Drivers of value added tax compliance among small and medium scale enterprises in Ghana: a multi-dimensional approach

Abstract

This paper investigates the drivers of Value Added Tax (VAT) compliance among small and medium-scale enterprises (SMEs) in Ghana using a multi-dimensional approach. From a sample size of 520 SMEs, data was collected using structured questionnaires, while the dataset was analysed using Partial Least Squares Structural Equation Modelling (PLS-SEM). The results indicate that the cost of VAT compliance is not a significant determinant of compliance, deviating from conventional assumptions held in tax compliance literature. On the other hand, knowledge of VAT, VAT audit, and religiosity had positive significant effects on VAT compliance, whereas penalties and fines and high VAT rates influenced compliance behaviour in the negative direction. Remarkably, trust in government did not appear as a predictor of compliance, indicating VAT compliance behaviour is driven largely by immediate economic and operations factors rather than perception of government trustworthiness. This paper contributes to the literature on tax compliance in two important ways: by addressing the socio-cultural and institutional dimensions together, hence more holistically explaining the compliance behaviour regarding VAT, and by challenging the universal applicability of the deterrence theory and providing support for the theory of planned behaviour. The findings equally suggest the need for balanced enforcement strategies and increased taxpayer education to enhance compliance.