Determinants of Tax Non-Compliance Among Small and Medium Enterprises in Sekondi-Takoradi Metropolis

Abstract

The study investigated the determinants of tax non-compliance among SMEs in the Sekondi-Takoradi Metropolis, focusing on three objectives: assessing the general degree of tax evasion, examining demographic factors influencing tax evasion, and evaluating the role of equity perception in mitigating or enhancing tax evasion. The target population comprised 895 registered SMEs, with 265 participants sampled through structured questionnaires. The study adopted a quantitative approach, analyzing data using descriptive and regression analyses. Results revealed low tax compliance among SME owners, attributed to limited tax knowledge, high tax rates, and low incomes. Regression analysis identified tax compliance costs and the ability to evade taxes as significant predictors of non-compliance. However, tax awareness, education levels, and penalties were found to reduce non-compliance, highlighting the importance of education and enforcement. Demographic variables like gender, age, education, and business experience moderated compliance behavior. Male taxpayers were more inclined toward non-compliance than females, while older and more educated individuals exhibited higher compliance. Perceived fairness, aligned with equity theory, was a key determinant of compliance. SMEs were more likely to comply when they perceived fairness in the tax system, including equitable treatment compared to other organizations and alignment between taxes paid and services received. The study concluded that tax knowledge, demographic factors, and equity perception significantly influenced SME compliance decisions. The study recommended enhanced education, enforcement, and a fair tax system are essential to improving compliance.