Tax Penalties on Tax Compliance: Development of a Tax Compliance Framework for Smes in the City of Harare

ABSTRACT Tax authorities must improve SMEs' tax compliance to expand the economy from SMEs. A descriptive survey was used to investigate the impact of key factors on SMEs' tax compliance in Harare. The study examined the impact of penalty rate, tax punishment, SMEs' understanding of tax penalties, and psychological behavior. Primary data came from questionnaires. 74% answered. The questionnaire included penalty rate, tax punishment, SMEs' tax penalty knowledge, psychological behavior, and tax compliance. Tax compliance was the dependent variable. The questionnaire's Cronbach alpha was above 0.60. Pearson correlations showed significant and nonsignificant relationships between variables. Independent variables' impact on dependent variable was measured using linear regression. ANOVA accepted four null hypotheses and one alternative. Tax punishment, SMEs' knowledge of tax penalties, and psychological behavior were significantly related to tax compliance. Variable penalty rate wasn't tax-related.