Religion and tax compliance among SMEs in Ghana
| DOI | https://doi.org/10.1108/JFC-01-2020-0007 |
| Published date | 22 April 2020 |
| Date | 22 April 2020 |
| Pages | 759-775 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Emmanuel Carsamer,Anthony Abbam |
Religion and tax compliance
among SMEs in Ghana
Emmanuel Carsamer
Department of Economics Education, University of Education, Winneba, Ghana
and Wiawso College of Education, Wiawso, Ghana, and
Anthony Abbam
Department of Economics Education, University of Education, Winneba, Ghana
Abstract
Purpose –The purpose of this study is to assess the suitability of religion and religiosity in small and
medium-scale enterprises’(SMEs) tax compliance in Ghanaian markets. The current research attempts to
obtain insights into the advantages of Ghanaian religious notoriety in tax compliance based on the
perceptionsof entrepreneurs.
Design/methodology/approach –A questionnaire survey is the main tool used in this research. A
total of 472 questionnaires were distributed to SMEs with 100% response rate due to self-administration
of the instrument. Because of self-adminis tered instrument, all the questionnaires w ere returned for
analysis.
Findings –The results suggest that Ghanaianreligious notoriety does not explain SMEs’tax compliance
and that tax evasion is seen as ethical. Institutional, firm and entrepreneurs’characteristics are important
determinantsof SMEs’tax compliance.
Practical implications –The results of this research paper will help regulators and Ghana Revenue
Authorityin developing tax compliance education without compromising on religion.
Originality/value –This paper providesempirical evidence of the suitability of religion and religiosityin
emerging markets in general and Ghana in particularand enhances the level of understanding of SMEs’tax
compliance.
Keywords Religion, Ghana, Ethics, Tax compliance
Paper type Research paper
Introduction
One area that economies run pari-passuis tax revenue generation. Developing economiesare
not able to achieve tax revenue targets while developed economies are able to reach tax
revenue targets (World Bank, 2015). Tax regulations and reforms in developing economies,
more generally,may fail in many ways. While muchhas been written about tax evasion and
avoidance with the causes being contested, most empirical inquiries about tax evasion and
tax regulation enforcement have been preoccupation of the advanced countries with Africa
providinga “distorted and partial viewof questions about low tax revenue,poor enforcement
of tax law, andpolicy”(World Bank, 2015). Africancountries are peculiarbecause majority of
them rarely mobilisemore than 17 per cent of their gross domestic product intax income as
against average of 35 per cent in developed economies (OECD, 2007;Masarirambi, 2013;
World Bank, 2015). It has been noted that tax system and its associated compliance
requirements have become a major hindrance to small businesses in developing countries
(Abrie andDoussy, 2006). The problemregarding tax noncompliancein developing countries
is very rampantrelative to that of the developednations in the world.
Religion and
tax compliance
759
Journalof Financial Crime
Vol.30 No. 3, 2023
pp. 759-775
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2020-0007
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
Globally, small and medium-scale enterprises (SMEs) are the backbone of economies
through economic advancement and growth, innovation and wealth generation. However,
SMEs’high tax non-compliance rate hinders the development they supposed to bring to
many economies. There have beenseveral studies in Ghana on how SMEs comply with tax
payments. These studies observe that tax compliance can be enhanced by focusing on
instituting and enhancing mutuality with the state (Ayee, 2007;Atubuga, 2006;Boateng,
2015). These studies, while enlightening us on contextual factors of tax compliance,
conspicuously neglected the effect of religion and religiosity of SMEs in Ghana on tax
compliance. Examining the effects of religion on the tax compliance behaviour of SMEs is
imperative as Islam and Christianity forms about 80 per cent of the Ghana’s economy and
Ghanaians are described also as notoriously religious (Asamoah-Gyadu, 2005). This study
will improve our understanding of taxpayers’complex attitudes from a different
perspective, which is religionand religiosity in Ghana using the primary data collected from
SMEs. Therefore, this studyaims to explore the impact of SMEs religious values and beliefs
on tax compliance attitudes,which are measured by voluntary and enforced tax compliance.
By focusing on tax compliance in Ghana, this article aims to explain the high degree of
religiosity effects on tax compliance. The Ghanaian case is important because people in
Ghana are notoriously religious but Ghana continuously struggle to achieve tax revenue
target (GRA, 2017). Also, there are virtually no studies directed towards the analysis of
religion and religiosity practice effect on SMEs’tax compliance in Ghana. However, an
understanding of the implicationsof religion and religiosity on tax compliance determinants
is important because tax compliance has direct effects on the sources of funds available to
governments for development. But adding religion and religiosity to models of tax
compliance is largely important as lessons learned from one environment cannot be
generalised to other countries with different religious backgrounds (Bame-Aldred et al.,
2013). This paper bridgesthis gap by analysing the determinants of tax compliance of SMEs
religious beliefs in Ghana. Secondly,empirical studies (Ayee, 2007;Atubuga, 2006;Boateng,
2015) generally concentrate on public finance or the economic perspective, ignoring the
possible implications of non-economic factors such as religion and religiosity on SMEs’
choice of tax compliance.To address this gap, this paper measures the possibleimplications
of religion and religiosity on tax compliance decisions as factors influencing SMEs’tax
compliance decisions doeschange across countries frequently and it is importantto analyse
whether religion and religiosity give an explanation to this variation and why tax
compliance rates are so low amongtaxpayers especially in developing economies (Alm and
Torgler, 2011;Torgler and Schneider, 2007). This article focuses on the strong religiosity
and prosperity gospelin Ghana to illustrate contingencies in the trajectory of tax compliance
in the modern world. In light of these developments, it is expected that religion in Ghana
have achieved some degree of acceptance and moral obligation to affectattitudes especially
tax law compliance. It is revealed that religion and religiosity do not explain SMEs’tax
compliance. The paper gives a theoretical perspective to tax compliance and empirically
investigates various segments of Ghana’s religiosity and government’s ability to meet tax
revenue target.
Theoretical background and research hypotheses
Tax compliance theories are based on economic and social psychology (Schmölders, 1959;
Hasseldine and Bebbington,1991). Fiscal psychology model is built on lack of motivation for
taxpayers to pay taxes because there is no apparent gain from tax payment, either in the
form of monetary or public goods (Schmölders, 1959). The model relates to morale which is
the individual’s internal motivation from moral values that shape attitudes in fiscal theory
JFC
30,3
760
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