State legitimacy and tax compliance among small and medium scale enterprises: a case study of Dodowa district, Ghana
| DOI | https://doi.org/10.1108/JFC-09-2020-0195 |
| Published date | 01 July 2021 |
| Date | 01 July 2021 |
| Pages | 858-869 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Abraham Gyamfi Ababio,Arthur Gnonsio Mangueye |
State legitimacy and tax
compliance among small and
medium scale enterprises: a case
study of Dodowa district, Ghana
Abraham Gyamfi Ababio
Department of Economics, Valley View University, Oyibi, Ghana, and
Arthur Gnonsio Mangueye
Department of Mathematical Sciences, Valley View University, Oyibi, Ghana
Abstract
Purpose –Improving tax compliance would drive the needed development in Ghana. Small andmedium
scale enterprises (SME) constitute a sizableproportion of the Ghanaian economy but its contribution to tax
revenue is below expectation. Thisstudy aims to determine whether SME’s perception of state legitimacy
affectstax compliance.
Design/methodology/approach –A structured questionnairewas administered to 200 SMEs randomly
drawn from Dodowa in the Shai-Osudoku District of Greater Accra Region. Descriptive statistics and the
Probit modelwith sample selection were used to analyse thedata.
Findings –The study found that SME’sperception of government legitimacy exerts a significant negative
effect on reducingprofit to avoid tax liability (ß=0.0305, p<0.05). Other factorssuch as education and fear
of fines and penalties were also foundto reduce the likelihood that the firmwould reduce profit to avoid high
tax liability.Still, tax knowledge had a positive effect on this behaviour.
Practical implications –This study would helpdeepen policymakers’knowledge of how to improve tax
complianceamong SMEs in Ghana.
Originality/value –The originality of this work is that it explicitly models the role of fiscal exchange
theory in explainingtax compliance among SMEs in Ghana by using robust methodology.
Keywords Tax compliance, State legitimacy, Probit model with sample selection,
Public services and facilities, Small and medium scale enterprises
Paper type Research paper
Introduction
Revenue gaps continue to define the developmental gap between the developed and
developing countries.A major reason for this revenue gap comes from developing countries’
inability to raise enough taxes. For example, some developed countries such as Sweden,
Denmark, France could collect up between 28% to and 45% of their GDP as tax revenue,
and it has been estimated that between 1960 and 2014, Ghana’s proportion of revenue to
GDP is 16.3%, whereas expenditure to GDP ratio is 19% (Aboagye and Hillbom, 2020).
Against this background of continuous fiscal deficit, and hence public borrowing
requirements in lieu of responsiveness of the state to the developmental needs such as
education, health,infrastructure etc., Ghana’s debt to GDP ratio is on ascendency.
Although some successes have been achieved with regard to tax revenue mobilization
along the lines of institutional reforms,and also through proper monitoring and supervision
JFC
28,3
858
Journalof Financial Crime
Vol.28 No. 3, 2021
pp. 858-869
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-09-2020-0195
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