Abstract:
Understanding SMEs' knowledge of tax laws, rates, and penalties is essential for improving
compliance. By integrating three key theories Planned Behavior Theory, Economic Theory, and
Psychology Theory. The study took place in Njombe district council, Tanzania. Employing a
quantitative approach, it gathered data from a target population of 1200 taxpayers, with a sample
size of 300. Using Likert-scale questionnaires and a correlational research design, the study
achieved systematic data collection and analysis. The study reveals that SMEs generally possess
a strong understanding of tax laws and regulations, but there is room for improvement in
comprehending the tax system's structure. Tax rules are perceived as complex, and confidence in
declaring income to tax authorities varies. There is a common belief that tax officials provide
inaccurate advice, underscoring the need for better education and communication. Regarding tax
rates, SMEs do not find them excessively high, and the turnover tax is not seen as a major
hindrance. However, the complexity of tax laws is a concern. Filing costs and tax calculation are
generally not viewed as significant barriers. Taxation plays a critical role in government revenue
and economic development, but challenges in compliance persist. This study conducted in Njombe
Urban City Council, Tanzania, integrated multiple theories to understand the dynamics of tax
compliance among Small and Medium Enterprises (SMEs). Findings emphasize the need for
improved tax knowledge, better communication, simplified tax laws, and fair penalty structures. To
enhance compliance, it is recommended to invest in taxpayer education, establish effective
communication channels, simplify tax laws, review penalty structures, continue research, provide
government support, and implement monitoring and evaluation mechanisms. These steps can
significantly enhance tax compliance, bolster government revenue, and foster socioeconomic
development in Tanzania
