International Journal of Scientific & Engineering Research, Volume 7, Issue 2, February-2016 1544 ISSN 2229-5518 IJSER © 2016 http://www.ijser.org Tax Compliance Challenges in Fulfiling Tax Obligtaions among SMEs in Zimbabwe: A Survey of SMEs in Bindura (2015). Onias Zivanai, Chari Felix, Nyakurimwa Chalton Abstract— Tax compliance issues for Small to Medium Enterprises (SMEs) is an area of keen interest to the revenue authority in Zimbabwe. This case study assessed tax compliance issues of SMEs in fulfilling their tax obligations. A descriptive survey of SMEs in Bindura town was done and the major objectives of the study were to determine the causes of tax compliance or non-compliance among SMEs and to assess the effectiveness of the presumptive tax system in formalisation of informal sector. Stratified random sampling method was used to group members of the target population of 95 SMEs into five strata of cottage industries, restaurant, transport, hairdressing saloons, and bottle store operators. A sample size of 30 SMEs was drawn from the strata using convenience sampling. Questionnaires and interviews were used to gather primary data. Findings revealed that the majority of the informal traders are not tax compliant due to perceived high tax rates, low risk of detection, lack of trust in the revenue authority and the fact that fellow informal traders are evading taxes. Findings also suggested that presumptive tax system is ineffective in encouraging formalisation of the informal sector . Major recommendations were that: large companies should be given tax benefits for trading with compliant SMEs, tax audits, use of tax agents, enforcement of tax laws and awareness campaigns on presumptive tax should help SMEs to be compliant. Index Terms— tax compliance, presumptive tax, tax audits,Small to medium enterprises, presumptive tax, informal trader and formalization. ——————————  —————————— 1.0 Introduction and background to the study Economic challenges have resulted in the shrinking of the tax base in Zimbabwe (ZIMRA, 2014). Block (2013) asserts that in 2012, Zimbabwe had 3,5 million SMEs with an estimated turnover of US $7,4 billion. A plethora of challenges, namely liquidity crunch, sanctions, fall of prices of commodities in global markets and poor performance of agriculture has caused this economic meltdown (Kadzere and Bonga (2013). Formal companies have scaled down operations and others have closed shop (ZIMRA, 2014).Confederation of Zimbabwe Industries (CZI) (2015) report estimates that industrial capacity utilization ranged between 34% and 57% during the period 2009-2015. As a result, the Zimbabwean economy has a large number of SMEs as they attempt to fill the void left by large companies which have succumbed to economic challenges. SME activities constitute as much as 70% of economic activity and that they contribute more than 60% of the country’s GDP (Ministry of Finance, 2013). Tax is the most reliable and significant source of revenue by the government of Zimbabwe, contributing more than 60% to the national budget (Ministry of Finance 2013 and 2014). The rapid growth of informal sector signifies a large number of potential taxpayers (Musarirambi, 2013) and as a result in 2005, the revenue authority introduced the presumptive tax system aimed at broadening the tax base as well as encourag- ing formalisation of SMEs. According to Maseko and Manyani (2011) SMEs do not keep proper financial records, and this makes it difficult for the Zimbabwe Revenue Authority to collect revenue from them hence the introduction of presump- tive tax, which enables SMEs to pay a predetermined tax depending on the type of enterprise. This case study therefore aimed at interrogating tax compliance issues for SMEs and to assess the effectiveness of presumptive system in fostering IJSER