Assessing Taxpayer Perceptions of Service Quality and Compliance in the Evolved Digital Tax System: A Case Study of Dar Es Salaam

The integration of digital technologies in commerce and public administration has necessitated significant tax reforms to capture revenue from digital transactions. In response to this evolving landscape, Tanzania introduced the Digital Service Tax (DST) through the Finance Act, 2022, aligning with global trends in digital taxation. While this policy marks a crucial step in regulating online economic activities, it presents unique compliance challenges, particularly for digital businesses operating beyond national borders. This study investigates the impact of service quality on taxpayer satisfaction and compliance with DST in Tanzania. A stratified random sampling technique was used to select 385 respondents from Dar es Salaam, ensuring a diverse representation of individual taxpayers, SMEs, and corporate entities. Data were collected using a structured questionnaire based on the SERVQUAL model, measuring assurance, empathy, reliability, responsiveness, and tangibility on a five-point Likert scale. Partial Least Squares Structural Equation Modelling (PLS-SEM) and Importance Performance Map Analysis (IPMA) were employed to test hypothesized relationships and evaluate the model’s predictive performance using SMART-PLS software version 3.29. The findings reveal that all service quality dimensions significantly influence taxpayer satisfaction and compliance (p < 0.001), with assurance and reliability demonstrating particularly strong effects. These results underscore the importance of secure and efficient digital tax platforms in fostering compliance. Despite the short implementation period, DST adoption has shown promising trends, as evidenced by high satisfaction and compliance indicators. The model’s predictive relevance, confirmed by Q²_predict values, reinforces the robustness of these findings. Policymakers are advised to enhance digital tax infrastructure, strengthen security protocols, and improve user experience to sustain taxpayer trust and compliance. Future research should explore moderating factors such as demographic characteristics, digital literacy, and economic conditions, as well as conduct comparative analyses across regions to refine digital tax strategies in emerging economies.