The University of Dodoma

University of Dodoma Institutional Repository http://repository.udom.ac.tz

Business Master Dissertations

2015

Perceptions of tax payers on the use of

electronic fiscal devices (EFDs) in

revenue collection in Tanzania: A case

of Dodoma municipality

Mghase, Amani T.

The University of Dodoma

Mghase, A. T. (2015). Perceptions of tax payers on the use of electronic fiscal devices (EFDs)

in revenue collection in Tanzania: A case of Dodoma municipality. Dodoma: The University of Dodoma.

http://hdl.handle.net/20.500.12661/1176

Downloaded from UDOM Institutional Repository at The University of Dodoma, an open access institutional repository.

PERCEPTIONS OF TAX PAYERS ON THE USE OF

ELECTRONIC FISCAL DEVICES (EFDs) IN REVENUE

COLLECTION IN TANZANIA: A CASE OF DODOMA

MUNICIPALITY

By

Amani T. Mghase

Dissertation Submitted in Partial Fulfillment of the Requirement for the Degree

of Master of Business Administration of the University of Dodoma

The University of Dodoma

October, 2015

i

CERTIFICATION

The Undersigned certifies that he has read and hereby recommend for acceptance by

the University of Dodoma dissertation entitled “Perceptions of Tax Payers on the

use of Electronic Fiscal Devices (EFDs) in revenue collection in Tanzania: A Case

of Dodoma Municipality”, in fulfillment of the requirements for the Degree of

Master of business administration of the University of Dodoma.

...........................................................

Dr Alex Reuben Kira

(SUPERVISOR)

Date................................................

ii

DECLARATION AND COPYRIGHT

I, Amani Timoth Mghase declare that, this dissertation is my own original work and

that it has not been presented and will not be presented to any other university for a

similar any other degree award.

Signature................................................

No part of this dissertation may be reproduced, stored in any retrieval system, or

transmitted in any form or by any means without prior written permission of the

author or University of Dodoma.

iii

ACKNOWLEDGEMENT

First, I would like to show my gratitude and return all praises and glory to almighty

God who is full of love, care and mercy for granting me health and life in every new

day that make me possible to accomplish this notable research.

I also thank my supervisor Dr Alex Reuben Kira, for his advice, criticism, reaction,

objection and re-interpretation as well as “sharp eyes” stimulates me to dig into the

root and come up with this useful work. I feel honored to have had the opportunity to

work under him.

Special thanks should go to Mr. Timoth Mghase (Father) and Mrs. Damaresi Mghase

(Mother) for their support in building my academic foundation and with their

financial and material support. My God bless them in abundance.

I would also like to express my sincere thanks to the family of Mr John Chuwa, Mr

Immanuel Moshi, Mr Immanuel Mghase, Mr. Patrick Moshi, Mr Basil Mwiserya,

and Mr. James Mashaka; for their financial and material support.

I also acknowledge assistance provided by the stakeholders involved in Tanzanian

tax administration system and particularly those who took part in interviews and

provided written documents to assist in data collection. They are too many to

mention, but they are from TRA, Dodoma.

Lastly, to all those might have assisted me but their names do not appear, I appreciate

their moral and any other forms of assistance in preparing this work.

iv

DEDICATION

This work is dedicated to my beloved parents, the late Mr. Timoth Mghase and the

late Mrs. Damaresi Mghase still there to be dedicated as my love for them has no

limits, may the Lord God rest their soul in eternal peace, Amen.

v

ABSTRACT

Specifically the objectives of the study were to (i) determine the benefits of using

EFDs in revenue collection (ii) examine the perceptions of taxpayers towards the use

of EFDs machines in revenue collection and (iii) identify challenges towards the use

of the EFDs in revenue collection.

This study adopted the survey research design which was most appropriate as it

entailed gathering of primary data from tax payers who using EFD machine in

revenue collection. The population consisted of hardware‟s, hotels, shops and min

super markets owners which were registered for VAT and none VAT registered. The

research study used primary data. Primary data was obtained through self-

administered questionnaires. Data were analyzed using statistical package for social

sciences (SPSS) version 16.0 represented in simple descriptive statistics such

frequencies and percentages.

The findings show that majority (65.3%) of the respondents indicated that there were

advantages of using EFD machine in revenue collection which includes machine has

reduced the time it takes to prepare sales report, machine secure tax information for

auditing purpose and transaction and ensure tax rate to be paid by the tax payers. On

the other hand (34.75%) reported that there were no advantages of using EFDs in

revenue collection.

The respondents revealed that most (67.3%) were facing challenges in using EFD

machine includes price of EFDs was high, fiscal tax invoice is not durable as they are

not readable after a short period of time, facing networking problem, since these

devices uses network to transfer information, tax payer not having enough education

and low number of agents to supply the electronic fiscal devices in the study area.

vi

The remaining respondents (32.7%) reported that they were not facing challenges in

using EFDs machine in revenue collection.

Finally, the study recommended for the essential issues found in the study area which

must be taken into account for a successful implementation and improvement in

using EFD machine in revenue collection such as TRA should explain and discuss

the changes by involving all stakeholders, TRA should use incentives by providing

rewards to encourage change acceptance, The government through TRA should

make sure that all tax payer identified by the law to use EFD machine they acquire

and use those machine, TRA needs to embark on sensitization, education and

training programs in order to address the challenges affecting the EFDs system.

vii

TABLE OF CONTENTS

CERTIFICATION ...................................................................................................... i

DECLARATION AND COPYRIGHT .................................................................... ii

ACKNOWLEDGEMENT ........................................................................................ iii

DEDICATION ........................................................................................................... iv

ABSTRACT ................................................................................................................ v

TABLE OF CONTENTS ......................................................................................... vii

LIST OF TABLES .................................................................................................... xi

LIST OF FIGURES ................................................................................................. xii

LIST OF APPENDICES......................................................................................... xiii

LIST OF PLATES................................................................................................... xiv

LIST OF ABBREVIATIONS.................................................................................. xv

CHAPTER ONE......................................................................................................... 1

OVERVIEW OF THE STUDY................................................................................. 1

1.0 Introduction ................................................................................................... 1

1.1 Background Information ............................................................................... 1

1.2 Statement of the Problem .............................................................................. 6

1.3 Objectives of the Study ................................................................................. 8

1.3.1 General Objective .......................................................................................... 8

1.3.2 Specific Objectives ........................................................................................ 8

1.4 Research Questions ....................................................................................... 9

1.5 Significance of the Study............................................................................... 9

1.5.1 Tanzania Revenue Authority ......................................................................... 9

1.5.2 Tax Payer ..................................................................................................... 10

1.6 Limitations of the Study .............................................................................. 10

1.7 Chapter Summary ........................................................................................ 11

CHAPTER TWO ..................................................................................................... 12

LITERATURE REVIEW ........................................................................................ 12

2.0 Introduction ................................................................................................. 12

2.1 Definition of Key Terms ............................................................................. 12

2.1.1 Revenue ....................................................................................................... 12

2.1.2 Tax ............................................................................................................... 12

2.1.3 Electronic Fiscal Devices (EFDs) ............................................................... 12

viii

2.1.4 Electronic Cash Registers (ECRs) ............................................................... 13

2.1.5 Electronic Tax Registers (ETRs) ................................................................. 14

2.1.6 Electronic Fiscal Printers (EFPs)................................................................. 15

2.1.7 Electronic Signature Devices (ESDs) .......................................................... 16

2.1.8 Importance of Information and Communication Technologies (ICTs) ....... 18

2.1.9 The Spread of EFDs .................................................................................... 19

2.1.10 Electronic Tax Devises –Kenya Case .......................................................... 22

2.1.11 Deciding on Which Fiscal Devices to Use in Business ............................... 26

2.2 Theoretical Framework of the Study ........................................................... 27

2.2.1 Fiscal Exchange ........................................................................................... 27

2.2.2 Social Influences ......................................................................................... 28

2.2.3 Economic Deterrence .................................................................................. 28

2.2.4 Comparative Treatment ............................................................................... 29

2.2.5 Political Legitimacy..................................................................................... 29

2.3 Empirical Literature Review ....................................................................... 30

2.3.1 Resistance to Change ................................................................................... 34

2.3.2 Reasons that Cause Resistance to Change ................................................... 34

2.3.3 Minimizing Resistance to Change ............................................................... 35

2.3.4 Methods of Improving Taxpayers Compliance ........................................... 36

2.4 Conceptual Framework ............................................................................... 38

2.5 Chapter summary......................................................................................... 39

CHAPTER THREE ................................................................................................. 40

RESEARCH METHODOLOGY ........................................................................... 40

3.0 Introduction ................................................................................................. 40

3.1 Area of Study ............................................................................................... 40

3.2 Research Design .......................................................................................... 40

3.3 Population of the Study ............................................................................... 41

3.4 Sampling Procedures ................................................................................... 41

3.4.1 Sampling Frame........................................................................................... 41

3.4.2 Probability Sampling Techniques ................................................................ 41

3.4.3 Non Probability Sampling Techniques ........................................................ 42

3.4.4 Sampling Unit .............................................................................................. 42

3.4.5 Sample Size ................................................................................................. 42

ix

3.5.2 Secondary Data ............................................................................................ 44

3.6 Data Collection Methods and Instruments .................................................. 44

3.6.1 Interview ...................................................................................................... 45

3.6.2 Observation.................................................................................................. 45

3.6.3 Focus Group Discussion .............................................................................. 46

3.7 Data Processing, Analysis and Presentation ................................................ 46

3.7.1 Data Processing ........................................................................................... 46

3.7.2 Data Analysis and Presentation ................................................................... 46

3.8 Reliability and Validity ............................................................................... 47

3.9 Ethical Considerations ................................................................................. 48

3.10 Chapter Summary ........................................................................................ 48

CHAPTER FOUR .................................................................................................... 49

RESULTS AND DISCUSSION OF FINDINGS ................................................... 49

4.0 Introduction ................................................................................................. 49

4.1 Demographic Characteristics of Respondents ............................................. 49

4.1.1 Sex of the Respondents ............................................................................... 49

4.1.2 Education Level of Respondents ................................................................. 50

4.1.3 Marital Status of the Respondents ............................................................... 51

4.1.4 Occupation with Age of Respondents ......................................................... 51

4.2 Benefits of Using EFDs in Revenue Collection .......................................... 52

4.2.1 Advantage of Using EFDs Machine in Revenue Collection ....................... 52

4.2.2 Benefits Experienced by Tax Payers in Using EFDs Machine in Revenue

Collection ..................................................................................................... 54

4.2.3 EFD Machine Ensures Timely Sales Filing and Reporting to TRA ........... 56

4.2.4 Printing of Daily Reports............................................................................. 57

4.2.5 Printing of Monthly Reports ........................................................................ 58

4.3.5 Printing of Yearly Reports........................................................................... 58

4.2.6 Regular Maintenance of the EFD ................................................................ 59

4.2.7 FD Machine has reduced the Time it takes to Prepare Sales Report ........... 60

4.3 Perceptions of Tax Payers on Using EFDs in Revenue Collection ............. 61

4.3.1 Electronic Fiscal Machine Users ................................................................. 61

4.3.2 Type of Electronic Fiscal Devise Used By Business Persons ..................... 61

4.3.3 Registered as a Tax Payers .......................................................................... 62

x

4.3.4 Importance‟s of Paying Tax ........................................................................ 63

4.3.5 Acquisition of the EFD Machine ................................................................. 64

4.3.6 Business Inspected By the Tax Authorities ................................................. 66

4.3.7 Awareness of Obligations and Rights under the EFDs Governing Laws ... 66

4.3.8 Happiness with the Tax System or Tax Office ............................................ 67

4.4 Challenges towards the Use of the EFDs in Revenue Collection ............... 68

4.4.1 Challenges in Using an EFD System in Business ....................................... 68

4.4.2 Official Instructions on the Use of EFD System in Business ...................... 69

4.3.3 Price of Purchasing EFDs Machine ............................................................. 69

4.4.4 EFD Machine Ensures Accurate Tax Rate to Be Paid By the Tax Payers .. 71

4.5 Chapter Summary ........................................................................................ 74

CHAPTER FIVE ...................................................................................................... 75

CONCLUSION AND RECOMENDATIONS ....................................................... 75

5.0 Introduction ................................................................................................. 75

5.1 Conclusion ................................................................................................... 75

5.2 Recommendations ....................................................................................... 76

5.3 Areas for Further Research .......................................................................... 78

REFERENCES ......................................................................................................... 79

APPENDICES .......................................................................................................... 83

xi

LIST OF TABLES

Table 1: Current EFDs Implementations ................................................................... 21

Table 2: Generation of Sample Size ........................................................................... 43

Table 3: Gender of the Respondents .......................................................................... 50

Table 4: Education level of respondents .................................................................... 51

Table 5: Marital Status of Respondents ..................................................................... 51

Table 6: Occupation with Age of Respondents .......................................................... 52

Table 7: Advantage of Using EFDs Machine ............................................................ 54

Table 8: Benefits Experienced by Tax Payers in Using EFDs Machine in Revenue

Collection ................................................................................................ 55

Table 9: EFD Machine Ensures Timely Sales Filing and Reporting To TRA ..... 57

Table 10: Printing Of Daily Reports .......................................................................... 57

Table 11: Printing of Monthly Reports ...................................................................... 58

Table 12: Printing Of Yearly Reports ........................................................................ 59

Table 13: Regular maintenance of the EFD ............................................................... 60

Table 14: EFD Machine Has Reduced the Time it takes to Prepare Sales Report .... 61

Table 15: Type of Electronic Fiscal Devise ............................................................... 62

Table 16: Acquisition of the EFD Machine ............................................................... 65

Table 17: Business Inspected By the Tax Authorities ............................................... 66

Table 18: Happiness with the Tax System or Tax Office .......................................... 68

Table 19: Challenges in Using an EFD System in Business ...................................... 68

Table 20: Official Instructions on the Use of EFD System in Business .................... 69

Table 21: EFD Machine Ensures Accurate Tax Rate to Be Paid By the Tax Payers 71

xii

LIST OF FIGURES

Figure 1: Conceptual framework ............................................................................... 39

Figure 2: Importance‟s of Paying Tax ....................................................................... 64

Figure3: Awareness of Obligations and Rights under the EFDs Governing Laws .... 67

Figure 4: Price of Purchasing EFDs Machine ............................................................ 70

xiii

LIST OF APPENDICES

Appendix 1: Questionnaires for Taxpayers ................................................................ 83

Appendix 2: Questionnaire for Government Officials Situated In TRA-Dodoma .... 89

xiv

LIST OF PLATES

Plate 1: Model used by TRA “Electronic Tax Register” ........................................... 15

Plate 2: Model used by TRA “Electronics Fiscal Printer” ......................................... 16

Plate 3: Model used by TRA “Electronic Signature Device” .................................... 17

xv

LIST OF ABBREVIATIONS

EFDs - Electronic Fiscal Devices

ETR - Electronic Tax Register

ETD - Electronic Transfer device

EFP - Electronic Fiscal Printer

ESD - Electronic Signature Device

KRA - Kenya Revenue Authority

TRA - Tanzania Revenue Authority

TIN - Taxpayer Identification Number

SPSS - Statistical Package for Socio Sciences

VAT - Value Added Tax

FPs - Fiscal Printers

GPRS - General Packet Radio System

1

CHAPTER ONE

OVERVIEW OF THE STUDY

1.0 Introduction

This chapter provides the explanation on the background information to the problem,

statement of the problem, the objective of the study, research questions, and

significance of the study and lastly the limitation and delineation of the study.

1.1 Background Information

Revenue collection is an important determinant of the economy of any country

(Malima, 2013). The adequacy of government revenues allows the government to

support its operations ranging from administrative activities, infrastructure

constructions and service provision. The study by Ebeke (2010) commented on the

importance of developing countries to adequately manage its sources of revenue to

enhance the speed of developments. This is because sufficient revenue decreases the

degree of dependence of the government to donors for its developments (Komanya,

2013). It also offers the government with the ability to make different developmental

decisions.

According to Chad and Wolf (1973), a number of countries have made efforts to deal

with weak tax administration as well as reduced tax evasion and avoidance. Chad

and Wolf (1973), indicate that as in other economic policies where reforms have

been successful, a number of common elements have been present and these include;

a well thought program of action support for major policy makers and systematic

implementation and monitoring, aiming at broader and simpler tax basis on which

2

lower rates are imposed. Procedural demands that complicated administration are

minimized.

Chad and Wolf (1973) pointed out that countries all over the world have reformed or

are attempting to reform their tax systems, with the main impetus being the

increasing complexity of tax codes, narrow tax bases and concerns with horizontal

equity. Like many developing countries, the Tanzania tax system has undergone

number of changes. These changes are aimed at: First, ensuring that as many

individuals as possible are brought into the tax net. Secondly, due to the changing

aspects of the economy, the tax systems must be seen to reflect those realities.

Dealing with the policy problem of tax evasion requires at least some understanding

of the factors underlying the individual decision whether to pay or evade taxes. More

systematic and coherent information on taxpayer attitudes is required for better

analysis and more informed tax policy design in Africa. Understanding how

taxpayers think about and experience taxation may provide an essential diagnostic of

the political realities for tax reform. Attempts to broaden the tax base require better

knowledge of how the large majority of citizens perceive the tax system, whether

people perceive they are paying taxes or not, what they eventually pay, their views

on tax administration and enforcement, what the perceived benefits of paying taxes

might be, and whether and how their tax behavior miscorrelated with how they

perceive the state.

Ajayi (2007) the theories lead to the development of an analytical framework, which

emphasizes the role of knowledge, attitudes and perceptions in the decision-making

process of technology adoption. There is a broad range of the literature with regard to

theories about decision-making processes.

3

The expected utility theory predicts that the decision-maker chooses between risky

and uncertain prospects by comparing the expected utility values of their outcomes to

maximize profit (Schoemaker, 1982). Theoretical and empirical literatures have

shown that risk and uncertainty play an important role in the adoption of new

technologies (Marra et al., 2003)

Attitude and perception surveys of current and potential taxpayers may also help to

identify perceived weaknesses of the tax system, as well as to enable tax authorities

to focus attention efficiently on high-risk categories of taxpayers. Also, perception

surveys offer an opportunity to explore cross-country similarities and differences,

assisting regional policymakers to identify good practice cases and lessons to be

learnt.

Raising more domestic revenue is a priority to the Tanzanian government.

Mobilizing revenue is a way for the government to create a fiscal space, provide

essential public service and reduce foreign aid and single resource dependence.

Cognizant of that importance, the Tanzanian government through TRA has been

implementing various tax reforms aimed towards broadening the tax bases,

enhancing compliance and improving other aspects of tax revenue administration,

and even improving the quality of services it provides to its stakeholders. A typical

example of such reforms was the introduction of electronic receipt generating

machines popularly known as Electronic Fiscal Devices (EFDs) to replace the former

Electronic Cash Registers (ECRs) (Kagoro, 2014).

Generally, the EFDs were brought into use in Tanzania in year 2010 to enable TRA

realize its ultimate goal of tax revenue enhancement and collection to capacity levels.

4

This is due to the fact that VAT in Tanzania, despite its success still had many

challenges including; management of repayment claims was a difficult issue, some of

VAT registered traders were not issuing tax invoices, slow growth of tax base, tax

evasion, tax avoidance etc. It was therefore expected that the effective use of EFDs

would revolutionize and modernize our VAT and Income Tax Administration

systems and ultimately attain increased Government revenue collections.

Under section 5 of the revenue collection in Tanzania includes Electronic Tax

Register (ETR), Electronic Fiscal Printer (EFP); Electronic Signature Device (ESD)

and Electronic Fuel Pump Printer. The device is called fiscal device due to the fact

that it is intended to trace the economic activities of every business organization for

tax purposes and report to TRA, thus ensuring accurate approximation of tax returns.

Many countries in the world today including Tanzania have special laws in place that

make it obligatory for anyone who is selling goods or services to consumers to use

cash registers (approved by tax authorities) that have special security features that

enable the authorities to check in the reliable way of tax that the retailer has to pay

(Mmanda, 2010).

The ETR are appropriate and commonly used by retail businesses that issue receipts

manually while the EFP are used by computerized retail outlets and are mostly

suitable for business group such as supermarkets and petrol stations among others.

The ESDs are used by computerized businesses that issue receipts or invoices via

special accounting software. They can be easily used by manufacturers and

wholesalers (Mmanda, 2010).

The Electronic Fiscal Devices (EFDs) has been introduced to VAT registered traders

under the

5

"The Value Added Tax (Electronic Fiscal Device) Regulation, 2010" - Subsidiary

Legislation, Government Notice No. 192 published on May 28, 2010, and enshrined

in the Finance Act, 2010 with the main aim of enhancing VAT compliance in

Tanzania. TRA‟s new EFD system became effective on July 1, 2010 (Finance Act,

2010). Introduction of EFDs in July, 2010 marks the First phase during which more

than 17,000 traders registered under the Value Added Tax (VAT), were seen using

the devices countrywide ( Kagoro, 2014).

Tanzania Revenue Authority (TRA) started to implement the second phase of

Electronic Fiscal Devise (EFD) in 2013 with the aim of boosting revenue collections

and simplify tax administration. Tanzania Revenue Authority introduces the use of

Electronic Fiscal Device for issuing receipts and invoices for every sale made. The

System was planned to be implemented in two main phases. The implementation of

phase one begun in July 2010, involving only VAT registered traders (Kagoro,

2014).

The Second Phase was intended to cover non VAT registered traders targeted to

cover 200,000 traders countrywide. Implementation of the second phase of EFD

include the following groups; Persons who are not VAT registered with a turnover

ranging from TSHS 14 million and above per year, traders trading in the Region‟s

prime areas, identified on the basis of rent payable and traders dealing with selected

business sectors such as Spare Parts, Hardware, Mini Supermarkets, Petrol stations,

Mobile phone shops, Sub wholesale shops, Bar and Restaurants,

Pharmaceutical Stores; Electronic Shops (Jackson, 2013).

Tanzania Revenue Authority proudly launches the second phase of Electronic Fiscal

Devices (EFDs) on May 15, 2013, in order to better cover Tax collection from non-

6

VAT registered traders. It is the first Revenue Authority to implement such a

technologically advanced solution with GPRS based Fiscal machines providing two

way communications between a very advanced Server Software called EFDMs and

Fiscal Cash Registers. This will streamline Tax information from over 200,000

traders (Israel, 2013).

Example of users of these kinds of device includes Supermarkets, Petrol Stations,

and Ticketing etc. Many countries in the world today including Tanzania have

special laws in place that make it obligatory for anyone who is selling goods or

services to consumers to use cash registers (approved by tax authorities) that have

special security features that enable the authorities to check in the reliable way of tax

that the retailer has to pay (Mmanda, 2010).

Therefore the study intends to assess the perceptions of taxpayers on the use of EFD

machine in revenue collection by assessing the benefits of using EFDs in revenue

collection and challenges towards the use of the EFDs in revenue collection.

1.2 Statement of the Problem

There is a global concern today for how to make the economy move and set it on the

desired growth path. Not much progress can be achieved unless the economy is at

least marginally relieved of the high burden of taxation. To increase the tax revenue

in line with growth in the economy there is need for major tax reforms. These

reforms include measures to enhance compliance. Most tax authorities around the

world undertake a mix of processing, services, enforcement, litigation, and

sometimes-legislative activities many of which are aimed at improving taxpayer

compliance.

7

In carrying out those activities, it is important for a tax authority to be able to

determine whether these activities are achieving the required outcomes, including

determining whether they are having any impact on compliance (OECD, 1999).

The introduction of EFDs Machines to taxpayers has been seen as an effective way

to solve the problem of non-compliance and raise government revenues. Also the

machines have in-built Fiscal Memory which cannot be erased by mechanical,

chemical or electromagnetic interferences, automatically self-enforcing issuing of

daily “Z” report after every 24 hours, transmits tax information to TRA system

automatically and has irreversible date mechanism. Moreover the machines issues

fiscal receipts/invoice which are uniquely identifiable and can be used as a

standalone and configured into a network has 48 hours power backup, can also use

external battery in areas without electricity supply (Ikasu, 2014).

The EFDs machines have got a lot of challenges in the implementation stage due to

the new technology inseminated, lack of conviction of need for change; dislike of

imposed change or no involvement in the change, dislike of surprises/no information

for readiness, fear of the unknown, and uncertainty; reluctance to deal with

unpopular issues; fear of inadequacy and failures due to need for new skills;

disturbed practices, habits, relations and familiarity; and lack of respect and trust in

persons promoting the new system (Weru at al., 2013).

During the short period of the operations of the EFDs from October 2010, the

concerns have been raised from stakeholders on whether these machines reach the

objectives of their establishment. Taxpayers have been complaining due to several

challenges which significantly affect the VAT and non VAT registered running

business registered traders (Ikasu, 2014).

8

Unfortunately most of taxpayers are facing problems with the process from the point

of ordering up to the installation stage the process can even take more than a month

to get the device fully installed. Taxpayers with EFDs are also complaining that the

machines are not working properly as expected and as advocated by TRA. Taxpayers

fail to send the report to TRA within the prescribed period like submission of a

summary of sales report printout generated by an electronic fiscal device on daily,

monthly, or annually basis (Z report).This is likely to create problem to both TRA

and the taxpayers as TRA may regard this as an offence committed by the traders

(Ikasu, 2014). Few studies have dealt with the perceptions of tax payers on using

EFDs in revenue collection in developing countries such as Tanzania. Based on this

evaluation, there is a gap in literature to warrant this research to be conducted in tax

reforms related to perceptions of tax payers on using EFDs in revenue collection.

Therefore this study intended to determine the perceptions of tax payers on using

EFDs in revenue collection.

1.3 Objectives of the Study

1.3.1 General Objective

The main objective of this study was to assess the perceptions of taxpayers on the use

of EFDs machines in revenue collection in Tanzania.

1.3.2 Specific Objectives

Specifically, this study was conducted for the purpose of attaining the following

objectives;

9

i. To determine the benefits of using EFDs in revenue collection.

ii. To examine the perceptions of taxpayers towards the use of EFDs in

revenue collection.

iii. To identify challenges towards the use of the EFDs in revenue collection.

1.4 Research Questions

This study addressed the following research questions:

i. What are the benefits of using EFDs in revenue collection?

ii. What are the perceptions of taxpayers towards the use of EFDs in revenue

collection?

iii. What are challenges towards the use of the EFDs in revenue collection?

1.5 Significance of the Study

Little attention has been made to generate information regarding the perceptions of

tax payers on the use of electronic fiscal devices (EFDs) in revenue collection in

Tanzania.

1.5.1 Tanzania Revenue Authority

This study may therefore, through its findings and recommendations enhance TRA

reverse those attributed challenges. Furthermore, the results of this study may be

used to develop better service delivery on EFD machine which may increase revenue

collection in Tanzania. The study may also give feedback to TRA in promoting the

performance of TRA in building institutional capacity of TRA in Tanzania and other

developing countries.

10

1.5.2 Tax Payer

The taxpayer is the target of all tax measures. This research was evaluating the

perceptions by taxpayers in using the electronic fiscal devices as directed by TRA.

The taxpayer will appreciate and understand the purpose of the Electronic Fiscal

Devices in their businesses.

Besides the study may be a basis for dialogue between policy makers and TRA

stakeholders on the role of EFD machine in enhancing the empowerment and

sustainability of TRA which play a vital role improving revenue collections in

Tanzania.

1.6 Limitations of the Study

The study did not experience any major limitations. However, it was difficult to

gather information from the taxpayers due to suspicion and interference with their

daily routine. Some traders declined to be interviewed and argued that the

researchers may have been TRA inspectors disguising themselves as researchers.

Moreover, due to limited time and financial resources available, limited scale and

scope, it becomes very difficult for the researcher to obtain and represent the views

of all respondents in the study area. As far as some of the data collection techniques

(i.e., questionnaires) were translated into Swahili language, there is possibility that

the meaning of expressions given by participants whose first language differs from

that of the researchers may need to be clarified. The context of this limitation is that,

the translations of gathered data from one language to another may distort meaning

or lost nuance especially when oral data are transcribed into written text.

11

1.7 Chapter Summary

This chapter provides background information about the electronic fiscal devices in

different grounds. After that there is statement of the problem under investigation,

this has provided a clear picture of the existing problem in the area under

investigation. Also presented, is the objectives, research questions and significance

of the study. This chapter ends with the limitations which researcher encountered.

12

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter presents a review of the literature relating to the topic of the study.

From various sources such as books, research papers, journals, working papers and

website among others. This chapter include definition of the key terms, theoretical

frame work, the conceptual framework and measurement of the study variables.

2.1 Definition of Key Terms

2.1.1 Revenue

Revenue is the amount of money that is brought into a company by its business

activities. In the case of government, revenue is the money received from taxation,

fees, fines, inter-governmental grants or transfers, securities sales, mineral rights and

resource rights, as well as any sales that are made (Oxford Advanced Dictionary,

1992).

2.1.2 Tax

Tax is compulsory levy or charge by the state on her citizen and non-citizen alike

that is usually payable in monetary form for which the government need not offer

equivalent direct compensatory services or under an individual account on how it

utilized the revenue (Mpongoliana, 2000).

2.1.3 Electronic Fiscal Devices (EFDs)

Electronic Fiscal Device is a machine designed for use in business for efficient

management controls in areas of sales analysis and stock control system which

13

conforms to the requirements specified in these Regulations and duly registered

under regulation 5 of these Regulations including Electronic Tax Register, Electronic

Fiscal Printer and Electronic Signature Device; (URT, 2012). Also according Niosi,

(1994) is a small machines or mini-computers that are used to determine the amount

of Value Added Tax remitted to the Government. These devices are designed in such

a way that they record each transaction made by an organization to calculate the

amount which is supposed to be remitted to the Government as Value Added Tax.

Rathus and Nevid (1987) identify four types of electronic fiscal devices, which

comprises of electronic cash registers (ECRs), Electronic Tax Registers (ETRs),

Fiscal Printers (FPs) and electronic signature devices (ESDs).

2.1.4 Electronic Cash Registers (ECRs)

Today, many cash registers are essentially computers. Often cash registers are

attached to weighing scales, barcode scanners, and debit card or credit card

terminals. These types of cash register are functioning as point of sale (POS)

terminals. Point of sale systems provides the following operations: Scan a product

barcode for each item, and retrieve the price from a database, calculate deductions

for items on sale, calculate any taxes calculate differential rates for preferred

customers, maintain inventory, time and date stamp the transaction, and record the

transaction in detail, including each item purchased ,record the method of payment,

keep totals for each product or type of product sold, as well as total sales for

specified periods, and perform other tasks.POS terminals will often identify the

cashier on the receipt and carry additional information or offers (Rathus and Nevid,

1987).

14

2.1.5 Electronic Tax Registers (ETRs)

Electronic tax registers is a cash registers with fiscal memory, which is a special,

read only memory built into the cash register to store tax information at the time of

sale (Rathus and Nevid1987).These fiscal devices are useful in the retail environment

and are usually stand alone devices that print receipts and help the owner organize

his/her shop, get report on his/her totals and perform a number of necessary

operations without the need to use a more complicated PC based solution. The ETRs

are ordinary cash registers modified to have security features that guarantee the

trustworthy of the fiscal memory; an embedded fiscal, write once, read only fiscal

memory; and hardware that is proven to comply with certain specifications.

Therefore, it is not easy to destroy or manipulate critical data and that data are well

protected even in case you have power failures or malicious attempts (Caseys and

Castro, 2014).

Also ETRs have a separate and permanent memory that cannot in theory be accessed

by anyone other than the revenue administration. Any attempt to tamper with the

independent and separate memory should be visible through the use of anti-

tampering devices, such as seals (Refer Plate 1).

15

Plate 1: Model used by TRA “Electronic Tax Register”

2.1.6 Electronic Fiscal Printers (EFPs)

EFP are useful in large-scale retail outlets that are using standalone or networked PC

based systems for their work. Typical installations are supermarkets and other multi-

till installation. The FPs incorporates all features of FETR and can allow specialized

firmware ensures that every receipt that is printed out from the fiscal printer is

permanently in the fiscal memory (Refer Plate 2). The only challenge in installing

the FP is the integration with existing POS software since it is not only working as an

output printer but also recording valuable taxable data. With whole suite of POS

software in Tanzania, this can become very serious challenge.

16

Plate 2: Model used by TRA “Electronics Fiscal Printer”

Fiscal printers are potentially the cheapest option for a fiscal device. They will

typically connect to an existing electronic cash register and provide the fiscal receipt,

as well as maintain fiscal information for the revenue authority. They carry the same

security features described for ETRs.

2.1.7 Electronic Signature Devices (ESDs)

Cascio (1986) also defines electronic signature device as any electronic means that

indicates that a person adopts the contents of an electronic message. This electronic

device is used in conjunction with the accounting system to validate documents.

Fiscal printers are high speed printers connected to a point of sales terminal or sales

computer to store every sale transaction in its memory while it issues receipts to

taxpayers (Refer Plate 3). The latest and most powerful development in fiscal is the

ESD. It eliminates all challenge of the FP and still controls the data with supreme

efficiency, reliability, and security. The technology is based on secure fiscal memory

but is not used to write totals of turnover in it nor is it ever used stand alone.

17

It is targeted to be used as a peripheral to every accounting PC and electronically

stamp every invoice printed by the accounting system in a way that ensure easy

auditing and authenticates the electronic copies of such documents. The fiscal

Electronic Signature is designed to authenticate any PC produced financial

documents, no matter what this is. It may be invoice, a freight document or retail

receipt. The electronic signature covers every little detail that is printed on a

document and not only the price of the VAT that is written on a document. The

Electronic signature assures the authorities that, if the electronic signatures match,

every detail on a verified document is true and vice versa. Thus this device applies to

any computer based, printed tax documents issued to a third party. Tax documents

include every document in business-to-business transaction and every document in

business to consumer transaction (Kumar, 2005).

Plate 3: Model used by TRA “Electronic Signature Device”

18

ESDs provide an additional level of security to invoices issued. The inclusion of a

digital signature, typically composed on an algorithm based on data contained in the

invoice, provides an additional level of validation. The digital signature is also stored

on the issuing device, and any invoice can be validated for authenticity based on the

unique signature.

“Z” report” means a summary sales report printout generated by an electronic fiscal

device on daily, monthly, or annually basis, (URT, 2012).

2.1.8 Importance of Information and Communication Technologies (ICTs)

The introduction of ICTs needs to be accompanied by extensive capacity building.

Benefits of automation include a reduction of fraud, remote access to information,

improved collection of statistics, and uniform application of tax legislation. The

introduction of tax automation minimizes direct contacts between tax collection

officers and traders or their agents, and hence leads to a reduction of corruption.

Further benefits achieved through customs automation include improved reporting,

control of file transfers, automatic reconciliation of tax returns declarations, and

compliance testing of bank files. Paperless declarations and customs automation save

time and make it easier to focus on inspecting high-risk consignments. The

possibility of submitting tax returns declarations on-line has in some cases made it

possible to reduce the associated fees; in other cases it has helped eliminate the

obligatory contracting of Customs agents, (Robert, 1997).

ICTs can significantly reduce the number and the potential negative impact of

physical inspections. ICTs allow, inter alia, for pre-arrival clearance, risk analysis by

tax authorities, and separation of release from clearance.

19

With the help of ICTs, it is further possible to better plan the timing and location of

physical inspections, thus significantly reducing the waiting times for trucks and

containers. Finally, ICT solutions allow for better measurement of the length and

number of physical inspections. Such measurement needs to cover the complete trade

and transport operation and not be limited to tax clearance times only (Lumumba et

al., 2010).

ICT has had the greatest influence on society in recent times. Beyond the Global

System for Mobile Communications (GSM), the advent of the Internet and its related

infrastructures in the last two decades has driven significant shifts and restructuring

in the way business is done across the globe - where a sizeable percentage of

commercial activities are now being conducted electronically. While globalization

has generally fueled the tempo of world trade, the Internet has particularly accounted

for its recent exponential growth. The internet has not only changed the way firms,

customers, suppliers and tax authority interact, it has also restructured the internal

workings of firms, and affected the nature, basis and intensity of competition across

industries globally (Wheelen and Hunger, 2012).

2.1.9 The Spread of EFDs

It is generally accepted that the first to use EFDs in support of its fiscal control

strategy was the Italian administration, which adopted fiscal devices in 1983 (OECD

2013). The Greek tax agency appears to be the next administration to adopt fiscal

devices, implementing them in 1988, and extending their scope to include electronic

signature devices (ESDs) in addition to the fiscal registers adopted in Italy (Caseys

and Castro, 2014). Some administrations, including the Bulgarian and Romanian tax

agencies, indicated they were using fiscal devices before year 2000, possibly

20

influenced by the experience in Greece. The Argentine and Brazilian revenue

administrations appear to have followed suit. In line with its status as a large federal

country, Brazil has adopted these devices at the state level, although overall guidance

was provided by the central tax authority; the experience of Italy‟s tax administration

influenced the initial implementations (Caseys and Castro, 2014).Following a cluster

of implementations in Latin America, Kenya was the first East African country to

next adopt fiscal devices, following the Mediterranean model, using Greece and Italy

as reference points. These three clusters (Italy and Greece in the Mediterranean,

Argentina and Brazil in South America, and Kenya in Eastern Africa) appear to have

been the starting points for further adoption by neighboring countries. Given the

Greece as the one with long familiarity with the use of EFDs (Caseys and Castro,

2014).

21

Table 1: Current EFDs Implementations

Country Year Type Scope

Europe

Greece 1988 ETR, EFP, ESD All VAT registered

Romania Pre-2000 ECR, ESD All VAT registered

Bulgaria 1993 EFP All VAT registered

Hungary 2014 ECR-SCU All VAT registered

Kosovo 2012 ECR, EFP, SCD All VAT registered

Montenegro 2001 ETR, EFP All VAT registered

Moldova 1993 ECR, EFP, ESD All VAT registered

Sweden 2010 ECR All VAT registered

Asia-Pacific

South Korea 2005 ECR, EFP All businesses

North America

Mexico Pre-2000 ECR, ESD All VAT registered

Central America

Dominican Republic 2009 EFP All VAT registered

Panama 2012 ECR, EFP All VAT registered

South America

Argentina 1995 ECR, ETR, EFP All VAT registered

Brazil (State level) 1994 EFP All ICMS registered

Chile 2003 ECR, EFP, ESD VAT registered (optional usage)

Paraguay 2008/9 ECR, ETR Sector VAT registered

Africa

Kenya 2005 ALL All VAT registered

Tanzania 2010 ECR, ETR, ESD, SCD All VAT registered

Rwanda 2014 Currently in process Currently in process

Malawi 2015 To be determined All VAT registered

Source: IMF and survey responses from revenue administrations.

22

2.1.10 Electronic Tax Devises –Kenya Case

According to Wagacha (1999), the Kenya tax reforms should seek to improve the

efficiency and productivity of taxation, improve tax collection and administration

while lowering the rate and gain tax effectiveness through greater tax elasticity. He

observes that Kenya tax burden is high by international standard and therefore the

ultimate objective or a reform scheme should be to lower the excessive tax burden

and efficiency cost of taxation. Casey and Castro (2014) Kenya was the first East

African country to adopt fiscal devices. EFDs were introduced in Kenya in fiscal

year 2004/05 when legislation was enacted to take effect January 1, 2005. EFDs

currently used in Kenya primarily consist of ETRs that are mandatory for all

businesses registered for VAT purposes.

The following matters promoted the introduction of the ETR in Kenya, which was

adversely affecting tax collection. The matters include poor record keeping amongst

small and medium sized businesses, which affected correct tax declaration. The

taxpayers‟ arguments were usually that they could not afford to purchase equipment

that would enhance their record keeping and inability to employ bookkeepers to

summarize their daily sales and reconcile stocks (Chege, 2010). There is also

deliberate failure to charge VAT on sales by traders who openly ask purchasers

whether the wish to pay tax or not, keeping various sets of records some of which are

excluded from tax declaration. Manipulation of records for purpose of supporting tax

payable, the use of fraudulent purchase documents in input tax deduction or chain of

VAT refunds and in addition, long period taken by audits, which require

reconciliation of numerous paper records, which are sometimes not well kept.

23

According to the VAT act, a person in possession of a tax invoice can only deduct

input tax. In Kenya, the law now requires the issue of an invoice generated from an

approved device and therefore input tax is not deductible on sales/invoice that has

not been generated from approved devices (Chege, 2010).

Suppliers of goods and services were required to maintain an ETD from 31st January

2006. The ETR regulations require that an electronic signature device authenticate all

documents generated by an accounting system. Up to 31st December 2006, the entire

value of ETD was recoverable by the taxpayer from KRA by offsetting it against the

VAT payable. The VAT regulations have also been amended with effect from

16th

June 2006 so as to require a tax invoice issued under the VAT act to be serially

numbered and either generated through an ETD or attached to an ETD receipts

containing details of the transaction. Through a Gazette notice dated25th

May 2005,

the commissioner has powers to allow the claim of input VAT of non-electronic

invoices in respect of any period commencing 15th

June 2006 to 31st December 2006.

Only where; the taxpayer can prove that he was a tax compliant, that the

goods/service purchased could only be supplied by the non ETD compliant person

And the supply was in respect of contracts obligations entered into before 15th

June

2006 (Chege, 2010).

Naibei et al., (2011) in their research work “Impact of Electronic Tax Registers on

VAT Compliance” had the purpose of assessing the impact of use of Electronic Tax

Registers (ETRs) on Value Added Tax (VAT) compliance among private business

firms in Kisumu city, Kenya. A sample of 233 private firms was selected from a

population of 590 private firms using stratified sampling technique.

24

The data was gathered by use of questionnaires and analyzed by use of correlation

and descriptive statistics. Empirical results reveal that effective and regular use of

ETR has a significant impact on the Value Added Tax (VAT) compliance.

The first and main objective of the study was to find out the impact of electronic tax

registers on VAT compliance among private firms in Kisumu city, Kenya. This was

achieved by testing the hypothesis that the use of electronic tax registers has a

positive relationship with VAT compliance.

H1 There is a positive relationship between the use of electronic tax registers and

VAT compliance in Kisumu city, Kenya.

H1 Accepted.

This hypothesis was accepted as shown by positive beta value on the correlation

results (R=0.622, p >0.01).Based on this finding, it can be concluded that use of ETR

has a significant impact on VAT compliance in Kenya.

Magutu, (2010) in his study “the Effectiveness of Electronic Tax Registers in

Processing of Value Added Tax Returns, Perspectives from Registered VAT

Taxpayers in Kisii Town, Kenya,” aimed to assess the effectiveness of Electronic

Tax Registers (ETRs) in the processing of Value Added Tax returns. The study

intend to determine the extent to which the Electronic Tax Registers are being used

by the taxpayers, the problems encountering in using them as well as get possible

solutions to the problems. The study sought to establish if the Electronic Tax

Registers had increased the speed at which taxpayers processed their VAT returns

and if there were any associated costs in the processing of VAT.

25

The population under study comprised of 98 VAT registered taxpayers in Kisii town

according to the regional KRA office‟s records which was stratified into; service

providers, wholesalers and large scale retailers and supermarkets.

Magutu, (2010) the respondents were asked to give their opinion on how the

introduction of ETR has assisted their businesses, while citing reasons. From the

research data, 66% of the respondents qualified the use of ETRs in business to have

accrued many benefits to their businesses, as opposed to 34% who indicated they

have not enjoyed any benefits by the use of ETRs.

Of the 66% who indicated that they have harvested the benefits of ETRs, they cited

the following reasons ranging from: increased efficiency in sales audit, increase in

sales collection, increased efficiency in stock taking, easy VAT Processing leading to

less risk of prosecution, ETRs have led to timely preparation of reports, ETRs have

led to Increase in returns and fast and efficient.

Also respondents were asked to indicate whether they have enjoyed any benefits in

the faculty of sales audit through the adoption of ETR machine, how frequent they do

their sales audit post adoption of the ETR machine, and 73% of the respondents

indicated that the use of ETR machines has led to improved sales audit for their

business, as 27% indicated it has not improved. This is an indication that indeed the

use of ETRs can improve sales audit on top of timely filling of monthly VAT returns.

Also from the results, out of the 73% who enjoy the benefits of ETRs in sales audit,

62% of the businesses are able to conduct their sales audit daily. A clear indication

that ETRs can reduce the frequency of audits giving prompted sales patterns and

feedbacks.

26

This cannot be the same for those who do not use ETRs, or maybe because of scale.

Out of the 27% who do not enjoy the benefits of ETRs in sales audit, 77% of the

businesses are able to conduct their sales audit monthly. An indication that failure to

use ETRs can lead to pronged frequencies of audits leading to failure to give

prompted sales patterns and feedbacks. This cannot be the same for those who use

ETRs, or maybe because of scale. Therefore based on the results from data analysis

and findings of the research, one can safely conclude the following; Kenya has

witnessed significant changes in many aspects of its economy over the last four

decades, but like most developing countries, it has had to contend with the common

problems that plague tax systems of developing countries (Magutu, 2010).

2.1.11 Deciding on Which Fiscal Devices to Use in Business

According to a HLB Ashvir Bulletin (2005), the choice depends on the business

operations and the financial accounting process that are employed as general guide:

i. Electronic Tax Register (ETR) is a cash register that prints using its own

printer and keeps a record of all transactions in a fiscal memory. It is

applicable to organizations that use manual invoicing or those using a cash

register.

ii. Fiscal printer (FP) accepts data from a computer or point of sale system

(POS) and registers the totals in a fiscal memory. An FP can be used in a

business running a POS.

iii. Electronic Signature Device (ESD) is normally used in an environment

where the accounting documents are computerized and works as a PC

peripheral. The ESD authenticates all accounting documents by providing a

unique electronic signature.

27

However, unlike ETR, ESD does not store the financial totals in its fiscal

memory. It stores the electronic signatures that are used to authenticate binary

files saved in the computer. ESD can also be used in POS environment.

2.2 Theoretical Framework of the Study

The understanding of taxpayers‟ compliance towards effective implementation of

EFD machines is an important stage to consider in describing how traders behave

toward the institution and implementation of EFD machines. Taxpayer behavior in

response to tax compliance can be described through five theoretical foundations

„schools of thought‟ referred to as: (i) fiscal exchange (ii) social influences; (iii)

economic deterrence; (iv) comparative treatments; and (v) political legitimacy

(Fjeldstand, Schulz-herzenberg and Sjursen, 2012).

2.2.1 Fiscal Exchange

The fiscal exchange theory suggests that, the presence of government expenditures

may motivate tax compliance from the tax payers (Moore, 1998). According to

Moore (1998), tax compliance among society increases with perception of the

availability of public goods and services being developed in relation to the tax paid.

They suggests that government can increase tax compliance by providing goods and

services that citizens prefer in a more efficient and accessible manner, emphasizing

that taxes are necessary for the receipt of government services. Accordingly,

taxpayers are concerned with what they get in return for their tax payments in the

form of public services. In this perspective, taxation and the provision of public

goods/services become catalysts to taxpayer in compliant to the tax paid (Fjeldstad

and Semboja, 2001). This theory is more practical and acceptable because, it

advocates individual‟s willingness to comply without direct coercion.

28

Furthermore, it serves the government from high collection costs resulting from

enforcement measures. The main argument of this theory is that bargaining over

taxes is central point to building relationships of accountability between state and

society, based on mutual rights and obligations, rather than on coercion (Fjeldstad, et

al., 2012).

2.2.2 Social Influences

It is said that, human behavior in the area of taxation is influenced by social

interaction in much the same way as other forms of behavior (Snavely, 1990).

Compliance behavior and attitudes towards the tax systems may therefore be affected

by the behavior of an individual‟s reference group such as relatives, neighbors, and

friends. If a taxpayer knows many people in his group who evade taxes, his

commitments to comply will decline. On the other hand, social relationships may

also help motivate individuals to comply and shy away tax evasion behavior in fear

of the social sanctions imposed once discovered (Grasmick, 1982). This theory to a

large extent, support the fiscal exchange theory. The society with government

advocating good governance has better chances to comply with laws and orders

including tax laws and vice versa.

2.2.3 Economic Deterrence

The basic point advanced by theorist of this model is that, taxpayer‟s compliant

behavior is influenced by factors such as the tax rate, the probability of being

detected and penalties imposed by the state(Backer, 1968).The economic analysis

thus concludes that since compliance decisions are based on an assessment of costs

and benefits, high probabilities of detection for non-compliance and large penalties

29

for discovered violators would encourage greater compliance, hence maximizing tax

revenue streams. This theoretical principle of economic deterrence has been widely

adopted by tax administrations in developing countries where good governance has

not fully been established when developing strategies that relay principally on

penalties and the fear of getting caught when not paying the required tax

(Fjeldstandet al., 2012).

2.2.4 Comparative Treatment

This theory suggests that, individuals are more likely to comply with rules if they

perceive that the system determining those rules is impartial (McKerchar, and Evans,

2009). Citizens may not consider their relationship with the state in a vacuum where

both parties are actors. Likewise, they may not think about their fellow citizens

without considering their own relationship with the state (D'Arcy, 2011). If the state

treats certain groups preferentially, this may distort the citizen‟s relationship with the

state and the group receiving favours. This theory is more related with the exchange

theory as well because, it addresses inequities in the exchange relationship between

the government and taxpayers that results in improved compliance behavior.

2.2.5 Political Legitimacy

Legitimacy is described as belief or trust in the authorities, institutions, and social

arrangements to be appropriate, for the common good (Tayler, 2006). According to

the political legitimacy theory, tax compliance is positively related to perceptions

about the government‟s trustworthiness. Researchers have suggested that, the group

identification deriving from national pride fosters cooperative behavior and

willingness to pay taxes (Torgler and Schneider, 1984).

30

Political legitimacy theory is also related to social influence theory and comparative

treatment theory and, all support fiscal exchange theory while negate the economic

deterrence theory. With exception of the first theory, the remaining four theories

work towards enhancing individual‟s freedom and willingness to pay taxes

voluntarily.

2.3 Empirical Literature Review

Newcomb (1943) states that the benefits of automation include a reduction of fraud,

remote access to information, improved collection of statistics and uniform

application of tax legislation. The introduction of tax automation minimizes direct

contacts between tax collection officers and traders or their agents and hence leads to

a reduction of corruption. Further benefits achieved through customs automation

include improved reporting, control of file transfer, automation reconciliation of Tax

returns declarations and compliance testing of bank files. Paperless declarations and

customs automation save time and make it easier to focus on inspecting high-risk

consignments. The possibility of submitting tax returns declarations on-line has in

some cases made it possible to reduce the associated fees, in other cases it eliminates

the obligatory contracting of customs agents.

Nyasha, et al., (2012) in their study deals with attitudes of employees towards the use

of fiscal electronic devices in calculating value added tax (VAT); this was, a case

study of motor industry in Zimbabwe, the research sought to find the attitude of

motor industry employees in Zimbabwe towards the use of fiscal electronic device.

The findings of the study revealed that fiscal electronic devices had positively

impacted on the motor industry through improvements in tax collection, saves time

in tax collection, reduces direct contact between tax collectors and hence minimizes

31

corruption. Moreover, the study found out that employees with low educational level

find it difficult to use fiscal electronic devices because they lack know how on how

best to use them. Employees perceived negatively the use of fiscal electronic devices

because they are not aware of the method and some are just resistant to change that is

given all the resources they will reject to use the advanced method.

Mmanda, (2010) in his study, “Introduction of Electronic Fiscal Device (EFD)

machines” is good in that once you enter information TRA gets information after 24

hours and if one tampers with the information, the machine reports everything. In

addition, the machines keep the information for not less than five years. After all, it

is the government that pays for the machines. However, the VAT and TIN running

registered businesses have to buy them first but when they install them, the costs are

deducted from the tax the businesses are supposed to pay to TRA. It is only when the

amount is paid that the businesses start paying Tax.

Cascio (1986) states that electronic device processing methods make use of

computers in determining the amount of tax to be remitted to government. He further

argues that this method is more reliable and fast as compared to the manual data

processing method. Electronic device processing method is less time consuming, less

costly, more accurate and faster as compared to the manual data processing method.

According to Liden and Adams (1992), older employees usually favor the use of

manual methods in determining the value of tax while the younger employees

usually favor the use of electronic devices citing the above benefits. They went on to

say that younger generations usually have positive attitudes towards the use of

electronic devices while older generations have negative attitudes towards the use of

electronic devices.

32

Weruet al., (2013) revealed that when the ETR machines were introduced by KRA

most of the businessmen and service providers rejected them. They were all up in

arms as human beings operate in a state of equilibrium and they do not want to learn

new things. In Mombasa town, at the Coast of Kenya, the Asian businesses came to a

halt as the owners protested on the streets. To date, there are many people who

continue to reject the ETR machines and even those who have them use fraudulent

methods to evade paying taxes by not issuing receipts after sales or offering a

service; some cases are still pending in court. Swanson (2000) pointed the reasons

for resistance to change include among others: lack of conviction of need for change;

dislike of imposed change/no involvement in the change; dislike of surprises/no

information for readiness, fear of the unknown, and uncertainty; reluctance to deal

with unpopular issues; fear of inadequacy and failures due to need for new skills;

disturbed practices, habits, relations and familiarity; and lack of respect and trust in

persons promoting change.

Sacks (1991) developed a theory, which advocates that males tend to display positive

attitudes towards the use of these devices, regardless of the level of familiarity, while

females‟ attitudes become more positive as the levels of familiarity increases. Brief

(1998) argues that females tend to be resistant to the use of fiscal electronic devices

while males accept to the change in the motor industry. In contrast, a survey

conducted by Baack and Brown (1991) advocate that older adults indicated that they

are less likely than their younger counterparts to use these devices unless there is a

perceived need. The same study attributed the low usage rates to low levels of

familiarity.

33

According to Liden and Adams (1992) older individuals do not respond as well to

rapid change as their younger counterparts unless the change is gradual overtime. A

study by Arthur, Winfred and Hart (1990) identified a positive relationship between

educational ability and familiarity with these electronic devices. The authors

suggested that employees with low educational ability levels might consciously opt

not to become familiar with these electronic devices due to the challenging nature of

the technology. A study by Gardner, Dukes and Discenza (1993) identified a positive

correlation between experience with electronic devices and attitudes towards them.

Not surprisingly, negative experience with these electronic devices correlated with

negative beliefs and attitudes towards the technology. Employees with positive

experience also espoused positive attitudes towards the devices.

According Lumumba et al., (2010) the preparation of VAT returns at the end of the

month by using EFD machine may take different time ranges. The respondents were

asked to indicate the time they take to prepare their VAT returns at the end of the

month, and42% of the businesses take less than 2 days to prepare their VAT returns

at the end of the month,33% indicated more than three days, as 23% indicated less

than three days. This is an indication that the businesses prepare and file their VAT

returns in good time to beat the KRA deadlines. Businesses sometime seek the

involvement of tax agent‟s services in filling tax returns and with a proportion of the

proportion of the monthly VAT returns paid to the agents. The respondents were

asked to indicate whether they involve the tax agents„ services in filling tax returns

and with a proportion of the proportion of the monthly VAT returns paid to the

agents, and 65% of the respondents indicated that they don„t involve the tax agents„

services in filling tax returns.

34

Of the 35% who involve the tax agents‟ services in filling tax returns, 21% of them

pay more than 30%, between 20% and 30%, and less than 10% of their monthly 26

VAT returns respectively to the tax agents‟ services in filling tax returns. This is an

indication that most businesses can file their returns on their own, and even those

who use agents are not exploited as they all pay a normal fee.

2.3.1 Resistance to Change

2.3.2 Reasons that Cause Resistance to Change

The reasons for resistance to change as described by Swanson (2000) include among

others: Lack of conviction of need for change; dislike of imposed change/no

involvement in the change; dislike of surprises/no information for readiness, fear of

the unknown, and uncertainty; Reluctance to deal with unpopular issues; fear of

inadequacy and failures due to need for new skills; disturbed practices, habits,

relations and familiarity; and lack of respect and trust in persons promoting change.

Weruet al., (2013) when the ETR machines were introduced by KRA most of the

businessmen and service providers rejected them. They were all up in arms as human

beings operate in a state of equilibrium and they do not want to learn new things. In

Mombasa town, at the Coast of Kenya, the Asian businesses came to a halt as the

owners protested on the streets. To date there are many people who continue to reject

the ETR machines and even those who have them use fraudulent methods to evade

paying taxes by not issuing receipts after sales or offering a service. Some cases are

still pending in court.

35

2.3.3 Minimizing Resistance to Change

According to the study conducted in Kenya by Weru et al., (2013) on Impact of

strategic change: „„Introduction of electronic tax register for enhancement of tax

collection at Kenya Revenue Authority‟‟ revealed that KRA minimized change

resistance by doing the following:

Advance planning and management of change - Changing structure, behavior and

technology requires total systems orientation (i.e. the whole organization and its

systems would be required to make adjustments as change in one area inevitably

affects many other areas. KRA carried many awareness and sensitization seminars to

the staff and consumers before introducing the machines.

Explaining and discussing change before it is implemented - Employees should also,

where possible, be involved in the planning and implementing the changes. (This

participative change approach argues that allowing people to play a part in the

process reduces psychological uncertainty and insecurity). The KRA staffs were well

equipped with the tools to carry out the exercise.

Use of coercive tactics - Coercive tactics which did not increase covert resentment

and tension. This was avoided at all costs as the consumers were shown how the

ETR machines were not only going to benefit the economy but they were also useful

in mainstreaming their records to enable them keep accurate records.

Minimizing social changes - Social relationships are important to individuals and

should not be disrupted by the change. Informal relations should be maintained as far

as possible. This should have been ideal between the Revenue officers and the tax

payers.

36

Avoiding preoccupation with technology- The process must be sensitive to human

factors. The appropriateness to technology is crucial, but considers people, too. The

ETR system was simple and did not require complicated technology to implement.

Making change tentative- The process should begin on trial basis. This enables

employees to test their own reactions and obtain more facts about a new situation. It

also helps unfreeze attitudes and encourages people to think objectively about the

proposed change. Change should be introduced gradually and piecemeal for people

to adjust well. The ETR system was implemented in stages and KRA tried as much

as possible to involve all stakeholders.

Using economic incentives - i.e. provide rewards to encourage change acceptance.

The traders were given incentives by reimbursing cost of purchasing the ETR

machines and being flexible, flexibility in organization structure and leadership style

may be required to encourage technical innovation and general initiative. KRA

however, did not make any radical changes in the management structures. The

leadership trends were also not affected.

2.3.4 Methods of Improving Taxpayers Compliance

Sarker (2003) noted that it is widely accepted that the goal of an efficient tax

administration is to foster voluntary tax compliance using all possible methods

including penalties. An obvious approach and the most commonly used in

developing countries, is to audit the financial records of retailers and impose

penalties for fraudulent behavior. According to Berhan and Jenkins (2005), if country

tax authority does not have the accounting skills necessary to implement a

37

comprehensive auditing program, there are others approaches available which

include:

Physical spot checks: This method has been used in Argentina and Ecuador and has

proved effective. As a customer leaves a store, they are asked by a tax official to

show receipts for their purchases. In Japan, the spot assessment system was

introduced by the Finance Act 1999; this system allows previously unregistered

taxpayers to file a tax return on the spot with investigating tax officials. The spot

assessment system is aimed at non-corporate persons who have not been previously

assessed, and are carrying on any business or profession in any shopping center,

commercial market or via small establishment (Sarker, 2003).

VAT Lottery: According to Berhan and Jenkins (2005), this is the most popular

method of improving compliance. In countries like Indonesia and Taiwan, taxpayers

submit their VAT receipts to be drawn at random, or random numbers may be

generated and a VAT receipt number matched. In this system, prizes are awarded in

periodic draws.

Incentives to final consumers: In their research on compliance cost in Northern

Cyprus, Berhan and Jenkins (2005) found that the country have designed its system

of VAT refunds to promote compliance by giving final consumers an incentive to

request an official receipts from sellers. Final consumers who filed for refund until

October 2000 were paid 5% of the value of taxable purchase. Subsequently the

refund has been reduced to 2.5%. Thus, the individuals are required to collect

invoices and receipts for the goods and services purchased during a four-month

period. The receipts are then organized according to the month of purchase and

submitted for refund through the employer.

38

Tax Counseling and other Taxpayers Services: Taxpayers need information and

reminders of their obligation particularly during the peak tax filing period. Sarker

(2003) found that in order to enhance tax compliance, the Japanese tax

administration is providing its taxpayers with various services as guidance,

education, consultancy etc. Public relation activities are carried out using the media

and tax education is provided to schoolchildren. Taxpayers in Japan are also able to

obtain consultation services via the telephone, facsimile and other media. Public

relations, tax education, tax consultancy and guidance are known as four pillars of

tax compliance in Japan (Sarker, 2003).

Electronic Tax Registers: Records produced by electronic registers can be used to

determine the quantities of goods sold and to simplify the auditing and accounting

process undertaken by the tax administration in its investigation work. Berhan and

Jenkins (2005) found that in Italy the use of temper proof cash register that maintain

a record of all transaction put through them proved rather effective at raising the

level of VAT compliance, particularly small businesses.

2.4 Conceptual Framework

The conceptual framework entails the relationships existing between Independent

variables; Intermediate variables; and the Dependent variables. The conceptual

framework brings clarity and focus to the research through model in answering the

research question and objective in an organized manner (Punch, 2005).

In this study, it was assumed that, the presence of independent variables such as

reasonable price of EFDs machine, provision of education to tax payers and

availability of a good number of suppliers of EFDs together with presence of

39

intermediate variable like conducive EFDs policy grace period during the

implementation stage, type of business, and simple technology enable more tax

payers to use the EFDs machine. However, it is difficult to include all the stated

variables or factors in the empirical model. This is due to time availability for

conducting this study. Therefore, three main variables have been selected for

intensive study.

Figure 1: Conceptual framework

2.5 Chapter summary

This chapter shows a review of the literature relating to the topic of the study. This

chapter include definition of the key terms, importance of Information and

Communication Technologies (ICTs), the spread of EFDs, the electronic tax devices

a case of Kenya, deciding which fiscal devices to use, empirical literature review,

theoretical frame work, methods of Improving Taxpayers Compliance the conceptual

framework and measurement of the study variables.

Independent Variables Intermediate Variables Dependent Variables

Price of EFDs.

Provision of

education to tax

payers.

Number of EFDS

Suppliers.

Local customs,

attitude and culture.

Favorable policy.

Grace period.

Type of business.

Technology.

Increase

effectiveness in

EFDs uses and

revenue

collection.

40

CHAPTER THREE

RESEARCH METHODOLOGY

3.0 Introduction

This section describes where and how the study was conducted. The study use both

qualitative and quantitative approaches in data collection and analysis. It presents the

description of the area under study, Justification for selecting study area, research

design, sample and sampling procedures, types and sources of data. Also there is

another part of data processing, analysis, and presentation and ends with validity and

reliability of the data.

3.1 Area of Study

This study was conducted in Dodoma Municipality targeting tax payers using EFDs

in revenue collection. The researcher uses data obtained from mini supermarkets,

shops hardware and hotels to represent the total population.

3.2 Research Design

Research design is the arrangement of conditions for collection and analysis in a

manner that aims at combining relevance to the research purpose with economy in

procedure (Kothari, 2004). In this study a cross sectional survey design was

employed. The cross sectional research design allows data to be collected at a single

point in one time and used in descriptive study as well as determination of

relationship between variables (Bailey, 1998). The cross sectional research design is

considered to be favorable because of time limitation and resources for data

collection.

41

The adoption of cross sectional research design is justifiable on the basis that it is the

most common design used in survey research for producing good results.

3.3 Population of the Study

Mugenda (1999) define population as an entire group of individuals, events or

objects having common observable characteristics. The VAT and none VAT

registered tax payers in Tanzania as at the time of the study are 54,040 tax payers

(TRA 2015). The target population was 297 tax payers at Dodoma who are using the

EFD machine (TRA 2015). The target population of the VAT and none VAT holders

in Dodoma were suitable due to the fact that the most of the qualified tax payers had

been registered with the EFDs machine.

3.4 Sampling Procedures

3.4.1 Sampling Frame

Under this study, population comprised of tax payers using EFDs in Dodoma

municipality and staff from TRA department‟s including tax collection unit and

marketing unit.

3.4.2 Probability Sampling Techniques

Under probability technique simple random sampling were employed to obtain the

respondents from different groups of tax payers who use EFDs in different areas of

Dodoma municipality. The researcher selected respondents through simple random

sampling technique. This technique is chosen because it saves time and provides an

equal opportunity for the tax payers participate. Also this was necessary in order to

avoid the problem of sample selection bias.

42

3.4.3 Non Probability Sampling Techniques

Under non probability sampling purposive sampling technique were adopted to

obtain respondents from TRA officials within the area under the study. Data from

respondents was collected depending on their working stations. The officers‟ views

and information were considered to be important in determining the perceptions of

tax payers on the use of electronic fiscal devices (EFDs) in revenue collection in

Tanzania. This technique was employed because TRA officers were considered to be

knowledgeable on the subject matter and accessible by the researcher.

3.4.4 Sampling Unit

The Sampling Unit for this study was taxpayers who use EFDs in revenue collection.

Moreover the experience was obtained from TRA officers.

3.4.5 Sample Size

According to Akitanda (1994) the minimum size of the sample unit for a population

ought to be not less than 30 for each sampling category. However, according to

Bailey (1998), sample of 30 respondents is the bare minimum for studies in which

statistical data analysis can be done. Sample size of this study was derived from

sample frame. Therefore the sample size in this study were obtained from the sample

frame in the study area by using the formula by Yamane (1967) as follow,

n=

Whereby; n= sample size.

N= total number population of farmers.

e= margin of error with confidence level of 10%.

43

Hence, n =

Standard error with confidence level of 10% was used in order to get a minimum

sample size due to limitation of resources such as financial resources and time factor.

Also categories of shops and min supermarkets in the study area were numerous in

number compare to other categories (hardware‟s and hotels) which guide researcher

to encompass high number of such categories during data collection.

Table 2: Generation of Sample Size

Category Sample Size

Shops and min super market 60

Hardware 10

Hotels 5

TRA Officials‟ 5

Total 80

3.5 Types and Sources of Data

3.5.1 Primary Data

These are the data that collected afresh from the field for the first time. The Primary

data was collected from traders who using EFDs and staff from TRA departments in

the study area. The questionnaires for officials was aiming at getting information

about perceptions of business person on using EFDs, process of ordering and

installation of EFDs, tax payers education and mechanisms used to ensure all

qualified business person are using EFDs in revenue collection. However, primary

data collection required patience and creation of a good rapport especially when

dealing with respondents from different socio- economic backgrounds.

44

3.5.2 Secondary Data

Secondary data include those data which have already been collected by someone

else and that already have been passed through statistical processes. Collection of

secondary data was done by the researcher through reading various published and

unpublished materials. During data collection the following were used as a source of

secondary data; paper-based sources books, journals, research reports, conference

papers, market reports, annual reports, newspapers and magazines. Electronic

sources, internet and broadcasts. Secondary data collection was based on Mikkelsen

(1995) who points out, that secondary data sources provide a wealth of information

from different studies which can be utilized to shape and mould a research study.

Information from the secondary sources not only supplemented the primary data that

was collected but also gave more insight about different aspects linked to the study

topic.

3.6 Data Collection Methods and Instruments

Burns and Grove (2001) define data collection as the precise, systematic gathering of

information relevant to specific research objectives or questions. According to Burns

and Grove (2001), data can be collected in several ways, depending on the study, and

utilizing a variety of methods. To achieve the objectives of this study a combination

of techniques and methods was applied. These included interviews, observation and

focus group discussion.The need to use a combination of methods is to ensure data

reliability and validity (Tribe and summer, 2004).

45

3.6.1 Interview

Interview methods were used to obtain information from tax payers who are using

EFDs and the key informant from TRA using the structured and unstructured

questionnaires as a tool for interview method. The questionnaires contained both

open ended and closed ended questions. The tax payer questionnaires comprised of

11 closed questions and 8 open-ended questions which summed up to 19 questions

while TRA officials questionnaire comprised of 08 closed questions and 09 open-

ended questions which summed up to 17 questions. Eight (80) respondents were

interviewed including 75 tax payers and 05 TRA officials. Closed questions were

used because comparison is made easier and takes minimum time to complete. The

researcher used open ended and close ended questionnaires to collect information

from business persons who are using EFDs in revenue collection and TRA official

who are the key important organization which were given authority by parliament to

collect tax on behalf of government.

3.6.2 Observation

This method was used by researcher to visiting the selected areas observing if traders

were using EFDs for the purpose of crosschecking information given by respondents.

A direct physical observation was employed in order to complement and to verify

some of the findings that obtained from semi structured interview. Hays (2000)

points out that, observation goes beyond the visual aspect, by touching, smelling and

hearing. Observation is important because it provide background information about

the environment where the study was carried.

46

3.6.3 Focus Group Discussion

The researcher employed focus group discussion in the study area where this method

applied to TRA officials only due to nature of the study. Group of not more than 25

people is recommended since they will be difficult to manage (Mikkelsen, 1995). In

this study a researcher decided to take a group of not more than 10 people for the

purpose of managing the discussion properly and get reliable information. This

approach was suggested because it provided room for effective interaction of all

members and therefore various issues for example the reasons for introducing EFDs

system in revenue collection were investigated through focus group discussion.

3.7 Data Processing, Analysis and Presentation

3.7.1 Data Processing

According to Kothari (1990) data processing involves editing, coding, classifications,

tabulation and summarising of the collected data so that they amendable for

analysis.Data was examined to detect errors and omission and unreliable information

was corrected and edited to ensure that the data are accurate. Field data editing was

done daily by passing through every questionnaire to write better and legible

responses, coding was followed after data editing where numerals were assigned to

items of questionnaire so that responses can be put into the computer. Data was

consistent uniformly entered in the computer program known as SPSS (Statistical

Package for Socio Sciences) and well arranged to facilitate analysis.

3.7.2 Data Analysis and Presentation

Data analysis refers to the computation of certain measures along with searching for

patterns of relationship that exist among data groups (Kothari, 2004). Data collection

in research is incomplete without analysis, interpretation and presentation of

47

findings. Data obtained from the field was coded and summarized ready for analysis.

After data coding, editing and entry, analysis were followed using the SPSS where

descriptive statistics such as frequencies and percentages for studied variables such

as benefits, cost of buying EFDs, its usage and difficult of using EFDs was

computed. In addition the use of opinion from the interviews was applied by making

quotes from respondents.The research results from field was presented by using the

following forms: using charts, tables, photographs or combination of these, depend

on the research findings.

3.8 Reliability and Validity

According to Patton (2001) suggests that, reliability and validity are the two most

important quality control objects in research design. Therefore, it is important the

researcher results are reliable and valid. According to Tabachnick (2007) argued that;

validity refers to the degree to which study accurately reflect or assesses the specific

concept the researcher is attempting to measure. While reliability is concerned with

accuracy of the actual measuring instrument or procedures, also validity is concerned

with the study‟s success at measuring what the researcher set out to measure.

In order to ensure reliability and validity, questionnaires developed for EFDs users

assessment used simple and clear language in which both the respondents and

research assistant was able to understand. Also, the researcher was use more than one

method to validate the information collected like questionnaires survey, documentary

review and interviews in order to come up with valid conclusion. Moreover, the

researcher was use appropriate sampling techniques including random sampling and

purposive for selection of appropriate sample size. Therefore to ensure the validity

and reliability the researcher were undertake a pilot study in the study area followed

48

by pre testing of pre designed questionnaire to traders using EFDs in the study area

to ensure if they are answerable and if they will collect the intended data. This was

done before conducting the research to see if the questionnaires were accurate in

answering the research objectives. Also cross checking with different tools was done

to ensure information collected was valid and reliable. Building of confidence to

respondents were done whereby all interviews was conducted by using local

language Kiswahili and the purpose of interview was explained to respondents and

use of local personnel in data collection process. All this was conducted to ensure

validity and reliability of the data to be collected.

3.9 Ethical Considerations

The respondents were assured the maintenance of confidentiality of the data provided

by individuals and secrecy during data collection, analysis and reporting.

Nevertheless, during filling in the questionnaires they were not be forced to give out

their names, and the researcher was explain clearly the purpose of the study that is

pure for academic purposes only.

3.10 Chapter Summary

This chapter presented a justified account on the methodology and different data

techniques used to access primary and secondary data. In obtaining primary data two

methods were employed namely interview observation and focus group discussion

while in secondary data method employed was documentary review. Shown also

were the sampling techniques used for the different respondents in this study, data

processing, analysis and presentation was also presented in this chapter. Finally it

ends by discussing the validity, reliability and ethical consideration of the data

collected from the field of study.

49

CHAPTER FOUR

RESULTS AND DISCUSSION OF FINDINGS

4.0 Introduction

This chapter presents a detailed result and discussion of the research findings in an

attempt to achieve the research objectives. The discussion relies on the specific

objectives as they appear in chapter one of this document. The discussion is centered

on the perceptions of tax payers on the use of electronic fiscal devices (EFDs) in

revenue collection. Data analysis was done through Statistical Package for Social

Scientists (SPSS). Frequencies and percentages were used to display the results

which were presented in tables, charts and graphs. The variables are preceded by

demographic characteristics of respondents.

4.1 Demographic Characteristics of Respondents

This sub-topic presents the general characteristics of respondents studied in this

study. These include sex, age, marital status, education level and occupation of

respondents in the study area.

4.1.1 Sex of the Respondents

The study sought to find out the sex of the respondents. It captured the sex of the

respondents. The results in Table 3 show that men had a greater representation

(74.7%) than women (25.0%). This means that most of the business persons in which

respondents were drawn are men as opposed to women. Sacks (1991) developed a

theory, which advocates that males tend to display positive attitudes towards the use

of these devices, regardless of the level of familiarity, while females‟ attitudes

50

become more positive as the levels of familiarity increases. Brief (1998) argues that

females tend to be resistant to the use of fiscal electronic devices while males accept

to the change in the motor industry. Also this complies with the results obtained by

Libua (2014) on his study „„Influencing Tax Compliance in Small and Medium

Enterprises (SMEs) through the Use of ICTs‟‟ revealed the majority of respondent

were male compare to female.

Table 3: Gender of the Respondents

Gender Response %

Male 56 74.7

Female 19 25.3

Total 75 100.0

Source: Field Data, 2015

4.1.2 Education Level of Respondents

The study sought to find out the education levels of the respondents. Table 4

summarizes information on the distribution of sampled business persons by their

level of education. The results show that majority (92.0%) of the responses had

attended secondary and post-secondary education (Secondary, Post-secondary

schools and University) with only a few (8.0%), attending primary education. These

results reveal quite a high proportion rate of literacy in the study area. This complies

with the results obtained by Makame (2010) on his study „„tax reform, complexities

and divergence‟ an experience from Zanzibar‟‟ the results show that majority

(88.8%) of the business persons had attended formal education (primary, secondary

and post-secondary schools) with only a few (9.3%), attending adult education and

very few (1.3%) have informal education.

51

Table 4: Education level of respondents

Category Response %

Primary Education 6 8.0

Secondary Education 38 50.7

Post-secondary Education 31 41.3

University 25 33.3

Total 75 100.0

Source: Field Data, 2015

4.1.3 Marital Status of the Respondents

The results show that marital status of respondents from business persons is shown in

Table 5. Most (60%) of the respondents were married with, (32%) were single and

few (8%) of them were widow. The higher proportion of marriage status is a

common phenomenon in most of areas in Tanzania. Married couples are more

trustful /responsible than single and widow who lack responsibilities and collateral

which can help them to access credit from financial institution for the improvement

of their business.

Table 5: Marital Status of Respondents

Marital status Frequency Response (%)

Single 24 32

Married 45 60

Widow 6 8

Total 75 100.0

Source: Field Data, 2015

4.1.4 Occupation with Age of Respondents

Findings from the field as presented in Table 6 shows the occupation of respondents

against age. Respondents were categorized into two groups‟ owner and employee.

52

According to Basnayake and Gunaratne (2002), the age of a person is usually a factor

that can explain the level of production and efficiency. A very old individual is likely

to be less productive than one in the active age as showing in the table 6 below that

in the occupation of owners between age 55 and above there were no respondents

while in the occupation of employees they were very few only (5%). Most of owners

(45%) have the age between 35 to 45 years followed by category of 25 to 35 years

(30%) and few (25%) have the age between 45 to 55 years. Also majority of

employees have the age between 25 to 35years (40%), 35 to 45 years (28.6%), 45 to

55 years (28.6%) and 55 and above years (5.7%) respectively. Therefore the result

agrees with the statement that a very old individual is likely to be less productive

than one in the active age as the results showing that occupation between age of 55

and above there is a very few respondents.

Table 6: Occupation with Age of Respondents

Occupation Age Total

25-35 35-45 45-55 55 and above

Owner 12 18 10 0 40

30.0% 45.0% 25.0% .0% 100.0%

Employee 14 10 9 2 35

40% 28.6% 25.7% 5.7% 100.0%

Total 26 28 19 2 75

34.7% 37.3% 25.3% 2.7% 100.0%

Source: Field Data, 2015

4.2 Benefits of Using EFDs in Revenue Collection

4.2.1 Advantage of Using EFDs Machine in Revenue Collection

The respondents were asked to indicate whether there was any advantage of using

EFD machine in tax collection.

53

Majority (65.3%) of the respondents indicated that there were advantages of using

EFDs machine in tax collection while (34.7%) indicated that there were no

advantages of using EFDs machine in tax collection. This complies with the results

obtained by Naibei, et al., (2011) in their research work “Impact of Electronic Tax

Registers on VAT Compliance” had the purpose of assessing the impact of use of

Electronic Tax Registers (ETRs) on Value Added Tax (VAT) compliance among

private business firms in Kisumu City, Kenya. Also this complies with another study

conducted in Ethiopia by Yalemtesfa (2011) on his study „„the impact of Electronic

Tax Register on Value Added Tax‟‟ on the case of Addis Ababa City.

The respondents were asked to indicate whether they have enjoyed any benefits in

the facility of collecting VAT and handling their own work through the adoption of

ETR machine, and 72% of the respondents indicated that the use of ETR machines

has led to sound reappraisal of their business work and collection of VAT , as 22%

indicated it has not improved help their work and collection of VAT rather it put on

them additional burden on them like they are threatened to not committing a mistake

while using ETR because once they make a mistake it has a long step to make it

correct and it take time. This is an indication that in fact the use of ETRs has

improved collection of VAT and the business work in addition to controlling the

business activities with regard to cash sales. Based on the research findings the study

concludes that use of ETR has a significant impact on VAT compliance in Kenya.

Table 8 summarizes information on advantages of using EFDs machine on revenue

collection.

54

Table 7: Advantage of Using EFDs Machine

Category Response %

There is advantage 49 65.3

There is no advantage 26 34.7

Total 75 100.0

Source: Field Data, 2015

4.2.2 Benefits Experienced by Tax Payers in Using EFDs Machine in

Revenue Collection

Respondents were asked to provide benefits experienced in using EFDs. Table 8

summarizes the responses to this question. Majority of the respondents (77.4%)

mentioned the following benefits experienced in using EFD machine in revenue

collection, EFD machine secure tax information for auditing purpose, EFD machine

has reduced the time it takes to prepare sales report and EFD machine ensure tax rate

to be paid by the tax payers. On other hand (5.3%) respondents report other benefits

such as EFD machine determine actual sales and EFD machine facilitate easy to print

receipt to the customer at time. The remaining (17.3%) respondents report that there

are no benefits of using EFD machine at all. The result complies with the study

conduct in Kenya by Lumumba et al., (2010) on his study “the effectiveness of

electronic tax registers in processing of value added tax returns” in Kisii town.

The respondents were asked to give their opinion on how the introduction of ETR

has assisted their businesses, while citing reasons. From the research data, 66% of

the respondents qualified the use of ETRs in business to have accrued many benefits

to their businesses, as opposed to 34% who indicated they have not enjoyed any

benefits by the use of ETRs.

55

Of the 66% who indicated that they have harvested the benefits of ETRs, they cited

the following reasons, ETR machine increased efficiency in sales audit, increase in

sales collection, increased efficiency in stocktaking, easy VAT processing leading to

less risk of prosecution, ETRs have led to timely preparation of reports, and ETRs

have led to increase in returns, fast and efficient. Of the 34% who indicated that they

have not benefited from the use of ETRs, cited the following reasons, ETRs do not

suit their kind of business, the ETRs give inaccurate records and results for

businesses that field sales, and the ETRs machine is not applicable to service

providers. Some businesses had already had point of sale software that did all

calculations. However, TRA official who interviewed in this study revealed that EFD

machine has the following advantages to TRA, majority of officials reported

improved compliance in filing rates, easy to determine actual sales, easy to assess

tax, easy to monitor tax payers through EFD management system and increase in tax

revenue. Therefore this study concludes that on the benefits, the benefits hold a

strong case against the consequences.

Table 8: Benefits Experienced by Tax Payers in Using EFDs Machine in

Revenue Collection

Category Response %

Machine has reduced the time it takes to prepare sales report 20 26.7

Secure tax information for auditing purpose. 26 34.7

Ensure tax rate to be paid by the tax payers. 12 16.0

No advantage 13 17.3

Others 4 5.3

Total 75 100

Source: Field Data, 2015

56

4.2.3 EFD Machine Ensures Timely Sales Filing and Reporting to TRA

The findings in Table 9 were rated on scale of 1-5, strongly disagree was ranked

number 1, disagree was ranked number 2, strongly agree was ranked number 3,

neither agree nor disagree was ranked number 4, and agree was ranked number 5.

The above ranking from one to five shows the result attached to each category, the

result shows that most of respondents were strongly agree (45.3%) and agree

(34.7%) that the machine ensures timely sales filing and reporting to TRA while the

remaining strongly disagree (10.7%), disagree 6.7% and 2.7% Neither Agree nor

disagree. This complies with another study conducted in Ethiopia by Yalemtesfa

(2011) on his study „„the impact of Electronic Tax Register on Value Added Tax‟‟ on

the case of Addis Ababa City.

The respondents were asked to indicate whether they have enjoyed any benefits in

the faculty of sales audit through the adoption of ETR machine, how frequent they do

their sales audit post adoption of the ETR machine, and 68% of the respondents part

indicated that the use of ETR machines has led to improved sales audit for their

business, as 32% indicated it has not improved. This is a sign that certainly the use of

ETRs can improve sales audit on top of timely filling of monthly VAT returns. Also

from the results, out of the 68% who enjoy the benefits of ETRs in sales audit, 52%

of the businesses are able to conduct their sales audit daily. Therefore study

concludes that the EFD machine ensure timely filling of sales and report to TRA.

57

Table 9: EFD Machine Ensures Timely Sales Filing and Reporting To TRA

Category Response % Rank

Strongly Agree 34 45.3 3

Disagree 5 6.7 2

Neither Agree nor disagree 2 2.7 4

Disagree Strongly 8 10.7 1

Agree 26 34.7 5

Total 75 100.0

Source: Field Data, 2015

4.2.4 Printing of Daily Reports

The respondents were required to indicate whether they followed requirements

indicated in their business establishments. In this case, the research findings has

revealed that, majority of EFDs user (89.3% ) were able to print their daily reports by

using EFD machine while the remaining (10.7% )were not able to print their daily

reports by using EFD machine in tax collection. This result shows that EFD machine

if used effectively by tax payers in revenue collection it will help to reduce time of

printing daily report and send them direct to TRA. The results are as indicated in the

Table 10.

Table 10: Printing Of Daily Reports

Category Response %

Printing 67 89.3

Not printing 8 10.7

Total 75 100.0

Source: Field Data, 2015

58

4.2.5 Printing of Monthly Reports

Generally respondents seem to have a positive attitude towards the use of electronic

fiscal devices in revenue collection. Majority of respondents in study area (81.3%)

stated that they were able to print mouthy reports by using EFD machine and send

the report to TRA while the remaining (18.7%) where not able to print the report by

using EFD machine and send the reports to TRA. The results from this study is not

different from the study conducted by Chege (2010) on “the impact of using

electronic tax register on value added tax compliance in Kenya‟‟ a case study of

classified hotels in Nairobi. The respondents indicated that all the regulations

regarding ETR usage were followed by the hotel establishments. The respondents

ranked printing of monthly reports and regular maintenance of the ETR first with

means of 1.10 each and printing of daily reports together with printing of yearly

reports each with a mean of 1.15.Therefore the study conclude that if the EFDs

machine when used effective will help to reduce time it to printing daily report and

send them direct to TRA.

Table 11: Printing of Monthly Reports

Category Response %

Printing 61 81.3

Not printing 14 18.7

Total 75 100.0

Source: Field Data, 2015

4.3.5 Printing of Yearly Reports

Also in this area the research findings has revealed that, majority of EFDs user

(76.0% ) were able to print their yearly reports by using EFD machine while the

remaining (24.0% ) were not able to print their yearly reports by using EFD machine

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in tax collection. The results are as indicated in the Table 12. The results from this

study complies with the study conducted by Chege (2010) on “the impact of using

electronic tax register on value added tax compliance in Kenya‟‟ a case study of

classified hotels in Nairobi. The respondents indicated that all the regulations

regarding ETR usage were followed by the hotel establishments. The respondents

ranked printing of monthly reports and regular maintenance of the ETR first with

means of 1.10 each and printing of daily reports together with printing of yearly

reports each with a mean of 1.15.

Table 12: Printing Of Yearly Reports

Category Response %

Printing 57 76.0

Not printing 18 24.0

Total 75 100.0

Source: Field Data, 2015

4.2.6 Regular Maintenance of the EFD

The respondents were asked if they keeping up regular maintenance of EFD

machine. The study found out that the majority of the respondents were keeping up

regular maintenance of EFD machine (62.7%) of the respondents they were keeping

up regular maintenance of EFD machine, the rest of respondents (37.3%) were not

keeping up regular maintenance of EFD machine. The results are as indicated in the

Table 13. Therefore there is implication that majority of the tax payers were keeping

up maintained EFD machine when it comes to breakdown.

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Table 13: Regular maintenance of the EFD

Category Response %

Yes 47 62.7

No 28 37.3

Total 75 100.0

Source: Field Data, 2015

4.2.7 FD Machine has reduced the Time it takes to Prepare Sales Report

The results in Table 14 , Strongly Agree was ranked number 1, Agree was ranked

number 2, Strongly Disagree was ranked number 3, Neither Agree nor disagree was

ranked number 4, and disagree was ranked number 5. The below ranking from one

to five shows the result attached to each category, the result shows that majority of

respondents were Strongly Agree (37.3%) and agree (29.3%) that the machine has

reduced the time it takes to prepare sales report by the tax payers while the

remaining Disagree Strongly (22.7%), Neither Agree nor disagree (6.7%) and (4.0%)

disagree.

Lumumba et al., (2010) the preparation of VAT returns at the end of the month may

take different time ranges. The respondents were asked to indicate the time they take

to prepare their VAT returns at the end of the month, and 42% of the businesses take

less than 2 days to prepare their VAT returns at the end of the month, 33% indicated

more than three days, as 23% indicated less than three days. This is an indication that

the businesses prepare and file their VAT returns in good time to beat the KRA

deadlines. Therefore this study concludes that the EFD machine has reduce the time

it takes to prepare sales report when used in revenue collection.

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Table 14: EFD Machine Has Reduced the Time it takes to Prepare Sales Report

Category Response % Rank

Strongly Agree 28 37.3 1

Agree 22 29.3 2

Neither Agree nor disagree 5 6.7 4

Strongly Disagree 17 22.7 3

Disagree 3 4.0 5

Total 75 100.0

Source: Field Data, 2015

4.3 Perceptions of Tax Payers on Using EFDs in Revenue Collection

4.3.1 Electronic Fiscal Machine Users

The sampling frame of this study were the population comprised of tax payers using

EFD machine in the study area in order to capture the information regarding to tax

payers using EFD machine in revenue collection. The study selects the sample of 75

respondents all were the user of EFD machine in their businesses.

4.3.2 Type of Electronic Fiscal Devise Used By Business Persons

The study sought to find out the types of Electronic Fiscal Devise used by business

persons. Table 7 summarizes results on the types of Electronic Fiscal Devise used by

business persons in the study area. The results show that majority (88.0%) of the

responses they were using Electronic Tax Register (ETR) with only a few (12.0%),

were using Electronic Fiscal Printer (EFP) while no business man were using

Electronic Signature Device (ESD) in revenue collection. ETR is used where

invoicing is done manually. On the other hand the ESD is used where invoicing is

computerized. According to Bulletin (2005), the choice depends on the business

operations and the financial accounting process that are employed.

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As general guide: Electronic Tax Register (ETR) is a cash register that prints using

its own printer and keeps a record of all transactions in a fiscal memory. It is

applicable to organizations that use manual invoicing or those using a cash register.

The study concludes that majority of tax payers they were using ETR because most

of the tax payer in the study area were using manual invoice compare to other types

Electronic Fiscal Devises.

Table 15: Type of Electronic Fiscal Devise

Type of Electronic Fiscal Response %

Electronic Tax Register (ETR) 66 88.0

Electronic Fiscal Printer (EFP) 9 12.0

Total 75 100.0

Source: Field Data, 2015

4.3.3 Registered as a Tax Payers

The study selects the sample of 75 respondents all were registered as tax payers

therefore 100% were registered. In the Finance Bill 2004, the minister for finance

through an amendment in the value added tax Act required that all registered

taxpayers use electronic tax registers in accounting for their sales with effect from 1st

January 2005. According to Price water House Coopers (2005), the ETR program is

one of the tax administration reform measures that KRA has undertaken. It was

introduced to ensure that registered taxpayer in the country properly records sales.

This initiative was initially focused on improving compliance with VAT

requirements; it was believed to have the capacity to transform revenue collection in

this field, as it is the case with other countries (Price water House Coopers, 2005).

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4.3.4 Importance‟s of Paying Tax

In this part the respondents were asked to indicate their level of understanding on the

importance‟s of paying tax as a source of government revenue. Majority of

respondents respond positively (84%) of respondents revealed out that there is

importance of paying tax compare to few respondents (16%) they said there is no

importance of paying tax. Therefore the study conclude that majority of respondents

perceive positively that there is importance of paying tax as a source of government

revenue. This is related to study conducted by Oberholzer (2007) examines the

perceptions of taxation amongst different groups of South African taxpayers. The

study aims to determine the various economic, geographic, demographic or other

factors that might influence a taxpayer‟s attitude with regard to general tax-related

issues (Oberholzer 2007).

It focused on individual taxpayers. Corporate taxpayers were not included. Almost

60 per cent of the respondents disagreed with the statement „„I do not know why I

have to pay tax‟‟, which, according to the author, indicates that most of the surveyed

people understood the need to contribute to the development of South African

society via taxes. While a small minority held the view that it is „unfair‟ to pay tax,

nearly 75 per cent of the respondents disagreed with this statement. Perceptions,

however, were quite mixed when it came to receiving value for money from

government, with only 25 per cent believing that the benefits received justified the

amount of tax paid. Nearly 40 per cent of the respondents believed that the services

received from government did not represent value for money. Almost 60 per cent of

the respondents felt that a substantial portion of all taxes collected were used for

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meaningless purposes. Furthermore, the vast majority (almost 88 per cent) believed

that waste and corruption in government was high.

These findings may indicate that the fiscal exchange argument behind taxpayer‟s

compliance has limited explanatory power in this case. However, it is possible that

the fiscal exchange argument may still hold given that the majority of people

responded that they find the principle of paying taxes fair and just, but that the return

on their taxes is lacking due to poor public service delivery. This may reflect fiscal

exchange expectations among the populace: people are willing to pay taxes, but

perceive they get little in return, partly due to wastage and corruption.

Figure 2: Importance‟s of Paying Tax

4.3.5 Acquisition of the EFD Machine

The respondents were asked to give their opinion on what influenced the acquisition

of the EFD machine in their business. The respondents indicated that acquisition of

the EFD machine was through fear of being caught as indicated by majority (62.7%)

of the respondents.

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Acquisition of the EFD machine through benefits arising were29.3% of the

respondents with rest, (8%) of the respondents indicating that the EFD machine was

acquired through own willingness as shown in Table 16.This is difference from the

study conducted by Chege (2010) on “the impact of using electronic tax register on

value added tax compliance in Kenya‟‟ a case study of classified hotels in Nairobi.

The respondents were asked to give their opinion on what influenced the acquisition

of the ETR machine in their hotels. The respondents indicated that acquisition of the

ETR machine was through benefits arising from ETR‟s as indicated by majority

(55.0%) of the respondents.

Acquisition of the ETR machine through own willingness was cited by 30% of the

respondents with rest, 15.0% of the respondents indicating that the ETR machine was

acquired through fear of being caught. According to the deterrence theorists, the

perceived probability of getting caught is a factor for complying with the law. The

basic point advanced by theorist of this model is that, taxpayer‟s compliant behavior

is influenced by factors such as the tax rate, the probability of being detected and

penalties imposed by the state (Backer, 1968). Therefore the study concludes that

majority of tax payers they acquire EFDs because they fear to be caught compare to

benefits and willingness.

Table 16: Acquisition of the EFD Machine

Category Response %

Benefits arising from ETR‟s 22 29.3

Own willingness 06 08

Fear of been caught 47 62.7

Total 75 100

Source: Field Data, 2015

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4.3.6 Business Inspected By the Tax Authorities

The respondents were asked whether their business establishment had ever been

inspected by the tax authorities. Majority of the respondents (93.3%) indicated that

their business had been inspected by the tax authorities and (6.7%) indicated that

their business had not been inspected by the tax authorities as indicated in Table 17.

This may be due to resistance towards the tax system which makes the taxpayer

adopt a stand against the tax office thus forcing the tax authorities to inspect them. It

may also be as a result of ensuring compliance with the laid down regulations that

makes the tax authority inspect the establishments.

Table 17: Business Inspected By the Tax Authorities

Category Response %

Yes 70 93.3

No 5 6.7

Total 75 100.0

Source: Field Data, 2015

4.3.7 Awareness of Obligations and Rights under the EFDs Governing Laws

The respondents were asked whether they were aware of all obligations and rights

under the EFDs governing laws. The result show that majority of respondents (73.33)

they were not aware of obligations and rights under the EFDs governing laws while

the remaining (26.67) they were aware with obligations and rights under the EFDs

governing laws in the study area. Therefore this study conclude that majority of tax

payers were not aware with obligations and rights under the EFDs governing laws

which result to inefficiencies in EFDs uses in revenue collection.

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Figure3: Awareness of Obligations and Rights under the EFDs Governing Laws

Source: Field Data, 2015

4.3.8 Happiness with the Tax System or Tax Office

Respondents were required to rate the statement that the taxpayers are not happy with

the tax system or tax office but tax is part of life and needs to be paid. Majority of the

respondents (50.70%) stated that they strongly disagreed with the statement that the

taxpayer is not happy with the tax system or tax office but tax is part of life and

needs to be paid. The remaining (25.30%) indicated that they agreed with the

statement that the taxpayer is not happy with the tax system or tax office but tax is

part of life and needs to be paid while others (17.30%) they were neither agree nor

disagree and the remaining (6.70%) they were strongly agree as indicated in Table

18. This can be attributed to capitulation which means that, a taxpayer may not be

happy with the tax system or tax office, but they acknowledge that it is a part of life

and that taxes need to be paid. They also believe that they should cooperate with the

tax office; even if they feel the tax office is treating them poorly.

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Table 18: Happiness with the Tax System or Tax Office

Category Response %

Strongly Disagree 38 50.7

Neither agree nor disagree 13 17.3

Agree 19 25.3

Strongly agree 5 6.7

Total 75 100.0

Source: Field Data, 2015

4.4 Challenges towards the Use of the EFDs in Revenue Collection

4.4.1 Challenges in Using an EFD System in Business

The respondents were asked to give their opinion on challenges facing them on using

EFD machine in their business. The respondents revealed that majority (57.3%) were

facing challenges on using EFD machine while the remaining (42.7%) were not

facing the problem on the using of EFD machine in revenue collection. The results

are as indicated in the Table 19.This complies with the results obtained by Casey and

Castro (2014) on their study Electronic Fiscal Devices (EFDs) „„An Empirical Study

of their Impact on Taxpayer Compliance and Administrative Efficiency‟‟ in analysis

of the Ethiopia and Kenya Cases, the study revealed some challenges in the adopted

EFDs technology particularly the universal requirement of English as the main

language in the devices. Also in the case of Kenya, there was a scarcity of devices in

the initial stages of implementation, and those that were available were expensive.

Table 19: Challenges in Using an EFD System in Business

Category Response %

Facing challenges 53 67.3

Not facing challenges 32 32.7

Total 75 100.0

Source: Field Data, 2015

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4.4.2 Official Instructions on the Use of EFD System in Business

The respondents were asked to indicate whether they receive any official instructions

on how to use an EFD system in revenue collection. Majority (78.7%) of the

respondents indicated that they were not receive official instruction on how to use an

EFD machine on tax collection while the remaining (21.3%) respondents they were

receiving official instructions on how to use EFD machine in their business. Majority

of respondents revealed that during the implementation stage they were not receive

instruction from TRA officials on how to use these devices according to them they

need more education on how to use and the importance of using the machine on their

business. The results are as indicated in the Table 20.

Table 20: Official Instructions on the Use of EFD System in Business

Category Response %

Yes 59 78.7

No 16 21.3

Total 75 100.0

Source: Field Data, 2015

4.3.3 Price of Purchasing EFDs Machine

The participants voiced their concerns that the price of purchasing EFD machine was

not reasonable as the majority of respondents blame that the price of EFDs is high

(62.67%) compare to the remaining respondent (37.33%) who revealed that the price

of EFD machine was reasonable. Those who revealed that the price was not

reasonable they said that this machinery have high cost of buying which cost them

especially those with low capital they suggest that the government through TRA may

either provide EFDs to them free in order to influence more people to use EFDs in

their business or by reducing the price of machine.

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This complies with the study conducted by Lumumba et al., (2010) on his study “the

effectiveness of electronic tax registers in processing of value added tax returns”

Perspectives from Registered VAT Taxpayers in Kisii Town, in Kenya which show

the price of ETRs was expensive. The respondents were asked to give some

recommendation to the Kenya Revenue Authority (KRA) regarding electronic tax

registers by the registered VAT taxpayers: From the research findings, the

respondents made the following recommendation: ETRs are expensive, cost to be

paid in installments; ETRs should be compatible with computers in business

premises; ETRs should be free since thy benefit the government in revenue

collection and not the businesses; KRA should introduce ETRs that can handle field

sales should be provided; KRA should introduce cheaper ETRs; KRA should

introduce ETRs that have less rates or breakdowns; KRA should educate business

people and customers on ETRs; KRA to introduce different system for different

businesses; and KRA should introduce reimburse servicing expenses or terminate use

of ETRs.

Figure 4: Price of Purchasing EFDs Machine

Source: Field Data, 2015

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4.4.4 EFD Machine Ensures Accurate Tax Rate to Be Paid By the Tax Payers

According to the Table 21 Disagree Strongly was ranked number 1, Strongly Agree

was ranked number 2, Agree was ranked number 3, Neither Agree nor disagree was

ranked number 4, and disagree was ranked number 5. The above ranking from one to

five shows the result attached to each category, the result shows that majority of

respondents were strongly disagree (42.7%) and (20.0%) disagree that the machine

ensures accurate tax rate to be paid by the tax payers to TRA while the remaining

agree (16.0%), Neither Agree nor disagree (12.0%) and strong agree were only

(9.3%).This result differ from the study conducted by Limumba et al., (2010). The

respondents were asked to indicate whether the use of ETRs have improved revenue

collection for their businesses, and from the results, (70%) of the respondents

indicated that the use of ETRs has increased the amount of money the businesses

receive from its activities in a given period, mostly from sales of products or services

to customers. This means the ETRs insure the accurate tax rate to be paid which

result to increase revenue collection on their business.

Table 21: EFD Machine Ensures Accurate Tax Rate to Be Paid By the Tax

Payers

Source: Field Data, 2015

Category Response % Rank

Strongly Agree 7 9.3 2

Agree 12 16.0 3

Neither Agree nor disagree 9 12.0 4

Disagree Strongly 32 42.7 1

Disagree 15 20.0 2

Total 75 100.0

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4.4.5 Suggestions Made to the Tanzania Revenue Authority (TRA)

Regarding EFDs

The respondents were asked to give some suggestions to the Tanzania Revenue

Authority (TRA) regarding electronic fiscal devices on revenue collection by

taxpayers.

From the research findings, the respondents made the following suggestions, the

fiscal tax invoice is not durable as they are not readable after a short period of time,

also the receipts do not show the description of items purchased they create

problems between tax payers, customers and TRA. Majority of respondents give

their opinions whereby they suggest that government through TRA should rethink

and come up with more durable materials with regard to fiscal invoices and z report.

It is unfortunately noted that that TRA take all these short falls as offences to the

taxpayers and imposing penalties.

The findings revealed that there was low number of agents to supply the electronic

fiscal devices machinery compare to the high number of tax payer‟s available in the

country. Through this situation the few agents available were fail to provide

services to the EFDs users like education and training programs on the uses of

machines, for example once there is the problem occur in the process of providing

receipt on the EFDs and its needs some skills to overcome it, it challenge the tax

payer to solve such problem. Tax payers suggests that TRA should make sure that

there is enough number of agents supplying EFD machine in order to reduce the

problem created with low number of agents in the study area.

The findings also revealed that tax payers were facing networking problem, since

these devices uses network to transfer information to the TRA from the taxpayers

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therefore it lead problem to tax payers fail to produce z report and print the receipt to

customers at a right time this situation discourage the taxpayer and customers to use

EFDs in revenue collection. Tax payers suggested that TRA should introduce EFDs

that have no or less network breakdown in order to increase efficiency in revenue

collection by electronics fiscal devices rather than using manual methods.

The findings also revealed that the cost of buying the machine was high, according to

the price of EFDs by the time of this study is around Tshs 800, 000 to Tshs 600,000

which is expansive according to them, majority of respondent said that machinery is

very expensive which affect our capital and other are not even affording to buy the

machine although they compensate the tax payers through deduction in tax. They

suggest that the government through TRA should reduce the price of EFDs in order

to encourage more tax payers to afford to buy the machine or if possible to be given

to tax payers free of charge as a motivation of using those devices in revenue

collection.

Also this study revealed that if a mistake occurs at the time inflowing data by using

EFDs, to get correction at the TRA takes very long and confused process that needs

lots of ups and down. The process has to be shortened to alleviate such complaints.

Tax payers suggested that TRA should introduce EFDs that has a ability to correct

the data entered by tax payers direct without consulting TRA in order to increase

efficiency and reduce the time it take to make correction when mistakes occurs.

The findings also revealed that tax payer not having enough education, on how to use

and the importance of using EFDs. At the same time EFD language, in fact tax

language is in English. Not all traders are conversant with English, it should be

translated into Kiswahili for better understanding," they said.

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For example, some traders don't know how to deal with typing error problems, as

once you print a receipt; the information cannot be erased from the device. Many

traders don't know what to do as they don't use professional accountants. So the

government should address this problem by provide the education on instructions and

regulations which can help the tax payers especially the businessman and to insist all

people to get education on how to use that electronic devices.

4.5 Chapter Summary

This chapter presented a detailed discussion of the research findings while answering

the research objectives. Data analysis is carried out based on the objectives of the

study. Descriptive statistics such as means, and frequency distribution were used to

analyze the data. Data presentation was done by percentages and frequency tables.

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CHAPTER FIVE

CONCLUSION AND RECOMENDATIONS

5.0 Introduction

This chapter presents conclusion, recommendation and area for further research

revealed from findings obtained in this study. The study was designed to determine

perceptions of tax payers on the use of electronic fiscal devices (EFDs) in revenue

collection in the study area. The specific objective was to determine the benefits of

using EFDs in revenue collection in the study area and to identify challenges towards

the use of the EFDs in revenue collection.

5.1 Conclusion

Based on the results form data analysis and findings of the research, one can

conclude that respondents witnessed benefits of using EFD machine in revenue

collection in many aspects such as machine has reduced the time it takes to prepare

sales report, machine secure tax information for auditing purpose and transaction,

EFD machine ensures timely sales filing and reporting to TRA, EFDs printing

weekly, monthly and yearly reports, also majority of TRA officials witnessed

benefits of using EFD machine in revenue collection such as improved compliance in

filing rates, EFDs helped to decreases tax evasions, easy to determine actual sales,

easy to assess tax, easy to monitor tax payers through EFD management system and

increase in tax revenue.

They however indicated that they were not happy with the tax system or tax office

but tax is part of life and needs to be paid.

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This can be compared to capitulation that a taxpayer may not happy with the tax

system or tax office, but they acknowledge that it is a part of life and that taxes need

to be paid. They also believe that they should cooperate with the tax office; even if

they feel the tax office is treating them poorly.

Majority of the respondents indicated that they acquired the EFD machine due to due

to fear of being caught ,though some indicated that they acquire EFD machine due to

benefits arising while the remain they acquire EFDs on own willingness. According

to the deterrence theorists, the perceived probability of getting caught is a factor for

complying with the law.

But like most developing countries, EFDs system faced numbers of challenges such

as networking problem, tax payer not having enough education, on how to use and

the importance of using EFDs, the cost of buying the EFDs is very high, the fiscal

tax invoice is not durable as they are not readable after a short period of time, also

the receipts do not show the description of items purchased they create problems

between tax payers customers and the (TRA), and low number of agents to supply

the electronic fiscal devices machinery compare to the high number of tax payer‟s

available in the country.

5.2 Recommendations

EFDs practice in revenue collection is a new technology in our country it requires

considerable effort and involves costs both to the tax payers and administration in

identifying the technology, selecting the devices, overseeing their deployment, and

monitoring their use and to the affected taxpayers in addressing the requirements of

the new rules.

77

Moreover, EFDs appear to suffer from similar challenges as other governments if

there are no effective follow up and enforcement measures by the tax administration.

Absent effective compliance monitoring and enforcement, overall VAT compliance

cannot be improved, with or without EFDs. Proper consideration of the following

essential issues found in the study area must be taken into account for a successful

implementation and improvement in using EFD machine in revenue collection.

Explaining and discussing changes by involving all stakeholders such as tax

payers, employees and suppliers before it is implemented. Tax payers should

be involved from the initial stages in order to get their views before

implementation stage and employees should also, where possible, be involved

in the planning and implementing the changes. (This participative change

approach argues that allowing people to play a part in the process reduces

psychological uncertainty and insecurity).

The TRA needs to embark on sensitization, education and training programs

in order to address the challenges still affecting the EFDs system. More stake-

holders need to be sensitized to reduce the resistance and also to increase the

coverage on the use of the system.

The government through TRA should make sure that all tax payer identified

by the law to use EFD machine they acquire and use those machine

effectively in order to ensure equality to tax payers and increase government

revenue.

TRA should use incentives by provide rewards to encourage change

acceptance. The traders should be given incentives by reimbursing cost of

purchasing the EFDs machines and being flexibility in organization structure

and leadership style may be required to encourage technical innovation and

78

general initiative. Advance planning and management of change changing

structure, behavior and technology requires total systems orientation (i.e. the

whole organization and its systems would be required to make adjustments as

change in one area inevitably affects many other areas).

The legislation introducing the EFDs needs to be complemented with

detailed regulations to ensure that the use of these devices conforms to the

needs of the tax payers and tax administration. These regulations can be

complex; their preparation, regular updating, and enforcement can involve

significant resources. Tax administrations must also develop enforcement

strategies to ensure compliance. All of these measures can be costly and

require considerable resources that often could be used elsewhere with better

results.

5.3 Areas for Further Research

This study was concentrated on perceptions of tax payers on the use of electronic

fiscal devices (EFDs) in revenue collection in Dodoma municipality. The researcher

suggests further research could be undertaken in evaluating the impact of Electronic

Fiscal devices on VAT Compliance. Also a study on the level of EFDs adoption and

compliance among rural and urban areas could also be undertaken to establish if

there is a difference in compliance between the two locations. Critically further

research should be done to determine EFDs challenges and opportunities while

business organizations encountered and how EFDs machine is efficient to help the

business and VAT returns.

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83

APPENDICES

Appendix 1: Questionnaires for Taxpayers

I am AMANI MGHASE a student from the University of Dodoma pursuing Masters

Degree in Business Administration (MBA). I humbly request you to participate in

filling this questionnaire which comprises of part A and B. The questionnaire is

intended to collect data on, perceptions of tax payers on the use of Electronic Fiscal

Devices (EFDs) in revenue collection in Tanzania. The result of which will facilitate

me to write the research report for partial fulfillment of the requirement to be

awarded MBA offered by the University. The collected data will only be used for

academic purposes.

PART A: GENERAL INFORMATION

Mark in the respective bracket.

1. Please indicate your Gender.

a) Male ( )

b) Female ( )

2. Respondent‟s age

a) 0-15 ( )

b) 15-25 ( )

c) 25-35 ( )

d) 35-45 ( )

e) 45-55 ( )

f) 55 and above. ( )

3. Education level.

a) Adult education ( )

b) Primary education ( )

c) Secondary education ( )

d) Post secondary education ( )

e) University ( )

84

4. Marital status

a) Single ( )

b) Married ( )

c) Widow ( )

d) Widower ( )

e) Separated ( )

5. What is your designation?

…………….………………………………………………..

6. Are you using an EFD machine?

a) Yes ( )

b) No ( )

7. If yes what type of Electronic Fiscal Devise do you use in your business?

a) Electronic Tax Register (ETR) ( )

b) Electronic Fiscal Printer (EFP) ( )

c) Electronic Signature Device (ESD) ( )

8. If the answer is No, give reasons why not

using?..........................................................................

…………………………………………………………………………………………

PART B: PERCEPTIONS OF TAX PAYERS ONTHE USE OF EFDs

1. Are you a registered tax payer?

c) Yes ( )

d) No ( )

2. Is there any importance of paying tax?

a) Yes ( )

b) No ( )

3. If the answer is no, why?

...............................................................................................................

…………………………………………………………………………………………

4. In your opinion what influenced the use of the EFDs Machine in your business?

a) Fear of being caught ( )

b) Own willingness ( )

c) Benefits arising from EFDs ( )

85

5. Do you think that there is any advantage of using EFDs machine in tax collection?

a) Yes ( )

b) No ( )

6. If answer is no, why?

.....................................................................................................................

7. Are you facing any challenges using an EFD system in your business?

a) Yes ( )

b) No ( )

8. If the answer is no, explain?

..........................................................................................................

9. Did you receive any official instructions on how to use an EFD system for your

business?

a) Yes ( )

b) No ( )

10. Is the price of purchasing EFDs machine reasonable?

a) Yes ( )

b) No ( )

11. If the answer is no, to what extent and why?

...............................................................................

12. Has your business ever been inspected by the tax authorities?

a) Yes ( )

b) No ( )

13. Are you aware of all obligations and rights under the EFDs governing laws?

a) Yes ( )

b) No ( )

86

14. I am neither happy with the EFDs system nor the tax office, but tax is part of life

and needs to be paid.

a) Strongly Disagree ( )

b) Neither agree nor disagree ( )

c) Agree ( )

d) Strongly agree ( )

15. Are the following requirements followed by your business in its operations?

a) Printing of daily reports Yes ( ) No ( )

b) Printing of monthly reports Yes ( ) No ( )

c) Printing of yearly reports Yes ( ) No ( )

d) Regular maintenance of the EFD. Yes ( ) No ( )

16. Please, indicate how far you agree to the following statements regarding EFDs.

Use five-point measurement scales as follows:

Key:

1. = Strongly Agree;

2. = Agree;

3. = Neither Agree nor disagree;

4. = Disagree;

5. = Strongly disagree.

87

Compliance Strongly

Agree

Agree Neither

Agree nor

disagree

Disagree Strongly

disagree

EFD machine

has reduced

the time it

takes to

prepare sales

report.

EFD machine

ensures timely

sales filing

and reporting

to TRA

EFD machine

ensures

accurate tax

rate to be paid

by the tax

payers.

17. Mention/explain advantages experienced by using EFD machine in your

business?

a) ………………………………………………………………………………………

b) ………………………………………………………………………………………

c) ………………………………………………………………………………………

d) ………………………………………………………………………………………

18. Mention/explain challenges faced in using EFD machines in your business?

a) ………………………………………………………………………………………

b) ………………………………………………………………………………………

c) ………………………………………………………………………………………

d) ………………………………………………………………………………………

88

19. Please indicate any other opinion on the use of EFDs in your business.

a) ………………………………………………………………………………………

b) ………………………………………………………………………………………

c) ………………………………………………………………………………………

d) ………………………………………………………………………………………

89

Appendix 2: Questionnaire for Government Officials Situated In TRA-Dodoma

This study is based at the University of Dodoma and its main objective is to assess

the perceptions of taxpayers on the use of EFDs machines in revenue collection in

Tanzania. Therefore you are kindly requested to participate in this study by filling

this questionnaire. The information being obtained for this study is only for academic

purposes. Under no any circumstances will this the information be given out to any

person or institution. For that case there is no need to provide your name.

1. Please indicate your gender

a) Male [ ]

b) Female [ ]

2 .Position/occupation …………………………………………………..

2. Is local community/tax payers involved in tax reform process?

a) Yes [ ]

b) No [ ]

3. Are business persons/ tax payers educated on the importance of using EFD

machines in revenue collection?

a) Yes [ ]

b) No [ ]

4. How easy are the processes from the point of ordering EFD up to the installation

stage?

a) Very easy [ ]

b) Easy [ ]

c) Difficult [ ]

d) Very difficult [ ]

90

5. What is your perception on the use of EFD machine in revenue collection?

a) Very good [ ]

b) Good [ ]

c) Bad [ ]

d) Very bad [ ]

6. Is the processes of EFD implementation made effectively by TRA?

a) Yes [ ]

b) No [ ]

7. Is the EFD machine reduces tax evasion by taxable persons and customers?

a) Yes [ ]

b) No [ ]

8. Are the following requirements followed by taxpayers in EFDs operations?

a) Printing of daily reports Yes [ ] No [ ]

b) Printing of monthly reports Yes [ ] No [ ]

c) Printing of yearly reports Yes [ ] No [ ]

d) Regular maintenance of the EFD Yes [ ] No [ ]

9. In your opinion what are the perceptions of tax payers on the using EFDs in

revenue collection

a) In terms of

simplicity……………………………………………………………………….

b) Transparency…………………………………………………………………

c) Fairness………………………………………………………………………

d) Satisfaction of tax payers……………………………………………………

91

10. What do you think is to be done in order to increase efficiency on using EFDs in

revenue collection to business persons?

a) ………………………………………………………………………

b) ………………………………………………………………………………...

c) …………………………………………………………………………………

d) …………………………………………………………………...

11. What are the criteria used to identify businesses that use EFDs in revenue

collection?

a) …………………………………………………………………………

b) ………………………………………………………………………………

c) ………………………………………………………...

d) …………………………………………………………………………

12. What are the mechanisms used by TRA to insure that all qualified businesses use

EFD machines in revenue collection?

a) ……………………………………………………………………………

b) …………………………………………………………………

c) ……………………………………………………………………

d) ………………………………………………………………

13. What are the factors limiting TRA in revenue collection through EFDs machine?

a) ………………………………………………………………………………

b) ……………………………………………………………………………

c) ……………………………………………………………………………

d) ……………………………………………………………………………

92

14. What steps are taken by TRA in case business owner refuse to use EFDs in

revenue collection?

a) ………………………………………………………………………………

b) ………………………………………………………………………

c) ……………………………………………………………………………

d) ………………………………………………………………………………

15. What are the advantages experienced by TRA since introducing EFDs machine in

revenue collection?

a) ………………………………………………………………………………

b) ………………………………………………………………………

c) …………………………………………………………………………

d) ………………………………………………………………………

16. What are the challenges facing taxpayers in using EFDs machine in revenue

collection?

a)………………………………………………………………………………………

b)………………………………………………………………………………………

c)………………………………………………………………………………………

d)………………………………………………………………………………………

17. Please give any other comment/opinion regarding the use of EFDs in revenue

collection?

a) ………………………………………………………………………………

b) …………………………………………………………………………………

c) …………………………………………………………………………………

d) ………………………………………………………………………………………

93

KIAMBATANISHO NA 3: DODOSO YA TAFSIRI YA KISWAHILI

YAKIAMBATANISHO NA 1 YA MASWALI KWA WALIPA KODI.

SEHEMU A: TAARIFA ZA JUMLA

(Katika kujibu swali la 1 hadi 16 weka alama( v )katika jibu husika)

1. Jinsia yangu ni;

1) Mwanaume ( )

2) Mwanamke ( )

2. Umri wangu ni miaka ?

g) 0 - 15 ( )

h) 15 - 25 ( )

i) 25 - 35 ( )

j) 35 - 45 ( )

k) 45 - 55 ( )

l) Zaidi ya 55 ( )

3. Kiwango changu cha elimu ni;

a) Msingi ( )

b) Sekondari ( )

c) Cheti ( )

d) Diploma ( )

e) Shahada ( )

4. Wadhifa wangu katika biasharani………………………

5. Je unatumia mashine ya EFDs?

a) Ndiyo ( )

b) Hapana ( )

6. Kama ni ndio je unatumia aina gani ya mashine za EFD kwenye biashara yako?

a) Rejista za Kodi za Kielektroniki (ETR) ( )

b) Printa za Kielektroniki za Kodi (EFP) ( )

c) Mashineza Alama za Kielektroniki za Kodi (ESD) ( )

94

SEHEMU B: MAPOKEO YA MATUMIZI YA MASHINE ZA KODI ZA

KIELEKTRONIKI (EFDs)

1. Je umesajiliwa kama mlipa kodi?

a) Ndiyo ( )

b) Hapana ( )

2. Kuna faida yoyote ya kulipa kodi?

a) Ndiyo ( )

b) Hapana ( )

3. Kama jibu ni hapana kwa nini?

....................................................................................................

4. Kwamaoni yako ni nini kimekusukuma kutumia mashine ya EFD katika biashara

yako?

a) Mashaka ya kukamatwa ( )

b) Utashi wangu mwenyewe ( )

c) Manufaa yanayopatikana kutokana na kutumia EFDs ( )

5. Je unafikiri kuna faida za kutumia mashine za EFDs?

a) Ndiyo ( )

b) Hapana ( )

7. Kama jibu ni hapana elezea kwa nini?

.........................................................................................

7. Kwa maoni yako, je kuna ugumu wowote katika kutumia mfumo wa EFDs katika

kulipa

kodi?

a) Ndiyo ( )

b) Hapana ( )

8. Kama jibuni hapana eleza kwa nini?

............................................................................................

…………………………………………………………………………………………

95

9. Je umewahi kupata elimu/maelezo yoyote ya kitaalamu kuhusu jinsi ya kutumia

mashine za EFDs?

a) Ndiyo ( )

b) Hapana ( )

10. Je bei ya kununulia mashine ya EFD ni ya kuridhisha ?

a) Ndiyo ( )

b) Hapana ( )

11. Kama jibu ni hapana, kwa kiwango gani na kwanini?

…………………………………………………………………………………………

12. Je biashara yako iliwahi kukaguliwa na mamlaka ya kodi TRA?

a) Ndiyo ( )

b) Hapana ( )

13. Je unafahamu haki na wajibu wako kama mlipakodi ulioelezwa katika sheria ya

matumizi ya

Mashine za EFDs ?

a) Ndiyo ( )

b) Hapana ( )

14. Sipendezwi namatumizi ya mfumo wamashine za EFDs au Ofisi za mamlaka ya

kodi ya mapato ila ulipaji kodi ni sehemu ya maisha hivyo nisawa kulipa kodi.

a) Sikubali kabisa ( )

b) Sikubali wala Kukataa ( )

c) Nakubali ( )

d) Nakubalianakabisa ( )

15. Je mahitaji yafuatayo yanatekelezwa katika uendeshaji wa biashara yako ?

a) Uchapishaji wa taarifa ya kila siku Ndiyo ( ) Hapana ( )

b) Uchapishaji wa taarifa ya kila mwezi Ndiyo ( ) Hapana ( )

c) Uchapishaji wa taarifa ya kila mwaka Ndiyo ( ) Hapana ( )

d) Matengenezo ya mara kwa mara ya mashine ya EFDs Ndiyo ( ) Hapana

( )

96

16. Tafadhali eleza unavyokubaliana na maelezo haya kuhusiana na mashine za

EFDs.

kwa kutumia vigezo vifuatavyo.

Ufunguo:

1 = Nakubaliana kabisa

2 = Nakubali

3 = Sikubali wala Kukataa

4 = Sikubali

5 = Sikubaliani Kabisa

Kufuata Nakubali

kabisa

Nakubali Sikubali

Walakukataa

Sikubali Sikubalianikabisa

Mashine ya EFD

imepunguza muda

wakuandaa taarifa

zamauzo.

Mashine ya EFD

inaniwezesha kuandaa

na

kuwasilisha taarifa za

mauzo TRA

kwa wakati.

Mashine ya EFD

inahakikisha

kiwango sahihi cha

kodi kinachotakiwa

kulipwa na mlipa

kodi.

17. Taja/elezea faida ambazo umekuwa ukizipata tangu umeanza kutumia mashine

ya EFD katika biashara yako?

a) ………………………………………………………………………………

b) ………………………………………………………………………………

c) ………………………………………………………………………………

d) ………………………………………………………………………………

97

18. Taja/ elezea changamoto ambazo umekuwa ukizipata tangu umeanza kutumia

mashine ya EFD katika biashara yako?

a) ………………………………………………………………………………

b) ………………………………………………………………………………

c) ………………………………………………………………………………

d) ………………………………………………………………………………

19. Toa maoni mengine yoyote kuhusu matumizi ya mashine za EFD katika biashara

yako?

a) ..........................................................................................................................

b) ..........................................................................................................................

c) ..........................................................................................................................

d) ………………………………………………………………………………