Determinants of Tax Compliance Among Smes in Edo State

ABSTRACTThis 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                                         61.1Background of the Study                                                  61.2Statement of the Research Problem                                         71.3Research Objectives                                                91.4Research Hypotheses                                                       101.5Significance of the Study                                                101.6Scope of the Study                                                       111.7Limitations of the Study                                                121.8Definition of Terms                                                    12
CHAPTER TWO: LITERATURE REVIEW                                  132.0Introduction                                                       132.1Conceptual Clarification                                                132.1.1Defining Small and Medium Scale Enterprises (SMEs)                     132.1.2Defining Tax Compliance                                         152.2Tax Compliance of SMEs                                                162.3Determinants of Tax Compliance of SMEs                                  182.3.1Financial Viability And Profitability and Tax Compliance of SMEs       192.3.2Financial Literacy and Exposure of SMEs Owners/Managers and Their Tax Compliance                                                        202.3.3Probability of Detection and Degree of Punishment for Tax Non-Compliance and Tax Compliance of SMEs                                                        212.3.4Perceived Fairness of Tax Rates and Tax Legislations andTax Compliance of SMEs                                                        222.3.5Government Accountability and Tax Compliance of SMEs               232.4Empirical Literature                                                 242.4.1SMEs Specific Studies                                                 262.5Empirical Framework                                                 282.6Summary                                                               29
CHAPTER THREE: RESEARCH METHODOLOGY                              313.1Introduction                                                         313.2Research Design                                                         313.3Study Population                                                         313.4Study Sample and Sampling Technique                                    323.5Data for the Study                                                         323.6Instrumentation: Questionnaires                                           323.7Method of Data Analysis                                                  33
CHAPTER FOUR: PRESENTATION OF RESULTS AND ANALYSIS                344.1Introduction                                                         344.2Demographic Details, Firm Data and Tax Compliance of SMEs                344.2.2Firm Data Analysis                                                  364.2.3Preliminary Analysis: Tax Compliance of SMEs                       374.3Empirical Analysis: Correlation and Multiple Regression Analysis                394.3.1Correlation Analysis                                            394.3.2Multiple Regression Analysis                                            414.4Test of Research Hypotheses                                                   434.5Discussion of Results                                                   44
CHAPTER FIVE: SUMMARY, POLICY RECOMMENDATION AND CONCLUSION         475.1Introduction                                                          475.2Summary of Findings                                                   475.3Policy Recommendations                                                   485.4Conclusion                                                                 49Bibliography                                                          51Appendix I: Questionnaire                                                   57Appendix II: SPSS Results                                                   60