Enforcing income tax compliance among the self-employed in the Tema metropolis of Ghana

Abstract

The idea that the self-employed have high income tax non-compliance behaviour is longstanding in tax compliance literature. Inappropriate application of tax enforcement strategies has been identified as one of the principal reasons for the high incidence of income tax non-compliance among the self-employed. Determining which regulatory enforcement strategy will be most effective has been a difficult task for tax authorities. There has been a longstanding debate between those who believe that taxpayers will comply with tax laws when confronted with harsh sanctions and those who believe that persuasion and cooperation work in ensuring compliance. The objective of this study is to determine which enforcement strategy will ensure compliance among the self-employed, taking into consideration the reasons for non-compliance. Three hundred and fifty (350) self-employed within the Tema metropolis were sampled from a population of 6,318 self-employed. A simple random sampling technique using the lottery method was employed in selecting the sample. In all, a total of 267 useable responses, giving a response rate of about 76% were received and used for the data analysis. The results of the study favour a combination of the deterrent and accommodative enforcement strategies with the initial use of tax education in enforcing compliance. Sanctions must however be preserved and used as a last resort for the deviant and recalcitrant non-compliers. This is in support of the ATO compliance model promulgated in Australia.