An examination into tax compliance mechanisms: The effect of tax amnesty among small and medium-sized enterprises (SMEs) in Lusaka district, Zambia

Abstract

Tax compliance poses a significant obstacle for revenue generation in developing countries, particularly for small and medium-sized enterprises (SMEs). Tax amnesty, defined as a temporary government policy that allows taxpayers to settle outstanding tax liabilities with reduced or waived penalties and interest, has been implemented in various forms globally. Although Zambia has initiated various tax amnesty programs, there is a lack of substantial empirical data regarding the relationship between amnesty and enforcement strategies, taxpayer awareness, and digital initiatives across various compliance profiles of SMEs. This research examines the effects of tax amnesty and related compliance mechanisms on SMEs in Lusaka District, Zambia, grounded in Compliance Theory and Agency Theory. Utilizing survey data collected from 400 SMEs through stratified random sampling, the study applies multinomial logistic regression to evaluate the influence of tax amnesty, tax awareness, tax audits, and tax penalties on compliance levels categorized as low, moderate, and high. The findings indicate that tax amnesty notably enhances the likelihood of SMEs, both high and low in compliance, meeting their tax obligations, although its impact differs among compliance categories. Enforcement practices like audits and penalties discourage compliance in SMEs that are less compliant while promoting it amongst those already adhering to tax regulations. Tax knowledge shows similar conditional effects on compliance. These results highlight the necessity for tailored compliance strategies rather than a one-size-fits-all approach to enforcement. This study adds to the tax compliance literature by illustrating the conditional effectiveness of tax amnesty and enforcement strategies within the context of SMEs in a developing nation. The policy implications underscore the need for amnesty initiatives to be combined with digital resources, taxpayer education, and ongoing monitoring post-amnesty to ensure lasting compliance.