A Compulsory Research Report Submitted to Mzumbe University – Mbeya Campus College in Partial Fulfillment of the Requirement for an Award of the Bachelor of Laws (LL.B) Degree of the Mzumbe University
Recently there have been complains to the Tanzania Revenue Authority (TRA) that it does not effectively tax people and that many citizens go untaxed. Also, it has been reported by various studies that the informal sector is not properly taxed and it does not comply with tax laws effectively.
Therefore, this research looked at the compliance of tax laws among businessmen in the informal sector by focusing on the specific part of withholding tax laws on rent. The research proceeds with two hypotheses. That withholding tax laws are not complied with because; - first, the tax laws generally with the withholding tax laws inclusive are not understood by the taxpayers, they are complicated and foreign to small businessmen hence leading to friction in compliance. Second, the law of withholding tax payment on rent is not complied with because it has a complicated procedure and inconvenient and thus it is hard to comply with. And ultimately the said law is structured in such a way that it shifts the tax burden from the intended tax payer to another tax payer.
The researcher tested the hypotheses through field work and documentary review, where he interviewed several people, gave out questionnaires and reviewed some documents on the matter. In the end of the study the researcher confirmed all the hypotheses laid down and he gave his recommendations as follows; -first that there be provided enough education to the businessmen in the informal sector about the basics of tax laws and accounting. Secondly, that the tax laws must also be written in Swahili language so as to make them understandable and readable to ordinary citizens who pay the tax. Third, the law on withholding tax in rent should be reconsidered and looked upon if it is at all necessary to have such a law. This is because according to the social setting of Tanzania the tax burden ultimately lies with the businessmen instead of the landlords as it was intended by legislators. Therefore, it would be prudent if with the information available the TRA taxed the landlords directly instead of withholding from businessmen.