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CONTEMPORARY
ISSUES IN BUSINESS

NDALAHWA M. MASANJA
CONTEMPORARY ISSUES IN BUSINESS

Ndalahwa M. Masanja, PhD

University of Arusha, Tanzania

A book on contemporary issues in business

Published in United Republic of Tanzania by
NMM Printers
P.O. Box 11329
Mwanza
Tanzania

Copyright © 2019 by NMM Printers. All right reserved. No part of this book may be
reproduced, stored or even distributed in any form or by an means, electronic or mechanical,
including photocopy, without authorization from the Author. The product or publishers names
used in this set are for identification purposes only. Inclusion of the names of the products or
companies does not imply a claim of ownership by NMM Printers of the trademark or
registered trademark.

Name: Ndalahwa Musa Masanja, editor.

Title: Contemporary Issues in Business

Description: Mwanza, Tanzania: Contemporary Issues in Business, 2019 includes Bibliographical

references

This book is published in the NMM Printers editorial series in Contemporary issues in business.

British Cataloguing in Publication Data

A Cataloguing in Publication records for this book is available from the British Library.

All work contributed to this book is new, recently-unpublished material. The perspectives
expressed in this book are those of the authors, but not necessarily of the publishers

For electronic access to this publication, please contact: [email protected]

Editorial Advisory Board
Rispina Tadei, Arusha Tanzania
Lomayani Mintila, Arusha, Tanzania
Evance Lampia, Arusha, Tanzania
Farida Timoth, Arusha, Tanzania
Peter Shayo, London, UK
Griffith Mathews, Philadelphia, PA, USA
Nathan McGraw, Toronto, ON, Canada
Philip Johnson, Sydney, Australia
Fabian Rosonth, Nairobi Kenya
Tamalema, Thombosa, Pretoria, SA
 Table of Contents
Preface……………………………………………………………………………………………………………………… i

Section 1
Financial management
Chapter 1
Major Taxation challenges facing SMEs in Tanzania………………..……………………………….. 1
Ndalahwa M. Masanja

Chapter 2
Impact of Taxation on Performance of Small Scale Business Enterprises in Arusha
City…………………………………………………………………………………………………………………………….. 16
Rispina Tadei

Chapter 3
The Effectiveness of Budgetary Control in Achieving Organizational Goals: A Case of
Arusha City Secretariat………………………………………………………………………………………………. 42
Lomayani Mintila

Chapter 4
Accounting Software in Improving Efficiency: A case of SMEs located in Arusha,
Tanzania…………………………………………………………………………………………………………………….. 56
Barikiel Amos Nanyaro

Section 2
Human resource Management
Chapter 5
The Impact of Employee Training on Organizational Performance in Tanzania……………. 63
Evance Lampia

Chapter 6
An Analysis of IT in improving human resource practices in selected private and Public
Entities in Tanzania 74
Laban Somba

Chapter 7
Employee Participation in Decision Making on Organizational Performance for Private
Companies in Arusha, Tanzania………………………………………………………………………………….. 86
Eunice Patrick
Chapter 8
The Role of Management on Employees’ Satisfaction in an Organization: A Case of
Public and Private entities…………………………………………………………………………………………… 98
Farida Timothy

Chapter 9
Factors Contributing to the Ineffectiveness of Performance Appraisal Systems in
Public Tertiary Institution……………………………………………………………………………………………. 115
Rafiki Lopima

Chapter 10
Workplace Bullying on Job Satisfaction and Organizational Productivity in Private
Entities located in Arusha, Tanzania……………………………………………………………………………. 129
Mathew Rispania

Section 3
Operation Management
Chapter 11
A critical Analysis of Total Quality Management on the Performance of the Banking
Industry in Arusha City………………………………………………………………………………………………… 147
Neema Lepandai

Chapter 12
A comprehensive analysis of Electronic Banking on Customer Satisfaction for the
Banking Sector……………………………………………………………………………………………………………. 165
Lorisori Lekundayo

Chapter 13
Operational and Productions Challenges facing Small and Medium Enterprises in
Tanzania……………………………………………………………………………………………………………………… 176
Hamisi Ramadhani

Section 4
Marketing Management
Chapter 14
Challenges of adoption of Internet Advertisement for the Real Estate Industry in
Tanzania: A case of public and private entities……………………………………………………………. 186
Horima Tizirwa

Chapter 15
Factors Affecting Consumer behavior for online shoppers in Tanzania…......................... 197
Peter shayo

Compilation of References…………………………………………………………………………………………. 223

About the Contributors……………………………………………………………………………………………… 268

Index……………………………………………………………………………………………………………………….…… 278
 Detailed Table of Content
Preface……………………………………………………………………………………………………………………… i

Section 1
Financial management
Chapter 1
Major Taxation challenges facing SMEs in Tanzania…………………..……………………………….. 1
Ndalahwa M. Masanja
Chapter 1 determines the major taxation challenges facing small and medium scale
business enterprises (SMEs) in Tanzania. Specifically, this study was conducted in
three regions of Tanzania which were Kilimanjaro, Arusha and Manyara. The study
revealed that the major challenges facing entrepreneurs for small and medium scale
business enterprises were high and multiple taxes, changes in taxes and unreasonable
taxes imposed by the revenue authorities. Some of the recommendations to curb
those challenges were the application of principles of a good tax system. Basically, the
government should create fairness and equality in tax determination. Moreover, the
government should stream line the taxes and all services related to taxes.

Chapter 2
Impact of Taxation on Performance of Small Scale Business Enterprises in Arusha
City…………………………………………………………………………………………………………………………….. 16
Rispina Tadei
Chapter 2 explores the impact of taxation on the performance of small scale business
in enterprises in Arusha city, Tanzania. Due to the fact that the government has been
implementing stricter regulation and procedures to maximize tax collection, this
study explores the impact to small business. At the same time, the study explores the
small entrepreneurs’ knowledge on tax obligation for their local business. Ultimately,
this chapter provides recommendations for SMEs to approach to meet the tax
obligations in a timely manner.

Chapter 3
The Effectiveness of Budgetary Control in Achieving Organizational Goals: A Case of
Arusha City Secretariat………………………………………………………………………………………………. 42
Lomayani Mintila
Chapter 3 assesses the effectiveness of budgetary control in achieving organizational
goals at the Regional secretariat in Arusha, Tanzania. Specifically, the study
investigates about the knowledge of budget and budget process in the organization
and the application of budgetary control mechanism to ensure managerial efficiency
in the organization. The chapter provides a strong conclusion to budgetary control
activities in efforts to met organizational goals. Finally, the chapter provides a
conclusion and tentative recommendations for implementation and for further
studies.
Chapter 4
Accounting Software in Improving Efficiency: A case of SMEs located in Arusha,
Tanzania…………………………………………………………………………………………………………………….. 56
Barikiel Amos Nanyaro
Chapter 4 reports the application of accounting software in effort to improve
efficiency of financial operations in the organization. Since most small and medium
enterprises are adapting accounting software as a convenient way to organize their
financial records, chapter assess its impact on financial efficiencies in operations in
the organization.

Section 2
Human resource Management
Chapter 5
The Impact of Employee Training on Organizational Performance in Tanzania……………. 63
Evance Lampia
Chapter 5 assesses the impact of employee training and development so as to
improve organizational performance. This chapter explores a case study conducted in
several insurance companies located in Tanzania. For organizational to meet the
rising demand of the organization, it is imperative to improve the knowledge, skills
and competencies of employees.

Chapter 6
An Analysis of IT in improving human resource practices in selected private and Public
Entities in Tanzania 74
Laban Somba
Chapter 6 investigates role of information Technology in improving the practices of
human resource practitioners in the public and private entities located in Tanzania.
This chapter tracks the on-going improvement of information technologies in efforts
to enhance the management of human resources. Specifically, the chapter analyzes
the differences in the implementations of information in both private and public
entities. Moreover, the chapter provides specific recommendations and suggestions
for both public and private entities so as to improve the management of human
resources in the organization.

Chapter 7
Employee Participation in Decision Making on Organizational Performance for Private
Companies in Arusha, Tanzania………………………………………………………………………………….. 86
Eunice Patrick
Chapter 7 reports employee participation in decision making and its influence on
organizational performance for private companies in Arusha, Tanzania. This chapter
identifies the prevailing situation in decision making and evaluates whether
employees have the right to participate in decision making in the organizations. In
addition, this chapter provides recommendations based on the problems.
Chapter 8
The Role of Management on Employees’ Satisfaction in an Organization: A Case of
Public and Private entities…………………………………………………………………………………………… 98
Farida Timothy
Chapter 8 is focused on the role of management on employees’ satisfaction in an
organization. The very reason for this chapter is to determine the significant role of
management in creating a favorable environment for employees so they are satisfied
with their jobs. in addition, the chapter provides necessary factors for management in
efforts to satisfy the needs of their employees. At the same time, the chapter
provides tentative solution for management to improve employee satisfaction in
public and private entities in Tanzania.

Chapter 9
Factors Contributing to the Ineffectiveness of Performance Appraisal Systems in
Public Tertiary Institution……………………………………………………………………………………………. 115
Rafiki Lopima
Chapter 9 assesses the ineffectiveness of the performance of appraisal systems for
public tertiary institutions in Tanzania. Specifically, this chapter provides the problems
with the appraisals which lead to ineffectiveness in improving employees’
performance in the organization. In connection to this, the chapter provides tentative
recommendations to deal with this prevailing problem.

Chapter 10
Workplace Bullying on Job Satisfaction and Organizational Productivity in Private
Entities located in Arusha, Tanzania……………………………………………………………………………. 129
Mathew Rispania
Chapter 10 identifies a silent problem of bullying in the organizations. The act of
bullying is concealed and it is not a matter or issue often discussed in the
organization. However, the repercussion of bullying span from physical, psychological
abuse to even job dissatisfaction. For this reason, this chapter explores this vice
comprehensively and provides tentative solutions to deal with the problem.

Section 3
Operation Management
Chapter 11
A critical Analysis of Total Quality Management on the Performance of the Banking
Industry in Arusha City………………………………………………………………………………………………… 147
Neema Lepandai
Chapter 11 provides the basic concepts of total quality for the sole objective to
improve performance for the banking industry in Arusha, Tanzania. This chapter
explores a management system based on principle that every employee must be
committed to maintain high standards of work to meet every aspect of a
organizations operations.
Chapter 12
A comprehensive analysis of Electronic Banking on Customer Satisfaction for the
Banking Sector……………………………………………………………………………………………………………. 165
Lorisori Lekundayo
Chapter 12 presents a comprehensive evaluation of electronic banking to determine
customer satisfaction for the banking sector in Tanzania. Explicitly, this chapter
investigates the benefits and the shortcoming of the electronic banking in relation to
customer satisfaction. Additionally. The study explores the prevailing challenges in
the usage of electronic banking especially for a developing country like Tanzania.
Finally, the chapter provides solutions to overcome the challenges of electronic
banking so as to increase customer satisfaction.

Chapter 13
Operational and Productions Challenges facing Small and Medium Enterprises in
Tanzania……………………………………………………………………………………………………………………… 176
Hamisi Ramadhani
Chapter 13 identifies the problems facing SMEs on issues surrounding operational
and productions of products and services. These challenges might be technical,
financial, knowledge, skills and experience in running operations and productions in
small medium enterprises. At the same time the lack of technological advances to
improve operations and products provide a significant challenge for SMEs. In this
case, this chapter provides practical recommendations to deal with the underlying
problem in operations and production management for small medium enterprises in
Tanzania.

Section 4
Marketing Management
Chapter 14
Challenges of adoption of Internet Advertisement for the Real Estate Industry in
Tanzania: A case of public and private entities……………………………………………………………. 186
Horima Tizirwa
Chapter 14 explores the main problems experienced in the usage of internet
advertisement for the real estate industry in Tanzania. Due to the infancy of the real
estate sector and poor infrastructure for online advertisement, this chapter provides
a solution to these challenges. Concurrently, this chapter provides a good guide to
navigate problems for internet advertisement in Tanzania. At the same time, it
provides a step by step guide to create awareness among online real estate
customers. In this regards, the chapter provides tentative solution and
recommendation for implementations for marketers.
Chapter 15
Factors Affecting Consumer behavior for online shoppers in Tanzania…......................... 197
Peter Shayo
Chapter 15 assesses the factors affecting consumer behavior in relation to attracting
online shoppers in Tanzania. With the penetration of internet and the rise of online
customers, it is imperative to explore this subject in depth. For this reason, this
chapter investigates the consumer perspective on buying products and services via
online platforms. Subsequently, this chapter provides suggestions and
recommendations to alter the consumer behavior for online shopping in Tanzania.
Preface

Introduction
The main premise underlying this book entitled Contemporary Issues in Business provides a
comprehensive account of different aspects encountered for business practices in Tanzania and
elsewhere around the world. In the dawn of the twenty first century, there are several
challenges which confront businesses. These challenges include the management of human
resources, operations and production, finances and marketing issues surrounding the success of
of business entity and the organization as whole. At the same time, businesses are facing
multiple challenges about ethical and legal issues confronting business activities. Moreover, the
drastic changes in technological especially artificial intelligence have reconfigured the whole
fabric of business endeavors in the world today especially in Tanzania.

In light of these challenges confronting business, it is therefore important to research with the
sole objectives to meet the rising demand of the business activities. These researchers should
solely focus on contemporary issues which threaten the survival and prosperity of business
activities in this era. These studies provide a new insight and perspective in confronting today
business challenges and provide a blueprint to forge a clear path forward. In this case, this book
provides the current and up-to-date issue surrounding business activities and operations. But at
the same time, provide clear recommendations and suggestions in efforts to solve the
underlying problems in business activities.

Peculiarity of the Book

This book provides a strong basis for contemporary issues surrounding business practices in
Tanzania and worldwide. Specifically, this book covers theoretical, conceptual and ultimately
scientific results which tackle contemporary issues and latest trends in the business activities
and processes. This book targets four main scope of business which includes human resource
management, operations management, financial management and marketing management.
These are some of the key and critical areas in business which need solution in this era.

Target Audience
Contemporary issues in business will be used in business and educational organizational as a
source of information to make informed decision about business activities in the organizations
such as universities, colleges, business entities, instructors, administrators, managers and
researchers in business. Due to the fact that it covers multiple facets in business, this book can
be instrumental for a targeted audience who desire to understand contemporary issues in
business.

Content of the Book

This book contains a fast range of topics about contemporary issues of business. These topics
take a diverse approach in investigating questions about underlying problems in business.
Distinctively, this book has fifteen chapters. The following is a brief highlight of the chapters in
this book.

Chapter 1 investigates the impact of the challenges facing SMEs on tax administration in Arusha
district, Tanzania. The main objective is to examine the effect of poor record keeping of SMEs in
efforts to ascertain tax dues on the respective authorities. Furthermore, the chapter explores
the challenges of lack of knowledge among Small Medium entrepreneur in tax determination.
This is a quantitative analysis providing an in-depth insight to problems encountered by SMEs in
efforts to succeed in business. Moreover, this chapter provides tentative suggestions and
recommendations to deal with the rising problem of tax administration to Small and Medium
Enterprises in Tanzania.

Chapter 2 explores the impact of taxation on the performance of small scale business in
enterprises in Arusha city, Tanzania. Due to the fact that the government has been
implementing stricter regulation and procedures to maximize tax collection, this study explores
the impact to small business. At the same time, the study explores the small entrepreneurs’
knowledge on tax obligation for their local business. Ultimately, this chapter provides
recommendations for SMEs to approach to meet the tax obligations in a timely manner.

Chapter 3 assesses the effectiveness of budgetary control in achieving organizational goals at

the Regional secretariat in Arusha, Tanzania. Specifically, the study investigates about the
knowledge of budget and budget process in the organization and the application of budgetary
control mechanism to ensure managerial efficiency in the organization. The chapter provides a
strong conclusion to budgetary control activities in efforts to met organizational goals. Finally,
the chapter provides a conclusion and tentative recommendations for implementation and for
further studies.

Chapter 4 reports the application of accounting software in effort to improve efficiency of

financial operations in the organization. Since most small and medium enterprises are adapting
accounting software as a convenient way to organize their financial records, chapter assess its
impact on financial efficiencies in operations in the organization.

Chapter 5 assesses the impact of employee training and development so as to improve

organizational performance. This chapter explores a case study conducted in several insurance
companies located in Tanzania. For organizational to meet the rising demand of the
organization, it is imperative to improve the knowledge, skills and competencies of employees.

Chapter 6 investigates role of information Technology in improving the practices of human

resource practitioners in the public and private entities located in Tanzania. This chapter tracks
the on-going improvement of information technologies in efforts to enhance the management
of human resources. Specifically, the chapter analyzes the differences in the implementations
of information in both private and public entities. Moreover, the chapter provides specific
recommendations and suggestions for both public and private entities so as to improve the
management of human resources in the organization.
Chapter 7 reports employee participation in decision making and its influence on organizational
performance for private companies in Arusha, Tanzania. This chapter identifies the prevailing
situation in decision making and evaluates whether employees have the right to participate in
decision making in the organizations. In addition, this chapter provides recommendations based
on the problems.

Chapter 8 is focused on the role of management on employees’ satisfaction in an organization.

The very reason for this chapter is to determine the significant role of management in creating
a favorable environment for employees so they are satisfied with their jobs. in addition, the
chapter provides necessary factors for management in efforts to satisfy the needs of their
employees. At the same time, the chapter provides tentative solution for management to
improve employee satisfaction in public and private entities in Tanzania.

Chapter 9 assesses the ineffectiveness of the performance of appraisal systems for public
tertiary institutions in Tanzania. Specifically, this chapter provides the problems with the
appraisals which lead to ineffectiveness in improving employees’ performance in the
organization. In connection to this, the chapter provides tentative recommendations to deal
with this prevailing problem.

Chapter 10 identifies a silent problem of bullying in the organizations. The act of bullying is
concealed and it is not a matter or issue often discussed in the organization. However, the
repercussions of bullying span from physical, psychological abuse to even job dissatisfaction.
For this reason, this chapter explores this vice comprehensively and provides tentative
solutions to deal with the problem.

Chapter 11 provides the basic concepts of total quality for the sole objective to improve
performance for the banking industry in Arusha, Tanzania. This chapter explores a management
system based on principle that every employee must be committed to maintain high standards
of work to meet every aspect of a organizations operations.

Chapter 12 presents a comprehensive evaluation of electronic banking to determine customer

satisfaction for the banking sector in Tanzania. Explicitly, this chapter investigates the benefits
and the shortcoming of the electronic banking in relation to customer satisfaction. Additionally,
The study explores the prevailing challenges in the usage of electronic banking especially for a
developing country like Tanzania. Finally, the chapter provides solutions to overcome the
challenges of electronic banking so as to increase customer satisfaction.

Chapter 13 identifies the problems facing SMEs on issues surrounding operational and
productions of products and services. These challenges might be technical, financial,
knowledge, skills and experience in running operations and productions in small medium
enterprises. At the same time the lack of technological advances to improve operations and
products provide a significant challenge for SMEs. In this case, this chapter provides practical
recommendations to deal with the underlying problem in operations and production
management for small medium enterprises in Tanzania.
Chapter 14 explores the main problems experienced in the usage of internet advertisement for
the real estate industry in Tanzania. Due to the infancy of the real estate sector and poor
infrastructure for online advertisement, this chapter provides a solution to these challenges.
Concurrently, this chapter provides a good guide to navigate problems for internet
advertisement in Tanzania. At the same time, it provides a step by step guide to create
awareness among online real estate customers. In this regards, the chapter provides tentative
solution and recommendation for implementations for marketers.

Chapter 15 assesses the factors affecting consumer behavior in relation to attracting online
shoppers in Tanzania. With the penetration of internet and the rise of online customers, it is
imperative to explore this subject in depth. For this reason, this chapter investigates the
consumer perspective on buying products and services via online platforms. Subsequently, this
chapter provides suggestions and recommendations to alter the consumer behavior for online
shopping in Tanzania.

Conclusion
It is imperative to address the rising challenges confronting business today. In regard to these
challenges, this book provides scientific finding to confront business issues surrounding
business. I hope that the scientific findings will be insightful and provide a glimpse to solutions
about contemporary issues in business.

Ndalahwa Musa Masanja, PhD

University of Arusha, Tanzania
 Chapter One
Major Taxation Challenges facing Small and Medium
Scale Business Enterprises in Tanzania

Ndalahwa M. Masanja, PhD

University of Arusha, Tanzania

Abstract
The major objective of this study was to determine the major taxation challenges facing small
and medium scale business enterprises (SMEs) in Tanzania. Specifically, this study was
conducted in three regions of Tanzania which were Kilimanjaro, Arusha and Manyara. A total of
187 entrepreneurs participated in this study. The study revealed that the major challenges
facing entrepreneurs for small and medium scale business enterprises were high and multiple
taxes, changes in taxes and unreasonable taxes imposed by the revenue authorities. Other
challenges were difficulty and bureaucracy in paying taxes, complex tax computations and
unfriendly tax administrators. Some of the recommendations to curb those challenges were the
application of principles of a good tax system. Basically, the government should create fairness
and equality in tax determination. Moreover, the government should stream line the taxes and
all services related to the imposition of those taxes. Ultimately, there should be a reasonable tax
basis for small and medium scale business enterprises in Tanzania.

Keyword: Taxation, Small and Medium Scale Enterprises, Tanzania

Introduction
Small and medium scale business enterprises (SMEs) have been recognized as the driving force
of a nation’s economic growth and prosperity. This is due to the fact that SMEs provide
employment, economic empowerment, poverty reduction schemes and improve the standard
of living of the community (2017). Furthermore, SMEs provide substantial local capital
formulation and accumulation through the increase of productivity and capacity (Anigbogu,
Onwuteaka, Edoko and Okoli, 2014). Most importantly, SMEs have been recognized as the
breeding ground for local entrepreneurial capabilities in the community.

SMEs have been a focal point for most developed countries. Developed countries such as the
USA and UK have been allocating significant amount of financial and non-financial resources
toward the prosperity of SMEs. Some of these efforts include creating a favorable tax system
for the SMEs (McCluskey and Huang, 2019). Specifically, these countries have been providing
tax breaks and even tax incentives to encourage the growth of small and medium scale
enterprises in their countries (Ogechukwu, Oboreh, Umukoro and Uche, 2013). All these taxes
are efforts to ensure the survival and growth of small and medium scale businesses.

1
Other countries in Asia and Africa are following the same strategy to promote small and
medium scale enterprises. Countries such as Japan, Malaysia and even Singapore are creating
tax incentives for local small and medium scale enterprises (Herr and Nettekoven, 2017). At the
same time, countries such as South Africa, Nigeria, Kenya and even Rwanda are developing tax
policies to promote the growth and prosperity of small and medium scale enterprises (Dom and
Miller, 2018). These are just a few examples among many countries around the world were
SMEs are protected and promoted.

Tanzania shares similar sentiments for small and medium business enterprises as an important
concern due to the fact that it contributes significantly to the growth of the economy especially
in nation’s development agenda. Based on the statistics provided by the Tanzania Chamber of
commerce, Industry and agriculture, more than 95 percent of businesses are made of small and
medium scale business enterprises which contribute 35 percent of the Tanzanians gross
domestic product and employ approximately 40 percent of the total workforce in the country
(Kashalaba, 2017). These statistics vividly indicate the relevance and importance of SMEs in the
economic advancement of Tanzania.

Although small and medium scale business enterprises contribute toward the growth of the
economy in Tanzania, these businesses are confronted with major taxation challenges which
threaten their sustainability and growth. Specifically, compliance with tax rules and procedures,
multiple and high taxes are among the major challenges facing small and medium business
(Nsato, 2018). Furthermore, the lack of tax experience among small and medium entrepreneurs
may result into hefty fines and additional costs (Ng’eni, 2016, Meena, 2013). As a result, these
small and medium scale businesses bear a wide tax burden which has led to poor financial
performance (Mlay, 2015; Nelson, 2013). Therefore, this study identifies the major taxation
challenges facing small and medium scale business enterprises and develops tentative solutions
to reduce the tax burden for these businesses.

Statement of the Problem

Based to a comparative study conducted by Price Waterhouse Coppers, Tanzania is not an easy
place to conduct business in relation to the tax environment imposed by the government. As a
matter of fact, it ranks 141 out of 190 countries in the world for the ease of making tax
payment in relation to the tax burden to small and medium scale businesses (Jaffe, 2019). At
the same time, with comparison with other countries in the East Africa Community, Tanzania is
not faring well compared to Rwanda and Kenya. This is due to the fact that Tanzania has the
highest number of payments (48%) for corporate taxes which entails a total of profit tax, labor
tax and other related corporate taxes in the East Africa territory and the second tax rate
(44.9%) among member states of the East African Community (Mwambande, 2017; Nelson,
2013). Based on the complexity of the tax and fiscal environment which affect the business
condition in Tanzania, it is critical to determine the major Taxation challenges facing small and
medium scale businesses enterprises in Tanzania.

2
Research Objectives
The following are the research objectives of this study
1. To identify the major taxation challenges facing small and medium scale business
enterprises in Tanzania?
2. To propose recommendations to solve the major taxation challenges facing small and
medium scale business enterprises in Tanzania?

Research Questions
The following are research questions providing a line of inquiry for this study
1. What are the major taxation challenges facing small and medium scale business
enterprises in Tanzania?
2. What are the proposed recommendations to solve the major taxation challenges facing
small and medium scale business enterprises in Arusha, Tanzania?

Literature review
Small and medium scale enterprise is a backbone of any thriving economy. This is the reason for
the government to dedicate adequate resources to ensure the success. According to (2018)
small and medium scale business comprises of the large majority of business activities
especially in developing countries. This is due to the fact that most developing economies are
still in the infancy stage and therefore rely predominantly on small scale and medium
enterprises. Even the developed economies like USA, UK and countries in the European Union,
they dedicate adequate resource for these businesses (Ogechekwu et al, 2013).

Despite the growing trend to strengthen small and medium scale business enterprises, most of
them are confronted with a number of challenges. These challenges threaten the survival and
sustainability of small and medium scale business enterprises. One of the predominant
challenges is taxation for these businesses (Mwambande, 2017). Studies have indicated that the
level of taxation will make or break a business (Nsato, 2018, Ng’eni, 2016; Mlay, 2015). As a
matter of fact, taxation is a determinant factor to encourage or discourage entrepreneurs to
invest in small and medium scale business enterprises. In light of the importance of these
business enterprises, it is critical to explore the major taxation challenge facing small and
medium scale business enterprises.

To gain perspective on the magnitude of taxation on small and medium business, it is

appropriate to explore the taxes imposed. Small and medium scale business enterprises are
subjected to direct and indirect taxes. Direct tax refers to the tax imposed directly to the
business income or entrepreneur while indirect tax refers to the tax burden passed on the
customer(Meena, 2013). In addition to these taxes, small and medium scale businesses are
subjected to pay local taxes imposed by the local government authorities. All these takes add
up and creates an overwhelming burden to entrepreneurs of small and medium business
enterprises. A good example is the tourism tax imposed in Zanzibar. According to Mahangila
and Anderson (2017) hefty taxes in Zanzibar created uncertainty and complexity regarding
income tax laws in relation to the computation of income tax liabilities for small and medium
scale business enterprises. In turn, most business were affected negatively because of these tax

3
administration burden in the tourism sector in Zanzibar. This is an illustration on sector among
many sectors involved in small and medium scale businesses.

Principles of Good Tax Systems for Small and Medium Scale Business Enterprises
There are always continuous arguments about the best tax practices for small and medium
scale business. These discussions have been varying depending on different situations, locations
or even authors who conducted different studies. However, there is a general consensus on
major principles which would govern taxation policies for small and medium scale business.
This section will provide a brief but detailed account of major principles of a good tax system in
favor of small and medium scale enterprises especially in developing countries like Tanzania.

One of the basic principles of good taxation for small and medium business is equality. This
principle advocate on a tax system where higher income business should pay higher in taxes
compared to lower income business who are subjected to less taxes (NBAA, 2014). This should
be a general principle guiding a good tax system.

The second principle is economy. This principle emphasizes that the cost of collecting and
paying taxes in relation to compliance cost should be minimum (Herr and Bettekoven, 2017).
The overall cost should be far less than the overall benefits of the taxes. From a broader
perspective, if higher taxes levied on small and medium scale businesses will hinder business
growth. Therefore, it is advisable to keep taxes fairly low in efforts to maintain the sustainability
and growth of the small and medium scale businesses.

The third principles are certainty. This means that each entrepreneur should be certain about
the amount of taxes owed and there should be no confusion on the tax liability (Kashalaba,
2017). The certainty includes amount of tax payments, payment time and the procedure of
payments. For small and medium businesses, there should be no ambiguity in the tax provision
as it might lead to other problems like bribes.

Understandable is the forth principles for small and medium scale businesses. The taxes should
be simple in nature and entrepreneurs should have the ability to comprehend the tax liability
due in their businesses (Carnahan, 2015). In addition, the fifth principle is convenience for
entrepreneurs. This means the taxes should be cause minimum inconvenience to small and
medium scale business enterprises.

The sixth principle is fairness or equity. The taxation system should ensure no special treatment
for some entrepreneurs over the other (Makundi, 2017). This is a problem of most taxes in
developing countries like Tanzania. The taxes imposed would be determined by the people you
know. Concurrently, the seventh principles is flexibility where by the tax system can change
depending on the different changing nature of the small and medium scale business
enterprises.

4
Empirical studies about Taxation Challenges on Small and Medium Scale Business Enterprises.
There are several studies which have identified the taxation challenges in developing countries
like Tanzania. A study by Carnahan (2015) examines challenges in developing countries. The
study explores taxation in 58 developing countries. The study indicated tax reform to deal with
the underlying taxation challenges is political in nature and as result requires political will of the
government to change tax laws.

From an African point of view, there are several challenges of taxation for small and medium
taxation in African countries. According to Kvamme (2017) a study which explores the
challenges of taxation in African countries, there is a negative attitude among individuals or
even entrepreneurs toward paying taxes. Most of the entrepreneurs and ordinary taxpayers
believe that tax revenues are not used for the intended purpose. In this case, most
entrepreneurs are reluctant to pay taxes. In addition to this, Kvamme (2017) acknowledges that
the tax systems serve the elite in some African countries. This means that small and medium
enterprises are not benefiting from the taxes imposed through tax collection revenue agencies.
Therefore, most of the entrepreneurs avoid or even evade paying their fair share of taxes owed
to the government or local authorities. Furthermore, Kvamme (2017) provides several
recommendations to solve the taxation challenges for small and medium enterprises in African
countries. One of the solutions is to close the domestic tax loopholes exploited by the African
elite and hence create a even tax system which works for all especially the small and medium
scale business enterprises.

In effort to develop a broader perspective on the taxation on businesses in Africa, a study

conducted by Ali, Fjeldstad and Sjursen (2013) examines the factors affecting tax compliant
attitudes in Africa. The study was collected evidence in Kenya, Tanzania, Uganda and South
Africa. The findings revealed that entrepreneurs who are more satisfied with public service
provision are more likely to have a compliant attitude in all the four countries. The findings
further suggests that tax knowledge is also significant correlated with tax compliant attitude in
Tanzania and South Africa. As a result of these findings, it was suggested that government
should invest in tax knowledge as a strategy to enhance tax compliant attitude among small
and medium scale business enterprises.

From a closer perspective in Tanzania, the study conducted by Mlay (2017) examines the
challenges facing tax collection for small and medium taxpayers. This was a case study
conducted in Mwanza tax region. Specifically, this study explores the challenges facing tax
collector in the informal sector in Tanzania. The main objective of the study was to identify the
factors influencing the willing of the informal enterprises to pay taxes. At the same time, the
study explored the factors hindering procedural tax responsibilities and as a result identifies
alternative mechanism for improving tax collection among small and medium scale business
enterprises. The findings of the study revealed that small and medium scale enterprises
willingness to pay taxes depends on tax morale, low transaction costs, a proper tax
administration and capacity in auditing and monitoring tax payments. Finally, the study
recommends specific strategies to improve tax collection for small and medium scale business
enterprises for Mwanza region in Tanzania.

5
Another study by Nelson (2013) investigates the contribution of taxpayer services and
education on revenue collection in Ilala tax region in Dar-es-salaam, Tanzania. Specifically, this
study assessed the level of tax compliance among small and medium scale entrepreneurs in
Ilala tax region. Moreover, the study assessed taxpayers’ awareness and their perception about
tax issues. Finally, the study identified challenges facing taxpayer services and education in Ilala
district. The findings revealed that the level of compliance among taxpayer was significant as a
result of high taxpayer awareness. In addition, taxpayers had a positive perception about tax
issues. Therefore, the study recommends that Tanzania Revenue Authority should encourage
physical outreach programs for taxpayer education. In results, this would expand the tax base
and encourage voluntary tax compliance among small and medium scale entrepreneurs in Ilala
district in Dar-es-salaam, Tanzania.

Research Methodology
This study applied qualitative approach. Specifically content analysis was the strategy used to
conduct the study. Content analysis was used to determine the major taxation challenges facing
SMEs. At the same time content analysis was used to provide tentative recommendation to
solve the challenges facing SMEs. This was the most appropriate approach because content
analysis categorizes verbal and behavioral data o classify, summarize and tabulate the data
analyzed (Masanja, 2018). In other words, this design was preferred because it allows the study
to use inductive approach in data analysis especially when data has no pre-established variables
or theories.

Sampling Size and Techniques

A total number of 187 entrepreneurs participated in this study. These entrepreneurs came
from small and medium scale enterprises located in three regions in Tanzania. The first groups
of research participants were entrepreneurs operating small scale business located in
Kilimanjaro region. A total number of 67 entrepreneurs from Kilimanjaro participated in this
study. The second group was 94 entrepreneurs of small scale business enterprises located in
Arusha region. The third group was 26 entrepreneurs from Manyara region. These three
regions were selected because of convenience to the researcher of the study. At the same,
Random sampling was used to select the entrepreneurs who participated in the study. Random
sampling was applied because it is a non-probability sampling techniques where by every
entrepreneur (research participant) has an equal opportunity to be selected and therefore it is
representative of the entire population (Masanja, 2019).

Data collection
As part of the data collection process, focus groups of random 5 entrepreneurs were selected
to participate in this study. First, the researcher explained the study to the participants and
sought their voluntary consent to participate in the study. Afterwards, the entrepreneurs were
given an index card so they can write three major challenges facing their businesses and
tentative recommendations to solve those challenges. Participants were given 5 to 10 minutes
to write their answers and then the Index cards were collected. No names were written in the
index card so as to conceal the identity of the entrepreneurs. Thereafter, the researcher would

6
ask them follow up questions about their challenges so as to gain a deeper understanding
about their problems. This activity would last for a maximum of 10 minutes.

Ethical Considerations
The researcher sought the informed consent of each research responded who participated in
the study. This involves a well explanation about the study and the main purpose of conducting
the study and appropriate benefits which would be accrued from the study. Eventually, the
research participant shared documents which they feel were appropriate for them to share so
as to grasp the key aspects of the study.

Data Analysis
The data analysis involved using words, theme counts and latent analysis or even the use of the
underlying meaning. Some challenges were identified clearly and vividly such as high taxes,
multiple taxes and bureaucracy in paying taxes. Other themes emerged as unfriendly and
unhelpful tax administrators, difficulty in paying taxes and complex tax computation. For
example statements like hostility among tax administrators and reluctance to help
entrepreneurs to determine their tax liability was coded as unfriendly tax administrators.
Statements from entrepreneurs like “I cannot comprehend the amount of tax liability” implies
that complex tax computations.

Results and Discussion

The data presented in Table 1 provides a detailed account of major taxation challenges
confronting small scale business enterprises in Tanzania. In summary, there are 7 major
Taxation challenges for small and medium scale business enterprises in Tanzania.

Table 1
Major Taxation Challenges Facing Small Scale Business Enterprises in Tanzania
Challenges Kilimanjaro Arusha Manyara Total
High Taxes 12 13 4 27
Multiple Taxes 11 14 2 27
Changes in Taxes 7 12 5 24
Unreasonable Taxes 9 8 2 19
Bureaucracy in paying Taxes 8 17 3 28
Difficult in paying Taxes 6 8 6 20
Complex Tax Computation 7 11 3 22
Unfriendly Tax Administrators 7 11 1 20
Total Participants 67 94 26 187
Note: *187 is solely th total number of respondents who participated in this study

According to the data analysis provided in Table 1, it is evident that although the challenges
confronting small business enterprises from three groups are the similar, the level of intensity
varies among the three groups. For example, the major challenge confronting small and

7
medium scale businesses enterprises in both Kilimanjaro and Arusha were high taxes while the
major challenge for entrepreneurs from Manyara was difficulty in paying taxes. At the same
time, entrepreneurs from Arusha and Kilimanjaro identified multiple taxes as one of the highly
ranked challenge but the same challenge had a low ranking among entrepreneurs from
Manyara.

Due to these discrepancies in priority ranking among the challenges experienced from
entrepreneurs in three different locations, the total was preferred from all the entrepreneurs
with an aggregate that reflects all the three locations. In other words, Data portrayed in Table 1
was presented for readers to see the distribution of each entrepreneur in different locations.

From the findings of the study, the eight major challenges facing entrepreneurs on the issue of
taxation include high taxes, multiple taxes, changes in taxes, unreasonable taxes, and
bureaucracy in paying taxes. Other challenges include difficulty in paying taxes, complex tax
computations, and unfriendly tax administrators. In effort to create a deeper and
comprehensive understanding of the each challenge, it is important to discuss these challenges
as presented in the data from research participants.

On the challenge of high taxes, it was alarming to hear that some the taxes charged by tax
administrators were higher than the value of the total business. According to most of the small
and medium entrepreneurs, the taxes charged are disproportionate to the revenue or the net
profit earned from the business. As a result, it becomes difficult to settle these taxes without
bribery of the tax officials. In some rare cases, some entrepreneurs decide to close down the
business because the taxes levied are too high and threaten to bankrupt their businesses.

Multiple taxes is another area of concern for most small and medium business enterprises. For
instance, some entrepreneurs complain that there a number of local and national taxes. The
sum total of these taxes is overwhelming to small and medium scale businesses. In this case,
some entrepreneurs resolve to tax avoidance and evasion. Specifically, entrepreneurs will use
legal mechanisms to reduce the tax liability. For instance, small and medium scale
entrepreneurs will use the incentivized tax schemes to avail of more favorable tax deductions
and as a result lead to tax avoidance. In addition, some entrepreneurs will take mislead,
misinform or even misstate their tax position to the Tanzania Revenue Authority in efforts to
evade paying taxes. These are some the desperate measures taken by entrepreneurs although
they might be subjected to hefty fines, punishable offenses or even imprisonment. All these are
results of multiple taxes imposed on small and medium entrepreneurs in Tanzania.

Another challenge is continuous changes in tax laws in Tanzania. There is a constant change in
tax rules and regulation that becomes extremely difficult for entrepreneurs to maintain. The
lack of stability in procedures and regulations in taxation has created uncertainty among small
and medium enterprises. Several interviews revealed that most of the small and medium
entrepreneurs are anxious about the changes of taxes which might results into higher taxes or
even the introduction of new taxes. The interviews further revealed that entrepreneurs are
even reluctant to open new business or even expand their business due to the unpredictability

8
of tax law, rules and regulations in Tanzania. In this scenario, changes in tax laws are an
eminent threat to small and medium business growth.

Unreasonable tax charges are an extra outstanding challenge for small and medium business in
Tanzania. According to the interviews of several entrepreneurs, some the taxes charged are
baseless and lack substantive reason to justify their computations. In other words, some the
taxes charged do not have a proper basis or criterion for computation and therefore raise a lot
of unanswered questions for entrepreneurs in small and medium enterprise business. For this
reason, some entrepreneurs complain and become resentful in paying taxes to the Tanzania
Revenue Authority and other local tax collectors.

Bureaucracy in tax payment is a daunting challenge facing entrepreneurs in small and medium
scale business. From the interviews, it was realized that there is a long procedure in paying
taxes which creates frustrations among entrepreneurs. Sometimes, entrepreneurs are
supposed to go through several tax administrators to ascertain the amount taxes due. As a
result, entrepreneurs waste a lot of time to determine their tax liability. In turn, this practice
affects their business.

An additional challenge is difficulty in paying taxes due to technological and technical

deficiencies from the Tanzania Revenue Authority. For instance, some of their offices are not
located in rural areas and therefore entrepreneurs travel a long distance in effort to settle their
tax liability to the Tanzania Revenue Authority. Furthermore, the breakdown of online paying
platforms due to power outage or even poor internet connection is another reason for
difficulties in paying taxes. All these are among the challenges confronting small and medium
scale business enterprises in Tanzania.

Entrepreneurs also identified the complexity in Tax computation. The interviews revealed that
entrepreneurs are not in the position to determine the amount of tax liability owed to the
Tanzania Revenue Authority and other local tax authorities. This is due to the complexity of the
tax rules and regulations which results into extreme difficulties in tax computations or
calculations. In light of these tax computations challenges, entrepreneurs have to seek
assistance for tax expert or tax administrators which might be inconvenient, time consuming
and even costly.

Unfriendly tax administrator is another concern identified for small and medium entrepreneurs
in Tanzania. In the interviews, some entrepreneurs insisted that some of the tax administrators
are not helpful on tax issues. Some the tax officials or administrators are not willing to assist
entrepreneurs in tax determination and other related issues in settling the tax liability. As a
matter of fact, some entrepreneurs claimed that some of the tax administrators are arrogant
and unfriendly when dealing with taxpayers.

In summary, the eight challenges are interdependent and interconnected at the same time. This
implies that on challenge can result into another challenge and vice versa. Consequently, one
challenge can trigger other challenges as well. Therefore, the solutions for these challenges can

9
be related. The solution as recommendations might not be exhaustive and they are personal
perspectives which require further scientific testing. In addition, these recommendations are
based on the personal opinion of entrepreneurs from small and medium scale business
enterprises located in three regions in Tanzania. These regions are Kilimanjaro, Arusha and
Manyara.

Proposed Recommendations
The following proposed recommendations are intended to assist entrepreneurs of small and
medium scale business enterprises in Tanzania. Table 2 provides the proposed
recommendations to solve the taxation challenges confronting small and medium scale
business enterprises.

Table 2
Proposed Recommendations to Solve the Taxation Challenges in Tanzania
Challenges Recommendations
High Taxes Fairness/Equity: taxes should ensure fair and equal based
on revenue and expenditures and the net profit realized
from the business
Equality: higher net profits should be subjected to higher
taxes instead of revenue which has not taken expenses into
account.
Multiple Taxes Streamlining Taxes: reduce the number of taxes imposed on
entrepreneurs. This involves imposing few taxes on small
and medium scale business enterprises
Changes in Taxes Certainty in taxes: avoid the unnecessary changes in tax
law, rules and regulation which create confusion among
entrepreneurs.
Unreasonable Taxes Reasonable Tax basis: there should be a criteria or basis for
computing taxes which takes into consideration all relevant
factors in tax computations
Bureaucracy in paying Taxes Streamline Tax Services: create a simple tax system with
few procedures, rules and regulations and few tax
administrators
Difficult in paying Taxes Convenience in paying Taxes: the tax system should cause
minimum inconvenience to the entrepreneurs in respect of
tax payments, record keeping, filling taxes and tax audit
Complex Tax Computation Tax Simplification: taxes should be simple and understood
by common man.
Unfriendly Tax Administrators Good Taxpayer Care: tax administrator should be trained to
deal with entrepreneurs.

10
Tax fairness and equity is a tentative solution to high taxes imposed on small and medium scale
business enterprises. Tax fairness refers to a tax system that is equitable to all entrepreneurs. In
this case, the government should focus on limiting the amount of tax legislation and rules that
benefit all social classes instead of favoring one social class over the other. In other words, tax
fairness and equity should be based on the entrepreneurs ability to pay taxes. Specifically, this
implies that entrepreneurs with higher income are subjected to pay higher taxes on their
income compared to lower income business. Consequently, government should close all
loopholes in the tax system to create an even taxation system for all entrepreneurs.

Streamlining taxes simplifies the tax code and reduces the number of taxes imposed on
entrepreneurs. The government and entrepreneurs should work together in creating a win-win
situation for both the government as the revenue collector and entrepreneurs as tax-payer. By
doing so, entrepreneurs will be willing to pay taxes and therefore minimizes the level of tax
avoidance and evasion among the taxpayers. At the same time, the government can reduce the
cost of enforcing tax collection procedures and regulation in effort to force entrepreneurs
(taxpayers) to comply.

Certainty of taxes is the solution to frequent changes in tax legislation, rules and regulations. In
other words, the amount of taxes paid, timing of payment and even the procedures for
payment should be certain and known to the taxpayer. There should be consistency in the tax
provision as this may lead to confusion and uncertainty among entrepreneurs. Concurrently,
certainty in taxes involves the government consistency in terms of estimating the amount to be
paid by entrepreneurs (taxpayers) from various taxes and the time frame for tax collection.

There should be a reasonable tax basis for tax determination. The tax system should be simple
in nature and rationality should be applied in the determination of relevant taxes. In other
terms, the taxes should not raise doubtful queries among the taxpayer or entrepreneurs about
the legitimacy of those tax payments.

Streamlining tax services is another way to minimize bureaucracy in tax computations and
payments. This means the government should ensure minimum inconvenience to the
entrepreneurs who are the taxpayers in respect of tax recording, tax filling and eventually tax
payments. The shorter the time for tax determination and payments will help the
entrepreneurs to focus on other productive activities for their business.

A simpler payment system increase convenience of tax payment among entrepreneurs.

Specifically, the government should establish a tax system with easiness in settling tax liability.
For instance online payment platform and mobile money applications such as M-pesa can be
implemented as necessary measures to simplify the tax payment system.

Tax simplification should be the sole objective of the Tanzania Revenue Authority and other
local tax collecting authorities. Tax simplification would reduce the taxpayers’ costs of
complying with the tax systems. Henceforth, tax simplification reduces time spent on tax
computations and also the cost involved in settling the tax liability. Consequently, it reduces the

11
mental anguish and stress associated with tax determination which has negative repercussions
to entrepreneurs or taxpayers.

Improved customer service should be a requirement for unfriendly tax administrators.

Improved customer services requires tax administrators taking care of the taxpayers needs by
providing and delivery high quality professional services and assistance. Some of the important
characteristics of good customer services among tax administrators include promptness,
politeness, professionalism and personalization. Promptness involves the tax administrators
promise to deliver services on a timely manner without any delays or cancelations. Politeness
involves the courteous with taxpayer and avoiding any rude behavior which might jeopardize
the peaceful atmosphere. Professionalism refers to treating taxpayers with professional
courtesy with the sole objectives of resolving the problems and concerns. Personalization
requires tax administrators to create a strong rapport with tax payers and meet them at a
personal level. In turn, this will lead to loyalty and a personal relationship which is instrumental
to meet their needs and demands.

Conclusion
Since small and medium scale enterprises business is a backbone of any vibrant economy, it is
imperative for the Tanzanian government through the Tanzania Revenue Authority to create a
favorable tax system for these businesses. In this case, the government should adhere to tax
basic principles so it can function effectively and efficiently. Specifically, the tax system should
be fair for small and medium scale businesses. Moreover, the tax provisions should be clearly
articulated without any ambiguity or confusion. Consequently, the tax system should be
simplified and easy to understand among the common entrepreneurs who have limited
understanding of tax laws and regulations. Ultimately, the tax system should be efficient so as
to minimize the compliance cost for settling tax liabilities.

12
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