Literature Review

CHAPTER TWO

LITERATURE REVIEW

2.1        Introduction

This section of the research shall embark on finding and restarting some of the investigations and conclusions made by various researchers in regards to impact of Electronic Fiscal Devices and their contribution to revenue collection.

2.2        Theoretical Literature Review

According to Baurer (2005) the main source of income for all the government throughout the world is revenue that they (government) collect from their citizens and businesses in the form of taxes. Tax collection and the amount collected are of great importance to all countries including Tanzania because this shall enable the government to invest in various projects that shall be to the benefits of the citizens. The concept has been supported by the work of Bofah (2003) who argued that for any government to promote sustainable economic growth, they need funds which should be generated mostly from taxes because when the government depends too much on borrowing, the economy might not grow because instead of investing in infrastructures whatever they get will be used in repayment of debts/loans and thus taxes has become very important because the government does not have to repay such funds to the contributors. Chaudhary (2010) also argued that there at least four different methods through which governments can generate revenues/income however out of them all he believed that taxation is the most conducive means through which they (government) can generate revenue to improve infrastructures.

Despite the fact that all citizens always criticize their governments whenever they don’t provide them with better infrastructure however when it comes to paying taxes to the government nobody is willing to do so and most of them are reluctant and shall use any trick they know including falsifying their books of accounts and exempted expenditures in order to pay less taxes Nightingale (2002).

According to James and Nobes (2009), Nightingale (2002) who made reference from the work of Smith (1776) argued that a favorable tax is that which applies to everyone, which can be paid within the required time, which is not discriminative and not very rigid and easy to compute.  However all these cannot be achieved at the sametime and this therefore made Nightingale (2002) to conclude that there is no tax which complies with all these and therefore no tax can be said to be good or excellent.  According to Lamb et al (2005) timely payment of tax within the required time does not necessary mean that the activity is considered by the citizens as good because many of them hate paying of taxes because it dents their disposable income and reduce their purchasing power. Owens (2006) concluded that a greater majority of the citizens do not like paying taxes and thus to encourage a majority of people to pay taxes the government must involve them in the rate decisions (Nightingale, 2002) and for this to take place the cannon of taxation must be adhered to as was stated by Smith (1776).

Based on the investigation undertaken by World Bank (2002) the Tanzania Revenue Authority has not been able to come up with a tax system that is easy to understand and calculate and this finding was supported by Luoga (2002) when he made conclusions that legislative acts governing issues relating to tax brackets are very unclear and vague with lots of inconsistencies which makes it difficult for the income of the government to continue increasing because immense power has been given to various governmental organs in determining the amount that should be collected from each and every individual and businesses.  These drawbacks therefore made Luoga (2002) to conclude that for the government to continuously meet their tax collection targets there was a need to revise the legislations and tax collection procedures which will also ensure that unscrupulous tax officials, individuals and businesses are put on check and this led to the government emphasizing on Electronic Fiscal Devices (EFD) and reshuffling officials with many of them being hauled to courts for Frauding the government of the much needed funds.

Bofah (2003) started that for the government to increase revenues that they collect from taxes there is a need to educate citizens on the importance of proper record keeping and let them know that proper maintenance of the books of accounts is not only to ensure that they pay their dues to the government but it also promotes business growth in the sense that the organizations and individuals will be able to plan well in advance and ensure that they operate and live within their means.  This easy supported by Bahiinga et al (2004) when they argued that most of the citizens shall be willing to pay taxes if the government could take the initiatives of creating awareness and educating them on the merits of conforming to the government legislations and policies by paying taxes within the stipulated time.

According to Martin et al (2010, cited from Allingham and Sand mo, 1972) whenever the government comes up with wrong tax systems, they end up incurring certain hidden costs to the extent that they spend more in collection and chasing tax evaders than what they actually collect in terms of tax revenue and thus to resolve this problem the government must come up with an efficient and effective means through which they can be able to reduce such hidden costs. According to the finding by Martin et al (2002) poor tax collection systems comes from traditional old outdated methods of compiling tax returns, long time being taken to calculate the amount owing to the government, high expenses being required in order to compile tax returns, high cost of writing materials, lack of enough room for the keeping of historical accounting data.  All these problems were also highlighted by Yitzhak (1994) who argued that whenever there was a hike in the amount to be paid interms of taxes the more businesses were likely to incur in order to ensure that they are tax compliance. This sentiment was also shared by Mboma (2012) while investigating the implication of being tax compliant on companies.

Technology has been improving frequently in current years, these organizations intending to comply with government and local authorities’ requirements on being tax compliance have ride to reduce the cost of complying through implementation of modern accounting systems including Electronic Fiscal Devices however they have continued to spend more on administrative issued Martin et al (2010).  The International Monetary Fund report (2010) found out that many underdeveloped countries are not able to reach their tax collection targets because many of those who are expected to pay taxes still do not have the required skills of recording financial transactions and they end up making lots of mistakes which includes mixing of taxpayers identification numbers, contact addresses and lack of clarity in identity of the taxpayers which leads to hike in administrative expenses with no major influence on revenues collected.