Tax Non-Compliance in the Informal Sector: A Case of Small-And-Medium-Scaled Enterprises at Suame Magazine in the Kumasi Metropolis

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JULY, 2015
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Tax non-compliance remains a predicament that needs to be tackled especially within the large zones of small businesses. From the behavioral theoretical perspective, this study was carried out to find out how and why small business tax payers at the Suame Magazine do or not comply with the tax laws applicable to small and medium scaled enterprises (SMEs) in Ghana. The study employed a purposive sampling technique to draw out 200 SMEs from Suame Magazine for questionnaires administration and 3 top officials of Suame Small Taxpayers‘ Office for semi-structured interviews. By subjecting the data to descriptive statistical, Spearman correlation and probit regression analyses, it was found that the taxpayers are likely to submit their tax returns late and pay their taxes after due dates, along with the observation that close to half of the study subjects have not yet registered their businesses. From the taxpayer‘s perspective, tax non-compliance is likely to occur if the tax payer is non-religious person and if the tax payer considers detection probability to be high while the perception of high compliance costs and tax knowledge increase non-compliance probability. Moreover, from the tax administrator‘s viewpoint, the compliance is likely to increase if prosecution is likely while non-compliance is most likely to happen if the tax payer sees no direct benefit accruing to him/her and if the level of his/her understanding of the need to pay is missing. The study recommended that the Tax Authorities should enter into close partnership with the police and religious leaders to improve detection of non-compliance rates and tax morale respectively. Further studies to extend this to cover larger sample and wider geographical spread were also recommended.
A Thesis submitted to the Department of Accounting and Finance, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Business Administration (Accounting Option)