CHAPTER ONE

INTRODUCTION

1.1    Introduction

This work is focused on the effect of electronic taxation on tax compliance of SMEs in Cameroon. This chapter consists of various elements such as background of the study, statement of the problem, research questions, objectives of the study, research hypothesis, scope of the study, significance of the study and operational definition of terms.

1.2    Background to the study

In ancient times, tax collection was primarily manual and often arbitrary. Prominent early tax systems can be traced back to Egypt where scribes recorded agricultural yields and taxes due on papyrus (Lee, 2016). Similarly in the Roman empire, taxes were collected by publicans, a class of tax collectors who often engaged in corrupt practices (Scheidel, 2012). Tax administration relied heavily on manual data entry, physical submission of tax returns and face-to-face interaction of tax payers and tax officials. During the medieval period, tax systems became slightly more structured, but issues of fairness and efficiency persisted. In Feudal England for example, the Domesday Book of 1086 was a significant administrative achievement, cataloguing land and resources to determine taxes owed (Fleming, 2007). This period also saw the rise of indirect taxes, such as custom duties, which expanded the scope and reach of taxation beyond land. The industrial revolution catalyzed the next major shift in tax administration. The complexities of emerging industrial economies necessitated more sophisticated systems.

The 19^th century witnessed the introduction of income taxes and the establishment of dedicated tax agencies. For instance, the UK established the Inland Revenue in 1849, which laid the groundwork for modern tax administration principles (Martin, 2005). The 20^th and 21^st centuries have seen exponential growth in the use of technology in tax administration. Computers and software revolutionized record-keeping and data processing. The electronic and automated tax filing and administration were first introduced in the United States of America (USA), where her Internal Revenue Services (IRS) started offering tax return e-filing for only tax refunds only (Muita 2011). This has seen tremendous growth to the level that almost all the taxpayers are required to file and pay their taxes electronically. The most recent evolution in tax administration is driven by digital technologies and data analytics. Governments worldwide are adopting e-invoicing, blockchain and artificial intelligence to enhance tax compliance and reduce fraud. Countries like Estonia have pioneered in implementing comprehensive digital tax systems, resulting in high compliance rates and low administrative costs (OECD, 2020).

United Nations (2007) stated that e-taxation is a process where tax documents or tax returns are submitted through the internet usually encompassing the use of internet technology, the worldwide web and software for a wide range of tax administration and compliance purposes. The electronic filing today has been adopted by many other developed countries such as Canada, France, Germany, United Kingdom (UK), Australia, Italy, Finland, Netherlands, Turkey, Singapore, Norway, India, China, Turkey, Malaysia (Ramayah, Ramoo & Amlus, 2012). Dowe (2008) disclosed that tax authorities around the world are using electronic tax administration systems to interact with tax paying public in tax collection, administration and compliance settings so as to improve effectiveness and efficiency in tax administration. According to Muita (2011), Nigeria and other developing countries such as Uganda, Rwanda and Kenya have also embraced electronic filing of tax returns.

A digital tax policy was adopted in Cameroon in 2014 (Directorate General of Taxation 2014), and fully put into effect in 2016 (Directorate General of Taxation 2016). The DGT’s web portal hosts an online income tax declaration and payment system, which only allows companies to make their payment through a bank or electronically (Fossong & Ashu, 2023). The tax administration issues a pre-filled tax return form to taxpayers using information it has on their activities, income and assets to calculate the tax due – the form is sent to taxpayers through the DGT web portal. If they agree with the assessment, they can confirm the information and pay the tax due through a bank or electronically. The taxpayer can request for the assessment to be corrected. To secure revenue and harmonise procedures, in December 2020, the Minister of Finance prohibited the payment of taxes and duty in cash to tax offices. Many taxpayers still have difficulty using the online system effectively, and prefer to visit a tax office to declare their taxes manually.

1.3 Statement of the Problem

Tax is the main source of revenue for most governments. Osundina and Olanrewaju (2013) state that taxation (a process of levying and administering taxes) is a key player in every society of the world because it is a chance for the government to collect revenue needed in satisfying its pressing obligations. Tax revenues provide governments with the funds needed to invest in development, dismiss poverty, deliver public services and build the physical and social infrastructure for long term growth (OECD, 2010). Therefore, mobilization of tax revenues through taxation of all the economic agents is the most important way through which the government can raise funds to provide public services (Ndekwa, 2014). Small and medium sized enterprises (SMEs) are one of such economic agents the government can raise revenue through taxation. SMEs play critical role in the economic development of countries by creating employment opportunities, fostering innovation, and contributing significantly to GDP. However, one of the persistent challenges faced by tax authorities worldwide is ensuring tax compliance among SMEs. According to Avisek and Seeboli (2024), billions of money is lost around the world due to tax non-compliance, evasions, fraud or non-collection (Avisek and Seeboli, 2014). As the need for revenue mobilization has grown in importance, facilitating tax compliance and reducing the gaps in the oversight system have become major concerns for tax administrations worldwide (Evans, Lang, Pistone, Rust and Schuh, 2018). For government to be able to provide public goods and reallocate wealth, there is a need for taxpayers to comply and pay the correct amount of taxes due and on time (Musimenta et al., 2017; Nkundabanyanga et al., 2017; Jayawardane, 2016).

Due to the bureaucratic structure of government which is costly to manage with little or no result, tax authorities as an agency of government are turning to e-government led solutions like electronic tax filing (e-filing). Traditional tax systems have often resulted in high compliance costs and complexities for SMEs leading to tax evasion and underreporting.  Oseni (2015) stated that there is no hiding place for tax evaders with the use of this modern technology since all potential tax payers are captured by the system. The tax administration of Cameroon faces challenges such as inefficiencies in tax collection, limited compliance, and difficulties in taxing the evolving digital economy, highlighting the need for information technology interventions. Despite the adoption of digital tax policies in 2016, local tax administrations struggle to fully benefit from technology. While African countries have made progress in automating tax processes, gaps in compliance risk management, data quality, and statistical analysis persist, hindering effective tax collection and revenue generation. Moreover, the resistance from taxpayers, lack of infrastructure, and regulatory challenges further impede the potential benefits of electronic taxation. To address these issues and enhance revenue collection, electronic taxation needs to be properly incorporated to streamline tax processes so as to improve compliance, and effectively tax the digital economy. In respect of the above, none of the studies had so far been carried out to investigate electronic taxation in terms of online tax filing, online tax registration and online tax remittance on the level of tax compliance of SMEs in Cameroon which depicts existence of gap in literature.

1.4 Research Questions

Due to the above problem stated, the study therefore seeks to address the following questions:

1.4.1 Main Research question;

What is the effect of electronic taxation on tax compliance of SMEs in Buea?

1.4.2 Specific Research questions;

1. What effect does online tax filing have on tax compliance of SMEs in Buea?
2. How does online tax registration influence tax compliance of SMEs in Buea?

• To what extent does online tax remittance affect tax compliance of SMEs in Buea?

1.5 Research Objectives

1.5.1 Main Objective

To examine the effect of electronic taxation on tax compliance of SMEs in Buea?

• Specific Objectives

1. To assess the effect of online tax filing on tax compliance of SMEs in                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   Buea?
2. To evaluate the influence of online tax registration on tax compliance of SMEs in Buea?

• To find out the extent to which online tax remittance affects tax compliance of SMEs in Buea