Tax Evasion and Avoidance of Small and Medium Scale Enterprises (Smes): A Study of Selected Enterprises in Kumasi

Abstract

In Ghana, the government mobilize huge amount of money from taxing the informal sector. Yet, Small and Medium Enterprises (SMEs) are noted as tax evaders and avoiders. This study therefore sought to assess the factors that have contributed to tax evasion and avoidance among owners of SMEs in Kumasi. Questionnaires were used to collect data from 150 owners of SMEs in Subin, Suame and Bantama in the Kumasi Metropolis through face-toface interview. Also, 10 tax officials from the GRA were interviewed using interview guide. The results from this study indicated that tax evasion and avoidance among the owners of SMEs in Kumasi was attributed to infrequent public education by the tax officials, illiteracy of taxpayers on taxation, high penalty rate, low returns, lack of tax incentives, and lack of enforcement of tax laws, lack of transparency and accountability and corruption. The correlation results indicated a significant relationship between high penalty rate on taxes and the influence on the decisions of taxpayers to pay their income taxes. The positive correlation significance of 0.173 indicated that the higher the penalty rate, the more owners of SMEs were committed to honor their tax obligation that also reduces tax evasion. It was also found that owners of SMEs evade tax through non-declaration of their income to the tax authorities and failure to pay income tax on the number of business they owned. The strategies used by tax officials from the GRA to minimize tax evasion and avoidance included the introductions of tax amnesty, field visits, tax court, tax education, tax incentives and the use of animators. It is recommended in this study that the existing strategies for minimizing tax evasion and avoidance should be strengthened through capacity building of tax officials from the GRA.