By Gabriel M. Mwamba Dissertation Submitted in Partial Fulfilment of the Requirements for the Degree of Master of Business Administration (General) UNIVERSITY OF ZAMBIA LUSAKA 2019 1 DECLARATION I declare that the work I have presented in this dissertation entitled “Taxing the informal Sector: targeting music and Video Discs sellers at Lusaka City Market” is to the best of my knowledge my own work. The work contains no material submitted previously, in whole or in part, for the award of an academic degree at this University or any other University. I have however acknowledged all other works. Name of candidate : GABRIEL M. MWAMBA Signature : _________________ Date : _________________ Name of supervisor : Jason Mwanza (PhD) Signature : ___________________ Date : ___________________ Gabriel Mwamba I II COPYRIGHT Gabriel M Mwamba This dissertation could be reproduced, archived, and communicated in any material form, completely or in part only by the University of Zambia or its agents, and may be made available for loan and copying only in accordance with the rules governing theses of the University of Zambia. © 2019 III ACKNOWLEDGEMENTS I would like to acknowledge everyone who played a role in my academic accomplishments. First of all, my parents, who supported me with love and understanding. Without you I could not have reached this current level of success. Secondly, Dr. Jason Mwanza, who has provided patient advice and guidance throughout the research process. Not forgetting support I received from my respondents, thank you all for your unwavering support. IV ABSTRACT The study was designed to explore the challenges and factors affecting government from taxing the informal sector. A mixed methods study design was adopted and 60 traders were enrolled in the study. A short survey questionnaire and in-depth interviews were used to collect data for this study. Quantitative data was analysed using SPSS version 16 and qualitative data was analysed using content analysis. It was not expected that the traders would not be aware of any tax. In this sample, all the traders were not aware of withholding and turnover taxes. They were however aware of Domestic VAT and Base Tax. The payment of domestic tax (n = 35; 58.7%) was higher than that of Base tax (n = 14; 23.3%. N = 14 (68%) paid Base tax leaving n = 9 (32%) who were not. Regarding domestic tax, only n = 2 (8.6%) were not paying this tax as compared to n = 33 (91.4%) who did. Compliance was associated with costs of punishment. Others paid tax because they saw it as a moral obligation while others were compelled to pay tax because they had trusted in the government in terms of its manifesto and the services it was offering. As for evasion, the level of knowledge played a significant role in paying tax among these traders. Some traders opted to pay some taxes whereas other paid both. They cited unfairness in the prescription of amounts to be paid as well as persons to pay. They found it justifying to evade paying taxes or under declare taxes as they fall due. Others did not see any need to trust the government as services were not top and there was a lot of corruption. The study concludes that the high number of traders and the variability and mobility in their operations, is likely to make it difficult for even the most capable tax authorities to effectively administer these taxes. Education campaigns that raise awareness about the benefits that result from the taxes collected, and about the efforts made by tax authorities to reduce unfairness (such as introducing low but graduated tax rates according to turnover for instance), may also improve tax morale and ultimately revenue collection. Keywords: Informal Sector, Music and Video Discs sellers, Tax, Lusaka City Market V TABLE OF CONTENTS DECLARATION ......................................................................................................................... i COPYRIGHT ............................................................................................................................. iii ACKNOWLEDGEMENTS ....................................................................................................... iv ABSTRACT ................................................................................................................................ v LIST OF TABLES ................................................................................................................... viii LIST OF FIGURES .................................................................................................................... ix LIST OF APPENDICES ............................................................................................................. x OPERATIONAL DEFINITIONS .............................................................................................. xi CHAPTER ONE – INTRODUCTION ..................................................................................................... 1 1.1 Background ........................................................................................................................... 1 1.2 Introduction ........................................................................................................................... 2 1.3 Problem Statement ................................................................................................................ 2 1.4 Purpose of the Study ............................................................................................................. 3 1.5 Objectives of the Research .................................................................................................... 3 1.6 Research Questions ............................................................................................................... 3 1.7 Scope of the Study................................................................................................................. 4 1.8 Theoretical Framework ......................................................................................................... 4 1.8.1 Deterrent (Economic) theory ....................................................................................................... 4 1.8.2 Fiscal Exchange theory ................................................................................................................ 4 1.8.3 Comparative treatment (equity) theory ........................................................................................ 5 1.8.4 Political legitimacy ...................................................................................................................... 5 CHAPTER TWO - LITERATURE REVIEW ......................................................................................... 7 2.2 Types and Categories of Taxes in Zambia .......................................................................... 10 2.3 Empirical Studies (Variables Tax Compliance) .................................................................. 11 2.4 Taxing the Informal Sector ................................................................................................. 15 2.5 Capacity development for taxation ..................................................................................... 17 2.6 Monitoring and evaluation .................................................................................................. 20 2.7 Key Case studies ................................................................................................................. 21 2.8 Strategies to Enhance tax Adherence .................................................................................. 23 CHAPTER THREE - RESEARCH METHODOLOGY....................................................................... 25 3.1 Research Design .................................................................................................................. 25 Table 2 Research Design matrix ............................................................................................... 26 3.2 Population............................................................................................................................ 27 VI 3.3 Sample ................................................................................................................................. 28 3.4 Data Collection and Analysis Techniques .......................................................................... 29 3.5 Ethical Considerations......................................................................................................... 30 3.4 Limitations and strengths of this study ............................................................................... 30 CHAPTER FOUR – RESEARCH FINDINGS ...................................................................................... 32 4.1 Introduction ......................................................................................................................... 32 Figure 1: Distribution by gender ............................................................................................... 33 Figure 2: Distribution by education .......................................................................................... 34 4.1 Awareness of Types of Tax ................................................................................................. 34 Table 3: Awareness of Tax........................................................................................................ 34 Table 4: Payment of Tax ..........................................................................................................