Understanding Tax Evasion Behavior in Tanzania: Insights from Regression Analysis
Introduction:
Tax evasion poses a significant challenge to governments worldwide, undermining revenue collection efforts and hindering socioeconomic development. In Tanzania, like in many other countries, tax evasion persists despite governmental efforts to enhance compliance. Understanding the determinants of tax evasion behavior is crucial for devising effective strategies to mitigate its prevalence and ensure a fair and equitable tax system.
This study aims to investigate the factors influencing tax evasion among Tanzanian taxpayers, with a focus on income level, perceptions of the tax system's fairness, beliefs in the effective use of tax revenue, and reasons for not paying taxes. By employing a regression analysis approach, this research seeks to unravel the complex interplay of these variables in shaping tax evasion behavior.
Results:
The regression analysis yielded insightful findings regarding the determinants of tax evasion behavior in Tanzania. Firstly, individuals with higher incomes per month exhibited slightly higher odds of engaging in tax evasion, indicating a nuanced relationship between income level and tax compliance.
Perceived fairness of the tax system emerged as a robust predictor of tax evasion behavior, with individuals who perceived the tax system as fair being significantly less likely to engage in tax evasion. This underscores the importance of fairness perceptions in fostering tax compliance among citizens.
Hence, belief in the effective use of tax revenue by the government was found to be negatively associated with tax evasion, highlighting the pivotal role of trust in government institutions and the perceived efficacy of public spending in shaping tax compliance behavior.
While reasons for not paying taxes showed a marginal effect on tax evasion, factors such as high tax rates, lack of knowledge on tax payment procedures, and distrust in the government were identified as potential drivers of non-compliance. These findings underscore the need for targeted interventions to address the underlying reasons for tax evasion and enhance taxpayer education and awareness.
Overall, the results shed light on the multifaceted nature of tax evasion behavior in Tanzania and provide valuable insights for policymakers seeking to strengthen tax compliance mechanisms and foster a culture of tax integrity among citizens.
Source SS df MS Number of obs = | 232 | |
F(4, 227) | = 60.32 | |
Model 26.1516804 4 6.53792009 Prob > F | = 0.0000 | |
Residual 24.60263 227 .10838163 R-squared | = 0.5153 | |
Adj R-squared | = 0.5067 | |
Total 50.7543103 231 .219715629 Root MSE | = .32921 | |
Tax evasion Coef. Std. Err. t | P>t [95% Conf. | Interval] |
Income level per month .0402991 .0187461 2.15 | 0.033 .0033604 | .0772378 |
Perceived fairness of the tax system -.2949056 .0193304 -15.26 | 0.000 -.3329957 | -.2568156 |
Belief in effective use of tax revenue -.0700492 .0329168 -2.13 | 0.034 -.1349108 | -.0051875 |
Reasons for not paying taxes -.0428999 .0220369 -1.95 | 0.053 -.086323 | .0005231 |
_cons 2.623102 .1168652 22.45 | 0.000 2.392822 | 2.853381 |
Tax Evasion = β0 + 0.0402991*IncomeLevel + (-0.2949056)*Fairness + (-0.0700492)*EffectiveUse + (-0.0428999)*HighTaxRates + ε
Model Fit:
Coefficients:
Interpretation:
Hence, the results shows that TRA should focus on enhancing the perceived fairness of the tax system and increasing public confidence in the effective use of tax revenue to discourage tax evasion.
Income Level per Month:
The coefficient suggests that individuals with higher incomes per month tend to have slightly higher odds of engaging in tax evasion. This could imply that as income increases, individuals might perceive themselves as having more to lose from paying taxes, leading to a greater likelihood of evasion.
Perceived Fairness of the Tax System:
The highly significant negative coefficient indicates that individuals who perceive the tax system as fair are less likely to engage in tax evasion. This suggests that perceptions of fairness play a crucial role in tax compliance behavior. When individuals believe that the tax system is fair, they are more inclined to fulfill their tax obligations.
Belief in Effective Use of Tax Revenue:
Similarly, the significant negative coefficient suggests that individuals who believe in the effective use of tax revenue by the government are less likely to evade taxes. This highlights the importance of trust in government institutions and the perceived effectiveness of public spending in shaping tax compliance behavior.
Reasons for Not Paying Taxes:
The coefficient for reasons for not paying taxes suggests a negative but marginally significant effect on tax evasion. This implies that individuals who cite various reasons for not paying taxes, such as high tax rates, lack of knowledge on how to pay, or distrust in the government, are somewhat less likely to engage in tax evasion.
Intercept (_cons):
The intercept represents the baseline log odds of tax evasion when all independent variables are zero. The statistically significant intercept suggests that even in the absence of the factors examined in the model, there is a baseline level of tax evasion behavior among individuals.
Implications:
Tax Evasion | Freq. | Percent |
Yes | 75 | 32.33 |
No | 157 | 67.67 |
Total | 232 | 100 |
Income level Per Month | Freq. | Percent |
Less than TZS 100,000 | 55 | 23.71 |
TZS 100,000 - 300,000 | 65 | 28.02 |
TZS 300,001 - 500,000 | 75 | 32.33 |
TZS 500,001 - 1,000,000 | 18 | 7.76 |
More than TZS 1,000,000 | 19 | 8.19 |
Total | 232 | 100 |
Perceived Fairness Of The Tax System | Freq. | Percent |
Very fair | 5 | 2.16 |
Fair | 151 | 65.09 |
Neutral | 14 | 6.03 |
Unfair | 24 | 10.34 |
Very unfair | 38 | 16.38 |
Total | 232 | 100 |
Belief in Effective Use Of Tax Revenue | Freq. | Percent |
Strongly agree | 47 | 20.26 |
Agree | 139 | 59.91 |
Neutral | 40 | 17.24 |
Disagree | 6 | 2.59 |
Total | 232 | 100 |
Reasons for Not Paying Taxes | Freq. | Percent |
High tax rates | 43 | 18.53 |
Lack of knowledge on how to pay | 117 | 50.43 |
Perception of unfair tax system | 46 | 19.83 |
Lack of trust in government | 16 | 6.9 |
Financial constraints | 10 | 4.31 |
Total | 232 | 100 |
Source: Field Research 2024