A MOBILE BASED INCOME-TAX RETURN SYSTEM FOR SMALL ENTERPRISES

By MOSES MUGUMYA 2006/HD18/6891U BA (SS) (Mak), PGDCS Department of Information Systems Faculty of Computing and Information Technology, Makerere University E-mail:mosesmugumya@yahoo.com, Ph: +256772516236 A Project Report Submitted to School of Graduate Studies in Partial Fulfillment for the Award of Master of Science in Information Systems Degree of Makerere University. Option: Management Information Systems Supervisor: Dr Ddembe Williams Department of Information Systems Faculty of Computing and Information Technology, Makerere University d.williams@cit.mak.ac.ug.Tel: +256-41-540628/534560, Fax: +25641540620.

December, 2010

DECLARATION
I Moses Mugumya do hereby declare that this Project is original and has not been published and or submitted for any other degree award to any other University before. Signature Moses Mugumya BA (SS) (Mak) Date:

APPROVAL
This report has been submitted for examination with the approval of the following supervisor Dr Ddembe Williams BSc, Msc, PHD, PGDHE, ILTM, MBCS Department of Information Systems Faculty of Computing and Information Technology Signature:. Date:

DEDICATION
This report is dedicated to my parents late Mr David Mugumya, and Mrs Ruth Mugumya who have been a source of inspiration.

ACKNOWLEDGMENT
I would like to acknowledge the invaluable assistance of Dr Ddembe Williams whose supervision and guidance has enabled me to successfully complete this project. Gratitude too is extended to all the lecturers who imparted the academic knowledge that I acquired during the course period. To my employer Uganda Revenue Authority ; friends- Martin Muhangi, Kenneth Amanya, Martha Twagira, Marion Lubowa, Frank, James etc who gave me financial, material and moral support am truly thankful

Finally I wish to thank the Almighty God who has seen me through this project and give glory and honour to him.

LIST OF ACRYNOMS

CONTENTS
DECLARATION.................................................................................................................3 APPROVAL........................................................................................................................4 DEDICATION.....................................................................................................................5 ACKNOWLEDGMENT ..............................................................................................................................................6 Finally I wish to thank the Almighty God who has seen me through this project and give glory and honour to him.......................................................................................................6 LIST OF ACRYNOMS.......................................................................................................7 CONTENTS.........................................................................................................................8 LIST OF FIGURES...........................................................................................................10 ABSTRACT......................................................................................................................11 CHAPTER 1......................................................................................................................12 1.4 Problem Statement...................................................................................................12 Objectives of the Study..................................................................................................12 1.5.1 General Objective.............................................................................................12 Specific Objectives....................................................................................................12 To identify requirements for mobile based income-tax return management system.........12 Scope of the Study.........................................................................................................13 1.7 Significance of the Study.........................................................................................13 CHAPTER 2......................................................................................................................14 LITERATURE REVIEW..................................................................................................14 CHAPTER 3......................................................................................................................15 METHODOLOGY............................................................................................................15 3.1 Introduction .............................................................................................................15 3.2 Identifying requirements for mobile based income-tax return system for small enterprises......................................................................................................................15 3.2.1 System Study....................................................................................................15 3.2.2 Questionnaire ...................................................................................................16 3.2.3 Interview...........................................................................................................16 3.2.4 Observations.....................................................................................................16 3.2.5 Document Reviews...........................................................................................17 3.2.6 Data Analysis....................................................................................................17 3.3 Designing a mobile based income-tax return management system.........................17 3.4 Implementation of the system..................................................................................18 3.5 Testing and validating a mobile based income-tax return management system......18 CHAPTER 4......................................................................................................................19 SYSTEMS ANALYSIS AND DESIGN...........................................................................19 4.1 Introduction..............................................................................................................19 4.2 System study and analysis.......................................................................................19 4.2.1 System study.....................................................................................................19 4.2.2 System Analysis................................................................................................20 4.2.3 System overview...............................................................................................20 8

4.2.4 Requirements Analysis.....................................................................................22 4.3 System Design.........................................................................................................22 4.3.1 System Architecture..........................................................................................22 4.3.2 User Stakeholders.............................................................................................24 Use Cases...................................................................................................................24 Conceptual Design.........................................................................................................26 Relations....................................................................................................................26 Relationship...............................................................................................................26 4.3.4 Entity Relationships Diagram...........................................................................28 Logical design................................................................................................................29 Mappings....................................................................................................................29 CHAPTER 5......................................................................................................................31 SYSTEM IMPLEMENTATION.......................................................................................31 5.1 Implementation........................................................................................................31 CHAPTER 6......................................................................................................................32 DISCUSSION, CONCLUSION AND RECOMMENDATIONS.....................................32 Introduction....................................................................................................................32 Challenges met during the project.................................................................................32 Conclusion.....................................................................................................................32 Recommendations..........................................................................................................33

LIST OF FIGURES

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ABSTRACT

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CHAPTER 1
1.4 Problem Statement
In some countries the concept of filing on-line has been an integral part of the economy. In USA, counties such as Missouri , one may be required to obtain a Federal Employer Identification Number (FEIN). The FEIN is issued by the Internal Revenue Service (IRS). It is used to identify taxpayers who are required to file various business tax returns. Employers, Corporations, Partnerships, limited liability companies, trusts and estates, and other business entities are required to have a Federal Employer Identification Number (Missouri Online Business Registration.htm). In Uganda taxpayers are required to have Tax Identification Number TIN) for carrying out transactions with the revenue body .however the e-tax system caters for the medium and big taxpayers who have access to internet facilities. The small and microenterprises are un enable to use the new e-tax system because it is a complicated process. A gap therefore exists in the sense that mobile phone usage that would have been easier to use for filling returns has not been incorporated into the e-tax system hence the need to provide a platform for the small traders to exploit this.

Objectives of the Study

1.5.1 General Objective
To develop a mobile based income-tax return management system that will enable the informal sector file their returns.

Specific Objectives
To identify requirements for mobile based income-tax return management system 1. To design a mobile based income-tax return management system that will enable traders file their returns. 12

2. To implement the mobile based income-tax return management system 3. To test and validate the system.

Scope of the Study

This covered the Informal sector which consists of private trading enterprises based in Kikuubo area of Kampala District owned by individuals that are not constituted as separate legal entities and for which no complete accounts are available that would permit a financial separation of the production activities of the enterprise from other activities of its owners. The study will also cover the activities of the URA officers based at the domestic tax department offices at Crested Towers who will be interfacing with the small traders.

1.7 Significance of the Study

1. The study will aid future scholars and researchers who may be interested in developing similar prototypes for academic reference. 2. The proposed system will also highlight the importance of automating information systems in organizations in general. 3. Further, the research will contribute to the general pool of knowledge in the area of E-tax Systems and help other scholars to identify missing gaps in future developments. 4. The project will be beneficial to URA management in that it will help in the reorganization and easier storage, retrieval and standardized reports about income tax returns. 5. The project will be beneficial to tax players in that they will be enable to send their income tax return via their phone.

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CHAPTER 2 LITERATURE REVIEW

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CHAPTER 3 METHODOLOGY
3.1 Introduction
Finding appropriate research methodologies is critical in drawing up model solutions/ systems to identified problems (Finkelstein, 1994). This study followed the procedures proposed in a pilot study approach by a researcher Yin (1988) with a system study and experiment-based observations. The objective was to develop a mobile based income-tax return system for small enterprises. A system study approach was used since it is an exploratory (single-in-depth study) research strategy that involves empirical investigation of a particular contemporary within its real life context using specific study techniques

3.2 Identifying requirements for mobile based incometax return system for small enterprises
3.2.1 System Study
To achieve objective (i) of identify requirements for mobile based income-tax return system, a system study and analysis for the existing manual system at the Uganda Revenue Authority was carried out. The system study and analysis are discussed in detail in Chapter Four.

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3.2.2 Questionnaire
A questionnaire was developed and issued to selected respondents whose responses (quantitative data) were analyzed to determine requirements for the system. The questionnaire was kept as brief as possible. Microsoft Excel software was used for presentation and analysis of the quantitative data. A copy of the questionnaire is attached in Appendix . I chose the questionnaires because of the advantages they had over some other types of surveys since they are cheap and do not require as much effort from the questioner as verbal or telephone surveys, and often have standardized answers that make it simple to compile data, though, such standardized answers may frustrate users.

3.2.3 Interview
We used interview guides with simple language and open ended questions to the shop owners in Kikuubo dealing in general merchandise who are the majority and URA officers who receive returns at the front desk area to identify the characteristics and type of small businesses with an aim of knowing the current practices and views on how to automate and simplify business and tax requirements. About 12 shop owners and 6 URA officers were interviewed. The Information acquired from these interviews was harmonized to come up with requirements specifications.

3.2.4 Observations
This involved physically seeing and evaluating how the small shop owners have been handling their book keeping aspects as well as how the URA officers have been handling their activities with regards to filing of returns. This created a firsthand impression of the

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inadequacies of lack of using e-governance facilities and incase some information is omitted from information gathered in the interviews.

3.2.5 Document Reviews

This was done through reading of articles and journals relating to small business owners and how their activities are taxed in other countries. It was also helpful in reviewing literature to identify any gaps that require further attention and studies of researchers.

3.2.6 Data Analysis

The data collected on the concerns of the users and the management of the Organizations under review about the information system (IS) in place was used as a basis of designing a mobile based income-tax return management system. The analysis was done using analytical software - SPSS. The results of the analysis were used in designing this system.

3.3 Designing a mobile based income-tax return management system

To achieve objective (ii) of designing a mobile based income-tax return management system, the database was designed using conceptual, logical (ERD), and physical database design techniques as recommended by Connolly and Begg (2005). Microsoft Office Visio was used to draw the ERD, the logical database design model of the prototype. The ERD shows all the entities, attributes, cardinalities, and their interrelationships. The income-tax return filling process was developed using the Unified Modeling Language (UML) which is a tool for specifying, visualizing, constructing, and documenting all the parts and pieces of the application (Larman, 2001). UML is useful in designing USE CASE, Sequence, activity diagrams. 17

3.4 Implementation of the system

The system was designed using WML, WMLScripts, WAP, PHP, CSS, and Mysql for the database enabling data to be easily sorted based on the principles governing search engines. Interface pages for the system were achieved through WML, CSS and php for data interchange over a secure WEB.

3.5 Testing and validating a mobile based income-tax return management system
In determining the accuracy of any system, three important aspects were considered: verification, validation and credibility. Verification is the process of determining that a prototype performs as expected, checking all assumptions and any diagrams like flowcharts and ERD. Validation is the process of determining whether a conceptual prototype can accurately represent a system under study. Law and Kelton (1991) suggested that if the prototype was valid, then the decisions made with the prototype should be similar to those that would be made by the physical experiment on the final system. The system was presented to the users for testing to ensure that it fulfilled their requirements .Validation involved checking for the form validation and how errors are handled.

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CHAPTER 4 SYSTEMS ANALYSIS AND DESIGN

4.1 Introduction
This section is about defining or drawing up the system requirement specifications, creating an acceptance test plan and beta test plan. As regards the design, design specifications were developed through flow charting and process maps that define inputs, outputs, and process interactions. The Systems Development Life Cycle methodology has been adopted in this project. The software tools used included Microsoft professional suite of Visio and word.

4.2 System study and analysis

4.2.1 System study
The manual system makes it harder for the entrepreneur to file tax returns, since the trader has to personally go to the tax offices, where the returns are captured manually by the tax officers. The manual process sometimes leads to loss of data due to improper storage, making retrieval also difficult. The process requires a large number of staff to be able to handle that big number of traders who want to file returns

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A trader applys for the TIN

Gets the TIN

Goes to the revenue offices to fill in their tax return

Figure 4.2.1 the income tax filling return process.

4.2.2 System Analysis

System analysis is defined as work that involves applying analytical processes to the planning, design, and implementation of new and improved information systems to meet the business requirements of an organization; It is a phase of the systems development life cycle (SDLC) in which a current system is studied and alternative replacement systems are proposed. SDLC, a method for developing information systems, is made up of four main stages: analysis, design, implementation, and evaluation.

4.2.3 System overview

A study of existing manual system was done. The weaknesses of the system were identified. A client - server architectural system design that consists of at least key elements: the client, user, internet link, documents/ data flow and server(s) was 20

developed. Inputs and outputs were tested and validated at every critical stage of the proposed system. Conclusions have been drawn from the obtained results. Recommendations have been made and documented. Strengths 1. It saves time both the tax players and the URA officials in terms of revenue the returns. 2. It saves cost to the taxpayers in data they do not go the offices. 3. It has made easy storage and retrieval of reports by the URA officials. It increases voluntary compliance levels when small traders are registered.

Weaknesses 1. The e-tax portal has a small server that is not able to cater for the large number of users who would want to file and pay electronically by the due dates of payments. Many tax payers have been frustrated when they attempted to get a bank payment slip or upload their tax date only to get an error message from the e-tax portal about overload. 2. It requires a fast internet speed to download and upload those file which is not easy found in some computer centers (cafs). 3. The e-tax system is subject to frequent updates and taxpayers are not informed in time so in the end they find difficult in uploading their returns.

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4.2.4 Requirements Analysis

The main objective of this project was to develop a mobile based income-tax return management system. Therefore systems requirements needed to be defined. These requirements were gathered from users during the interviews process, and from the business process described above. The requirements were grouped into two categories, that is functional and non functional requirements.

Functional Requirements

Non-Functional Requirements

4.3 System Design

System design began after gathering user requirements and the current processes. From the analysis of the requirements, the main goal of the required system was to develop a mobile based income-tax return management system. The overall system architecture was modeled, followed by the behavior and data modeling.

4.3.1 System Architecture

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The system architecture defines the key components of the proposed system together with the interactions between these components.

User Interface Login using the following attributes: Username Password Entry of records Submitting of returns Viewing of Records Querying for Reports

Accessing the System Processing system

Storing of Records

Process Data

Reports on Returns submitted, Tax payable

Data Store

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4.3.2 User Stakeholders

The proposed mobile based income-tax return management system involves stakeholders each one playing different roles as shown in the Table below: No 1. 2. Actor Trader A mobile based income-tax return management system Tax officer Description System End User System backend Actions/ Permissions Registers, submits his/her income Manage security in every procedure, control duplicity, generate reports, securely store all data for future use, and provide end-to-end communalization. Manages the income values received by the system.

3.

System End User

Figure4.3: User stake holders of the a mobile based income-tax return management system

Use Cases
In order for the researcher to determine all system requirements and be in position to properly plan for the needed solution. Use case was used to represent actors using the system and the different goals or functions they fulfilled. The system scenario in the proceeding section is summarized in the use case diagram below.

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uses

U ses his phone to access the system by entering the U RL

extends

A ctivates the income tax return system

uses

A trader

uses

is verified by the system as registered

uses extends

uses

uses

Verifies the users Logins into the system using his phone

uses

uses

extends

uses System

Selects the service he wants to use

A ccepts login details or refuses them uses

uses

Fills his income value of the month

extends

C alculates the tax payable

extends

uses

Receives his incom e tax fee that he should pay

Provides auto authentication mechanisms

extends

Trader authentication
uses uses

Complies all the sent incom e values

Figure 4.3: Use caseuses diagram for aall the sentbased income-tax return management system Views mobile
tax income returns

Tax officer

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Conceptual Design
System flow diagram shows the flow of information from the user by logging in up to the time of log off. Relations Below are the entities that were identified: Trader Tax Officer Product Returns Premises Sales

Relationship The following relationships were identified: Trader Returns relationship Files A trader files different returns meaning the relationship is one to many Trader 11 files 1* Returns

Trader Premises Relationship Rents One trader can rent one or more premises meaning the relationship is one to many Trader 1..1 Rents 1* Premises

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Trader Product Relationship Deals in A trader deals in one or more products meaning the cardinality is one to many Trader 1..1 deals 1* Products

Tax Officer - Returns Relationship Receives One or more returns are received by a tax officer meaning it is a one to many cardinality 1..1 Tax Officer Receives 1* Returns

Trader Sales Relationship Makes A trader makes many sales of on a given product meaning the relationship is a one to many cardinality Trader 1..1 makes 1* Product

Sales Product Relationship Made on Sales may be made on a given product or there may be no sales on the product, giving a zero to many relationship. Sales 0* made 1* Product

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4.3.4 Entity Relationships Diagram

Based on the results of the Systems Study and the questionnaire, an Entity Relationships Diagram (ERD) for the proposed system was developed showing the entities, attributes, cardinalities, and their inter-relationships. Microsoft Office Visio was used to draw-up the ERD.

Return tinNo {PK } amountPaid taxOfficerId paymentDate chequeNo traderId 1..*

Tax Officer officerId {PK } name 1.. 1 noteOfPayment branch Product productId {PK } productName mandate colour size supplierId 1..*

1..*

receives

1..*

Files

Made on 1..1 Trader traderId {PK } fName lName address telNo tinNo 1..1 rents 1.. 1 Deals in 1..* Sale 1..* saleId {PK} productId amountSold sellingPrice costPrice

1..1

makes

1..* Premises ownerId {PK } ownerName amountOfRent location plotNo

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Logical design
Mappings

Mapping 1:M Relationships Trader files Returns Relationship trader( traderId (PK), fName, lName, address, telNo, tinNo(FK)) return (tinNo(PK), amountPaid, taxofficerId(FK), dateOfPayment, chequeNo,

traderId(FK)) Trader rents Premises Relationship premises (OwnerId(PK), amountOfRent, ownerName, location, plotNo) Trader deals in Product Relationship product (productId(PK), productName, mandate, Color, size, supplierID) TaxOfficer receives returns Relationship taxOfficer (officerID(PK), name, branch, noteOfPayment) Trader makes Sales Relationship sales (salesId(PK), amountSold, productId(FK), sellingPrice, costPrice)

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Resultant Tables trader( traderId (PK), fName, lName, address, telNo, tinNo(FK)) return (tinNo(PK), traderId(FK)) premises (OwnerId(PK), amountOfRent, ownerName, location, plotNo) product (productId(PK), productName, mandate, Color, size, supplierID) taxOfficer (officerID(PK), name, branch, noteOfPayment) sales (salesId(PK), amountSold, productId(FK), sellingPrice, costPrice) amountPaid, taxofficerId(FK), dateOfPayment, chequeNo,

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CHAPTER 5 SYSTEM IMPLEMENTATION

5.1 Implementation
This chapter shows how the system was implemented. The main aim of this chapter is to show how the implementation was carried out using the available technologies to realize the system specification, design and the requirements of a mobile based income-tax return management system. The project was developed using relevant application software such as MYSQL for the database, WAP gateway which provides the connectivity between the mobile phone and the web server with the by the help of languages such as WML,WMLScripts,CSS to create user interfaces with PHP for system connection to the database.

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CHAPTER 6 DISCUSSION, CONCLUSION AND RECOMMENDATIONS

Introduction
This chapter presents a summary of the challenges encountered during the project, conclusions and the recommendations in regards to the project.

Challenges met during the project

During performance of the project, the following challenges were met: Time challenge: The time was not enough for the researcher to comprehensively perform all deliverables as proposed like getting the performance data. Budget Constraint: There werent enough funds to facilitate the researcher to get valuable assistance from the tax payers (traders) from different parts of kampala district therefore the researcher sampled a few traders.

Conclusion
Effective and efficient computer systems are cornerstone for better deliverance of information in an organization. This project was undertaken to develop pan alternative automated system that would complement (not to replace) exiting manual processes within URA. The main product of this project, presents new return tax filling means that reduce on the time you spend at URA offices

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Recommendations
The following are the recommendations that could be used to facilitate effective usage of the system: Making the E-Commerce System Operational: Uganda Revenue Authority should make this E-Commerce system operational, because it compliments exiting tax administration means like VAT Plus, Electronic Cash Book in facilitating taxpayers to make their different tax payments. This system shall be accessed from anywhere at any time even beyond the URA working hours. Improving some components: Because of time and budget constraints as stated above, we were not able to deliver completely some functionalities of the Electronic Commerce System. We request URA to make upgrades of the notification Mechanism either via mail or short message mechanism. Announce and promote the system: If the system is made operational, URA should announce and promote the Electronic Commerce System to help the small traders in order to make it known to traders and URA staff members otherwise it may not be used.

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REFERENCES
1. Andersen, K. V. (2006). E-Government: Five Key Challenges for Management. The Electronic Journal of e-Government, 4(1), 1-8. 2. A Glimpse at Business Models and Evaluation Approaches For E-Learning. Retrieved June 20, 2008, from www.ncil.ie/dynamic/file/libray/ 3. Business Process Modelling approaches and Diagrams. Retrieved June 20, 2008, from www.sagepub.co.uk/upm-data//11315 ch.5.pdf 4. Chaudhury, Abijit; Jean-Pierre Kuilboer (2002). e-Business and e-Commerce Infrastructure. McGraw-Hill. ISBN 0-07-247875-6. 5. Choosing approach to Business Process Modelling - Practical Perspective. Retrieved June 20, 2008, from www.ibissoft.se/bublications/howt 6. Nick C. (2005). Priorities and Role in Regional Integration and Implications for Regional trade arrangements. 7. Criteria for the evaluation of Business Process Simulation Tools. Retrieved June 20, 2008, from http://ijkm.org/Volume2/IJIKMV2P073- 088 Bosilj 396.pdf 8. Wolfe D. A. (1999). Government Support for E-Business: Comparative Experiences. University of Toronto, Canada. 9. Donald S. Le Vie, Jr. (2000) Understanding Data Flow Diagrams. 10. Flurry G. and Vicknair W. (2001). The IBM Application Framework for eBusiness. IBM Systems Journal, 40(1). 11. Kotinurmi P. (2007). E-Business Framework Enabled B2B Integration. PhD Thesis. Helsinki University of Technology, Department of Computer Science and Engineering. 12. (L J Hazlewood, 2008). Retrieved June 20, 2008, from www.cs.bham.ac.uk/internal/courses/intro-se/unit-3-4- oodconclusion. pdf 13. Missouri Online Business registration.htm.29/8/08 14. Ochan. R. W (2004) International Labour Organisation/ Ministry of Gender Labour and social development Uganda Report Child Labour and Urban Informal Sector in Uganda pp 34

15. (Richard

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from

http;//web.worldbank.org/website/external/topics 16. Riley T.B. (2003). Knowledge Management and Technology, International tracking survey report 2003. Government telecommunications and Informatics Services, Public Works and Government services, Canada. 17. Schneider. G. P (2002) Electronic Commerce (4th ed.). Canada: GEX Publishing Services & Elena Montillo. 18. Sharma S. (2003). E-Governance: An approach to manage bureaucratic impediments. University of Rajasthan, India 19. Stein R. and Barbour P.(2005) Taxing SMEs in Africa: Does the tax regime promote growth. 20. System Development Life Cycle, Retrieved May 18, 2009. From www.startvbdotnet.com/sdlc/sdlc.aspx

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APPENDIX ONE
ESTIMATED BUDGET (Uganda shillings) Item No 1 2 3 4 5 6 7 8 Item Laptop Stationery Transport Binding Software Secretarial work Online journals Miscellaneo us TOTAL Rate(shs) 2,000,000 10,000 4,000 15,000 800,000 300,000 300,000 Units 1 8 50 5 Total cost

(shs) 2,000,000 80,000 200,000 75,000 800,000 300,000 300,000 300,000 4,055,000

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APPENDIX TWO
PROPOSED TIME FRAME

NO. 1

ACTIVITY Proposal Preparation approval presentation Requirements analysis and design System to and

START DATE 17/10/2008

END DATE 11/11/2008

11/11/2008

25/11/2008

3 4 5

1/11/2008

11/12/2008 22/12/2008 10/1/2009

Implementation Testing and 12/12/2008 evaluation Preparation final report of 27/12/2008

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