Does Culture Matter in the Tax Compilance Behaviour of SMEs? Evidence from Ghana

Abstract

Several studies have shown that culture affects individual ethical behaviour, but very few studies have looked at the cultural influences of Small and Medium Enterprises (SMEs) on their tax compliance practices. Tax non-compliance has been a major cause of revenue shortfall in many nations including Ghana. SMEs represent the majority of businesses in Ghana, thus non-compliance by SMEs may be the major cause of revenue shortfalls in the country. Scholars have adduced various factors for the non-compliance. Although some of these studies examine how specific cultural values impact tax compliance, there has not been any research in Ghana that examines the possibility of culture impacting SMEs’ tax compliance using major national frameworks such as Hofstede Cultural Dimension theories. The paper uses Hofstede’s (2001) Cultural Dimension theories to examine the relationship between Ghanaian culture and the tax compliance behaviour of SME operators. Data were gathered through a survey of 211 SMEs in the two major regions in Ghana, and analysis was conducted with structural equation modeling and ordinary regression. We found that the SME Owners exhibited some moderate levels of tax compliance behaviours. Again, SMEs are characterised by a high degree of uncertainty avoidance, a culture of femininity, a high degree of power distance, a long-term orientation, and a collectivist culture. The findings suggest that the power distance and longterm orientation cultures of SMEs accounted for their tax compliance behaviour. The study also found that older businesses that were very acquainted with the Ghanaian Culture were less likely to be tax-compliant than newer firms. This paper presents the Ghanaian perspective and bridges the context and issue gap identified in the body of knowledge.