ABSTRACT
This research study provides empirical evidence on the determinants of tax compliance of SMEs. Using the survey research design, questionnaires were distributed to 100 firms cutting several sectors of the economy. Responses from 92 respondents from the management cadre of the firms were analysed with simple percentage analysis, correlation and multiple regression analysis using the Statistical Package for the Social Sciences 20.0. Preliminary analysis with simple percentage analysis confirms that tax compliance by SMEs is low. Correlation analysis show tax compliance of SMEs have significant positive relationship with financial viability and profitability of SMEs, financial literacy and exposure of SMEs owners/managers, perceived fairness of tax system, and government accountability, but an insignificant negative relationship with probability of detection and degree of punishment. Also, the correlation analysis has the most significant positive relationship with financial literacy and exposure of SMEs owners/managers. Multiple regression analysis show that financial viability and profitability of SMEs, financial literacy and exposure of SMEs owners/managers, perceived fairness of tax system, and government accountability have significant positive impacts on tax compliance of SMEs. Probability of detection and degree of punishment was shown to have a positive but insignificant impact on tax compliance of SMEs. Also, the multiple regression analysis show that financial viability and profitability of SMEs has the most significant positive impact on tax compliance of SMEs. Thus, it was recommended that loan accessibility should be increased for SMEs as well as bookkeeping made mandatory for SMEs, so as to improve the financial viability and performance of SMEs. Also, financial literacy programs targeted at SMEs should be developed.
TABLE OF CONTENTS
CHAPTER ONE: INTRODUCTIONS 6
1.1Background of the Study 6
1.2Statement of the Research Problem 7
1.3Research Objectives 9
1.4Research Hypotheses 10
1.5Significance of the Study 10
1.6Scope of the Study 11
1.7Limitations of the Study 12
1.8Definition of Terms 12
CHAPTER TWO: LITERATURE REVIEW 13
2.0Introduction 13
2.1Conceptual Clarification 13
2.1.1Defining Small and Medium Scale Enterprises (SMEs) 13
2.1.2Defining Tax Compliance 15
2.2Tax Compliance of SMEs 16
2.3Determinants of Tax Compliance of SMEs 18
2.3.1Financial Viability And Profitability and Tax Compliance of SMEs 19
2.3.2Financial Literacy and Exposure of SMEs Owners/Managers
and Their Tax Compliance 20
2.3.3Probability of Detection and Degree of Punishment for Tax Non-Compliance and Tax Compliance of SMEs 21
2.3.4Perceived Fairness of Tax Rates and Tax Legislations and
Tax Compliance of SMEs 22
2.3.5Government Accountability and Tax Compliance of SMEs 23
2.4Empirical Literature 24
2.4.1SMEs Specific Studies 26
2.5Empirical Framework 28
2.6Summary 29
CHAPTER THREE: RESEARCH METHODOLOGY 31
3.1Introduction 31
3.2Research Design 31
3.3Study Population 31
3.4Study Sample and Sampling Technique 32
3.5Data for the Study 32
3.6Instrumentation: Questionnaires 32
3.7Method of Data Analysis 33
CHAPTER FOUR: PRESENTATION OF RESULTS AND ANALYSIS 34
4.1Introduction 34
4.2Demographic Details, Firm Data and Tax Compliance of SMEs 34
4.2.2Firm Data Analysis 36
4.2.3Preliminary Analysis: Tax Compliance of SMEs 37
4.3Empirical Analysis: Correlation and Multiple Regression Analysis 39
4.3.1Correlation Analysis 39
4.3.2Multiple Regression Analysis 41
4.4Test of Research Hypotheses 43
4.5Discussion of Results 44
CHAPTER FIVE: SUMMARY, POLICY RECOMMENDATION AND CONCLUSION 47
5.1Introduction 47
5.2Summary of Findings 47
5.3Policy Recommendations 48
5.4Conclusion 49
Bibliography 51
Appendix I: Questionnaire 57
Appendix II: SPSS Results 60
