An investigation on the relationship between tax amnesty and tax compliance: a case study Manicaland SME’s.

Abstract

Zimbabwe introduced its first tax amnesty provision in October 2014 with the objective of cultivating a culture of voluntary compliance and widen the tax base. However such a provision has caused a decline in tax compliance levels of NMC clients despite the fact that the main objective was to improve taxpayer compliance. As a result, it was the objective of this study to investigate on the relationship between tax amnesty and tax compliance of SMEs in the Manicaland province. Mixed methodology approach was used in data collection and primary data was collected through the use of questionnaires and interviews. The population samples were drawn from SMEs that are operating in the manufacturing sector in Manicaland province and the convenience sampling technique was used. The results from STATA 11 shows that the relationship between tax amnesty and tax compliance depends on the objective of the amnesty. There is a positive relationship when the objective of the amnesty is to widen tax base and a negative relationship when the objective of the amnesty is to generate short term revenue. Various researchers observed that amnesties tend to increase compliance in the short-run and some argued that the long-run impact of amnesties on compliance levels is harmful to the tax system as tax payers may end up evading taxes in expectation of another amnesty. The researcher suggested strategies that could be used together with amnesties so as to deal with the issue of non-compliance by SMEs such as publicizing post amnesty consequences and consultations before the enactment of the amnesty as recommendations.