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An application of the Theory of Reasoned Action on Tax Compliance: The Case of Small Business Enterprises in Uganda

Masters thesis Msc International Business and Management specializing in International Financial Management (University of Groningen) and Msc in Business and Economics (University of Uppsala)

Kiconco Rebecca Isabella


kibecky@yahoo.com

Acknowledgement:
I would like to thank my supervisor Dr Bartjan Pennink for his encouragement and guidance during the writing of this thesis, I have benefited from his experience immensely. Further, I thank Dr Mark De Vires for taking the time to read through my work and give practical comments. I would like to extend my gratitude to Arthur Sserwanga, for his assistance in developing a workable idea and rendering his help in my research. Last but not least, I would like to thank my family.

Table of contents
Contents Page No.

ABSTRACT .................................................................................................................... 4 1.2 Problem statement .......................................................................................... 7 1.3 Research question: .......................................................................................... 8 1.1.3 Sub-questions .............................................................................................. 8 1.4 Significance ..................................................................................................... 8 Chapter 2 ...................................................................................................................... 10 Literature review ........................................................................................................... 10 2.0 Introduction .................................................................................................. 10 2.1 Presumptive income tax ................................................................................ 10 2.3 Tax compliance ............................................................................................. 11 2.2 Existing theories on tax compliance .............................................................. 12 2.5 Psychology in tax compliance; ....................................................................... 14 2.6 The theory of reasoned action ....................................................................... 15 2.6.1 Attitudes ................................................................................................... 16 2.6.2 Social norms ............................................................................................. 17 2.6.2.1 Subjective norms: .................................................................................. 18 2.6.3 Behavioral intention .................................................................................. 19 2.7 Conceptual framework .................................................................................. 19 Chapter 3 ...................................................................................................................... 21 Methodology ................................................................................................................. 21 3.0 Introduction .................................................................................................. 21 3.1 Research Design............................................................................................ 21 3.2 Survey population ......................................................................................... 21 3.3 Sampling and Sample size.............................................................................. 21 3.4 Methods of Data Collection .......................................................................... 22 3.5 Measurement of variables: ............................................................................. 23 3.5.1 Measurement of Behavior ......................................................................... 23 3.5.2 Measurement of Intention: ........................................................................ 23 3.5.3 Measurement of attitude towards behavior: ............................................... 24 3.5.4 Measurement of subjective norms: ............................................................ 24 3.5.5 Measurement of tax compliance behavior ................................................. 25 3.6 Demographic and practice related control variables:...................................... 25 3.7 Data Processing ............................................................................................ 26 3.7.1 Normality: ................................................................................................. 26 3.7.2 Reliability test ............................................................................................ 26 Chapter Four................................................................................................................. 28 Results .......................................................................................................................... 28 4.0 Introduction ...................................................................................................... 28 4.0 Descriptive statistics ...................................................................................... 28 4.1.1 Sample characteristics................................................................................ 28 4.1.2 Descriptive statistics for theory variables ................................................... 30 4.1.3 Correlations:.............................................................................................. 31 2

4.1.4 Objective 1: Predictors of Intention ......................................................... 31 4.1.5 Objective 2: Predictor of tax compliance ................................................... 32 4.1.6 Supplement analyses.................................................................................. 33 Chapter five .................................................................................................................. 35 Discussion of findings ................................................................................................... 35 5.0 Introduction: An Overview of Work Done ................................................... 35 5.1 Discussion of Results .......................................................................................... 35 5.1.1 Sample characteristics................................................................................ 35 5.2 Hypothesis .......................................................................................................... 36 5.2.1 Hypothesis I.............................................................................................. 36 5.2.2 Hypothesis II ............................................................................................ 38 5.2.3 Hypothesis III .......................................................................................... 39 5.3 Supplementary analysis: ................................................................................. 40 Chapter Six ................................................................................................................... 41 Conclusions and recommendations ............................................................................... 41 6.0 Introduction ........................................................................................................ 41 6.1 Conclusion .................................................................................................... 41 6.2 Implications and Recommendations.............................................................. 41 6.2.1 Theoretical implications ............................................................................ 42 6.2.2 Policy implications: ................................................................................... 42 6.3 Areas for further research ............................................................................. 42 6.4 limitations to the study .................................................................................. 43 REFERENCES: ........................................................................................................... 45

ABSTRACT
There are currently few studies on tax compliance invoking the theory of reasoned action in explaining tax compliance in a developing country such as Uganda. Uganda still has a research gap in the area tax compliance. Many economic and administrative studies have been done to determine factors that influence tax compliance in Uganda. Psychological factors are yet to be discussed in the Ugandan context. This study went out to investigate if the theory of reasoned action (psychology theory made up of subjective norms and attitudes influencing intentions to comply which in turn influence behavior in this case tax compliance behavior) has an influence on the tax compliance behavior on individual small business enterprises in Uganda and further to see if the explanatory power of the theory is better than its individual components explanatory power. In order to achieve this data was collected and analyzed using SPSS 17.0 where hierarchical multiple regression and simple regression models were used to receive results. The findings show that the theory of reasoned action does indeed influence tax compliance behavior and Ugandans generally do not intend to comply with tax regulations, they have negative attitudes towards intending to comply with their tax obligations. However, SBEs are influenced positively by subjective norms in their intentions to comply with their tax obligations.

Chapter 1
If the Lord loveth a cheerful giver, how he must hate the taxpayer! ~John Andrew Holmes

1.0

Introduction:

The prevalence of poverty in developing countries demands that these countries should improvise internal revenue generating projects to supplement, and ultimately reduce dependence on foreign donor funding. One such internal revenue-generating mechanism and perhaps the most commonly used, is taxation. Developing countries face formidable challenges in generating tax revenue because the majority of citizens in these countries either engage in subsistence agriculture or in small or informal sectors. Consequently modern means of raising revenue such as income taxes and consumption taxes play a diminishing role, given the nature of Ugandas economy. Low revenue collections are also attributed to low compliance levels, difficulties in enforcement, political interference, poor revenue management and administration. Tax administration faces a problem of revenue fraud in the form of smuggling, undervaluation, under declaration of income and taxable goods, and misclassification of goods. The tax evasion rates are high in most economies around the world especially developing countries with Uganda being no exception. Maital (1982) contends that tax evasion falls solidly in the free-rider box. Further he says, the more people seek free rides and evade taxes, the more those who do pay have to fork over and the greater the incentive to evade. Tax non-compliance reduces government revenues; thus addressing noncompliance problems is central to the development of many developing economies around the world today. The economics of tax compliance has been approached from many perspectives; it has been viewed as a problem of public finance, law enforcement, organizational design, labor supply, or ethics or a combination of these (Andreoni, Erard and Feinstein, 1998). However, in Uganda tax compliance has been mainly investigated and apprehended from a tax administration or tax collector perspective. There are few empirical findings on tax compliance using a taxpayer approach. In Uganda, a number of Small Business Enterprises (hence forth referred to as SBEs) remain outside the tax system through tax non-compliance. It is easier for SBEs to remain outside the tax net because they can remain inconspicuous to the tax

administration. Furthermore SBEs find it easier to slip out of the tax collectors net, because the enforcement costs would exceed the potential tax revenue collected from the SBEs (Gauthier and Reinikka, 2001). SBEs find it beneficial to take advantage of loopholes in the tax system in order to minimize their tax payments (Wallace, 2002). As a complex phenomenon, tax non-compliance can be addressed from a variety of perspectives. Taxpayers stance is influenced by many factors, including perceived fairness of the taxes, prevailing social norms and morals, complexity of tax laws and regulations, audit rates and penalties. Without questioning the relevance of ethical and sociological motivations, the analysis of non-compliance has focused on how noncompliance or evasion is deterred through detection and sanctions (Franzoni, 1999), which approach cannot wholly explain non-compliance among taxpayers. Many scholars perceive tax audits as a deterrent to non-compliance. The foregoing offers an analytical framework for examining some salient aspects of tax compliance in Uganda. To date much of the studies have focused on penalties, audits and fairness as the crucial determinants for non-compliance, but little is understood about the personalities of tax payers. Efforts have to be directed to addresses the psychological and sociological aspects of the tax payers in a bid to improve compliance rather than depending on the economic, legal and tax administrative aspect. Noncompliance is still a complex phenomenon that cannot be eradicated by partial diagnosis of its determinants and ignoring the role of psychology. Psychology plays an important role in compliance, though often ignored by public and tax policy makers. In order to introduce psychology in tax compliance, the theory was reasoned action was employed by two distinct studies; (Bobek and Hatfield, 2003; Meints and Roberts, 2009). These studies however, were both conducted in the USA.. No known study has employed the theory of reasoned action to explain tax compliance in Uganda. Tax compliance has taken a tax administrator/collector approach (with little success), but TRA takes an individual tax payer based approach. Personality has been an overlooked factor in nearly all studies of evasion behavior (Meints and Roberts, 2009). Consequently, the primary purpose of this study is to identify which personality traits influence tax compliance behavior by making use of the theory of reasoned action (hence forth referred to as TRA) (Ajzen and Fishbein, 1975). TRA postulates that intentions to 6

engage in a specific behavior are determined by two social cognitive constructs; attitudes and perceived subjective norms, (Ajzen 1991). Intentions then predict actual behavior. In this case, attitude is ones personal opinion of a behavior and perceived subjective norms refers to how one thinks significant others judge the behavior. TRA posits that attitude and perceived subjective norms predict intended behavior. Previous studies have shown that taxpayers who hold favorable attitudes toward evading taxes as well as taxpayers who perceive evading taxes to be a normative behavior are more likely to evade taxes (see Gilligan and Richardson 2005; Davis et al. 2003; Wenzel 2004).

1.2 Problem statement Academic scholars have been on a quest to explain the phenomenon of tax compliance for many years. The interesting face of the tax non-compliance paradox is that though many theories have been applied by scholars to explain the yet prevalent non-compliance in developing countries; specifically an academic literature gap exists on Uganda in terms of tax compliance. There are currently few studies on tax compliance invoking the theory of reasoned action in explaining tax compliance in a developing country such as Uganda. The theory of reasoned action (TRA) models decision processes where people have a high degree of volitional control and make reasoned choices among alternatives. (Parasuraman, Zeithaml and Berry, 1985 Prior tax compliance research in developing countries has mainly focused on the tax administration perspective using; audit rates (Gauthier and Reinikka, 2001), tax penalties (Jackson and Jones, 1985; Beck, Davis and Jung, 1991; Alm, Jackson and McKee, 1992; Alm, McClelland and Schulze, 1992), tax fairness (Torgler, 1999; Smith, 1992; Tyler and Smith, 1998; Franzoni 1999) and tax compliance costs (Mueller, 1971). Further still, limited research has been done in respect to the small business enterprises perspective in Uganda, (Nabawesi, 2009, Fjeldstad, 2001). In addition there is no available empirical research investigating tax compliance behavior using the theory of reasoned action in Uganda. Taking a psychological and sociological approach of the tax payer, this study attempts to add to the tax compliance debate, the theory of reasoned action as a predictor of tax compliance in a developing country context, principally focusing on Small Business enterprises. With true audit rates averaging at one percent (or less in some periods) in the past few decades, the real puzzle of compliance, as Alm (1991) notes, is why people pay taxes at all.

1.3 Research question: The main research question this study seeks is to explore the extent to which the theory of reasoned action explains variations in tax compliance behavior among small business enterprises in Uganda. The research question is classified under the composition category of Thomas (2008). There are quite many parameters that could explain the tax compliance phenomenon; however, the literature is still incomplete. This study will explore yet another factor categorized broadly as the theory of reasoned action and broken down into attitudes, subjective norms and behavioral intentions.

1.1.3

Sub-questions
1. What is the influence of attitudes and subjective norms of on behavioral intentions of taxpayers (SBEs) in Uganda? 2. What is the influence of behavioral intentions of SBEs on tax compliance in Uganda? 3. What is the influence of subjective norms of SBEs on tax compliance in Uganda? 4. What is the influence of attitudes of SBEs on tax compliance in Uganda?

Sub- questions 3 and 4 will serve to compare the theory of reasoned action explanatory variance to the individual predictors within the theory.

1.4 Significance The study will extend the application and relevance of the theory of reasoned action to a new arena of tax compliance in Uganda. Prior to this study, the theory of reason action has had few linkages to tax compliance behaviours, especially in developing countries like Uganda. This study goes out to match two areas (psychology and management) divergent and yet commonly bound fields of academic research. Not as much of research has maneuvered these two areas simultaneously so it is a relatively new application. The theory of reasoned action has been used to explain an individual behavior with focus on developed countries. This study will extend the application to developing countries and in particular, Uganda. Further still, the application of the TRA will provide new insights into variables that influence compliance in Uganda. Furthermore this may lead to more tracks for other developing countries to assess the impact SBEs have on tax revenue collections which are further reflected in their ability of economic stability as well as financial independence.

This study will go further to address tax academic scholars and enrich tax literature related to developing countries; in addition it will address tax practitioners especially the Uganda Revenue Authority which is the tax body in Uganda giving them further insight on how the theory of reasoned action can enrich tax administration.

Chapter 2 Literature review


2.0 Introduction This chapter profiles the tax system of small business enterprises in Uganda today as a starting point for investigating the tax compliance of SBEs. It briefly reviews the classical approaches to tax compliance and the literature available on this field. This chapter further gives insight on vast literature of the theory of reasoned action and compiles a conceptual framework that will guide the research. It also extracts research hypotheses for this study.

2.1 Presumptive income tax Presumptive taxation was introduced in Uganda in 1997 to offer the possibility of reducing tax evasion at low cost and broadening the revenue base under the informal sector. (Sserwanga, 2002) This mainly focused on taxpayers that do not keep records and are in informal employment and whose turnover in a year is less than 50 million Uganda shillings (a presumptive tax does not apply to persons carrying on professional services). Presumptive tax makes very insignificant contribution to tax revenue in Uganda (about 2 percent of income tax and less than 0.5 percent of total tax) and it has been a very difficult tax to collect. The informal sector, world over, is difficult to tax because: Governments lack a comprehensive list of these potential taxpayers; the administrative cost of dealing with a sea of returns from these small taxpayers is extremely high; and the informal sector businesses themselves keep poor accounts. Further these small businesses are characterized by high tax evasion levels, mainly under informal sector, high mobility rates, high collapse rates, mainly sole proprietors, partnerships and NGOs, generally have a negative attitude to taxation, and high levels of illiteracy and innumeracy. Christian, (ND) states that a presumptive income tax (P-tax for short) is a tax based on some measure of economic activity in lieu of taxable income, rather than on taxable income itself. For instance, it may be assessed on the basis of a firm's inventory of output, of some input of the production process, or of gross sales over a period of time. In the case of Uganda, presumptive tax is assessed as a percentage of annual gross turnovers. In any case, the aim of the tax authority is to estimate the taxable income of the whole economic activity at hand. Bulutoglu (1995) classifies presumptive taxes 10

according to the type of measure of income used and their objective. Common measures are production inputs, assets, revenue, and external indicators. Bulutoglu (1995) finds four common targets: hard-to-tax groups, whose income is not easily observable; multinationals with transfer-pricing possibilities; small businesses with high compliance costs; and as pointers of likely tax evaders. As already stated, SBEs are usually outside the tax net as they are inconspicuous due to being small taxpayers. According to the Ugandan tax structure a small business enterprise is defined as one with gross turnover of 50 million Uganda shillings or less and are assessed using a presumptive method. (Sserwanga, 2006). Mueller, (ND) asserted that few decisions made by the small businessman have such serious or varied consequences as those related to taxation. Inherent in any system of taxation are the problems of compliance. Further, he states that the heart of the problem for the small businessman it seems is the general lack of knowledge about taxes and the inability to cope with them effectively. Tax compliance was complicated by the general practice of employing public accountants, public bookkeepers, and tax specialists to prepare the accounting records and tax returns. It was common among small businessmen to view the total costs of these services to be the cost of tax compliance. Most small firms lack qualified personnel to perform bookkeeping and tax duties. These duties are generally performed by the overworked owner, a member of the household, or a part-time bookkeeper with little or no formal training. (Nalukenge, 2007)

2.3 Tax compliance Tax compliance is a concern of governments around the world (see Alm and Sanchez, 1995; Feige, 1989; Frey and Weck-Hanneman, 1984). As a public finance topic, tax compliance spans the notions of equity, efficiency, and incidence. (Andreoni, Erard and Feinstein, 1998). Wenzel (2005) contends that research on tax compliance has been dominated by an economic analysis which frames the taxpayers decision to pay or shun tax as an individuals rational attempt to maximize profits (see, Allingham & Sandmo, 1972). However, traditional economic models of tax compliance, which primarily emphasize enforcement and detection variables (see Andreoni et al., 1998), are unable to comprehensively explain current levels of compliance. Recent research, however, supports the claim that non-economic social factors also influence taxpaying behavior;

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for example ethics, perceived fairness, social norms and psychological reactance (e.g., Alm, Sanchez, & DeJuan, 1995; Cowell, 1992; Kirchler, 1999; Wenzel, 2002, 2004). Economics researchers studying tax compliance in the United States (U.S.) (see Andreoni et al. 1998) have called for more attention to social (as opposed to economic) influences on tax compliance (Bobek, Roberts and Sweeney, 2007). Economists in particular have focused on the concept of social norms (e.g., Alm et al., 1999; Pommerehne et al., 1994; Scholz and Pinney, 1995; Wenzel, 2004). However, most of these economic studies Wenzel, (2004) do not specify precisely what these social norms are instead they model a variable that affects compliance in a manner consistent with a strong effect from some outside social influence. With tax return audit rates continually declining (Schnepper, 2004), a better understanding of this important influence on tax compliance is essential. Baldry (1986) argues that the decision whether or not to evade is influenced by moral compunctions. Baldry (1987) asserts that experimental findings show the prediction that a taxpayer will not attempt tax evasion, as long as the expected gain is positive, cannot be supported. However, taxpayers may be driven by moral rules and sentiments. A taxpayer might bear moral costs if she/he does not pay the taxes and act as a free-rider. Elffers (2000), attempts to shows that it is a long way before a person becomes a tax evader. He defines three steps in the staircase to tax evasion. First, taxpayers have to be seized by a will not to comply. In a second step, Elffers (2000) argues that not everyone with an inclination to dodge his taxes is able to translate his intention into action. Many individuals have not the opportunity or the knowledge and resources to evade. In a third step, you can find individuals that feel inclined not to comply and check for the opportunity to evade taxes. Elffers (2000) further argues that this is the phase where standard economic theory comes into play, where individuals evaluate the expected value of evasion.

2.2 Existing theories on tax compliance Deterrence theory has been the primary theoretical framework applied to tax compliance. This theory assumes that taxpayers consciously weigh the pros and cons of noncompliance in light of the probability of detection and the severity of punishment. This model has been labeled the most pervasive tax compliance model, (describing taxpayer expected utility as a function of tax rates, potential penalties, and probability of 12

audit (Allingham and Sandmo 1972). Essentially, this approach builds on Beckers (1968) rational economic agent approach to crime as a lottery. While this model has been used and modified over the decades to address tax compliance, researchers have long struggled with its major shortcoming; it fails to accurately predict at a macroscopic level the very phenomena it seeks to model. More specifically, this model predicts much lower levels of compliance than actually observed in most industrialized nations. In addition, two psychological theories that have been broadly discussed in the context of tax compliance are guilt and shame. After reviewing several well-known psychological theories, Erard and Feinstein (1994) adapted guilt and shame to the context of tax compliance. They argue that a taxpayer who is filling out his return is likely to anticipate guilt while contemplating underreporting and escaping detection, but is likely to anticipate shame when contemplating underreporting and subsequently being caught. However there are several draw backs to their approach; first, just how guilt and shame enter the utility function is arbitrary and cannot be derived from economic or psychological theory, second since guilt and shame are not directly observable, identification is based totally on functional form assumptions. Furthermore, the game theory approach was also used to explain tax compliance, Game theory helped to create and evaluate an analytic explanation of a particular situation. The strength of game theory is that it makes explicit strategic aspects of social interactions. The logic of game theory helps to simplify the complexity of tax compliance. It outlines the range of choices available to a player. Levi (1997) argues that to understand why one path becomes an equilibrium path, it is important to understand why individuals did not follow other possibilities. She argues that game theory allows specifying the behavior that failed to happen because it is off an equilibrium path (Greenberg, 1984; Graetz et al., 1986; Cowell, 1990; Frey and Holler, 1998; Van Vugt et al., 2000) if a taxpayer does not pay the taxes, public goods will not immediately disappear. Game theory has paid attention to the aspects of cooperation. It helps to think about the interaction between taxpayers themselves and the government or the tax administration in a simple and compelling manner. Bobek and Hatfield (2003) investigated the theory of planned behavior and the role of moral obligation in tax compliance, where they determined the beliefs that underlie 13

taxpayers attitudes. They found a significant explanation of tax non compliance in three different scenarios after a series of experiments. To add to this debate, a more recent and somewhat different approach to the compliance issue, Feld and Frey (2007) argue that tax compliance is the result of a psychological tax contract where emotional ties and loyalties bond the taxpayer and state together to create a tax morale that reinforces compliance.

2.5 Psychology in tax compliance; Trivedi, Shehata and Mestelman, (2005) classified the two classes of theories in their paper as; economics-based theories which emphasize incentives and psychology based theories which emphasize attitudes. Economic theories of compliance suggest that taxpayers make calculations of the economic consequences of different compliance alternatives (such as whether or not to evade tax), the probabilities of detection and the consequences thereof, and then choose the alternative which maximizes their expected after-tax return (possibly after adjustment for the desired level of risk). In contrast, the second class of theories assumes that psychological factors -- including moral and ethical concerns -- are also important to taxpayers, and so taxpayers may comply even where the risk of audit is low. Of course, some taxpayers behavior may follow the economic theories while others may follow the psychological theories, and mixtures are also possible. Andreoni, Erard & Feinstein, (1998) further called for more work that was needed to be done in exploring diverse psychological, moral and social influences on compliance behavior and integrating these factors into economic models of compliance. In general, incorporating non-economic motivations, such as moral preference for honest reporting, does reduce predicted non-compliance. Researchers have widened their lens in looking at the causes of noncompliance. Specifically, the literature has focused on social drivers of compliance such as social norms, individual ethics, and how taxpayers reference themselves to others in their social network. (Korobow and Johnson, 2007) Wenzel (2005) notes that social factors such as ethics and norms might not only create deterrents to compliance, but might also mitigate the impact of potential penalties associated with noncompliance.

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More current research has sought to modify the A&S model to incorporate social factors. For example, Traxler (2006) modifies the classic approach to include tax morale and interprets this modification as an internalized social norm for tax compliance. His results have yield higher levels of compliance given low audit rates. Fiscal psychology has considered the effects of noneconomic variables on tax compliance behavior over a long period of time. In fact, Jackson & Milliron (1986) have identified tax fairness as a key noneconomic variable in this regard. (Richardson, 2006). Recently a new theory has been applied in tax compliance; the theory of reasoned action.

2.6 The theory of reasoned action In basic terms, the theory of reasoned action (TRA) indicates that a persons behavior is determined by their attitude towards the outcome of that behavior and by the opinions of the persons social environment. The TRA is a multi-attribute attitude model that predicts and explains the behavioral intentions and consequent behavior of individuals (Ajzen and Fishbein, 1980). On the whole, this theory explains an individuals decision to perform or not to perform a specific behavior such as a criminal act, enrolling in graduate school among others. In this study, the application of TRA is being extended to behavioral intentions of small business enterprises owners towards tax compliance. The study will focus on the owners or entrepreneurs of the SBEs as they are the decision makers. The theory of reasoned action attempts to model decision processes where people have a high degree of volitional control and make reasoned choices among alternatives. (Omar & Owusu-Frimpong, 2007). Correspondingly, tax compliance of SBEs involves a high degree of volitional control and making reasoned choices among compliance alternatives. The theory of reasoned action (TRA) is a multi-attribute attitude model that predicts and explains the behavioral intentions and consequent behavior of consumers (Ajzen and Fishbein, 1980). The TRA employs four constructs; attitudes, subjective norms, intentions and behavior. The behavioral focus of this particular study is tax compliance. The theory hypothesizes that behavior is influenced by ones intention to perform the behavior. Intention in turn is influenced by ones attitude (positive or negative evaluation about performing the behavior) and subjective norm (perceived social influence whether to perform the behavior). Attitude itself is the product of beliefs and evaluations of the consequences of performing the behavior. It can be defined as the individuals personal 15

judgment about whether a specific behavior is desirable or not based on his/her preexisting beliefs about the desirability of different kinds of behavior. Scholars such as Ajzen and Fishbein (ND) put forth that attitude is best considered to be a persons degree of favorableness or un-favorableness with respect to a psychological object. Similarly, subjective norm is determined by the beliefs of whether someone important to us expects or does not expect us to perform the behavior, and whether we want to comply (Lin, Chan and Wei, 2006). Lin et al, (2006) spelt out that TRA is not without its limitations. They stated these as three boundary conditions that can affect the relationship between intention and behavior: (a) the degree to which the measure of intention and the behavior criterion corresponds with respect to the levels of specificity of action, target, context, and time frame; (b) the stability of intentions between time of measurement and performance of the behavior; and (c) the degree to which carrying out the intention is under ones volitional control (Fishbein & Ajzen 1975). Many researchers in attitudinal research study behavioral intention not under the volitional control (Davis &Warshaw, 1991; Madden, Ellen, & Ajzen, 1992; Sheppard et al., 1988; Warshaw & Droge, 1986). Ajzen (1985) addresses the issue by proposing an extension of the TRA by incorporating perceived behavioral control as an antecedent to behavior intention as well as behavior in a theory called the theory of planned behavior. Below the components of the theory of reasoned action; attitudes, subjective norms and intentions are developed.

2.6.1 Attitudes Attitudes are defined as latent disposition or tendency to respond with some degree of favorableness or un favorableness to a psychological object. (Fishbein and Ajzen, 2010) Trivedi et al, (2005) used five indicators to measure attitudes of taxpayers namely; the importance to the tax compliance decisions of fulfilling ones moral and ethical obligations, funding the government, fulfilling duties of citizen, recognition of good ethics by community, and the presence of records (computer records or receipts). Further they added four indicators load on this component the importance to their tax compliance decisions of their perceptions regarding having taken advantage of the system or of factors necessary for doing so, specifically being able to brag about their actions, knowledge of the income tax system, feeling of beating the system, and effort required to prepare their tax return. Also monetary considerations were added by two 16

indicators; the prospect of receiving a refund, and of having extra cash consequent to their actions Chan et al. (2000) found that taxpayer attitude had a positive relationship with tax compliance in both Hong Kong and the U.S. Other studies have found no association between taxpayers attitudes and tax compliance behavior (see, Vogel, 1974; Porcano, 1988; Antonides & Robben, 1995). However, as was suggested by Jackson & Milliron (1986) and Richardson & Sawyer (2001), a credible reason for this inconsistency is the multidimensional nature of attitudes as a tax compliance variable (Richardson, 2006). Thus the following hypothesis; H1 Attitudes influence tax compliance behavioral intention of taxpayers.

2.6.2 Social norms Torgler & Friedrich (2007) asked an interesting question; How, then, do norms of compliance originate? Sociology stresses that norms are learned through social interaction with others (Williams, 1968; Blau, 1964). The proposition that social norms are influential in tax compliance decisions is consistent with the moral psychology literature (Kohlberg, 1969; Rest, 1986; Bobek, et al, 2007). Social norms are defined as rules and standards that are understood by members of a group, and that guide and/or constrain social behavior without the force of law (Cialdini and Trost, 1998). The four categories of social norms identified by Cialdini and Trost are: descriptive norms, injunctive norms, subjective norms, and personal norms. For this study subjective norms are the focus within social norms. According to Bobek et al, (2007), subjective norms relate specifically to the expectations (injunctive norms) of referent others (namely; family, friends, and co-workers). Further they state that the social goal of subjective norms is to represent the injunctive norms of those closest to an individual. Thus they aid in building and maintaining social relationships with people whose opinions matter the most. On the question of when will the norms be influential they asserted that; subjective norms will influence behavior when individuals are motivated to comply with the norms of referent others. Thus, individuals will comply and pay taxes as long as they believe that compliance is a social norm (see Alm et al., 1999. Polinsky and Shavell (2000) argue that social norms can be seen as a general alternative to law enforcement in channeling individuals behaviours. 17

The violation of social norms has consequences like internal sanctions (guilt, remorse) or external legal and social sanctions as gossip and ostracism. There is evidence that many countries with similar fiscal systems have different compliance experiences (Alm et al., 1995; for the United States see Yankelovich et al., 1984; Vogel, 1974, for Sweden; Smith, 1986; for the United Kingdom and De Juan et al., 1993 for Spain). The main conclusions are that (i) individuals who comply tend to view tax evasion as immoral; (ii) compliance is higher if moral appeals are made to the taxpayer, (iii) individuals with tax evaders among their friends are more likely to be evaders themselves, and (iv) compliance is greater in societies with a stronger sense of social cohesion. Bobek and Hatfield, (2003)

2.6.2.1 Subjective norms: Ajzen (1991) describes subjective norms as the influence of referent others. Subjective norms refer to a persons beliefs about whether specific individuals or groups approve or disapprove of the individual performing a specific behavior and to what extent the individual is motivated to conform with other individuals or groups. Hanno and Violette (1996) measured taxpayers beliefs about specific referent groups namely; family members, employers, friends and spouse. In addition to the above indicators, Trivedi et al, (2005) added the tax preparer as well as peers of the individual. In a review of factors affecting compliance, Jackson and Milliron (1986) report on numerous studies that find that the compliance behavior of ones peers is significantly related to an individuals own level of compliance. Several lines of evidence indicate that subjective norms provide poorer prediction of intentions, compared to attitude and Perceived behavioral control / PBC (Armitage & Conner, 2001a; Sheeran, Trafimow, Finlay, & Norman, 2002; Trafimow & Finlay, 1996; Langdridge, Sheeran and Connolly, 2007). However, concerning social norms, many studies on tax evasion have found a relationship between ones own tax noncompliance and the perceived noncompliance of others. (Wenzel, 2005) People who believe that tax cheating is wide-spread among their peers or colleagues tend to have more favorable attitudes towards tax evasion and are more likely to cheat on taxes (De Juan, Lasheras, & Mayo, 1994; Kaplan & Reckers, 1985; Wallschutzky, 1984; Webley, Robben, & Morris, 1988). Bobek et al (2007) in their study found subjective norms and injunctive norms were significantly related to compliance intentions. A striking observation was the

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magnitude of the effect of subjective norms. The influence of subjective norms was much greater than the influence of traditional economic variables on cheating intentions. For purposes of this study subjective norms have been broken down in to injunctive and descriptive norms. H2 subjective norms influence tax compliance behavioral intentions of taxpayers.

2.6.3 Behavioral intention Langdridge et al, (2007) Intention summarizes the persons motivation to perform a behavior and indicates the amount of time and effort that he or she is prepared to devote in order to ensure that an action is undertaken (Ajzen, 1991). Intention is determined by three constructs: attitude and subjective norm and perceived behavioral control (PBC). Attitude is the persons overall evaluation of what it would be like to perform a behavior (e.g., Having a child at some time in the future would be good/ bad) PBC is a concept of self-efficacy and refers to peoples appraisals of the ease or difficulty of performing the behavior (e.g., Having a child at some time in the future would be easy/difficult). PBC can also influence intention because people are unlikely to intend to perform behaviours over which they have little control. Trivedi et al (2005) employed two variables in respect to behavioral intention; monetary Intent to Comply being significant. The problematic nature of this variable is that subjects are hesitant to admit to unethical and illegal behavior (Wenzel, 2004), potentially contributing to the relatively low significance levels of most compliance models. Bobek et al, (2007) In the present study, consideration will be made to taxpayers compliance intentions, rather than requesting subjects to reveal their actual tax compliance behavior just as in the study of Bobek et al, (2007) Behavioral intentions have been shown to be highly correlated with actual behavior (Ajzen, 1991). H3 taxpayers behavioral intentions influence their tax compliance behavior.

2.7 Conceptual framework From the literature reviewed above, we develop the conceptual framework below to guide the tax compliance investigation.

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Attitudes Behavioral intention Subjective Norms Tax Compliance Behavior

Penalties Audits Fairness Social norms Government responsiveness

Source: Martin Fishbein and Icek Ajzen, 1975; 1980; Lin et al, 2006; Omar & Owusu-Frimpong, 2007; Bobek and Hatfield,
2003; Meints and Roberts, 2009 and extant literature.

There are many factors that could possibly explain tax compliance as indicated (penalties, audits, fairness, social norms and government responsiveness) that have been derived from existing literature above. However for purposes of this study we are confined to attitudes, subjective norms and behavioral intention of SBEs.

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Chapter 3 Methodology
3.0 Introduction This chapter elaborates how the study was designed and accomplished. It provides an account of the research design, measurement of variables, study population, sampling design, unit of analyses, data collection methods, processing and analysis of the data.

3.1 Research Design A cross sectional survey design was adopted for this study. In a cross-sectional study, a particular phenomenon is studied at a particular period of time. Cross sectional designs are suited for studies aimed at finding out the prevalence of a phenomenon, situation, problem or attitude, by taking a cross-section of the population at a given time. Crosssectional studies are relatively inexpensive, quick and easy to do, useful for generating and clarifying hypothesis and can lay the ground work for decisions about future follow up studies (Kraemer, 1994).

3.2 Survey population The population consisted of SBEs operating in Kampala District. Responses were obtained from the following tax districts, i.e. Rubaga, Makindye, Bwaise, and Nakawa. According to Uganda Revenue Authority records, there are about 208,500 SBEs, in the above tax districts. For purposes of this study, SBEs had an annual turnover of less than fifty million Uganda shillings. (Hereby, defined as the qualifying factor of SBEs according to Ugandas tax structure). This included those, which use the presumptive tax method, those small business enterprises which opted to use the conventional tax method and those small business enterprises barred from using the presumptive method. (such as small law firms, private health clinics, and audit firms). SBEs which voluntarily use the conventional tax method are those who are charged 30% corporate tax and keep proper books of accounts, despite being small business enterprises.

3.3 Sampling and Sample size The sample size was based on Roscoes (1975) rule of the thumb for estimating the sample size. Roscoe contends that a sample size between 30 and 500 is appropriate for most studies. Furthermore, Saunders, Lewis and Thornhill (1997) provide a guide for 21

minimum sample sizes required from different sizes of the population at 95% confidence level. They suggest a sample size of 384 respondents for populations between 100,000 and 1,000,000. Therefore given a population of 208,500 SBEs, in the above regions, a sample size of 384 was recommended for this study. Using the average response rate (90%), for previous empirical studies carried out in Uganda on the small-scale enterprises (Sserwanga 2002) the sample size was raised to 426 elements to carter for possible nonresponses. This was calculated as follows: 90X /100 =384 90X = 38,400 X =38400/90 X = 426 Where X represents the sample size Given a high mortality rate of SBEs, plus the fact that SBEs that are not registered for tax purposes are not known with certainty, purposive sampling was used to select a representative sample. All respondents were given a small symbolic gift for their participation.

3.4 Methods of Data Collection A cross-sectional survey targeting different categories of SBEs was carried out using interviewer-administered, structured questionnaires. The questionnaire consisted of mainly closed-ended questions using Likert scales. Few open-ended questions were included in the questionnaire to ensure response clarity and consistence. The questionnaires were prepared in English but later translated into local languages for nonEnglish speaking respondents. Given the uneven distribution of communication facilities like telephones, internet and postal facilities etc in Uganda, telephone interviews and mail surveys were not practical. The researcher visited the SBE respondent, introduced herself, and requested the respondents to complete the questionnaire. Time and effort was dedicated to the construction and testing of the questionnaire. Pre-tests were carried out to fine tune the instrument and to ascertain the most appropriate way to ask the questions. Adjustments were made to the instruments especially in respect to wording, structure of the questions and interpretation of the words, given that most of the scales adapted were developed outside Uganda. 22

3.5 Measurement of variables: In combination, attitude toward the behavior and subjective norms lead to the formation of a behavioural intention. As a general rule, the more favourable the attitude and subjective norm, the stronger should be the persons intention to perform the behavior in question.

3.5.1 Measurement of Behavior According to Ajzen (2006), behavior of interest is defined in terms of its Target, Action, Context, and Time (TACT) elements. In this case - SBEs paying their taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year. Defining the TACT elements is somewhat arbitrary. Paying is clearly part of the action element. The URA considered the target and in full the context, the time element referred when the behavior was performed, and in this example it is defined as at the end of the financial year. In Ugandas case this is the end of June of any given year. The financial year runs from 1 st July to 30th June. Compatibility; No matter how the TACT elements of the behavior are defined, it is important to observe the principle of compatibility which requires that all other constructs (attitude, subjective norm, and intention) be defined in terms of exactly the same elements. Thus, the attitude compatible with this behavior was the attitude toward paying taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year, the subjective norm was the perceived social pressure to do so. Attitude, subjective norm, and intention were assessed directly by means of standard scaling procedures. When developing the scales, the measures were directly compatible with the behavior in terms of action, target, context, and time elements.

3.5.2 Measurement of Intention: A seven point likert scale ranging from extremely likely extremely unlikely was used to assess behavioural intention. The statement read as follows; I intend to pay my taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year 23

Extremely unlikely: _____:_____:_____:_____:_____:_____:_____: extremely likely

3.5.3 Measurement of attitude towards behavior: The criterion for item selection has to do with the qualitative aspects of evaluation represented by the adjective scales. Attitude toward a behavior was defined as a persons overall evaluation of performing the behavior in question. However, empirical research has shown that overall evaluation often contains two separable components. One component is instrumental in nature, represented by such adjective pairs as valuable worthless, and harmful beneficial. The second component has a more experiential quality and is reflected in such scales as pleasant unpleasant and enjoyable un-enjoyable. The study used the former scale as it is more applicable given the nature of the study. The measures took the following form as the owner of the SBE responding; For me, paying taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year is Good: _____:_____:_____:_____:_____:_____:_____: bad

3.5.4 Measurement of subjective norms: Several questions were formulated depending on the social environment of the SBEs and thus questions were formed given the answers provided as to whose opinions they value. These included; spouses, family, friends, and fellow SBE owners among others. They took the following format. The people in my life whose opinions I value would Approve: _____:_____:_____:_____:_____:_____:_____: disapprove Of my paying taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year However, responses to such items were often found to have low variability because important others were generally perceived to approve of desirable behaviours and disapprove of undesirable behaviours. To alleviate this problem, it was recommended that the initial set of items also include questions designed to capture descriptive norms, i.e., whether important others themselves performed the behavior in question. This study captured this aspect by posing the following types of questions. Most people who are important to me pay their taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year

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Completely true: _____:_____:_____:_____:_____:_____:_____: completely false Many people like me pay their taxes in full and promptly to Uganda Revenue Authority (URA) at the end of the financial year Extremely unlikely: _____:_____:_____:_____:_____:_____:_____: extremely likely

3.5.5 Measurement of tax compliance behavior Tax compliance was measured basing on the four items from Wenzel, (2001) which include; non-lodgments, tax arrears, pay income and promptness. To establish nonlodgment; respondents were asked if they had made attempts to avoid taxes by not declaring at all. Tax arrears was measured by inquiring from the respondent if they had any outstanding taxes un paid, while pay income; as measured by establishing whether the respondent had attempted to under declare taxes. Lastly promptness was measure by inquiring from the respondents if they had ever delayed to pay taxes beyond the stipulated time.

3.6 Demographic and practice related control variables: In addition, we control for demographic factors such as age, gender, education, marital status. As regards age, we assume that older people who have acquired more social capital (Tittle, 1980; Hanno & Violette, 1996) may feel a stronger attachment to the community, which might in turn induce additional restrictions that lead to a positive correlation between age and tax compliance behavior. (Pommerehne and WeckHannemann, 1996). Tittle (1980) observed that younger taxpayers were more riskseeking, were less sensitive to penalties, and also reflected the social and psychological differences related to the period in which they were raised. (Richardson, 2006) Prior studies have found a positive association between age and tax compliance behavior (e.g., Vogel, 1974; Tittle, 1980). Gender is another important variable Moreover, not only has social psychological research suggested that women are more compliant and less selfreliant than men (e.g., Tittle, 1980). Prior studies have shown a positive association between gender and tax compliance (Vogel, 1974; Spicer and Becker, 1980; Tittle, 1980; Spicer and Hero, 1985; Baldry, 1987;, Mason & Calvin, 1978; Hanno & Violette, 1996). Education represents an additional key tax compliance variable. Jackson & Milliron (1986) found that education has two

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important elements: the general degree of fiscal knowledge, and the specific degree of knowledge regarding tax evasion opportunities. They argue that enhancing the level of general fiscal knowledge improves tax compliance by means of more positive perceptions of taxation, while increased knowledge of tax evasion opportunities has a negative influence on tax compliance as it assists noncompliance. 3.7 Data Processing

3.7.1 Normality: A total of 400 questionnaires were collected of data to be analyzed. The data collected was coded, and analyzed using of the SPSS 17.0 statistical package. Time and effort was dedicated to data cleaning in order to minimize errors in the data. After controlling for outliers, data based on 394 respondents was used. Despite the fact that almost all the scales used in this research are adapted from earlier works, with high reliability and validate rankings, these scales were tested for reliability, because they were applied a new environment, where they have never been used. First the data was tested for normality using histograms and the Q-Q Plots (See appendix II). Kolmogorov-Smirnov and the Shapiro-Wilk tests were used to check whether the distribution as a whole deviates from a comparable normal distribution. The non-significance level being P>0.05 implying the distribution of the sample is not significantly different from a normal distribution and therefore probably normal. Results are below. The results show a probable normal distribution. Table: 1
Kolmogorov-Smirnov and the Shapiro-Wilk test Tests of Normality Kolmogorov-Smirnova Shapiro-Wilk Variable df Sig. Variable Attitudes 400 .000 Attitudes Subjective norms 400 .021 Subjective norms Intentions 400 .000 Intentions Tax compliance 400 .000 Tax compliance a. Lilliefors Significance Correction

df 400 400 400 400

Sig. .000 .044 .000 .000

3.7.2 Reliability test The questionnaire scales were tested for their reliability. One of the key aspects of reliability is the scales internal consistency. Reliability tests ensure that measurements 26

consistently reflect the construct that it is measuring. One of the most commonly used indicators of internal consistency is Cronbachs alpha co-efficient. Kline (1999) notes that although the generally accepted value is 0.8 for cognitive tests, ability tests have a cut-off point of 0.7. He goes on to say that when dealing with psychological constructs; values below even 0.7 can realistically be expected because of the diversity of the constructs being measured. However Cortina (1993) notes that the value of alpha depends on the number of items on the scale as the top half of the alpha equation includes the number of items squared. With the above in mind, the researcher followed Pallant, (2005) assertion that short scales with around ten items, can have low Cronbachs alpha values from 0.5. The negatively worded questions (ATT; 3, 5, 6, 7, 8, 9, 10, 11 and INT; 3, 5, 6, 8, 11, 12see appendix III)s scales were reversed before checking the reliability, (scales 1-7 were changed to 7-1 in the reverse order) in order to reduce response bias. Further the Cronbachs alpha when item deleted was employed and deleted the following items from the scales. On the scale of attitudes, items 3, 11 and 13 were deleted. On the intentions scale, items 5, 6, 10 and 12 were deleted. Whereas on the subjective and descriptive scales none of the items was deleted, on the tax compliance scale, 1, 6, 8 and 11 had to be deleted. (See appendix III) The reasons for eliminating these items could include reasons such as; they are factual, they are evaluatively ambiguous or they were irrelevant as indicated by failure to correlate with the total scale score. The Cronbachs alpha is thus reflected in table 2. Table 2: Reliability test statistics
Variable Attitudes Subjective norms Intentions Descriptive norms Tax compliance Cronbachs alpha 0.625 0.769 0.614 0.620 0.602 Cronbachs alpha based on standardized items 0.639 0.760 0.664 0.628 0.612 No of items 10 5 8 5 6

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Chapter Four Results


4.0 Introduction This chapter presents the study findings. First, the researcher presents a description statistics of the small business taxpayers in the sample. The second part comprises of explanatory component of the study. In this section we present the results of the correlation and regression analysis. In this analysis we test the hypotheses as stated in Chapter 2. The Pearson coefficient was used to determine the correlation between the TRA variables. For objective 1 of the study, a model employing hierarchical multiple linear regression analysis was used to assess the influence of attitudes and subjective norms on behavioural intention of SBEs taxpayers in Uganda. In this model, measures of attitude and subjective norm served as the independent variables, with intention being the dependent variable. The second objective was also analysed using a simple linear regression to assess the influence of behavioural intentions of SBEs on tax compliance in Uganda. In this model, behavioural intentions are the independent variable and tax compliance behaviour is the dependent. To further analyze the data, the researcher constructed two more simple linear regressions, one having attitudes as the independent variable and tax compliance behaviour as the dependent and the second having subjective norms as the independent and the former as the dependent. This was to assess the extent of the relevance of the theory to explain tax compliance behaviour in comparison to the two individual measurements of attitudes and subjective norms.

4.0

Descriptive statistics

4.1.1 Sample characteristics As illustrated below, about 46% of the respondents in the sample were female, while males contribute the majority at 53% of the sample. Owing to social, cultural, economic and psychological factors, males are generally more represented in the business sector than females. The average age of the entrepreneurs in the sample was about 31 years. The youngest respondent was 16 years, while the oldest was 64 years. The majority of the respondents are in the 26-35 yeas age brackets and about 86% of the entrepreneurs were 28

45 years or younger. About 47% of the respondents were married and another sizeable category 31% of the respondents were single as exhibited in table 3. By and large, the majority (about 94%) of the respondents in this sample had received some formal education, while about 6% of the respondents had never received any form of education; this implies that on the whole, the majority of the entrepreneurs in this sample were educated.
Table 3 Demographic related characteristics of respondents Characteristic Small Business Enterprises Gender Female (%) Male (%) Missing (%) Age group 16-25(%) 26-35(%) 36-45(%) 46-55(%) 55-65(%) Marital status Single (%) Married (%) Living together (%) Divorced/ Separated (%) Widow/Widower (%) Education levels Uneducated (%) Primary level (%) Olevel (%) A level (%) Vocational certificate (%) Diploma (%) Bachelors degree (%) Masters degree (%) 186(46.5) 214(53.5) 0(0) 84(21.0) 157(39.3) 104(26.0) 37(9.3) 18(4.5) 125(31.3) 187(46.8) 64(16.0) 14(3.5) 10(2.5) 24(6.0) 43(10.8) 70(17.5) 61(15.3) 40(10.0) 77(19.3) 74(18.5) 11(2.8)

Despite the fact that our population consisted of small business enterprises, we went further to profile the respondents according to size using their annual turnover. We used the annual turnover, because its the basis for levying taxes from small business enterprises. The very Small business enterprises with an annual turnover between 500,000 and - 5,000,000 Uganda shillings (1 Euro approximately = 2700 Uganda

29

Shillings) dominated the sample (62%) and about 4.3% of the respondents could not tell their annual turnover because they did not have any business records. In Uganda, tax payers are required by law to file a self-assessment tax return annually. Respondents were asked to indicate the number years in which they ha filed a selfassessment tax return. The majority of the respondents (45.25%) had never filed a selfassessment tax return with the Uganda Revenue Authority, the tax collection body. For the respondents who file self assessment tax returns with Uganda Revenue Authority, we also interested to know who prepares their tax returns. As exhibited below, the majority of the respondents (89.2%) prepared their own tax returns, while about 10.8% of the respondents hire tax experts to prepare the tax returns.
Table 4 Practice related characteristics of respondents Characteristics Size of the enterprise (UGX) 500,000-5,000,000 (%) 5,000,001-25,000,000 (%) 25,000,000-50,000,001 (%) Do not know (%) Longevity of filing tax returns Never filed (%) 1-5 yrs (%) 6-10yrs (%) 11-15yrs (%) 16-20yrs (%) More than 20yrs (%) Tax return preparation Tax preparer (%) Tax expert (%) Missing (%) Small Business enterprises 247(61.8) 109(27.3) 27(6.8) 17(4.3) 181(45.3) 141(35.3) 47(11.8) 17(4.3) 10(2.5) 4(1.0) 175(43.8) 51(12.8) 174(43.5)

4.1.2 Descriptive statistics for theory variables Table 5 summarizes the means and standards deviation of the TRA variables. The mean behavioural intention score was 5.36 (SD0.804), scores here ranged from 3.55 6.49. The mean score of the measure of attitudes was 3.96 (SD0.924) and interestingly both the highest and lowest mean scores 1.95 and 5.57 had the lowest standard deviation. For subjective norms the mean score was 3.75 (SD0.637) ranging from 2.36 to 5.02. The

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mean response to the tax compliance behavior was 2.61 (SD0.777), reflected by the mean range of 1.74-3.75. (See Appendix 1)

Table 5: Descriptive statistics for the theory of reasoned action variables Variable Mean Std. Deviation Attitudes 3.98 0.924 Intentions 5.36 0.805 Tax compliance behavior 2.61 0.777 Subjective norms 3.75 0.637

4.1.3 Correlations: All correlations between the theory variables were significant (P<0.01). Table 6 describes the correlation between the theory variables. Attitudes were negatively correlated with intentions, subjective norms (r=-0.319, r=-0.111, all at P<0.01) respectively, positively correlated with tax compliance (r=0.143, at P<0.01). There was a significant negative correlation between the intention and tax compliance (r=-0.373, at P<0.01 respectively) and a significant positive correlation with subjective norms (r=0.199 at P<0.01).
Table 6 Correlation among the theory of reasoned action variables Variable 1 2 3 4 ** ** 1. Attitudes - -0.319 0.143 -0.111* 2. Intentions - -0.373** 0.199** 3.Taxcompliance - -0.179** 4. Subjective norms **. Correlations are significant at the 0.01 level (2-tailed).

However one cannot test hypotheses using bivariate correlations, since these correlations may be influenced by other variables, a phenomenon also known as the third variable problem (Field, 2005). To control for such third variable problems, one needs to perform regression analysis. 4.1.4 Objective 1: Predictors of Intention

A multiple regression model I was constructed to assess the ability of attitude and subjective norms to predict intention. Table 7 describes the results of the regression analyses. In this model, the utility of the TRA variables in explaining SBEs intention to

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pay or not pay their taxes was determined using the above constructs. As can be seen, a significant model emerged (= -0.216, p < .001) for measure of attitudes and ( = 0.248, p < .001) for the measure of subjective norms. Adjusted R square is 0.107 or 10.7%, therefore attitudes and subjective norms account for 10.7% change in tax payers intentions to comply with tax laws and regulations, note however that both are predictors are significant. The question here is how much unique explanatory variance is attributable to each of the predictors? The shared prediction is accounted for in the difference between the adjusted r square and the r square (.112 107). The multiple regressions show that subjective norms provide a larger independent contribution to the prediction of intentions than attitudes. This is reflected in the betas.
Table 7 Regression results Predictors Model I (R square = .112) (Adjusted r sq =.107) Attitudes Subjective norms

Unstandardized Coefficients ()

Standard error

Sig (p)

-0.216* 0.248*

0.040 0.056

.000 .000

*P < .001 Dependent variable; intentions Independent variable; attitudes, subjective norms

4.1.5 Objective 2: Predictor of tax compliance In this second step of the analysis, the aim is to explain tax compliance behavior among small business enterprises. In line with the theory of reasoned action, at this level, the researcher used intentions to predict tax compliance and therefore this model II employs a simple linear regression. The dependent variable in this case is tax compliance behavior and the independent being intentions this time. This model was also statistically significant ( = -0.412, p < .001) for the measure of intentions. This model explained 15.9% (adjusted r square) of the variance in tax compliance behavior. Results are displayed in table 8.

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Table 8 Predictor Model II (R square = .161) (Adjusted r sq =.159) Intentions Unstandardized Coefficients () Standard error Sig (p)

-0.412*

0.048

.000

*P < .001 Dependent variable; tax compliance Independent variable; intentions

4.1.6 Supplement analyses Objective 3 & 4: Subjective norms and Attitudes predicting tax compliance independently. The models III and IV were used to predict tax compliance in relation to subjective norms and attitudes respectively. One was a significant predictor that is subjective norms ( = -0.234, p < 0.001) with adjusted r square of 0.035. Thus subjective norms alone can explain 3.5% of the change in tax compliance. Whereas attitudes was not significant ( = 0.119, p > 001) with adjusted r square being 0.017 explaining only 1.7% of the variance in tax compliance behavior. It is interesting to note the difference in the adjusted r square between the model 1 and II (the theory of TRA) and using models III and IV in explaining tax compliance behavior (Supplement analysis). The results for models III and IV are reflected in table 9.

Table 9 Predictor Model III (R square = .038) (Adjusted r sq =.035) Subjective norms Model IV (R square = .019) (Adjusted r sq =.017) Attitudes

Unstandardized Coefficients ()

Standard error

Sig (p)

-0.234*

.060

.000

0.119

.043

.006

*P < .001 Dependent variable; tax compliance Independent variables; subjective norms (model III); attitudes (model IV)

The table below shows the contribution of the control variables in explaining tax compliance. As can been seen only one of the predictors is significant. It is also quite

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interesting. This is marital status. This means marital status can determine whether SBE owners take the risk to evade taxes
Table 10 Regression results for control variables Predictor Unstandardized Coefficients () Age Marital status Gender Highest level of education Gross turnover Income *P < .001 -.011 .161* .101 -.029 -.017

standard error .004 .044 .072 .019 .063

sig (p) .013 .000 .164 .136 .788

Dependent variable; tax compliance Independent variable; Age, marital status, gender, highest level of education, gross turnover

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Chapter five Discussion of findings


5.0 Introduction: An Overview of Work Done

The major objective of this study was to investigate the extent to which the theory of reasoned action explains variations in tax compliance behavior among small business enterprises in Uganda. In this study, a distinction was made between the components of the theory of reasoned action and general factors within the theory that have been used in literature to explain tax compliance before. TRA variables included; attitudes, subjective norms, behavioral intentions and tax compliance behavior. Employing hierarchical multiple regression as well as simple linear regression, the study predicted the extent to which the theory (TRA) explains variance in tax compliance behavior. Further supplementary analysis was made to compare the explanatory variance difference of tax compliance between the TRA and individual predictors of attitudes and subjective norms.

5.1 Discussion of Results The findings discussed in this chapter are presented in Chapter four, starting with the descriptive statistics, correlations, multiple regression analysis and finally the simple linear regressions. The main objective of this chapter is to attach meaning to the study findings within the study context and tax compliance behavioral literature.

5.1.1

Sample characteristics

The gender-business statistics are close to the findings of Walter et al. (2003; 2004) and Sserwanga (2010) in Uganda and Krauss (2003) in Zimbabwe and South Africa, where female participation in entrepreneurship was found to be lower than male participation. The age findings imply that in Uganda, the young people are the most active in business related sectors. The findings are consistent with the findings of Sserwanga (2010) who reported an average age of 30 years and 84% of the respondents were 45 years or younger in his entrepreneurial quality study. The size of the business was measured using 35

turnover. The findings are consistent with the findings of Sserwanga (2010), whose sample of entrepreneurs in Uganda consisted of 64% micro enterprises he makes a similar conclusion with about of the enterprises in his sample labeled. Its important to note that Sserwanga (2010) used the number of persons employed, while this study based annual turnover to measure firm size, coming up with consistent results. In addition Snyder (2000) used number of employees to classify Ugandan firms into respective sizes and came to a similar conclusion about small and medium enterprises, labeling them vibrant, fragile and underdeveloped.

5.2 Hypothesis The tax compliance prediction models disclose both varied and interesting results about the hypotheses developed in Chapter two. The statistical analysis in the paper mostly confirmed the theory. The theory was particularly effective in explaining actual compliance behavior. The theory of reasoned action explains about 10.7% of the variation in tax compliance in Uganda SBEs. It is therefore important to note however that there are other factors that explain 89.3% (i.e. the difference between 100% and what TRA explains) tax compliance. These factors are likely to include; audit rates, penalties, tax compliance costs, tax payer ethics, tax fairness, and social norms among others (Alm, Sanchez, and DeJuan, 1995; Cowell, 1992; Kirchler, 1999; Wenzel, 2002, 2004).

5.2.1 H1 - tax payers attitudes influence their tax compliance behavioral intention It has been shown in the preceding chapter using multiple regressions that attitudes influence behavioral intentions . Note however that the two have a significant negative correlation which is later reflected in the beta of the regression. The results confirm our hypothesis Further the relationship established by the negative means that a positive change in attitudes will result in a negative change in behavioral intentions and vice versa. Implying a percentage increase in attitudes will lead to 21.6% decrease in tax compliance. However since attitudes are not a dichotomous variable then we take this explanation in a different sense. This then implies that Ugandan SBE owners generally have a negative attitude towards intentions to comply with tax regulations and laws.

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The interesting question here would be why do SBEs have a negative attitude towards paying tax? During the interviews conducted, the SBE owners by and large said that the government is corrupt and therefore they see no need why they should pay more taxes and yet they dont benefit from them. This shows that taxpayers are normally sensitive to the way government uses tax revenues. Taxes are supposed to be used to construct infrastructure and provide social services to the public however, the SBEs do not see the results of their efforts to pay tax. Taxes therefore paid by individuals can be interpreted as the price paid for governments positive action. literature and empirical findings attest to this when Cummings, Martinez-Vazquez, McKee and Torgler, (2004) found in South Africa and Botswana that perceptions of the government as being corrupt will reduce the willingness to comply with taxes. A higher trust of the population might tend to increase taxpayers positive attitudes and commitment to the tax payment which finally has a positive effect on tax compliance. (Smith, 1992) Another reason could be the wide spread tax evasion evident in the country. Literature explains this as; people who believe that tax cheating is wide-spread among their peers or colleagues tend to have more favourable attitudes towards tax evasion and are more likely to cheat on taxes (See De Juan, Lasheras, & Mayo, 1994; Kaplan & Reckers, 1985; Wallschutzky, 1984; Webley, Robben, & Morris, 1988). From the analysis, we further find that subjective norms have a greater influence on intention than attitudes. This is not in agreement with previous TRA literature which reports that attitude has a stronger influence on intention than subjective norms. The role of attitude and social norms in explaining intentions however is contingent upon the behavior under investigation. (Khanna, Kavookjian, Scott, Kamal, Miller and Neal, 2009). From this we deduce that in tax compliance studies attitudes generally explain intentions to a greater extent than subjective norms. Literature relates that the contribution of attitudes, subjective norms to the prediction of intentions is expected to vary not only depending on behavior under study but also from one group of individuals to another. The intentions of some populations may be affected mostly by attitudes and less so by subjective norms. (Ajzen and Fishbein, 2004) It is possible that in the Ugandan population, subjective norms are a more important consideration to intentions to comply decisions in relation to attitudes. The negative though makes it an interesting finding, not only are the SBEs in Uganda having a negative attitude towards intending to pay

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their tax but subjective norms are also the bigger psychological consideration than personal beliefs or attitudes. Existing literature further indicates that to stimulate behavioural intention, a favourable attitude needs to be formed. The more favourable is the attitude, the stronger is the behavioural intention, and the more likely is the performance of the behavior. (Ramayah, Rouibah, Gopi and Rangel, 2009) This could explain further why the regression results reflect a negative relationship between intention and tax compliance. It could have originated from the influence of the negative relationship with attitudes. We should also bear in mind that all the theory of reasoned action variables are not dichotomous; generally we deduce from the findings that intentions too have a negative relationship with tax compliance. This will be explained further in the discussion.

H2 - taxpayers subjective norms influence their tax compliance behavioral intentions


5.2.2 The model I multiple regression in the preceding chapter established that subjective norms do influence tax compliance behavioral intentions. To add to this, a significant positive correlation of .199 resulted between subjective norms with behavioral intentions. This means that a positive change in subjective norms will result in a positive change in tax compliance behavioral intentions. This was further reflected in a positive of 0.248, meaning that a percentage increase in subjective norms will lead to a 24.8% increase in tax compliance behavioral intentions. Note however, the dichotomous nature of the subjective norm variable. This means that generally, Ugandan SBEs owners families, friends, peers and other parameters in their social environment influence them positively to intend to pay their taxes. This finding is in line with Fishbein and Ajzen (2010) who found that other things being equal, the stronger the perceived social pressure, the more likely it is that an intention to perform the behavior will be formed. The direct positive relationship of subjective norm to intention is in line with prior research conducted by Fishbein and Ajzen (1975), Taylor and Todd (1995), Mathieson (1991), Bhattacherjee (2000), Ajzen (1991), Ajzen (2002), Ramayah et al. (2002), Maruf et al. (2003), Eri (2004), May (2005), Athiyaman (2002), and Gopi and Ramayah (2007). Yet again, the question to ask is why SBE owners are influenced positively by their peers, friends and families to conform to tax regulations 38

and laws? This could be attributed to the cultural set up of Uganda. Uganda is generally has a communal background, generally collective in nature, where people live in societies from birth onwards are integrated into strong, cohesive in-groups, often extended families which continue protecting them in exchange for unquestioning loyalty. So positive influence from the society members are reflected by individuals. Thus in Uganda, society influences SBEs positively in terms of intentions to comply with the tax laws. This study will add to the not so vast literature on subjective norms and tax compliance as it broke them down to injunctive and descriptive.

H3 taxpayers behavioral intentions influence their tax compliance behavior


5.2.3 Eagly and Chaiken (1993), said that the fact that I am capable of performing a behavior does not necessarily, imply that I will do it. To put it in another way; the fact that one intends to do something doesnt imply that they will do it. This will be reflected in the discussion below about tax compliance of SBEs in the Ugandan context. Hypothesis 3 was confirmed by our results. Behavioral intentions influence tax compliance behavior of SBEs. A negative correlation was found between the two variables, it was significant and further reflected in the regression by the of 0.401. This implies that a positive change in intentions leads to negative change in tax compliance behavior. Recollect the dichotomous nature of our variables, a percentage increase in behavioral intentions will lead to a 40.1% reduction in tax compliance. This is an interesting finding for Uganda Revenue Authority and for research purposes. The above finding implies that on the whole, Ugandan SBEs owners dont intend to comply with tax regulations and laws. Applicable reasons here could be ones mentioned before that have to do with SBE owners attitudes in general. As was already mentioned, the more favourable the attitude is, the stronger the behavioural intention, and the more likely the performance of the behavior. (Ramayah, Rouibah, Gopi and Rangel, 2009), and the reverse could apply in Ugandas situation. Another interesting finding was that intentions explain 15.9% of the variance in tax compliance. This is quite substantial; however we must acknowledge that there are other factors that influence tax compliance too. This could make up the extra 84.1% (100-15.9) percentage. It is further a significant predictor and fitted in our model well. Other factors that literature and empirical findings have come up with include culture (Cummings, 39

Martinez-Vazquez, McKee and Torgler, 2004), audit rates, penalties, fairness, tax and admistration, among others (Alm, Sanchez, & DeJuan, 1995; Cowell, 1992; Kirchler, 1999; Wenzel, 2002, 2004). These would provide a more interesting study if combined. 5.3 Supplementary analysis: This part of discussion will focus on objectives 3 and 4 of the preceding chapter. The researcher included this part of the study to establish whether attitudes or subjective norms could individually explain tax compliance better than the theory of reasoned action. As can be inferred from the table 9, attitudes explain 1.7% of variance in tax compliance behavior. Another interesting and yet unexpected finding given the above discussion was that attitudes scored a positive of 0.119. This implies that a percentage increase in attitudes will lead to a 11.9% increase in tax compliance; therefore generally Ugandan SBEs have positive attitudes towards tax compliance. Thus independently, without the theory of reasoned action, attitudes of SBEs towards tax are positive. The subjective norms could explain only 3.5% of the variance in tax compliance. Interestingly and also unexpectedly, subjective norms have a negative influence on tax compliance of SBEs in Uganda. This is reflected by the coefficient of 0.234, therefore a percentage increase in subjective norms will lead to a 23.4% drop in tax compliance of SBEs. This implies that Ugandan SBEs are influenced negatively by subjective norms when complying with tax regulations and laws. Note however that the theory doesnt examine attitudes or subjective norms towards tax compliance directly but uses the intervening variable of intentions. So the framework comes out as follows after the analysis.

0.119

Attitudes

-0.216*

Intentions Subjective norms

-0.412*

Tax compliance Behavior

0.248* -0.234*

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Chapter Six Conclusions and recommendations


6.0 Introduction The major objective of this study was to investigate the extent to which the theory of reasoned action can explain variance in tax compliance behavior among SBEs in Uganda. This objective was further broken down into four sub questions; the influence of attitudes and subjective norms of on behavioral intentions of taxpayers (SBEs) in Uganda; the influence of behavioral intentions of SBEs on tax compliance in Uganda; the influence of subjective norms of SBEs on tax compliance in Uganda and finally; the influence of attitudes of SBEs on tax compliance in Uganda. The study was grounded in the theory of reasoned action and supplementary analysis was done on exterior the theory.

6.1 Conclusion The study established that the theory of reasoned action indeed provides insight on the tax compliance behavior of SBEs. Not only did the study ascertain the extent to which TRA influences tax compliance but also ascertained the kind of relationship/ influence it has on tax compliance behavior of SBEs in Uganda. The findings provide evidence for the negative attitudes SBEs have on intentions to comply with tax regulations and the extent to which these attitudes can affect SBEs behavior. Further the findings also illustrated that subjective norms influence SBEs tax compliance intentions in a positive manner. However the over all appearance of these intentions lead to a negative effect on tax compliance behavior of these SBEs. Thus on the whole, SBEs appear not to intend to pay their taxes. Possible reasons were also explained in chapter five as to why these results would appear so. Subsequent analysis exterior of TRA however provided surprising results by SBEs having positive attitudes towards paying their taxes as well as being influenced negatively by subjective norms.

6.2 Implications and Recommendations The results of this study are endowed with theoretical, and policy implications. These implications are discussed below and pertinent recommendations proposed. We nevertheless note that many of the recommendations are cut across the categories, which calls for an integrated approach when dealing with tax compliance issues. 41

6.2.1 Theoretical implications The theory of reasoned action has been used to explain behavior in numerous situations in psychology. This study has used this theory not only in a new setting but also in a new geographical, economic and administrative setting; Uganda. Therefore this implies that not only is this theory relevant in explaining psychological social issues but it is also relevant in explaining economic behavior of individuals namely; tax compliance. In addition this theory has provided an explanatory difference in its individual predictors (attitudes and subjective norms) and the structural predictors of the theory (attitudes and subjective norms leading to intentions and intentions leading to behavior). This difference thus creates a lacuna in research that is worth exploring. So the question that would arise is where does this difference come from and why? A recommendation here would be a broader study into this area to answer the above questions.

6.2.2 Policy implications: The research was carried out with certain audiences in mind; academicians, the Uganda Revenue Authority, and general audiences interested in tax compliance issues, prior to this study, none of the above predictors were used in assessing the tax environment in Uganda. It has been established that generally SBEs dont intend to pay their taxes. This could have been an influence of the negative attitudes they have. The researcher recommends that attitudes of SBEs should be taken as a serious consideration in tax administration. Tax administration should come up with policy measure that will improve the SBES intentions to apply tax SBEs make up the biggest population of businesses in Uganda and though they dont contribute the biggest percentage of taxes, if they indeed refrained from paying their taxes, the effect would be felt by the economy at large. This would fall to the URA to establish why attitudes of SBEs are negative.

6.3 Areas for further research The above recommendations bring us to areas for further research. The theory of reasoned action was will be later discussed in relation to the revised to the theory of planned behavior (hence forth referred to as TPB). This study didnt focus on TPB, as the revised theory has additional predictors. The researcher wanted to keep the study to a manageable level given the time and logistic constraints. It would be interesting to 42

investigate if the revised theory can explain tax compliance behavior better compared to the TRA. This would be a comprehensive study and since the data for the second part of that study is already available in this report, it would be simpler to add to the debate a comparison between the two theories. The findings from this study are interconnected with each other but give different views on attitudes and subjective norms. A more comprehensive study about attitudes and subjective norms in relation to tax compliance in Uganda would be appropriate in this instance and gain insight on what drives attitudes and subjective norms. The core essence of the two predictors would be the starting point to renew/ revise the tax system for better enforcement. This research would facilitate tax administration in Uganda in a large way. While carrying out the study, the researcher got into contact with colleagues who were investigating an interesting problem that could be a challenge especially in developing countries like Uganda. This is the free rider problem. This is a problem in Africa on issues such as resources and issues that have to do with an individual being a recipient. However this particular tax free rider problem has to do with individuals requesting the authorities to levy taxes on them so that they eradicate the free riders from the society. It would be fascinating to find out if this kind of problem can arise in Ugandan tax compliance issues. A further additional study that could be intriguing would be to compare the effect of attitudes and subjective norms on tax compliance between developed and developing countries. The developed countries have vast literature on tax compliance in existence as compared to matters/issues that arise from developing countries. A boost to the research gap especially in Africa can be filled by such a variety of studies.

6.4 limitations to the study The theory of reasoned action since its postulation in 1975 has been revised to include other predictors. In the first instance, perceived behavioral control was included to predict intention but this was not included in this study. However the revised theory is referred to as the theory of planned behavior. In this research the old theory was to

43

explain tax compliance behavior. The application of the theory of planned behavior to explain tax compliance is suggested for future research. As no research is perfect some limitations may arise; the theory at large has been used in association with consumer behavior and thus this new application to tax compliance is unique so it raises questions of generalizing the findings. Out of the 426 questionnaires the researcher was supposed to collect, 400 were collected, and 394 were good for usage in analysis. However this still cant be a reason not to generalize the findings to Uganda, but this was a capital city population and therefore the findings cant be generalized to Uganda as a whole and therefore on a larger scale not even to developing countries. Ajzen revised methodological considerations for this kind of study recommended a pilot study before collecting actual data. Due to time constraints it was not possible to do a pilot study to establish the drivers of attitudes and therefore a former study questionnaire was used and adopted for the study. A further constraint in this was it was used in Canada and therefore may have not been the best in a Ugandan case and may have affected the quality of data collected, though given the reliability tests we were able to get usable data. Issues of confidentiality arose with some respondents as tax payment is a sensitive issue in Africa. Thus cooperation from respondents was with difficulty as SBEs may did not wish to disclose their tax information or compliance rate or ability for that matter. The results could have been therefore biased to some extent.

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Appendix I:
Table 3 Descriptive statistics for theory of reasoned action variables Variable Attitudes 1.Recognition of my good ethics by the community as a consequence of my Complying with the tax laws is: 2.Fulfillment of my personal, moral, and ethical obligations as a consequence of my Complying with the tax laws is: 3.Fulfillment of my duty as a citizen as a consequence of my Complying with the tax laws is: 4.Feeling guilty as a consequence of Not Complying with the tax laws is: 5.The ability to brag to others of non-compliance consequent to Not Complying with tax laws is: 6.Not complying with the tax laws consequent to having knowledge of the income tax system is: 7.Feeling of having beaten the system as a consequence of Not Complying with tax laws is: 8.Having more cash available as a consequence of my Not Complying with the is: 9.Paying penalties and fines to URA as a consequence of my Not Complying with the tax laws is: 10.Providing money to the government for necessary services as a consequence of my Complying with tax laws is: Intention: 1.Complying with the tax laws will result into the recognition of my good ethics by the community: 2.Complying with the tax laws will result in the fulfillment of my duty as a citizen: 3.Not Complying with the tax laws will enable me to brag about such noncompliance to others: 4.My Complying with the tax laws is consequent to the presence of accounting records of the business (e.g. computer records or receipts): 5.Complying with the tax laws will result in providing money to the government for necessary services: 6.Not Complying with the tax laws will result in the payment of penalties and fines to URA: 7.Complying with the tax laws will result in the fulfillment of my personal, moral, and ethical obligations: 8.My Not Complying with the tax laws is consequent to my knowledge of the income tax system: 9.I intend to correctly report my income and deductions on my current year's tax return even if an opportunity to underreport income or not pay on time and in the in the right place arises: Subjective and descriptive norms: Mean 3.98 2.30 2.20 1.95 5.32 5.32 4.77 5.22 5.12 5.57 1.98 Standard deviation 0.924 1.844 1.660 1.547 1.909 2.258 2.211 2.093 2.084 1.919 1.657

5.81 6.22 6.49 3.55 6.05 4.81 5.95 5.50 3.85

1.713 1.332 .901 1.752 1.606 2.235 1.417 1.378 2.379

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1.If I complied with the tax laws, my family (other than my significant other/spouse) would: 2.If I complied with the tax laws, my friends would: 3.If I complied with the tax laws, my significant other would: 4.If I complied with the tax laws, my Tax-return Preparer would: 5.If I complied with the tax laws, my Business Contacts/Peers would: 6.My family (other than my significant other) comply with the tax laws 7.My friends comply with the tax laws 8.My significant other (spouse) complies with the tax laws 9.My tax-preparer complies with the tax laws 10.My business contacts/ Peers comply with the tax laws Tax compliance behavior: 1.Sometimes we attempt to avoid taxes 2.URA has threatened us about outstanding taxes to clear 3.We have outstanding taxes with URA 4.URA made us pay a penalty when we delayed to pay tax 5.We have under declared income for tax 6.We delay paying taxes 7.The money retained through not paying taxes fully helps in business expansion

4.82 4.44 4.50 5.02 5.01 2.36 2.84 3.01 3.03 2.44 2.62 2.09 2.07 1.74 3.01 2.99 3.75

2.016 1.918 1.889 1.361 1.745 1.718 1.589 1.938 1.464 1.492 1.479 1.304 1.199 1.103 1.409 1.352 1.619

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Appendix II: Q-Q plots and histograms showing normal distribution

53

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Appendix III: Questionnaire Data Entry ID nr: Interviewer s NAME:

........................................................ DATE .............................................. .... : ....

BACKGROUND INFORMATION 1. Age Age 2. Status -------------------Marital status 1 ( ) single (not yet married) 2 ( ) married 3 ( ) living together 4 ( ) divorced or separated 5 ( ) widower/widow Gender 1( ) Female 2( ) Male

3. Gender

Please tick those that apply to you. 4. Educ What is your highest level of education? 1 ( ) Did not attend School 2 ( ) Primary Level 3 ( ) O Level 4 ( ) A Level 5 ( ) Vocational Certificate 6 ( ) Diploma 7 ( ) Bachelors degree 8 ( ) Masters degree 9 ( ) Others, _________________ 5. Inc What is your gross turnover income? a) Under 500,000 to 5,000,000 UGX b) 5,000,001 to 25,000,000 UGX c) 25,000,001 to 50,000,000 UGX (Please circle one) For how many years have you filed tax returns? ________________

6. Taxr

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7. Ptaxr

Who prepares your tax returns? a) Myself/Ourselves b) Tax Preparer? (Circle)

ATTITUDE Please evaluate the following possible consequences of complying or not complying with the presumptive tax laws. 1 Extre mely good att1 Recognition of my good ethics by the community att2 as a consequence of my Complying with the tax laws is: Fulfilment of my personal, moral, and ethical obligations as a consequence of my Complying with the tax laws is: att3 Saving on the effort required to prepare my tax return correctly by Not Complying with the tax laws is: att4 Fulfilment of my duty as a citizen as a consequence of my Complying with the tax laws is: att5 att6 Feeling guilty as a consequence of Not Complying with the tax laws is: The ability to brag to others of non-compliance consequent to Not Complying with tax laws is: att7 Not complying with the tax laws consequent to having knowledge of the income tax system is: att8 Feeling of having beaten the system as a consequence of Not Complying with tax laws is: att9 Having more cash available as a consequence of 56 2 3 4 5 6 7 Extrem ely bad

my Not Complying with the is: att10 Paying penalties and fines to URA as a consequence of my Not Complying with the tax laws is: att11 Making my friends feel awkward as a consequence att12 of their discovery of my Noncompliance with the tax law is: Providing money to the government for necessary services as a consequence of my Complying with tax laws is: att13 Avoiding an audit by Revenue Canada as a consequence of my Complying with tax laws is:

INTENTION Please indicate below your belief of how likely or unlikely each one of the following outcomes is of occurring consequent to your complying or not complying with tax laws. 1 Extre mely unlikel y int1 Complying with the tax laws will result into the recognition of my good ethics by the community: int2 int3 Complying with the tax laws will result in the fulfilment of my duty as a citizen: Not Complying with the tax laws will enable me to brag about such noncompliance to others: int4 My Complying with the tax laws is consequent to the presence of accounting records of the 57 2 3 4 5 6 7 extremel y likely

business (e.g. computer records or receipts): int5 int6 Not Complying with the tax laws will result in my feeling guilty: Not Complying with the tax laws will result in making my peers feel awkward when they discover that fact: int7 Complying with the tax laws will result in providing money to the government for necessary services: int8 int9 Not Complying with the tax laws will result in the payment of penalties and fines to URA: Complying with the tax laws will result in the fulfilment of my personal, moral, and ethical obligations: Int1 0 Complying with the tax laws will result in the payment of a large percentage of extra earnings for taxes: Int11 My Not Complying with the tax laws is consequent to my knowledge of the income tax system: int12 Not Complying with the tax laws will result in more cash available for use by me:

INTENT Please respond to the following question on a seven-point scale with end-points labelled unlikely and likely provided after it: 1 Strongly disagree intt1 I intend to correctly report my income and deductions on my current year's tax return even if an opportunity to underreport income or not pay on time and in the in the right place arises: 58 2 3 4 5 6 7 Strongl y agree

Subjective norms Please indicate below your belief of whether the following groups of people related to you would approve or disapprove of your complying with the tax laws: 1 2 Disappro ve Sub1 Sub2 Sub3 Sub4 Sub5 If I complied with the tax laws, my family (other than my significant other/spouse) would: If I complied with the tax laws, my friends would: If I complied with the tax laws, my significant other would: If I complied with the tax laws, my Tax-return Preparer would: If I complied with the tax laws, my Business Contacts/Peers would: DESCRIPTIVE NORMS Please indicate below if the following groups of people related to you comply with their own tax obligations. 1 Complete ly true 2 3 4 5 6 7 complet ely false des1 des2 des3 des4 My family (other than my significant other) comply with the tax laws My friends comply with the tax laws My significant other (spouse) complies with the tax laws My tax-preparer complies with the tax laws 59 3 4 5 6 7 appro ve

des5

My business contacts/ Peers comply with the tax laws

MOTIVATION Please indicate below the extent to which you care about the following groups of people, related to you, approving or disapproving of your complying with the tax laws: 1 Not at all motv 1 How much do you care whether your family (other than your significant other) approve or Disapprove of your correct reporting of your income and paying on time and in the right place? motv 2 How much do you care whether your friends approve or disapprove of your correct reporting of your income and paying on time and in the right place? motv 3 How much do you care whether your significant other approves or disapproves of your correct reporting of your income and paying on time and in the right place? motv 4 How much do you care whether your Tax return Preparer approves or disapproves of your correct reporting of your income and paying on time and in the right place? motv 5 How much do you care whether your Business Contacts/Peers approve or disapprove of your correct reporting of your income and paying on time and in the right place? 2 3 4 5 6 7 very much

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