Value Added Tax Compliance And Small And Medium Enterprises Growth And Profitability In The Kumasi Metropolis

Abstract

The study focuses on Tax knowledge and Value Added Tax compliance among Small and Medium Scale Enterprises in Ghana. Specifically, this study analyses the level of VAT Knowledge among SMEs managers/owners in the Kumasi metropolis, investigate how VAT knowledge influence VAT compliance in the Kumasi metropolis and examine how VAT compliance affect the profitability of SMEs in the metropolis. Data collected by Directorate of Research, Innovation and Consultancy (DRIC) on the topic “Ghana Beyond Aid: examining tax knowledge, Compliance cost and tax Compliance” was used for this study. The quantitative research approach which follows the positivist research philosophy was adopted. A total of 229 data points were collected from respondents in the Kumasi metropolis. An ordinary least square regression model was adopted to examine the effects. The study found that owners and managers of Small and Medium Scale Enterprises possess average tax knowledge, VAT compliance have a positive effect on Small and Medium Scale Businesses’ profitability. It was further found that the level of tax knowledge has a negative effect on VAT compliance level. It is among this that this study recommended to Ghana Revenue Authority to intensify their tax education program since there is some substantial number of firm managers, owners and caretakers who have low tax knowledge. Again, small and medium scale enterprise owners, managers and caretakers are recommended to take advantage of the tax education opportunities that GRA create for them since knowing more about tax issues has the potentials of increasing their turn over as well as help them to avoid paying VAT.