Factors Affecting Tax Compliance among Small Medium Sized Enterprises in Lasanod, SSC-Khaatumo, Somalia

Tax compliance among Small and Medium Enterprises (SMEs) is a critical component of economic stability, particularly in developing regions like Somalia, where SMEs form the backbone of the economy. This study examines factors influencing tax compliance among SMEs in Lasanod, SSC-Khaatumo, focusing on perceived fairness of the tax system, tax knowledge and awareness, tax fines and penalties, and tax rates. A quantitative research design was employed, with data collected from 384 SMEs using a structured questionnaire and analyzed through descriptive and inferential statistics. The findings reveal significant relationships between tax compliance and three key predictors: perceived fairness of the tax system (r = 0.749, p < 0.01), tax fines and penalties (r = 0.727, p < 0.01), and tax knowledge and awareness (r = 0.513, p < 0.01). Regression analysis further confirms that tax fines and penalties have the strongest positive effect on compliance (? = 0.497, p < 0.01), followed by perceived fairness of the tax system (? = 0.468, p < 0.01) and tax knowledge and awareness (? = 0.188, p < 0.01). Surprisingly, tax rates showed no statistically significant impact on compliance (? = 0.010, p = 0.763). These results underscore the need for policymakers to prioritize transparent and equitable tax systems, enhance taxpayer education, and implement effective enforcement mechanisms to improve compliance. Addressing these factors can strengthen Somalia’s tax base, reduce reliance on external funding, and promote sustainable economic growth, particularly in conflict-affected regions like SSC-Khaatumo.