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
1.1 Background of the Study 6
1.2 Statement of the Research Problem 7
1.3 Research Objectives 9
1.4 Research Hypotheses 10
1.5 Significance of the Study 10
1.6 Scope of the Study 11
1.7 Limitations of the Study 12
1.8 Definition of Terms 12
CHAPTER TWO: LITERATURE REVIEW 13
2.0 Introduction 13
2.1 Conceptual Clarification 13
2.1.1 Defining Small and Medium Scale Enterprises (SMEs) 13
2.1.2 Defining Tax Compliance 15
2.2 Tax Compliance of SMEs 16
2.3 Determinants of Tax Compliance of SMEs 18
2.3.1 Financial Viability And Profitability and Tax Compliance of SMEs 19
2.3.2 Financial Literacy and Exposure of SMEs Owners/Managers
and Their Tax Compliance 20
2.3.3 Probability of Detection and Degree of Punishment for Tax Non-Compliance and Tax Compliance of SMEs 21
2.3.4 Perceived Fairness of Tax Rates and Tax Legislations and
Tax Compliance of SMEs 22
2.3.5 Government Accountability and Tax Compliance of SMEs 23
2.4 Empirical Literature 24
2.4.1 SMEs Specific Studies 26
2.5 Empirical Framework 28
2.6 Summary 29
CHAPTER THREE: RESEARCH METHODOLOGY 31
3.1 Introduction 31
3.2 Research Design 31
3.3 Study Population 31
3.4 Study Sample and Sampling Technique 32
3.5 Data for the Study 32
3.6 Instrumentation: Questionnaires 32
3.7 Method of Data Analysis 33
CHAPTER FOUR: PRESENTATION OF RESULTS AND ANALYSIS 34
4.1 Introduction 34
4.2 Demographic Details, Firm Data and Tax Compliance of SMEs 34
4.2.2 Firm Data Analysis 36
4.2.3 Preliminary Analysis: Tax Compliance of SMEs 37
4.3 Empirical Analysis: Correlation and Multiple Regression Analysis 39
4.3.1 Correlation Analysis 39
4.3.2 Multiple Regression Analysis 41
4.4 Test of Research Hypotheses 43
4.5 Discussion of Results 44
CHAPTER FIVE: SUMMARY, POLICY RECOMMENDATION AND CONCLUSION 47
5.1 Introduction 47
5.2 Summary of Findings 47
5.3 Policy Recommendations 48
5.4 Conclusion 49
Bibliography 51
Appendix I: Questionnaire 57
Appendix II: SPSS Results 60
