Determinants of tax compliance in small and medium enterprises

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Tax compliance is currently a topical issue, especially in developing countries, as governments seek ways to improve efficiency in tax revenue collection to finance their budgets. SMEs are the majority business taxpayers in most developing countries and thus their compliance levels directly impact on the governments' tax revenue collection. This study investigated the determinants of tax compliance in SMEs, focusing on how tax knowledge and compliance costs affect tax compliance behaviour of SMEs in Zimbabwe. The main objectives of the study were to investigate how business conditions of SMEs, perceptions of SME operators, levels of tax knowledge and compliance costs can affect SMEs' tax compliance behaviour. The results indicated that SMEs face unique business conditions which cause them to bear high tax compliance burdens. The perceptions of SME operators about tax fairness and government spending greatly affect their tax compliance decisions. The study found tax knowledge to have no correlation with tax registration compliance but weak negative correlations with filing compliance. Compliance costs were found to have negative correlations with tax compliance.