Exploring Determinants of Low Tax Collection in Informal Businesses: Evidence From Mbeya City, Tanzania

Abstract

This study explored the determinants of low tax collection among informal businesses in Mbeya City, Tanzania. Informal businesses, which make up a significant portion of Tanzania’s economy, face challenges in complying with tax regulations, despite the government’s efforts to create tax awareness and improve collection systems. The study is anchored in the Informal Economy Tax Compliance Theory, which suggests that tax compliance is influenced by economic survival, regulatory complexity, and trust in government institutions. The research employs both qualitative and quantitative methods to assess the efficiency of tax collection processes, the clarity of regulations, and the willingness of informal businesses to comply. Findings indicated mixed perceptions of tax collection efficiency, significant dissatisfaction with the clarity of tax regulations, and varying levels of tax awareness among informal business owners. The study concludes that simplifying tax processes, providing education programs, and enhancing the perceived fairness of the tax system could improve compliance and boost revenue collection. This research contributes valuable insights for policymakers and stakeholders aiming to strengthen tax collection strategies in Tanzania’s informal sector.