THE IMPACT OF ELECTRONIC FISCAL DEVICES

THE IMPACT OF ELECTRONIC FISCAL DEVICES (EFDs) ON TAX COMPLIANCE:
A Case study of Tanzania Revenue Authority
CHAPTER ONE
1.0. OVERVIEW OF THE STUDY
1.1. Background information
The primary of the obligation of the Government of Tanzania is to provide services to its citizens and the objective are achieved through collection of fair taxes where by every person is liable to pay the right amount of taxes.
The responsibility of collecting Government taxes has been assigned to Tanzania Revenue Authority (TRA). TRA has been collecting Government revenue through self assessment, enhancement of voluntary tax compliance, tax investigation and tax audit but some taxpayers were not voluntarily complying with tax laws by filling false information, under declaring sales/revenue and improper record keeping which cause the loss of Government revenue and poor tax compliance. Therefore, TRA introduced Electronic Fiscal Devices (EFD) machines for VAT and non VAT register taxpayers with a turnover of 14 Million and above per year so as to combat non- tax compliance. The Device was introduced so as to assist in recording sales, calculating output VAT, computation of excise duty and transmitting records to TRA.
Electronic Fiscal Device (EFD) is a machine designed for use in business for efficient management controls in areas of sale analysis and stock control system which conforms to the requirements specified by the law. The device is called fiscal device due to the fact that it is intended to trace the economic activities of every business organization for tax purposes and report to TRA, thus ensuring accurate approximation of tax returns (www.iiste.org -European Journal of Business and Management -ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) -Vol.7, No.33, 2015).
EFDs to VAT registered traders under the “The Value Added Tax was effectively introduced on July 1, 2010 through the Finance Act, 2010 (Finance Act 2010 – Part XII) as the first phase. The second phase of Electronic Fiscal Devise (EFD) begun since year 2013, with the aim to expand the number of traders who shall use the EFD system to issue receipts or tax invoice in every transaction made. The second phase includes non VAT registered traders administered under The Tax Administration Act 2015
In order to improve tax compliance taxpayers are obliged to issue receipt or invoice on each sale and notify any changes/malfunctioning of the machine to Commissioner within 24 hours (www.tra.go.tz).
The below table indicated that taxes collected has been increasing from 2007/08 to 2015/06. The below data indicate that from 2010 when EFD was introduced, taxes collected has been increasing more as compared to the previous years. As well as taxes like domestic VAT, domestic excise duty and corporation taxes which are directly affected by the use of EFD has been increasing.
Therefore, the aim of this study is to find out how the introduction of EFD in Tanzania has impacted tax compliance
Collection of Direct and Indirect Taxes (TZS Billion), Tanzania Mainland, 2007/08 – 2015/16

Table:1.
(Source: www.tra.go.tz – collection report)

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VAT and non-VAT registered taxpayers
The Number of Registered Taxpayers, Tanzania Mainland, 2006/07 – 2015/16
Year
2006/07′
2007/08′
2008/09′
2009/10′
2010/11
2011/12
2012/13′ 2013/14
2014/15
2015/16

Taxpayers ( ‘000’)
335
398
488 618 846 1,036 1,612 1,784 1,990 2,200
Growth
(percent) 16 18.9 22.6 26.6 36.9 22.4 55.6 10.7 11.6 10.5
(Source: Tax and Government Finance Statistics Report, 2015/2016)
The Number of Registered VAT Vendors, Tanzania Mainland, 2006/07 – 2015/16
Year
2006/07′
2007/08′
2008/09′
2009/10′
2010/11
2011/12
2012/13′ 2013/14
2014/15
2015/16

Registered
Taxpayers
7,723 9,036 10,844 13,253 16,848 17,860 21,362 24,346 25,908 27,235
Growth
(percent) 25.5 17 20 22.2 27.1 6 19.6 14 6.4 5.1
(Source: Tax and Government Finance Statistics Report, 2015/2016)

1.2. Statement of a problem
Electronic Fiscal Devices (EFDs) in Tanzania were introduced in order to combat non tax compliance practices like filling false information, under declaring sales/revenue and improper record keeping which causes the loss of Government revenue and poor tax compliance for VAT and non VAT registered traders for domestic taxes. The EFDs helps TRA to establish the amount of sales/revenue, excise duty, VAT and income tax that should be paid by the VAT and non VAT registered trader (taxpayers). Previously TRA was losing a lot of revenue because taxes established were based on records kept at the taxpayers and returns filed to TRA by the same taxpayers. There was a concern from TRA that most of the taxpayers were undervaluing their sales in order to evade paying the right tax at the right time. Other challenges faced were sales that were not updated, a lot of paperwork, conflicts between the taxpayers and TRA officers and delayed audit reports among others (AkimuZaburi, 2014). In the Finance Bill of 2010, the Minister of Finance and Economic Affairs through the amendment in the VAT Act required that all VAT registered traders should use the EFD machines with effect from July 1, 2010. The statistics showed that the use of EFDs doubled the revenue collection by the increase of 59% between July 2010 and June 2013 (Mbago, 2014).
Implementation of the second phase of Electronic Fiscal Devise (EFD) begun since year 2013, with the aim to expand the number of traders who shall use the EFD system to issue receipts or tax invoice in every transaction made. The second phase includes non VAT registered traders administered under The Tax Administration Act 2015. Implementation of the second phase of EFD includes the following groups;
• i. Persons who are not VAT registered with a turnover ranging from TSHS 14 million and above per year;
• ii. Traders trading in the Region’s prime areas, identified on the basis of rent payable;
• iii. Traders dealing with selected business sectors such as Spare Parts, Hardware, Mini Supermarkets, Petrol stations, Mobile phone shops, Sub wholesale shops, Bar and Restaurants, Pharmaceutical Stores; Electronic Shops etc.
The review of studies conducted by various researchers was based on assessing the impact of EFDs on VAT collection by Tanzania Revenue Authority. This has been the focus of various researches because when EFDs were first introduced by TRA, the implementation started with VAT registered traders. Currently, TRA has extended the use of EFDs to Persons who are not VAT registered with a turnover ranging from TSHS 14 million and above per year
Table I above under introduction indicated that taxes collected has been increasing from 2007/08 to 2015/06. The data indicate that from 2010 when EFD was introduced, taxes collected has been increasing more as compared to the previous years. As well as taxes like domestic VAT, domestic excise duty and corporation taxes which are directly affected by the use of EFD has been increasing.
Therefore, this study thought to assess the impact of electronic fiscal devices on tax compliance in Tanzania. The study aims at assessing the impact of Electronic Fiscal Devices on tax compliance in Tanzania. Specifically the objective of the study is to assess compliance on EFDs usage, Roll out of Electronic Fiscal Devices, EFDs maintenance services and enforcement of EFD compliance in Tanzania.

1.3. Research objectives
1.3.1. Main objective
The main objective of the study was to: assess the impact of Electronic Fiscal Devices on tax compliance among the VAT and non VAT registered taxpayers in Tanzania.
1.3.2. Specific objectives
The study intended to achieve the following specific objectives
i. Explore the status of EFD usage on improving tax compliance for VAT and non VAT registered persons.
ii. Assess the status of EFDs roll out in relation to improving tax compliance for VAT and non VAT registered persons.
iii. Assess the impact of EFDs maintenance services on improving tax compliance for VAT and non VAT registered persons. .
iv. Assess the impact of EFDs enforcement on improving tax compliance

1.4. Research questions
The study intended to answer the following research questions:
i. Is the increase in Domestic taxes (Excise duty, VAT and income tax) due to increase in EFD usage among the VAT and non VAT registered taxpayers?
ii. How does the EFD roll out contributed to tax compliance?
iii. How long does it take for EFD machine supplier’s to provide technical assistance relating to the use of machine?
Iv.How does EFD enforcement conducted by TRA has contributed on improving tax compliance?

1.5. Significance of the study
This study aims at extending knowledge on the importance of using EFDs in taxation in order to improve tax compliance and collection which will enable the Government to improve and provide social services to the citizens. Tanzania depends more on tax as one of the major source of income for provision of social services, therefore this research has been designed in such a way that its findings will extend knowledge to TRA, tax payers, academicians and policy makers on the impact of EFD on tax compliance through EFDs usage, roll out of EFDs, EFD maintenance services and enforcement of EFDs on improving tax compliance in Tanzania.

1.6. Scope of the study
This study used a case study of Tanzania Revenue Authority and covered the period of nine (9) years from the year 2007/08 to the year 2015/16 and it involved the taxpayers using EFD (VAT and non VAT registered taxpayers) as indicated on TRA report under table: 1. Furthermore, the study used secondary data of taxes collected by TRA as indicated on TRA websites (www.tra.go.tz).

CHAPTER TWO
2.0. LITERATURE REVIEW
2.1. Introduction
This chapter reviewed the literatures from different studies and theories in order to capture ideas and arguments on the impact of EFDs on tax compliance by summarizing, classification and doing comparison prior to research studies. It is based on theoretical literature review and literature review from earlier studies and various theories.

2.2. Literature review
2.2.1. General Overview of Electronic Fiscal Device (EFD) in Tanzania
TRA’s Electronic Fiscal Device (EFD) was introduced to VAT registered traders under the “The Value Added Tax (Electronic Fiscal Device) Regulation, 2010” – Subsidiary Legislation, Government Notice No. 192 published on May 28, 2010, and enshrined in the Finance Act 2010 with the main aim of enhancing VAT compliance in Tanzania. TRA’s new EFD system became effective on July 1, 2010 (Finance Act, 2010). The introduction of EFD aims at assisting TRA to obtain correct sales information from business people; reduce tax collection costs and helping business people to comply with the Value Added Tax (VAT) regulations among others. TRA started to implement the second phase (Post Pilot) of Electronic Fiscal Devise (EFD) in 2013 with the aim of boosting revenue collections and simplify tax administration (www.iiste.org -European Journal of Business and Management -ISSN 2222-1905 (Paper) ISSN 2222-2839 (Online) -Vol.7, No.33, 2015).
The second phase includes non VAT registered traders administered under The Tax Administration Act 2015. Implementation of the second phase of EFD includes the following groups;
• i. Persons who are not VAT registered with a turnover ranging from TSHS 14 million and above per year;
• ii. Traders trading in the Region’s prime areas, identified on the basis of rent payable;
• iii. Traders dealing with selected business sectors such as Spare Parts, Hardware, Mini Supermarkets, Petrol stations, Mobile phone shops, Sub wholesale shops, Bar and Restaurants, Pharmaceutical Stores; Electronic Shops etc ( www.tra.go.tz)

2.2.2. What is Electronic Fiscal Device? (EFD)
Electronic Fiscal Device (EFD) means a machine designed for use in business for efficient management controls in areas of sales analysis and stock control system and which conforms to the requirements specified by the laws (www.tra.go.tz)

2.2.3. Types of Electronic Fiscal Devices (EFDs)
2.2.3.1. Electronic Tax Register (ETR)
The device is used by retail business that issue receipts manually.
2.2.3.2. Electronic Fiscal Printer (EFP)
The device is used by computerized retail outlets. It is connected to a computer network and stores every sale transactions or details made in its fiscal memory
2.2.3.3. Electronic Signature Device (ESD)
The device is designed to authenticate by signing any personal computer (PC) produced financial document such as tax invoice. The device uses a special computer program to generate a unique number (Signature) which is appended to and printed to every invoice issued by the user’s system.
Every user of EFD obliged to issue receipt or invoice on each sale and notify any changes/malfunctioning of the machine to Commissioner within 24 hours. The supplier of the machine will install, configure and attend the malfunctioning of the machine within 48 hours. Persons who are not VAT registered with a turnover ranging from TSHS 14 million and above per year are obliged to use and issue EFD receipt

2.2.4. Special Features of Fiscal Devices
The EFD machines have the following features and assist on tax compliance (www.tra.go.tz)
• It has in-built Fiscal Memory which cannot be erased by mechanical, chemical or electromagnetic interferences;
• Automatic self-enforcing Issuing of daily “Z” report after every 24 hours;
• Transmits tax information to TRA system automatically;
• It has irreversible date mechanism
• Issues fiscal receipts/invoice which is uniquely identifiable;
• It can be used as a stand-alone and configured into a network;
• It has at least 48 hours power backup, and it can use external battery in areas with no electricity supply;
• It saves configured data and records on permanent fiscal memory automatically
• It has tax memory capacity that stores data for at least 5 years or 1800 day transactions
• Avoids conflict during audit and assessment of tax. EFDs secure tax information for auditpurposes.
• Simplify and ease objection and appeals

2.2.5. Benefits of using EFD
2.2.5.1. Computerizing Tax Auditing:
EFDs enable taxpayers to send z-report to TRA electronically which enable TRA to analyze those data using computer within a short period of time.

2.2.5.2. Less Work for Tax Authority:
Less time spend by TRA to analyze sales, revenue and taxes paid by taxpayers

2.2.5.3. Fewer Disputes:
Information contained on EFD regarding taxpayer’s is actual sales. This assists TRA officials to calculate the correct amount of taxes payable. This will therefore reduce dispute between TRA and taxpayers.

2.2.5.4. Increased Tax Revenue:
The revenue of the tax payers is revealed and taxed much more easily, providing significant increase in tax revenue (Akimu Zaburi, 2014).

2.2.6. Enforcement

2.2.6.1. EFD offences
According to the tax administration act, 2015, Any person who; Fails to acquire and use an EFD upon commencement of business operations or expiry of the period specified by the Commissioner, Fails to issue fiscal receipt or fiscal invoice upon receiving payment for sale of goods or service, Issues a fiscal receipt or fiscal invoice that is false or incorrect in any material particulars, uses EFD in any manner that misleads the system or the Commissioner Commits an offence and shall be liable on conviction to a fine not less than 200 currency points and not more than 300 currency points or to imprisonment for a term not exceeding three years or to both. Where by 1 currency point is equal to TZS 15,000 (www.tra.go.tz)

2.2.7. Taxes influenced by the used of EFDS
EFDs aim at helping TRA to obtain the correct sales/revenue information from taxpayers; reduce tax collection costs and helping business people to comply tax laws. By obtaining the correct amount of sales/revenue, TRA will be able to collect the correct amount of domestic VAT, domestic excise duty and income tax taxes.

2.3. Theoretical literature review
Theory can be referred to as a set of views a person or a group of people has, which tend to explain the situation that exist and predict about the future. According to Kenneth (2005) theories tend to present a systematic view of a certain phenomena by specifying relations about empirical reality among variables using a set of interrelated variables, definitions and propositions. The theories which were used in addressing the study are as follows:

The Theory of Planned Behaviour (Ajzen and Fishbein, 1980) explains human behavior. According to the theory, the behavior of individuals within the society is under the influence of definite factors, originate from certain reasons and emerge in a planned way. The ability to perform a particular behavior depends on the fact that the individual has a purpose towards that behavior (behavioral intention). Behavioral intention in turn depends on three factors that is attitude towards the behavior, subjective norms and perceived behavioral control.
These three factors are also under the influence of behavioral beliefs, normative beliefs and control beliefs.

According to deterrence theory, people carefully asses’ opportunities and risks, and disobey the law when the anticipated fine and probability of being caught are small in relationship to the profit to be made through noncompliance Murphy (2004).

The fiscal exchange theory suggests that, the presence of government expenditures may motivate tax compliance from the tax payers (Toye& Moore, 1998).According to Toye& Moore (1998), tax compliance among society increases with perception of the availability of public goods and services being developed in relation to the tax paid. This theory is more practical and acceptable than the previous one (economic deterrence) because, it advocates individual’s willingness to comply without direct force. Furthermore, it serves the government from high collection costs resulting from enforcement measures.

Human behaviour in the area of taxation is influenced by social interaction in much the same way as other forms of behavior (Snavely, 1991). Compliance behavior and attitudes towards the tax systems may therefore be affected by the behavior of an individual’s reference group such as relatives, neighbours, and friends. This theory to a large extent, support the fiscal exchange theory. The society with government advocating good governance has better chances to comply with laws and orders including tax laws and vice versa.
Therefore, here comes the introduction of EFD through the Finance Act, 2010, with aim of improving tax compliance and collection from hundreds of thousands of taxpayers by assisting TRA in recording sales/revenue, calculating output VAT, computation of excise duty and transmitting records to TRA.

2.4. Conceptual Framework
The conceptual framework describes and explain the concepts to be used in the study, their relationships with each other and how they to be measured. According to (Kenneth, 2005) a conceptual framework is an abstract indication of how basic concepts and constructs are expected to interact in the actual setting, and the experiences that form the foundation of the research study. It is concerned with the way ideas are organized to achieve the purpose of the research. The aim of this section is to develop an integrated conceptual model to analyze variable of the study. Accordingly, based on what have been understood from theoretical and empirical reviews a model on conceptual framework was developed and used to guide the study through assessing the impact of EFDs on tax compliance through compliance on EFD usage, roll out of EFDs, EFDs Maintenance services and enforcement of EFDs.

Figure 1: The Conceptual Framework for the study

INDEPENDENT VARIABLES DEPENDENT VARIABLE

2.4.1. Explanation of Conceptual Framework
The conceptual framework has four types of the variables which are EFD usage, EFD roll out, EFD maintenance services and EFD enforcement.
The conceptual framework assumes that the introduction of EFDs machine through EFD usage, EFD roll out, EFD maintenance services and EFD enforcement (Independent variable) can lead to the either effective or ineffective tax compliance (output variable) in the country. However, according to the model/conceptual framework the major reason of adopting EFDs in the tax collection system so to improve tax compliance and collection of taxes that will enable the Government to provide social services to the citizens.
2.4.2. Hypothesis
Hypothesis is a conjectural statement of relationship between two or more variable (Kerlinger, Fried N, Foundations of Behabioural Research , 3rd edition, New York: Holt, Rinehart and Winston, 1986). It is a specific, testable prediction about what you expect to happen in a study. Hypothesis can be Null or alternative. Null hypothesis is a hypothesis which a researcher tries to disprove, reject or nullify while alternative hypothesis is what the researcher really thinks is the cause of a phenomenon. Therefore, below are the Null (Ho 🙂 and alternative (H1 🙂 hypothesis for the model.
1. Ho: EFDs usage has no impact on tax compliance.
H1: EFDs usage has an impact on tax compliance.
2. Ho: EFD roll out has no impact on tax compliance.
H1: EFDs roll out has an impact on tax compliance.
3. Ho: A EFDs maintenance service has no impact on tax compliance.
H1: A EFDs maintenance service has an impact on tax compliance.
4. Ho: EFDs enforcement has no impact on tax compliance.
H1: EFDs enforcement has an impact on tax compliance.

CHAPTER THREE

3.0. RESEARCH METHODOLOGY
3.1. Introduction
(Kothari, 2006) defines research methodology as a way to systematically solve the research problems. This chapter is therefore aimed at transmitting the details procedures that is showing the steps to be taken by the researcher in collecting data, the methodological foundations and the reasons behind the researcher’s choice of the research methods to be used.

3.2. Methodology
The study used both descriptive and exploratory research designs because it enables the researcher to collect a large quantity of in-depth information about the population being studied.
The target population of this study was a total of about 2,200,000 VAT and non VAT Registered traders. The purposive sampling was in identifying and reaching the key informants on the impact of EFDs on tax compliance. A sample size of 500 VAT and 500 non VAT Registered traders in Tanzania who possessed the required data was used.
The study utilized secondary data from the year of 2007/08 to 2015/06 and primary data from TRA officials was collected. Secondary data was collected from 1,000 VAT and VAT registered traders in Tanzania obtained from Tanzania Revenue Authority and Tax and Government Finance Statistics Report, 2015/2016.

3.3. Research Approach
Both quantitative and qualitative approaches were used when conducting the research. Quantitative approach was used because it involves the generation of data in quantitative form which can be subjected to rigorous quantitative analysis in a formal and rigid fashion (Kothari, 2008). It further involved when analyzing secondary data obtained from Tanzania Revenue Authority. Where some responses did not require statistical analysis, qualitative research method was used to give opinions and more details about the respondents. Qualitative approach is mainly concerned with subjective assessment of attitudes, opinions and behavior (Kothari, 2008). The qualitative approach was applicable during the interview with TRA officers in which the personal assessment on the impact of EFD machines on tax compliance was given.
The researcher used this type of research so as to enable him to analyze the collected data in a statistical procedure in order to summarize the results and findings obtained.
More ultimate the study wanted to find out the extent to which the use of EFDs has brought impact on tax compliance. The study employed both quantitative and qualitative approaches to assess the impact of EFDs on tax compliance through EFD usage, EFD roll out, EFD maintenance services and EFD enforcement.
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3.4. Research Design
Decisions regarding what, where, when, how much, by what means concerning an inquiry or a research study constitute a research design. Research design refers to the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure. It is a framework or roadmap through which a research process is conducted to explain the social phenomena under investigation (Kothari, 2008). The study used both descriptive and exploratory research designs because it enables the researcher to collect a large quantity of in-depth information about the population being studied. In addition they have been chosen on grounds of minimizing bias and maximizing the reliability of the data collected.

3.4.1. Descriptive Research Design
According to (Kothari, 2008) descriptive research studies are those studies which are concerned with describing the characteristics of a particular individual, or of a group. It further involve a process of collecting data in order to answer questions concerning the current status of the phenomena to describe what exists with respect to variables .The primary use of descriptive research design is to describe information or data through the use of numbers. Since the researcher wished to conduct the study that demonstrate a high degree of objectivity therefore the study was more of descriptive than exploratory.

3.4.2. Exploratory Research Design
Exploratory study emphasize on the discovery of ideas and insights. The approach conducts discovery of unknown ideas and insights that researcher doesn’t know due to the limited information with the desire to know more (Kothari, 2008). It attempts to go beyond descriptive research so as to identify detailed information on the reasons for the occurrence of a given phenomenon while finding out answers of why and how about the situation under investigation in order to satisfy the researcher’s curiosity about the unknown. This helped the study to understand impact of EFDs on tax compliance through EFD usage, EFD roll out, EFD maintenance services and EFD enforcement.

3.5. Study Area and Population
3.5.1. Study Area
The study expected to be conducted in Dar es Salaam at Tanzania Revenue Head office. TRA head office was chosen because most of the information relating to taxpayers and senior staffs are available at head office

3.5.2. Study Population
(Kothari, 2008) All the items under consideration in any field of inquiry constitute a ‘population’. The study problem requires assessing the impact of EFDs on tax compliance through EFD usage, EFD roll out, EFD maintenance services and EFD enforcement. From a population 2,200,000 registered taxpayer with TRA, the population of the study included VAT and non VAT registered taxpayer/traders, where by a sample of 500 VAT registered traders and 500 non VAT registered traders was selected to the study.

3.6. Study Sample
3.6.1. Sample Design
Sample according to (Kothari, 2008) can be defined as a collection of some parts of the population on the bases of which judgment is made. A sample should be small enough to make data collection convenient and should be large enough to be true representative of the population which is selected.
In this study TRA offices selected were those who have worked with TRA for not less than eight years. The reason behind this kind of selection criteria is that, seven years had passed since EFD were introduced in Tanzanian tax collection system in the year of 2010 for VAT registered taxpayers and three years had passed for non VAT registered taxpayers. Now, it was researcher’s belief that this working experience would lead to the selection of staff who obviously understand the impact of EFDs on tax compliance. Concerning with tax payers the study selected taxpayers that are VAT and non VAT registered taxpayers. The reason of selecting those taxpayers is that every taxpayer with a turnover above 14 million is required to use EFDs. Therefore, VAT is no longer a criterion for using EFDs.

3.6.2. Sample Procedure
According to (Kothari, 2008), sample procedure is the technique used in selecting the items for the sample. Being a process of selecting a group of people, events, behavior, or other elements with which to conduct a study it is also involved in selection of technique to be used in the selection process. The choice of a sampling technique depend in a situation whether a sampling frame is available or not, that is, a list of the units comprising the study population. There are two types of sampling procedures namely probability sampling and non-probability sampling.

Saunders,) 2009) defined probability sampling as that type of sampling which includes all types of elements of the population. In probability sampling each element has an equal and independent chance of being selected in a sample while in non-probability sampling is the one which does not based on the theory of probability. If sample frame is available the researcher is advised to use probability sampling techniques such as simple, stratified and cluster random sampling techniques. And if it is not available the researcher has to use non-probability sampling techniques such as purposive, convenience and snow ball sampling techniques. For the case of this study, non-probability sampling specifically purposive and convenience sampling techniques were used to obtain the representative of traders and staff of TRA. The selection of these techniques also based on the merits that these types of sampling techniques are simple and cheap to use.

3.6.3. Sample Size
(Kothari, 2009) sample size is the number of items to be selected from the universe to constitute the sample. The sample size of this study included a sample of 500 VAT registered traders and 500 non VAT registered traders was selected to the study.

3.7. Methods of Data Collection
Data collection method is the task of data collection that begins after a research problem has been defined and research design/ plan chalked out. It described the specific approach used to gather information, and the choice of method depends on research objectives and questions to be addressed. Data collected for the study comprised of both primary and secondary data.

3.7.1. Primary Data
Primary data are those which are collected afresh and for the first time, and thus happen to be original in character (Kothari, 2009). The primary data from TRA staffs for this study was collected using interview approaches.

3.7.1.1. Interview
According to (Kothari, 2009) an interview is a set of questions administered through oral or verbal communication or it can be a face to face discussion between the researcher and the respondent. For this study interview was used to supplement secondary data obtained from TRA. Interview was used to collect qualitative data from some few selected respondents who were found to have more knowledge concerning the impact of EFDs on tax compliance. About 50 tax officials were subjected to this method of data collection. Interview was conducted before analyzing secondary data. The interviews were face to face and in preparation for the interview, the target respondents were requested for appointment and given copies of the interview guides to make them aware of the issues they would expect to respond.

3.7.2. Secondary Data
According to (Kothari, 2009) Secondary data, on the other hand, are those which have already been collected by someone else and which have already been passed through the statistical process. Secondary data are considered credible and free from error or any bias. The suitable source of secondary data for this study was based on reports published Tax Statistics Report for Tanzania Mainland which was compiled by National Bureau of Statistics (NBS) in collaboration with Tanzania Revenue Authority (TRA) and the Ministry of Finance and Planning (MoFP).
\ After the collection of secondary data, the information obtained were subjected to data processing which included editing with the view of checking for completeness and accuracy to ensure that data is accurate and consistent and coding of data which was done manually and by the use of computer through word processing and excel.

3.8. Methods of Data Analysis
Data analysis is the application of reasoning to understand and interpret data that has been collected. From this study the process of data analysis depended on the nature of the data whether it is qualitative or quantitative.

3.8.1. Qualitative Data Analysis
In analyzing qualitative data the thematic analysis of the collected data was undertaken in order to understand the common pattern in the data. Therefore, the validated interviews collected from respondents in the study area were analyzed using the method described as follows:-
Identified Statement that Related to the Topic: Information from the interviews was broken up to reflect single, specific thoughts. Grouped statement into meaningful units: The single specific thoughts were clustered into similar categories that reflect various perspectives of the respondents.
Constructed Composite: Various meanings identified were used to develop an overall description of the impact of EFDs on tax compliance in Tanzania.

3.8.2. Quantitative Data Analysis
Quantitative research approach tend to focus on analyzing numerical data, compared to qualitative approach which deals with meanings, examining the attitudes, feelings and motivations of people. Descriptive analysis was used in calculations of percentages and arithmetic mean of collecting data in order to come up with valid conclusions.

3.9. Validity and Reliability of the Study
3.9.1. Validity of the Study
( Polit and Hungler, 1995) explained that validity is the extent to which the research data and methods used obtain considered precise, correct and accurate findings. The definition also reflects on questions of how well the findings reflect on the truth, reality of the main questions. There are three kinds of validity as noted by (Yin, 1994) that is constructing, internal and external validity. Construct validity refers to the process of establishing the correct operational measures for the studied concepts.

The researcher ensured construct validity in this study by re-examining data. Internal validity refers to the extent to which a researcher can prove that only the independent variable caused the dependent variable; it looks at the approximate truth about inferences regarding cause-effect or causal relationships. Internal validity is ensured through testing of hypothesis. Since this study did not test any hypothesis, therefore, internal validity was not applied. External validity was aimed at determining if a study’s findings are possible to generalize beyond the immediate case study. Since the study was conducted in Dar es Salaam where there high number of tax payers (VAT registered traders) in the country, therefore, the information obtained at this area was present the rest of VAT payers in the other part of the country.

3.9.2. Reliability of the Study
This refers to the fact that a measurement can be reproduced with similar results and therefore variations in the results are entirely depending on the variations in the measured area and not in the instrument of measurement. Reliability is one of measuring instrument, it provides consistent results. It refers to the consistency of a measure. A test is considered reliable if we get the same result repeatedly. This means in each time when the test is administered to a subject, the results should be approximately the same. Chronbach’s coefficient alpha was used to ensure reliability this study.

The Cronbach alpha reliability coefficient ranges from 0 to 1 (George and Mallery, 2003), hence the closer the alpha coefficient is to 1.0, the greater the internal consistency of the items in the scale. According to George and Mallery (2003), a Cronbach alpha coefficient of 0.70 or more is considered ideal. Other studies, however, regard a Cronbach alpha coefficient of 0.50 as acceptable for basic research (Tharenou, 1993). A Cronbach alpha of 0.70 means that 70 percent of the variance in observed scores (the actual scores obtained on the measure) is due to the variance in the true scores (the true amount of the trait possessed by the respondent). In other words, the score obtained from the measuring instrument is a 70 percent true reflection of the underlying trait measured. Therefore, the measures of the variables were conducted as explained below.

Reasons for Adopting EFDs Machines in Tax Collection: the variables used here were reducing tax collection costs, integration, standardization, computerization of tax collection, automation, innovation and media influence. The instruments (variables) had a 5-point Likert-scale and reliability check of the instruments revealed a Cronbach alpha of 0.733, which shows that the measure was reliable. Significance of EFDs machines in tax collection: the variables used were availability of tax services, accessibility of tax services, reliability of tax services, conformance of the tax services, assurance of tax services, and responsiveness of tax collectors. Also the instruments had a 5-point Likert-scale and reliability check of the instruments revealed a Cronbach alpha of 0.562, which shows that the measure was reliable.
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3.10. Limitation of the Study
In conducting this study, the researcher faced the following limitations:
Time Constraint: the study was to be carried out for a short period to follow the deadline of the academic calendar. Time constraints may affect both, the quality and quantity of the research study because the researcher forced to select few respondents.