Tax compliance of small and medium sized enterprises in Ghana

PurposeTax compliance studies have been extensively conducted across various jurisdictions. However, only partial answers have so far been provided for the question: "Why do people pay tax?". The aim of this study is to report tax compliance behavior from both the supply side (SMEs) and demand side (tax collecting authorities) in Ghana.Design/methodology/approachA survey of 233 responses comprising 169 SME managers and 64 tax officials of the Ghana Revenue Authority qualified for the study. Data were modelled using covariance-based structural equations modelling (AMOS Graphics version 23).FindingsIsomorphic forces and tax fairness have a positive impact on tax compliance. However, the impact of strategic response on tax compliance was insignificant, which suggests that, although SMEs in Ghana adopt different strategies to respond to institutional pressures, such strategies do not influence their tax compliance behavior.Research limitations/implicationsThis study investigates tax compliance behavior among SMEs using a survey design from only one developing country - Ghana. Based on a cross-sectional survey and the approach used to gather the sample data, assessing any changes over time may be impossible.Practical implicationsThe findings suggest that SMEs' tax compliance behaviors are shaped by institutional pressures in terms of obeying tax laws and filling their tax returns in a consistent manner. Given that isomorphic forces and tax fairness are significant predictors of tax compliance, SME tax compliance can be improved if strong institutions are incorporated in the administration of taxes. The findings also support the logical thinking of tax fairness theory that the higher SMEs perceived the tax system to be fair, the more their compliance behavior is encouraged.Originality/valueThis study represents one of the few to provide preliminary empirical evidence on tax compliance from the supply side of taxation in a developing economy. Therefore, the findings have implications for taxpayers in Ghana.