Factors Influencing Tax Compliance by Small and Medium Enterprises in the Cape Coast Metropolis, Ghana

Abstract

Tax evasion is a core challenge for governments and tax authorities among many African countries including Ghana. As small and medium enterprises (SMEs) are key to national economic growth, their contribution to tax revenue is very significant. Thus, the need to examine factors that influence tax compliance by small and medium enterprises is essential. The study adopted the explanatory research design and a cross-sectional survey for data collection. Stratified random sampling technique was used to sample the respondents for the study. Primary data were collected through structured questionnaires. Partial Least Square Structural Equation Modelling (PLS-SEM) was used to examine the factors which influence tax compliance. The study results from the survey conducted in Cape Coast Metropolis using 301 respondents revealed that tax knowledge, perception of government spending and the probability of being audited have a significant impact on tax compliance. In particular, tax knowledge had the most significant influence on tax compliance by SMEs taxpayers. In view of this, the study recommends that the government should use tax revenue judiciously and be transparent in their expenditure activities so as to gain the trust of the SMEs taxpayers. Also, the study recommends that the Ghana Revenue Authority (GRA) should ensure fair and frequent audits to encourage SMEs to comply with tax laws. GRA should also organise seminars and conferences regularly to educate SMEs taxpayers.