Publication - Working Paper
In Zambia, tax compliance rates are very low, especially among the Micro, Small and Medium Enterprises (MSMEs). Concerns have been raised by some MSMEs that the current institutions, modes, and approaches employed in taxing MSMEs are outdated, costly, or otherwise cumbersome. The objective of this research project is to explore the possible barriers to and solutions for these low payment and filing compliance rates among MSMEs in Zambia.
Beyond addressing a critical question affecting many revenue collecting agencies in the region, the study will shed light on more general barriers to tax compliance, a significant policy issue plaguing many developing countries, especially where formal-legal structures are weak and governments lack the capacity to expansively enforce tax policy. A primary aim of this research is to discern efficient and effective avenues for improving voluntary tax compliance and, perhaps more importantly, tax morale among citizens. As voluntary tax compliance is the antidote to coercive tax policy, explaining the drivers of tax morale enables tax authorities to avoid enacting costly, cumbersome, and coercive policies.
The study aims to fulfil three research objectives. First, we will determine the scope of the potential tax base among MSMEs, and establish optimal boundary criteria for a pilot of several innovations among MSMEs – based on type, location, size, or industry, for example. Second, we will investigate the primary barriers to tax compliance among MSMEs. Finally, we will determine the feasibility of possible innovations to improve tax compliance among MSMEs. The first part of the study will rely on a survey of over 1000 randomly selected MSMEs at 25 different markets in Zambia. The data collected will then be analyzed to develop a list of innovations that are most likely to increase tax compliance, most cost-effective, and most scalable across different MSMEs and regions of Zambia.