COMPLIANCE BURDEN AND TAX GAP AMONG MICRO AND SMALL SIZE BUSINESSES IN GHANA

Abstract

Developing an efficient and effective tax policy is not a guarantee for reducing revenue loss but a concerted effort of the taxpayers and the revenue mobilization agency to ensure high level of compliance without having to increase the cost of collecting these revenues and without imposing much compliance burden on the taxpayer. This study investigates the compliance burden and tax gap of Micro and Small Enterprises (MSEs) in Ghana. It specifically focuses on how compliance burden affects the tax gap (Revenue loss) as well as the correlates of compliance burden. Data on 485 registered MSEs taxpayers collected by the Directorate of Research Innovation and Consultancy (DRIC) was used for the study. A t-test was conducted whiles OLS was employed to examine the effect of compliance burden on the tax gap as well as the correlates of compliance burden. It was found that small enterprises underpay tax while micro enterprises overpay tax. The compliance burden significantly increases the tax gap. Tax audit, number of taxes, tax knowledge, distance to the tax office, and the kind of service used in preparing and filing returns were found to have significant effects on compliance burden in Ghana. The key policy recommendation is that Ghana Revenue Authority (GRA) should intensify its tax auditing work to reduce the compliance burden and build more offices to reduce the distance covered by MSEs when visiting the tax office to make tax payment or seek advice.