THE IMPACT OF TAXATION ON PERFORMANCE IN SMALL MEDIUM

ENTERPRISES IN TANZANIA
A CASE STUDY OF ENTERPRISE FINANCE LIMITED (EFL)

By
Farida Shabani Mkembe.

A Dissertation Submitted in Partial Fulfillment of the Requirements for the

Degree of Masters of Science in Accounts and Finance (Msc A&F) of
Mzumbe University.

2019

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 CERTIFICATION

We, the undersigned, certify that we have read and hereby recommend for acceptance
by the Mzumbe University, Dissertation entitled ‘The impact of taxation on
performance in small medium enterprises in Tanzania, the case of Enterprise
Finance Limited, in partial fulfillment of the requirements of the award of the degree
of Masters in Accounts and Finance of Mzumbe University.

_______________
Major Supervisor

________________
Internal Examiner

________________
External Examiner

Accepted by the Board of MUDCC

_________________________________________________
PRINCIPAL, DAR ES SALAAM CAMPUS COLLEGE

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 DECLARATION
AND
COPYRIGHT

I, Farida Shabani Mkembe hereby declare that, this Research report is my own
original work and that it has not been presented and will not be presented to any other
institution for any award.

Signature……………………….

Date…………………………….

This dissertation is a copyright material protected under the Berne Convention, the
Copyright Act 1999 and other international and national enactments, in that behalf, on
intellectual property. It may not be reproduced by any means in full or in part, except
for short extracts in fair dealings, for research or private study, critical scholarly
review or discourse with an acknowledgement, without the written the permission of
Mzumbe University, on behalf of the author.

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 ACKNOWLEDGEMENT

Preparation and writing of this research work have been contributed by many people
whom I have to say thanks for their contributions.

I firstly handover my special thanks to Almighty God, who for his infinite mercy
gave me the grace, strength, health and endurance to pursue my studies and carry out
this research study.

I am deeply indebted to my family for their support and patience for whole time of
my research conduct, for moral, material, and psychological support given by, my
strength and courage to complete my studies and this research report was always
promising.

I would also like to express my gratitude to my research supervisor Dr. Seif Muba
who worked tirelessly reading and giving constructive criticism, suggestions and
encouragement at every turn of the research process.

Furthermore, I would like to acknowledge the staff of Enterprises Finance Limited for
their cooperation during my research process.

Last but not least the researcher is grateful to all other personalities who have not
been mentioned but contributed indirectly to the successful completion of the study.

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 DEDICATION

This research is dedicated to my beloved parents (Mr & Mrs Shabani Mbwana
Mkembe) for their countless love and support to my academic step ahead since
childhood also to my beloved brother (Mr. Mbwana Shabani Mkembe) who have
encouraged me immensely towards embarking on further studies.

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 LIST OF ABBREVIATION AND ACRONYMS

BOT Bank of Tanzania

EAC East Africa Community
EFL Enterprises Finance Limited
FFI’s Formal Financial Institutions
MEDA Mennonite Economic Development Associates
MBA Master of Business Administration
MFI’s Microfinance Institutions
NGO Non-Governmental Organizations
PRIDE Promotion of Rural Initiatives and Development
Enterprise.
SACCO’s The Savings and Credit Cooperative Societies
SADC Southern African Development
SEDA Small Enterprises Development Agency
SIDO Small industries development organization
SIDA Swedish Development Cooperation Agency,
SME’s Small Micro Enterprises
SPSS Statistical Package for Social Science
TRA Tanzania Revenue Authority
VAT Value Added Tax

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 ABSTRACT

One among the important stream to any governments is the collection of taxes from
various sources. These enable the government to run its projects, the tax collection
should be accurately, efficient and effective in order to contribute in facilitation of the
government budget. Taxation is a compulsory contribution by citizens and
organizations without expecting an equal return in form of goods and services
provided by the government. It is a levy incurred by citizens to a certain extent for the
public goods and services and for the good of all.

This study aimed to assess the impact of taxation on small medium Enterprises in
Tanzania, A case study of EFL. The study sought to attain three specific objectives
namely; to assess the problems affecting tax payers and their business in Tanzania, to
examine the extent to which taxation system affect the performance of SMEs in
Tanzania and to examine/assess the impact of high tax rate on SMEs’ performance in
Tanzania

This was essentially a case study that employed descriptive research design. The
study combined both qualitative and quantitative research approaches. The study
population included 75 study participants who were chosen using purposive and non-
probability sampling techniques. The instruments of data collection were mainly
questionnaires and interviews. The responses obtained from these tools of data
collection were subjected to content analysis with the help of the Special Package for
Social Sciences (SPSS) computer software.

The findings revealed that the lack of knowledge about taxation system, Shortage of
training on taxation, High tax rate imposed on business, on compliance due to high
tax rate, Uncertainty of the tax rate, high tax rate on loan reduce the number of
clients, high tax rate discourages investors and high tax rate increase the tax evasion.
The study recommends that the government should decrease the tax rate to SMEs in
order to encourage them to increase their investment in the Country. Furthermore, the
government should minimize all the impact raised by taxation system to SMEs.

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 TABLE OF CONTENTS

CERTIFICATION ......................................................................................................... i
DECLARATION AND COPYRIGHT ......................................................................... ii
ACKNOWLEDGEMENT ........................................................................................... iii
DEDICATION ............................................................................................................. iv
LIST OF ABBREVIATION AND ACRONYMS ........................................................ v
ABSTRACT ................................................................................................................. vi
TABLE OF CONTENTS ............................................................................................ vii
LIST OF TABLES ....................................................................................................... xi
LIST OF FIGURE ....................................................................................................... xii

CHAPTER ONE ......................................................................................................... 1

INTRODUCTION AND BACKGROUND OF THE STUDY................................. 1
1.0. Introduction ............................................................................................................ 1
1.1. Background to the study ........................................................................................ 1
1.2. Statement of the Problem ....................................................................................... 2
1.3. Research Objectives ............................................................................................... 3
1.3.1. General Objective ............................................................................................... 3
1.3.2. Specific Objectives ............................................................................................. 4
1.4. Research Questions ................................................................................................ 4
1.5. Significance of the study ........................................................................................ 4
1.6. Organization of the study ....................................................................................... 5
1.7. Scope and Limitation of the Study ......................................................................... 5

CHAPTER TWO ........................................................................................................ 7

LITERATURE REVIEW........................................................................................... 7
2.0. Introduction ............................................................................................................ 7
2.1. Definition of Key Terms ........................................................................................ 7
2.1.1. Small and Medium Enterprises (SMEs).............................................................. 8
2.1.2. Microfinance ....................................................................................................... 8
2.1.3. Tax system .......................................................................................................... 9
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2.2. Theoretical literature review. ............................................................................... 10
2.2.1. Overview of Microfinance institutions ............................................................. 10
2.2.2. Microfinance institutions in Tanzania............................................................... 12
2.2.3. Taxation challenges facing SME’s ................................................................... 14
2.2.3. Taxation and enterprise performance ................................................................ 16
2.2.4. Taxes and earnings levels. ................................................................................ 16
2.3. Empirical literature review................................................................................... 17
2.3.1 Foreign Studies .................................................................................................. 17
2.3.1.1 Taxes in Ghana................................................................................................ 18
2.3.2 Local Studies ...................................................................................................... 19
2.4. Conceptual Framework and the Research Model. ............................................... 20
2.4.1. Independent Variables....................................................................................... 21
2.4.1.1 High activity rate on loan ................................................................................ 21
2.4.1.2 Knowledge about Tax system ......................................................................... 22
2.4.1.3 Uncertainty about tax ...................................................................................... 22
2.4.1.4 Shortage of Training on taxation .................................................................... 22
2.4.1.5 High tax price to SMEs ................................................................................... 23
2.5.2 Dependent Variable............................................................................................ 23
2.5.2.1 Performance of SMEs ..................................................................................... 23

CHAPTER THREE .................................................................................................. 25

RESEARCH METHODOLOGY ............................................................................ 25
3.0. Introduction .......................................................................................................... 25
3.1. Research design.................................................................................................... 25
3.2. Research Paradigms ............................................................................................. 26
3.3. Area of the Study ................................................................................................. 26
3.4. Type of Measurement .......................................................................................... 26
3.4.1. Parametric Measurement................................................................................... 26
3.4.2. Non parametric Measurement ........................................................................... 27
3.5. Study population .................................................................................................. 27
3.6. Sample size and sampling techniques .................................................................. 28

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3.6.1. Sample Size ....................................................................................................... 28
3.6.2. Sampling Technique ......................................................................................... 28
3.7. Data collection methods ....................................................................................... 28
3.7.1.1 Interview Method ............................................................................................ 29
3.7.1.2. Questionnaires ................................................................................................ 29
3.7.2. Secondary Data: ................................................................................................ 30
3.7.2.1 Documentation ................................................................................................ 30
3.8 Data analysis ......................................................................................................... 30
3.8.2 Quantitative records analysis ............................................................................. 31
3.9 Research Ethics ..................................................................................................... 31
3.10 Publication and Dissemination of Results .......................................................... 32

CHAPTER FOUR ..................................................................................................... 33

PRESENTATION OF FINDINGS .......................................................................... 33
4.0 Introduction. .......................................................................................................... 33
4.1 Response rate ........................................................................................................ 33
4.1.1 Gender of the respondents.................................................................................. 34
4.1.2 Age of respondents............................................................................................. 34
4.1.3. Education level of Respondents ........................................................................ 35
4.1.4 Work Experience................................................................................................ 36
4.2 Data evaluation in relation to unique objectives ................................................... 37
4.2.1 To assess the factors affecting tax payers and their business in ....................... 37
4.2.1.1 Lack of knowledge about taxation system in SMEs ....................................... 37
4.2.1.2 Shortage of training on taxation ...................................................................... 38
4.2.1.3 High tax charge imposed on business ............................................................. 39
4.2.2 The extent the taxation system influences the overall performance ................ 40
4.2.2.1 Noncompliance due to high tax rate ............................................................... 40
4.2.2.2Uncertainty of the tax rate ................................................................................ 41
4.2.2.3 High tax fee on loan minimize the number of clients ..................................... 42
4.2.3.1 High tax price discourages traders .................................................................. 44
4.2.3.2 High tax charged increase the tax evasion ..................................................... 45

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4.3 The number of Small Medium Enterprises in Tanzania is reduced due to .......... 47
4.4 Reducing/overcoming closure of SMEs as a major impact of high tax rate ......... 48

CHAPTER FIVE....................................................................................................... 49
DISCUSSION OF THE RESEARCH FINDINGS ................................................ 49
5.1 Introduction ........................................................................................................... 49
5.2. Discussion of the findings on respondents profile. .............................................. 49
5.2.1 Discussion of the findings on the issues affecting tax payers and their ............. 50
5.2.2 Discussion of the findings on the extent to which taxation study have. ............ 51
5.2.3 Discussion of the findings on the have an effect on of excessive tax rate ......... 52
5.2.4 Taxation impacts on SME’s Performance ......................................................... 52

CHAPTER SIX ......................................................................................................... 55

SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS ......................... 55
6.1 Introduction ........................................................................................................... 55
6.2 Summary of the Major Findings ........................................................................... 55
6.3 Conclusion ............................................................................................................ 56
6.4 Recommendation .................................................................................................. 57
6.4.1 To the government ............................................................................................. 57
6.4.2 To policy maker ................................................................................................. 57
6.4.3 To Practitioners .................................................................................................. 57
6.4.4 To Tanzania Revenue Authority ........................................................................ 57
6.4.5 To future researcher ........................................................................................... 58
6.4.6 To EFL Enterprise Finance Limited .................................................................. 58
6.5 Recommendation for Further Studies ................................................................... 58

REFERENCES .......................................................................................................... 60
APPENDIXES ........................................................................................................... 64

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 LIST OF TABLES

Table 3. 1: population study ....................................................................................... 27

Table 4. 1: respondents by gender .............................................................................. 34
Table 4. 2: Age of the Respondents ........................................................................... 35
Table 4. 3: Education level of the Respondents .......................................................... 36
Table 4. 4: Working Experience of the Respondents.................................................. 37
Table 4. 5: Lack of knowledge about taxation system in SMSE ................................ 38
Table 4. 6: Shortage of training in taxation ................................................................ 39
Table 4. 7: High tax rate imposed on business ........................................................... 40
Table 4. 8: Noncompliance due to the tax rate ........................................................... 41
Table 4. 9: uncertainty of the tax rate ......................................................................... 42
Table 4. 10: High rate on loan reduce the number of clients ...................................... 43
Table 4. 11: double taxation system on goods and service ......................................... 43
Table 4. 12: high tax rate discourages investors ......................................................... 44
Table 4. 13: High tax rate discourages investors ........................................................ 45
Table 4. 14: high tax rate increases the tax evasion .................................................... 46
Table 4. 15: high tax rate to the microfinance increase the interest rate imposed ..... 47
Table 5. 1: Corporate taxes charged on profits ........................................................... 53
Table 5. 2: Services levy ............................................................................................. 53

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 LIST OF FIGURE

Figure 2. 1: Conceptual Framework ........................................................................... 24

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 CHAPTER ONE

INTRODUCTION AND BACKGROUND OF THE STUDY

1.0. Introduction
This chapter gives a background to the study which is to examine the impact of
taxation on overall performance in small medium businesses in Tanzania, the use of
Enterprise Finance Limited as a case study. Under this chapter, the background of the
problem, statement of the research problem, objectives of the study, research
questions and significance of the study are presented. Also, in this chapter the
Organization of the study which helps to furnish way ahead to research undertaking is
described.

1.1. Background to the study

Taxation system in any country will increase incentives for public participation in the
political technique and creates strain for more accountability, better governance, and
elevated affectivity of authorities’ system in spending. Apart from that, Taxation
creates incentives for governments to improve their establishments for tax collection
and administration and to supply greater public services (Moore, 2007).
Since colonialism system in the world the taxes have been delivered and have been
prepared by means of the governments.

The first tax regulation legislation was delivered in 1919 and ever from that date
checkout currently the taxes have evolved complete a variety of specific reforms. The
authorities in an attempt to widen the tax base and collect more income has had to
levy quite a few taxes mainly on commercial enterprise businesses in Tanzania which
constitute a giant section of the formal sector. The taxes charged on enterprise
corporations in Tanzania include; corporate tax, cost added tax (VAT), presumption
tax and workout duty.

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Tanzania Revenue Authority (TRA) has been straight up to manage and supervise the
tax series in Tanzania and The Income Tax Act was made purposely in order to give
practice in assessment and computation of taxes. The Tanzanian government has
made some recommendable efforts to promote development through taxation in view
that the inception of the current taxation laws for functions of advertising
development.

The principal goal of taxation in Tanzania has always been to mobilize assets needed
in order to meet the aspiration of government. This is due to the fact for any
government in the World if desires to be effective, strong, capable and successful of
spearheading development, resources have to be simply handy in its treasury so as to
be in function to provide goods and offerings to the human beings adequately.

According to Manasseh (2000), a tax is commonly referred to as a compulsory levy

imposed by authorities upon assesses of various classes and taxation is an obligatory
and non-refundable contribution imposed by means of government for public
purposes. In Tanzania a massive fraction of the corporations are sole traders working
small medium enterprises, regionally owned and managed through men and women
or households and often with very few employees working at one area.

Taxation system in Tanzania is based totally on study that existed in Britain as it was
a British colony. This has been utilized to different colonies somewhere else and for
East Africa, one tax instrument operated beneath British administration. This system
began in 1900 with the hut tax law which imposed a well-known charge for each
hut/dwelling. During that period, taxation used to be aimed at raising revenue for the
administrative structure imposed by means of the colonial authorities however
additionally as a skill of encouraging monetary/economic activities.

1.2. Statement of the Problem

Taxes are raised by way of the government purposely to generate revenue and this is
a compulsory. The authorities use the amount cumulative from taxes to furnish quite a

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number offerings to the society for instance to furnish the health offerings to society,
roads constructions, telecommunication, electricity, water offerings and schooling
services which includes the construction of schools, These services provided by the
government enhance the life popular of the community, In many growing countries
the government budgets depends on the level of anticipated taxes to be gathered with
the aid of the government, But on the different facet the high quantity of taxes
accumulated via the government influences some businesses inclusive of the small
medium enterprises.

In Tanzania there are much small medium enterprise’s which was established, but the
range of these SMEs is drooped day after day due to many factors, one among these
elements is a taxation device which impacts the performance of SMEs. This should be
due to the growing tax burden added about by way of tax charges which are revised
annually. These costs appear to be taking an upward fashion (Gordon and Dawson,
2007). This has led to close of some small medium enterprises.

This promoted me to check out and to determine about the have an impact on of
taxation on overall performance of small medium businesses in Tanzania particularly
in Microfinance Institution. Some study which was conducted by using other authors,
for example Bateman (2013), it was reported in a survey that 90% of enterprise
proprietors admitted that taxes were a big constraint to their businesses, as they claim
taxes are high and do not permit new corporations to cover up preliminary cost.

1.3. Research Objectives

The objective of the study was identified into two categories; these are general
objective and the specific objectives.

1.3.1. General Objective

The main objective of the study is to assess the impact of tax on performance in small
medium enterprises in Tanzania.

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1.3.2. Specific Objectives
This study specifically, intended to:
i. To assess the problems affecting tax payers and their business in Small
Medium Enterprises in Tanzania.
ii. To study the extent the taxation system influences the overall performance of
SMEs in Tanzania.
iii. To assess the impact of high tax rate on performance on Small Medium
Enterprises in Tanzania.

1.4. Research Questions

i. What are the problems affecting tax payers and their business in Small
Medium Enterprises in Tanzania?
ii. To what extent the taxation system influences the overall performance of
SMEs in Tanzania?
iii. What is the impact of high tax rate on performance on Small Medium
Enterprises in Tanzania?

1.5. Significance of the study

The value of this study that was drawn from the conclusion and recommendation
including the following:

The study will be full-size to the researcher in that it is a partial fulfillment of the
Requirements for the award of the Degree of Masters of Science in Accounts and
Finance (Msc A & F) of Mzumbe University. Since the study expose the have an
effect on of taxation in the overall performance of Small Medium Enterprises in
Tanzania. It is widespread to the tax authority and government, the study will guide
them in adjusting tax insurance policies so that they swimsuit requirements of small
medium enterprises.

To future academicians specifically of Mzumbe University and different University,

the study will assist in gaining perception about taxes and performance of small
medium enterprises. This study will be really useful to different researchers who will

4
pursue another study of this nature. And it will furnish extra contribution to the
current literature as phase of their reference. Moreover, the Government of Tanzania
as properly as other academician can know the influence of taxation in the overall
performance of Small Medium Enterprises in Tanzania.

1.6. Organization of the study

The study is prepared in the manner of chapters such that chapter one offers an
introduction of the research proposal, in this chapter all groundwork facts relates to
the study to be undertaken is explained. This chapter consequently consists of the
history of the problem, assertion of the study problem, targets of the study, research
questions and magnitude of the study. Also, the chapter suggests the Organization of
the study. However, Chapter two first grant the literature review which presents
theoretical base of the study. The empirical studies comprising of previous local and
International studies. Also, in this chapter conceptualizes the all concepts associated
to the influence of taxation on performance in small medium organizations in
Tanzania.

Chapters three in this chapter the study is divided into sub sections and give an
explanation for the study methodology which has been used in the course of the
research. These include the research design, study approach, study population, pattern
size, sampling procedures, facts series procedures, reliability and validity without
forgetting records analysis on the other hand chapter Four in this study affords the
presentation of the study findings while chapter Five offers a discussion of the study
findings regarding with the effect of taxation on performance in small medium
organizations in Tanzania and lastly but not least chapter Six offers the summary of
the study, conclusion and advice about the study and area for similarly studies.

1.7. Scope and Limitation of the Study

This study based totally itself on the have an impact on of taxation on performance in
small medium companies in Tanzania. This study covers solely the Enterprise
Finance Limited in Dar es salaam region. The study anticipates several limiting
factors, such as limited time and monetary constraints. The time allocated for the

5
study used to be now not ample to cowl a many Small Medium Enterprises in
Tanzania. That helps explaining why solely the Enterprise Finance Limited used to be
selected as a case study.

During the study some respondents in the business enterprise had been afraid of the
confidentiality of the statistics which they provided to the researcher. Hence, the
researcher solved this problem by reassuring the respondents that the data they
supplied would be used solely for educational purposes.

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 CHAPTER TWO

LITERATURE REVIEW

2.0. Introduction
This chapter is worried with surveying the literature related with the study. Its
sections consist of review of the theoretical and empirical studies. For this case
documentation of the complete review from distinctive articles, journals, books,
dissertations, published and unpublished archives from the library and websites has
been developed.

2.1. Definition of Key Terms

Taxation is the imposition of obligatory levies on persons or entities through
governments. Taxation system are levied in nearly each and every country of the
world, the major motive is to have government revenue which can be used for
government expenditures, even though the amount gathered as a tax they serve other
functions as properly in the community.

A tax is an obligatory charge of cash to pay to the Government with the aid of an
Individuals or Organizations as the Government covers its expenses on a number of
public functions, and is interference in political, economic and society life besides
direct return of benefit to be derived with the aid of the taxpayer. In different words,
as soon as the taxpayer pay a tax to the government, the taxpayer did no longer
acquire any direct return from the government for what a taxpayer pays, though
public in well-known derives a common benefit. Therefore, tax is an obligatory
distribution accrued by means of the Government to meet the expenses of a number
of public functions.

The principle of taxation must be to impose the least sacrifice on the human beings as
a whole, even if its capacity imposing greater sacrifice on some human beings and
much less on other. It is no longer a fee paid through taxpayer for any particular
service via Government. Modern Government, being welfare Government, have to
strive to reduce the sacrifice of the community.
7
The combination sacrifice of the community is minimal when the marginal sacrifice
of individual taxpayers is equal or as almost equal as possible.

Many economists like Adams, Bastable, Seligman, Taussing, Dalton etc, preserve the
unanimous opinion that the tax is a compulsory payment to the Government by using
taxpayer besides any expectation of some exact return. Experts as beneath have
described the term taxes: 1. Adams: A tax is a contribution from residents for the help
of the state.

2.1.1. Small and Medium Enterprises (SMEs)

There are a vast vary of definitions for SMEs in day to day life. But for the motive of
this study, an SME is described as a productive recreation both to produce and
distribute goods and or services. Traditionally, SMEs are defined as non-subsidiary,
independent companies which hire less than a given wide variety of employees. This
number varies throughout U.S.A.to country (Andreoni, et aI, 1998).

In the Tanzania context, a business is dealt with as a Small and Medium Enterprises
when have a variety of team of workers between 5 and forty-nine personnel or with
initial capital investment from Tshs.5 million to Tshs.200 million. While the Medium
firms are those which appoint between 50 and 99 humans or have a preliminary
capital investment from Tshs.200 million to Tshs.800 million (URT,2003).

2.1.2. Microfinance
A Microfinance organization is described to an organization that affords monetary
offerings to community to low-income population. Such businesses consist of
Community banks, Non-Government Organizations, credit unions, SACCOs,
industrial banks and non-bank monetary institutions.

Apart from that Microfinance can be defined as, monetary services such as financial
savings accounts, insurance funds and credit furnished to bad and low-income
consumers so as to help them extend their income, thereby improving their trendy of
living.

8
2.1.3. Tax system
A tax system is the set of taxes that are used by way of a government, such as the
United Republic of Tanzania government. The tax device in Tanzania is complexity
therefore it tends to confuse the human beings and taxpayer specifically when the tax
officer makes follow up on the payment.

However, they are a fundamental phase of everyday life, as they assist preserve
public goods and offerings for citizens of a country. There are 4 predominant kinds of
specific tax systems, these has been described as the regressive tax system, the
modern tax system, the proportional tax system, and the lump sum tax system. All of
the stated structures have the equal aim in idea which is to gather income for the
government expenditure. However, the strategy that they take to accumulate this
income is very distinctive (Jameson, 2009).

Furthermore, all the above types comply with below two groups of taxes the place
with the aid of a taxpayer is affected directly or indirectly. That s ability there is
direct tax and indirect tax. The direct taxes consist of company income tax, property
tax and tariffs whereas the oblique tax consists of income tax and Value Added Tax
(VAT). Value Added Tax (VAT) is a tax levied at every stage of manufacturing and
distribution chain up to the retail stage. The VAT is charged on any grant of goods or
offerings in Mainland Tanzania the place it is a taxable furnish made by using a
taxable individual in the direction of or in furtherance of any business carried on by
way of him (VAT Act, 1998).

This is a tax placed on the cost that manufacturers add to each stage of production. It
is a tax on consumption as a substitute of income (Clayton, 1995). It has been cited
that a great wide variety of small and medium agencies are confronted with
complications before and after lead-off their operations.

Calcopietro and Massawe, (1999) argues that other complications to the SME
operators consist of the paying of provisional taxes even earlier than an organization
goes into manufacturing plus the requirement to pay countless other taxes such as

9
stamp tax, sales tax, payroll levy, Municipal and Regional taxes, Corporate tax, etc.
The tax device in Tanzania does now not fever a Small Medium Enterprises, once
you decide to operates your SMEs pay the required taxes

In Tanzania the thought of taxation, refers to assessment, collection, administration

and administration of taxes. Apart from that it deals with raising public revenue,
managing public expenditure and public debt. All the above works has been allotted
to Tanzania Revenue Authority and it is their accountability to do. There are two
predominant tax authorities; the local government authority and the central
authority’s authority via Tanzania income authority (TRA).

2.2. Theoretical literature review.

In this study this part of the literature review gives an in-depth standpoint on the
theoretical elements of the study question at hand.

2.2.1. Overview of Microfinance institutions

The range of formal banks in some of the area in Tanzania especially in rural area is
now not enough. Therefore, humans in those areas supposed to move a lengthy
distance in order to get the services supplied by these banks. Because of the shortage
of formal banks in the rural areas then Microfinance has been identified as a choice
source of finance to the poor, who have no get entry to offerings furnished via the
formal banks, have get entry to a range of informal lenders.

Once the negative people have an get admission to microfinance, is expected to

decrease households’ borrowings from informal source the price of the microfinance
is pretty more cost effective than casual banks for example in the hobby charge on
loan, Household’s savings in the society are additionally expected to be expanded by
using the microfinance through presenting a choice source of savings mobilization
from the poor.

10
This has been reflected with the aid of an econometric evaluation of household’s
survey the usage of information from Bangladesh the place by means of Micro-
borrowing has indeed reduced borrowing from informal sources thereby
demonstrating that microfinance is a positive source of finance to the terrible
(Khandker, 2000).

Furthermore, it has been observed that microfinance supports commonly the informal
things to do which are characterized with a low return and a low market demand
(Khandker, 2005). This has been the case given the reality that the casual activities
have been ignored with the aid of the Formal Financial Institutions (FFI’s). Therefore,
to all who have an informal commercial enterprise the Microfinance is favorable to
them.

The literature further exhibits that on analyzing the outcomes of microfinance

institution on poverty alleviation using the records from Bangladesh, the outcomes
indicate, access to Microfinance contributes to poverty alleviation mainly to the girl
contributors and to normal poverty reduction at the village level. This implies that
microfinance helps both the negative contributors and the local economic system as a
whole.

Moreover, microfinance establishments have been located to play an important

position in poverty alleviation in Africa because of their one-of-a-kind nature of
dealing with the poor as they take part in presenting solutions to the continent
development project (Mwenda and Muuka, 2004).

This used to be because of the greatest achievable affect which microfinance

institutions had to the rural Africa both at home to the bulk of the continent populace
and also to the massive majority of Africa’s poor. However, the literature exhibits
that for the future success of the microfinance establishments on the African continent
still there is a want to make sure flexibility and careful authority’s rules and
supervision of microfinance institutions.

11
2.2.2. Microfinance institutions in Tanzania
Microfinance institutions offerings in Tanzania can be traced back to the
implementation of the cooperative act of 1991, Majority of the people in the rural
areas receive economic services along with mortgage from the Microfinance. But
they have no longer been in a position to reach the majority of the low-income
Tanzanians. Either due to the negative avenue in fractures or lack of electrical energy
in those areas which reason the strolling expenses to be very excessive in the course
of the operation.

In This has been the case on one hand because of the issues which have been skilled
by means of such establishments which consists of group of workers related issues
like personnel capabilities development, gorgeous staff incentive schemes and
educational degree of group of workers on the other hand on the different aspect this
has been accelerated by using the clients related problems which includes system
associated issues like excessive hobby rates, fraud and excessive running prices as
well as the subject in terms of attracting and retaining new clients.

Furthermore, the literature exhibits that the development of the microfinance

institutions in Tanzania can be classified into three phases (Obiro, 2005). The first
phase starts from the year 1980 to the year 1990. During this phase the restricted
funded tasks primarily based experimental approach had been undertaken implying
that there used to be very minimal undertaking undertaken through the microfinance
institutions as the initiatives have been being couched internally the main center of
attention being poverty alleviation.

The second phase start from the 12 months 1994 to the year 2000 whereby the Non-
Governmental Organizations (NGO’s) Microfinance establishments (MFI’s) in
particular Pride Tanzania take part in an effort to undertake the concerned
microfinance experiments and in the end the microfinance institutions begun to
expand and grow beyond the scope of the restricted initiatives and programs.

12
Finally, the third phase begin from the year 2001 onwards whereby the MFI’s NGO
have entered in and proceed to put in force as nicely as promoting microfinance on a
challenge experimental foundation and on the different hand as a key strategy to
alleviate poverty throughout the world the authorities of Tanzania has inspired the
development of microfinance.

The microfinance establishments that are determined in Tanzania have been identified
and being categorized into five primary categories (Temu, 2000). The first class
consists of the authority’s schemes that have been shaped with the objective of
turning in economic offerings in particular savings to precise organizations of the
population particularly to small industrialist and to the deprived ones like the woman,
formative years and the disabled. Such schemes include the Small industries
development company (SIDO), Women Development fund of the Ministry of
Community Development and Women affairs and Children.

The second class is of the MFI’s NGO, which consists of each the regionally based
and the worldwide branches of the NGO’s that are channeling the economic services
to the poor. Such economic NGO’s have been identified to consist of PRIDE, MEDA,
SERA, African Micro Finance Tanzania Limited and SEDA to mention a few. The
Savings and Credit Cooperative Societies SACCO’s falls into third category.

The third category these are usually member-based organizations composing usually
employees from the identical agencies (for instance the local government people at
municipal level) or professionals (for instance the teachers).

The fourth class consists of the private companies as nicely as the spiritual
organizations that are channeling the economic offerings with the objective of
lowering poverty. In Tanzania such institutions consist of the Caritas and the
Tanzania Finance Women Company. More over the FFI’s which are presenting the
microfinance offerings like the Akiba Commercial Bank falls underneath the fifth
category.

13
Apart from that the performance of the microfinance establishments in Tanzania has
additionally been examined whereby by way of the 12 months 2000 there had been
about 50 microfinance institutions which were the registered ones, even though their
performance in popular was once negative (Chijoriga, 2000). From the literature it
has been located that majority of the microfinance establishments in Tanzania lack
clear employer structure, participatory possession and many of them are donor
funded.

However different factors which leads to negative performance of the microfinance

establishments in Tanzania includes terrible infrastructure linked with the MFIs,
household’s low income, low population density as properly as lack of insufficient
skills with the aid of employees bearing on to enterprise and credit management.

Briefly, microfinance institutions have been viewed as the major companies of

monetary services to the majority poor in growing countries together with Tanzania.
This has been due to the exceptional nature of microfinance institutions of channeling
the economic services particularly the small loans that creates the virtuous circle of
elevated income and improved funding that in the end breaks the viscous circle of
poverty to the poor.

2.2.3. Taxation challenges facing SME’s

Taxation influences on the increase of Small Medium Enterprises, consequently the
want to apprehend its implication on business operations. It increases the operating
charges of doing commercial enterprise making merchandise pricing high and
uncompetitive. This critically influences the boom of SMEs as it eats into their
profits.

Another principal challenge facing Small Medium Enterprises is double taxation.

Most Small Medium Enterprises registered for Value Added Tax deal with products
that do no longer have enter Value Added Tax therefore they stop up bearing the
Value Added Tax burden. This commonly affects Small Medium Enterprises in the
service industry. For instance, in the resort industry the farmers who supply raw

14
produce are not registered for VAT so the input VAT is not factored in and the lodge
proprietor bears the complete tax burden. When the financials are organized the
Value Added Tax aspect already paid is regarded as a part of income and taxed under
profits tax. The usual effect is that Small Medium Enterprises end up with double
taxation. This reduces profitability of companies and has led to some corporations
closing down due to incapacity to damage even.

Tax compliance is any other essential assignment facing Small Medium Enterprises.
Most Small Medium Enterprises are small in measurement and cannot afford to rent
full time accountants to file for them a variety of returns required by Tanzania
Revenue Authority (TRA). Small Medium Enterprises registered for Value Added
Tax are required to file month-to-month VAT returns even if they made no income
and the return is a nil return. The fees of compliance in terms of filing and accounting
for taxes are complex and expensive in form of time and cash so many fails to
comply.

Corruption is every other predominant hassle affecting taxation. Due to corruption

inside the public and non-public sector, many entrepreneurs have lost trust and are
unwilling to pay taxes. This has negatively affected income ambitions due to tax
evasion. Despite conducting an awful lot coaching on taxation methods in the current
past, TRA has no longer managed to persuade Tanzania’s on the full benefits of
paying taxes. Lack of self-belief in the tax system and transparency in the use of
public funds remains a major issue to Small Medium Enterprises tax compliance.

Inability of the tax authority to deliver into the tax brackets all eligible tax payers has
led to narrow tax base, these weigh closely on a few who are in the formal sector.
This leaves many human beings who earn a lot of money in Small Medium
Enterprises outdoor the tax bracket

Furthermore, the high tax fee imposed the business is any other have an effect on of
Small Medium Enterprises for the duration of its activities. The proprietors of SMEs
figure out to close their commercial enterprise due to excessive jogging costs.

15
2.2.3. Taxation and enterprise performance
Taxes levied on revenue are worthwhile only if it can generate significant revenues at
appropriate charges and approaches (Musgrave and Musgrave, 1984). According to
Gordon and Dawson (1987), via taxation, the government takes away cash from
humans they would otherwise spend on private sector. As a result, purchasing energy
reduces per unit of production in the private quarter to the public sector. They in
addition asserted that, one of the most common arguments against excessive earnings
tax is that it destroys the incentive to business humans and employees to work harder
and more efficiently.

According to the World Bank Symposium (1991), businesses raise out tax planning
so as to have a minimal tax liability and accordingly increasing the purchasing power.
It is through taxes that the government takes away money from people/business they
would in any other case spend on non-public sector. This loss of buying electricity
reduces the demand for devices of products in the non-public zone (Gordon and
Dawson, 1987

2.2.4. Taxes and earnings levels.

The taxable incomes of commercial enterprise are usually unique from the normal
enterprise account income for three primary reasons;

Certain earnings which might also be viewed in the ordinary accounting device may
also no longer be dependable to tax; Certain costs that are deducted on income and
loss account might also not be accessible when figuring out taxable income and some
tax allowances can also be supplied and will no longer be mirrored in enterprise
account (Manasseh T. 2000).

Gordon and Dawson (1987) assert that many business humans have complained
likely with some justification that taxes intrude with the possibilities to re-invest their
income in their businesses.

16
2.3. Empirical literature review
In this part, some related empirical research performed is described. The studies
carried out are those accomplished outdoor Tanzania and this research conducted in
Tanzania

2.3.1 Foreign Studies

The economic increase in every Country is defined by means of the overall
performance of the authorities in manufacturing sector. In many notably developed
nations, a high-quality share of manufacturing is contributed and manufactured with
the aid of small and medium enterprises, an essential section of their market
economies. For example, the portion of small and medium enterprises in Gross
Domestic Product of Great Britain is 50-53%; of Germany is 50-54%, of United
States of America is 52-55%; of Italy is 57-60%; of France is 63-67%. Consequently,
up to 50-60 per cent of authority’s revenues depends on the SME quarter (Small
Business in Ukraine 1997 41). Thus, the greater is the share of small and medium
businesses is in an economy, the higher the productiveness that can be doubtlessly
realized with the SME sector

2.3.1.1. Taxes in Uganda

Uganda currently operates a federal device comprising three ranges of authorities the
federal, kingdom and local. The U.S.A. as fiscal association entails the sharing of
functions and tax powers among these three ranges of government. The taxes
fluctuate in terms of the level of authorities that both legislates and incorporates out
tax collection and administration.

It is pertinent to observe that the federal authorities legislate on all taxes that practice
to financial assets. In general, these taxes might also be categorized into two
categories, class relates to profits and capital positive factors earned by means of
corporate our bodies from investments in monetary market instruments. The different
is tax on the income and capital features accruing to folks from investments in the
same financial market instruments.

17
The federal government in Uganda collects all taxes accruing from company bodies,
such as limited legal responsibility companies, both quoted and unquoted. While the
federal government makes for private income and capital positive factors taxes
accruing from individuals, the real series of taxes is affected by using the country
authorities of the tax payer at standard domicile. It is note-worthy that the centralized
study of rules for all taxes on monetary assets makes it handy for government to
manipulate such taxes for any macroeconomic objective it wishes to achieve. In
phrases of contribution to the kingdom as revenue, the most important taxes are
import duties, excise duties, mining rents and royalties, petroleum profit tax, agency
earnings tax, and non-public earnings tax.

With the exception of the non-public profits tax, all taxes are legislated, and
accumulated by means of the federal government. The private profits taxes of the
armed forces, exterior affairs officers and residents of the federal capital Territory are
additionally gathered by the federal government.

2.3.1.1 Taxes in Ghana

Atawodi and Ojeka (2012) defined that; the preference of tax policy to rent relies
upon on the use of one or both two organizations of instruments. The first being the
use of special tax preferences and the other incentives to aid start-up and growth of
small organizations (Atawodi & Ojeka, 2012). These incentives contain of the
reducing of corporate income tax rates, exclusive tax exemptions or tax vacation trips
and relieves for small businesses. The underlying reason for all these is to efficiently
raise revenue through measures that swimsuit a country’s circumstances and
administrative potential (Atawodi & Ojeka, 2012).

Developing Countries such as Ghana are generally struggling in terms of raising

interior revenues for development. In order to resolve this issue, pupils have
mentioned amongst others that the widening of the tax net is the way to go. This is
due to the urgency to supply infrastructure, create jobs and limit unemployment,
increase the productive sectors of the economy and to notably raise public revenues
from the non-oil sectors. With this process, tax policies are to purpose at bringing all

18
taxable adults into the tax bracket with a graduated rate that ought to make sure that
the well-off pay their own share while the low-income earners are given savings
incentives. High-quality and environment friendly tax administration systems have to
be crucial to any country’s well-being (Atawodi & Ojeka, 2012).

It is with this concept that Baurer (2005) argues that the tax administration needs to
supply an even taking part in area for business by means of ensuring that all taxpayers
meet their tax submitting and paying requirements. The authorities and the directors
of taxes should be trying to find to balance their academic and assistance role with the
enforcement role. According to Atawodi and Ojeka (2012), the cause in the back of
the total system of tax is constant with of the three principal theories of tax namely;
the Ability-to-Pay Principle and the Equal Distribution Principle.

The standards stress equality and fairness. The Ability-to-Pay principle is of the view
that individual should be taxed based on the individuals’ capacity to pay whilst on the
other breadth, the Equal distribution Principle proposes that the incomes, wealth as
properly as the economic transactions of the folks have to be taxed at a fixed
percentage. This implies that, the people who earn more and purchase greater need to
pay greater taxes, but will now not pay a greater rate of taxes (Atawodi & Ojeka,
2012).

2.3.2 Local Studies

In Tanzania Most of the present literature has validated that the taxation device in
many nations including Tanzania have an impact on the performance of Small
Medium Enterprises. Developing Countries want properly to manage its sources of
revenue to enhance the pace of traits (Ebeke, 2010). This is due to the fact enough
revenue decreases the degree of dependence of the authorities to donors for its
developments (Komanya, 2013).

In additionally gives the government the capacity to make unique improvement

decisions. In Tanzania basically, home revenue is one of the key branches of taxation
system and in other developing countries for instance in Southern African
Development Community (SADC) and East Africa Community (EAC) financial
19
blocks. While statistics show upgrades in the vicinity of tax collection, a giant crew of
eligible taxpayers is but to be reached (Ministry of Finance and Economic Affairs of
Tanzania, 2013).

The literature suggests unprofessional techniques of keeping documents with the aid
of entrepreneurs, low tax knowledge, bureaucratic processes and corruption inhibit
the revenue collection manner in developing countries (Kitillya, 2011; The Policy
Forum of Tanzania, 2010). In order to attain many consumers and act extra
effectively, the Tanzanian income authority re-defined its administration system to
consist of small administrative blocks (Bugeni, 2012). Although the goal of re-
defining the administrative structure used to maximize efficiency indentifying and
managing new customers, this goal is yet to be met (Bugeni, 2012).

The authorities have to strategize in performing tax reform in the tax region, aiming
in reworking the small business via giving them the length to set up earlier than they
start to tax the business. The government must come out with projects that will assist
the small enterprise and operate tax reforms in the faith which will lead to more
investment. The excessive tax price from the locals and global at large. Through tax
cuts will decrease the fee of manufacturing in place as a result making even the
merchandise easily reachable and cheap.

This will supply a danger for the locals to amplify investments and financial savings
in the bank which will lead to reduction in the hobby price this will enable the locals
to borrow from the banks and involve themselves in the economic improvement
projects. If there will be tax make bigger this will limit the locals from attractive in an
awful lot of the enterprise due to amplify in the fee of manufacturing which leads to
the extend in fee subsequently the locals reducing their consumption.

2.4. Conceptual Framework and the Research Model.

A conceptual framework is a research tool meant to assist a researcher to improve her
focus and grasp of the scenario underneath scrutiny and to talk it. A conceptual
framework is used in research in order to outline the possible guides of action or to

20
current a preferred method to a thought or thought. In short, the conceptual
framework was once about of cause and/or effects.

According to Bogdan and Biklen (2003) a conceptual Framework is a basic shape that
consists of sure abstract blocks which represent the observational, the experiential and
the analytical elements of a manner or system being conceived. The interconnection
of these blocks completes the framework for positive predicted outcomes.

The conceptual framework includes of the independent variables also regarded as the
exploratory variables and which are the presumed purpose of modifications in the
based variable and the established variable also called the criterion or predictor
variable which the researcher desires to give an explanation for (Kothari, 2004).

In this research the unbiased variables are High pastime price on loan, Knowledge
about Tax system, Uncertainty about tax and the Shortage of education on taxation
while the dependent variable is performance of small medium enterprises. This
potential that the performance of Small Medium Enterprises is affected by using
many factors, some of them are those which are noted in the unbiased variables.

2.4.1. Independent Variables

2.4.1.1 High activity rate on loan
Once the taxes fee is high also the microfinance imposes high activity charge on the
loan provided to the community in order to compensate some of the prices incurred at
some point of their operations.
Furthermore, when there is an excessive fee of hobby to a loan, the people in the
neighborhood also are decreasing from the Microfinance to practice a mortgage from
the Financial Institution. On the different aspect if the activity is excessive also the
number of loan defaulters expand in the Financial Institution, At the stop of the day
the Financial group get loss which can be induced to shut their operations.

21
2.4.1.2 Knowledge about Tax system
Some of workers of the microfinance and consumers does no longer have sufficient
knowledge about tax system, for instance clients did not understand how the tax is
charged on mortgage and other offerings supplied by way of Microfinance in
Tanzania.

Once the purchasers listen about the taxes charged to the loan applied, there are some
of customers who determined to cancel the loan application due to the fact they
accept as true with the charges will be high. People did no longer apprehend why the
Loan officer states that the taxes is high and the walking value is high, the responsible
authority ought to educate and provide ample training to the community on the issue
of taxes in Tanzania.

2.4.1.3 Uncertainty about tax

Under this, takes place when future taxes and tax prices are undetermined which may
also end result to the economic risk. Since the charge of tax extended year after 12
months consequently the administration of small medium organizations forecast that
in the future then the going for walks costs will be too high. Therefore, same of the
administration of SMEs determined to close their entity.

2.4.1.4 Shortage of Training on taxation

Also, there shortage of education which provided to staffs in the microfinance for
appreciation the tax structures and its functions in the microfinance. More education
must be provided to workforce and to the customers about the tax rate, how the tax is
calculated to mortgage furnished etc. The government via Tanzania Revenue
Authority can provides such training to neighborhood with the aid of public
announcement. Furthermore, the people in the society are not interested to attend or
to listen the free education provided by Tanzania Revenue Authority through Public
advertisement.

22
2.4.1.5 High tax price to SMEs
The excessive tax fee when imposed to the Small Medium Enterprises for example
microfinance will motive the high service prices on implementation of the business.
Despite their contribution to the economy, Small Medium Enterprises in Tanzania
face a number of challenges affecting their increase and profitability. One of the
predominant ones is the excessive tax charge imposed to these SMEs.

2.5.2 Dependent Variable

2 .5.2.1 Performance of SMEs
From the diagram below, much interest has been paid to the overall performance of
Small Medium Enterprises in Tanzania by a researcher and through literature in
current decades. The design shows that the overall performance of Small Medium
Enterprises can be impacted by using the taxation gadget through five gadgets which
are High interest rate on loan, Knowledge about Tax system, High tax rate on profit
generated by the Small Medium Enterprise during its operations, Uncertainty about
tax and the Shortage of coaching on taxation. The government should set the
favorable system to influence the Small Medium Enterprises in Tanzania.

23
Figure 2. 1: Conceptual Framework

CONCEPTUAL FRAMEWORK

INDEPENDENT VARIABLE DEPENDENT VARIABLE

Impact of tax on SMEs Performance of SMEs

Knowledge about
Tax system High/low performance of
Uncertainty about small and medium
tax enterprises
Raise or decrease of
sales
Raise or decrease of
profit
Sustainability/closu
re of business
Compliance/evasion
to tax

24
 CHAPTER THREE

RESEARCH METHODOLOGY

3.0. Introduction
Research methodology provides the range of systematic steps that are typically
adopted in analyzing the study hassle along with the good judgment in the back of
them. (Kothari,2009). In this chapter the study methodology that used to be employed
during the study is presented. The major sections included in this section includes;
study design, the study area, study population, devices of inquiry, sample size and
sampling techniques, kind and sources of data, records collection procedures,
reliability and validity, information evaluation besides forgetting study ethics.

3.1. Research design

This is logical and systematic plan for conducting study for the reason that identifies
goals, methodology as properly methods used for archiving objective (Mbwambo et
al, 2011). In fact, the research format is the conceptual structure within which
research is conducted; it constitutes the blueprint for the collection, size and
evaluation of the information. In this study case study and explanatory study
strategies were once used the place through only one Microfinance was selected
beneath the study. Since case study is less highly-priced for the researcher to move
from one vicinity to some other in Microfinance to make depth survey and grasp the
phenomena.

The researcher at some point of a case study completed to collect deep statistics due
to the fact solely one agency was taken beneath the study subsequently to answer the
study questions analyzed in chapter one above. Apart from case study, in order to
apprehend the effect of taxation in SMEs in Tanzania, A study used to be primarily
based on an explanatory study. This is because the important goal is to set up causal
relationship between two variables which are the overall performance of SMEs and
the taxation system in small medium firms in Tanzania.

25
3.2. Research Paradigms
Research paradigm is described as an approach via which research is undertaken the
fundamental premise behind the paradigm is based on how human beings view truth
“student guide on Business research methodology”. The research paradigm followed
an Anti-positivism which stress on the subjectivists approach to reading social
phenomenon attaches importance range of study strategies focusing a qualitative
analysis (Churchil, 1984). The study was carried out by using the use of Pragmatic
strategy to study (mixed methods) meaning the use of each qualitative and
quantitative approaches.

3.3. Area of the Study

The study was carried out in Dar es Salaam at Kinondoni district using Enterprise
Finance Limited as the case study. Enterprise Finance Limited is one Microfinance
endure an extensive tax burden which has led to negative performance. Therefore, it
is against this background that the researcher undertakes the study to check out
greater about the tax system the usage of Enterprise Finance Limited as a case study
to consider the effect of taxes on overall performance of small medium companies in
Tanzania.

3.4. Type of Measurement

Measurement scale it is the way of categorize different study variables, scale which
are going to be measured are nominal, ordinal, interval and ratio of which are going
to be measured by means of parametric or non-parametric as fundamental study used
to measure distinct variables in study of concern.

3.4.1. Parametric Measurement

This is the kind of measurement where via its variables consist of numeric
measurement and includes some calculations of findings (Kothari, 2011). In this
study frequencies and percentages was once applied via a researcher to measure
distribution of respondents in examining records from the area study.

26
3.4.2. Non parametric Measurement
These are data which does now not contain numeric variables it’s surely consists of
nominal and ordinal scale considering nominal used to show variables however no
longer in portions form as this used to identify people, gender and vicinity (Kasi,
2009). Therefore, the study is measured by using non-parametric which would result
into either ordinal or nominal of which have nature of qualitative so the use of
parametric can confuse readers additionally can't make exact evaluation of data.

3.5. Study population

Since Population refers to a whole group of men and women or factors that have at
least one thing in common. Population additionally refers to the large crew from
which a pattern is taken (Orodho, 2003).

For the functions of this study the population designated comprised of chosen team of
workers and consumers of SME’s selected. This target population allows the
researcher to structure an objective view of SMEs who have honestly been paying tax
and the extent to which tax payment affect their performance.

In this study seventy-five (75) body of workers and non-team of workers (clients)
used to be involved from Enterprise Finance Limited. The populace of this study was
once involving the heads of the departments, personnel from exclusive branch and the
clients, so as to come with the clear statistics regarding the have an effect on of
taxation on the overall performance of SME, s so as to answer the research questions.

Table 3. 1: population study

Category Number of participants

Heads of department 10

Clients 45

Other staffs 20

Total 75

Source: Researcher, 2019

27
3.6. Sample size and sampling techniques
Study pattern and sampling techniques is the range of techniques in this study which
have been used to reap relevant data. Therefore, it includes section or subset of the
population and the normal methods used to pick out the sample from large
population.

3.6.1. Sample Size

the size of the pattern in this study and the way in which used to be chosen is truly
have implications on the self-assurance one can have in the statistics and the extent to
which the crew can generalize. The study sample was Seventy-five (75) respondents.

3.6.2. Sampling Technique

In order to get very correct end result for this study, the purposive sampling technique
was used to select the sample from the population. This method is a non-random
sampling technique where the researcher decides to set up a criterion devoid of
randomness for deciding on the sample. In the purposive sampling, the pattern is
chosen to go well with the functions of the study.

These techniques were used due to the time constraints and the situation involved in
assessing the list of all workforce and consumers from SMEs. Sampling is the
technique of choosing a ample variety of factors from a populace so that by means of
reading the sample and understanding the houses or traits of the sample, researcher
used to be capable to generalize the residences of the pattern to the population.

3.7. Data collection methods

For the purpose of this study, two types of data were collected, these are primary data
and secondary data.

28
3.7.1 Primary Data
Data accrued by means of the researcher herself for a specific purpose. For example,
Data accumulated via a scholar for her thesis or study mission and are the data bought
for the first time (Krishinaswami, 2003). Primary data used to be collected through

3.7.1.1 Interview Method

Interviews are in particular beneficial for getting the story at the back of a
participant’s experiences. The interviewer can pursue in-depth records round the
topic. Interviews may additionally be useful as follow-up to certain respondents to
questionnaires, e.g., to further inspect their responses. (McNamara, 1999).

The study includes a one-on-one verbal interaction between the researcher and a
respondent. Therefore, it entails the data collection method via asking questions for
the respondents. Therefore, the mortgage officer affords greater data responding to a
range of questions through interaction which help to answer the study questions.

3.7.1.2. Questionnaires
The open-ended questionnaire and closed ended questionnaire used to be used with
the aid of a researcher to gather statistics from the study from the population pattern
intended. Therefore, seventy-five questionnaires have been disbursed to all
respondents. Therefore, this approach was simple and secure to the respondents as
their names were now not required in the questionnaires accordingly it helped to get
information.

Hence the respondents’ confidentiality of any information supplied was once assured.
A researcher provides some clarification and preparation to respondents who receive
a questionnaire, how the questionnaires must be performed and returned. The intent
used to be offering clear guidelines and assuring confidentiality of information is
based totally on the reality that this extensively reduces the probability of obtaining
biased responses.

29
3.7.1.3. Participatory observation
The researcher in the study region take a look at and word some impact of taxation
device and how it affects the overall performance of small medium companies in
Tanzania in the day to day operations of these small medium enterprises. This helps
the researcher to get more information which can't be given or hided with the aid of
the respondents through interviews and questionnaires. The researchers also study
how the customers from the small medium companies are affected in the taxation
system.

3.7.2. Secondary Data:

These are the records which has been amassed via some other writer and has already
published. These information’s are commonly free or cheaper to attain and can act as
a strong basis to any research project. Secondary records all through the study was
once amassed through;

3.7.2.1 Documentation
In this case the researcher surpassed via all files like tax manual, annual report which
deemed applicable for the study, such archives include finance reviews and
administration reports, Textbooks, Research papers, net web sites and Trade journals.
All the mentioned documentary assessment used to be beneficial because, most of the
data contained in it have already been analyzed and hence the researcher takes little
time to analyze them.

3.8 Data analysis

The term evaluation in research refers to the computation of certain measures
alongside with looking out for patterns of relationship that exist amongst data-groups.
Thus, in the manner of information analysis, relationships or variations helping or
conflicting with authentic or new hypotheses ought to be subjected to statistical
assessments of value to determine with what validity records can be stated to indicate
any conclusion (Kothari, 2004).

Data evaluation involved organizing facts and breaking it down into convenient
understood parts which was once ordered and in a shape that can enable the
30
researchers in answering the study questions. This study consists of quantitative and
qualitative methods of records analysis all solutions for open-ended question was
grouped collectively in case they have similarities and presented in a desk too

3.8.1 Qualitative data analysis

The researcher in the study decides to use the factual and logical interpretation
contrast and clarification of the study findings. Therefore, logical interpretation,
assessment and efficiency rationalization from the effect of taxation on the
performance of SME in Tanzania. The consequences drawn from the respondents of
Enterprise Finance Limited so as to come with first-rate records concerning with the
research findings.

The qualitative statistics used to be analyzed by using means of content analysis.

Content analysis is a methodology in the social sciences for reading the content of
communication. Content analysis is used to make inferences about the antecedents of
a communication, to describe and make inferences about traits of a conversation and
to make inferences about the results of a communication.

3.8.2 Quantitative records analysis

The study entails the computation of some mathematical dimension such as total,
tables and percentage presentation into statistic. Various numbers of populations with
the tables will be drawn from populace pattern from Enterprise Finance Limited in
order to come with fantastic arithmetic measurements in phrases of whole from the
study findings. The quantitative statistics was once analyzed through coding and
entry into Statistical Package for Social Sciences (SPSS) and Microsoft Excel. SPSS
generated descriptive facts such as frequencies, percentages, suggest and widespread
deviation.

3.9 Research Ethics

Any type of study be guided by the ideas of admire for people, beneficence, and
justice. He considered that respect for people is the attention of participants’ rights,
such as the right to be informed about the study, the right to freely decide whether or
31
not to participate in a study, and the right to withdraw at any time without penalty
(Capron (1989).

In this light, each person who enters into research endeavors wants to adhere to
ethical obligations. In consideration of the importance of being ethical, the researcher
adhered to the following:

i. The researcher secured the research clearance from Mzumbe University,

whereby researcher’s introduction letter, which explains the purpose of the
study, this was once granted before the visit.
ii. Researcher sends a request for study permit from Enterprise Finance Limited
office before beginning gathering data.
iii. The real name of the informant was once not protected in the report, in order
for making sure confidentiality, some of the IP’S are hided and any personal
be counted also has been hided.
iv. Voluntary participation-the researcher to make certain that participants have
been now not compelled into participating in research.

3.10 Publication and Dissemination of Results

The outcomes of the study first will be introduced to Mzumbe University and upon
approval widely dissemination to Tanzania Revenue Authority, Enterprise Finance
Limited and can also be different stake holders for the betterment in improving the
taxation system in Tanzania.

32
 CHAPTER FOUR

PRESENTATION OF FINDINGS

4.0 Introduction.
This chapter presents the study findings on the have an effect on of taxation on
overall performance in small medium organizations in Tanzania, the usage of
Enterprise Finance Limited as the case study. The study findings have been obtained
from the discipline the usage of extraordinary tools which included the interview,
questionnaire, documentary review and observations. The consequences acquired
from the place of the study have been introduced the use of the statistical strategies
which contain the use of frequencies in percentages presented in a desk and the pie
charts.

4.1 Response rate

This study comprised of 30 respondents (staff) and 45 purchasers from specific
departments from Enterprise Finance Limited. The study published that all allotted
questionnaires had been stuffed and returned, therefore, the ordinary response price of
all issued questionnaires had been 100%. This excessive response was once
completed as the researcher self-administered the questionnaires with the help of
Enterprise Finance Limited assistant human resource who dropped them in the
respective departments and accumulate them later after being filled.

Generally, this response price was excellent and representative and conforms to
Mugenda and Mugenda (2003), stipulation that a response price of 50% is sufficient
for analysis, a response fee of 60% is properly and a response fee of 70% and over is
excellent. The section had been explored some demographic characteristics of the
samples observed. It quickly analyzes 4 variables which are gender, age, working
journey and the schooling stage of the respondents.

33
4.1.1 Gender of the respondents
This question aimed to comprehend if all gender participated on the study during the
procedure of information collection as very gender have equal chance of imparting
data to share with researches. The respondents were asked to indicate their gender.
The study published that the number of females passed the wide variety of male. The
records about gender of respondents are summarized in Table 2 below.

Table 4. 1: respondents by gender

Valid
Male Female Total
Frequency 34 41 75
Percent 45.33 54.67 100
Valid Percent 45.33 54.67 100
Cumulative Percent 45.33 100

Source: Field data (2019)

A discovering in Figure 2 above suggests that the number of ladies in the study
exceeds the number of males. This shows that Enterprise Finance Limited have many
customers and body of workers who are girls compared to the male. Furthermore,
many females are the one who asking for and manner a loan from SMEs to facilitate
their small business.

This end result correlate with the findings obtained by (Lema, 2013) whereby gender
issue was realized to avoid gender biased such as involving only male by myself or
woman by myself were male occupied 80% and 20% for female, it has been revealed
that both male and lady have been concerned even though lady dominated the wide
variety of respondents. Gender is very important, in the course of employment there
ought to be fairness and balancing of male and female.

4.1.2 Age of respondents

In terms of the age evaluation it has been revealed that 10(13.3%) of the respondents
have been of age of less than 26 years.13 (17.33%) of the respondents have been of
age between 26 to 30 years, 17(22.67%) of the respondents have been of age between
34
31 to 35 years, Furthermore 21(28%) of the respondents had been aged between 36 to
40 years and 14 (18.67%) having an age above 40 years.

Table 4. 2: Age of the Respondents

Valid

Less than 26– 30 31-35 36-40 Above Total

26 years 40years

Frequency 10 13 17 21 14 75

Percent 13.33 17.33 22.67 28 18.67 100

Valid percent 13.33 17.33 22.67 28 18.67 100

Cumulative % 13.33 30.66 53.33 81.33 100

Source: Field data (2019)

The study published that, the personnel aged between 31- 35 have high maturity
level, compared to these who fall underneath the age below 31 years. With excessive
maturity concerns the employer is in a right manipulate environment which
contributes largely on the affectivity and fantastic of the organization. The aged
grouped are generally sharing fine experiences on how to undertake their day to day
working activities.

The effects also point out that having the aged crew between 35 and above are a good
factor at Enterprise Finance Limited because youths are continuing getting to know
from these elders. These consequences are in connection with the outcomes got by
using Mujemula, (2014).

4.1.3. Education level of Respondents

This question aimed to show the training level of respondents of which each
respondent has to be regarded his/her schooling degree considering that the study
wishes a person with relevant expertise to provide findings .Back to finding 18 (24%)
respondents have training degree beneath certificate, back to discovering 12 (16%)
respondents have certificate degree of education,17 (22.67%) respondents have a
diploma, 21 (28%) respondents have first diploma and 7 (9.33%) respondents have
35
masters diploma level. So, this finding depicts that workers and consumers at
Enterprise Finance Limited have applicable degree of education of which helped
them to supply prominent end result of the study.

The Loan officer at some stage in the interview was stated that in order the enterprise
to move so some distance have to equip people with special education parameters.
Having people with positive level of training can influence the enterprise
performance via some workers have high degree of schooling but their working
performance seems to be low.

Knowledge comes from the certain professional any person belongs from the
education level that gather by the time, so employees they have knowledge on bases
of experienced realistic works from the organization performs exceptional features
(Lapide, 2007)

Table 4. 3: Education level of the Respondents

Valid

Below Certificate Diploma Degree Master’s Total

Certificate degree

Frequency 18 12 17 21 7 75

Percent 24 16 22.67 28 9.33 100

Valid percent 24 16 22.67 28 9.33 100

Cumulative % 24 40 62.67 90.67 100

Source: Field data (2019)

4.1.4 Work Experience

The researcher had to satisfy herself that the pattern chosen was, in reality enough to
be inquired about very complicated system associated to the influence of taxation on
the overall performance of SMEs, and in many cases, humans with more work
experience have a tendency to be extra educated about the situation matter. The
respondents were requested to write down their degree of work trip and the following
effects were obtained.
36
Table 4. 4: Working Experience of the Respondents

Valid

0-1 years 2– 5years 6-10years Above 10years Total

Frequency 9 27 23 16 75

Percent 12 36 30.67 21.3 100

Valid percent 12 36 30.67 21.33 100

Cumulative % 12 48 78.67 100

Source: Field data (2019)

According to the findings got in table 4.4, 9(12%) of respondents having a trip of one
month to one year.27(36%) of the respondents having a trip between 2 to 5 years,
furthermore 23(30.67%) of respondents having an experience between 6 to 10 years
and 16(21.3%) of the respondents have a journey of more than 10 years. The
researcher used to be therefore cozy with the universal degree of ride of the sample
because it was commonly allotted with outstanding numbers of years.

Results depicted in Table 4.4 suggest that many of the respondents do have enough
experience in Micro Finance industry. This potential that experienced personnel can
be able to perform things to do in efficient and worthwhile way at Enterprise Finance
Limited Tanzania Limited.

4.2 Data evaluation in relation to unique objectives

4.2.1 To assess the factors affecting tax payers and their business in Small
Medium Enterprises in Tanzania
4.2.1.1 Lack of knowledge about taxation system in SMEs
This question aimed to understand the extent of information about taxation study in
Small Medium Enterprises amongst the group of workers and their clients

The findings disclosed that 23(30.67%) of the respondents strongly agreed that the
personnel and their purchasers lacks a understanding about taxation device in
SMEs,19 (25.33%) respondents agreed that the personnel and their purchasers lacks
of information about taxation device in Small Medium Enterprises,8(10.67%)

37
respondents had been impartial on the statement,14(18.67%) respondents disagreed
that the group of workers and their consumers lack of understanding about taxation
study in Small Medium Enterprises and 11(14.66%) respondents strongly disagreed
that the body of workers and their purchasers lacks of know-how about taxation
device in Small Medium Enterprises.

Table 4. 5: Lack of knowledge about taxation system in SMSE

Frequency Percentage Valid Percent Cumulative %
Response Rate

Strongly agreed 23 30.67 30.67 30.67

Agreed 19 25.33 25.33 56
Neutral 8 10.67 10.67 66.67
Disagree 14 18.67 18.67 85.34
Strongly disagree 11 14.66 14.66 100
Total 75 100 100

Source: Field data (2019)

From the findings above the SME’s in Tanzania are affected or impacted in their
operations since they are not familiar with the taxation system used and the results
many SME’s are not compliance with the tax rules in Tanzania

4.2.1.2 Shortage of training on taxation

The findings show that 9(16.36%) respondents was strongly agreed that there is a
Shortage of training in taxation to workforce as properly as to clients,
6(10.91%) respondents was agreed that the coaching is provided. 11(20%) of
respondents used to be impartial and did no longer argue on it while 14(25.46%) was
strongly disagree and lastly the study has been published that 15(27.27%)
respondents used to be disagree on the Shortage of education in taxation to group of
workers as well as to clients, Majority of the respondents said that the Tanzania
Revenue Authority did now not provide sufficient education about taxation to the
community.

38
Table 4. 6: Shortage of training in taxation

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 19 25.33 25.33 25.33

Agreed 16 21.33 25.33 46.66
Neutral 12 16 16 62.66
Disagree 15 20 20 82.66
Strongly disagree 13 17.33 17.34 100
Total 75 100 100

Source: Field data (2019)

4.2.1.3 High tax charge imposed on business

The researcher was involved in knowing if the tax price imposed on business is high
or is no longer high.

The outcomes presented in Table 4.7 suggests that the majority 21(28%) of
respondents strongly agreed that the tax fee imposed on enterprise is high. Meanwhile
17(22.67%) of respondents agreed that the tax charge imposed to commercial
enterprise is high,7(9.33%) respondents had been impartial but 16(21.33%)
respondents was disagree that the tax charge imposed on business is high. Lastly
14(18.67%) respondents was strongly disagree that the tax fee imposed on business is
excessive

39
Table 4. 7: High tax rate imposed on business

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 21 28 28 28
Agreed 17 22.67 22.67 50.67
Neutral 7 9.33 9.33 60
Disagree 16 21.33 21.33 81.33
Strongly disagree 14 18.67 18.67 100
Total 75 100 100

Source: Field data (2019)

4.2.2 The extent the taxation system influences the overall performance of SMEs
in Tanzania
4.2.2.1 Noncompliance due to high tax rate
This question aimed to be aware of the consequences arises due to high tax fee
imposed on commercial enterprise and how it affects the overall performance of
Small Medium Enterprises in Tanzania.

Back to findings respondents find out the following information 14(18.67%)

respondents strongly agreed that taxpayers did not comply with the tax policies and
policies due to high tax fee imposed, 23(30.67%) of respondents was once agreed that
noncompliance passed off due to excessive tax charge imposed on their business,
9(12%) were neutral. While 16(21.33%) respondents had been disagreed and
13(17.33%) have been strongly disagreed that and the respondents provide an
explanation for that the taxpayers are no longer comply due to their behavior and
character on tax issues.

Therefore, these discovering imply that, the majority of the group of workers and
clients was typical that the excessive tax rate imposed brought on to have a
noncompliance on tax system.

40
Table 4. 8: Noncompliance due to the tax rate

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 14 18.67 18.67 18.67

Agreed 23 30.67 30.67 49.34
Neutral 9 12 12 61.34
Disagree 16 21.33 21.33 82.67
Strongly disagree 13 17.33 17.33 100
Total 75 100 100

Source: Field data (2019)

4.2.2.2Uncertainty of the tax rate

This question aimed to be aware of if the future taxes and tax quotes are
undetermined by using the SMEs and their team of workers which may additionally
result to the economic risk. Majority of the respondents 28(37.33%) was once
strongly agreed the tax fee is no longer determine.21 (28%) respondents agreed that
the tax charge is now not determine,14(18.67%) were neutral. While 4(5.33%)
respondents had been disagreed and 8(10.67%) were strongly disagreed that the tax
price is no longer determine, Because the price of tax expanded year after year
consequently the management of small medium enterprises forecast that in the future
then the strolling expenses will be too high.

41
Table 4. 9: uncertainty of the tax rate
Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 28 37.33 37.33 37.33

Agreed 21 28 28 65.33
Neutral 14 18.67 18.67 84
Disagree 4 5.33 5.33 89.33
Strongly disagree 8 10.67 10.67 100
Total 75 100 100

Source: Field data (2019)

4.2.2.3 High tax fee on loan minimize the number of clients
From the study the researcher sought to find out whether the quantity of consumers
who system or taken a loan is decreased because of the high tax rate charged on
mortgage or not.

The result presented in Table 4.10 shows that the majority had been no longer aged if
the high tax charges on mortgage minimize the number of clients to SMEs.9 (12%)
respondents strongly agreed that the high tax charge on mortgage limit the range of
clients who are taken loan. 12(16%) respondents agreed that excessive tax fee on
mortgage reduce the variety of clients, 13(17.33%) respondents have been neutral.
Meanwhile 19(25.33%) respondents disagree that the high tax charge on loan
minimize the wide variety of clients and 22(29.34%) respondents strongly disagreed
that the excessive tax charge on loan minimize the number of clients. Since the
SME’s pay many taxes to the government also themselves increase the percentage
rate on the amount of loan provided to their clients.This action reduced the number of
clients in those SME’s

42
Table 4. 10: High rate on loan reduce the number of clients
Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 9 12 12 12
Agreed 12 16 16 28
Neutral 13 17.33 17.33 45.33
Disagree 19 25.33 25.33 70.66
Strongly disagree 22 29.34 29.34 100
Total 75 100 100

Source: Field data (2019)

4.2.2.4 Double taxation study on goods and services

This question aimed to comprehend if many taxes imposed on the enterprise impacts
the overall performance of Small Medium Enterprises in Tanzania or not.

Table 4. 11: double taxation system on goods and service

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 18 24 24 24
Agreed 16 21.33 21.33 45.33
Neutral 15 20 20 65.33
Disagree 14 18.67 18.67 84
Strongly disagree 12 16 16 100
Total 75 100 100

Source: Field data (2019)

The findings shows that 18(24%) respondents used to be strongly agreed that double
taxation study on goods and services influences the overall performance of
SMEs,16(21.33%) respondents was once agreed that double taxation study on items
and offerings impacts the performance of SMEs, 15 (20%) of respondents was once
impartial and did not argue on it whilst 14(18.67%) was once disagree double

43
taxation device on goods and offerings influences the performance of SMEs, and
lastly the study been printed that 12(16%) respondents used to be strongly disagree
double taxation system on items and offerings influences the performance of SMEs,

Table 4. 12: high tax rate discourages traders

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 22 29.33 29.33 29.33

Agreed 17 22.67 22.67 52
Neutral 11 14.67 14.67 66.67
Disagree 16 21.33 21.33 88
Strongly disagree 9 12 12 100
Total 75 100 100

Source: Field data (2019)

4.2.3 The impact of high tax rate on performance on Small Medium Enterprises
in Tanzania
4.2.3.1 High tax price discourages traders
The question sought to locate out whether the traders are discouraged by high tax fee
imposed on business.
The findings show that 22(29.33%) respondents were strongly agreed that the traders
are discouraged by way of high tax fee imposed on business. 17(22.67%) respondents
have been agreed the traders are discouraged by means of excessive tax fee imposed
on business. 11(14.67%) of respondents were impartial and did not argue on it while,
16(21.33%) was once disagreed that the investors are discouraged through excessive
tax price imposed on business. and finally, the study been printed that 9(12%)
respondents used to be strongly disagree that the buyers are discouraged by using
high tax charge imposed on business.

The study shows that majority of the members was based totally on the factor that the
buyers are discouraged by excessive tax fee imposed on business.

44
Table 4. 13: High tax rate discourages traders
Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 16 21.33 21.33 21.33

Agreed 13 17.33 17.33 38.66
Neutral 19 25.33 25.33 63.99
Disagree 17 22.67 22.67 86.66
Strongly disagree 10 13.33 13.34 100
Total 75 100 100

Source: Field data (2019)

The huge number of traders has been decreased in Tanzania compared to other East
African Countries due to high tax rate the government imposed to the products while
other existing traders decided to close totally their business in Tanzania. Such facts
are evidenced by the reaction of respondents during the interview who said

“The current business practice is quite of a risk taking. Many products have
been rated high in terms of taxation. We are not getting customers as it used
to be due to high price caused by the imposed tax on products. It has reached
a point of closing the business like two neighbors of mine closed their
business two days ago. Even though I’m still running it but I’m not getting
enough cash out of sale. Mark my words few days to come a lot of SMEs will
be closed due to un-affordability of tax to both products and the government
tax to be paid to TRA”

Such reaction from respondents and revealed findings imply that high tax rate
imposed by the government to SMEs discouraged both traders and customers which
leads to closing the entire business; in long run it will lead to loss of tax collection to
the government.

4.2.3.2 High tax charged increase the tax evasion

This question aimed to be aware of if the high tax charges on SMEs expand the tax
evasion. The findings indicate that 16(21.33%) respondents was once strongly agreed
that the high tax rate on SMEs amplify the tax evasion. 13(17.33%) respondents was
45
once agreed, 19(25.33%) of respondents was impartial and did now not argue on it
whilst 17(22.67%) used to be disagree and ultimately the study been published that
10(13.33%) respondents used to be strongly disagree on the in a position of the
individual who furnish the education.
Table 4. 14: high tax rate increases the tax evasion
Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 17 22.67 22.67 22.67

Agreed 19 25.33 25.33 48
Neutral 13 17.33 17.33 65.33
Disagree 12 16 16 81.33
Strongly disagree 14 18.67 18.67 100
Total 75 100 100

Source: Field data (2019)

These findings imply that in most cases high tax rate paying creates evasion
opportunities among traders. This proportionate with the reaction of respondents who
said

“Due to the imposed high tax rate we have been introducing two prices per
product the high one which includes tax cuts and the lower one which doesn’t
include tax cuts and let the customer to choose (that’s incase asks for the
electronic receipt). Factually most customers have been choosing the lower
price due to life hardships. By so doing the government loses the collection”

On the other hand, the other respondents said

“To reduce tax paying, I have been reporting few products among many that
I’m selling to tax estimators. Because if they are told everything, they end up
estimating high tax rate which cannot be afforded monthly due to low selling
trend; in such scenario the only solution is to lie”

These all reactions and findings show that high tax rating leads to evasion among
traders which causes low tax collection.

46
4.2.3.3 High tax rate to SME’s increase the interest rates imposed on loan
This question aimed to recognize if the excessive tax fee to Microfinance amplify the
interest price imposed on loan and again, to the findings 17 (22.67%) had been
strongly agreed with the concern, 19 (25.33%) have been agreed, 13 (17.33%) were
neutral, 12(16%) had been disagree and 14(18.67%) had been strongly disagree. So,
these findings show that most of respondents argue that the excessive tax charge to
Microfinance enlarge the pastime fee imposed on loan.

Table 4. 15: high tax rate to the microfinance increase the interest rate imposed on
loan

Response Rate Frequency Percentage Valid Percent Cumulative %

Strongly agreed 17 22.67 22.67 22.67

Agreed 19 25.33 25.33 48
Neutral 13 17.33 17.33 65.33
Disagree 12 16 16 81.33
Strongly disagree 14 18.67 18.67 100
Total 75 100 100

Source: Field data (2019)

4.3 The number of Small Medium Enterprises in Tanzania is reduced due to

high rate of tax
The researcher managed to find out if the high tax rating was causing reduction of
small and medium enterprises in Tanzania. The findings were gathered through the
interview guide as majority respondents went proportional to the fact that high rate
taxing leads to closure of many SMEs. This was evidence by the respondents who
said

“The demanded tax by TRA is too high in comparison to the kind of business
I’m running. I can`t afford it so the only solution is to close it”

The other respondent said

47
 “One of the constraints facing small business traders is high rate of tax. They
fail to afford paying the tax required as sometimes its high than even the
capital invested on the entire business. This demeanour cause them to close
their businesses”

Such reaction from respondents imply that high tax rate imposed to small and
medium enterprises traders leads to closure of their businesses which in turn reduces
the number of SME

4.4 Reducing/overcoming closure of SMEs as a major impact of high tax rate

The impact of high tax rate among SMEs is mostly in negative perspective. However,
to overcome such impact a number of issues must be considered. Proportional to such
facts the researcher asked respondents to reveal their recommendation towards
overcoming these outcomes. The findings were gathered through interviewing
respondents as quoted here:

“The government must find a way to weigh off such imposed taxes to small
business dealers. This will reduce the rate of business closure among the
traders.”

The other respondent said

“If the government cannot obliterate these high taxes then must reduce them
proportional to the sales. Because these days’ customers are not as many as it
used to be, the business practitioners are facing hardships even to finish
selling the products available in their possession. These tax estimators must
use humanity which would lead to win-win situation to both tax collectors and
traders”

Such reactions from respondents imply that even though high tax rate has many
negative impacts towards SMEs, yet the government can reduce them and make these
institutions prosper if the recommended facts are taken in consideration.

48
 CHAPTER FIVE

DISCUSSION OF THE RESEARCH FINDINGS

5.1 Introduction
This chapter intends to deliver a dialogue on the research findings concerning with
the have an impact on of taxation on performance of small medium organizations in
Tanzania. The research findings blanketed the team of workers and consumers of the
microfinance group who have also been supplemented by way of the details furnished
by the workforce of the microfinance institution. This area will be equipped to
encompass amongst other things a dialogue of the findings on taxation system and its
impacts in day to day operations of the Microfinance.

5.2. Discussion of the findings on respondents profile.

The findings in this study revealed that in phrases of Sex most of the respondents
were females while the males are few. As the number of the females is extra
compared to the number of the males this confirm the assertion that in microfinance
institutions their customers have large number of females and this shows that many
females involve in small medium enterprises in Tanzania compared to males. In the
society females have minimal or no get entry to productive assets which consists of
the land, capital as nicely as the schooling which makes majority of them stay poor.
These findings are supported by using the study of (Temu, 2000) who also
determined ladies being majority debtors of the microfinance institutions.

In this study about the impact of taxation system in the performance of small medium
enterprises in Tanzania, many respondents in this Microfinance were skilled to some
extent as they have been having secondary education hence are knowledgeable
sufficient on taxation questions which they have been asked associated to the study.
Basing on an interview with them it was once published that majority of them
engaged in small businesses which have been financed and supported with the aid of
the microfinance institution. This has been the case as the mortgage beneficiaries
didn’t had employment opportunities in the formal sectors as they have been lacking

49
advanced stage of education. Furthermore, basing on the age of the staff and
purchasers of Enterprises Finance Limited majority had been between 22 years to 35
years. This vary represents young and vigorous component of the human beings with
household commitments in the experience that they had been accountable for
bettering their families to have access to the fundamental wants and to gain this most
of them engaged in various businesses.

Finally, in the case of working ride majority of the staff having sufficient working
journey in the Microfinance Institution, this implies that there is no any doubt about
their overall performance in day to day operations of the Microfinance.

5.2.1 Discussion of the findings on the issues affecting tax payers and their
business in Tanzania
The study revealed that, the price of literacy is as a substitute low and there is
confined tax education. All 45 clients from Enterprise Finance Limited who have
been asked whether or not they had tax schooling 14(31.11%) stated they had never
obtained any training on taxation. But they just pay tax as an order besides grasp
importance of paying tax to government. As a result, some of them diverge to pay
taxes and other they perceived taxes as punishment.

The respondents had been similarly requested to indicate whether or not the excessive
tax fee imposed on commercial enterprise reason them to shut their commercial
enterprise or to diverge to pay tax. The findings printed that out of forty-five about 24
(53.33%) agreed that the high tax rate imposed on enterprise motive them to shut
their business or to diverge to pay tax. While 21(46.67%) of the respondents did not
agree.

This implies that some of microfinance purchaser’s greed that their commercial
enterprise has been impacted by using the high tax fee imposed by way of
government on their business and this induced them to shut their business whilst
others did no longer agreed with the statement.

50
Researcher findings exhibit that majority of the respondents did not attend any
seminars or coaching conducted with the aid of Tanzania Revenue Authority
regarding to the taxation system in Tanzania. Some of the purchasers in the study
indicates their hobby to take part in this education however they did no longer
appreciation where does it found. The researcher concludes that even if Tanzania
Revenue Authority sometime use Public announcement i.e. radio, Television to
provide schooling to the society however the neighborhoods are not involved to listen

5.2.2 Discussion of the findings on the extent to which taxation study have an
effect on the overall performance of SMEs in Tanzania.
On the bases of findings most of respondents advise that the complexity of the tax
system in Tanzania have to be reduced in order to have a device which is too open,
understanding to taxpayers as nicely as influenced to pay tax. The community must
no longer think it is a disturbance to pay tax or the taxpayer need to be blissful
throughout the fee of tax and this can be achieved if the payment system will be
simple and no longer consume enough time.

On the bases of findings most of respondents counseled Uncertainty of the tax rate
have to be minimized in order to minimize noncompliance of tax to tax payers. The
tax rates modifications often therefore the tax payer even fail to forecast the future
prices of their business. Majority of the respondents had been no longer involved with
many sorts of taxes imposed to the business, alternatively they advise to have few
varieties of taxes to impose to a business however in this sort of tax many taxes can
be blended together to have one.

Furthermore, the staff from Enterprise Finance Limited states that considering the
running cost of the Microfinance is high, this reason the management to increase the
diversion rate on loan purposely to compensate these costs. Once the government
charge a lot of matters to Small Medium Enterprises for instance in microfinance, not
only the microfinance who are affected nut also on the other lateral this burden goes
to clients.

51
The study written that 8 out of 18 Microfinance registered in Tanzania are closed due
to the fact the administration fails to run their business. One of the challenges or
things which affect the performance of those Small Medium Enterprises in its
operations is tax matters.

5.2.3 Discussion of the findings on the have an effect on of excessive tax rate on
SMEs’ performance in Tanzania?
The study findings issued that 30% of the earnings before tax acquired by using
Microfinance is affected by tax. This amount is being paid to Tanzania Revenue
Authority in four equal instalments. Majority of the purchaser remarks that the
percentage of corporate tax is to huge for them, since there are many taxes and costs
the place with the aid of a taxpayer is supposed to pay to TRA and different
government authority for example capital levy which is paid to municipal collectively
with commercial enterprise license fees.

Back to findings: Respondents argued that the high tax fee extends the wide variety of
tax evader, if the authorities will set a realistic rate of tax and can supply schooling to
tax region about the significance to pay tax and the morale of taxpayer to pay tax.

5.2.4 Taxation impacts on SME’s Performance

During the operation of the small medium enterprises in Tanzania the government
through Tanzania Revenue Authority imposed many kinds of taxes which affects the
profits earned by SME’s and its performance at all. Some of these taxes are corporate
tax, withholding tax, skilled development levy, Value Added Tax, presumption tax
and exercising duty.
During the study the researcher reveals that in three consecutive years at Enterprises
Finance Limited the amount of taxes paid and how was charged to profits earned and
in the gross salary of the organization as follows;

52
Table 5. 1: Corporate taxes charged on profits
Year Profits before Tax Corporate tax (30%)
2015 167,245,000/= 50,173,500/=
2016 153,456,550/= 46,036,965/=
2017 124,765,000/= 37,429,500/=

Source: Field data (2019)

From table above shows that the amount of cooperate tax paid per year depends on
the profits earned by the organization. In 2016 the profits is reduced while amount of
cooperate tax paid by Enterprises Finance Limited is constant (30%) of the profits
earned, Therefore the amount was increased by 18.69% while in 2017 the amount of
tax paid was increased by 8.24%.The profits is reduced since the number of customer
in SME’s is also reduced and the performance was poor due to high and many types
of taxes imposed to SME’s in Tanzania.

Furthermore, the enterprises also pay the services levy (0.03%) which are imposed on
the amount of revenues earned during the year. The information obtained during the
study shows that this amount of taxes is paid to the municipal where the SME’s
operates.

Table 5. 2: Services levy

Year Sales (Vat inclusive) Service levy (0.03%) VAT (18%)
2015 186,000,680/= 55,800.20 28,372,985.8
2016 173,456,750/= 52,037.03 26,459500.24
2017 162,705,560/= 48,8111.67 24,819,492.20

Source: Field data (2019)

Even if the SME’s pays the above taxes to the government but also pays the skills
development levy (4.5% SDL) for those SME’s which have a number of staffs from
four staffs and above. The amount of SDL is charged to the monthly gross salary of
the organization. Pay as you earn is also paid by the organization to TRA and
withholding tax which is charged 5% or 10% depends on the services rendered.

53
In conclusion the study reveals that the SME’s are affected by many taxes as
mentioned and explained above.

54
 CHAPTER SIX

SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS

6.1 Introduction
This chapter provides the summary of the study primarily based on the views
expressed by means of the respondents, conclusion of the study and recommendation
of the study. Finally, the chapter gives the advice for in addition studies.

6.2 Summary of the Major Findings

The study adapts case study presentation on assessing the influence of taxation on
overall performance of small medium corporations in Tanzania of which a study
makes use of a sample of 75 respondent and records was once amassed by way of
questionnaire, interview and documentation.

The recognized objective of the study was once to verify the effect of taxation on
overall performance in small medium corporations in Tanzania, While the unique
objectives of the study was aimed at inspecting the extent to which taxation study
have an effect on the performance of SMEs in Tanzania, Assessing the troubles
affecting tax payers and their commercial enterprise in Tanzania and analyzing the
have an impact on of excessive tax fee on SMEs’ performance in Tanzania.

Researcher reveals that the overall performance of Small Medium Enterprises in

Tanzania is impacted with the aid of many factors, one amongst these factors is
taxation device or tax prices imposed in those Small Medium Enterprises. During the
study majority of the respondents accepting that the tax fees is not standard/fair to
motivate the SMEs to invest in Tanzania.

The taxation system in Tanzania does not encourage the investors as nicely as the
entrepreneurs to do a business, that why many of them fail to operate their
commercial enterprise due to excessive tax and many classes of taxes imposed on
their business.
55
Furthermore, researcher exhibits some of the business failure and failed to continue
due to high working costs, the income acquired through them is low in contrast to
quantity of taxes paid,

6.3 Conclusion
On the basis of researcher discovering that Small Medium Enterprises in Tanzania are
impacted through taxation system. The rates of taxes imposed to it and exclusive
types imposed to them for instance corporate tax, withholding tax, Skilled
development levy, Value Added Tax, presumption tax and exercising duty are
affecting their day to day things to do considering that it impacts the earnings earned
in the course of the year.

The researcher findings that the lack of information about taxation device to one of a
kind taxpayers, body of workers of the SMEs Shortage of education on taxation
provided by way of Tanzania Revenue Authority, High tax price imposed on
business, on compliance of some of the taxpayers due to excessive tax rate,
Uncertainty of the tax rate, High tax fee on loan limit the number of clients,

Furthermore, researcher displays that the double taxation device on goods and
services, excessive tax rate discourages investors, excessive tax price amplifies the
tax evasion, high tax fee to Microfinance enlarge the pastime rate imposed on loan.
All referred to factors above are the have an effect on of taxation system to Small
Medium Enterprises in Tanzania.

So, the small medium corporations in Tanzania need to no longer disappointed by

way of the taxation study and its affects in their operations but they have to find one
of a kind means of minimizing these influences of taxation in collaboration with the
government. Because when the commercial enterprise close now not solely the owner
of the business who are affected by means of the authorities unfastened the revenue
which will be collective by means of taxes paid through the business. Apart from that
the community affected when you consider that they lose some employment and
different services which was once provided by means of that business.

56
6.4 Recommendation
Through the facts gathered and analyzed the researcher got here up with the following
recommendations

6.4.1 To the government

Government set a life like tax charge for Small Medium Enterprises in order to
motivate the owners who are residential to capitalize as properly s the foreigners to
come to invest. Government has to seem onward on all affects that are in his manage
and making an attempt to minimize these challenges dealing with SMEs in taxation
systems for pleasant overall performance of Small Medium Enterprises.

6.4.2 To policy maker

The policy makers have to think about the necessity of true performance of Small
Medium Enterprises in Tanzania and set out insurance policies that have an impact on
the residents and foreigners to invest. The coverage makers ought to overview the tax
imposed to these Small Medium Enterprises in Tanzania and can decrease or cast off
some of them.

6.4.3 To Practitioners
The study will help them to equip specific affects that May Small Medium
Enterprises face when operates in Tanzania with relevant measures of which they
have to use in order to limit those impacts in its operations. Also, these can inspire
many buyers in our country.

6.4.4 To Tanzania Revenue Authority

TRA have to have a tendency to conduct some training and seminars to train SMEs
with an intention of expand their understanding on the taxation legal guidelines and
procedures, this will extend and merchandising voluntary compliance. Furthermore,
Tanzania Revenue Authority completed these by conducting secondary faculties and
faculties tax academic programmes, installation of instructional and sensitization
billboards and the use of drama companies to sensitize SMEs on tax compliance
matters.

57
Alternatively, TRA be restrained with its operation it is encouraged that they use tax
dealers or tax brokers as an outsourcing arrangement to lift out the consciousness and
sensitization programmes at SMEs business premises.

Finally, the Tanzania Revenue Authority ought to be very pleasant to taxpayer in

order to have a top relationship between the taxpayer and the tax authority
considering the fact that each of them can work collectively to enlarge the
government revenue through tax.

6.4.5 To future researcher

Future researcher has to take these effects of taxation to the performance of Small
Medium Enterprises as the massive mission to them, and they need to discover out
greater literature and methods of solving those affects at the minimum level for the
betterment of SMEs in Tanzania.

6.4.6 To EFL Enterprise Finance Limited

The study findings printed that EFL Enterprise Finance Limited need to adhere to the
tax regulations and legislation according to authorities guidelines in order to keep
away from some penalties and hobby which arise due to failure to comply with the
tax rules. These penalties and activity will make bigger the ruling value of the
organization. Thus, researcher endorsed that the administration of the EFL Enterprise
Finance Limited also should organize the education to their staff in special tax things
as nicely as the business enterprise can have a tendency and price range to ship their
body of workers to attend some seminars and training which used to be carried out
through Tanzania Revenue Authority. To make them more familiar to tax matters.

6.5 Recommendation for Further Studies

This study used to be carried out the usage of Microfinance, Enterprise Finance
Limited (EFL) as a case study consequently it covered small area. Thus, another
study is advocated to different Microfinance for comparative purposes. Since the case
may want to be distinctive in different Microfinance.

58
The study consequently recommends that in addition research be achieved on other
Microfinance to set up more on the same study thus ‘’The have an effect on of
taxation on overall performance in small medium businesses in Tanzania’ may
additionally be carried out as a survey protecting many regions, with a bit of luck if
these will be achieved will assure the have an impact on of taxation on performance
in small medium firms in Tanzania will be solved or minimized. Finally, the
researcher recommends similarly research can be on the contributions of Small
Medium Enterprises in the Government revenue.

59
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 APPENDIXES
QUESTIONNAIRES

Dear respondent
My name is Farida Shabani Mkembe. Undertaking research study on the Assessment
of the effect of taxation on overall performance in small medium enterprises in
Tanzania a case of Enterprise finance Limited. Since you are the one among the staff,
purchaser of this Microfinance you’re invented to take part in this study.
The data acquired helps into improve and develop the sphere of knowledge by means
of virtually integrating the theoretical section of the study and real surroundings in
Tanzania.

It would be most gratefully if you respond to all questions in the questionnaire, this
may additionally take about 20 minutes to whole the questionnaire and return it
returned to researcher. In the postpaid and self-addressed envelope.

I would like also assure that I will preserve all my effort defend your identity will be
taken your response will not be identified via any man or woman different than you
and researcher.

I hope that you will receive this invitation to participate in this study and appear
forward to get hold of response inside the 3 coming days.Thank you in boost for your
cooperation
You’re Sincere

.............................................
Farida Mkembe

64
 APPENDIX I:

QUESTIONNAIRE TO STAFF

QUESTIONS RELATED TO PERSONAL INFORMATION

1. What is your sex?

(a) Male ( )
(b) Female ( )

2. In which group of education level do you belong?

(a) Certificate level of education ( )
(b) Diploma level of education ( )
(c) First degree education ( )
(d) Master’s degree education ( )
(e) Other education level (specify) ( )

3. How long have you been working in this institution?

(a) 0-1 year ( )
(b) 2-5 years ( )
(c) 6-10 years ( )
(d) Above 10 years ( )
4. Paying high tax rates does it affect the performance of the SMEs?
a) Yes ( )
b) No ( )

5. What do you understand by the term taxation?

____________________________________________________________________
____________________________________________________________________
__________________________________________________________
6. The following are the impact of taxation in Small medium enterprises please
indicate your level of agreement or disagreement with each of the following impact

65
S/N IMPACT Strongly Agree Don’t Disagree Strongly
Agree Know Disagree
1 Increase the cost of
loan
2 Affect the small
medium enterprises
performance
3 Attract the Small
medium enterprises to
hide the profit
received.
4 Increase of tax rate
attract increasing of the
loan interest rate.
5 High rate of tax
discourages investors

6 Small enterprises may

fail to continue with
business due to high
service charges.

7 Tax rate on loan reduce

the number of
applicants / clients

‘’Thanks for your response’’

66
 APPENDIX II: QUESTIONNAIRE TO CLIENTS
Pl
1.Please indicate your Sex
(I)Male (ii)Female

2.What is your age?

(i)Less than 26 years (ii)26-30years (iii)31-35years (iv)36-40 years (v)Above
40
3.How long have you been a customer of Enterprise finance Limited(EFL)?

(i)Less than 1year (ii)2-5year (iii)6-10years (iv)Above 10years

4. Have you taken or applied for a loan in this Financial Institution?

a) Yes ( )
b) No ( )

5. The following are the impact of taxation in Small medium enterprises please
indicate your level of agreement or disagreement with each of the following impact

67
S/N IMPACT Strongly Agree Don’t Disagree Strongly
Agree Know Disagree
1 Increase the cost of
loan
2 Affect the small
medium enterprises
performance
3 Attract the Small
medium enterprises
to hide the profit
received.
4 Increase of tax rate
attract increasing of
the loan interest rate.
5 High rate of tax
discourages investors.

6 Small enterprises may

fail to continue with
business due to high
service charges.

‘’Thanks for your response’’

68
 Appendix III: INTERVIEW GUIDE TO STAFF

1. What are the impacts of taxation in performance of your Institution?

2. What are strategies of minimizing these impacts?
3. Explain what governments should do to minimize these impacts?
4. Do you think the number of Small Medium Enterprises in Tanzania is reduced
due to high rate of tax?

‘’Thanks for your response’’

69