This study explores the internal and external determinants of tax compliance among Small and Medium Enterprises (SMEs) in Shinyanga municipality. The study adopted cross-sectional research design, whereby both primary and secondary data were collected. Interviews and documentary reviews methods with questionnaires and interview guide as respective tools were used. A sample of 201 respondents involved in the study were picked through simple random and purposive sampling techniques. Data were analyzed using Ordinary Least Square (OLS), Factor analysis and Principal Component Analysis methods. Results indicated that there is a moderate level of tax compliance among SMEs with overall mean score of 3.1. OLS results indicated internal factors being tax knowledge (p = 0.003), size of the business (p = 0.033) and record keeping practices (p = 0.006) influences the increase in tax compliance. Results on external factors show provision of tax incentives (p = 0.011), compliance audits (p = 0.034) and addressing corruption (p = 0.036). Factor analysis results indicate the internal factors explain 28.49%, external factors by 24.06% and external environment explain the variances by 13.07%. The study concludes that there is moderate level of tax compliance among SMEs being influenced internally by tax knowledge, business size and record keeping, and externally influenced by tax incentive, compliance audits and rate of corruption. It is recommended that education should be enhanced on tax payment compliance, developing easier and friendly digital tools for tax collection and record keeping for SMEs, provision of tax incentives and controlling corruption among its staff on tax collection.
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