The Impact of Tax Compliance Costs On Tax Compliance Behaviour

Deogratius Ng'winula Mahangila


This paper is based on a study that determined whether or not an increase in income tax compliance costs leads to a decrease in income tax compliance.

The tax context experiment involved 75 small and medium entrepreneurs based in Dar es Salaam, Tanzania’s business hub. The participants were first randomly assigned to one of the three experiment treatments. In the first treatment, the tax compliance cost was TAZ 50,000; in the second, it was TAZ 100,000; and in the third, it was TAZ 166,667. Each participant in each treatment received income of TAZ 1,000,000. TAZ is a laboratory currency which, at the end of the experiment, was exchanged at the rate of TAZ 120 for 1 actual Tanzania shilling (Tsh). Generally, the results indicated that tax non-compliance significantly increased as tax compliance costs increased.

Although the study used small samples of SME taxpayers, therefore the results may not be generalisable, the results imply that tax compliance costs may be responsible for the unsatisfactory tax compliance levels of SME taxpayers. Therefore, there is a need for tax system simplification.

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