND OF THE STUDY
1.1 Introduction
The overview of this chapter presents the background of the problem, statement of the problem, objectives of the study, research questions of the study, significant of the study, Limitation and scope of the study.
1.2 Background of the Problem
Bahiigwa (2004) claims that the revenues as the form of the taxation, license another statutory are very important in a state for the purpose of ensuring the capacity of the government to delivery services to its people. This service including, education services, health services, security services, transportation services and other state concerned administration issues.
As the major source of the government revenue all over in the world the administration of the tax needs to be well recognized, monitored and controlled by the state authority under the provision of the legal instruments, regulations and other guidelines accordingly.
However worldwide, there are some of the factors that hindering the effectively collection of the revenue. As due to this many governments in the world has made the strategies so as to improve the administration of the tax collection. According to the study conducted by Ndung’u (2013) in Kenya as one of the East African states, titled as the factors affecting revenue collect, the inefficacy of the tax collection was influence by ineffective tax structure, lack of the capacity and competence among the tax officer in administrating the collection of the tax in the country.
In Tanzania the administration of the Tax revenue collection is vested to the Tanzania Revenue Authority under the Tax Administration Act 2002 R.E in 2019. TRA as the semi-autonomy government Agency responsible for the collection of the government revenue is working under the directives of the ministry of Finance and Planning while headed by the Commission General who is appointed by the President of the United Republic of Tanzania. Such that TRA is responsible to administer domestic revenue through direct taxation such as income tax from business income, investment income and employment income, as well as indirect taxation such as VAT and Excise duty.
As what was identified by Ndung’u (2013) in his study conducted in Kenya, Tanzania also face the problems of the tax administration, however of the presence of the Tax regulations, Tax Administration Act and Government policies.
Problem of administrating and managing the tax so as to avoid poor tax revenue performance in the country has the long run history some of the factors are influence by the Political interest or bases, unsuitability of government policy, poor regulation on the foreign investment, complexity of the legal requirements as well as the presence of many revenue collection platform (President Samia, address on Tanzania Parliament on 22ndApril, 2021).
Thereafter, the system of the Revenue Authority (TRA) has to be checked well if it encourages tax payer to pay their tax or it led to the dropdown of the tax payers. Despite of the rise of the revenues as monthly to monthly reported by the TRA headquarter, there still a problem in domestic collection of the revenue, this can be caused by either Organization itself or the taxpayer behavior in evasion of the Taxpaying.
In doing so, all phases of Government of the United Republic of Tanzania emphasized in effectively administration of tax, by eliminating the bottleneck that hinder the effectively collection of the revenue.
Merely, this study will be added factors that influence the ineffective collection for the revenue in Tanzania Revenue Authority a case study of Arumeru District TRA office.
1.3 Statement of the Problem
Despite the good initiatives of the government, experience in the past years indicates that government’s seemingly good plans have never successfully generated resources to meet its anticipated national targets and still it has a relatively low tax to GDP ratio, which lies considerably below average for sub Saharan Africa. Revenue derived from taxes has been very low.
The study of Christian Aid report, of March (2009),Tanzania is the second largest loser of Revenues in the East African region, and that, the revenues generated from governments fiscal and monetary plans are still far below the actual revenue required to finance and achieve targets. Tanzania has remained both heavily Aid dependent and unable to invest faster in its own development, apart from having an anile base for tax collection, because of its low domestic revenue collections and that, a lot of revenue is still not being collected.
Moreover, a large proportion of the budget still depends on unpredictable funds from development partners (DPs).The remarkable revenue collection is not spared by the shortcomings derived from the tax administration complexities in the country. First, the authority is semi-autonomous rendering interference of decision making from government particularly in exemptions matters. Second, the nature of tax administration imposes duly discretion power to revenue collection agency and its officials on matters such as provision of tax exemptions, determination of tax liabilities, and selection of audits (Fjeldstad and Rakner, 2003)This study therefore, focuses at addressing the challenges that cause the ineffective collection of the tax revenue in the country by considering Arumeru TRA District Tax Region within the Arusha Region.
1.4 Research Objectives
1.4.1 General Objective
To assess the factors causing inefficiency on tax revenue collection in Tanzania
1.4.2 Specific Objectives
i. To identify the main resources of revenue available in TRA
ii. To identify the challenges that hinder the effectives on collection of the revenues
iii. To identify the solution to be implemented on the inefficiency collection of revenues at TRA
1.4.3 Research Questions
i. What are the main sources of revenue available in TRA?
ii. What are the challenges that hinder the effectives on collection of the revenues?
iii. What are the solutions to be implemented on the inefficiency collection of revenue at TRA?
1.5 Significance of the Study
The study posits the complexity in tax administration in Tanzania hence acknowledging the roles of different stakeholders in the matter. TRA officials, business communities, government officials, academicians, other researchers, et cetera play significant roles in tax administration, each category aimed in attaining its goals regarding tax matters.
The findings from this study will help the authority to identify the problems associated to the revenue collection mechanism and help to come up with solutions to eliminate the shortcomings in revenue collection.
The study also will make an important contribution to policy makers and body of knowledge by providing in-depth understanding of complexities prevailing in revenue collect.
Finally the study will be more useful to the research sine he will be able to fulfill the partial requirement for the award of Bachelor degree of Mzumbe University.
1.6 Limitation of the Research
TRA Arumeru was the area of the study whereby the concentration was on the factors which hinder performance of revenue collection. While doing the field research, the following constraints in one way or another affected the quality of this study.
i. Time was limited compared to the research work fulfillment.
ii. It was difficult to meet respondents timely as well as lack of motivation from respondents in answering questionnaires.
iii. Lack of understanding of the importance of the study to some of the employees.
iv. Confidentiality of some documents and information related to the topic and lack of fairness of some of the councils’ staff to give cooperation concerning the topic.
1.7 Scope of the Study
The study was conducted only in one Region of TRA areas where the researcher got enough data that brought good findings at right time.
CHAPTER TWO
LITERATURE REVIEW
2.1 Introduction
This chapter will provide the details on the subject matter pertain the review of other authors on the similar problem; it also constitutes the definitions and concept used in the study, the theoretical review, empirical study as well as the conceptual mode. The conceptual framework of the study will be guided by the objectives of the study.
2.2 Definition of Terms
2.2.1 Revenue
Tax Revenue Appeals Act No.15 of 2000, Revenue means taxes, duties, fees, fines and other monies imposed by or collected under the law or specified provision of the laws set out in the First Schedule to the Tanzania Revenue Authority Act, 1995.
2.2.2 Public Revenue
Mithani (2006), Public revenue includes only those sources of income of the public authority which ordinarily are known as “revenue sources”
2.2.3 Direct Taxes
These taxes are either charged on individuals or businesses incomes or gains. Therefore, to an individual, the direct tax is raised to incomes obtained from wages, salary, bonuses, commissions, gratuities, and any other forms of payments that can be termed as gains or profits. Gains from businesses that are subject to direct taxation are service fees, gains from realization of assets or liabilities of the business, gifts and any other ex-gratia payments received, dividend et cetera. Direct taxes often include personal income tax (“Pay as You Earn”-PAYE), corporate tax, withholding tax, rental income, tax on interest in banks. The indirect taxes include taxes on domestic goods and services such as value added tax (VAT), excise duty on some items, import duty, VAT on imported goods and services.
2.2.4 Indirect Taxes
Indirect taxes are categorically on consumption and on international trade. The group of indirect taxes is made up of consumption taxes and other user fees or duties. The second group of indirect taxes is those in relation with international trade. Consumption taxes and other user fees or duties are: Value-Added taxes, Excise duty on locally manufactured goods, Stamp duty, Taxes on Motor Vehicles, Fuel Levy and, Port and Airport Service charge Taxes on international trade are: Import Duty, Excise Duty on imported items and Value-Added Tax on imports.
Reports from TRA evidenced that indirect taxes (taxes on consumption, on international trade, fees and charges on consumption and international trade) constitute the large percentages of revenue collected compared to direct taxes. Over the years now, tax administration in many developing countries has been the complex task to the government and its agencies. The complexities came in from different angles; tax payers behavior, interaction between tax officers and taxpayers, motivation either to pay or not to pay tax, abuse of power and abuse of incentives. Below are literatures which try to explore the complexities of tax administration in general:
2.2.5Tax Administration
Gupta and Mookherjee (1998), tax administration comprises three interrelated activities: the identification of tax liabilities based on existing tax legislation s; the assessment of taxes to determine if the taxes paid are actually within tax liabilities; and the collection, prosecution, and penalty activities that impose sanctions on tax evaders and ensure that taxes and penalties due from the tax payers are actually collected.
This composite nature of tax administration imposes duly discretion power to revenue collection agency and its officials on matters such as provision of tax exemptions, determination of tax liabilities, and selection of audits (Fjeldstad and Rankers, 2003).
2.3 Theoretical Literature Review
2.3.1 Optimal Tax Theory
The Optimal tax theory is the theory that shows how the tax are designed in the country and implemented. For instance, in United State of America the Supreme court in the year 1895 asserts tax has the power upon which an entire nation is based upon. Also, in the study of Griber (2007) assert that to understand the effects of taxation on the national investment decision in a world of not taxes. Indeed, both party, the key concrete state actors have realized the importance of paying the tax for the National develops.
The administration of the tax should determine the economic inefficiency in order to ensure tax is fair distributed to the tax payer, through fairness on the tax estimation.
Due to this the optimal theory on tax is more significant to ensure that tax is well designed and administered so as to influence the taxpayer to pay their tax in the effectively way so as to a avoid the tax evasion in Tanzania as well in the world wide.
2.3.2 Ability-To-Pay Taxation Theory
Kaldor (1958) assert that the ability-to-pay tax theory is the taxing of tax progressively. Ability-to-pay theory maintains that tax should be administered in accordance to paying ability of a taxpayer. This approach towards tax increases burden of tax to businesses and individuals The ability-to-pay theory is that businesses and individuals earning more income can afford to pay high amount of tax compared to those earning less income in that they pay less tax.
The ability–to-pay tax theory is mandatory to every state to impose to its residents since it needs to contribute income to support its government (Smith, 2010).The ability-to-pay theory is reflected in Smith’s phasing of the burden being owed in proportion to their respective abilities.
The ability-to-pay approach treats the tax administered and collected by the government separately and these taxes are in proportion to taxpayers’ ability to pay. This theory is important in that it identifies the level of ability in paying tax and how it affects in tax administration and collection in Tanzania perspectives.
2.4 Tax Administration system in Tanzania
In Tanzania power of administering the tax revenue collection is vested to the Tanzania Revenue Authority (TRA) government semi-autonomy established under the parliamentary Act No. 11 of 1995 and commences its operation of the fiscal year 1996. Relatively to this the country as many other develops countries depending on mostly on tax as the key source of the government revenue. And some time the development partners through the provision of the grantees, long term loans and sometimes financing government projects.
In this case the necessary or importance of tax in any state has the huge impacts to the national development projects. For the purpose of facilitating the governmental role to the citizen proper utilization and administration of the tax is relatively importance
Hence in Tanzania strong tax administration equipped with tax awareness to tax payers, tax morale and voluntary tax complianceis highly need. Tax administrators should be in a position of encouraging tax morale, voluntary tax compliance through tax awareness and being able to fight against corruption in order to built trust amongst tax payers.
Lubua (2014) points out that voluntary tax compliance is very important in the whole process of tax administration in Tanzania. The study revealed that tax compliance is influenced by awareness of tax laws, business experience, integrity of employees and training needs. Due to the importance of voluntary tax compliance, the author recommends effort on awareness of tax laws to all tax payers in order to improve government revenues.
Also, Machogu&Amayi (2013) and Aiko (2013) found that tax knowledge isvery important in promoting voluntary tax compliance. In order to enhance domestic tax collections, tax authorities need to promote tax education and integrating tax education in Tanzanian school curriculum for enhancing voluntary tax compliance and building tax morale.
Tax knowledge can help tax payers to know the importance of tax and hence keep proper record of accounting for determining tax payments. Also, information communication technology (ICT) has strong influence on the performance of tax administrators in collecting tax revenues.
In the study by Chatama (2013) found that ICT contributes significantly on the tax collections in the large tax payers’ department of Tanzania Revenue Authority (TRA). The study revealed that ICT has improved processing returns in time, minimizing operational costs and timely access of customers’ tax records. Therefore, tax authorities should focus of improving ICT infrastructure in order to easy tax collection mechanisms and boost government revenue.
2.4 Factors that enhance the Inefficiency of Tax Administration and Collection
The problem of the inefficacy tax administration and tax collection has been claimed to be caused by numbers of the factors; among of these factors are.
2.4.1 Tax Exemptions
Every year the Parliament of Tanzania carefully scrutinizes the Government’s budget. Tax exemptions, on the other hand, do not receive the same attention in the Parliament, effectively making them hidden expenditures. Tax exemptions involve very large sums of money. In 2009/10 alone, 2.3 percent of GDP or TZS 695 billion was granted in tax exemptions.
The sheer size of the amount involved raises question about the purpose these incentives serve and whether the amounts spent on them are justified. Could it be that tax exemptions are too high for a country that is struggling to collect sufficient resources to finance its budget? Could it be that Tanzania would be better off if fewer tax exemptions were granted and more money was spent on health, water or education? And why is information on who benefits not publicly available?
2.4.2 Corrupt Practices in Tax Administration
In Tax administration, the corrupts is highly influence by the Tax officer to the taxpayer through the highest estimation of the amount of the tax so as to build a negotiation that will benefit both party. This was highly supported by Child (2008) in which he support that corruption is tax is highly influence and involves the tax payers and tax officer.
2.4.3 Tax evasion and Avoidance
Evasion and avoidance is a problem that tax administration has to face. Avoidance of tax is practiced by using legal methods to exploit the tax system in order to reduce the liabilities. Evasion of tax is failing to pay taxes which have been administered to a tax payer. Evasion of tax is an existing problem as observed by Plato. Rosen(985)asserts that in case of income tax unjust man will pay less income tax compared to the just man.
Avoidance and evasion of tax may eventually become a habit when taxpayers get used to tax evasion the taxpayers will continue to evade tax so even if tax rates in question is lowered. Regarding the evasion and avoidance of tax no guarantee is justified that low rates of taxes which exists now will discourage evasion of income tax. Moreover, the possibility of detection is little and also the penalty rate imposed is low thus encouraging the continuity of evasion of income tax (Rosen and Gayer, 2008)
According to Rosen (1999) define tax evasion as the situation whereby a person fails to pay legally due taxes. He accounts for the environment that can lead to tax evasion is when a person can keep two books of records, one with actual records and the other for the purpose of showing tax authorities.
2.5 Factors That Enhance Effective Tax Administration on Government Revenue in Tanzania
2.5.1Strongly Legal Framework
Gill, (2000) argued that, For the best administration to be effective, it needs to be supported by a sound legal system and to operate in an environment that does not require it to face outright opposition from all its actual and potential clients.
2.5.2 Deployment of ICT infrastructure
Chatama (2013) found that, ICT contributes significantly on the tax collections in the large tax payers ‘department of Tanzania Revenue Authority (TRA).
The study revealed that ICT has improved processing returns in time, minimizing operational costs and timely access of customers ‘tax records. Therefore, tax authorities should focus on improving ICT infrastructure in order to easy tax collection mechanisms and boost government revenue.
2.5.3 Competence and Skills of the Tax Officers
In the study Kayaga (2010) conducted in Uganda opined that, new technology alone is not sufficient if the government does not recognize the need for skilled tax officials. Effective tax administration requires qualified tax personnel with requisite skills to maintain these systems and operate them to their fullest potential. It is through the competence and skill will enable the tax officers to observe the moral and ethics on the tax regulation and administration through that the possibilities of the corruption situation would be minimized.
2.5.4 Stability of the Tax regulation
Government should ensure that the regulations concerned to the tax administration are stable and more friendly to the tax payer so as to enhance the compliance of the taxes from the taxpayers. Vice versa it may lead to inefficiency collection of the tax and tax administration in the country.
2.5.5 Public education of the Tax knowledge
Tax authority should ensure that the general publics are well education with the provision of the tax knowledge, so as to make them aware on the importance of the Taxes to the development of the Nation and a personal himself.
2.6 Solution of the problems associated with inefficiency Tax collection
The tax collection capacity of Government should be enhanced, so as to increase the size and predictability of tax resources. This implies adequate training of personnel on collection procedures as well as educating taxpayers the important of paying taxes. Periodic of evaluations of collection costs should also be performed to monitor and guide the development of the collection efforts. An effective provision of service must, nevertheless, accompany the increased tax collection effort in order to develop public trust and accountability of the Local government (LG)
2.7 Empirical Studies Literature
Djankov et al. (2010) in his study in United States investigates how corporate taxes on entrepreneurship investment using data for 85 countries how the effects are. The author finds effective tax rates on corporate to have a significant negative correlation to investment, foreign direct investment and entrepreneurship. The corporate taxes are correlated to investment in the manufacturing sector but not in services sector. High corporate taxes will therefore reduce investment hence lowering productivity adversely affecting economic growth.
These finds are similar to those of a study by Lee and Gordon (2005), who find corporate taxes to be negatively correlated with economic growth. Low corporate taxes encourage entrepreneurial activity hence promoting economic growth however failing to capture variables which cause inefficiency in tax administration and collection.
Poulson and Kaplan (2008) in their study in Pakistan investigate how the state income taxes impacts on growth of Pakistan economy. Their research was based from 1973 to 2010. Their model is an endogenous growth model of a linear form. They regress relative growth rate on relative marginal tax rate, relative regressively and relative per capita personal income in the initial year, income tax and regional dummy. They find that high marginal tax rate create a disincentive to work and invest hence lower economic growth. Their findings also suggest taxes to be having a negatively significant effect on growth of the economy but the impact on income tax is more than that of other taxes. States which are having with regressive system of tax have growth rates which are high than those with more progressive tax systems thus fails to capture variables which cause inefficiency in tax administration and collection.
Mzenzi (2013) argued that, local tax payers lack sufficient knowledge on what type of product/businesses are subject to local taxes and the overall administration of the taxes concerned. Moreover, in some cases he found local taxpayers are not aware about the payment procedures, timing for payment and even the amount to be paid.
Fjeldstad (2008) noted that, some of the challenges are; the revenue collectors retain some of outsourced revenue; Unwillingness of tax payers; Political pressure on the local tax administration to relax on revenue collection; and weak formulation and implementation of Bylaws. Also, procedures for paying certain taxes are too cumbersome and do not encourage prompt payment of tax by payers. In some instances they go free by bribing tax officials.
Ouma(2004), in his study on, “The Effectiveness of revenue collection procedure”- A Case of Tanzania Breweries Ltd TBL pointed out that, for any organization to be effective in collection of revenue, it should ensure that it minimizes or eliminate losses arising due to collection. To achieve this it requires that;
i All cash/ cheques collected should not be used for settlement of other direct cash payment.
ii The cashier should maintain a register for all cash collected.
iii There should be separation of duties to ensure that the personnel dealing with cash are not involved in recording the same.
Semboja and Therklden (1992) in their study regarding Tanzania reveal that enough tax was not collected by local authorities to finance basic operations in their localities. In their research they pointed out four major cases of poor tax collection in local government authorities in Tanzania. These comprises of main basic sources of tax which are based on fixed rate of every unit, poor administration and collection of tax, unexploited new sources which are potential and insufficient administrative and political support from Tanzanian central government to tax a population which is used to free service by public since 1967.
Ndaba (1987) on the study on factors facing tax collection in local government revealed that financing local government in Tanzania faces a number of problems. He explained that tax collection is a challenge since inexperienced staff are hired and local rates which are used for collection of tax on individual and their property is discontinued temporary. However, he did not look on the factors causing inefficiency in tax administration and collection.
2.8 Research Gap Existed
From the literature presented above, the studies failed to show the factors that hindering or contributing to the inefficiency of the collection of the revenue. Hence the theories adapted by the researcher have not solved the problems associated to the revenues morale. Furthermore, the study only viewing the integration of the revenues collection in the public sectors and left the private sectors unfilled. So, the study seeks to fulfill the existed gap by looking a inefficiency revenue collection in a broader way.
2.9 Conceptual Framework
The conceptual framework of the study reviews the variables of the problem where it contains the independent variable and dependent variable as indicate in the figure 2.9 below.
Figure 2. 1Conceptual framework of the study
Independent variable Dependent variable
Source: Researcher (2021) |
Organization Factors Staffs Competence and Skill Technology |
Corruption Cash transaction |
TAXREVENUE COLLECTIONS |
Unstainable Tax regulation and Polices · Tax exemption · Tax Evasion
|
TAX PERFROMANCE · Inefficiency · Efficiency § |
Output |
The conceptual framework above explains the relationship between the revenue collection, staff capacity, government efforts as well as taxpayer tax evasion. It tries to explain the factors that can contribute to ineffectiveness’ of revenue collection as lack of enough staffs, behavior of such staffs as well as lack of modern way to conduct such examination, TRA cannot reach the target of tax collection. Tax incentives such as exemptions to several entities to motivate them as well as to encourage investment can lead to ineffective tax collection. Tax evasion also can lead to ineffective revenue collection. Due to these variables TRA should revise the policy used in revenue collection and reduce exemptions as well as filling the gap for tax evasion.
CHAPTER THREE
RESEARCH METHODOLOGY
3.1 Introduction
The chapter outlines research design and methodology which was followed in conducting this study. It describes the research design, population of the study, data collection method and data analysis used in the study.
3.2 Research Design
Kothari (2006) a research design informs decisions concerning a research study and arrangement of conditions for collection and analysis of data so as to combine relevance to the research purpose with the economy. The researcher used a case study research design to conduct the study which involves acquiring information by sensitively understand of the Organization as unit of the research (Kothari 2006).
3.3 Areaof the Study
This study was conducted at TRA Arumeru District locate within Arusha Region. The research has chosen this area of the study so as to measure the parameters of the knowledge of taxation of the Taxpayer in Arumeru district Region especially to the small income business people.
3.4 Target Population.
Population is defined as the entire group of the individual, event or objects that have the common characteristics (Kothari, 2006).The targeted population of the study was the employees of the TRA Arumeru approximately 50 located in various Tax clearance centers.
3.5 Sampling Procedure
(Kothari, 2006), sample procedure is defined as the process of selecting some part of the aggregate of the totality based on which a judgment or inference about the aggregate or totality is made. In this case the researcher will adopt two sampling procedures which are probability sampling and non-probability sampling.
(Saunders, 2009) defined probability sampling as that type of sampling which includes all types of elements of the population. In probability sampling each element has an equal and independent chance of being selected in a sample while in non-probability sampling is the one which does not based on the theory of probability.
3.6 Sample Size
(Kothari, 2006) reiterated this definition by defining a sample size as the number of items to be selected from the universe to constitute the sample. The sample size of this study was therefore the study used 30 sample size
3.7 Methods of Data Collection
3.7.1 Primary Data Collection
Primary data was used to acquire the first-hand information through the administration of questionnaire among tax administrators. Data were to test hypotheses of the work. Primary data played an important role, since has made researcher to explore the reality in a particular context concerning impacts of tax administration on government revenue.
3.7.2 Secondary Data Collection
Secondary data collection was used by reviewing literature on the subject with the view to testing it through questionnaires. The researcher collected data from TRA reports, reports and journals prepared by other researchers in related fields, books, and other publications relating to tax administration in Tanzania.
3.8 Data Analysis
Data analysis is a procedure of bringing order, structure and analyzing the wide range of data collected (Smith and Albaum, 2012). The study was expected to produce both Quantitative and Qualitative data whereby quantitative data was analyzed by adopting descriptive statistics to obtain percentages. The method gives summary about sample data and current quantitative description in a form which is manageable (Simon, 2002).
The analyzed data was presented using tables, figures and editing. The editing process involves correcting and inspecting each questionnaire to ensure completeness, comprehensiveness and consistency. The data was later coded and entered into version twenty-three (23 Statistical Package for Special Sciences (SPSS)) of SPSS which was more user friendly than most packages.
3.9 Data validity and Reliability
3.9.1 Validity
A conclusion of any study can be affected by either a researcher’s bias or subjective judgment in the data collection process (Yin, 1994). Accordingly, the researcher must provide supporting evidence that a measuring instrument does in fact measure what it appears to measure.
3.9.2 Reliability
Reliability on the other hand, is the central concern to social scientists because the measuring instruments they employ are rarely completely valid. Reliability is the extent to which a measuring instrument contains variable errors, that is, errors that appear inconsistently from observation to observation during any one measurement attempt or that vary each time a given unit is measured by the same instrument. Reliability of the data was checked by triangulation of the collected data and information (Kothari, 2009)
CHAPTER FOUR
DATA ANALYSIS AND PRESENTATION
4.1 Introduction
The chapter presents the result and findings of the study based on the research objective. The findings were presented in summary tables to analyzed the data in order to answer the research objective.
4.2 Response Rate
The rate of the responses of the respondents were relative highly, however the researcher did not be able to carry out the interview as the method of data collection due to the limited time and busyness of the staff. But all 30 distributed questionnaires were collected and crosshead whether to identify if the respondents have dully filled them. So, the responses implied that 100% of the distributed questionnaires were collected.
4.3 Personal Information
Personal information corresponded to the respondents of the study involved, age if the respondents, gender, educational level and time that correspondent o the Organization. This is information were asked so as to identify their relationship with the capacity to attend the questions given.
4.3.1 Age of the Respondents
Table 4.3.1 Distribution of Age
Table 4. 1What is the age of the respondents
| |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | below 25 | 5 | 16.7 | 16.7 | 16.7 |
26-40 | 7 | 23.3 | 23.3 | 40.0 | |
41-50 | 10 | 33.3 | 33.3 | 73.3 | |
Above 50 | 8 | 26.7 | 26.7 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: filed data, 2021
The information related to the age of the respondents show that the age below 25 years were about 5 respondents (16.7%), at the range of 26-40 there were 7 respondents equally to 23.3%, from the age of 41-50 there were 10 respondents (33.3%) and respondent with the above 50 years there were 8 respondents equally to 26.4%.
As the distribution above, the information show that the study was composed with the respondent who were maturity enough to identify the objectives of the study and hence they could have the alternative solution to avoid the situation.
4.3.2 Gender of the Respondents
Figure 4. 1Distribution of the Gender
Source: field data, 2021
The above figure shows the distribution of the gender in the study, as it is indicating the figures shows that 60.0% of the respondent was male and 40.0% of them were female. From the figured values it indicates that the study was observing the issues of gender balance during the process of collecting data.
4.3.3 Education Level of the Respondents
Table 4. 2Distribution of the Educational Level
What is the education level | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Non-Undergraduate | 10 | 33.3 | 33.3 | 33.3 |
Bachelor degree | 12 | 40.0 | 40.0 | 73.3 | |
Masters | 8 | 26.7 | 26.7 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
The table above portray the information correspondents to the level of the education of the respondents, where it indicate that 10 respondents of the study were Non-degree hold means that they are possessing the education level of either Certificate or Diploma, 12 of them re Bachelor degree level and lastly 8 of the respondent were Master degree holder and finally none of the respondent who hold the PhD level. As form this information they are significantly since they will enable to means the reliability and validity of the responses basing on their level of education.
4.3.4 Working Experience
Table 4. 3Distribution of respondents according to duration
State how long have you been in the Organization | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | 0-3 | 7 | 23.3 | 23.3 | 23.3 |
4-10 | 10 | 33.3 | 33.3 | 56.7 | |
11-15 | 6 | 20.0 | 20.0 | 76.7 | |
More than 15 | 7 | 23.3 | 23.3 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
The distribution of the time worked in the Organization shows that most of the response was in the Organization at the range of 4-10 year and more than 15 years. However, the value has at lead collected, this implied that the respondents have the enough experience with the are Organization behavior on administering the tax revenue collection.
4.4 Findings according to the specific Objectives of the study
4.4.1 Identification of the main source of revenue
Table 4. 4Identification of the main source of revenue
List Source of revenue | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Business License | 15 | 50.0 | 50.0 |
|
Motor vehicle | 7 | 23.3 | 23.3 | 73.3 | |
Departure charge | 2 | 6.7 | 6.7 | 80.0 | |
VAT on Consumptions | 6 | 20.0 | 20.0 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
Researcher was intended to identify the main source of the revenue at Arumeru District Tax Region. The influence of the identification of these sources was caused by the general objective of the research on the factor that inefficiency collection of the revenues.
From the table above, the identified source of the revenue as per responded by the respondents were; Business license identified by 15 respondents (50.0%), Motor Vehicle identified by 7 respondents (23.3%) while the Departure cargo were identified by 2 respondents and finally VAT on the consumption of local goods identified by 6 respondents. Since the information as tabulated above, show that Arumeru District TRA office have insufficiency source of the revenue, so the arrangement should be made to ensure a vast chance is created to extend other source of the revenue rather than extending these common sources from the purpose of increase the collection of the revenue.
4.4.2 The challenges that hinder the effectives on collection of the revenues
4.4.2.1The insufficiency of TRA staffs
As indicate in the table below, one of the challenges that leads to low revenues performance at the Organization as indented in the questionnaire was the insufficiency number of the human power at the Organization. The responses show that 11 respondents were strongly agreed with it, while 10 agreed and only 9 respondents did not agree.
This means that the presence of low number of staffs, affect the level of the revenue collection, since there some of the strategies to be implemented, such as of post task like Provision of education to the taxpayer, operation to taxpayers’ places.
Table 4. 5The insufficiency of TRA staffs
The insufficiency of the TRA officer can lead to poor tax administration at your Organization | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Strongly Agreed | 11 | 36.7 | 36.7 | 36.7 |
Agreed | 10 | 33.3 | 33.3 | 70.0 | |
Disagreed | 9 | 30.0 | 30.0 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
4.4.2.2 Staff knowledge and competence
According to the figure below, it indicates the level of the responses of the respondents specifically on how the staff’s knowledge and competence affects the collection of the revenues at TRA. The values indicated that; 43.3% of them were strongly agreed, 46.67% agreed and 3.33% strongly disagreed while 6.67% of them were disagreed.
This values indicate that if the staffs are possessing low level of knowledge on the tax administration and competence may influence to the low performance of the revenue due to that most of the tax payer will be influenced to be served by this group of people and hence the accurate estimation may not be achieved instead wrong estimation will be incurred to the tax payers.
Figure 4. 2Staffs knowledge and competence
Source: field data, 2021
4.4.2.3 Inefficiency of ICT technology
Figure 4. 3Inefficiency of ICT technology
Inefficiency of ICT technology has promoted to the low collection of the revenue at your area. | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Strongly Agreed | 13 | 43.3 | 43.3 | 43.3 |
Agreed | 8 | 26.7 | 26.7 | 70.0 | |
Strongly disagreed | 1 | 3.3 | 3.3 | 73.3 | |
Disagreed | 8 | 26.7 | 26.7 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
As from the indicate table above, the poor level of the ICT used in the Organization may contribute to the poor revenue collection of tax at TRA. This was evidenced by the output of the responses in which 13 respondents indicate the Strongly Agreed, 8 of them were agreed, while only 1 respondent strongly disagreed and only 8 respondents were disagreed.
4.4.2.4 Influence of tax exemption of the tax collection
Table 4. 6Influence of tax exemption of the tax collection
Taxes exemption may affect the volume of the revenue collection at TRA | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Strongly Agreed | 16 | 53.3 | 53.3 | 53.3 |
Agreed | 14 | 46.7 | 46.7 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
The influence on the tax exemption can cause the low performance of the tax revenues collection. This is due to the government of the United republic of Tanzania (GoURT) though the Ministry of Finance and Planning (MoFP), issues the tax exemption of the variety of the services or goods. This can lead to the drop down of the performance of the revenues collection is the exemption are not well strategies. The responses of the staffs on these aspects indicate that 16 respondents (53.3%) strongly agreed, while 14 of them were agreed. In that case none of the respondent who disagreed with the influence of the tax exemption on the revenue collection performances.
4.4.2.5 Political influence on Tax exemption
Table 4. 7Political influence on Tax exemption
Source: field data, 2021
One of the challenges of the tax revenues collection was the political influence on the exemption of taxes, sometimes the Political debates are taken into the consideration on administering the Taxes affairs rather than make the concentration the Taxes professionalism. Since as much as the Political influence gain the momentum on taxes issue like the exemption, the performance of the tax become low. This is evidenced by the output of the respondents where 33.3% of the respondents strongly agreed, 26.67% agreed and on other hand 13.3% of the respondent strongly disagreed and 27.6% disagreed.
4.4.2.6 Motivation of the Business environments on tax evasion
Figure 4. 4Motivation of the Business environments on tax evasion
Source: field data, 2021
From the above data, it shows that 80.0% of the respondents were agreed that business environments motivate taxpayer to evading from paying the tax or some time bring wrong calculation of annual return. While 20.0% of them disagree. Business environments include the presence of various cost associate to the business-like Local government license fees, building taxes, unfriendly/bad relationship between Taxpayers and Tax Officers.
4.4.2.7 Tax Administration Motivates Evasion
Table 4. 8Tax Administration motivation on evasion
Tax administration motivates evasion, in such that high estimation of the tax and corruption behaviour among the Tax Officer and Tax payers | |||||
| Frequency | Percent | Valid Percent | Cumulative Percent | |
Valid | Strongly Agreed | 20 | 66.7 | 66.7 | 66.7 |
Agreed | 8 | 26.7 | 26.7 | 93.3 | |
Disagreed | 2 | 6.7 | 6.7 | 100.0 | |
Total | 30 | 100.0 | 100.0 |
| |
Source: field data, 2021
On the aspect above the results indicate that; 20 respondents were strongly agreed, 8 of them agreed while only 2 respondents were disagreed on the motives of the Tax administration. Hence the motivation of the tax administration may enhance the tax evasion, through unreliable provision of the tax estimate rather than depending on the tax officer to make an assumption on the tax rate amount. Indeed, some of these tax officers are no longer mediate to ethics and moral of their duties they are normally making higher estimate so as to create an opportunity of being given the corruption from the taxpayers. And some of the condition imposed in the tax administration especially on the Tax rate appeal where by the Tax Administration Acts stipulate that even if you are not agreed with the amount you have to pay at least 1/3 of the estimated rate and appeal to the Commissioner General (CG) through the council related to the Tax administration issues.
4.4.3 Lists of alternative solution toward the ineffective collection of Tax
Figure 4. 5Solution to combat poor revenue collection
The study also aimed to analyze what to be taken so as to avoid the ineffective performance of the collection of the revenue. Respondent were asked an opened end question so as to measure their level of the understand and determining the individual perception of the method to combat poor collection of revenue. Since the results show that the respondents who were the staffs of the TRA at Arumeru have coined different approach of delimiting the problem of poor performance as they have presented in the table above.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Introduction
This chapter presents summary, conclusion and recommendations regarding the factors causing inefficiency collection of tax revenue at TRA a case study of Arumeru District. The study basis its summary on findings in chapter four.
5.2 Summary of the Study
The research was conducted for the purpose of assessing the factors causing inefficiency in administration and collection of revenue at TRA a case of Arumeru District. By answering this it is hoped that this will act as reference to Arumeru TRA office and in general the TRA Headquarter (HQ).
However, the study had the general objectives but there were some specifical objectives in which the researcher has been paving out into more specifically the answers were obtained through questionnaires given to the tax officers.
Firstly, the study was to explore the source of the revenue at the Organization, the respondents indicates the source of the revenues like Business license, motor vehicles, cost, VAT on local consumption, departee charge.
Secondly, the study also making the investigation on the factors that enhance poor performance of the Revenues collection, some of the identified factors were; The insufficiency of the TRA officer can lead to poor tax administration at your Organization, Staffs knowledge and competence have the relative relation with the low correction of the revenue, Inefficiency of ICT technology has promoted to the low collection of the revenue at your area, Taxes exemption may affect the volume of the revenue collection at TRA, The Tax exemptions are politically motivated, hence led to the instability of the tax regulation, Business environment motivates evasion and Tax administration motivates evasion, in such that high estimation of the tax and corruption behavior among the Tax Officer and Tax payers.
Lastly, the suggested solution was discussed and given in the chapter four. The essence of this was answer to question on hindering factors, so as to enable the researcher to determine the factors causing inefficiency in collection of tax as formulated and their final outcome of maximizing efficiency in tax collection. These factors are; Stability on the tax regulations, ICT investment through the uses of EFD, Provision of Tax education, Regular Tax training to staffs, to comply with the tax problems i.e. evasion and avoidance, Fair estimation of the tax rate, Proper tax administration avoidance usage of forces in collecting tax, Amendment of Tax Administration Act, Avoidance of politics in Tax matters and Creation of more revenues sources.
5.3 Conclusion
The study set out to determine the proper collection in Tanzania in a case study of Arumeru TRA District. The Researcher found that there a lot of the challenges that cause the effective correction of the revenue effectively. Some of these Challenges are state challenges like Tax exemption, this indicated that management was insensitive to tax administration only without considering the real business environment. Moreover, this shows that the reformation of the Taxation system in Tanzania is highly need.
5.4 Recommendations
The findings of this study provide initial directions in determining the factors that leads to ineffective tax collection in TRA generally. The management should understand that proper tax collections are necessary in order to raise adequate tax for social and economic development of the county. TRA officers and management needs to determine what actions to do to ensure that it collects sufficient tax.
The following practices should be undertaken such as TRA management should be visible in involvement and commitment to tax administration. Also, Tax officials must communicate corporate values and cultures related to collect tax on time, recognize and appreciate efforts and success of all employees and actively promote service quality.
Senior Management level must provide strong leadership and the management should frequently undertake market research for the purpose of formulating efficient policies regarding on seasonal business and tax law changes. This will enable managers to provide services according to customer expectations and requirements.
Human resources development and management is another practice to be undertaken where the management should employ potential TRA personnel in order to improve the tax administration and collection. Tax officer’s performance should be monitored and evaluated within to control loop, rewarding staff for meeting and exceeding tax collections and audit tax personnel job satisfaction regularly.
There is a close similarity between tax officer’s satisfaction and tax collectability in order to facilitate tax quality improvements. There should be an effective top down and bottom up communication between management and tax officers and involvement of staff coming up with suggestions to improve tax collections and in recruiting tax officers. Management should consider delivering service excellence as one of the key criteria and competencies.
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