Background of the Study In the U.S., the Small Business Administration includes some manufacturing firms with employment up to 1500 in their definition of a small business. The World Bank (2010a), on the other hand, defines micro firms as generally having less than 10 employees, small firms as having 10-49 employees (though there are exceptions) and medium-size firms at 50-249 employees (again with exceptions).Small firms tend to operate on the fringe of the formal economy, with only loose connections to the formal tax and regulatory apparatus of the state. Their activities are often labor intensive, meaning fewer interactions with market traders of tangible goods who may be in the tax net; they rely disproportionately on cash transactions; there are few opportunities for third-party verification; and they have poor bookkeeping practices. Tax policy is often uniquely designed for small enterprises, The smallest firms frequently rely heavily on the labor of the entrepreneur and her family. Revenue mobilization in developing countries is challenging and especially so when it comes to generating taxes from small enterprises. This represents a conundrum for policymakers and tax administrators. On the one hand there is a compelling need for revenues to meet spending and social objectives including some semblance of fairness in taxation. At the same time it is widely recognized that in many countries the cost of revenue mobilization from (at least some) small firms—including both administration and compliance costs—exceeds revenue potential. So even if policymakers decide to seek to tax small enterprises, the tax administration may have little enthusiasm for diverting resources from other seemingly more productive uses to enforce taxation of the small.and compliance costs—exceeds revenue potential. So even if policymakers decide to seek to tax small enterprises, the