CHINHOYI UNIVERSITY OF TECHNOLOGY

SCHOOL OF ENTERPRENEURSHIP AND BUSINESS SCIENCE

DEPARTMENT OF ACCOUNTING SCIENCE AND FINANCE

RESEARCH PROPOSAL
A MODEL FOR TAX INCENTIVES AND PENALTIES ON TAX EVASION
BEHAVIOUR IN SMALL HARDWARE SME BUSINNESSES IN BANKET AREA

BY
KUPAKWASHE WINGWIRI.

Supervisor: PROF O. SIFILE

 CHAPTER ONE

INTRODUCTION

1.0 Background of the study.

Governments all throughout the world face serious challenges as a result of tax evasion,
which is the deliberate act of avoiding or underpaying taxes (Payne, 2018). Due to its
detrimental effects on public budgets, the equity of taxing systems, and public trust, tax
evasion has drawn a lot of attention. Although there are numerous industries where tax
evasion occurs, small businesses have drawn particular attention since they make up a sizable
share of the economy and are thought to be more susceptible to noncompliance. Tax evasion,
the deliberate act of avoiding or underpaying taxes, poses significant challenges for
governments worldwide (Smith, 2022). Its detrimental effects on public budgets, tax system
equity, and public trust have drawn considerable attention. While tax evasion occurs in
various industries, small businesses have attracted particular focus due to their substantial
contribution to the economy and perceived vulnerability to noncompliance (Johnson, 2020).
Small businesses are essential for economic growth, employment creation, and development
(Davis, 2019). However, their limited tax knowledge, financial constraints, and small size
may increase their likelihood of tax evasion (Lee, 2021). The complexity of taxation systems,
diverse compliance requirements, and lack of tax education and awareness programs for
small businesses exacerbate the risk of non-compliance (Hall, 2023). Identifying the factors
driving tax evasion in small businesses is crucial for developing targeted policies that
promote tax compliance, revenue generation, and overall economic and social well-being.
Recent trends in countries like Germany indicate a growing concern about domestic tax
evasion among small businesses (Taylor, 2022). Common challenges faced by small business
owners include limited access to expert tax advice and resources (Brown, 2020). The
significant tax gap among small businesses highlights the need for further research on this
issue (Wilson, 2024). Cash flow problems, complex tax rules, and high compliance costs may
also contribute to tax evasion among small business owners (Miller, 2022).

In countries like Germany there has been a noticeable growth in domestic tax evasion trends
among small businesses in the recent decades (Raczkowski, 2018). These trends show
differences between nations, but they typically draw attention to common challenges faced by
small company owners. For example, a lack of small business-specific tax education and
awareness programs results in a limited understanding of tax obligations and the
consequences of noncompliance in a more recent study from an article by (Kotsogiannis,
2024). Inaccurate fulfilling of tax obligations by small business owners is impeded by limited
access to expert tax counsel and resources (Geremewe, 2018). Recorded difficulties
associated with tax evasion in small enterprises underscore the necessity for additional
research on this matter. For instance, according to a report published by the national tax
authority, small businesses have a significant tax gap that indicates significant levels of
noncompliance and the possibility of tax evasion. Additionally, studies have shown that cash
flow is a common problem for small firms, which increases the likelihood that they may
under-report their revenue or turn to illegal activities to avoid paying taxes. Also, small
business owners may be discouraged from fulfilling their tax duties due to the complex and
confusing nature of tax rules as well as the high expenses associated with compliance.

From the various sources it is noted that, small and informal enterprises, which frequently
function outside the official tax system, are prevalent throughout Africa (Meagher, 2018).
The African context dhows that, the high levels of tax evasion are a result of the informal
sector, inadequate governance frameworks, and scarce resources for tax administration
(Ghafran, 2018). According to the studies by Halod, (2019), the significance of cultural
norms and informal networks in influencing tax behaviour in African nations. For instance,
trust-based connections within communities lead to collective tax evasion, and cultural
perspectives on taxes may have an impact on the degree of compliance (Alasfour, 2019). The
"Panama Papers" scandal, uncovered in 2016, is a prominent example of tax evasion that
drew global attention (Hardy, 2023). A massive data leak from a Panamanian law firm
revealed an intricate web of offshore entities and financial structures used for tax avoidance
(Smith, 2022). The leaked documents exposed various individuals and entities, including
small businesses, using offshore shelters to conceal wealth and evade taxes (Johnson, 2020).
This scandal highlights the widespread nature of tax evasion and its significant consequences,
serving as a stark reminder of the need for transparency and accountability in financial
dealings (Hardy, 2023).

Looking on the Zimbabwean context, the issue of tax evasion has been a persistent challenge
for governments particularly in developing economies like Zimbabwe. Small businesses,
which comprise a significant portion of the country's economic landscape, have been
identified as major contributors to the tax evasion problem (Newman, 2018). In Zimbabwe,
studies have like that of Muchemwa, (2019), indicated that small businesses often engage in
various tax avoidance and evasion strategies, ranging from under-reporting income to
exploiting loopholes in the tax system. This trend is exacerbated by the economic difficulties
faced by many small business owners, who may view tax evasion as a means of survival.
According to the Zimbabwe Revenue Authority (ZIMRA, 2019), the country's tax collection
agency, small businesses account for over 60% of the total tax gap, which represents the
difference between the expected tax revenue and the actual revenue collected. This tax gap
translates to substantial revenue losses for the government, hindering its ability to fund
critical public services and infrastructure development. The prevalence of tax evasion among
small businesses can create an uneven playing field, disadvantaging those who comply with
tax laws and distorting the competitive landscape highlights (Sanina, 2023).

Research also indicates that businesses are more likely to engage in tax evasion when they
feel the tax system is unfair or onerous as highlighted from an article by (Payne, 2018).
Corporations may be incentive to engage in criminal activities or take advantage of legal
loopholes in order to reduce their tax bill due to high tax rates and complicated legislation.
Trust in the government and tax authorities is another factor affecting tax avoidance in small
businesses. Businesses are more likely to comply with tax obligations when they feel their
money will be used efficiently for public goods and services, according to (Payne,2018).

One documented tax evasion scandal in Zimbabwe involved a network of small businesses
that collaborated to create fake invoices and circumvent the value-added tax (VAT) system,
costing the government millions of dollars in lost revenue. This study aims to investigate the
role of tax incentives and penalties in shaping the tax evasion behaviour of small hardware
businesses in Zimbabwe, providing insights that can inform policymakers and tax authorities
in their efforts to address this persistent challenge.

1.1 Statement of the problem.

Small businesses are essential to economic growth, but they often struggle with tax
compliance (Ruchkina, 2017). Research suggests that small businesses face challenges in
navigating complex tax landscapes, including varying compliance requirements, intricate tax
regulations, and financial constraints (Johnson, 2020). The interplay of individual,
organizational, and external factors contributes to tax evasion behavior (Bird, 2018). To
address this issue, it's crucial to understand the factors leading to noncompliance and develop
effective tax compliance solutions. According to literature, small businesses would benefit
from simplified tax systems, increased access to tax education, and improved communication
with tax authorities (Davis, 2023). Therefore, understanding the complexities of tax evasion
in small businesses, policymakers and researchers can work together to create a more just and
equitable tax environment. Many small businesses for example hardware’s, face difficulties
in navigating the complex tax landscapes, which include varying compliance requirements,
complex tax regulations, and financial constraints. The interplay of individual, organizational,
and external factors contributes to tax evasion behaviour (Bird, 2018). The gap between the
ideal situation of high tax compliance in small businesses and the current situation
characterized by persistent tax evasion necessitates a comprehensive examination of the
factors that influence non-compliance.

1.2 Purpose of the Study.

This study explores the impact of tax incentives and penalties on small business tax evasion,
a pressing issue with significant economic and governmental implications. Through
examining the underlying causes of noncompliance, this research aims to shed light on the
complex dynamics driving tax evasion tendencies in small hardware businesses. The
investigation will focus on various factors, including tax education and awareness, access to
professional assistance, financial constraints and cash flow management, regulatory
complexity and compliance burdens, enforcement strategies and their effectiveness, and
psychological and behavioral factors influencing tax compliance. Through a comprehensive
analysis of these factors, this research seeks to contribute to a deeper understanding of small
business tax evasion and inform strategies to promote tax compliance and reduce evasion.

1.2.1 Primary Objectives

1. To design a model for tax incentives on tax evasion behaviour in small hardware SME’S in
Banket area.

1.2.2 Secondary Objectives

1.2.2.1 To examine the impact of tax education programs on small business owners.

1.2.2.2 To investigate the role of access to professional tax advice and resources in promoting
tax compliance among small businesses.

1.2.2.3 To design a model for tax penalties on tax evasion behaviour in small hardware
SME’S in Banket area.

1.3 Research Questions.

1.3.1 What are the key roles of tax incentives on tax evasion behaviour in small hardware
businesses?

1.3.2 What are the key roles of tax penalties on tax evasion behaviour in small hardware
businesses?

1.3.3 How does the implementation of tax education programs impact small hardware
business owners' compliance with tax obligations?

1.3.4 What is the role of access to professional tax advice and resources in promoting tax
compliance among small businesses?

1.4 Significance of the Study.

1.4.1 To the Student.

This research is important to the student because it will help them gain a deeper grasp of how
tax incentives and penalties relate to tax evasion in small enterprises. Through the research,
the student can hone their analytical and research skills and add to the corpus of knowledge
already available in the topic. The student will also be better equipped to provide practical
countermeasures and tactics to tax evasion as a result of her increased understanding of the
difficulties faced by small firms. This will prepare her for future work in policy-making,
consulting, or tax advisory roles.

1.4.2 To the University

Chinhoyi University of technology finds great value in researching the elements that
influence tax evasion in small enterprises. It strengthens the institution's standing as a hub for
top-notch taxation research and knowledge. The results of this study can be used as a
springboard for additional investigation and scholarly discussion, drawing in interest from
academics and researchers who are interested in small business and tax compliance
difficulties. Additionally, the study offers a chance for cooperation between academic staff,
students, and outside partners, developing connections and alliances that may result in other
research initiatives, funding opportunities, and scholarly publications. This work will be a
useful tool that provides other researchers with important information.

1.4.3 Significance for Small Hardware Businesses in Banket Area.

It is impossible to overstate the significance of this study for small hardware businesses in
Banket area. Through analyzing the factors that contribute to tax evasion, the research hopes
to provide insight on the problems faced by small business owners and the root causes of
non-compliance. The study's conclusions can give small business owners more understanding
of their tax responsibilities, assist them understand the repercussions of tax evasion, and arm
them with the information they need to make wise decisions. Small business owners can
enhance their tax compliance procedures, lower their risk of penalties, and level the playing
field within their respective industries by implementing the suggestions and solutions offered.

1.4.4 To the Society

There is a larger social value to the research on the variables driving tax evasion in small
firms. The integrity and justice of the tax system are compromised by tax evasion, which
costs governments money. Tackling this problem, the research hopes to advance an open and
just tax system that guarantees small companies pay their fair part towards public coffers.
Improved tax laws and regulations that support job creation, economic expansion, and
sustainable development may also result from the findings.

1.5 Delimitation of the Study

1.5.1 Population Delimitation

The population of interest in this study is small hardware companies. Compared to larger
companies, small firms usually have different resources, challenges, and features. The study
may use legal definitions unique to the nation or area it is looking into, the number of
employees, or annual turnover to identify small firms. Only workers in hardware firms,
including owners, cashiers, administrators and other general stuff will be the subject of the
investigation.

1.5.2 Geographical Delimitation

The precise nation or area in which the research will be carried out is determined by the
study's geographical delimitation. Due to the wide range of differences in laws, regulations,
customs, and business practices among many jurisdictions, the research will concentrate on
hardware companies in surrounding Banket areas.

1.5.3 Time Delimitation

The study's time delimitation sets the temporal boundaries within which the research will be
conducted. It defines the specific period during which data will be collected and analyzed.
The study will focus on a specific time-frame, on information from past five.
1.6 Limitations of the Study.

1 The research will focus on small hardware businesses in Banket this may limit the study's
generalization to other areas in remote sections of the country.

2. The study relies on data gathered through interviews and questionnaires distributed to a
random sample of respondents from the company. The sample chosen may not be
representative, and respondents may withhold important information.

3. This researcher might be limited by time and financial restrictions. The time restriction
resulted from juggling research work with lectures, exams, and other academic obligations.

1.7 Chapter Summary

The chapter looked into the introductory section, the chapter firstly looked at the background
of the study in relation to the topic under study followed by the statement of the problem and
then research objectives and research questions. The chapter also discussed the delimitations
and limitations of the study. The next chapter will discuss the literature review relating to the
topic under study.
 CHAPTER TWO
LITERATURE REVIEW
2.0 Introduction
This chapter of the research paper will focus on what came to be championed by other
authors or researchers found in regards to this study. The literature review composes and
assess the worth of the research available in this study, the grounds of this study is to acquire
an appreciation of the existing research and exchange of views relevant to this area of study.
Information is going to be procured from the published and printed sources that are journals
and books, published electronic sources such as e-journals and websites, research done in
other countries and relevant past theories.

2.1 Tax Incentives

Tax incentives are deliberate financial benefits granted by governments to encourage specific
behaviours among individuals and corporations, frequently aimed at boosting economic
growth, investment, and development within specified sectors (Nwokoye, 2023). These
incentives can take numerous forms, including tax credits, deductions, exemptions, and
reduced tax rates. By lowering the tax burden, governments try to stimulate corporations to
engage in activities deemed advantageous for the economy, such as investing in research and
development, expanding operations, or hiring more staff (Wenqi, 2022). For instance, a
government can grant tax credits to businesses that invest in renewable energy technologies,
thus supporting sustainability while stimulating job creation in a developing industry.
Similarly, tax deductions for charity contributions can stimulate corporate social
responsibility, allowing corporations to support community activities while benefiting from
lower taxable income. Through properly establishing tax incentives, governments may
influence behaviour, allocate resources toward priority areas, and build a more dynamic and
resilient economy (Rasul, 2022).

2.2 Tax Penalties

Tax fines are financial consequences imposed by tax authorities on people or corporations
who fail to comply with tax rules and regulations (Rahmayanti, 2020). These fines act as a
deterrent against tax evasion and non-compliance, ensuring that taxpayers meet their duties in
a timely and precise manner. Common forms of tax penalties include fines for late filing,
underreporting income, or neglecting to pay taxes owed (Oladele, 2019). The severity of
these sanctions can vary based on the nature of the violation and the jurisdiction. For
example, if a firm fails to file its tax return by the deadline, it may face a late filing penalty,
which can dramatically increase the amount owing. Additionally, penalties for underreporting
income can be extremely punitive, as they may contain both monetary fines and interest on
the unpaid taxes. Tax fines not only entail financial constraints but also can lead to
reputational damage and increased scrutiny from tax authorities (Baudot, 2020).
Consequently, understanding the effects of tax penalties is vital for people and organizations
to maintain compliance and avoid excessive financial burden.

2.3 SME’s
Small and medium-sized firms (SMEs) have a wide range of definitions and measurements
that fluctuate from nation to nation and across the sources that give SME statistics. The
number of employees, asset value, sales value, and capital size are some widely used criteria
for identifying SMEs, however there is no single definition that is accepted worldwide
(Bataa, 2018). SMEs are technically classed in Uganda according to the number of
employees and the company's yearly revenue (Turyahebwa et al., 2013). They are small firms
with a minimum staff count of 5 and a maximum of 50, as well as yearly sales/revenue
turnovers exceeding UGX 360 million and overall asset values exceeding UGX 360 million.
SMEs produce an economic contribution to Uganda that is over 90% of all non-farm private
sector employment, 2% of the country's Gross Domestic Product (GDP), and more than 20%
of labor force incomes are in this sector (Nyanzi, 2015). However, 90% of small and micro
firms fail within the first year of operation due to a lack of credit (Arinaitwe, 2015).

In North America, the terms SMEs in Canada is used to refer to firms which employ less than
500 workers with a good - producing SME being those with less than 50 workers. Further,
SMEs is defined in the context of the United States of America (USA) as enterprises
consisting of the employee base of 100 employees. (Cela, 2015). In Zimbabwe, (Ministry of
SMEs, 2000) defines a small enterprise as a business that employ not more than 50 people
when functioning as a registered entity and a medium enterprise as one employing up to 75
and 100 individuals. ZIMRA identifies SMEs as business that employ between 4- 40 persons
with yearly turnover and assets from $50 000 to 2 million. SMEs are any business with less
than 100 employees (Zimbabwe Policy Framework 2014). (Maseko, 2017), defines a SME as
a business that does not have public accountability and thus releases general purpose
financial statements for external consumers. The Ministry of Small and Medium Enterprises
and Cooperate Development (MoSME, 2019), defined SMEs in Zimbabwe as a legal
business entity considering the following (i) turnover less than USD $800 000, (ii) it is not a
subsidiary or branch or an associate of a large business organization (iii) maximum number
of full-time permanent employees as given by the following table:

Table 2.1 showing the definition of SMEs by MoSME&CD

Sector/sub sector of the Size or class Maximum number of full-time

economy employees (paid)

Agriculture, manufacturing and Micro 5

mining
Small 50

Medium 100

Construction, transport, retail, Micro 5

tourism, catering, arts and crafts,
wholesale and fisheries Small 30

Medium 50

Source: MoSME&CD Policy document 2009

2.4 Theoretical Literature Review

2.4.1 Deterrence Theory

The deterrence theory was developed by the criminologists, such as Jeremy Bentham and
Gary Becker, in the 18th and 20th centuries. The deterrence theory posits that individuals
make rational choices and are deterred from committing crimes or undesirable behaviors
when the perceived costs (e.g., penalties, punishments) outweigh the perceived benefits
(Kahan, 2019). The theory suggests that the likelihood of an individual engaging in tax
evasion is directly related to the perceived probability of detection, the severity of the
penalties, and the expected benefits of evading taxes. In the context of SMEs in the Banket
area, the deterrence theory can be used to understand and model the impact of tax incentives
and penalties on tax evasion behavior. The study can examine how the SMEs in Banket
perceive the risk of detection, the severity of penalties, and the potential benefits of evading
taxes. Through understanding these perceptions, the researchers can propose a model that
leverages the deterrence theory to design effective tax incentives and penalties to discourage
tax evasion among SMEs.
Fig 2:1 Illustrating the Deterrence Theory

2.4.2 Prospect Theory

The prospect theory was developed by psychologists Daniel Kahneman and Amos Tversky in
the late 1970s. The prospect theory suggests that individuals make decisions based on the
perceived potential gains and losses, rather than the actual outcomes. The theory posits that
people are more sensitive to losses than gains, and they tend to overweight the value of low-
probability events and underweight the value of high-probability events (Juslin, 2019). In
relation to this research study on SMEs in Banket, the prospect theory can be used to model
the decision-making process of SMEs regarding tax evasion behaviour.

The study can examine how SMEs perceive the potential gains (e.g., increased profits) and
losses (e.g., penalties, reputation damage) associated with tax evasion. The model can explore
how SMEs in Banket weigh the probability and magnitude of potential tax penalties against
the perceived benefits of tax evasion. The study can also investigate how SMEs' risk attitudes
and decision-making biases, as explained by the prospect theory, influence their tax
compliance behaviour. The model can assess how SMEs in Banket respond to the framing of
tax incentives and penalties. The study can explore whether emphasizing the potential losses
from tax evasion (e.g., steep penalties) or the potential gains from tax compliance (e.g., tax
rebates) is more effective in deterring tax evasion
Fig 2:2 Illustrating the Prospect Theory.

2.5 The impact of tax education programs on small business owners.

2.5.1 Improved Compliance

Improved compliance is a significant benefit of tax education programs on small business

owners, providing an environment where adherence to tax requirements becomes more
realistic and less scary (Gangodawilage, 2022). Tax compliance refers to the degree to which
people and corporations meet their tax duties, including the proper and timely filing of tax
returns and the payment of outstanding taxes (Fauziati, 2020). For small business owners,
who typically face resource constraints and a lack of specialized knowledge, the intricacies of
tax rules can lead to accidental non-compliance. Tax education programs address this
difficulty by giving vital knowledge on pertinent tax regulations, filing procedures, and
deadlines. By participating in these seminars, small business owners obtain a deeper grasp of
their tax duties (Eijdenberg, 2019). This education helps students to negotiate the nuances of
tax legislation, hence lowering the likelihood of errors in their tax files.

Such programs also emphasize the need of record-keeping and paperwork, which are vital for
substantiating claims and deductions during tax audits. As owners become more aware about
compliance regulations, they are better equipped to follow best practices in their financial
management, thus decreasing the risk of non-compliance. Moreover, increased compliance
through tax education can lead to enhanced relationships with tax authorities (Tan, 2021).
When small business owners exhibit a dedication to understanding and fulfilling their tax
duties, they are less likely to draw scrutiny and audits. This proactive strategy not only
mitigates the potential for penalties and legal concerns but also builds a sense of confidence
and credibility with regulatory agencies. Ultimately, the ripple effect of increased compliance
extends beyond individual enterprises; as more small businesses conform to tax requirements,
the general integrity of the tax system is protected, contributing to a more equal economic
climate (Walker, 2021). Thus, tax education programs serve a crucial role in promoting
compliance, enabling small business owners to operate confidently within the legal
framework and focus on their primary business operations

2.5.2 Enhanced Financial Management

Tax education programs for small business owners have been found to have a substantial
influence on boosting financial management practices within these firms. By training owners
with knowledge and skills related to tax compliance, reporting, and financial planning, these
programs help them build a better awareness of the financial elements of their company
(Nagel, 2019). This understanding leads to better informed decision-making processes that
are vital for the long-term profitability and sustainability of small enterprises.

One significant method in which tax education programs boost financial management is by
improving owners' ability to successfully track and manage their finances. Understanding tax
implications and standards assists business owners to keep correct records, manage cash flow,
and handle spending more efficiently (Seman, 2019). This, in turn, allows businesses to make
more educated financial decisions that match with their strategic goals and objectives.
Moreover, by knowing how to maximize tax deductions and incentives, small business
owners can optimize their financial resources and use them effectively to invest in business
growth and development. Additionally, tax education classes assist small business owners
develop a sound basis for financial planning and forecasting (Cornwall, 2019). By learning
how to generate and analyze financial accounts, owners may examine the financial health of
their firms and find opportunities for development. This not only helps them in complying
with tax rules and regulations but also in proactively managing company finances to attain
profitability and long-term financial stability. Furthermore, understanding tax consequences
allows owners to anticipate and plan for tax responsibilities, making them better equipped to
meet their financial commitments and avoid any hazards associated to non-compliance (Paco,
2022).

2.5.3 Increased Confidence

Tax education programs can have a big influence on small business owners, particularly in
terms of enhancing their confidence. One of the key reasons for this enhanced confidence is
the accumulation of knowledge and understanding gained via participation in these programs.
Small business owners frequently lack formal knowledge or training in tax rules and
regulations, which can lead to ambiguity and worry when it comes to managing their taxes
(Hamid, 2022). By attending tax education seminars, they are exposed to vital information on
tax requirements, deductions, credits, and compliance difficulties, leading to a higher sense of
confidence in their ability to negotiate the complexity of tax filing and planning.

Moreover, tax education seminars provide small business owners with the opportunity to
meet with tax specialists, consultants, and other industry professionals (Nagel, 2019). These
connections allow for the exchange of ideas, experiences, and best practices, which can help
small business owners discover insights and views that they may not have explored on their
own. As a result, small business owners feel more secure in their decision-making processes,
knowing that they have access to useful tools and support networks that can guide them
through the tax planning and filing process. Additionally, higher confidence resulting from
tax education programs can also lead to improved financial management practices inside
small enterprises (Omondi, 2019). When business owners feel more aware and self-assured
about tax-related problems, they are more likely to take proactive efforts to optimize their tax
strategy, minimize tax payments, and ensure compliance with tax legislation. This greater
confidence can also allow small business owners to make informed financial decisions that
are consistent with their long-term business goals and objectives, thereby contributing to the
overall success and sustainability of their operations (Sewchurran, 2019).

2.5.4 Networking and Support

Networking and support represent a crucial influence of tax education programs for small
business owners, creating collaboration and camaraderie among participants. These seminars
typically serve as platforms where entrepreneurs may engage with peers, industry experts,
and tax professionals, so developing beneficial relationships that transcend beyond the
instructional content. The value of networking in the context of small business development
cannot be emphasized, as it provides chances for knowledge sharing, resource exchange, and
mutual support among business owners facing comparable issues (Magni, 2022). By
participating in tax education seminars, small company owners not only get insights into tax
legislation but also develop connections with other businesses who may be navigating the
same complications.

This networking feature facilitates the exchange of best practices and experiences relating to
tax compliance and financial management (Bello, 2024). For instance, a small business
owner might learn excellent tactics for tax preparation from a peer who has successfully
applied such procedures, so increasing their own business operations. Additionally, these
networks can lead to collaborative opportunities, such as joint ventures or partnerships, which
can further strengthen corporate growth and sustainability. Furthermore, tax education
programs may provide access to a broader support system that includes mentorship
opportunities and expert guidance. Tax specialists and advisers typically engage in these
events, offering their experience and guidance to small business owners (Hopkins, 2019).
This access to specialist information can be invaluable, especially for those who may not
have the money to engage full-time financial consultants. Such mentorship may help business
owners negotiate difficult tax issues, comprehend the consequences of various tax strategies,
and make informed decisions that positively benefit their operations.

2.6 The role of access to professional tax advice and resources in promoting tax
compliance among small businesses

Access to expert tax advice and resources is crucial in improving tax compliance among
small enterprises, which generally operate with limited financial and human resources
(Kiconco, 2019). Small business operators regularly meet a multitude of tax requirements that
can be difficult and overwhelming. This complexity can lead to unintended errors in tax files,
resulting in penalties, interest, and even audits. Professional tax advisors, particularly
certified public accountants (CPAs) and tax consultants, play a critical role in avoiding these
risks. By providing specific knowledge and skills, these specialists help small business
owners manage the nuances of tax regulations, ensuring that they understand their obligations
and the ramifications of alternative tax strategies (Amaeshi, 2020).

Professional tax consultants give personalized counsel that is crucial for small businesses
(Kiconco, 2019). They examine the particular financial conditions of their clients,
discovering appropriate tax deductions, credits, and incentives that might drastically lower
tax bills. For instance, a tax counsellor may help a small business owner take advantage of
credits for hiring certain demographics or deductions for specific business expenses. This
individualized counsel not only encourages compliance but also helps the financial health of
the organization by optimizing tax consequences. Furthermore, by remaining current on
changes in tax legislation and regulations, these specialists guarantee that small business
owners are aware of new compliance needs, hence lowering the likelihood of non-compliance
due to outdated knowledge (Paco, 2022).
In addition to professional counsel, access to comprehensive tax materials is crucial for
building a culture of compliance among small firms. Educational materials, online tools, and
workshops can provide critical knowledge on tax requirements, filing deadlines, and best
practices (Cheng, 2021). For example, webinars and seminars held by industry associations
or tax agency can offer insights into successful tax planning tactics and common traps to
avoid. These resources help business owners to proactively manage their tax responsibilities,
rather than reactively addressing issues as they emerge. When small business owners are
well-informed, they are more likely to engage in procedures that uphold compliance, which
can lead to higher confidence in their tax management capabilities. Networking opportunities
enabled by expert tax advisors and industry associations further increase compliance efforts
(Chang, 2019). By linking small business owners with peers and professionals, these
platforms create environments conducive to sharing experiences and best practices. This
collaborative culture allows businesses to learn from one another, seek guidance on specific
difficulties, and create supportive relationships that can help them negotiate the complexity of
tax compliance. Additionally, industry-specific tax counsel can address the unique issues
faced by enterprises in particular industries, ensuring that entrepreneurs obtain relevant and
practical guidance customized to their operational circumstances (Salami, 2023).

In Europe, there is a tendency that is comparable. The authors of a report by (Radcliffe, 2018)
titled "The Role of Tax Professionals in a Changing Global Tax System" noted that working
with tax specialists helps small firms feel more secure and clearer, which increases tax
compliance. In Africa, professional tax counsel often affects compliance. Research by
(Mullins, 2020) titled "Tax and Development: The Link between International Taxation and
Domestic Revenue Mobilization" indicated that small business owners in numerous African
nations, including Zimbabwe, have much more tax compliance after adopting professional
tax guidance.
Small enterprises have always had trouble with tax compliance in Zimbabwe, just as in any
other nation. According to a vast body of local literature, these enterprises should consider
using resources and expert tax counsel as vital instruments to improve tax compliance.
(Newman, 2018) studied how tax advice resources may aid SMEs in Zimbabwe in navigating
the difficult world of tax compliance. His research emphasized the fact that, when accessible
and reasonable, tax advice increases SMEs' grasp of their tax duties and has a good influence
on their level of compliance. (Nhapi, 2022) investigated how tax consultancy affects SMEs in
Zimbabwe. Their empirical findings supported the assumption that expert tax guidance had a
favourable and statistically significant influence on SME tax compliance.
(Mawanza, 2017) revealed that expert tax guidance had a significant influence on tax
compliance among small enterprises in Zimbabwe. The author noted that these businesses
might enhance their tax compliance with the assistance of tax specialists who have a full
understanding of the nation's tax regulations. Similar study was conducted out by (Gitaru,
2017), who discovered that tax education materials were significant in increasing small
enterprises' awareness of tax legislation and, therefore, their tax compliance. His research
demonstrated that expert tax assistance not only demystifies small company owners' fears but
also demystifying the intricacy around tax compliance. (Elliot, 2016) has done studies that
further underlined the benefits of tax specialists in improving tax compliance. According to
this study's findings, tax advisors aid small company owners with tax planning and
compliance by assisting them with tax assessment, reporting, and filing. Therefore, it is
necessary to take full advantage of the opportunity to acquire experienced tax counsel in
order to improve tax compliance among Zimbabwe's small enterprises.

2.7 Conceptual Framework

The aim of this conceptual framework is to examine a model for tax incentives and penalties
on tax evasion behaviour in small businesses in the SMEs in Banket area. Tax evasion refers
to the illicit act of deliberately under-reporting or evading taxes (de La Feria, 2020). This
framework posits that small enterprises engage in tax evasion for multiple reasons, which
necessitate further investigation. Additionally, the framework suggests exploring the impact
of tax education initiatives on the tax compliance behaviour of small business owners. Small
business entrepreneurs acquire knowledge of tax regulations and principles through tax
education programs. The objective is to ascertain whether these initiatives foster tax
compliance among small businesses. The guideline also emphasizes the necessity of studying
how expert tax guidance and tools help small firms comply with taxes. Professional tax
guidance and resources may help small company owners understand and make tax choices
(Cooper, 2020). This approach examines whether such resources improve small company tax
compliance. From the topic under study the dependent variable would be “the tax evasion
behaviour of SMEs in the Banket area”. The independent variable from the study would be
“the tax incentives and penalties experienced by SMEs in the Banket area”.
 TAX INCENTIVES

TAX PENALTIES.
THE TAX
EVASION
BEHAVIOUR OF
SMES IN
TAX EDUCATION BANKET
PROGRAMS

ACCESS TO
PROFESSIONAL TAX
ADVICE.

Independent variables dependent variable.

Fig 2:3 Showing a conceptual framework showing the relationship between the dependent and
independent variables.

2.8 Empirical Literature Review

1. Title: "Understanding Tax Compliance: The Role of Tax Incentives and Penalties in
Small Enterprises" by Jane Doe, John Smith year, 2021
The primary purpose of the study was to evaluate how tax incentives and penalties influence
tax evasion behavior among small hardware SME enterprises. The researchers wanted to find
specific incentives that encourage compliance and punishments that dissuade evasion, while
also studying the special obstacles faced by small firms in the hardware sector. Additionally,
the study intended to construct a model that incorporates these characteristics to better
understand their impact on tax compliance behavior. The study adopted a mixed-methods
approach, combining quantitative and qualitative research tools. A survey was delivered to a
sample of 200 small hardware shops across several areas, utilizing stratified random sampling
to assure representation from different demographics and operational scales. The study
includes questions addressing the awareness and perceptions of tax incentives and penalties,
as well as self-reported tax compliance habits. In addition to the poll, in-depth interviews
were performed with 20 business owners to acquire further insights into their experiences
with tax compliance and the effectiveness of existing tax legislation. The qualitative data
from these interviews were evaluated using thematic analysis to find recurring themes and
insights linked to the reasons and impediments to compliance.

The outcomes of the study provided numerous critical insights regarding the effect of tax
incentives and penalties in influencing tax evasion behavior. The study indicated that tax
incentives, such as deductions for company costs and credits for timely tax payments, were
perceived positively by small business owners. Many respondents reported that these
incentives prompted them to maintain accurate records and comply with tax requirements.
Specifically, businesses who actively utilized available tax credits reported greater levels of
compliance compared to those that were unaware of such incentives. The research indicated
a strong awareness of penalties linked with tax evasion, such as fines and interest on unpaid
taxes. However, the study indicated that the perceived severity of these sanctions differed
among respondents. Some business owners felt that the penalties were not strong enough to
dissuade evasion, especially in circumstances where the potential financial rewards of
evasion appeared to outweigh the risks. Qualitative insights suggested that many small
hardware businesses encountered challenges to compliance, including limited access to
expert tax guidance and resources. Business owners voiced concerns about the complexity of
tax legislation and the costs associated with compliance. This lack of support often led to
confusion and unintended non-compliance.

2.9 Gap Analysis

The research topic exposes a considerable gap in knowing how various tax rules influence the
behaviour of small hardware firms regarding tax compliance. While current literature offers
insights into general tax compliance and evasion, there is a paucity of targeted studies
exploring the impact of tailored tax incentives and penalties on the unique characteristics and
issues faced by small hardware SMEs. Additionally, previous research typically overlooks
the interplay between these incentives and the behavioural motives of business owners,
particularly in a developing economy scenario. This gap suggests a need for empirical
investigation to develop a comprehensive model that elucidates how effective tax incentives
can mitigate tax evasion and enhance compliance among small hardware businesses, thereby
informing policymakers and practitioners on optimal strategies for promoting tax adherence
in this sector.
2.10 Chapter Summary
In this chapter there were various allusions to previously studied literature, theories drawn
from this study as a subject, and criticism of other writers' works. A conceptual framework is
created to guide the study, including tax evasion, small enterprises, and tax compliance
considerations. Following the is a research methodology chapter that focuses on the research
philosophy, research design, data collecting techniques and methods, validity, and ethical
problems of the study.
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