Tax Compliance by African Businesses: What Matters and What Doesn’t
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Date
2026
Authors
Uwem Ibanga
Alex Iriabije
Chuku Chuku
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Small- and medium-sized enterprises in Africa are considered a high-risk group for tax noncompliance. This is so because they have to self-assess and self-report their taxable income, which literally implies ”paying taxes from their pockets”, unlike other groups such as individuals and big corporations. This study seeks to identify the factors that affect tax compliance levels by small- and medium-sized enterprises in Africa, especially those factors that are related to the macro-institutional environment. We attempt to answer three fundamental questions: (i) What determines tax compliance by African businesses? (ii) What macro-institutional factors are important for tax compliance levels? And (iii), what is the relationship between tax compliance levels and the productivity and propensity of a firm to innovate? We use conditional probability regression models to analyse firm-manager responses in different waves of the World Bank Enterprise Surveys for five countries. After controlling for potential econometric problems arising from concerns about the “truthfulness” and “missingness” of the responses, the findings show that what matters for tax compliance of businesses in Africa are the firm’s legal status, the tax administration system, corruption perception, licenses and permit ,customs and trade regulations, and the complexity of the tax system. Interestingly, our results show that firms that indulge in tax evasion are the same firms that are less likely to innovate, although this conclusion is nuanced in many cases.